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Prelude to Trade Wars: American Tariff Policy, 1890-1922

Author(s):Kaplan, Edward S.
Ryley, Thomas W.
Reviewer(s):Aaronson, Susan Ariel

Edward S. Kaplan, American Trade Policy, 1923-1995. Westport, CT: Greenwood Press, 1996. x + 176 pp. Bibliography and index. $55.00 (cloth), ISBN: 0-313-29480-1

and

Edward S. Kaplan and Thomas W. Ryley, Prelude to Trade Wars: American Tariff Policy, 1890-1922. Westport, CT: Greenwood Press, 1994. 160 pp. Bibliography and index. $49.95 (cloth), ISBN 0-313-29061-x.

Reviewed for EH.Net by Susan Aaronson, Department of History, University of North Texas and The Brookings Institution

Trade is where foreign and domestic policies meet. Consequently, the development of trade policy is fraught with controversy–between nations; between the affected interests and policymakers; between Congress and the Executive Branch; and between government agencies that negotiate and administer trade protection and agreements. Edward S. Kaplan’s new book, American Trade Policy, 1923-1995 promises to address some of that complexity. Kaplan is to be commended for attempting to tackle the morass of U.S. trade policy. Regrettably, his book falls short.

Kaplan relies on a few secondary sources, not primary sources, and thus, he provides an incomplete understanding of the politics and economics of trade policymaking. For example, rather than examine the Congressional Record or Congressional hearings, he relies on The New York Times (and no other papers) to describe the development of trade policy legislation. He consistently cites the same four secondary sources for his analysis of trade policy and ignores prominent analysts of trade such as E. E. Schattsneider (Politics, Pressures and the Tariff,New York, 1935) and John Jackson (The World Trading System: Law and Policy of International Economic Relations, Cambridge, MA, 1989). He does not review government reports for statistics or history (such as the Annual Report of the U.S. Tariff Commission on the Trade Agreements Program), speeches of the Presidents, or speeches or reports from the U.S. Trade Representative.

U.S. trade policy has always reflected freer trade and protectionist sentiment. Even during the supposed “glory days” of U.S. leadership of free trade, the U.S. protected some sectors. Kaplan seems to miss this crucial point because he oversimplifies the process by which trade policy is made. The nature of such protection as well as its endurance depends on the state of the economy, politics, and culture.

In contrast with many other nations, authority for U.S. trade policy is divided. The President has power to control foreign policy, but under the constitution, Congress has the power to regulate international commerce and to tax. Some special interests benefit from open markets and others benefit from protection. As a result, America has always had a bifurcated trade policy, with efforts to liberalize trade coexisting with protection. Finally, given the many interests concerned about trade, some protection is necessary to “buy” political support for freer trade measures. This has been true since 1789. Why is such protection necessary? Because trade can create both winners and losers. Those who are hurt may deserve temporary protection, despite the costs to consumers and taxpayers. Such protection is accepted by GATT law and considered appropriate.

Kaplan believes that the Clinton Administration is protectionist and negating U.S. leadership of global efforts to free trade. In his view, “U.S. trade policy in 1995 has come full circle since the protectionist 1920s.” This thesis is flawed because Kaplan does not understand modern modes of protection. Is the Clinton Administration really more protectionist or is it harder to reduce the types of protection nations rely on today?

In the first five decades of the twentieth century, nations relied on border measures (tariffs, exchange controls, quotas etc..) to protect. These border measures are overt and were easily reduced in the first eight GATT rounds. As a result, today tariffs in most GATT members are relatively low. Ironically, GATT’s very success may have encouraged nations to rely on “covert” trade barriers (domestic measures) such as subsidies, government procurement policies or regulation in recent years. Because these administrative measures are domestic policies, it is hard to determine whether nations use such regulations with the intent to discriminate against foreign producers. Under 301 trade legislation, when the President confronts such trade barriers, he is required to investigate and sometimes to punish protectionist nations with retaliatory protection in the United States. Kaplan fears that America (because of Super 301) appears less disposed towards multilateralism and is “moving from a multilateral trade approach within the WTO to a unilateral one under which it threatens countries like Japan with tariff increases for failing to open their markets” (p. x). Had Kaplan read primary sources or Susan Schwab’s Trade-offs (Cambridge, MA, 1994) he would understand that the Clinton Administration is reluctant to use these powers, nor did it call for them.

A more careful review of the history of Uruguay Round negotiations and enabling legislation shows that both the Bush and Clinton Administrations have tried hard to broaden the rules that govern trade to include corruption and labor standards, and to complete negotiations to bring new sectors into the GATT/WTO system such as services and agriculture. This is not a protectionist record. Ironically, Jesse Helms, Pat Buchanan, and other noted protectionists frequently complain that the United States under Clinton is too supportive of multilateralism. The author ignores the Clinton Administration’s push to expand the North American free trade agreement (NAFTA); its continued leadership of global efforts to free trade; its unwillingness to cite many nations (from Argentina to India) under super 301; and its attempts to bring non-WTO members into membership (such as Saudi Arabia, China, Ukraine, and Russia). Finally, instead of relying on domestic tools to protect, the Clinton Administration seems to be relying on international tools. The U.S. is using the dispute settlement mechanism of the WTO. From January, 1995 to July, 1996, the U.S. has invoked dispute settlement in 16 cases, more than any other country in the world.

Writing a history of tariffs is a daunting task. It is hard to make it interesting. Dr. Kaplan has also teamed up with Thomas W. Ryley in an earlier book on the history of tariff policy, Prelude to Trade Wars, which does a good job at describing the politics of trade policy without being dry. The book is especially good at explaining the background of the participants and how they came to their positions. Unfortunately, the authors rely principally on secondary sources to make their case. Consequently, they are making their arguments based on the strong (or weak shoulders) of others rather than their own extensive research.

For example, describing the Emergency Tariff Act of 1921, the authors write “to all appearances in 1914, the country desired a moderate tariff bill.” To prove their point they cite one article in the American Economic Review, written in 1923. That would not convince most historians that is what the country desired.

