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The Elephant in the Room: Explorations in the Development and Implications of American Corporate Power

May 17, 2011

Jack Beatty, Colossus: How the Corporation Changed America (New York: Broadway Books, 2001)

Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private Property (New York: Harcourt, 1968)

Alfred Chandler, Jr., and Mark Mazlish. Leviathans: Multinational Corporations and the New Global History (New York: Cambridge University Press, 2005)

Sanford M. Jacoby, Modern Manors: Welfare Capitalism Since the New Deal (New Jersey: Princeton University Press, 1997)

Kenneth Lipartito and David B. Sicilia, Constructing Corporate America: History Politics, Culture (Oxford: Oxford University Press, 2004)

Charles Perrow, Organizing America: Wealth, Power, and the Origins of Corporate Capitalism (New Jersey: Princeton University Press, 2002)

Harland Prechel, Big Business and the State: Historical Transitions and Corporate Transformation, 1880s-1990s (Albany: SUNY Press, 2000)

Warren J. Samuels and Arthur S. Miller, Corporations and Society: Power and Responsibility (New York: Greenwood Press, 1987)

Understanding the history of corporate development in the United States is a tricky business. Due to the sprawling and interconnected nature of these organizations, studying their history necessarily requires a large scale approach that encompasses many facets of modern life: economics, politics, law, labor, organizational structures, and culture. Evidence of the influence of corporations is present in many of the well-known histories of the late nineteenth and early twentieth century, when corporate power began to seriously compete, and some cases eclipse, other forms of power within the U.S. Matthew Josephson gave a face and a name to the apprehension people felt about these new sprawling behemoths in The Robber Barons (1934). Likewise, Gabriel Kolko wrote in The Triumph of Conservatism (1963) that by the turn of the twentieth century, it was the corporate leaders, not the reformers, who advocated and pushed through policies of federal intervention and regulation to serve their profit-seeking ends in the Progressive Era. Subsequently, Historian Robert Wiebe noted that by the 1920s, transformations that had been occurring since the Reconstruction era had made America into an unrecognizable, new type of society – driven by the rise of rationalized bureaucratic structures that populations hoped would bring order and stability.[1] Behind all of these histories, the rise of corporate power plays an essential role.

While these and many other histories touch upon this influential, albeit confusing, phenomenon, much of this scholarship takes place from outside these institutions. Business history itself requires advanced knowledge of economic, organizational and legal structures that create challenges in explaining clearly what actually occurs within these businesses and how they operate. Thankfully, many business historians have risen to the task to help us understand the complex dynamics involved. In this paper, I will present a handful of texts that are representative to this field in an attempt to evaluate their usefulness in understanding the growth and activities of American corporations.

Before we turn to more recent endeavors, it makes sense to look at work that has created a foundation for this scholarship. Thus, a fitting book to start with is Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private Property (1968). Berle and Means have produced a now classic repository of statistical data, which situates the corporation at the center of modern U.S. business activity, focusing specifically on property law. The authors argue that industry has become increasingly concentrated and that the ownership of these organizations has been separated from their management structures, creating unique problems in discerning the motivations and development of corporate structures. Beyond this, Berle and Means do not ignore the growing imbalance of corporate power relative to the rest of society. Along with several other of the authors reviewed here, they recommend constitutional checks and controls on corporate power.

To that end, the volume is divided into four books; book one showcases the authors’ argument in demonstrating the divergence between corporate ownership and management structures. Book two provides a history of the evolution of the modern corporate structure both from the perspective of financial markets and in the development of American contract law. Book three expands upon the dynamics of the modern stock exchange and book four returns to the tension between corporate power and society. In each section, Berle and Means marshal statistical data to build a socio-economic framework for their arguments.

