In 1920, 30 percent of the population worked on farms; today, 1.5 percent do so. Today 80 percent of Americans work in the service sector.


Progress toward controlling the dark side of business, so that the system did not destroy itself from within. Competition can bring out the best and worst of human actions. The pressure to make profits often tempts managers to use every advantage, and that sometimes results in unethical and illegal behavior toward their competitors, workers, and consumers. New laws and regulations typically emerge after the exposure of serious problems, rarely in anticipation of them.


The most difficult problem for management of a firm of any size is where to lodge the power to make different kinds of decisions. How do managers balance the necessity for centralized control and the equally strong need for employees to have enough autonomy to make maximum contributions and derive satisfaction from their work?

This balance of between centralized and decentralized decision making applies to any organization of people. In the family, for example, these question arise: Must the family eat together every night? should the parent or the child set the appropriate bedtime hour? Should the adults or the students choose what kinds of clothing may be worn to school? No single rule will guarantee the best result every time, or in all families.

In business, good managers continuously evaluate and adjust the balance between centralized and decentralized decision making. The better a company is organized, the more naturally decisions gravitate to the spot where the best information on the particular issue is available.


In the period of the First Industrial Revolution, which lasted from about 1760s to the 1840s, steam engines powered by coal replaced human and animal energy. During this time, people began to regiment their work by the clock, not by the sun as the had done for millennia.


The rags-to-riches story of the American Dream came true for enough people so that many others were motivated to try. And while most failed to achieve riches, standards of living improved for them and their children. On a per-capita basis, Americans started more businesses, saw more of them fail, and then started still more ones than the citizens of any other country.

This cycle of creation, failure, and re-creation is a truism of capitalism. Internal turbulence epitomizes modern business. Capitalism itself is a process of transformation. It incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating new one. Schumpeter’s metaphor for this process — a “perennial gale of creative destruction” — was more emblematic of the US economy than of any other.

Schumpeter and others labeled the agents of creative destruction entrepreneurs, a French word meaning business adventurers.


Its connection with suppliers of steel, rubber, and glass, plus its reliance on the oil industry for fuel, lubricants, and service stations made the car the most important product of the 20th century. By the 1970s about one-sixth of all business firms in the US participated in some way in the manufacture, distribution, service, or operation of cars and trucks.


A major step in Ford’s miracle of production was the refinement of the moving assembly line. By 1914 the time of assembly for a Model T chassis had dropped from 12.5 hours to 1.5.


Assembly-line production represented a dramatic contrast with the pre-industrial identification of the craftsman’s product with his personal pride and sense of self. Paradoxically, the ownership of a car by those who assembled them offered an offsetting sense of autonomy. Ford wanted his employees to be able to buy one of his cars, and many thousands of them did.


Although Ford was one of the richest men in the world, remarks such as these appealed to everyday people, who seemed to admire and trust him as the embodiment of the common man, somebody much like themselves. Thus, it is not surprising that it was often said that Ford’s fortune of more than a billion dollars had been earned “cleanly,” unlike the wealth of “robber barons” such as John D. Rockefeller and Andrew Carnegie. Ford himself made no secret of his disdain for some of the trappings of capitalism. He spoke harshly of “financeering.” He detested stockholders, whom he described as “parasites.”


Working “every possible minute, so that I might be graduated a year ahead,” he finished his degree at MIT in 3 years.


The use of installment plan (which Ford never embraced) empowered consumers and entrepreneurs alike. And it helped GM weather the recession.


While Sloan developed engineering and marketing strategies to meet the demands of the new consumer economy, he would not have been successful without forging a better management structure to implement them. The tradition in business before the 1920s was to organize a large firm not according to its products, but according to just three functions: purchasing of raw materials, manufacturing, and selling. The executives who oversaw these functions had responsibility for all of the company’s products, no matter how many or diverse they were. When things went wrong with a product under such a system, it was impossible to pinpoint how to respond.


The multidivisional structure made such a mixture possible. Amongst its other virtues, the new structure in effect turned a large company into groups of smaller-scale entities. It provided incentives for numerous managers to work together in a spirit of cooperation as they moved up the corporate ladder. Sloan fostered this behavior when he established cross-divisional committees, and made sure that executives served on several of them at once time. This ensured that important decision makers communicated with one another and helped reconcile the goals of “decentralization with coordinated control.”