The analysis is hampered by sloppy writing and inadequate argumentation. For example, “The McKinley Tariff … was the first of a number of tariff bills that raised duties to their highest levels in U.S. history.” Which one was the highest? All of them? Moreover, the title is a shocker. Which trade wars are the authors talking about? In the 20th century, when did the U.S. go to war over trade? The very term “trade wars” gives one the sense that trade is a zero sum game, a competition. A more plausible assumption is that entities trade because they think they can both gain.

The authors’ contribution is strongest in political history. (Ironically, the authors write for a series called Contributions in Economics and Economic History.) For those interested in the politics of American tariff making in this period, they provide a decent read. But to understand U.S. trade policy, one must understand the social, technological and economic environment, as well as the political environment..

Those readers who want to gain a better understanding of the complexities of the history of U.S. trade policy should look beyond these two books. Good books with very different perspectives include Thomas Zeiler’s American Trade and Power in the 1960s (New York, 1992); Alfred Eckes’s Opening America’s Market: U.S. Foreign Trade Policy since 1776 (Chapel Hill, NC, 1995); I.M. Destler’s American Trade Policies: System Under Stress (Washington, DC, 1995); G. John Ikenberry et al, The State and American Foreign Economic Policy (Ithaca, NY, 1984); William Becker and Samuel F. Wells, eds., Economics and World Power: An Assessment of American Diplomacy since 1789 (New York, 1984); Susan Aaronson, Trade and the American Dream (Lexington, KY, 1996); and John Dobson, Two Centuries of Tariffs (Washington, 1976).

Susan Ariel Aaronson Department of History University of North Texas and Guest Scholar in Economics The Brookings Institution

Susan Aaronson is also a regular commentator on Public Radio International’s Marketplace.

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Subject(s):International and Domestic Trade and Relations
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

Beyond Broker State: Federal Policies Toward Small Business, 1936-1961

Author(s):Bean, Jonathan J.
Reviewer(s):Gordon, Colin

EH-NET BOOK REVIEW Published by H-Business@cs.muohio.edu (January 1997)

Jonathan J. Bean, Beyond the Broker State: Federal Policies toward Small Business, 1936-1961. Chapel Hill: University of North Carolina Press, 1996. xiv + 281 pp. Illustrations, notes, and index. $39.95 (cloth), ISBN 0-8078-2296-5.

Reviewed for H-Business by Colin Gordon, University of Iowa

“Where is the corner groceryman?” Huey Long asked in 1934; ” … he is gone or going … the little independent businesses operating by the middle class are fading out as the concentration of wealth grows like a snowball.” Jonathan Bean’s Beyond the Broker State is a political history of this lament, tracing the contours of federal policy toward small business, the often hollow and symbolic politics of small business legislation, and the careers of the corner grocer’s Congressional champions. This is a necessarily complex story: it is not simply a confrontation between big and small business but more often a multi-faceted battle (poorly and partially officiated by the state) pitting big producers against small producers, big retailers against small retailers, producers against retailers, and consumers against small business.

Beyond the Broker State is constructed around two case studies. The early chapters focus on legislative attempts to restrain chain stores: chapter 1 traces the origins of the Robinson-Patman Act, the 1936 law prohibiting manufacturers from offering quantity discounts to chain stores. Chapter 2 reviews the experience of the tire industry under Robinson-Patman into the 1960s. Chapter 3 follows the postwar pursuit of “fair trade” through retail price maintenance, an effort to protect both small retailers and manufacturers from the economic clout of retail chains. The later chapters focus on more direct legislative efforts to aid small business arising out of the mobilization for World War II and Korea: chapter 5 focuses on the Smaller War Plants Corporation of the 1940s; chapter 6 on the Small Defense Plants Administration of the early 1950s; and chapter 7 on the Small Business Administration into the early 1960s.

Each chapter invariably tells a similar sort of story. Political and cultural attacks on concentrated wealth were ubiquitous but shallow. Small business itself was poorly organized and ambivalent about legislative solutions. As a result, small business legislation served more as symbolic demonstrations of political concern than sincere efforts to safeguard small enterprise. And such legislation was administered in such a way that it did little to help, and often hurt, the cause of small business. The case studies presented in each chapter and the larger story of federal small business policy through the middle decades of the century offer a telling and important glimpse into the piecemeal, and often dysfunctional, construction of federal regulatory policy.

For all the merits of this book, however, I am left unconvinced by its theoretical and historigraphical framework. This is a relatively small point, in the sense that the theoretical discussions are cobbled into the introduction and conclusion and neither detract from nor depend upon the core story. But is also a relatively larger point, in the sense that this conceptual framework clearly marks both the author’s sense of what is important about this story and the ways in which we might relate it to other historical and theoretical accounts of business-government relations in modern America. After sorting through the corporate liberal, pluralist, and institutionalist accounts of American public policy, Bean’s view is that “ideological entrepreneurs” were able both to manufacture and to exploit a sense of crisis in order to “secure a place for [small business] within the post-New Deal broker state” (p. 8), and that these efforts undermine the notion–put forward by James Weinstein, Martin Sklar, Gabriel Kolko, and others–that an uncontested “corporate ideal” had triumphed by the end of the Progressive Era.

I have some serious reservations (which I will flesh out below) about the causal importance of ideology in all of this, but even on its own terms the “crisis and ideology” framework has its weak points. First, one would be hard-pressed to find–from the merger movement of the 1890s, through the Progressive Era, the mobilization for World War I, the rise of mass production and chain retailing in the 1920s, the onset of the Depression, the NRA experience, the persistence of the Depression, the mobilization for World War II, and the reconversion debates of the 1940s–any era in which small business did not face a real or perceived crisis. How convincing or important is such unrelenting crisis rhetoric in animating small business advocates, garnering public support, or providing openings for government growth? Certainly similar patterns of public anxiety (about the costs of medical care in the 1920s or 1980s or job insecurity in the 1970s and 1980s, for example) have not yielded much in the way of public policy.