The Modern Corporation and Private Property is rightly considered an important work. The authors demonstrate the unequivocal tendency for corporations to strive toward increasingly larger scales of capital consolidation. That being said, the Berle and Means also concede that there is incontrovertible proof of the growing participation of smaller investors, which helps to stave off any overtly Marxist interpretation. The deluge of statistical data creates a substantial learning curve in teasing out the authors’ arguments, yet the argument that the traditional linkage between investing, making decisions, and reaping profits has been dissolved is clear, compelling and powerful.

Next, we turn to Alfred Chandler, Jr., and Mark Mazlish’s Leviathans: Multinational Corporations and the New Global History (2005). Chandler’s participation is noteworthy due to the continuing influence of his landmark book, The Visible Hand: The Managerial Revolution in American Business (1977), in which he provides a highly detailed history of the development of corporate models of mass production and the associated development of modern management structures.[2] In the collection of essays that constitute Leviathans, we fast-forward to corporate development in the latter half of the twentieth century, in which predominantly American corporations have become multinational. The authors concede that the global balance of power has decidedly tilted toward multinational corporations; however, they reject the notion that globalization entails an inevitable de-emphasis of the state. The editors, Chandler and Mazlish, take the opportunity to emphasize the need for further research to illuminate the ways these institutions both undermine, as well as support, the sovereignty and power of states.

The text is separated into nine essays divided into two sections; the first on the growth and scope of multinationals and the second on their socio-cultural effects. The essays themselves consider three interrelated themes: descriptive accounts of corporate development in the twentieth century, generalized discussions of the social and cultural implications of their global dominance, and challenges related to their regulation and governance. The initial chapter by the editors and two later ones by Bruce Mazlish and Elliott Morss, and Stephen Kobrin respectively, concerning the rise of global elites and anti-globalization movements stand out among the others.

The text is not without significant shortcomings. Like several other books reviewed here, it is a collection of essays; while this is not necessarily a problem in and of itself, the challenge of adhering to an overriding theme is where Leviathans falls short. Likewise, the essays exhibit an overridingly relativistic tone about the more negative effects of globalized corporate activity such as worker exploitation, environmental damage, and the domination of public spaces. While these problems are acknowledged in the essays, analysis of these subjects are given only passing treatment or purposefully avoided.

In another collection of essays, Constructing Corporate America: History Politics, Culture (2004), Kenneth Lipartito and David B. Sicilia also seek to explain the development of the corporation as America’s predominant form of business organization. The editors show their colors in their critical approach; they question the rationality of managerial decision making, the focus on efficiency and profits, and the purported distance between the corporate world and the political. The bias of Lipartito and Sicilia aside, the collective aim is to offer a more complex alternative to the narrative of American corporate development.

Within the context of each other, the essays are quite good due to their diverse orientations. Colleen Dunlavy provides an interesting sketch of the corporation as a plutocratic democracy with its “one share one vote” rule. Naomi Lamoreaux explores the legal interpretation of the corporation and argues that the corporate form, far from being inevitable, rests on historically contingent legal phenomena. In other legal perspectives, Gerald Berk explains the relationship between Justice Louis Brandeis’ support for scientifically managed bureaucracy and market regulation. David Hart also adds an important contribution on the relationship between the U.S. government and corporate development, arguing that business history tends to take an overwhelmingly internalist approach, which ignores the enormous effect of corporate activity upon society.

Like Leviathans, Constructing Corporate America has similar problems with continuity. To be fair, most of the essays strike a revisionist approach, intent on moving beyond the Chandlerian business history paradigm; however, the results are mixed. The later chapters on corporate identity politics seem out of place and undeveloped. Additionally, the functionalist approach championed by Chandler, which the authors purport to call into question, is still readily apparent.

In order to further address the inward-looking nature of business history and its functionalist roots, it is worth looking at text that exemplifies these qualities. Such is Sanford M. Jacoby’s Modern Manors: Welfare Capitalism Since the New Deal (1997). Jacoby looks specifically at American corporate-styled welfare capitalism as a historically and geographically specific phenomenon. Reading from more of the positivist school of thought, Jacoby sees corporate projections of power to be an impressive if imperfect system, one whose notions of order, community, and paternal responsibility recalled the preindustrial household economy. Jacoby contends that the firms pursuing welfare capitalism were, in effect, industrial manors.