Coordinated control came primarily through financial reporting and capital allocations. Sloan worked hard on these issues, and GM soon became one of the most sophisticated of all American companies in its use of budget targets and financial ratios such as inventory turnover, fixed versus variable costs, and profit as a percentage of sales. This was difficult to pull off, and GM did not always do it well. Managers made continual adjustments along the production lines based on what the number were telling top executives at headquarters. Sloan summed it up: “From decentralization we get initiative, responsibility, development of personnel, decisions closest to the facts, flexibility… From co-ordination we get efficiencies and economies. It must be apparent that co-ordinated decentralization is not an easy concept to apply.”


Henry Ford understood part of the relentlessness of change, particularly the creative destruction on the manufacturing side. “Not a single item of equipment can be regarded as permanent,” he wrote. “Not even the site can be taken as fixed. We abandoned our Highland Park plant — which was in its day the largest automobile plant in the world — and moved to the River Rouge plant because in the new plant there could be less handling of materials and consequently a saving. We frequently scrap whole divisions of our business — and as a routine affair.”

Ford, however, did not translate this insight to marketing. He refused to see that marketing, in every aspect from product policy to styling to advertising to sales, is as important to success as it is manufacturing. He had little respect for the tastes of consumers, whom he (correctly) regarded as fickle. Ford thought he knew what they needed. He could not bring himself to admit that in a market economy the consumer really does reign supreme, and that for an organization to act otherwise is to invite disaster.


The car wars also reveal that in the modern economy how decision making takes place looms as a key to continued success. If all decisions are made at the top of the organization, as they were at Ford, then sooner or later two things will happen. First, the quality of decision making will deteriorate as the business grows larger. There is too much to know and much of that is changing constantly. Second, employees not directly in touch with the process of decision making will grow bored with routine, their potential contributions lost to the organization. Just moving decision making down the organizational chart is not the answer, however, for such a course will lead to faltering cooperation and anarchy.

The car wars, then, reveal that the pivotal challenge of modern management lies in finding the right balance between centralization and decentralization, and in continually adjusting the mix in response to changing circumstances. Fixing the decision making at the point at which the best information is available requires the right decision of the organization. And the answer for GM in the 1920s and 1930s, and after WW2 for thousands of other firms, was the multidivisional, decentralized management organization.


American companies traditionally have financed their operations in three primary ways. The most important source is retained earnings; next is borrowing through loans and corporate bonds; and least important is selling stock. In fact, many companies sell their stocks only once, during the IPO. Selling in the stock market consists mostly of “secondary market” activity that merely shifts ownership of shares from one person or institution to another. So, why is the stock price signals the market’s beliefs about the present and future performance of the company. Second, the share prices of numerous firms — aggregated in market indexes such as the Dow Jones Industrial Average — indicate the relative health of the nation’s economy. And third, especially since 1920, securities markets include more and more Americans, not only “democratizing” the markets but also making them depositories of the nation’s wealth. In 1929, about 10 million of 123 million Americans actively invested in the markets; by the early 21st century, 100 million — nearly one-third of the population — did so.

No matter the size, all firms share some basic and often urgent financial problems: how to meet the payroll; how to get and maintain working credit for other day-to-day operations; and how to raise the occasional large sums necessary to develop new products and build new facilities. These problems are relentless, and companies need a constant inflow of reliable financial information in order to manage them. In addition to financial data for their own businesses, managers need measurements of activity in the economy as a whole, such as rates of inflation, interest rates, unemployment rates, business investment, and consumer spending.

Investors have similar requirements. Owner-investors, individual shareholders, and financial institutions such as banks, insurance companies, and pension funds must have trustworthy information in order to make intelligent decisions about where and how much to invest, or whether their investments should take the form of stock (“equity”), long-term bonds, or short-term loans.


