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The Global Export of Capital from Great Britain, 1865-1914: A Statistical Survey

Author(s):Stone, Irving
Reviewer(s):Edelstein, Michael

Published by EH.NET

(November 1999)

Irving Stone, The Global Export of Capital from Great Britain, 1865-1914:

A Statistical Survey. New York: St. Martin’s Press, 1999. xii + 430 pp.

$75.00 (hardback). ISBN: 0-312-21845-1.

Reviewed for EH.NET by Michael Edelstein, Department of Economics, Queens

College and the Graduate School, City University of New York.

This volume makes available one of the most important data sets for nineteenth-

and early twentieth-century world economic history-the annual money calls for

overseas securities issued in Great Britain, aggregated and cross-tabulated by

receiving country, sector of borrower, and type of security. This new data set

provides significant new quantitative information regarding the financial

development, national capital formation, industrial development, and balance

of payments for the principal capital importers of this era. Displayed in

sixty-seven tables,

the production of these data combine the successive efforts of Leland Jenks,

Matthew Simon and

the present author, Irving Stone, Professor of Finance at Baruch College, City

University of New York.

To date, students of the massive long-term capital outflow from Great Britain

in the late-nineteenth and early-twentieth century have had to rely on a

diverse and incomplete set of sources. Building on the work started in the

1930s by Leland Jenks, Matthew Simon published in the late 1960s the first

comprehensive annual time series of British new issue calls for overseas

securities, 1865-1914. Specifically, Simon supplied annual time series for (a)

the total of British money calls for overseas securities,

with breakdowns by (b) continent, (c) political status (independent vs.

British Empire), (d) climate and ethnic group (regions of recent settlement

, tropics, others), (e) sector of issuer (social overhead,

extractive, manufacturing), and (f) type of issuer (private, mixed,

government). Before his untimely death in 1967, the only national annual time

series to emerge from Simon’s research efforts was

a brief study of British new issues on behalf of long-term Canadian borrowers.

The value of Simon’s contribution rested on his efforts to surmount important

analytical and data problems. In particular, Simon decided to collect data on

money calls, whenever they occurred, not the nominal totals announced at the

date of first issue. Thus, he produced time series that were consistent with

the flow-of-funds methodology. Second, although the principal source of British

new issue data, The Investors’ Monthly

Manual, was thoroughly mined, the IMM was subject to reporting

errors and incomplete coverage. By consulting a much wider set of periodical

and other sources, Simon and his assistant, Harvey Segal, were able to correct

and substantially augment Jenks’

s original efforts. Third, he offered a more comprehensive treatment of

conversions, including only the “export conversions,” the conversions that

involved new money called for overseas borrowers.

The situation improved dramatically when Lance E. Davis and Robert A.

Huttenback (hereafter D&H) published Mammon and the Pursuit of Empire: The

Political Economy of British Imperialism, 1860-1912 (New York, 1986).

Starting with many of the same primary sources as Jenks and Simon, D&H produced

a new data set

covering both home and overseas new issues in Great Britain, 1865-1914.

Their tables displayed the total capital called up, as well as the book’s

principal political divisions (home, empire,

foreign), the empire (responsible governments, dependent colonies, India),

and each of these divisions by private vs. government issuers. D&H also

presented breakdowns by industry and type of government issuer, and industry

and continent. The advantage of the D&H data over the Jenks-Simon data was

their parallel construction of home and overseas new issue data.

They were also able to revise and correct the Jenks-Simon first pass at the

primary sources. Finally, the D&H data were grouped so that questions of

political economy and empire might be raised. Notably, D&H

presented this data in five-year periods, 1860-1864, 1865-1869, …. ,

1905-1909,

1910-1914. While quinquenial totals and averages are a good means to present

longer term trends, the absence of annual data meant it was not possible

to investigate longer

term trends with other statistical methods or shorter term (e.g., business

cycle) fluctuations, a fundamental characteristic of home and overseas new

issue behavior. Perhaps just as importantly, the D&H volume did not present

data by country.

The significant contribution of the statistical compendia under review here is

to present annual, country-specific money call data for the twenty-five

principal borrowing nations. Furthermore, the data are broken down by industry,

political status, climate and ethnic group, type of issuer, and type of

security. In an introductory essay Stone provides essential information on the

data sources and an excellent summary of the main patterns of money calls for

overseas borrowers. An appendix reprints Simon’s description of the key

analytical decisions that guided the data collection and aggregation procedures

employed by both Simon and Stone.

Note that the Jenks-Simon-Stone primary data sources have weaknesses-weaknesses

which Stone discusses in his highly useful survey of the rate and direction of

money raised for overseas borrowers. First, these data do not estimate the

amount of direct investment through retained earnings. Thus, only part of

overseas long-term financing is covered by the Jenks-Simon-Stone estimate s.

While this was not a major source of overseas funding for railroads and

utilities, it was not a trivial source of funding for foreign investment

businesses engaged in manufacturing, distribution,

finance, and other service sectors. Second, while these

data are an excellent estimate of monies raised from issuing securities, these

data do not give a precise estimate of the net value transferred abroad. Some

of the money raised stayed in Britain with vendors or the London accounts of

the borrowers. To date, in nearly all cases where independent balance of

payment data exist, the older Simon money call times series demonstrate similar

patterns in level and timing with estimates of net capital outflows derived

from the balance of payment data. Only research

with these new comprehensive Stone estimates will settle the extent of this

weakness.

It is my belief that many economic and financial historians of the late

nineteenth and early twentieth century will find this volume highly useful.

Historians of each

nation now have comprehensive, consistent, and comparative data on the

character and extent of long-term international finance raised in Great

Britain. It is also my strongly felt belief that with so much information on so

many nations, this statistical survey will probably disappear from libraries

very quickly unless reference librarians are alerted and told to place it in

their non-circulating reference collection.

Michael Edelstein is author of Overseas Investment in the Age of High

Imperialism. The

United Kingdom, 1850-1914 (New York, 1982) and “Foreign Investment and

Accumulation, 1860-1914,” in R. C. Floud and D.N. McCloskey

(eds.), The Economic History of Britain since 1700. Vol. 2: 1860-1939,

Second Edition (Cambridge, 1994).

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII

One Dies, Get Another: Convict Leasing in the American South, 1866-1928

Author(s):Mancini, Matthew J.
Reviewer(s):Brinkley, Garland

Published by EH.NET (October 1999)

Matthew J. Mancini, One Dies, Get Another: Convict Leasing in the American

South, 1866-1928. Columbia: University of South Carolina Press, 1996. xi

+283 pp. $34.95, (hardbound). ISBN: 1-57003-083-9.

Reviewed for EH.NET by Garland Brinkley, Department of Economics, School of

Public Health, University of California-Berkeley.

Several economic historians have asserted that African-Americans were better

off in the aftermath of the Civil War. Ransom and Sutch’s (1977)

classic leisure for labor trade-off, for example, suggests that freedmen worked

fewer hours

and fewer days and that fewer members of the family spent time in the fields

after the Civil War with the resultant higher utility (but lower income). What

are noticeably absent from previous histories of the South, was the

continuation of slavery under

the even more brutal conditions driven by economic incentives. While most

believe that the thirteenth Amendment abolished slavery and involuntary

servitude, a loophole was opened that resulted in the widespread continuation

of slavery in the Southern

states of America — slavery as punishment for a crime.

According to the thirteenth amendment, “Neither slavery nor involuntary

servitude, except as punishment for crime whereof the party shall have been

duly convicted, shall exist within the United States, or

any place subject to their jurisdiction.” Matthew Mancini documents the

widespread nature of post-civil war slavery in every state that composed the

Confederacy except Virginia. His book is divided into three parts: part 1

addresses the convergence of

forces (economic, racial, and political) that began the convict labor system

and perpetuated the convict labor system; part 2 details the particular

manifestation of the convict labor system in each southern state; and, part 3

explains the demise of the

system that maintained African-Americans in slavery for a half century after

the surrender by Lee at Appomattox.

This book details the darker side of our discipline when economic

incentives prevail over simple humanity. Economically, when an asset is

replaceable at no cost, money spent upon maintenance costs will lower profits.

When the assets are human beings, duly convicted of (in many cases) racially

motivated trumped up charges and obtained at low cost and through political

machinations, the incentive

is to work them as hard as possible and to spend little on food, shelter,

clothing, medical care,

etc., in order to maximize profits.

Georgia practiced the most undiluted and typical form of convict leasing of any

of the southern states. However,

political favoritism determined the issuance and bid price of convict leasing

contracts and political pressures ensured no interference in the working and

living conditions of the convicts. Average prison sentences lengthened

dramatically during this period.

Convicts were invariably leased to prominent and wealthy Georgian families who

worked them on railroads and in coal mining. Even though reformers exposed the

brutalities of the system in Georgia, the demise of convict labor in Georgia

came about due to

political reform and market forces when the bids that contractors had to pay

for convict labor finally became equal to free wage rates.

Alabama used the convict labor system as an enormously successful revenue

generating mechanism. Not only did convict leasing

last longer in Alabama than in any other southern state, but it was also

notable due to the extreme quantity of convicts in the system. Convict leasing

began in Alabama in 1846 and lasted until July 1, 1928 when Herbert Hoover was

vying for the White

House. In 1883, 10 percent of Alabama’s total revenue was derived form convict

leasing while in 1898, 73 percent of total revenue came from this same source.

