There is something a little eerie in reading about the life of Henry Poor, business analyst, co-founder of the business data firm Standard & Poor’s. Here’s the précis:
Henry Varnum Poor, who lived from 1812 until 1905, enjoyed a long, varied, and quite unique business career. He helped build the first Maine railroads; he was the first secretary of the Union Pacific Railroad; and he promoted railroads in the West and South. His investment house was the first agent for the English Association of American Bond and Shareholders. He was an editorial writer for the New York Times. He wrote numerous authoritative and forceful works on current economic problems. Most significant, however, to the historian and especially to the student of entrepreneurial history was Poor’s work as editor of the American Railroad Journal from 1849 to 1862 and as publisher of the Manual of the Railroads of the United States from 1868 until 1887.
As editor, compiler and analyst Henry Poor played a dual role in the highly dynamic business life of nineteenth-century America. In the first place, he pioneered in providing accurate and reliable business information and thus performed a new and essential function in a business world growing increasingly complex and specialized. The information he provided soon became invaluable to businessmen, promoters, entrepreneurs, and especially to investors…. Secondly, through the pages of the Journal and other periodicals and newspaper, Henry Poor carefully described and analyzed the profound economic changes going on about him and in which he was taking part.
The writer was Poor’s great-grandson, Alfred Chandler Jr., who lived from 1918 until 2007, and who also enjoyed a long and varied career in business — as a business historian. In 1950, when his biographical essay appeared in Explorations in Entrepreneurial History, Chandler was just starting out on his career. In due course, he would recapitulate in the twentieth century the broad outlines of his grandfather’s career in the nineteenth, writing as a historian rather than as a participant, taking as his topic the emergence of the large multidivisional corporation, not in one industry, but in many. Chandler’s Harvard dissertation on Poor represented “an initial grain of sand around which he constructed, layer by layer over the next forty years, an enormous pearl of sustained scholarship,” as his student Thomas K. McCraw put in the introduction to a commemorative anthology published in 1988..
Strategy and Structure: Chapters in the History of the Industrial Enterprise, about the evolution of four giant firms — Dupont, General Motors, Standard Oil (of New Jersey); and Sears, Roebuck, appeared in 1962. In 1977 came The Visible Hand: The Managerial Revolution in American Business, with its argument that corporate hierarchies had replaced markets for purposes of coordinating activities and allocating resources in industrial economies. And finally, in 1990, came Scale and Scope: The Dynamics of Industrial Enterprise — A History 1880s-1940s, a comparative history of managerial capitalism in the United States, the United Kingdom and Germany.
All the while Chandler was teaching (Massachusetts Institute of Technology, Johns Hopkins University, Harvard Business School), editing (ten volumes of presidential papers — four on Theodore Roosevelt and six on Dwight D. Eisenhower), going to committee meetings and inspiring several generations of historians, not to mention fledgling executives, with his self-confidence, good manners and graceful mien. As McCraw described it, “It is not that he has ever retreated from controversy, but that he has chosen to exert his influence through quiet example rather than strident self-promotion. Chandler’s most striking trait, in all his personal relations, remains a pronounced lack of pretentiousness. From the beginning of his career, his primary motivation has been an abiding and sometimes obsessive intellectual curiosity.”
The table of contents of Visible Hand gives you a feeling for the work. The preamble: the General Merchant in the Colonial World; Managing Traditional Production; the Plantation, an Ancient Form of Large Scale Production; an Integrated Textile Mill, a New Form of Large-Scale Production; the Springfield Armory, Another Prototype of the Modern Factory.
And, then, the big change: the Revolution in Transportation and Communication [railroads, postal service, telegraph and telephone]; the Revolution in Distribution and Production [everything from department stores and mail-order houses to assembly lines and electric motors]; the Integration of Mass Production with Mass Distribution [from canning and refrigeration of food to various merger movements, starting in the 1880s, and culminating in the trust-busting of the early 1900s]; the Management and Growth of Modern Industrial Enterprise [the evolution of middle management and top management].
This was the world of the Fortune 500, of big unions, big government, and various countervailing powers. Again, McCraw (himself a prize-winning historian of regulation): “[Chandler was] more interested in Henry Varnum Poor than in Henry George, Pierre du Pont more than Thomas Edison, Alfred Sloan more than Henry Ford.”
Chandler died last spring, at 88. He is scheduled to be remembered in a service at Harvard University’s Memorial Church this week. Almost as poignant as an athlete dying young is a much-honored scholar, dying just as his life’s work is superseded by something new. For the fact is that Chandler’s story of the triumphal evolution of big business began to come apart in the 1980s — the era of deregulation and corporate “restructuring.” He had the satisfaction of seeing economists begin to work seriously on his concerns in those days, though at a much higher level of abstraction — Oliver Williamson at first, then the band of gifted theorists who rebuilt the neoclassical theory of the firm under the broad heading of “contract theory.”