Overall, the Great Depression of 1929-1941 hit the American economy like a sledgehammer. During the first four years, real GNP dropped by 31 percent. Investment fell by an almost unbelievable 87 percent, as people stopped building new houses and businesses ceased buying new equipment. Unemployment, which had stood at about 3 percent in 1929, soared to 25 percent in 1932, by far the highest figure up to that time and still a record.


Profits were not going to the workers but to those who were already wealthy. One percent of the population owned 59 percent of the wealth; 87 percent owned 10 percent; 60,000 families held as much wealth as the bottom 25 million families. Thus, there was in the 1920s a skewed distribution of wealth.

Why is this important to the history of American business? The rich families could buy only so many consumer goods (refrigerators, autos, radios). Introduction of the installment plan helped workers buy more, but by the end of the decade, many of them had maximized their debt. Purchasing power decreased and investors became worried.


Political leaders also insisted that Britain and France repay all of their American wartime loans, even though the nation was strong enough economically to write them off. This in turn put pressure on the European economy, which negatively affected the American economy.


Although hundreds of thousands of small companies went bankrupt during the decade, even more new firms emerged to take their places. Most were companies in labor-intensive sectors such as food service and retailing. The continual appearance of new companies during the worst depression in the nation’s history was testament to the resiliency of the business system.


The increase in government programs during the Depression enabled IBM to grow in response to the demand for data processing. The Social Security Act of 1935, for example, led to the need for files on every worker in the economy, and IBM’s electro-mechanical punch-card systems, the forerunners of modern computers, served that need.


Many families went from year to year without buying new houses, new cars, or even new clothes. But none of them could stop eating, doing the laundry, or washing dishes. Nor did they stop seeking entertainment. Americans flocked to movie theaters, where tickets cost an average of 20 cents apiece. Each week, theaters sold about 80 million movie tickets in a nation with a population of about 127 million.


The experience of P&G in the Great Depression demonstrates that a truly well-run firm can innovate and prosper during the worst of times. P&G reflects many traits of America’s own social and cultural history: the nation’s persistent entrepreneurship; its mania for consumer products; its preoccupation with cleanliness, youth, and physical beauty; and its tradition of hucksterism.


Fundamentally, P&G has always been a marketing company, and its first great success, in 1878, came when consumers responded to a mistake in production — the “floating soap”.


The guarantee of work became possible because P&G implemented a major strategic change: in 1920, the company began to bypass wholesalers and sell its products directly to retailers. Wholesalers customarily stocked up when P&G’s costs for raw materials, and thus its wholesale prices were low. When P&G raised wholesale prices — for example, when its raw material costs rose — wholesalers would draw down their inventory on hand and postpone new purchases until prices fell again. By avoiding wholesalers, P&G could maintain steady production volume and institute guaranteed work weeks for its employees. “Cutting out the middlemen” became a widely adapted strategy in American business, and constituted yet another form of management decentralization and consumer empowerment.


How did P&G build the market for its soaps and other consumer goods? For one thing, it advertised in almost every way imaginable at the time. It spent about half its ad budget on radio melodramas, which are known as “soap operas” because of P&G’s sponsorship.


Eventually there developed in marketing circles a saying that “brands drive out commodities.” That is, once a brand gains a strong foothold, an unbranded product cannot compete as long as the branded item is maintained at high quality and reasonable cost.


To maintain supremacy over such a long period, any branded item must first remain useful. Second, the quality of the product must continue to be high, or it will be overtaken by competing items. Third, because consumers promptly reject a brand that fails to deliver expected value, companies must pay close attention to who is buying the brand and for what reasons.

A key point about brands during the 20th century was this: the whole idea of brand management implies that the company’s fundamental task is not to maximize sales in the short run but rather to develop long-term consumer loyalty. That kind of loyalty not only sustains a strong market for the company’s existing products but also facilitates the introduction of new ones.

The goal of brand loyalty is not easily accomplished, in part because not all consumers have the same attitude toward brands. Some develop deep psychological attachments, incorporating brands into their self-images. These kinds of consumers sometimes flaunt the brands they purchase like badges, to announce what types of people they are. Consumers in a second category, which probably comprises the majority who buy branded goods, are simply saving time by choosing items about whose quality they can be confident.