Second, the “small business ideology” traced by Bean is a close cousin of the larger American celebration of private enterprise and small government. In this sense, the virtues of the small producer are difficult to separate from either the virtues of the market or the argument–embedded in the “gospel of wealth” and codified in a legal system that equates corporate property rights with individual rights–that the only difference between a small producer and a big producer is success. In other words, small business claims to political assistance were always tempered by a background distrust of the state (as Bean recognizes), and hard to distinguish from similar claims made by all sorts of producers and consumers for “fair trade” or “fair competition.” On this score, small business was actually at a disadvantage, because their appeals to the state lacked the advantages and privileges (stemming from control over investment and employment) that larger concerns brought to politics. The point here is less the occasional ability of small business advocates to use a “Jeffersonian ideal” against their larger rivals than the persistent ability of corporate concerns to use the rhetoric of the market against labor, the state, and small “cutthroat competitors” alike.

Third, the emphasis here on ideological construction of small business allows Bean to skirt the important question of just what constituted “small.” Early in the book, Bean adopts the virtually meaningless index of “500 employees or less,” and much of the book is built around the unequivocal example of the small retailer. But in retailing and elsewhere, the definition of “small business” is a relative one resting on patterns of concentration and competition in particular sectors. Independent tire dealers and haberdashers confronting the chains certainly fit this bill, but so–especially in political battles–did the undeniably “corporate” but second-tier firms (“Little Steel,” the interior packers, Southern textiles, for example) that confronted even larger competitors in mass production industries, and entire industries which confronted larger and better organized consumers or suppliers or distributors (coal and steel, paper and publishing, rubber and automobiles). In Bean’s own example of the tire industry, the mantle of oppressed small business was claimed not only by small retailers confronting the chains, but also by smaller producers confronting the “big four” and their proprietary contracts with both chains and automobile firms, and by the entire industry confronting both predatory purchasing by automobile firms and the threat of cartel control over raw rubber. As long as small business politics is seen as a largely ideological phenomenon, the boundaries between big and small business–in both claims to public assistance and the shape of regulatory policy–are difficult to draw.

Finally, and more broadly, I think Bean misses an opportunity to draw out some larger conclusions about the relationship between business and politics or (more precisely) about the ways in which business influences politics. My own view is that business influence takes four closely related forms. First, private control over employment and investment (as Fred Block and Charles Lindblom and others have suggested) sharply restricts the autonomy of political actors. The market imprisons politics, as the state depends upon private interests to maintain stable employment and growth and defines its own role around the same goals and values. Second, and especially in the American setting, political competition itself is capital-intensive. With little public support of political parties or candidates and little public control over private investment in politics, economic power is easily translated into direct political power and influence. Third, just as economic interests have the resources to shape and constrain politics, they also have a heightened stake in political outcomes. They are willing and able to shape the administration of public policy, even (as conservative and radical critics of American industrial policy have agreed) to “capture” regulation of their sector or industry. And fourth, business interests are dominant in cultural and ideological life as well, able to use their other advantages to dominate and shape mass communication in such a way as to portray business interests as “general interests” and threats (from labor or the state) as marginal or illegitimate.

How does Bean’s account fit into this framework? Certainly small business could not claim the control over private investment and employment that formed the foundation of big business’s privileged political status. This, I think, is a better explanation for small business’s uneven legislative record than (as Bean stresses) the relative disorganization of small producers and retailers. Larger firms, after all, were no better organized and suffered all the same dilemmas of collective action–and ambivalence about politically enforced collective action–as their smaller counterparts. By the same token, the direct political efforts of small business could not command the same resources as leading corporations. Behind the ideological appeals, small producers claimed neither the votes nor the dollars to shape public policy.

Whereas Beyond the Broker State lets its ideological explanation obscure these material constraints on politics, its treatment of the administrative and ideological politics is much stronger. Indeed, I think Bean could have done much more with the administrative story; with the pattern by which small business advocates retreated after passage of a law and larger interests proved able to defang the administration of small business legislation, to adapt to it, or even to turn it to their advantage. Here Bean approaches, but never really confronts, the problem of regulatory “capture” raised by Chicago School economists, the corporate response to antitrust traced by Neil Fligstein and others, and (importantly) the “corporate liberal” account of Progressive reform of which he is so critical.

Finally, although Bean’s dissection of small business ideology is the strongest and central element of this account, I would argue that such ideological appeals are important primarily as reflections of other forms of business influence. In part, this is Bean’s argument: in the absence of a strong organizational presence, “ideological entrepreneurs” counted more symbolic victories than real ones. But Bean also argues that those same ideological appeals provided an important check on corporate power–a conclusion that, in my reading, is not supported by Bean’s own evidence. In this respect, I think Bean’s account of the ideological battle needs to pay closer attention both to the other ways in which business interests exercise their political advantages and to the ways in which such ideas are articulated and promulgated in various media. Much of this story–the disorganization of economic interests, their ambivalence about political intervention, sloppy efforts by political actors to project the needs of business interests, and the often dysfunctional legislative results–is not unique to small business legislation. In a political economy in which politics, labor, and business are all relatively disorganized, but in which business interests enjoy a privileged political status, economic interests (regardless of their size) routinely confront politics with the clout to shape legislative outcomes but with a remarkably short-sighted sense of their political goals and needs. Beyond the Broker State offers a compelling sketch of the often chaotic character of business-government relations in the United States. In doing so it raises a host of questions–some of which it answers, some of which it struggles with–about the ways in which business interests view their place in the political economy, appeal for political assistance, and often clumsily shape political and administrative outcomes.

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

Beyond Labor’s Veil

Author(s):Weir, Robert E.
Reviewer(s):Friedman, Gerald

Robert E. Weir, Beyond Labor’s Veil: The Culture of the Knights of Labor. University Park, Pennsylvania, Pennsylvania State University Press, 1996. xx + 343 pp. Bibliography and index. $55.00 (cloth), ISBN 0-271-01498-9. $23.00 (paper), ISBN 0-271-01499-7.

Reviewed for EH.Net by Gerald Friedman, University of Massachusetts at Amherst .

The Knights of Labor (KOL) was the first national movement of the American working class. At its peak in 1886 the KOL brought together nearly a million members among skilled and unskilled workers in factories and farms from California to Maine, from Minnesota to Louisiana. More remarkable than its large membership, dwarfing any contemporary organizations, was the KOL’s policy of solidarity. Trade unions organized workers of common craft or trade, often excluding women and workers from racial and ethnic minorities in order to reduce the supply of labor to their trade. But the KOL united all workers without regard for trade, race or gender. Under the slogan “an injury to one is the concern of all,” the KOL sought to advance the condition of all through solidarity. A fraternal movement of productive workers would transform society, ushering in a new era of concord, social harmony, and good fellowship.

