Here's a homework assignment to occupy your minds while I'm away.* In the winter/spring of 1901, J. P. Morgan and his minions assembled what became if not the first, then certainly one of the greatest, of industrial cartels. The venture made millionaires out of countless plodding managers who had surely never dreamt of wealth on anything like so grand a scale. During its first year of operation (per Wiki) it comprised something like 67 percent of the nation's steel production.
It would be fascinating to look inside the mind of Morgan as he orchestrated this great edifice. Money of course; Morgan clearly loved money. Yet even more than money, he seems to have loved power, and together with power, good order. Morgan clearly found competition anarchic and, worse, wasteful A part of him very likely believed that by creating US Steel, he had built an enterprise that would make a better life for it workers and its customers as well as its owners.
Perhaps he did. Yet it is clear that he also created a virtual showcase for the economic vices of the cartel: a company almost Ottoman in its sluggish complacency--a company which, in after the miracle of its creation, seems never to have done anything innovative or ground-breaking in industrial history ever again. You could see all this, if not before, then in the post-World-War-II period when the great behemoth painfully lurched towards irrelevance. As upstarts around the world began to devise new ways to do an old business, USS (and, yes, its unions) slowly choked on a virtual edema of excuses and evasions.
Now compare US Steel with ATT, "the telephone company," another and even more explicit monopoly/cartel, created just six years later. It's easy to forget in the mist of time that ATT did not begin life as the "natural monopoly" as so many people may age were long habituated to regard it. No: it took unction and guile and a lot of hard work to clothe the original telephone idea with the garment of universality that gaze the system its sanctity.
But here's the fascinating parallel. As I say, USS (would anybody argue with this?) never innovated anything. Meanwhile ATT in 1925, still just at the beginning of its ascent to dominance, spun off what may well be the most enduringly creative research institution in the history of the United States, maybe the world.
For valuable prizes, why did one company become USS and the other become ATT?
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*Oh, didn't I mention? We're off to Europe for some summertime opera. No, not Wagner, we don't do Wagner.
It would be fascinating to look inside the mind of Morgan as he orchestrated this great edifice. Money of course; Morgan clearly loved money. Yet even more than money, he seems to have loved power, and together with power, good order. Morgan clearly found competition anarchic and, worse, wasteful A part of him very likely believed that by creating US Steel, he had built an enterprise that would make a better life for it workers and its customers as well as its owners.
Perhaps he did. Yet it is clear that he also created a virtual showcase for the economic vices of the cartel: a company almost Ottoman in its sluggish complacency--a company which, in after the miracle of its creation, seems never to have done anything innovative or ground-breaking in industrial history ever again. You could see all this, if not before, then in the post-World-War-II period when the great behemoth painfully lurched towards irrelevance. As upstarts around the world began to devise new ways to do an old business, USS (and, yes, its unions) slowly choked on a virtual edema of excuses and evasions.
Now compare US Steel with ATT, "the telephone company," another and even more explicit monopoly/cartel, created just six years later. It's easy to forget in the mist of time that ATT did not begin life as the "natural monopoly" as so many people may age were long habituated to regard it. No: it took unction and guile and a lot of hard work to clothe the original telephone idea with the garment of universality that gaze the system its sanctity.
But here's the fascinating parallel. As I say, USS (would anybody argue with this?) never innovated anything. Meanwhile ATT in 1925, still just at the beginning of its ascent to dominance, spun off what may well be the most enduringly creative research institution in the history of the United States, maybe the world.
For valuable prizes, why did one company become USS and the other become ATT?
--
*Oh, didn't I mention? We're off to Europe for some summertime opera. No, not Wagner, we don't do Wagner.
3 comments:
Hmm...I'm wondering if in part that during, say, 1900-1940, there wasn't much in the way of technological innovation that would have seriously made USS more productive / efficient. Steel then was very much an industry where scale mattered; "mini-mills" were far in the distance, and what technological innovation there was dealt with the product, not the means of production.
On the other hand, for AT&T, there was no way that operator-connected calls were going to scale up to a nationwide network. They needed innovation in electro-mechanical switching to be able to build the planned network. Once the infrastructure of Bell Labs / Western Electric was put into place, it perpetuated itself.
At&T had to appease regulators, so Bell Labs was essentially marketing ("see, we are reinvesting our profits and innovating.") USS was a monopolist of a different kind, it wasn't a regulated utility.
The two previous points led me to a couple of thoughts:
1. In the right circumstances, regulation can counter the evils of monopoly. And monopoly is sometimes useful, for example in supplying power or water to a city. Unregulated business, whether monopolistic or not, grave endangers society by cheating its customers and workers(and sometimes its stockholders), poisoning environments, and creating societal mistrust.
2. Smallness is more often a virtue in business than the opposite.
3. Bell Labs, whatever the motivation for its creation, was an example of long-term thinking – taking profits from the parent's bottom line to fund future developments, which included not only better switching, but also better technology in general. (The transistor, since replace by the microchip, comes to mind.)
4. Of course, none of this matters because corporations will do what the general ethos demands they do. When even a president who is a Democrat defers to the short-term thinkers seeking increasingly profitable and predictable bottom lines, we are all royally screwed.
Yours very crankily,
The New York Crank
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