Occasionally the process of branding individuals entered the bizarre. The premature deaths of Marilyn Monroe, Elvis Presley, and Princess Diana of the UK were spoken of as “good career moves,” which in turn led to the sale of more memorabilia.


Poor administration and the taint of government planning associated with it and other government programs turned many in the business community against the president. New Deal public works programs that raised wages and increased taxes also angered conservatives. Managers of big businesses, and financiers who thought the banking and securities regulations went too far, became especially belligerent. Many of them regarded the New Deal as a grab for power by unscrupulous Democratic Party politicians (which in part it was). Even sophisticated executives such as Alfred Sloan and Pierre du Pont exhibited an almost irrational hatred for Roosevelt, and they poured part of their fortunes into campaigns to unseat him.


Glass-Steagall also separated investment banking form commercial banking. No longer would depositors’ funds be available to gamble in the stock market or pursue other investment opportunities for their own account.


The Glass-Steagall legislation also prevented bankers from transmitting information on competitors to clients; accountants could not impart information either (if they were to remain “independent”). All of this regulatory activity led to the appearance of a new modern profession, that of the business consultant. Consultants could transfer knowledge legally from one case to the next, and thus from one firm to the next.


Legislation of 1938 extended the requirement to all “public” companies — those whose shares were freely bought and sold, whether or not they were listed on stock exchanges. Railways and utilities had already been filing similar reports to regulatory commissions for some time; now, all public firms had to disclose their sales, profits, and salaries and bonuses paid to officers and directors. This operating in the sunshine was new to many firms, but it came about in response to the numerous acts of chicanery, malfeasance, and fraud that had made the previous decade so economically fragile.


A satellite view of the world in the 1930s would show several major nation-states in competition for control over raw materials and consumer markets: Japan, Germany, and Italy were making major military moves into China, Central Europe, and Africa, respectively; Great Britain was fighting to maintain its empire in Africa, South Asia, and elsewhere; France was struggling to hold on to its colonies in Africa, the Middle East, and Southeast Asia; and the US continued to expand its influence in the western Pacific. Underscoring these basic economic conflicts were complex racial ones.


The US faced problems, however, that most of the other nations did not. How could a democratic capitalist country mobilized for war without having the central government dictate all business decisions, thereby wrecking the decentralized market mechanism on which the economy was based? At the other theoretical extreme, how could a laissez-faire government completely bereft of economic powers coordinate its independent industries to fight such a massive war? The American government in 1941 held less control over its national economy than did any other major belligerent, with the possible exception of China.

In the end, the Americans solved the problems of mobilization better than Germany or Japan, both of which overcentralized industrial control and gave too much authority to military officers. Germany’s focus on quality over quantity allowed the proliferation of diversified and nonstandard designs of weapons that not only lengthened production runs at factories but also made repairs in the battlefield absurdly difficult. The statistics sum it all up: the Germans produced 151 models of trucks, 150 different motorcycles, and 425 different planes. German aircraft workers’ productivity was one-half that of the Americans. Japanese industrial mobilization suffered from bad management and shortage of materials — American submarines sunk most of the ships attempting to carry supplies to their factories. Italian production of Army and aviation materials amounted to less than that of the Ford Motor Company, the number-three American defense contractor.


All the elements underlying the Second Industrial Revolution — scale economies, interchangeable parts, vertical and horizontal integration of large manufacturing organizations, mass distribution, etc. — made American industrial mobilization brilliantly productive. By 1944 the Americans were far out-producing the British, Germans, and Japanese combined.


In the politically charged atmosphere of the 1930s, the Roosevelt administration pressured Congress to pass inheritance-tax laws, and many of the states followed suit. Many families had to sell their companies upon the death of founders so that the heirs could pay the taxes. Eberstadt’s solution was for these firms to “go public” during the founder’s lifetime. The sale of a large minority of common stock to the public furnished the heirs money with which to pay the inheritance taxes when the founder died while still maintaining majority ownership of the stock to ensure continued management control.