The author utilizes three separate case studies of corporate firms to illustrate a wider picture of the evolution of industrial and governmental relations throughout the twentieth century. Jacoby concedes that this type of corporate domination of the American workforce was not entirely positive, noting that workers have increasingly been split between the affluent and the poor. The most interesting portion of the text deals with how major industries united to exert the greatest possible influence on labor policy in the 1920s and 1930s. Under the Special Conference Committee (SCC), executives from ten of America’s leading companies formed a committee to coordinate labor relations and responses to changes in legislation in order to maintain continual growth and maintenance of profit.

The success of Jacoby’s text is mixed; it fits well within a functionalist framework and provides a detailed snapshot of the internal calculus of managers in dealing with labor. That said, his primary source analysis only extends to the early 1960s making his examination of corporate welfare into the later part of the twentieth century limited in its usefulness. More problematically, Jacoby falls victim to the relativistic tunnel-vision of many other business histories; he fails to acknowledge the underlying imbalance of power between management and workers, or corporations’ role in exacerbating this problem due to increasingly extreme drives toward capital consolidation. Jacoby notes that this has led to the weakening of unions, but provides little insight on how the situation might be remedied beyond tepid calls for “market individualism.”[3]

Drawing inspiration from Chandler, Harland Prechel also seeks to explain corporate development in America in Big Business and the State: Historical Transitions and Corporate Transformation, 1880s-1990s (2000). Prechel, however, is more critical of this trajectory than his predecessor. His main argument is that, over time, corporations’ ability to influence the state has grown considerably. Prechel employs what he calls “capital dependence” theory to explain this phenomenon. Prechel argues, via this theory, that corporations were impelled to transform from trusts to holding companies in the nineteenth century, to multidivisional, multilayered subsidiary forms in the twentieth century in order to maintain their abilities to consolidate capital. The author explains that it was the influence of top corporate managers, rather than bureaucratic processes, in reshaping corporate forms in order maintain liquidity of capital.

Structurally, Prechel periodizes his text into three sections: In the first period, the 1870s through the 1890s, the author explains that business leaders utilized federalist legal arguments to secure legal protections for corporations, which ultimately led to the development of the holding company. In the second period, the 1920s and 1930s, rampant capital accumulation culminated in economic distress, which led corporations to reform their structures into multidivisional formations. In the final period, the 1970s to the 1990s, corporations developed multilayered subsidiary forms to globalize consolidation of capital and avoid labor and tax regulations.

A key deficiency in Prechel’s text is the absence of labor. Unlike Jacoby, Prechel ignores the influence of workers on the formulation of corporate policy in the eras he analyzes. As with other business history texts examined here, Prechel’s socio-economic approach utilizes methodology and models as a replacement for broad-based historical analysis. The resulting effect is akin to the other limited, functionalist approaches we have seen so far; Prechel is good at articulating policy out of large data sets (most notably the American steel industry in this case) but falters in making larger claims about the relationships between corporations and the historical environments in which they operate.

While larger-scoped studies are helpful in demonstrating historical change over time, it is also useful to more closely analyze key historical moments for corporate development. Likewise, in Organizing America: Wealth, Power, and the Origins of Corporate Capitalism (2002), Charles Perrow specifically traces the concentration of economic power in the U.S. in its crucial beginning stage in the nineteenth-century. Perrow lucidly notes that the ubiquity of bureaucracies has created a unique problem for historians and requires deeper analysis in order to expose their historical significance. Perrow argues that in many accounts of social change, wealth and power are “not associated with organizations; wealth is resident in an individual, a family or a class, and power is resident in persons or ideologies.”[4] Thus, Perrow states, organizations are at best unproblematic resources for other expressions of wealth and power.