Death rates among leased convicts were approximately ten times the death rates

of prisoners in

non-lease states.

In 1873, for example, 25 percent of all black leased convicts died.

Possibly the greatest impetus to the continuance of convict labor in Alabama

was to depress the union movement.

Arkansas was notorious for the brutality of its convict leasing system

resulting from the lack of official monitoring of convict laborers.

Economically different from other southern states, Arkansas actually paid

companies to work their prisoners for much of the time the system was in place.

Arkansas’ system of

convict leasing was also quite political in terms of issuance of contracts and

oversight or lack of oversight of convicts. No state official was empowered to

oversee the plight of the prisoners and businesses had complete autonomy in the

disposition and

working conditions of convict laborers. Mines and plantations that used convict

laborers commonly had secret graveyards containing the bodies of prisoners who

had been beaten and/or tortured to death. Convicts would be made to fight each

other, sometimes to the death, for the amusement of the guards and wardens.

Both Mississippi and Louisiana are extremely similar in terms of lack of

oversight of their convict leasing population, almost exclusive use of convict

leasing on agricultural plantations, and

failure of the state to recoup any revenue from the system. Mississippi was

noted as having epidemic death rates without an epidemic. Louisiana

institutions seemed to be unable to distinguish between the terms ‘slave,’

‘Negro,’ ‘convict,’ and

‘farm work’. The lessees generally did not pay the full amount of the contract

price to the state and usually paid nothing. Convicts were generally among the

black population. For example, in Louisiana, a black social group consisting of

thirty-eight members were convicted

in a mock trial and sent to prison for contract labor.

Tennessee convict leasing lasted from 1871 to 1896 and was bitterly opposed by

free miners from the beginning. The conflict between the huge Tennessee Coal,

Iron, and Railway Company (TCI) and

mining population was characterized by violence. This conflict resulted from

the wage rate of the miners falling from $1.25 per ton of coal before convict

leasing to just

$0.50 wherever convict leasing was implemented. TCI admitted that the main

reason it used

convict labor was to break strikes and undermine union formation.

Texas, Florida, and the Carolinas each had their own unique features and

economic issues with contract leasing of convicts. However, all were

economically motivated and all were brutal,

life shortening, and profitable for the lessees. Rarely did the state actually

receive revenue but generally they did not experience a drain on the treasury.

Texas convicts were concentrated mostly in sugar plantations, Florida’s and the

Carolinas’

convicts were almost exclusively involved in railway building. Later in the

century, the Carolinas shifted into state farms and county roads and out of

railway building. Unlike the other southern states, only half of Texas inmates

were black. However, the

African-American convicts went to the sugar plantations while the white and

Latino population were sent to less harsh and hazardous work.

The convict labor leasing system came about mostly after the Civil War and in

earnest after reconstruction due to the

economic realities. The Southern States were generally broke and could not

afford either the cost of building or maintaining prisons. The economic but

morally weak and incorrect solution was to use convicts as a source of revenue

or, at least,

to prevent them from draining the fragile financial positions of the states.

The abolition of the system was also motivated mostly by economic realities.

While reformers brought the shocking truths and abuses of this notorious system

before the eyes of the world, the

real truth is far different. In every state, the evils of convict labor and

abuses were in newspapers and journals within two years of implementation and

were generally repeated during every election cycle. Mostly due to political

reform, the process

whereby convicts were obtained became market oriented.

As a result, the costs to businesses rose until convict labor was comparable to

free labor. Monopoly profits derived from rent

seeking behavior no longer accrued to private firms ending the economic

incentives of maintaining convict leasing. The convict leasing system was not

abolished but merely transformed. Prisoners who labored for private companies

and businesses increasing their profits now labored for the public sector. The

chain gang replaced

plantation labor. There was in truth little change in the lives of convicts

themselves since life was still short and brutal but rather change occurred in

the flow and distribution of

money that spelled an end to the forced labor of postbellum “slaves.”

This book is necessary for any serious student of the history of the postbellum

South or any advocate of unfettered capitalism. The lessons to be drawn from

this study can be applied to many of the policies proposed by the IMF or the

World Bank fostered upon

third world nations. While the circumstances surrounding the convict labor

system in the aftermath of the Civil War can be considered unique, economic

incentives and economic realities are unchanging and repeats of convict labor

leasing are widespread today.

Garland Brinkley is the author of “The Decline in Southern Agricultural Output,

1860-1880″ Journal of Economic History, Vol. 57, No. 1 (Mar.

1997).

Subject(s):Labor and Employment History
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

Capital Markets and Corporate Governance in Japan, Germany and the United States: Organizational Response to Market Inefficiencies

Author(s):Dietl, Helmut
Reviewer(s):Miyajima, Hideaki

Published by EH.NET (October 1999)

Helmut Dietl, Capital Markets and Corporate Governance in Japan,

Germany

and the United States: Organizational Response to Market Inefficiencies.

London and New York: Routledge, 1998. 208 pp. $75.00

(cloth), ISBN 0415171881

Reviewed for H-Business and EH.NET by Hideaki Miyajima, School of Commerce,

Waseda University.

miyajima@mn.waseda.ac.jp

Helmut Dietl deserves credit for authoring a first comparative study on capital

markets and corporate governance across three nations using an integrated

theoretical framework. Previous works have focused on two-country comparisons,

typically the US and Japan, Japan and Germany,

or the US and Germany. There have also been a number of non-theoretical

studies discussing these three nations within a coherent framework. The

author’s efforts reflect steadily increasing interest in the institutional

characteristics of capitalism, and theoretical developments regarding firm

behavior, agency problems, and corporate finance. Dietl succeeds in examining

this theory in a three-nation context, although the validity and persuasiveness

of his final conclusions can be regarded with some skepticism.

The book consists of two parts: theoretical framework and empirical evidence.

The first section introduces basic concepts for analysis.

Key concepts include: investment relationship (the relation between investors

and firms), investment plasticity (reflecting agency and governance problems),

industry maturity, regulatory environment

(neoclassical or relational is the author’s basic dichotomy), and

organizational mode (unintermediated capital markets

, intermediated capital markets, holding company, multi-divisional

organization, LBO association, financial keiretsu). The goal of the second,

shorter,

section of this book is to characterize organizational responses to capital

market inefficiencies, corporate governance structures, and regulatory

frameworks among three nations.

The framework of this book is coherent, and well organized. Prior theoretical

results are fully utilized in building up this framework,

although references are mainly limited to the 1980s. Descriptions of the

regulatory systems for all three countries appear quite balanced. I feel

little complaint when reading the portions regarding Japan. It is respectable

that a single author could explain complicated aspects of all three

nations’ institutional characteristics without any serious discrepancy.

Accordingly, this book offers the reader a useful summary of corporate

governance systems, regulatory frameworks, and organizational characteristics.

There are, however, several points which I found frustrating. First,

the contribution of existing standard works to the author’s study is not made

clear. With regard to the Japanese capital market and corporate governance

system, several important works were published in the 1990s.

Representative texts include Aoki and Patrick (ed., The Japanese Main Bank

System: Its Relevancy for Developing and Transforming Economies,

Oxford University Press, 1994). Additionally, Aoki and Dore (ed., The

Japanese Firm: Sources of Competitive Strength, New York, Oxford University,

1994) includes several important papers concerning this topic. To my

understanding, Edward and Fisher (Banks, Finance and Investment in Germany,

Cambridge University Press, 1994) has become a standard text in the case of

Germany. Dietl makes no reference to any of these works in his book.

Consequently the reader finds it difficult to separate previous results from

the author’s own research.

Second, with regard to Japan, the author’s main message is that the regulatory

environment is a hybrid neoclassical and relational system, with a

corresponding multi-divisional, financial keiretsu organizational

response. However, it would be more helpful if the conceptual

relationship between financial keiretsu and the main

bank system were made clear, given recent emphasis on the main bank system as

an alternative mechanism of corporate governance. Care should also be used

when the multi-divisional form is identified as an organizational mode in

Japan, based on the consensus that the multi-divisional form in Japan is quite

different in comparison to its US counterpart (see Mark Fruin, The Japanese

Enterprise System. Oxford, Clarendon Press, 1992).

Another weakness with regard to Japan concerns the author’s evaluation of

the effectiveness of Japan’s regulatory environment. Dietl very acceptably

stresses the strong influence of the American model on Japan’s regulatory

framework. He then goes on to implicitly assume that the Japanese hybrid

system is a combination of the

advantages of both neoclassical and relational systems. However, there are

other possible combinations. Although financial keiretsu may allocate

resources efficiently and reduce agency costs, it is also highly possible that

keiretsu could increase

allocative inefficiency. This cost of financial keiretsu should be

considered, especially when considering the causes and effects of the late

1980’s “bubble” economy and its subsequent collapse in the 1990s.

My final complaint is that the presentation

of empirical work could be more complete. First, the author uses random

selection, which is in itself not bad, for sample selection. However, given

that previous empirical studies have normally based sample selection on

objective criteria such as firm

size or industrial category, the decision to use random selection requires

explanation. Similarly, the composition of sample firms in terms of size,

industry affiliation, and rank in assets should be added. Secondly, it is

regrettable that the time period for empirical evidence is not shown.