Eberstadt’s special gifts, evident throughout his career, included an uncanny ability to design institutional mechanisms to meet novel situations and then have the courage to implement them. He established a successful investment pool (later to be called mutual funds) before the became popular and he was one of the first to use the leveraged buyout as an investment tool. (A leveraged buyout uses different forms of debt to pay for the acquisition of a company.) A fellow wartime planner put it this way: “Above all he could make decisions — very tough decisions. Even when they hurt people — influential people — he made them.”


To match supply to demand and facilitate quick shifts in allocation as circumstances warranted, the CMP involved a careful sequencing of steps. First, forecasters would compute the volume of the three controlled metals that would be available over the coming months. The CMP staff then asked claimant agencies, such as the Army and Navy, to submit their orders for steel, aluminum, and copper. These orders came from the prime military contractors, such as GM and Boeing, who listed not only their own requirements but those of their subcontractors as well. The plan placed a premium on accuracy in forecasting. And it included the possibility of penalties, including criminal indictments, if the claimant agencies made errors.

Prime contractors then allocated supplies among their plants and those of their subcontractors. In one of the most important changes from the flawed priorities system, both the prime contractors and the claimant agencies had the power to shift controlled materials from one use to another. If, for example, a prime contractor wanted to switch part of its copper allocation from one project to another — say, from copper coils to copper tubing — it could do so without first having to ask the government’s permission. This is essentially what the company would have done during peacetime: use its vertically integrated management system to more efficiently allocate resources.

The CMP focused on only a few strategic decisions by top civilian and military planners.


Thus, strategic decisions were made at the top of the pyramid, but the production dynamic flowed from the bottom up. Thousands of individual tradeoffs took place up and down through different layers of operation. Each tradeoff was made at the spot where the information necessary to select the right choice was most likely to be available. This was administrative elegance at its best, and a triumph of decentralized decision making.

The CMP represented a distinctively American solution to the most challenging of all organizational problems. A military-controlled system like that in Germany would not be acceptable in the US; nor was the Japanese model that connected industrial and military groupings. No, the American solution was to replicate the civilian, peacetime model of the decentralized, multidivisional firm that relied on a vertically integrated organization that enabled decision making at the point where the best information lay.


Theoretically, capitalism works best under purely meritocratic conditions. But any economic system reflects the underlying values of the broader society in which it operates, and in many ways both American business and the workforce have always been divided along lines of gender, race, and ethnicity. The divisions affected the ways in which people thought about business and also influenced the strategies followed by different kinds of companies. Business as a whole neither took the lead in promoting diversity nor lagged behind most of the rest of society.


The authors found that because of deep-seated and often subtle racism, African American and other minority recruits in large firms usually had to pay a “tax” in the form of additional time spent proving themselves in entry level positions as compared to the time spent by white recruits.


Blacks were particularly drawn to career in meritocratic fields such as music and professional sports, where comparative ability could be unmistakably identified. Large numbers of African Americans also succeeded in reaching the highest ranks of the US military — the one large organization that had devoted several decades to systematic efforts toward the achievement of racial equality, and in this particular arena a model for the rest of the society.


Today most immigrants are regarded as nonwhites — that is, “minorities.” The percentage of people who identify themselves as minorities is higher than at any other time in the nation’s history. In 1920, almost 90 percent of the population were white.


Children of immigrants almost always do better economically than their parents. This is not the same as “assimilation,” because the US has grown so diverse that the prospect of assimilation to some stereotypical ideal has become one of the biggest of all myths.


For a time, New York’s Lower East Side was tightly packed with new arrivals from Europe and was the most densely populated neighborhood in the world. Greeks, Italians, and Russian Jews were beginning new lives in what was — as it is today for Hispanics — a land of genuine economic opportunity. And the bitter opposition from many sources to what was then called the “new immigration” had much in common with similar controversies today.


In 2015 CEOs from India ran Google, Microsoft, Pepsi, MasterCard, Adobe, and Harmon. Their education in India was conducted in English, and many of them took graduate work in the US. All of them, of course, benefited from working their way up in American firms.


Sarnoff was one of the first to recognize that the “point-to-point” transmission of radio between two stations was unnecessarily limiting; he believed the future was in “point-to-mass” communication, or what came to be called “broadcasting.”


