The news that six people had signed up on the first day for Obamacare prompted me to think back seventy-five years ago to World War II. Decisions taken then can shed some light on the situation in which Americans find themselves today.
For instance, there was the decision to ramp up the production of strategic bombers in the US and Britain, even before the war began. “The aim of Germany was to fight World War I again and this time win,” Freeman Dyson writes in the current New York Review of Books (subscription required). The Allies harbored no such ambition. So Germany bombed Britain in a haphazard way with planes that were not designed for the purpose, while British and American bombers pummeled German cities.
There was, too, the US decision to hire E. I du Pont de Nemours & Co., of Wilmington, Delaware, as a subcontractor to Boston’s Stone & Webster engineering firm, to produce plutonium for its atom bomb. Dupont Co. wound up taking over much of the Manhattan Project and resoundingly delivered the goods.
At the peak of production, Dupont employed 40,000 workers at the Hanford Engineer Works in the desert of eastern Washington state. To make it easier to attract scarce workers, the federal government exempted “fringe benefits” such as health care from wartime wage and price controls. The policy locked in the trend to employment-based health care that had begun with Blue Cross plans offered to large companies during the Depression.
Bombers and the Bomb helped win the war. So did Soviet manpower and US assembly lines. Dupont, which had been founded in 1802, with assistance from Thomas Jefferson, to supply gunpowder to the government, actively downplayed its connection to the atom bomb, having been pilloried as a “merchant of death” for its role as a gunpowder supplier during World War I. It came away with Teflon instead.
Like the rest of the American economy, Dupont emerged from the war uniquely powerful. And through the 1950s, ’60s, and most of the ’70s, US industry was the envy of the world.
But growing competition, from Europe and Japan, and, soon, the rest of Asia, triggered powerful forces of adjustment. Since 1975, the US economy has been transformed in ways that are not yet well understood.
As it happens, I have been reading a book about one of the major engines of that transformation, the merger and acquisitions movement of the last thirty years. Not since Barbarians at the Gate and The Predators Ball have I enjoyed a book about Wall Street as much as A Giant Cow-Tipping by Savages: The Boom, Bust, and Boom Culture of M&A, by John Weir Close. (The title derives from a line attributed to Ted Turner to describe the merger of AOL and Time Warner).
Close is one of the many talented journalists who worked for Steven Brill at The American Lawyer. Eventually he went to law school and became part of the action himself. His lens is the story of the two dominant M&A firms, Skadden, Arps, Slate, Meagher & Flom on the one hand, Wachtell, Rose, Lipton & Katz on the other. He compares their clients to the robber barons of the years after the Civil War, and brings the 1980s, ’90s and early ’00s back to life.
Modern M&A has not been driven by Scottish immigrants in Pittsburgh [Andrew Carnegie, Andrew Mellon et al.] or French Huguenots in the Hudson Valley [Cornelius Vanderbilt vs. the Erie Gang of Jay Gould, Daniel Drew and James Fisk] capturing entire swathes of the nation’s resources in the absence of any government regulation whatsoever. In the late twentieth century it was driven by two Jews [Joseph Flom and Martin Lipton] with a simultaneous epiphany about how to take advantage of new government regulation, how to turn the rules into an instruction manual for transforming the buying and selling of companies into a profession in itself. Rather than seek to buy, sell, or keep anything themselves, they became the Sherpas, interpreting regulatory maps and making up new law as they went along.
There were, of course, other powerful engines of transformation in the years after 1975. All of them involved the government deliberately loosening regulation in order to permit adjustments to technological change. They included the Treasury Department (financial deregulation), the Commerce Department (the vast expansion of trade); the Justice Department (the IBM antitrust suit and the break-up of AT&T); the Defense Department (consolidation of the military-industrial complex at the end of the Cold War); and the Federal Communications Commission (spectrum auctions and the Internet demolished the newspaper and television network monopolies).
I recite this shorthand history by way of asking, why didn’t the Obama administration go to IBM or Oracle to build a website for its Affordable Care Act statute? It’s a rhetorical question: the broad answer is, because the world has changed. Newspapers are working on the particulars (today’s Washington Post has an especially timely account); tumultuous Republican opposition is a big part of the story. Healthcare.gov was built by at least four contractors, none of them household names. The software industry today is, not a cloud exactly, in the increasingly familiar metaphor, but, like a cloud, highly decentralized and distributed, like the Internet itself.
Similarly, those great old hierarchical companies, with their tax-sheltered health plans, no longer form the core of the economy. The once-complacent oligopolies are either broken up or subject to brutal competition from new entrants to their markets. The basic idea behind Obamacare all along has been to replace with something tenable the employment-based system that emerged from World War II, long broken beyond repair by changes in the economy (including new medical technologies)
A government-formulated market for universal private health insurance is yet another engine of transformation. The meme that its ragged rollout shows that government can’t do anything right is nonsense. It will be bruising; it will take time: but, in due course, the decision to insist that all citizens carry health insurance will seem as far-sighted as many other decisions by government policymakers and politicians, including building those bombers on the eve of war.