Despite its successes and pioneering strategy, the KOL has drawn relatively little sympathetic attention from historians. Less has been written of the KOL, for example, than of the much smaller and less influential Industrial Workers of the World not to mention the KOL’s offspring and rival, the American Federation of Labor (AFL). Much of what has been written about the KOL has been hostile. To the classic labor economists and historians, John R. Commons and Selig Perlman, the KOL’s mix of evangelical religion and trade union action made an incoherent stew. The KOL served only one useful purpose: its failure made obvious the superiority of the trade union form of organization upheld by the AFL over the mixed organization uniting workers without regard for skill or trade. And, the AFL’s triumph put to rest illusions that an organization dedicated to fraternity and broad social reform could succeed.

More recently, some historians have reexamined the work of the KOL and reached more favorable judgments. Two notable studies, Leon Fink’s, Workingmen’s Democracy: The Knights of Labor and American Politics (Urbana, Illinois, University of Illinois Press, 1983) and Richard Oestreicher’s, Solidarity and Fragmentation: Working People and Class Consciousness in Detroit, 1875-1900 (Urbana, University of Illinois, 1986), present the KOL as an effective union pursuing trade union ends through industrial organization and political action. A more recent study by Kim Voss, The Making of American Exceptionalism: The Knights of Labor and Class Formation in the Nineteenth Century (Ithaca, Cornell University Press, 1993), goes further. Voss attributes the KOL’s ultimate failures not to its own internal weakness but rather to the exceptional force that employers mobilized against it. Rather than proving its weakness, Voss argues that defeat was a sign that the KOL pursued a strategy so effective that it threatened the bases of class rule in America.

In the new approach, the KOL is no longer the ineffectual fraternal order denounced by Commons and Perlman. Instead, it is a proto-CIO, advancing the interests of all workers through industrial solidarity and radical political action. Robert Weir’s book is indebted to this new approach. He joins Fink, Oestreicher, and Voss in celebrating the KOL’s triumphs and blaming its ultimate failure on the opposition its success aroused among employers and the business community. “For all the KOL’s failures,” he writes, “neither socialists nor the IWW came close to its achievements [in promoting solidarity] and few AFL craft unions bothered to try” (p. 324).

But Weir’s work is much more than a restatement with new examples of a new consensus. Instead, he breaks new ground in ways that challenge the new labor historians as much as their older counterparts. The new consensus defends the KOL by treating it as an industrial union. But to Weir, the KOL was successful precisely because and only when it was not a union. The KOL successfully built solidarity not by promoting workers material interests but by uniting workers in a fraternal movement around ritual, song, poetry, and story. Following anthropological rather than economic historians, Weir argues that the KOL must be understood through its rituals, songs, poems, stories, and such material paraphernalia as pins, gavels, playing cards, and bookmarks. “Knighthood,” Weir argues “was an idea as well as a set of organizational arrangement” (p. 274) and it was constructed through ritual and by involvement with material object more than through the rational assessment of interest and advantage. In constructing solidarity in the KOL, “[o]bjects played an important role in the process by which abstractions were bonded to institutions.” For “many Knights,” Weir argues, “their identity was as much shaped by a dime-sized lapel pin as by the weighty pronouncements of convention delegates” (p. 231).

Weir’s revised history of the KOL emphasizes it cultural expression rather than the industrial disputes and political contests stressed by previous labor historians. Instead of the traditional drama of ideological struggle between socialists and reformers, and advocates of industrial organization against craft unionists, Weir’s KOL is divided over the nature of the secret ritual, the color of union labels, and the choice of poetry and song. In this way, Weir presents a new interpretation of the KOL’s rise and fall. Admitting the power of employer opposition to the Knights, Weir nonetheless places responsibility for the collapse of the KOL elsewhere. “Material desires,” he argues, “ultimately undid the Knights of Labor” by leading the KOL away from ritual and fraternal bonding. By abandoning secrecy and ritual, by “pushing aside the veils of secrecy and taking its crusade for a cooperative commonwealth to the workplace and the street,” Weir laments, “the Knights attracted attention, but not always the kind it wanted” (p. 64). Had the KOL continued the slow but steady work of building a fraternal counter-culture secretly and through the meticulous observance of ritual, then, Weir suggests, the KOL would have been able to stand up even against employer and state repression.

Weir’s work provides valuable insights for labor historians and other interested in KOL. By assuming rational individualism, economists and many labor historians have been blind to the role that ritual, culture, and irrational emotion play in shaping social life. Weir is surely right that the KOL drew on deeper sources than the rational pursuit of individual material interest; one may question how such concerns could ever lead anyone, worker or employer, into collective action. The KOL must, as Weir argues, have built solidarity on emotional connections. But it is less clear that these connections were made, as Weir argues, by ritual and cultural objects, or whether they were forged by participation in social action. The substance of much labor history, public action is slighted by Weir’s focus on private ritual. But it could be that public demonstrations were more important than the rituals he emphasizes, in shaping the KOL’s culture of solidarity. Weir notes the importance of public demonstrations of solidarity in his discussion of KOL parades, picnics and athletic events. But he is curiously oblivious to the equally important, or more important, public demonstrations of solidarity around the traditional events of labor history, including strikes and political rallies. Here the question becomes not whether culture and emotional connection mattered but whether the cultural artifacts central to Weir’s study are at the root of the solidarity created, however ephemerally, by the KOL or whether they are epiphenomenon, a sign of sentiments nurtured elsewhere. And whether these emotional connections were really nurtured in the events described in the traditional labor history.

Seen in this way, Weir’s dichotomy of cultural history versus traditional, economic-determinist history appears forced. Like many historians of his generation, Weir appears determined to break history away from economics and away from anything about which economists have written. But far from discounting the industrial disputes and political conflicts central to earlier labor histories, Weir may well have shown again how important these events can be precisely because it is in these events, more than any other, that emotional connections are made binding workers together.