Most nations maintained government control over their radio systems. In the US, however, the government (the Navy) had voluntarily given up its radio patents to a consortium of private companies that otherwise would have competed with one another.


TV sets were not automobiles; television was a more complicated industry because it was a system innovation. It required a regular schedule of programming, mass sales of sets, industry-wide standards for broadcasting and equipment, and facilities for preparing and adjusting the many things that could go wrong with home TV reception.


Like radio and black-and-white TV before it, color television was a systems technology. Mass-producing the sets was only one part of the necessary structure of the industry. Color broadcasts had to be planned, color cameras installed, transmission facilities upgraded, and legions of repair technicians trained. It took the industry about 15 years to move from black-and-white to color broadcasting.


As the Japanese “miracle” economic recovery after WW2 poured inexpensive radios into the American market, American manufacturers’ share of the US radio set market, which had stood at 96 percent in the mid-1950s, fell to only 30 percent by 1965. By 1975 it was virtually zero. This pattern repeated itself in later years with black-and-white and color TVs.


Although much work remained to be done in improving color TV, RCA’s management also decided to shift R&D away from it to find another blockbuster electronic product.


RCA bet the company the VideoDisc, assuming somewhat arrogantly that it would become the industry standard. But it lost the bet.


As with the Ford Motor Company in the 1920s, RCA paid too little heed to what the customer wanted and lodged too much authority in the hands of one person. Even though David Sarnoff was more sophisticated than Henry Ford, he, too, began to believe reports of his own infallibility, made too many decisions himself, and stayed too long at the helm. More than anyone else, he encouraged a culture that made something like the VideoDisc and computer disasters not just possible but probable.


Geopolitical forces joined national life cycles in shaping the American consumer-electronics industry. American government expenditures for defense projects changed the nature of R&D inside many high-tech companies. In 1940, for example, AT&T devoted only 2.5 percent of its budget to military projects; in 1944 those items zoomed to 85 percent.


At that point American industrial dominance began to erode in the face of European and Japanese economic recovery from wartime — a foreseeable development, but one that occurred much sooner than US managers had anticipated.


In the decades of slower growth after the mid-1970s, US chemical firms understood that they could not continue to pour R&D funds into projects that would not bring commercial success. DuPont and other leading firms slashed their expenditures on fundamental research, reduced their reliance on defense contracts, identified their core competencies, and addressed more directly the question of what their customers wanted. In so doing, they lost market share to international competitors, but they remained profitable.


The oil companies and chemical giants such as DuPont, Monsanto, and 3M seemed capable of turning petroleum into almost anything. By the last decades of the 20th century they were producing substitutes for natural fibers, wood, cloth tape, glass, and a multitude of other products, including latex paints and varnishes, insulators, adhesives, and synthetic building materials.


Organic chemicals contain carbon, most of which has been recycled through once-living organisms. Carbon’s molecular makeup enables it to form four symmetric bonds with many other elements, creating endlessly repeating chains of molecules. These in turn can serve as the scaffolding for a diverse range of natural and artificial compounds — polymers — from DNA to plastics.


The pharmaceutical industry differs from most others in that companies racing to develop new drug compounds must spend immense sums on R&D with no guarantee of a return. Only about 1 in 10,000 compounds ever make it to market. Each of those drugs that succeed, then, cost several hundred million dollars in R&D before a single dose is prescribed fro a paying patient. Patent laws shape the economics of the industry as well. Because drug patents expire after 20 years, and some of those are taken up in drug trials, firms are forced to recoup heavy R&D expenses in short time frames — sometimes as little as five to seven years. Once the patent has expired, any company can manufacture and market a “generic” form of the drug much more cheaply than the original product.


He worked brutally long hours, generating what he called “sweat equity” in the enterprise; he even revealed the numbers from his own store to potential recruits. Kroc intended to provide franchisees with enough services for them to be successful. He reasoned that their success would guarantee his own success as franchisor. His pitch became “In business for yourself but not by yourself.”


Market forces also helped. As McDonald’s outlets rapidly multiplied from the late 1960s to the early 1980s, price inflation ran high throughout the country. While its lease payments to land owners remained steady, McDonald’s income surged because of rising overall prices. By itself, inflation pushed nearly all franchisees past the threshold at which they would start paying the 8.5 percent rental. Hamburgers that sold for 15 cents in 1967 cost customers 50 cents in the early 1980s. By then about 90 percent of the profits the company earned from its franchised stores came from real estate payments. That bears repeating: real estate, not hamburgers, made the corporation really profitable.


Eighty percent of the IT industry involves B2B sales in workstations, PCs, software, and services. The remaining 20 percent includes consumer sales of PCs, software, and video games. Americans have purchased more than twice as many PCs, per capita, as have European or Japanese. Worldwide expenditure for IT, including telecommunications, was $3.5T in 2015.


Emphasis on technology, and the most expensive privately financed R&D effort in history, paid off handsomely for IBM in the 1960s when the firm introduced the System/360 series. Just as a full circle has 360 degrees, the new computers would serve all purposes, from scientific to defense to business.


Determined to cash in quickly on the PC boom, IBM made two momentous decisions that planted the seeds of its eventual fall as the undisputed leader of the industry. It chose to outsource the PC’s DOS software and its vital microprocessor.


Europe and Japan did not follow the American trend of constant turbulence and entrepreneurial turnover, for their laws and customs valued business stability more than innovation. In Japan, managers and workers assumed that they signed on for their entire careers.


Apparently, many of those employees cried at their desks. The pressure to produce at Amazon has been and is immense. Its high employee turnover is often at the employer’s choice, not the workers’ choice to move on. Many do not survive the pressure cooker, but even some of those believe the experience was worth it and has helped them succeed elsewhere. Former Amazon executive John Rossman reports: “A lot of people who work there feel this tension: It’s the greatest place I hate to work.”


My job was to uncover what was going well. I think sometimes when a senior executive comes into a company, the instinctive thing to do is to find out what’s wrong and fix it. That doesn’t actually work very well. People are very proud of what they’ve created, and it just feels like you are second-guessing them all the time. You are much more successful coming in and finding out what’s going right and nurturing that. Along the way, you’ll find out what’s going wrong and fix that.


Users of the apps praised the “sharing” aspect as a good thing for society — bringing together people who would not have known one another before, and who both benefit from the exchange.


The term liberal goes back at least to the 18th century and the Enlightenment; the American and French revolutions propelled forward the liberal ideas of freedom and individuality. The French used the term laissez-faire nous (leave us alone) and the Scottish philosopher-economist Adam Smith extolled the virtues of individuals competing within markets “free” of government interference. Smith wanted to eliminate mercantilism, a system in which government taxes and rules played a larger part in shaping economic development than did competition.


The latest surge in globalization had numerous causes. In addition to introducing other nations to Coca-Cola and chewing gum, American soldiers fighting in WW2 and later encountered new foods and culture.


In 2013 the UN reported that 6 billion of the 7 billion humans on Earth had access to cell phones; only 4.5 billion had access to toilets.


In the 21st century, just by sitting at home in front of our tablets, we have more information and more tools at hand than investors and traders had in 1920, or even 1980. Like portion control at fast food outlets, this new freedom gives us enough individualist rope to hang ourselves and lose our money. But it also represents another example of growing entrepreneurial opportunities and decentralized decision making.


Still another innovation in securities trading was the rise of “hedge funds.” Somewhat misnamed, the hedge funds did not act as quite the safeguards against loss that the name implies. These organizations, whose activities were often shrouded in deep secrecy, dealt mostly in “derivatives,” which included futures, options, swaps, forward contracts, and other instruments derived from conventional securities or commodities. Many hedge funds made tremendous amounts of money through large-scale trading based on complex mathematical models. These models were designed to continuously rebalance the risks to the fund, risks that originated from changes in the world economy.

Hedge funds came to manage immense amount of money. They were attractive to mutual funds, pension funds, and wealthy individual investors seeking large returns. They accepted no investments from “retail” customers with little net worth. Hedge funds grew rapidly, and many of them attracted as managers some of the brightest people in the country. But sometimes hedge funds failed. Even so, hedge funds continued to grow rapidly because they usually earned high returns.


About half of all credit card holders paid the minimum required monthly payment, thereby perpetuating their debt for an indefinite future.

The financialization of banking also affected credit cards. In addition to imprudent consumer spending, credit card holders faced a series of measures designed by banks to inflate profits. These included annual charges for the use of credit cards, very high interest rates, excessive fees for late or skipped payments, and — most shameful of all — the practice of “universal default.” Through this mechanism, if a credit card holder was even one day late in payment, the applicable interest rate could be increased (often by a large amounts) not only on the affected card but also on all other cards used by the same consumer.

Credit card contracts were often impossible to decipher, even by professionals.


Meanwhile, enormous sums were shifted out of low-risk savings accounts, certificates of deposit, and bonds, and into the shares of publicly held companies. By the early 21st century, more than one-fourth of all US household wealth was invested in stocks, as compared with only one-tenth during the 1980s.


Investment banks by the 1990s hired almost exclusively from the Ivy League colleges. Recruiters looked fro high achievers, hard workers, or, in the language of an earlier generation, the best and the brightest. The firms told their new hires how special they were, worked them hard for a couple of years, and then summarily fired them.


At the same time, to offset their losses, several of these banks sold multi-billion-dollar ownership shares in their firms to oil-rich governments or companies in the Middle East. In effect, top executives were selling off parts of their firms so that they could pay themselves billions of dollars in bonuses.


Private equity — whether the takeover is internal or external, friendly or hostile — means opacity; that is one of its greatest attractions.


Although many — including Bair — viewed the government’s work as “bailouts” of big banks, the fact remains that the officials’ negotiations and actions led to a positive sum game in the end. Not only did they prevent an economic meltdown by increasing liquidity, they also deftly utilized stronger banks and employed taxpayers’ dollars to earn a profit on some of the investments.


Reformers worked fast but with little overall agreement about what needed to be done; everyone had a theory or a favorite program and they all seemed to be dumped into the reforms. The result, the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in July 2010, was 848 pages long (compare that to the 32 pages that established the Federal Reserve System in 1913 or the 37 pages of the Glass-Steagall banking reform legislation in 1933). Hailed as the most extensive reform of the financial industry since the 1930s, the legislation was extraordinarily complex.


Final judgments, of course, will have to wait. Whether the reforms will prevent the system from racing ahead of the political system’s ability to protect it is subject to further action.


Capitalism tends to concentrate economic and thus political power in the hands of a few if its natural tendencies are not checked. If the middle and lower classes are not earning enough to purchase goods and services, growth of a capitalist economy will slow down. This is essentially what caused the Great Depression.


Picketty and others are correct to emphasize the income and wealth gaps, and to call for new programs to address the gap, such as higher taxes on the rich and extensive investment in infrastructure (an approach that underlay the extraordinary postwar economy), but they have tended to overlook something else important: there has been a general rise in the standard of living for most Americans.


Overall, the standard of living has increased for all sectors. In the US, one hour’s work at the end of the 20th century bought, on average, four or five times the goods and services it bought in 1920.


They were decidedly more entrepreneurial, as reflected both in their business behavior and in the enabling laws enacted by their state and national legislatures. They took collective action against the capitalist system less often than was the norm elsewhere, either through their votes or through radical political movements. They had a smaller (and declining) rate of worker unionization. They showed little tendency to become socialists. They were openly competitive with each other and far more willing to run their rivals out of business.

But Americans were also more forgiving of failure. They had little fear of going into debt (ultimately far too little) and they were remarkably tolerant of bankruptcy, by both businesses and individuals. In much of the world bankruptcy represented as a permanent stigma, but in America it was often regarded as a phase through which entrepreneurs routinely passed on their way to eventual riches.


Perhaps without really understanding it, Americans have bought into the perennial gale of creative destruction that is the American capitalist system. Despite polls over the past decade or so indicating that fro 60 to 80 percent of Americans do not believe the nation is going in the right direction, it is unlikely, given the growth in income and wealth for so many, that national priorities will be reordered anytime soon. Unrelenting change, expanding empowerment of consumers and entrepreneurs, constant altering of the balance between centralized and decentralized management, and government attempts to catch up to the changes will shape American business for some time to come.