Although it seems clear that sampling began in the early 1990s (possibly 1993

or 1994), the time period under consideration remains unclear. The relation in

time relation between dependent and independent variables is also unclear.

Lastly, the description of variables seems somehow unclear, and slightly

subjective. There is no sample distribution given for the variable,

organizational mode.

While the variable, investment plasticity, is clearly defined as R&D investment

plus service related sales to total revenues, from the viewpoint of a

fellow researcher, it would be more reader friendly if the source of this

information was fully described. Similar comments can be made regarding the

variable, industry maturity, which is a discrete number from one to five. No

basis is given for determining industrial maturity values, nor does the book

include a distribution of samples.

In general, it would be helpful if the author provided a descriptive summary

for each variable before reporting its estimation results.

Similarly, tabular data for organizational form, industry maturity, and

investment plasticity could have been provided in appendices. Although

empirical results as presented support the author’s theoretical framework,

this conclusion is not robust and persuasive, given the evidence provided and

statistical procedure.

Hideaki, Miyajima is the co-editor of Policies for Competitiveness

(Oxford University Press, 1999), and author of “The Impact of Deregulation on

Corporate Governance and Finance” (Carlile and Tilton

(eds.), Is Japan Really Changing Its ways? (Brookings Institution Press,

1998).

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Small Firms, Large Concerns: The Development of Small Business in Comparative Perspective

Author(s):Odaka, Konosuke
Sawai, Minoru
Reviewer(s):Acs, Zoltan J.

Published by EH.NET (October 1999)

Konosuke Odaka and Minoru Sawai. Small Firms, Large Concerns: The

Development of Small Business in Comparative Perspective Fuji Business

History Series. Oxford and New York: Oxford University Press, 1999. xiii +

314. Tables, maps, notes, bibliography, and index. $70.00 cloth, ISBN

0-19-829379-8.

Reviewed for H-Business and EH.NET by Zoltan J. Acs, Merrick School of

Business, University of Baltimore. zacs@ubmail.ubalt.edu

The last

quarter of the twentieth century has witnessed a multitude of tectonic

developments in business, industry, and the economy. These included a wave of

mergers and acquisitions, technological change, the deregulation of business,

the emergence of global financial markets, a shift from mass production to

flexible manufacturing, the emergence of the internet as a major business tool,

and a reassessment of the role of small firms.

The reassessment of the role of small firms was stimulated by three events

that transpired over the last twenty-five years. After decades of relative

decline, small firms were seen as innovators, creators of new jobs, and

offering flexible modes of organization compared to outdated forms of mass

production. The re-emergence of small firms in an era of globalization and

rapid technological change led to many questions and concerns about the role of

small firms in industrial economics. This book takes the long view to examine

the changing role of small firms in industrial economies, the relationship

between small and large firms and the management style of small firms.

The book is organized into three parts. Part I examines North America. Part II

looks at Europe including the United Kingdom

, Germany, France and Italy.

The third part looks at Japan in much greater detail than we are accustomed to

seeing.

In chapter one, Philip Scranton takes up some familiar themes, purporting to

expand the object of research concerning small business beyond manufacturing,

embracing a wider choice of topics such as entrepreneurship,

and the role of minorities. Several industries are examined including

retailing, doctors and lawyers, and services. It is important to remember that

in most industries outside of manufacturing most establishments were much

smaller than in manufacturing and therefore the issues were different. This

becomes important especially in the last decade of the twentieth century as

the service sector becomes the primary creator of jobs.

The book starts out with a familiar theme. Before the emergence of mass

production and Taylorist work organization most firms were small. So in some

sense it is the establishment and growth of large business that is significant.

Starting with the growth of trusts in the late nineteenth century, most of the

twentieth century has been characterized by the growth of large and giant

corporations. Witness the emergence of U. S. Steel, Dupont, General Motors,

Ford, IBM, Exxon, Merck, General Electric and so on.

Similar trends can be found in most industrialized countries. It is against

this legacy that the current book tries to make sense out of the continuing

persistence of small firms. In this development small firms were viewed as

inefficient, socially less

desirable because of lower wages, and less mechanized techniques of production.

As Mansel Blackford makes clear in chapter two, the relationship between large

and small firms is a complex one. In the United States there is a strong public

policy infrastructure and a strong political sentiment for the importance of

small firms in maintaining social values, democratic institutions and economic

vitality. It is impossible to understand the relationship between small and

large firms without taking this value

system into consideration.

In chapter three, Kris Inwood looks at the Canadian experience in 1871 with the

goal of uncovering the characteristics of the Canadian experience. The purpose

of this chapter is to look at Canada on the eve of industrialization

. This carefully written chapter lays out the origins of an industrial

structure that is different from most other countries. Here it is not a

populist agenda that is driving the industrial landscape but perhaps the role

of family business, unpaid labor and small scale production.

Part II brings together the experiences of four European countries with

different traditions. In France and the United Kingdom small firms have played

a much less important role than in Germany and Italy.

In chapter five, C.F.

Pratten notes that the United Kingdom was the home of the industrial

revolution. However, over the years the small firm sector had declined and has

not been an important part of the economy in the twentieth century. And chapter

six, by Michel Lescure, explores reasons for the difficulties that French

small-and-medium enterprises (SMEs) have faced in the twentieth century. The

reasons are changing consumer demand,

challenges made by big corporations and by state policies, the evolution of the

financial system and the overall decline of the local production system. In

Germany and Italy the picture is quite different. In Germany,

the small firm sector occupies a central role in the economy. As pointed out by

Ulrich Wengenroth, this tradition grew out of two

pre-industrial traditions, the craft guilds in the cities and the putting out

system in the rural areas. The term-Mittelstand-literally middle-estate, has a

strong corporatist overtone. Mittelstand has always been a defensive concept,

very unlike the recent optimism for highly innovative small business in the

United States.

In chapter seven, Aurelio Alaimo presents a historical study of Italian

institutions. While there has been enough written to fill a large warehouse on

the industrial development of England, Italian historians have shown a clear

preference for the study of the pre-industrial economy.

Industrialization in Italy was viewed as just a special case of latent

development. This is now changing with a new generation of historian playing

close

attention to Italian industrial development. These studies are summarized and

may lead to important contributions regarding the industrial structure in

Europe and comparisons internationally.

The last four chapters (Part III) examine the role of SMEs in

Japan. In Chapter eight Johzen Takeuchi examines the historical origins of the

SME sector. This is important because while some identify Japanese success in

the last quarter of the twentieth century with the growth of giant

corporations, Japan has one of

the largest concentrations of SMEs in the manufacturing sector. A heated

debate has existed in Japan for years about the relative contribution of SMEs

to economic growth. This chapter examines the background of industrialization

using a variety of factors including market conditions and skill formation.

Chapter nine, by Takashi Abe, examines the developments of the putting

out system in modern Japan. In Chapter ten, Minoru Sawai examines the role of

technical education and public research institutes in

the development of SMEs in Osaka between in the inter war period. Osaka

continued to be one of the largest industrial centers in Japan and a virtual

kingdom for SMEs.

This chapter draws attention to the importance of technical education in the

development

of the SME sector. The last chapter, by Konosuke Odaka,

examines the policies used to promote SMEs in Japan after 1956. The chapter

considers the programs to fund SMEs as a part of Japanese industrial policy.

How to evaluate this program and understand its success in the Japanese auto

parts industry is presented.

This book has taken us through an interesting and detailed history of the role

of SMEs in industrial and social organization. The focus has been on the role

of SMEs in economic growth, the relationship between large and small firms and

small business management. What we learn from this book is that the development

of market structure is a rich and complex process that has deep roots in

civilized society.

If one were to be critical, one might have wished for more international

comparison between countries, or at least some commonalties drawn out. An

obvious subject would be Japan and Germany, where in both cases small firms

have deep roots in the institutions that are pre industrial, and in both

countries SMEs are perceived to have contributed to industrial development and

economic growth in the twentieth century. Canada and Britain offer a similar

possibility for different reasons.

There is, however, a deeper and more troubling issue that has

been missed by the authors. After examined two hundred years of SME history

how can one fail to see that SMEs play an important dynamic role in economic

development? This point is surely evident when one thinks about the industrial

revolution in England,

the rise of giant firms in the United States and the .com revolution currently

underway.

What is important about small firms in not how they are managed, or what their

relationship is to large firms, but how they are born and how they grow into

large fi rms. In other words, small firms are important not so much because of

their job creating prowess, or their organizational flexibility, but because of

their ability to innovate and affect industry structure. Surely this is the

story that future historians

will tell when they write the business history of the United States at the turn

of the millennium.

Subject(s):Business History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Cigarette Wars, The Triumph of the Little White Slaver

Author(s):Tate, Cassandra
Reviewer(s):Kiefer, Kay

Published by EH.NET (October 1999)

Cassandra Tate, Cigarette Wars, The Triumph of the Little White Slaver.

New York: Oxford University Press, 1999. vi + 204 illustrations,

bibliographical references, and index. $29.95 (cloth), ISBN 0-19-511851-0.

Reviewed for H-Business and EH.NET by Kay Kiefer, Department of History,

Southern Illinois University Carbondale.

kiefer2@midwest.net

Although this is hardly the first book to chronicle the hazards of smoking and

the attempts to stamp out the nasty habit forever, Cassandra Tate’s account,

from a researcher’s point of view, may be the most thorough. The reader may be

surprised to learn that a full-fledged anti-smoking crusade

(on a par with the admonitions of medical experts in the 1960’s and 1970’s),

spawned in the late nineteenth-century and continued with fervor into the early

twentieth century.

