Economic Principals

Among the American casualties of the war in Iraq may be the weekly newsmagazines —-- Time, Newsweek and US News and World Report. They will be wounded by the action.

The kind of summing-up and context-placing that for 75 years has been their bread and butter is increasingly superfluous in a world where many other well-informed and seemingly independent voices are available practically on demand.

With the rise of the Internet and the continuing differentiation of broadcast news, authority in the English-language news business is fragmenting further. With news being reported throughout the day, there is less impetus, not more, to sitting down with a newspaper at breakfast or a magazine at the end of the week.

The advertising recession has been particularly hard on magazines.

Granted that under large corporate sponsorship, ABC (Disney) and NBC (General Electric) have scrambled back to once again slug it out with Fox (News Corp.) and CNN (Time Warner). CBS (Viacom) has continued to decline. The BBC, one of the truly great news franchises in the world, is attempting a late comeback.

Thanks to rapidly evolving technology, however, a true mass-market in broadcast news is as absent today it is in print or wire news, where the Associated Press, Bloomberg, Dow Jones and Reuters continue to slug it out.

That doesn't mean a relatively stable universe of news-gathering organizations will never exist again. It does mean that the old mechanisms of integration are, well, old.

And as they lose their large audiences, the newsweeklies probably will go the way of the old general-interest US weeklies — Life, Look, The Saturday Evening Post. The war in Iraq will be seen as an inflection point in their decline.

Don't look for them to fold, however. In a day in which almost any well-established brand name can be profitably operated, if not operated at a profit, they'll almost certainly survive. But their impact on public opinion, decreasing for years, may be diminished further.

(For instance, the current edition of The Saturday Evening Post, published now by the Benjamin Franklin Literary and Medical Society, a non-profit organization, features an editorial, "What Should Be Done with Saddam Hussein?" — and a feature-length telephone interview with its cover artist.)

The exception among the newsweeklies may be The Economist, founded in London in 1843 to boost the new-fangled ideas of bankers, traders and economists. The magazine (which its employees call "the paper,") has remained influential ever since, thanks to nimble footwork.

Today it serves a world-wide readership of extraordinary quality. More than half of its 800,000 or so copies are sold in the United States. This audience is sliver-thin, but it is the right sliver – or, rather, one of the right slivers.

Yet even here, the anecdotal evidence is that readers are paying less attention to its views than in the past. If, during the coming wave of creative destruction, The Economist maintains its central location in the marketplace of ideas, it will be for two reasons.

The canvas on which it paints is not just global, but broadly intellectual as well. When they are not framing the news themselves, the editors are cultivating the people who make the frames.

A case in point is that of John Micklethwait and Adrian Wooldridge, authors of a short new book called The Company: A Short History of a Revolutionary Idea. From London, Micklethwait oversees the magazine's coverage of the United States. Wooldridge is chief among its correspondents stationed in Washington, D.C.

Their idea is to trace the history of the company, as distinct from the family or the city-state, from its roots in ancient Rome and its reappearance in ninth century Venice, through its evolution as the great European joint-stock companies that explored and colonized much of the world, to its perfection (more or less!) in England during the second half of the 19th century as the limited liability company. And that's just the first three chapters.

After that comes the rise of large-scale business in America, Britain, Europe and Japan and the subsequent triumph of managerial capitalism. Then, starting around 1975, begins the paradox. Precisely at the height of its power, the multinational mass-market corporation comes under unprecedented attack by outside forces. As exemplified by, say, Sears or General Motors, or the great state-owned enterprises of Europe, not to mention the productive apparatus of the centrally-planned economies — begin a great unbundling that has not ended yet.

To explain the rise of big business, the authors rely on Alfred Chandler. To explain its transmogrification into something far more complex, they turn to Ronald Coase, the great British economist who pierced the veil of corporate mystery with the concept of "transactions costs." Companies existed to do things more efficiently for themselves than could be done on the open market, Coase found. When companies grew over-large, or when the market in which they existed became more efficient, dis-integration would be the result.

"For instance, Ford's River Rouge plant in Dearborn, Michigan, had once represented the zenith of integration, employing 100,000 workers to make twelve hundred cars a day, and producing almost everything by itself, including steel. Yet, by 2001, 3,000 people at River rouge produced eight hundred Mustangs a day, mainly assembling parts sent in by outsiders, and Ford's bosses were talking about becoming a 'vehicle brand owner,' which would design, engineer and market cars but not actually make them."

It is, in short, a wonderful book, light, lively, well-informed, perfect to be read in the course of a long airplane trip. It is open-ended, in The Economist style. Three "possible futures" are identified, in order to be discounted: either a few big companies take over the world; or familiar companies vanish altogether and are replaced by anonymous fabricators, of which Enron is the most notorious example; or else existing corporations partner up in the extensive networks known as "strategic alliances." And the beauty part is that The Company complements this week's edition of the magazine nearly perfectly.

But of course all the same trends that Micklethwait and Wooldridge describe are buffeting the news industry. Certainly there the big companies give no sign of going away. Indeed, even more combinations may be in the offing. The framing function is still vital – perhaps more vital than ever.

Here, perhaps, technology once again favors the daily paper. It is true, as The Economist wrote in a recent issue, that there are too many of them, at least in Britain. But as news integrators go, look for at least some of the dailies to gain readers and advertisers at the expense of the old weekly news magazines.

Indeed, one of the most interesting competitions in the industry involves the daily Financial Times vs. the weekly Economist. (Pearson owns most of the first and some of the second.) That's the contest that bears watching.