But trends towards renewed entrepreneurial activity and the disruption of long-established industries only accelerated in the ’90s, as Chandler labored on two last works, lively histories of the chemical and electronics industries in the twentieth century. By the time he finished, outsourcing, downsizing, upspeeding, leasing and other such practices had become the norm even in these venerable businesses. Here is how Richard Langlois, of the University of Connecticut put in his 2004 Schumpeter lectures in Graz (which were subsequently published as The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy):
It has become exceedingly clear that the late twentieth and early twenty-first centuries are witnessing a revolution at least as important as, but quite different from, the one… Schumpeter and Chandler extolled. Strikingly, the animating principle of this new revolution is precisely an unmaking of the corporate revolution. Rather than seeing the continued dominance of multi-unit firms in which managerial control spans a large number of vertical stages, we are seeing a dramatic increase in vertical specialization — a thoroughgoing “de-verticalization” that is affecting traditional industries as much as the high-tech firms of the late twentieth century. In this respect, the visible hand, understood as managerial coordination of multiple stages within a corporate framework, is fading into a ghostly translucence.
Journalists, too, naturally covered each new episode in the story of industrial organization that unfolded in capital markets. As it happens, an editor of Chandlerian proportions in the world of business magazines, James W. Michaels, died earlier this month in New York City at 86. For nearly forty years, he was the editor of Forbes magazine.
Forbes was the first modern business magazine, founded in 1917, by newspaperman B.C. Forbes. Clarence Barron’s weekly, Barron’s, followed in 1919, the Kiplinger Washington Letter in 1923. But their shared success in the Roaring Twenties brought better-funded competitors into the market — Business Week in 1929, Fortune in 1930. By the time Jim Michaels joined the magazine, in 1954, Forbes was a distant fifth or sixth behind its rivals. Michaels had been an ambulance driver for the American Field Service in Burma during World War II. He had stayed on to cover India for the United Press wire service. (He was traveling with Gandhi when the Indian leader was assassinated.) Like Chandler, Michaels had identified business corporations as uniquely powerful engines of change in the post-war world, and he settled easily into a life as a business reporter and, after 1961, editor of the magazine.
Supported at every step by a gifted publisher, the colorful Malcolm Forbes, Michaels gradually rebuilt the bi-weekly into the market leader, by emphasizing an investor-oriented commonsense (often described as “contrarian”), stressing measurement and discouraging managerial hagiography. He made everything short (he was short himself, of stature and attention span), sensing long before others that he was involved in an intense competition for readers’ time. He strived mightily to understand what was happening in markets, just as Chandler did, but he did this not by consulting economists, whom he considered pointy-heads, but by depending on access to gifted investors (Gerald Loeb and Warren Buffet among them) and his own keen intellect. He liked to describe the magazine’s role as being akin to that of a drama critic. Forbes attracted plenty of talented reporters during those years, including Esther Dyson, George Gilder, Allan Sloan and Gretchen Morgenson, and exported many of them to other publications. But its strongest suit remained its “yardsticks,” and its various “rich lists,” plus, of course, a series of memorable judgments about what was likely to happen next in financial markets.
Ultimately, though, neither history nor journalism is a satisfactory substitute for penetrating economics. For nearly twenty-five years, the chase has been on to give a satisfactory account of the phenomenon whose rise, beginning in the nineteenth century, Alfred Chandler so thoroughly documented: the large multi-division corporation, hierarchically administered by salaried managers; and its subsequent collapse towards the end of the twentieth century as the dominant business organization, amid the beginnings of a “new economy.” Langlois calls this the problem of “the disappearing hand.”
What exactly is the disappearing hand? To describe what it is that firms actually do, Langlois, a very interesting thinker in his own right, has borrowed from “cybernetic” theories of organization the concept of “buffering”: big corporations insulate the organization, especially a high-volume business, from outside shocks that might disrupt its activities — not just hold-up threats, a favorite problem of Oliver Williamson, in which producers and their suppliers fail to come to terms because each fears the enhanced bargaining power of the other, but many other sources of variation as well, everything from the quality of feedstocks to the availability of finance.
In a thin market — one in which there are relatively few buyers and sellers — Langlois says the requirement for buffering will be very great, causing firms in many industries to seek to “do it all” — in the extreme form of the early petroleum companies, for example, to do everything from prospecting for oil to refining it and selling gasoline directly to the customer. Administrative hands don’t get more visible than that. As market thickness increases, however — as the extent of the market grows, as the number of firms competing to render specialized services increases, as communication and transportation become swifter and more reliable — less and less buffering will be required. The weight of visible hand of giant corporations gradually will lessen. The role of markets will increase. Spot markets will emerge for nearly everything and every skill.
The literature on the economics of organizations has become complicated, broad and deep. It is on the verge of coalescing into a field in its own right. No longer does it concern itself simply with business executives’ decisions; now bureaucrats and politicians are fair game too. The very meanings of employment, career, compensation and workforce are being rethought. Deep politics lie ahead. Some day, just as in finance, textbooks will replace case studies. Perhaps a future Alfred Chandler will write intellectual histories of economics — and a future James Michaels will assign writers to report on them.