The central figure in Cigarette Wars is the indomitable Lucy Page

Gaston,

teacher, writer, lecturer and member of the Woman’s Christian Temperance Union

(WCTU). Founder of the Anti-Cigarette League of America, Gaston maintained

that cigarette smoking was a dangerous new habit, particularly threatening to

the young and thus likely to lead to the use of alcohol and narcotics, so

prevalent in the 1890’s. The dedicated Gaston’s mission attracted the

attention and the patronage of like-minded progressives and of such stalwart

members of the WCTU as evangelist Dwight Moody and David Starr Jordan,

president of Stanford University.

In a thought-provoking and interesting style, journalist Cassandra Tate,

writes not only of the overwhelming public support for the Anti-Cigarette

League of America (between 1890 and 1930 fifteen states enacted laws to ban the

sale, manufacture, possession, and use of cigarettes), but of the untimely

distancing of the prohibition movement from the anti-cigarette campaign. The

WCTU feared that the furor over attacks on smokers was eroding support for the

enforcement of prohibition. While they may have disliked cigarettes and tobacco

in general, they were willing to ignore them in the interest of what they had

already won. “The tobacco habit may be a private and personal bad habit, but

it is not in the same class as intoxicating liquor,” said Wayne B. Wheeler,

general counsel of the anti-saloon league (p. 123). Regrettably, a similar

attitude was taken by army doctors and military officials during World War I,

who claimed tobacco calmed the weary, sedated the wounded, and distracted the

bored. Having been denied access to wine and women, the men were encouraged to

smoke.

Thus, sanctioned by both official edict and public consensus, the cigarette,

relatively uncommon until the turn of the century, enjoyed the benefits of

novelty. Cigarettes had acquired the patina of patriotism.

As the war siphoned support from the anti-cigarette movement, Tate skillfully

constructs a new post-war America, one that catapulted cigarettes into the

mainstream of American culture through advertising. At the outset of World War

II, cigarette advertising was in its heyday.

Health-related messages like, “Fatima, truly comfortable to

your throat and tongue”(p.142), and articles in the prestigious Journal of

American Medicine (JAMA), that claimed only cultists and reformers believed

cigarettes were harmful (p.140), underscored the deception of the medical

community. While Tate duly notes the laxity of the American Medical

Association (AMA), the reader would perhaps be better served had the author

made the more obvious connection between the AMA’s stance on smoking and the

decision to accept cigarette advertising in its medical journal

.

Cigarette Wars is chockablock with historical information, including

excellent notes and an informative appendix listing state cigarette prohibitive

laws. On the down side is the skimpy index, in dire need of more

cross-referencing. However, overall the little book gives the reader a more

than adequate history of “the little white slaver.”

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Accounting for Growth: Information Systems and the Creation of the Large Corporation

Author(s):Levenstein, Margaret
Reviewer(s):Miranti, Paul

Published by EH.NET (September 1999)

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Margaret Levenstein. Accounting for Growth: Information Systems and the Creation of the Large Corporation. Margaret Levenstein. Stanford, Ca., Stanford University Press, 1998. ix + 277p p. appendices, illustrations and index. Cloth, $49.50. ISBN 0-8047-3003-2

Review for H-Business and EH.NET by Paul Miranti, Rutgers University. miranti@everest.rutgers.edu

Margaret Levenstein has written an important book that should have a major im pact on the history of accounting and information systems and its connections to the theory of the growth of the firm. Dr. Levenstein argues that changes in corporate organization, strategy, market structure and technology serve as the drivers of modifications in the design and structure of accounting systems. This is a significant departure from the traditional approach followed by accounting historians who often focus more narrowly on the details of methodological evolution per se, placing little emphasis on other contextual factors. Central to her study is an asynchronous, three-stage categorization of accounting system development for the purposes of: (1) operational control; (2) short-term decision making; and (3) long-term capital allocations. These classifications enrich the analysis of firm practice by highlighting how changing priorities influenced information function, flows and content. They also help to avoid the rigidities inherent in such shop-worn constructs as the entity or proprietary theories that permeate many method studies in this field. The explanatory power of Margaret Levenstein’s propositions are tested by analyzing the experience of the Dow Chemical Company and its predecessor, the Midland Chemical Company during the period 1894- 1914. She persuasively argues that Dow’s accounting systems underwent an important transformation during this era as the firm made the transition from an adaptive strategy appropriate for an uncompetitive, cartelized market to an innovative strategy involving product diversification and competitive market settings. Midland Chemical, the precursor adaptive firm, only required a rudimentary accounting system to satisfy the limited information requirements necessary to operate successfully in the cartlelized market for its primary product, potassium bromide. The Dow Chemical Company, the innovative successor, on the other hand, needed a more elaborate accounting system to capture the wider array of information needed to exploit the market potential of electrochemical technology after it abandoned the bromide cartel in 1900.

Some of Margaret Levenstein’s findings are at a variance with earlier studies that dealt with the nature of the relationship between accounting information and corporate growth. She notes, for example, that capital allocation decisions at Dow were informed largely by marginal profit data rather than return on investment analysis which Alfred Chandler has identified as a major evaluative mechanism in modern corporations. This difference is probably more a function of the lack of sophistication in accounting and finance in an emergent enterprise whose management was dominated by chemists. Some AT&T subsidiaries were using return on investment as early as 1911. Moreover, it is not clear when Donaldson Brown actually developed the more elaborate Du Pont ROI calculation which included three components: profit margin, sales turnover and financial leverage. It may have been perfected after the 1914 cut-off date for the Dow study. And it did not become central to planning at General Motors until after 1921 when Brown joined the management team organized to resurrect that firm’s depleted finances. Second, Dr. Levenstein’s findings also do not support the conclusion of Johnson and Kaplan that corporate accounting practice was shaped strongly by professional accountants who were primarily concerned with the questions relating to financial reporting. At Dow professional accountants were consulted after the process of system evolution was well advanced (1900) and that their recommendations were only embraced selectively by management. Moreover, audits by independent public accountants were only performed occasionally (1900, 1905, 1910) with regular annual audits not beginning until 1911 which suggests that the linkage between the requirements of financial reporting and corporate accounting policy may have been weak. What is more surprising is that such a marginal enterprise actually engaged as advisors leading representatives of what then was a small and poorly understood profession. Professional accounting had only been licensed in New York since 1897 and was just beginning to be organized in Michigan and Ohio when Dow employed Haskins & Sells. The choice of a firm which had played a leading role in Progressive reform in Chicago and New York may imply that there is a question concerning the sociology of knowledge here that goes beyond the confines the current study. Perhaps, Dr. Levenstein’s next work on the Cleveland Trust, which provided important financial support to Dow, will shed more light on how professional accounting won acceptance among business and political elites as a means for strengthening social and economic ordering.

One dimension of Margaret Levenstein’s study which might have been expanded more is a generally excellent discussion of Dow’s haphazard capital costing policies. Initially, the firm only recorded repairs and betterment expenses. Later, seemingly arbitrary depreciation charges were recorded apparently in order to maintain surplus accounts at some desired level, perhaps conditioned by the amount of dividends management wished to pay out. The study, however, does not find any connections with contemporary developments in regulated public service enterprises where the de bate over depreciation raged because of its impact on rate bases. The accounting sections of the Hepburn Act of 1907, for example, were intended in part to require greater uniformity in depreciation practice among the nation’s railroads. More surprising was lack of discussion of the significance of the depreciation policies under the federal corporate income tax which became operative at the end of the period under survey.

Margaret Levenstein’s unique model which blends history and theory represents an important contribution to the accounting literature on a par, I believe, with the well known paradigms of such scholarly duos as Johnson and Kaplan, Meckling and Jensen and Watts and Zimmerman. Her ideas about the drivers of accounting evolution invites further confirmatory case studies to test her conclusions which were predicated on the experience of a single great firm in its formative stages of development. Dr. Levenstein’s study serves as an exemplar of the potential richness of case studies in accounting history-a genre that too often in the past has neither amplified theory nor major interpretative themes.

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Subject(s):Business History
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

A History of the Modern Fact: Problems of Knowledge in the Sciences of Wealth and Society

Author(s):Poovey, Mary
Reviewer(s):Alborn, Timothy

Published by EH.NET (September 1999)

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Mary Poovey, A History of the Modern Fact: Problems of Knowledge in the Sciences of Wealth and Society. Chicago: University of Chicago Press, 1998. xxv + 419 pp. $49.00 (cloth), ISBN: 0-226-67525-4; $17.00 (paper), I

SBN: 0-226-67526-2.

Reviewed for EH.NET by Timothy Alborn, Department of History, Lehman College, CUNY.

Economic historians don’t tend to think much about epistemology. As they trace unfolding developments in the economy, though, epistemology has a way of sneaking up on them. To cite an example from the recent past, The Economist this past July commented on the difficulty of squaring the enormous optimism generated by the new information-technology economy (reflected in the booming stock market) with the plainly unimpressive growth rates in all sectors of the economy barring computer sales. This was apparently “a sad case of the irresistible story meeting the immovable statistic,” claimed the magazine. As if to drive home the underlying epistemological quandary, the accompanying editorial (and magazine cover) was titled: “How real is the new economy?”