Perrow’s main contention is that the development of the corporate form was neither necessary nor inevitable, but rather, influenced by small groups of capitalists interested in greater organizational flexibility. In order to support his argument, Perrow divides his study into two parts: the first examining the American textile industry, and the second focused on railroads. The author utilizes a comparative framework, first contrasting the Philadelphia and New England textile industries, and then evaluating the American railroad industry against its French and British counterparts. In both sections, Perrow stresses the historically contingent nature of American corporate development, demonstrating that alternatives could be just as efficient, and with more regulatory oversight, than they turned out to be.

As with many other texts we have seen, the sociological method plays a primary role in explaining the phenomena discussed. The synthetic, over-reliance on secondary works to build methodological models lends itself to an often confusing and convoluted narrative. Perrow would have done well to ground this work by referencing more broad historical studies to provide context. Nevertheless, his contention that the rise of corporate power was due to a purposeful effort pushed by capitalists and investment houses, is compelling and important. Likewise, Perrow exposes that the trajectory of these corporate leaders push for capital consolidation often included corrupt financial dealings rife with bribery, flagrant violations of regulatory statutes, and deceptive financial dealings, which provide an important historical lesson.

Continuing down the path in the study of historically critical moments for corporate development, the work by Warren J. Samuels and Arthur S. Miller in Corporations and Society: Power and Responsibility (1987) has special significance. These authors specifically take on the phenomenon known as “corporate personhood,” which developed out of a particular interpretation of the Fourteenth Amendment in the case Santa Clara v. Southern Pacific Railroad.[5] In yet another collection of essays by legal historians Martin J. Sklar, Morton Horwitz, Aviam Soifer, Samuel Loescher, and others, the balance of the formulation and development of this concept is juxtaposed with an exploration of its moral implications.

Following a dedication to Berle and Means, the thirteen essays that constitute Corporations and Society are broken up into four themes: the doctrinal origins of corporate personhood, development of legal precedents relative to social control and economic planning, policy consequences, and the tension between democracy and corporate power. The Santa Clara case looms large in the text, directly referenced in nine of the essays. Morton Horwitz’s first and longest chapter stands out in tying this legal precedent to the accelerated capital consolidation by corporations in the late nineteenth century and beyond. Martin Sklar expands this theme by demonstrating how the Sherman Anti-trust Act was basically a failure due to the legal protections for corporations already in place. Martin Benjamin and Daniel Bronstein cut through technical ambiguities, arguing that corporations are entirely goal-oriented and incapable of understanding the moral consequences of their actions, which creates a serious problem in their legal designation – as only natural persons can be incarcerated for criminal violations of the law. In sum, the threat of corporations to democracy is an overriding motif of the text.

There is little to criticize here. The editors have done a better job than most in keeping the essays in conversation with one another. Additionally, each piece is well argued and has prodigious documentation. To be sure, the authors are fixated on the concept of corporate personhood, and it is worth noting that other developments, such as the holding company, play at least as important a role in corporate gigantism.[6] This text is also the most revisionist of the works reviewed in this paper thus far; business historians used to a more relativistic tone may be taken aback by the frank assertions the authors make about American-styled oligarchy and the subversion of democracy.

Indeed, staunch revisionism of corporate power is much more common outside the realm of business history. In order to emphasize this feature, the final book reviewed here is Colossus: How the Corporation Changed America (2001) by Jack Beatty. Beatty is not a business historian; he is a journalist and editor for the Atlantic magazine. It is clear from his introduction, however, that he is familiar with the territory explored in this essay. He drops references to Chandler, Berle and Means, and John Kenneth Galbraith, who also shares Beatty’s critical attitudes toward a corporate dominated society.[7]

Despite a difference in methodology, which we will deal with in a moment, Beatty’s argument is similar to many of the other authors reviewed here: that constitutional power must be exerted to check the power of corporations, who have subverted democracy both in the U.S.and elsewhere. To support this claim, Beatty breaks up his text thematically and along vague chronological lines, dealing with diverse issues of production, consumption, legal precedents, labor, and culture. The author picks out various corporations for case studies, such as Standard Oil and AT&T. Beatty also brings in literary voices such as John Steinbeck, Ralph Waldo Emerson, and Joseph Heller to add cultural context.