Despite these reservations, I would recommend Robert Weir’s book to all economic historians and labor historians. Weir has written a valuable book that should be read by all regardless of interest in the Knights of Labor. His study challenges our conventions not just about the Knights or the late-nineteenth-century American labor movement, but about social life in general.

Gerald Friedman Department of Economics University of Massachusetts at Amherst

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Subject(s):Labor and Employment History
Geographic Area(s):North America
Time Period(s):19th Century

Networks of Innovation: Vaccine Development at Merck, Sharp and Dohme, and Mulford, 1895-1995

Author(s):Galambos, Louis
Sewell, Jane E.
Reviewer(s):Madison, James H.

EH-NET BOOK REVIEW Published by H-Business@cs.muohio.edu (November 1996)

Louis Galambos with Jane Eliot Sewell, Networks of Innovation: Vaccine Development at Merck, Sharp & Dohme, and Mulford, 1895-1995. New York: Cambridge University Press, 1995. xii + 274 pp. Notes, bibliography, and index. $39.95 (cloth), ISBN 0-521-56308-9.

Reviewed for H-Business by James H. Madison, Professor of History, Indiana University, Bloomington

A New Company History

Networks of Innovation reminds the reader of the grand company histories written in the middle third of this century. Like authors of these earlier histories of textile and railroad companies, Louis Galambos and Jane Eliot Sewell explore closely the internal workings of a business organization, sometimes in the kind of detail that the general reader will wish to skip. But while Networks of Innovation looks internally at company history, it also seeks aggressively to move outward, to raise large questions of business evolution generally and of innovation particularly. In this wide reach it becomes a book about much more than three companies.

Galambos and Sewell examine three pharmaceutical companies. They tell briefly the story of H. K. Mulford Company, which in the 1890s developed a new serum for diphtheria, rose to success in the 1910s, declined in the 1920s, and then was purchased in 1929 by Sharp & Dohme. Sharp & Dohme struggled not only with the Depression but also missed opportunities in vaccine development in the 1940s and 1950s, to be merged with Merck in 1953. It is with Merck that the authors really begin their close look at a pharmaceutical company. They focus tightly on the process of innovation in new vaccines at Merck. Led by Maurice Hilleman, the company developed a highly successful vaccine for measles, mumps, and rubella. As the science on which this success was based gave way in the 1970s to new research in biochemistry, a new scientist, P. Roy Vagelos, took over leadership in 1975 and moved the firm to areas such as recombinant DNA research. Merck’s success over the last several decades was acknowledged in 1989 when Fortune‘s poll of business executives ranked the firm as the most respected corporation in the country.

The story Galambos and Sewell tell is not one of upward progress through the decades, however, and certainly not a success easily guaranteed. Rather, they argue for long cycles of change in which processes of innovation are central and for which the organization must have means of reading the new science and technology, of guiding the business to it, and of preparing for the next cycle. They emphasize the ways in which both Mulford and Sharp & Dohme failed in the first decades of the twentieth century to understand change. And they show the manner in which Merck succeeded in the last decades of the twentieth century.

A central feature in successful innovation, especially at Merck, the authors argue, was forceful leadership. And it is leadership, they claim, that needs more attention and that historians in recent decades have slighted: “The popularity of social history ‘from the bottom up,’ the interest in culture and diversity, the reaction against history as a study of the accomplishments of great white men, and the enthusiasm in some quarters for impersonal, behavioral explanations of organizational performance have all undercut scholarly analysis of the decisive role of leadership in modern institutions,” they assert (p. 76). Many historians would counter that our discipline is far more complex than this zero-sum game view suggests.

Galambos and Sewell do not write the history of these firms as the history only of a few great men, however. They pay close attention to broad contexts, particularly the mix of government, university-based research, and business that became increasingly central in many industries by the late twentieth century. This mix, they argue, has been “unusually creative” (p.x) but is now threatened by the health care reforms of the 1990s (a conclusion not all readers will share). In addition to looking outward, the authors examine the scientific and medical base for research and development at Merck, a subject to which Sewell, a historian of medicine, brings strength to complement Galambos’s expertise in business history. And they delineate most interestingly the processes of linkages by which Merck’s scientific and business leadership incorporated the changing scientific research base into the company’s innovation.

In their tight focus on innovation and on leadership, there are subjects Galambos and Sewell slight. They have not attempted a full-scale business history. There is little attention to distribution and marketing, for example, and almost none to employees and the corporate culture at the three companies studied. Their scope is selective rather than comprehensive.

In their access to archives, Galambos and Sewell had the advantages of many earlier company historians. Merck provided full access to its company archives. And the authors had the benefit of interviews with key Merck leaders. Indeed, the study began as a report prepared by the authors for internal company use, which they then revised for publication in book form. In this process the historians had scholarly freedom to arrive at their own interpretations. This access and freedom, of course, are important criteria for scholarship. Some readers will suspect, however, that the authors are so close to Merck and its leaders over the last two or three decades that they may have missed insights and perspectives that later scholarship will reveal. Some may even use the book to renew the old debate about robber barons and industrial statesmen.

Of course, contemporary history always becomes clearer with the passage of time, particularly in bringing to light innovations missed but not apparent until decades later. And to their great credit, Galambos and Sewell look not only internally but also externally as they push hard to see the larger meanings in the three firms they study. If they have some of the weaknesses of the old company histories they have also the strengths of recent scholarship in business history and the history of science. And rather than waiting until the textile and railroad industries were in decline, as their predecessors did, Galambos and Sewell have the courage to work in core areas of science-based industry evolving today and to bring that story to the present. Their attempt to grapple with the slippery subject of innovation in late-twentieth-century American business is itself an innovation.

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

Opening America’s Market: U.S. Foreign Trade Policy Since 1776

Author(s):Eckes, Alfred E. Jr.
Reviewer(s):Khula, Bruce A.

Alfred E. Eckes, Jr. OPENING AMERICA’S MARKET: U.S. FOREIGN TRADE POLICY SINCE 1776. Chapel Hill: University of North Carolina Press, 1995. xi + 402 pp. Illustrations, tables, bibliography, and index. $34.95 (cloth); ISBN 0-8078-2213-2.