In A History of the Modern Fact, Mary Poovey reinterprets classic texts in political economy, philosophy, and statistics in order to locate the historical origins of what she claims is a peculiarly modern dilemma. Whether charting economic growth or planetary motion, she claims, we moderns feel the need to ground our claims in immovable statistics; yet at the same time we are compelled to find a transcendent meaning (an irresistible story) in the mass of details. Poovey brings to this project the perspective of a literary critic who has, in the past, turned her attention to putatively non “literary” topics like Florence Nightingale and poor law reform. Her recent appointment as director of the Institute for the History of the Production of Knowledge at NYU has provided her with an institutional base from which to pursue the ambitious, and clearly historical, agenda for which A History of the Modern Fact is a blueprint.

It is indeed an ambitious book. One is tempted to apply to it Daniel Defoe’s definition of “project”, which Poovey quotes (p. 158): “a vast undertaking, too big to be managed.” The narrative moves from late-16th century British book-keeping manuals; through the debate between Gerald de Malynes and Thomas Mun on Britain’s money supply; William Petty’s writings on political arithmetic; Defoe’s essays on “projects” and mercantile conduct; Earl Shaftesbury on sociability; David Hume on conjectural history; Samuel Johnson on the Outer Hebrides; and Smith and Malthus on political economy, before concluding with a chapter on John Stuart Mill and the astronomer John Herschel. On the way, she has much to say about the history of classical rhetoric, moral philosophy, scientific societies, and the problem of induction. And for the most part, she succeeds at holding all these topics together by keeping in focus her subjects’ diverse efforts to solve the same problem: how to produce systematic knowledge about society in an era when the political basis of social order was being transformed?

Two important contexts for this problem appear in the book’s opening chapters: classical (or Ciceronian) rhetoric, which dominated the way Renaissance writers made arguments; and “reason of state” theories which viewed politics in terms of sound principles which an absolute monarch could then impose on his subjects. Poovey describes most of her subjects as struggling against one or both of these conventions on their way to inventing a new way of analyzing society. Double-entry bookkeeping, for instance, substituted plain-speaking numbers for Ciceronian excess, in the process selling the precision of balance sheets as a proxy for mercantile virtue. Thomas Mun similarly pitched his arguments against centralized monetary policy both by his recourse to precise-sounding (but wholly illustrative) figures depicting the balance of trade and by his defense of mercantile rules and expertise. And Daniel Defoe moved from tracing the tangible effects of mercantile enterprise (in his Essays upon Several Projects) to writing a conduct manual for merchants (his Compleat English Tradesman), once he had determined that real-world merchants were not capable of rising to his vicarious ambitions.

As all these examples suggest, Poovey is especially interested in what might be called the communitarian origins of the modern fact. Only once a stable community is in place, with formal rules resting on unspoken customs, can its accompanying way of knowing the world start to appear stable as well. Poovey presents each of her early modern participants in the making of the “modern fact” as falling short, in one way or another, of achieving such stability, and hence never quite securing trust in the facts they tried to generate. Neither her bookkeepers nor Mun really intended their “facts” to correspond transparently or comprehensively with “reality”; all that mattered for them was that their figures added up. And she presents other examples of people employing modern facts for premodern purposes, as when William Petty intended his political arithmetic to assist in the Hobbesian project of maintaining social order through kingly fiat.

The main arguments of A History of the Modern Fact come into focus in the chapters on Scottish moral philosophy and political economy. The subjects of these chapters first try to pin their hoped-for epistemological stability on divine design, before settling on the tools of disciplinary expertise. Poovey first traces the Scottish philosopher Francis Hutcheson’s efforts to identify abstractions like “the human mind” at work in history, the reality of which he demonstrated not mainly by reference to historical evidence, but by internal coherence and the assumption that anything constructed by God must run like clockwork. The key figure in the move away from providential design, unsurprisingly, is David Hume, who drew attention to the problem of induction that providence left unanswered. Poovey portrays Hume as solving that problem to his satisfaction by asserting that even though all theories about society or nature can only be fictions, they are useful fictions which should not be abandoned just because they can never be fully proven. For Poovey the most important implication of this insight (although one which Hume shied away from) is that its success as a solution depends on the social authority of the expert whose job it is to invent theories, now that the expert can no longer appeal to the higher authority of God. Once experts achieve both the self-confidence to assert their systematic knowledge as “real” and the social status to enforce allegiance to those assertions, she claims, the modern fact is born.

The most important of Hume’s useful fictions, according to Poovey, was that of the market system, which Adam Smith famously adopted as the centerpiece of his Wealth of Nations. She describes Smith, like Hume, as being ambivalent about claiming the expert authority which lent weight to the thoroughly modern “fact”. But she points to Smith’s famous reference to unintended consequences as paving the way for the modern economist to make such claims. Even though Smith intended his “invisible hand” as a blow to “reason of state” theorists who assumed that rulers could fully predict and hence govern the behavior of their subjects, the notion of unintended consequences also further enhanced his status as an economic expert who could discern productive results, at least in hindsight, where others saw only self-interest. Poovey next turns from Smith to Malthus, who appealed to the economic fact of overpopulation to draw attention to a less optimistic unintended outcome: procreation leads to social disaster. Because this claim was even more clearly opposed to orthodox religious teaching than Smith’s had been (and Poovey makes the same point about Ricardo’s “dismal” theory of rent), the result was to cut economists off from any possible “providentialist” interpretation that might yet discover “reality” in their theories by reference to God’s design.

With this final problem, A History of the Modern Fact comes to an end. Post-Ricardian economists are presented with a choice: try and patch back together the failed marriage between social science and natural theology, or go bravely forward, insisting ever more stridently that “facts” — and not merely fictional “systems” — do in fact prop up their theories. Poovey discusses J.R. McCulloch as a representative of post-Ricardian providentialism; and traces the development of the London Statistical Society as an example of the grim march forward. The march was grim, she suggests, because in their rush to base their social authority on the “facts” of political economy, they came face to face with the problem that neither Smith nor Ricardo had worried very much about “evidence” in the modern sense of empirical verification. Smith had relied on the rhetorical force of his striking claim that bad behavior yields good results, while Ricardo had staked his claim to expertise on internally-coherent mathematics; both, in short, had been happy to assume, along with Hume, that “fictions” could indeed be useful. The statisticians did not agree, so they simply collected facts and chastised anyone who did not do so as merely “literary”. Since the statisticians still claimed to be doing social science, this move kept religious and social critics of political economy out of that domain, which in the long run allowed for further developments in economic theory (e.g. Jevons and Keynes). But, Poovey argues, this move certainly did not pave the way for any real solution to the problem of induction. As she concludes: “By stressing the incontrovertible nature of statistical ‘facts’ … by way of contrast to the excesses and deceits associated with fiction and rhetoric, apologists for statistics were able to downplay the methodological problem of moving from whatever numbers were collected to general principles” (313-314).

Poovey’s mission in this book is, as she states, to open a dialogue about the origins and limitations of modern knowledge claims. In this sense it is primarily educative and synthetic; but not, as in a survey textbook, with the aim of filling undergraduates with relevant facts and socializing them to organize their thoughts in accordance with the norms of an academic discipline. Rather, the goal is to educate other academics to take notice of lively debates in fields outside their own, and the topics in each chapter are intended to illustrate how some of the lessons of these debates might be applied in practice. What makes the book’s ungainly structure work (to the extent that it does work) is exactly what makes a good graduate program turn out good students: readers who have already thought about some of these issues are invited to pursue them in surprising directions. The other side of this is that many historians who have spent a career examining a single thread of this story in far more detail than Poovey could possibly have done will be tempted to split hairs, or to find little value added to their area of special expertise (those who are tempted to respond to the book in this way should at least not ignore the extensive footnotes, where Poovey provides running commentary on her use of secondary sources). And economic historians who have never been interested in the problem of induction (a sizeable demographic, if Poovey’s claims are correct) will most likely not have the patience to follow her arguments through to the end. In other words, this book is not very well designed to teach old dogs new tricks.

Poovey also uses her book to speak, more elliptically, to the ongoing academic debate over the merits of “postmodernism”; indeed, given her background as a literary critic, one way of reading this book is as an inquiry into the historical origins of postmodernism. At nearly every stage of her argument, she is careful to present examples of people proposing alternatives to the “modern fact” as a means of organizing knowledge. Hume, for instance, switched from treatises to essays after 1757 in order to encourage a more open-ended, conversational approach to knowledge; Samuel Johnson’s Journey to the Western Islands of Scotland (1775) appears at the end of chapter five as a very early example of postcolonial critical theory, in which the Highlanders’ agency is used to interrogate the limits of modern rationality. And Poovey concludes her book with the outright rejection of the “modern fact” by the Romantic poets Southey and Coleridge.

These various efforts to get beyond a focus on grand theories and endless evidence, she argues, all anticipate to some extent the more general tendency of various “postmodern” writers today to “solve” the problem of the modern fact by rejecting it; by denying that knowledge needs to be about grand theories, and focusing instead on “micropolitics” or formal models. Although she doesn’t explicitly say so, much of modern economic theory, at least dating back to Debreau, takes exactly this formalist approach to opting out of the problem of induction. As Poovey recognizes, though, and as the persistence of questions like “Is the New Economy Real?” suggests, the modern fact and its associated tensions are likely to remain with us for a long time to come.

