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Wednesday, October 25, 2006

The Rise and Fall of the Managerial Class

Robert Samuelson on the rise and fall of the managerial class:

The Next Capitalism, by Robert Samuelson, Newsweek [WP]: When he died in 1848, John Jacob Astor was America's richest man, leaving a fortune of $20 million that had been earned mainly from real estate and fur trading. Despite his riches, Astor's business was mainly a one-man show. He employed only a handful of workers, most of them clerks. This was typical of his time, when the farmer, the craftsman, the small partnership and the independent merchant ruled the economy. Only 50 years later, almost everything had changed. Giant industrial enterprises -- making steel, producing oil, refining sugar and much more -- had come to dominate.

The rise of big business is one of the seminal events in American history, and if you want to think about it intelligently, you consult historian Alfred D. Chandler Jr., its pre-eminent chronicler. ...

Until Chandler, the emergence of big business was all about titans. The Rockefellers, Carnegies and Fords were either "robber barons'' whose greed and ruthlessness allowed them to smother competitors and establish monopolistic empires. Or they were "captains of industry'' whose genius and ambition laid the industrial foundations for modern prosperity. But ... Chandler ... uncovered a more subtle story. New technologies (the railroad, telegraph and steam power) favored the creation of massive businesses that needed -- and, in turn, gave rise to -- superstructures of professional managers: engineers, accountants and supervisors.

It began with railroads. In 1830, getting from New York to Chicago took three weeks. By 1857, the trip was three days (and we think the Internet is a big deal). From 1850 to 1900, track mileage went from 9,000 to 200,000. But railroads required a vast administrative apparatus to ensure the maintenance of "locomotives, rolling stock, and track'' -- not to mention scheduling trains, billing and construction...

Elsewhere, the story was similar. ... No matter how efficient a plant might be, it would be hugely wasteful if raw materials did not arrive on time or if the output couldn't be quickly distributed and sold. Managers were essential; so were statistical controls. Coordination and organization mattered. Companies that surmounted these problems succeeded. ... The rise of big business involved more than tycoons. Its central feature was actually the creation of professional managers. ...

The trouble now is that the defining characteristics of Chandler's successful firms have changed. ... We can ... identify many of the forces reshaping business: new technologies, globalization and modern finance... But the very multitude of trends and pressures is precisely the problem. No one has yet synthesized them and given them larger meaning.

Just as John Jacob Astor defined a distinct stage of capitalism, we may now be at the end of what Chandler perceptively called "managerial capitalism.'' Managers, of course, won't disappear. But the new opportunities and pressures on them and their companies may have altered the way the system operates. ... Asked about how the corporation might evolve, [Chandler] confesses ignorance: "All I know is that the ... Internet is transforming the world.'' To fill that void, someone must do for capitalism's next stage what Chandler did for the last.

Though it's mentioned, I don't think this pays enough attention to the role of information technology in reducing the need for middle management and white collar workers. Much of what these workers did in the past to track financial information, manage inventory and raw materials, plan distribution and sales strategies, and so on can now be done with a few mouse clicks on a computer or, alternatively, digitally outsourced for cheaper processing elsewhere.

This is not fundamentally different from any other sort of productivity shock, workers get displaced by new technology regularly, except that in recent years there are more white collars in the mix of workers affected by the technological innovation, a trend that may continue as information technology continues to advance. The question is where these displaced workers (or those who would have replaced them in future years) end up after the transition. Will these workers be able to transform their skills and move up to higher paying occupations or at least maintain their current income, or will the displaced current and future workers mostly move down to lower skill, lower paying jobs?

Given the outcome so far, we need to devote more attention to finding policies that can help workers receive a larger share of the productivity gains as we move to an increasingly information-based, geographically fractured, low-skill abundant, highly specialized, and highly competitive global economy. I'm not sure what fancy name to give "the next capitalism" or if it really needs one, but if growing inequality continues to be one of its main features, calling it "the new gilded age" as many do already might just stick.

    Posted by on Wednesday, October 25, 2006 at 12:42 AM in Economics, Income Distribution, Technology | Permalink  TrackBack (1)  Comments (100)

          

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    » Post-Managerial Capitalism? from Brad DeLong's Semi-Daily Journal

    Mark Thoma sends us to a good piece by Robert Samuelson: Economist's View: The Rise and Fall of the Managerial Class: Robert Samuelson on the rise and fall of the managerial class: The Next Capitalism, by Robert Samuelson, Newsweek:... [Read More]

    Tracked on Wednesday, October 25, 2006 at 08:41 PM


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