While entertaining and clearly meant for a general audience, this scattershot approach has grave problems. First of all, Colossus does not contain an index, almost immediately excluding it as a useful academic source. The footnoting is quite limited, as is its bibliography. While the iconoclastic tone is likely to garner a sympathetic readership, the narrative is disjointed and is seriously lacking in continuity. The textbook-styled case studies that interrupt the main body of the chapters are distracting and unnecessary. One reviewer suggested the work be utilized by college students.[8] I strenuously disagree; the tone of the book is mismatched by its lack of academic rigor and provides a misleading example of literature on the topic. There is no doubt that Beatty’s claims have merit, but his methodology is severely lacking.

Collectively, the texts reviewed here present a conundrum: books that offer deep technical analyses tend to present a formalist, relativistic stance that ignores the social consequences of corporate power. Alternatively, there are plenty of books like Beatty’s Colossus that address these consequences, but lack a disciplined, empirical approach needed to more fully address the topic. Samuels and Miller’s Corporations and Society strikes a good balance here, yet a high learning curve is still required in the arenas of business and legal history to fully understand the empirical data being presented. This creates a barrier – not only between historians and this valuable information, but also effectively keeps the public out of the conversation as well.

A more comprehensive approach is likely needed. While it is clear that many of the editors took this idea to heart by cobbling together diverse groups of essays, what is more accurately required is historical context. As noted earlier, the inward-looking nature of business history is quite good at producing texts that supply enormous amounts of technical information and discerning the organizational trajectories of individual firms; however without being situated in their environment, these books are limited in their usefulness to both historians and the public. Given that there is widespread consensus regarding the importance in understanding the corporation’s place within society, business historians have an important responsibility to fulfill. This task would be best accomplished with more historical representation and sensitivity toward the individuals, populations, states, and environments that are affected, often adversely, by corporate activity. This proposed approach does not necessarily have to be revisionist; it is quite likely that there are some scholars who feel that corporate consolidation of political power and capital is a good thing, however, such a task must be done openly, clearly, and independent of corporate influence.

[1] Robert Wiebe, The Search for Order, 1877-1920 (New York: Hill & Wang, 1967).

[2] Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge: Harvard University Press, 1977). Unlike Berle and Means, critiques of the socio-political effects of this activity are almost completely absent in the text.

[3] Sanford M. Jacoby, Modern Manors: Welfare Capitalism Since the New Deal (Princeton: Princeton University Press, 1997) 263.

[4] Charles Perrow, Organizing America: Wealth, Power, and the Origins of Corporate Capitalism (New Jersey:PrincetonUniversity Press, 2002) 10.

[5] Santa Clara County v. Southern Pacific R.R. (118US 394). This case involved a tax dispute between the railroad andSan Mateo county, which wanted to prevent the corporation from deducting its debts from its tax obligations. The case was appealed up to the Supreme Court, which unanimously held that the corporation had the right to equal protection under the Fourteenth Amendment – just the same as a natural person. Chief Justice Morrison Waite stated in this fateful ruling, “The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of opinion that it does.”

[6] Jason Weixelbaum, “Harnessing the Growth of Corporate Capitalism: Sullivan & Cromwell and its influence on late nineteenth-century American business.”

[7] John Kenneth Galbraith, The Affluent Society (Boston: Houghton Mifflin, 1958). Essentially Galbraith saw the problem of “conspicuous consumption” vigorously promoted by corporations plaguing American society in its overproduction of luxury goods without providing for society’s basic needs.

[8] Roger L. Adkins, Reviewed work(s): Colossus: How the Corporation Changed America  by Jack Beatty, American Journal of Business Vol. 16, No. 2 (Fall, 2001): 63.

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