Tim Alborn is assistant professor of history at Lehman College in the City University of New York. He has published Conceiving Companies: Joint-Stock Politics in Victorian England (Routledge, 1998) and is working on a book about the social history of British life assurance.

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Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):General or Comparative

The Voice of Business: Hill & Knowlton and Postwar Public Relations

Author(s):Miller, Karen S.
Reviewer(s):Laird, Pamela W.

Published by EH.NET (September 1999

)

Karen S. Miller. The Voice of Business: Hill & Knowlton and Postwar Public

Relations. Chapel Hill: University of North Carolina Press, 1999. xiii +

261 pp. Notes, bibliography, index, and illustrations. $ 39.95 (cloth),

ISBN 0-8078-2439-9.

Reviewed

for H-Business and EH.NET by Pamela W. Laird, University of Colorado at Denver.

Listening to a Voice of Business

Public relations, like advertising, is alternatively blamed and credited for

both the good and the wicked conditions of modern times. How can a scholar

tread the perilous course of responsibly assessing the impacts of a public

relations firm, while avoiding both platitudes and alarms? Karen S.

Miller provides us with a solidly researched and insightful model in her

masterful case study of Hill & Knowlton (H&K), one of the most important public

relations firms in the United States. Instead of a false drama of blame or

credit, Miller weaves together a lively and finely tuned narrative of H&K

activities after World War II with a balanced evaluation of their impacts. She

sticks closely to her evidence, resulting in a solid and most useful study.

Moreover she knows that looking at her subjects’ output does not necessarily

tell the historian whether or not “the general

public saw,

read, agreed with, or discussed the material” (p. 112). Like advertisements,

public relations messages tell us more about their creators than their

audiences. This approach is not the stuff of which New York Times best

sellers are made, but

The Voice of Business should make the best seller list of all those

interested in how ideas combine with business activities and interests when

business people try to influence public policy, consumption, and mainstream

attitudes.

Public relations advisors and textbooks alike insist that practitioners’

most important tasks focus on clients. After all, without commitment and

participation by managerial authorities, no PR program can function. Even more

than an advertising campaign, which certainly requires some managerial

cooperation, a public relations policy or program must engage decision makers.

For instance, in an all-time classic case, public relations pioneer Ivy Lee

guided the Rockefellers’ recovery from the public opinion disaster of the 1914

Ludlow Massacre by convincing John D. Rockefeller Jr. to come to the site of

the anti-labor violence and express his sorrow and regret. Had Lee simply

issued a press statement on the Rockefellers’ behalf, it would not have

sufficed to calm public outrage at

a time when Progressive Era opinion already mistrusted Robber Barons, and

firms were more generally identified with their owners than now. In a more

recent classic, Johnson &

Johnson executives decided in 1982, at huge cost, to remove and destroy all

Tylenol packages from store shelves across the United States after seven

poisonings in the Chicago area. Even though the cyanide had been inserted by a

murderer in a single locale, with public confidence their highest priority,

Johnson & Johnson managers sought to assure consumers that they would

thereafter see only safe products on the shelves. They did not hesitate or

argue about their firm’s lack of culpability.

Miller demonstrates the merits of such focus on clients by public relations

practitioners. Th rough a series of case studies she shows how H&K’s prestige

and influence grew because founder John W. Hill early on recognized the client

as the public relations practitioner’s first audience. Selecting cases for

their importance to successive stages of H&K’s development, Miller covers the

agency’s postwar work for and relations

with the steel, aircraft, butter, and tobacco industries. The public opinion

campaigns H&K generated and waged on behalf of these business interests yield

fascinating narratives and provide Miller the means of analyzing complex

relationships between large-scale businesses,

the state, and the public. On behalf of steel interests, for instance, H&K

argued against labor militancy and state authority, taking on the task of

“popular education” about “basic economics,” that is, pro-business economics.

Through the usual armamentarium of news releases, publications,

film, radio broadcasts, speeches, and congressional testimony, plus a comic

book for school distribution, H&K attacked what

Hill called the “national problem of winning more friends for the steel

industry” (pp. 55-9).

In the early stages of the professionalization of advertising agencies, F.

Wayland Ayer raised the stature of the field by operating as a businessman

among businessmen, helping the latter to make decisions rather than just

taking their orders. John W. Hill likewise raised his profession by always

conducting himself as a peer to his clients, counseling them and speaking–not

shouting–for them. Hill expected to participate in policy making, and

believed that clients who sought only publicity risked “poor policy and bad

public relations” (p. 142). When even major clients, like the National Retail

Dry Goods Association and the tobacco industry, closed their decision-making

processes, H&K resigned those accounts.

Miller concludes that “Hill’s legacy must be viewed as mixed.” H&K’s

“manipulation of information” did influence “both the content and the quantity

of public discussion,” but its “biggest impact was not on

the general public but on its own clients” and others who already agreed with

them (p. 3). For instance, the agency helped settle the 1948-1950 controversy

over oleomargarine by “urging the butter lobby [its client] to alter its policy

to a compromise position that in turn changed legislators’

goals” (p. 72). Miller also suggests that in other cases H&K’s influence

followed in part from reinforcing the pre-existing opinions of clients and

like-minded citizens. By fulfilling its mission “to amplify the voice of

industry,” H&K “fortified executives in the face of battle” and strengthened

their resolve (pp. 189, 193).

Perhaps Miller’s strongest methodological contribution is her use of the social

science concept of issue framing. In each of her cases, she

finds H&K’s greatest impact in its “adding to the frames of interpretation used

in public debates” (p. 190). This analytical insight alone is well worth

historians’ attention, for others besides skilled, professional communicators

deliberately attempt to

frame public debates. H&K’s work for the tobacco industry during the 1950s and

1960s provides Miller’s strongest example of purposeful framing. To combat

growing evidence and fears that cigarette smoking was hazardous, H&K

“emphasized several themes within the

‘case is not proved’ frame.” At that early stage in the gathering of

antismoking evidence, H&K helped the tobacco industry to define the public

opinion problem not as a direct confrontation with scientists and their

evidence, but rather as a matter

of raising doubts about the validity of their concerns. “Medical science” had

not proven a health hazard, and H&K recommended that the industry set up a

research program to “demonstrate that a controversy existed” (pp. 129-30,

133-4). This campaign succeeded in rebuilding consumers’ confidence in tobacco

by raising comforting doubts about the challengers’ arguments. After a decline

in smoking among adults during 1953 and 1954, consumption rose again until the

Surgeon General’s 1964 report, which made it increasingly difficult to

maintain the decade-old framing of the controversy. In this case, as in others,

H&K sometimes increased the flow of information, and at other times decreased

it. More importantly, it learned to direct that flow by framing issues for the

press and the public.

Miller’s opening critiques of those who have

“overestimated the power of public

relations” initially raised my concerns that The Voice of Business

might parallel the apologists for cigarette advertising–whose modesty about

its marketing impacts before courts and legislators clashes repeatedly with

the immodesty implied by massive campaign spending. Miller,

however, is no apologist; nor is she a critic. Instead her scholarship conveys

little of her own opinions about the ethical consequences of H&K activities,

although I think I detected a sigh of relief when H&K resigned the tobacco

account in 1969. Clearly, Miller admires John W. Hill for his skills, dignity,

and his steadfast adherence to personal and professional standards, yet she

also points to his political contradictions. She frequently refers to Hill’s

political conservatism and party affiliation without positive or negative

comment.

Linking labor’s goals and state authority with the thin edge of socialism’s

wedge

, especially when arguing against President Truman’s seizure of steel mills in

April, 1951, during the Korean War, H&K fought the free enterprise battle in

each of its big postwar campaigns. Intriguing contradictions popped up,

however, such as promoting

the butter lobby’s desires that the federal government intervene in the market

by forbidding oleo manufacturers to color their product yellow. Similarly,

H&K’s extensive campaigns on behalf of the air transport industries lobbied

both Congress and the public to increase government contracts. In both these

cases, anti-government partisans unabashedly saw government action as the

solution to their problems.

Exercising the reviewer’s prerogative, what would I have asked Miller to do

differently? A broadened

perspective that included slightly fuller treatments of the public relations

story before and during the postwar period could have deepened Miller’s

analysis of Hill’s principles and practices. Similarly, although Hill’s

pro-business, politically conservative ideas are key to her story,

contextualization and explanation run thin: “Whatever the reason, Hill held

many of the characteristics and beliefs of his clients” (p. 22). The

ideological environment in which Hill and his clients operated during the early

Cold War fostered their mutual successes, and more recognition of this

could have better situated H&K and its impacts. On another track, did H&K

agents take into account issues of population diversity with which advertising

agents were learning to wrestle, or did they dismiss those outside the

mainstream middle classes as either irrelevant to decision-making processes,

or, as with labor,

opponents? A clearer sense of how H&K saw “the public’s” identity would have

enriched our picture of why they operated as they did. Surely they knew that

their field, like advertising, was moving toward stronger feedback loops with

audiences. Was it paternalism, elitism, or just inertia that kept H&K’s vision

narrow? None of these areas is essential for Miller’s story

, but I do think that brief forays would have made the book,

and her otherwise sterling analyses, more accessible to a larger audience and

more meaningful to all. Nonetheless, The Voice of Business is a must

read for all those interested in how and why

business organizations project ideas into the public arena when they seek to

influence public policy,

consumption, and popular attitudes.