Reviewed by Bruce A. Khula, The Ohio State University, for H-BUSINESS November, 1995. bkhula@magnus.acs.ohio-state.edu

Historians of American business and foreign policy will benefit from a careful reading of Alfred E. Eckes’s newest book, OPENING AMERICA’S MARKET. As an historian at Ohio University and a former commissioner for the U.S. International Trade Commission, Eckes provides an insider’s knowledge coupled with the nuance and analysis that one expects of a seasoned historian. Although Eckes is clearly not the first to examine the economic dimensions of American foreign policy, his contribution nevertheless stands out. Much of the history written on American foreign economic policy has focused on the efforts of policymakers to open foreign markets for American goods. Eckes’s book is concerned instead with policymakers’ efforts to open the American market to foreign imports. The story Eckes tells is a fascinating one, and his conclusions necessitate a reexamination of America’s current obsession with the doctrine of free trade.

In OPENING AMERICA’S MARKET, Eckes has three principal arguments. First, he claims that American trade policy was explicitly and consciously protectionist from the early days of the Republic until the New Deal, when it underwent a dramatic shift toward free trade. Second, Eckes argues that before the New Deal, U.S. trade policy was designed to achieve domestic objectives but that, over the course of the 1930s, trade policy was ordered to fit the needs of American diplomacy. Eckes’s final, implicit argument is an observation and a warning that free trade may not be the only, or even the best, route to economic growth and national prosperity. As Eckes forcefully contends, a great deal of American economic growth came during years of high tariff barriers.

Eckes hopes his book will benefit policymakers as well as scholars. Having served on the International Trade Commission from 1981 to 1990, from 1982 to 1984 as chairman, Eckes laments the paucity of historical knowledge that American officials bring to trade negotiations. Policymakers and historians alike would do well to read this book. Eckes’s writing is smooth, his arguments are compelling, and the subject is both timely and important.

Eckes begins his analysis of American trade policy by examining its origins in the years following 1776. Early American leaders like Benjamin Franklin and Thomas Jefferson were strong proponents of free trade. Influenced by the writings of Adam Smith, these leaders believed that the peace and prosperity of the young nation depended on unrestricted access to foreign markets. If the United States was willing to offer reciprocal and open access to all nations, policymakers reasoned, American consumers would gain access to desired manufactured goods even as foreign consumers were enjoying American agricultural products. Accordingly, when the Tariff Act of 1789 was passed, it embraced universal nondiscrimination by utilizing a single-schedule tariff. Eckes notes that, although this act emphasized the American commitment to equality among nations, it also handicapped the president by depriving the executive branch of the ability to bargain during trade negotiations.

The initial free trade goals of Franklin and Jefferson fell into disrepute as the United States entered the nineteenth century. Alexander Hamilton had questioned them from the beginning. His “Report on Manufactures” was openly protectionist, endorsing a comprehensive system of tariffs and subsidies designed to enhance and protect American manufacturing. Hamilton took issue with Adam Smith’s free trade doctrine, claiming that it failed to promote the long-term interests of the nation. The strengths of Hamilton’s critique were underscored by the experiences of the War of 1812, which Eckes credits with generating “a major shift away from the idealistic policy of promoting equality and reciprocal access” (p. 18). Repeated European violations of American shipping demonstrated the economic vulnerability of the nation. Swelling nationalism provided figures like Henry Clay with a political foundation to promote a strong domestic manufacturing base. Clay’s “American System” consciously put the interests of the nation and its producers before the interests of its consumers. According to Eckes, Clay’s protectionism became the clear consensus of American policymakers until the Great Depression. They realized that free trade did not serve the interests of the young nation, and they were not afraid to erect high tariff barriers. After all, before the Civil War, American diplomats were not terribly concerned with winning access to foreign markets, and until the 1930s, “diplomacy remained an instrument of commerce” (p. 27).

In the years between the Civil War and the New Deal, the Republican Party emerged as the champion of protectionism. As pre-Civil War policymakers had, Republicans considered the short-term consumer gains promised by free trade less important than the long- term gains of increasing employment, industrial maturation, and economic diversification. Republicans dismissed State Department claims that reciprocity served American interests. If a nation lacked a consumption-oriented society, Republican politicians argued, offering that nation reciprocal access to the American market in no way secured the interests of the United States. Therefore, under Republican guidance, American trade policy established low tariffs on necessary raw materials but kept tariffs high on value-added manufactured goods.

According to Eckes, this selective tariff policy had several impressive results. It provided the national government with a steady and substantial source of revenue. In addition, American consumers were not seriously harmed by high tariff barriers; as a result of competition and the rise of big business, prices actually declined. Finally, contrary to the expectations of modern-day economists, economic growth was not retarded by protectionism but expanded during this period. Eckes asserts that his research uncovered “no significant negative relationship between high tariffs and real economic growth” (p. 55).

Clearly, the most contentious argument in this book is Eckes’s claim that the 1930 Smoot-Hawley Tariff was not the disaster that most historians consider it to have been. In a spirited attack on the conventional wisdom, Eckes attempts to prove that politicians and ideologues have “transformed a molehill into a mountain” (p. 139). Eckes dismisses claims that Smoot-Hawley raised tariffs to unprecedented levels. The highest rate on ad valorem goods applied to only about one-third of American imports, and even then it was actually lower than the rate of the 1828 “Tariff of Abominations.” Furthermore, Eckes argues that the impending tariffs of Smoot-Hawley had little to do with the 1929 Stock Market Crash, and he insists that the act was not as singularly damaging to world trade as critics suggest. Finally, Eckes demonstrates that few formal protests by foreign nations were filed against Smoot-Hawley: foreign retaliation was more mythical than real. Concluding his effort to revise the history of Smoot-Hawley, Eckes writes that Congress was looking out for American interests and in passing the tariff act was in fact acting “prudently” (p. 137)

The single most important individual in Eckes’s book is unquestionably Cordell Hull. Devoted to free trade, Hull took advantage of the Democratic Congress and used his influence as Secretary of State to engineer a “revolution in U.S. trade policy” (p. 98). Abandoning its 120-year old protectionist legacy, the United States embraced free trade. Under the auspices of the Reciprocal Trade Agreements Program (RTAP), the United States unilaterally slashed its high tariff barriers to encourage foreign nations to do the same. Hull promised to reverse the worsening pattern of global trade without injuring American producers. This “no-injury” pledge was to be policed by the State Department, which the RTAP empowered with negotiating authority. By minimizing congressional interference with tariff-making and packing the U.S. Tariff Commission with free traders, Hull advanced a series of policies that provided virtually unimpeded access to the American market for all nations. Eckes points out that U.S. officials had the power to enforce American commercial rights, but that they consciously avoided doing so. Not only did these steps fail to promote American exports, but they also demonstrated that trade policy had finally been subordinated to foreign policy. Hoping to promote peace and stability through international economic cooperation, American diplomats ignored domestic interests. The long-term negative consequences of such a policy were not immediately apparent, however, for the artificial economic environment of World War II kept both employment and production high.

