My Amazon Review of Richard Langlois' "The Corporation and the Twentieth Century.............."

 The Evolution of Corporate America

University of Connecticut economics professor Richard Langlois has written a very long and deeply researched book on the evolution of the American corporation and its interaction with government. The book is spiced up with interesting case studies on RCA, General Motors, Ford, AT&T and Microsoft, for example. His thesis is that economic historian Alfred Chandler and social theorists Berle and Means got it all wrong in their books “The Visible Hand” (1977) and “The Modern Corporation and Private Property” (1932) which credit the modern corporation’s roots to the growing complexity of business and the need for capital, thereby separating management from ownership. Chandler’s prototype is the Pennsylvania Railroad, once the largest corporation in America.

 

Langlois counters Chandler by noting that the great corporations of the early 20^th Century, Standard Oil and U.S. Steel, for example were controlled either by their entrepreneurial owners or their investment banks, JP Morgan in particular. To Langlois it was the momentous events of World War I, the Great Depression and World War II that thrust the administrative state on to American business.  Along the way there was the populist desire to curb monopoly that led to the antitrust laws. Just to note that Langlois is anti-antitrust.

 

The hero in Langlois’ telling is Ronald Coase whose 1937 “Theory of the Firm” established the boundaries around a given business. The critical variable is the role of transaction costs. In essence the firm competes with itself in that if it is cheaper to outsource the firm will outsource and if not, the firm will perform the function in house. Here is where the government enters the picture through antitrust, which prohibits certain types of contracting and with price and wage controls which makes it difficult for the firm to receive the appropriate economic signals. As a result, instead of contracting, firms in the immediate postwar world vertically integrated thereby avoiding antitrust issues, for the most part.

 

However, as the administrative state got called into question in the 1960’s so too did the administrative corporation. Inflation, international competition, and the growing pressure to deregulate the economy forced change. With that what came next was the revolution in financial affairs that brought shareholder value to the forefront. Instead of plodding administrators, corporate executives had to become active managers.  It is interesting to note that during this time graduate business schools changed their names from schools of administration to schools of management.

 

What surprised me is that despite a boatload of footnotes, Langlois does not cite the 1976 Meckling and Jensen paper, “Theory of the Firm,” and Milton Friedman’s 1970 social responsibly of business article.  To me those to papers represent the underpinnings of the intellectual challenge to the Chandlerian corporation of the 1970’s. I must say I am a glutton for punishment; the book is too long for the educated lay reader. Nevertheless, it is worth sticking to it.

For the full Amazon URL see: The Evolution of Corporate America (amazon.com)