Subject(s):Business History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Cuban Sugar in the Age of Mass Production: Technology and the Economics of the Sugar Central, 1899-1929

Author(s):Dye, Alan B.
Reviewer(s):Salvucci, Richard

Published by EH.NET (September 1999)

Alan B. Dye, Cuban Sugar in the Age of Mass Production: Technology and the

Economics of the Sugar Central, 1899-1929. Palo Alto, CA: Stanford

University Press, 1998. xi ii + 343, $55 (cloth), ISBN: 0-8047-2819-4

Reviewed for EH.NET by Richard Salvucci, Department of Economics, Trinity

University, San Antonio, Texas.

The history of Cuba is the history of sugar or so it might seem to a reasonable

observer. Indeed, so much has been written about sugar, about Cuba, and about

sugar in Cuba that you might wonder what remains to be said. The answer, after

reading Alan Dye’s study of Cuban sugar in the age of mass production, is

“plenty.” The period of Dye’s focus, 1899 through 1929, is commonly called

Cuba’s “second” sugar revolution as opposed to the

“first” revolution that occurred between about 1825 and 1845 or so. Dye brings

the elegant simplicity of mainstream economic analysis to bear on a subject

that has rarely been treated so dispassionately. If you do not know much about

Cuban history, you may find it odd to learn that simply thinking about Cuba (or

much of the rest of Latin America) in neoclassical terms is in itself a big

deal. But that it is. There was a time, not so long ago, I might add, that to

question whether all Cuba’s ills were really the result of capitalism,

imperialism and racism was to question the basis and legitimacy of the

Revolution itself. Dye knows this and picks his way

carefully through the minefield (and politics) of Cuban historiography. The

result is an impressive economic history, with as much stress on history as on

economics.

The first three chapters of the book give an accurate and informed account of

the Cuban

sugar industry between 1763 and 1898, when the lines of Cuba’s subsequent

economic development were set. This was the age of the sugar plantation, of

African slavery, of the rapid spread of sugar into the island’s fertile central

plains, and of the ingenio, which Dye defines as

“a self-contained plantation/mill complex, vertically integrated and centrally

managed.” The production of sugar grew by leaps and bounds,

coming to dominate the island’s economy, or at least it did in the west, if not

in the back ward, peasant-dominated east. Anyone unfamiliar with the history of

Cuban sugar before 1898 can read these chapters with profit. My only criticism

is that the discussion seems heavily in the thrall of Manuel Moreno Fraginals,

Ramiro Guerra y Sanchez, Fe Iglesias, and Leland Jenks. There has subsequently

been more than a little empirical work on Cuba (and quite relevantly, on

Puerto Rico as well) that would nicely buttress Dye’s conclusions but which

escapes his attention. Still, this is not a major failing. Dye’s principal

contribution begins with Chapter Four and it is on this basis that his work

should be judged.

The first thing to recognize is that Cuba faced a problem that had bedeviled

the sugar industry everywhere, namely, a long term decline in the price of

sugar. In an effort to remain competitive, producers in Cuba discarded the

model of the plantation complex that had been the bulwark of the industry

everywhere since the sixteenth century. They turned, instead,

to the continuous-process technology that yielded important economies of

scale, namely, the large, modernized, heavily mechanized central with its

attendant corps of cane farmers or colonos. The technology came to Cuba after

the conclusion of the Spanish-American-Cuban War and was disproportionately

deployed by investors from the United States who had taken over the Cuban

protectorate from Spain. Logically, the new centrales embodied the best

technology available and in so doing gained a reputation for imposing

efficiency on Cuban rivals

who would not or simply could not compete. Dye argues that this reflected not

so much capital market imperfections or credit rationing as it did the desire

of the Cubans to continue producing sugar from plants that may have been

obsolescent, but which, in view of the high price of sugar down to 1920, were

not yet obsolete. When prices suffered their inevitable fall, the Cubans found

themselves squeezed out by the Yanquis, whose success the Cubans attributed to

political clout and economic endogamy. This

makes for a good story and Dye tells it very well.

The only qualification I might add is that, while economically enticing,

Cuba offered investors from the United States other advantages. Before 1910,

most direct investment from the United States in Latin America went to Mexico

but that investment rested on the political stability imposed by the

gerontocracy of the regime of Porfirio Diaz. When the lid blew off Mexico in

1910 and Diaz decamped to Paris, the gringos jumped ship as well,

but they got off in Cuba. I believe Cleona Lewis’s work on “American”

investment overseas substantiates this. Cuba, with its complaisant political

system (the United States was given the right to intervene in the island’s

affairs in 1901 by the infamous Platt amendment to

the Cuban constitution), was a lot better than revolutionary Mexico and even

better than, say, the Philippines, which were as willing to fight the United

States as they were to fight Spain. Cuba offered diversions and the quiet life

that Mexico no longer

did. Dye’s book is also interesting on other grounds. Observing, as did Leland

Jenks, that sugar mills in Cuba continued to expand in the 1920s even as the

war-induced spike in prices (known in Cuba as the “dance of the millions”)

collapsed thereafter, Dye proposes, in Chapter Five, that adjustment costs

rather than “irrational exuberance” are the explanation. Many of the newer

mills that entered the market when prices were high were unable to expand

rapidly enough to avail themselves of economies of scale before prices fell.

Skilled supervision, social overhead capital, even well-organized domestic cane

supplies were not readily available to new entrants into the industry at

anything less than prohibitive cost. So, as is sometimes said in Latin America,

the new mills

“made haste slowly,” expanding production to optimal levels even after the

initial stimulus to entry would seem to have dissipated. Rational exuberance,

in other words. Dye cautions his readers that they might wish to skip over his

estimation of adjustment costs. I can see where my colleagues in Latin

American history might not want to go where Dye leads,

but I was repeatedly struck by the clarity and cleverness of his exposition.

In Chapter Six, Dye tackles the issue of regional specialization.

Historically, the sugar industry had spread from west to east and for most of

the nineteenth century; the western half of the island was the most

“modern.” The pattern changed dramatically in the twentieth century when the

bulk of new investment flowed to eastern provinces like Camaguey and Oriente.

Dye’s explanation for this phenomenon makes sense. Western Cuba was least

malleable in institutional terms, since prospective investors faced independent

cane farmers and a railway network adapted to pat terns of production dating

back to the 1830s. The east was relatively virgin territory. There the new

industry could have railways shaped to its own requirements and could control

cane farming by reserving large tracts of land for its own use. Eastern Cub a

thus offered advantages to the latecomer that were unavailable in the west. For

the modern-minded, this analysis is formally specified and tested using a

fixed-effects regression model in Chapter Seven, wherein Dye draws the

inevitable conclusion that history matters: “The difference of the relative

costs of cane in the east and the west was truly a consequence of the different

histories of the two parts of the island” (p. 238). Chapter Eight reflects on

the importance of factor endowments for choice of

technique.

It would be difficult for me to overstate the value of this book but even so,

there are some blemishes. The text repeats itself in more than a few places and

the repetition sometimes occurs within the compass of a couple of pages. This

is just poor copy-editing. There are also places where I thought Dye was

making things unnecessarily difficult, particularly for non-specialist readers.

Why does degree of difficulty matter? Well, here is a book that should be

required reading for all Latin American historians and not just for economic

historians or the Methodologically and Theoretically Correct. It may well be

that the Revolution in 1959 was not the result of some Big Dialectic working

its way through Cuban history, but Dye explains, in measured tones, how one

historical option after another was foreclosed to Cuba and why its problems

have consequently seemed so intractable. This may be an enlightening example of

“path dependence” but to Latin American historians of a certain age, it

recalls

the discussions of “colonial heritage” that generated so much excitement

thirty years ago.

The fact that Dye ends up where he does strongly suggests that there is no

right or wrong way to do history, just more or less fruitful and relevant ways

of doing it.

Good history is good history, and Alan Dye’s book is good history indeed.

Richard Salvucci teaches at Trinity University in San Antonio, Texas. He is

writing a book on Mexico’s “London Debt” in the nineteenth century and recently

has written a paper with his wife Linda Salvucci on the Latin American terms

of trade in the nineteenth century.

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):20th Century: Pre WWII

Spreading the News: The American Postal System from Franklin to Morse

Author(s):John, Richard R.
Reviewer(s):McGuire, Mary K.

EH.NET BOOK REVIEW

Published by H-Business

and EH.Net (August 1999)

Richard R. John. Spreading the News: The American Postal System from

Franklin to Morse. Cambridge and London: Harvard University Press,

1995. vii + 369 pp. Tables, endnotes, primary sources, and index.

$54.00 (cloth), ISBN 0

-674-83338-4; $18.95 (paper) ISBN 0-674-83342-2

Reviewed for H-Business and EH.NET by Mary K. McGuire, Department of History,

Southern Illinois University Carbondale.

The U.S. postal system has received surprisingly little historical attention

over the

years, and even less so in recent historical discussions of the state,

politics, political culture, and administration. Even in the latest turn

toward the state, notably among the “new institutionalists,” the postal system

has remained on the fringes of

historical inquiry. While there may be many reasons for this,

I suspect that part of the problem is a sense that it has all been said before.

After all, conventional wisdom knows that the history of the U.S. postal system

is the history of the “spoils sys tem,” of civil service reform, of the weak or

non-existent pre-New Deal federal state.

And for many historians, the study of large-scale political institutions such

as the Post Office Department is mired in the worst excesses of the

“old” political history-a place we have left behind and with good reason.

Despite some recent works that have attempted to reconsider the subject from

various perspectives, the history of the U.S. postal system seems remarkably

resistant to a sustained historical inquiry or interest.

In this work, Richard John not only directs our attention to this relatively

neglected area of study, but he does so from an innovative interpretive

position that opens new ways of approaching and understanding the subject.

Taking, as he terms it

, a contextualist approach, he examines the postal system within the historical

context of the early Republic and the role it played in important social,

political, and cultural changes taking place over a nearly seventy year period.

In an arena where too few have ventured to show the way, John has set himself

a large task-a task made larger by his insistence on understanding the postal

system as an agent of social change in its own right, with significant impact

on shaping the contours and outcome of certain critical moments.

Specifically, he is concerned “not merely to locate the postal system in

the social process, but to explore its role as a social process, and, in

particular, to consider some of the ways in which the communications revolution

that it set in motion transformed American public life” (p. 24). This is an

ambitious project equal to the size and significance of its subject, and John

does an impressive job of developing his thesis with a wealth of detailed

historical information and

deftly handled political, social, and cultural analysis.

Both symbol and reality of the federal government in the early decades of the

fledgling republic, John asks us to consider the postal system’s significance

as the centerpiece of a communications ”

revolution.” As John makes clear, this was a revolution with very decided

market implications and intentions, creating a network of federally designed

and funded transportation and communications links that drew together the

people, producers, and places

of an increasingly far-flung nation.

In the first chapters of this book, he examines the policy and structural

innovations that established and deepened federal postal dominance in this

communications revolution. But, true to his thesis,

John goes beyond a mere discussion of the politics behind this transformation

to the impact of the transformation itself on shaping a new, national, public

sphere for this new, democratic republic.

According to John, the Post Office Act of 1792 laid the cornerstone for postal

impact on American public life when it permitted the transmission of newspapers

through the mails, alongside laying the groundwork for a greatly expanded

postal network. It also protected the sanctity of the mails from surveillance

and other interference-a critically important innovation in a world context

where privacy in communications was far from a right in law or in practice.

Then, turning to one of the central political-administrative figures of the

early postal system, Postmaster General John McLean, John identifies the early

administrative innovations of this nascent bureaucratic enterprise under

McLean’s leadership. In so doing, John asks us to reconsider our assumptions

about national politics and the federal state in the early Republic

, which is an important addition to our understanding of the supposedly

“stateless” United States in the period before the New Deal. For historians of

bureaucracies and of business enterprises, John makes another significant

contribution when he identifies administrative and managerial innovations in a

time and a place where we would hardly have expected to find them. It is

virtually a commonplace among business historians to date the introduction of

middle management practices from the middle nineteenth century and the

creation of huge railway enterprises. In this study, John shows that middle

level management techniques and principles already existed in a well-defined

form within the postal system-a system which could not have functioned without

its

three-tiered administrative structure and its

“hub and spoke” distribution system.

Bringing together the federal level politics and the federal level

administrative developments that occurred under John McLean as Postmaster

General, John explores and ex plains the administrative structure being set in

place even as politics influenced and shaped the postal system that was being

developed-and more. As he concludes: “By greatly expanding the power of the

Postmaster General, the completion of the postal network threatened to tilt

the delicate balance between the postal system, the rest of the executive

branch, and the individual states” (p. 110). It was this consolidation of

political and administrative power in the federal state, in the form of the

Post Office Department, which would influence the political and administrative

battle over “spoils” and states rights in the Jackson presidential campaign and

administration. In his later chapter on the Jacksonians, John expands this

political analysis in a discussion of the efforts by Jacksonians to hold the

federal state administration accountable to their understanding of the

classical republican creed.

Rotation in office-the so-called “spoils” system-wreaked some havoc with the

administrative operations and structure of political institutions like the

Post Office Department, but it also laid the groundwork for building the mass

party system that the Jacksonians had brought into existence in the election of

1828.

This analysis of the spoils system is not altogether a new one, but John ties

it to the power of the postal system as the centerpiece of a central, federal

state-the very thing that states’ rights advocates like the Jacksonians were

concerned to limit. For political historians, the power of his analysis lies

here, by showing how the Jacksonians manipulated the power of appointment to

public office to bring together their political creed of the democratic

republic and their political

need to build the mass party that had brought them into power. In

other words, it might be said there was an internal logic to the spoils system

that, abuses notwithstanding, was not entirely at odds with earlier assumptions

about the role of the postal system in creating an informed and politically

active public among its widespread communities and citizens. The nineteenth

century notion of “the egalitarian ideal,

which held that every citizen had the necessary ability to hold public office

and in this way to participate directly in the affairs of state”

(p. 1 35), was widespread, but not until the Jacksonians would it become

policy.

But this policy, like the politics behind it, was limited to free, white men.

In one of his most fascinating discussions, John looks at the public spaces

controlled by the postal

system. Here he argues that the postal system facilitated “an imagined

community that incorporated a far-flung citizenry into the political process”

(p. 168)-and this despite, or perhaps because of, the constraints placed on

free blacks and on women in

that public space. This is a wide-ranging discussion,

which deals with the aristocratic tradition and influence in securing public

office, the introduction of the military model for public officers, the

exclusion of free blacks from mail delivery, and the problems faced by women

in the male-dominated public space of the post offices. Arguing that “official

norms helped to shape public attitudes regarding the boundaries of American

public life” (p. 142), he concludes that “(t)hrough a combination of customs,

laws, and social conventions,

the central government and ordinary Americans had together constructed a new

social type-the citizen as free, white, and male-and a new kind of social

space-an imagined community that was more or less congruent with the

territorial confines of the United States” (p. 168). As the only public

institution as widespread as the citizens of the nation it served, the postal

system was a central factor in creating and regulating that new social space.

However, it is also here,

as well as in his chapters on Sabbatarianism and on abolitionism, that some

may find it difficult to see the postal system as an agent of social

change with such powers to shape the emergent nation’s political culture and

social conflicts. John’s treatment of the Sabbatarian

controversy–transmitting the mails and opening the post offices on the

Sabbath-is compelling, as is his argument that this needs to be seen as “a

struggle over the proper role of the central government in American public life

and

not, as is often presumed, merely a struggle between competing social groups”

(p. 191).

Likewise, his discussion of the abolitionist controversy-the mailing of

unsolicited abolitionist literature to southerners-brings to light an important

incident in the

battle over states’ rights vs. federal authority in the years preceding the

Civil War. However, it is less convincing in these cases to see the postal

system as the agent of change. It seems more reasonable that the postal

system was the

medium used to provoke change, or was the space in which certain

battles over social change would be fought. John himself seems to suggest this

when he notes of the Sabbatarian controversy that “it demonstrated how easily

a small group of activists could take ad vantage of the communications

revolution

that had been wrought by the postal system, the stagecoach industry, and the

press to mobilize public support throughout the United States” (p. 202). Who

is agent and who is subject here?

I am not interested in splitting hairs, and I am more than willing to accept

the postal system as an agent of social change. And, certainly,

John seems to equate “agent of social change” with the “communications

revolution” he has so ably shown the postal system to have initiated in this

period. However, that seems to me less a clarification of “agency”

and more an opening to explore what it means for the state to act as an

agent of social change. Published in 1995, John’s study came out at a time

when new works on the state, ideology, law, policy, and institutions had

somewhat recently begun to appear-some in response to the much earlier effort

to “bring the state back in”. Many of these works take as their central

premise the notion of the state or its institutions as agents of social

change, and a vibrant discussion emerged among the political scientists,

sociologists, and historians who take the state seriously as an agent in its

own right. In a very important way, I believe John’s study contributes to that

discussion

,

although without directly engaging it, and that is to be regretted. For

example, his short conclusion takes us back all-too-briefly to the

“communications revolution” where, in his interpretation, it all began.

But after such a journey through administrative history, politics,

political culture, public life, and social conflicts, it would have helped

tremendously to tie it all together with some more generalized attention to how

the postal system acted as the agent of social change and in “shaping

the boundaries of American public life” (p. 283).

Even so, this does

not diminish the power of John’s study, or his astute

analysis of the postal system in this early period of U.S. history.

Situating this postal history in its larger historical context and political

significance, John has done a very fine job with a huge,

complex, and unwieldy subject. This is an exhaustively researched study and it

draws on a wealth of detail to make its case. More than that, it raises some

important new ways of under standing events, such as Sabbatarianism and

abolitionism, that should be of interest to historians of nineteenth century

America. Political historians will be especially interested in his treatment

of Jacksonian democracy in action and his attention to political culture and

American public life.

Business and economic historians will find his discussion of the communications

revolution and the expanding postal network useful additions to our knowledge

of government policy influences on the early development of the national

market in this period. And those of us who study the state and state formation

should find this a welcome contribution as well, not only for taking on a

neglected and important subject, but also for taking that subject in new

direction s.

Subject(s):Markets and Institutions
Geographic Area(s):North America
Time Period(s):General or Comparative