As the Second World War came to a close, Hull’s vision received a new lease on life with the coming of the Cold War. Trade policy became a key component of containment. Once again subordinating domestic needs to foreign policy, American officials promoted free trade to reconstruct and integrate Western Europe while isolating the Soviet Union and its satellite states. As the Republican Party began to emerge from the political wilderness, its membership initially moved toward a traditional pro-tariff position. The Republicans were soon co-opted by President Harry Truman’s strident anti-communism, however, and they reluctantly accepted Hull’s trade revolution. One result of foreign policy preoccupation and Republican acquiescence was an emerging “pattern of tolerance for discrimination against American exports” (p. 164). Not only did the government encourage American companies to invest abroad, but it also used taxpayers’ dollars to promote importation of foreign manufactured goods. President Dwight Eisenhower contributed to the trade revolution by concluding an excessively-generous trade agreement with Japan in 1955, and his successors, presidents John Kennedy and Lyndon Johnson, made even more radical changes.

Focusing on the Kennedy Round of the General Agreements on Tariffs and Trade and the Trade Expansion Act of 1962, Eckes illustrates the shortcomings of American trade policy in the 1960s. The executive branch was granted unprecedented levels of discretionary authority, yet it failed to obtain significant foreign tariff concessions, abandoned the “no-injury” pledge, exacerbated balance-of-payments problems, and created the first American trade deficit since 1893. As Eckes sees it, Japan was the “real winner” of 1960s American trade policy. Providing minimal concessions and receiving maximum access to the American market, the Japanese received a “phenomenal deal” (p. 200). Responding to growing public suspicion of trade liberalization, President Richard Nixon and Congress initiated a shift toward protectionism in the 1970s by adopting rigorous enforcement of trade laws and congressional oversight of trade negotiations. Yet this reaction was too little, too late. Focusing on the loss of American industrial employment and the trade deficit, Eckes writes that “the Kennedy and Johnson administrations unwittingly made a series of policy decisions that contributed to the domestic economic dislocations of the 1980s and 1990s” (p. 218).

Eckes is sharply critical of American trade policy following Cordell Hull’s revolution. Not only did American officials fail to promote exports, but they also made no effort to enforce the terms of trade negotiations. Theoretically, the existence of “escape clauses” allowed the United States to absolve itself of treaty obligations if it were being treated unfairly, but in practice such clauses were empty concessions on the part of foreign governments; to minimize international conflict, the State Department refused to invoke them even in the face of blatant discrimination. Escape clauses were not actually used until the mid-1970s, but by 1985, however, they had once again fallen into disuse, victim of the Ronald Reagan administration’s zeal for free trade.

By the 1930s, American trade negotiators were also failing to prevent “dumping” and to enact effective countervailing duties. Antidumping legislation in the United States was limited in nature and provided broad executive discretion. The result, not surprisingly, was its subordination to larger foreign policy goals. Prior to the 1930s, the U.S. government employed countervailing duties to protect domestic industry against products made from industries subsidized by foreign governments. Like antidumping and the escape clause, the strategy of applying countervailing duties was set aside for foreign policy goals.

OPENING AMERICA’S MARKET is an ambitious book. In attempting to explain trade policy since 1776, Eckes has made a major contribution to the existing scholarship on American foreign economic policy. His treatment of trade policy during the Cold War suggests that historians who accuse the United States of self-aggrandizement have ignored a key piece of the puzzle. Eckes is, however, by no means uncritical of American Cold War trade policy, which he argues “imposed unnecessary burdens on U.S. producers and workers, severely harmed long-term U.S. economic performance, and circumvented the authority and will of Congress” (p.177).

For all its merits, the book is not without a few problems. As a former trade commissioner, Eckes occasionally attributes excessive importance to trade officials or tariff acts. Although Eckes explicitly backs away from asserting that trade policy was the primary stimulus for American economic growth, there are places in the text that seem to belie this distancing. One section of the book finds Eckes comparing a period of high tariffs (1890-1910) to a period with dramatically reduced barriers (1972-1992). He finds that the growth rate of Gross National Product (GNP) and per capita GNP during the high-tariff period was actually greater than that of the low-tariff period. This comparison seems fraught with problems. The second industrial revolution, the rise of big business, and the 1895-1905 merger wave make the period from 1890 to 1910 a tough act to follow. Whatever the trade policy had been during this period, these other factors would clearly have generated dynamic and substantial growth. From 1972-1992, on the other hand, American business buckled under the pressures of major corporate restructuring, an aging industrial base, and the reemergence of foreign competition. Regardless of existing trade policy, the economic growth of this period would likely have been stifled.

It would be wrong to belabor this point further, however. Eckes has not demonstrated the primacy of trade policy (and indeed he has not attempted to), but he has provided a needed corrective to historians who fixate on the firm as the source of economic growth. Along with politicians and trade negotiators, business and diplomatic historians must take Eckes’s arguments into account: his research is thorough, his knowledge of the issues impressive, and the questions he raises cannot be ignored.

Bruce A. Khula, The Ohio State University bkhula@magnus.acs.ohio-state.edu

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Subject(s):International and Domestic Trade and Relations
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Cities of Heat and Light: Domesticating Gas and Electricity in Urban America

Author(s):Rose, Mark
Reviewer(s):Castaneda, Christopher J.

CITIES OF LIGHT AND HEAT: DOMESTICATING GAS AND ELECTRICITY IN URBAN AMERICA. By Mark H. Rose. (University Park, PA: The Pennsylvania State University Press, 1995). 201 pp. + xviii, bib. essay, and index. $34.50. Reviewed by Christopher J. Castaneda, California State University, Sacramento.

By relating the development of household gas and electric utilization to theories of technology and society, Mark Rose tests a long-standing debate. Simply put, does technology shape society or does society shape technology? Rose provides a careful analysis of the gas and electric business to show that a complex interplay of social, political, and economic contexts shapes technological development.

Rose focuses his study on the urban spaces of Denver and Kansas City through the year 1940. After 1940, he generalizes on a nationwide basis although he presents much more material relating to the earlier period in the two cities. Rose’s involvement with this topic began in the mid-1970s, when he, in collaboration with John G. Clark, initiated research on the topic of energy choices in these cities while teaching at the University of Kansas. He noted the many differences between Denver and Kansas City, but the author was struck by the triumph of “urban politics, middle-class tastes, and the social-spatial composition” in both. (p. 11) In some respects, the similarities between these cities may limit our ability to extend their specific experiences to those of east and west coast locations; Rose’s observations are particularly cogent for the midwestern experience.

Certainly, in these cities as well as others in the U.S., early gas and electric firms promoted their services through a variety of methods in order to develop a customer base. It gradually became clear that electricity and gas were simply cleaner and easier to use than other domestic fuels such as coal. But what exactly was the larger social process through which the gas and electric business developed? This is the question Rose seeks to answer.

Rose tells us that “agents of diffusion” were responsible for distributing both the ideas about the new technology and the appliances themselves. These agents included teachers, architects, homebuilders, and salesmen. The most important of these were salesmen who worked for the utility entrepreneur, Henry L. Doherty. Doherty rose to prominence in his industry as an innovator in devising rates and promotional activities. His three part flexible rate structure encouraged gas consumption while his well-trained, clean, polite, and prompt salesmen sought to represent those same qualities in the electric or gas service they were selling. Rose’s account of the Doherty System is interesting and important for it brings forth the sales techniques of an early industry which offers new material for inquiry.

Doherty, later the head of Cities Service Company, was in many ways like Samuel Insull; both men controlled vast public utility holding company empires. Insull is more well known – in part because of the work of Harold Platt and Forrest McDonald – and also because of the infamous collapse of his empire. But Insull operated in Chicago, and Doherty was strong in the central United States including Kansas City and Denver. Thus, Rose has provided a valuable contribution by examining a part of the career of another public utility captain who controlled the gas and electric business in a large part of the United States.

Rose examines other less prominent though effective agents of diffusion including J. C. Nichols and Roy G. Munroe. Munroe never advanced beyond a mid-level salesmen, albeit a successful one, while Nichols became a prominent developer. Both promoted gas and electric technologies from different perspectives but to the same end. Other players in the scheme included teachers. In vocational schools, students studied the gas and/or electric facilities used to light and heat their own buildings. Many of these students would later find employment with the local utility firm. Public schools served indirectly as models for the ideal of gas and electric technology. Codes required a high level of illumination and ventilation in classrooms in order to provide a healthful and supportive learning environment for teachers and students.

In the home, appliances relieved the drudgery and heavier labor involved in domestic housekeeping, though they often created new chores, while other new technologies provided benefits to men in their work places. Ideally, irons, refrigerators, stoves, air conditioners, and heaters provided people with the ability to begin to regulate their own built environments. Rose shows how these appliances, which tended to benefit women and housekeepers, were marketed to increase the more feminine qualities of “comfort, convenience, and cleanliness” of the home. (p. xv)

The very brief analysis of the post-1940 era is not as convincing as that of the earlier one. It is essentially a cursory review of the continuing growth and promotion of gas and electric power utilization through the mid-1980s. The complex regulatory, marketing, and technological developments of the last fifty years, though, would provide fertile ground for an in-depth analysis of the social history of the light and power business during that period.

This work does elevate the scholarship of the U.S. gas and electric business. In this regard, Rose jousts with Alfred D. Chandler’s statement in The Visible Hand that electric, gas, and trolley systems of the 1920s “remained smaller and less complex than the older railroad systems.” (p. 204) Certainly, the hundreds of thousands of diverse customers dealt with on a regular basis by gas and electric employees, varying rate schedules, and a multi- level public policy suggests a higher level of complexity in those newer urban technologies than Chandler suggests.

There are integral parts of this story that deserve additional attention. The author effectively shows how coal stoves, for example, were displaced by cleaner and more easily maintained gas stoves. While Rose does distinguish between natural gas and manufactured coal gas, he might have delved further into the transition from manufactured gas to natural gas; the natural variety was significantly cleaner and more hygienic than the coal and oil based variety. How did gas companies promote this intra- industry fuel shift to their customers? In addition, did utilities market gas and electric service directly to other groups besides upper-income white families.

The author accurately describes Henry L. Doherty as a master of promotion, public relations, sales techniques, and rate structures. But Doherty may not have consciously sought to adapt the gas industry to the urban environment as much as he simply desired to find the best way to gain control over the markets which he claimed. Although this book is not about the process of bringing fuel to the cities (as opposed to how it is used in the city), Doherty was a ruthless competitor who sought to destroy and/or acquire those who tried to supply fuel to the markets he called his own. Thus, Doherty’s insight into marketing was probably influenced less by a desire to adapt his business to the consumer than a drive to show the consumer how to benefit from his product. Although the book tends to downplay the capitalistic tendencies of men like Doherty, it does describe well the social outcome of their work.

This book cuts across the disciplines of urban history, energy history, and the history of technology. It draws upon a wide variety of sources including corporate records and trade journals. The mix of biography, technical data, and descriptions of urban development make for a well composed and well written book which provides a very useful foray into the technological evolution of the 20th century home. Rose has succeeded in showing how social, political, and economic forces shaped the gas and electric business in Kansas City and Denver, and how these forces worked to domesticate energy nationwide.

Christopher J. Castaneda California State University, Sacramento cjc@saclink1.csus.edu

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII