Business
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June/July 2004
13 years ago By admin
Volume55Issue3
With American Heritage approaching its 50th birthday in December 2004, we’ve asked five prominent historians and cultural commentators to each pick ten leading developments in American life during the last half-century. In this issue, John Steele Gordon, American Heritage’s “The Business of America” columnist and the author of An Empire of Wealth: The Epic History of American Economic Power, 1607-2001, selects the ten biggest changes in business. In other issues this year, our authorities offer their choices of the half-century’s biggest transformations in politics, popular culture, innovation and technology, and the home and the family.
In 1954, the gross domestic product of the United States—the sum of all the goods and services produced in the country that year—was about $380 billion. In 2003, it was $10.9 trillion, more than 28 times as great in nominal terms. Even allowing for the very considerable inflation in the last 50 years, the economy is roughly six times as large as it was when American Heritage made its first appearance. So, the biggest change in American business in the last 50 years has been, simply, the growth of the American economy as a whole.
But how all that wealth is created—who creates it, and by what means—has changed almost beyond imagining. The reason is plain enough: the computer. It is the most profound technological development since the steam engine ignited the Industrial Revolution two centuries ago, perhaps since the agricultural revolution ignited civilization itself 10,000 years ago. None of the biggest changes in business in the last 50 years would have been possible—or would have evolved as they did- had it not been for the computer. So, while it easily ranks as the most important change, the computer, in truth, is behind nearly all the changes.
Look at a photograph of a typical office of the mid-50s and one of 2004, and the difference is instantly obvious: Every desk in the office now has a computer on it. Today, half of American workers use computers on a daily basis in their jobs; in 1954, perhaps one-tenth of one percent did. Moreover, not just office workers use computers. Farmers, garage mechanics, dentists, lumberjacks, and a thousand other kinds of workers now use computers in the daily course of business for purposes unique to each occupation.
To be sure, in 1954, computers were already making inroads into American business, especially in areas where data- processing was very intense, such as banking and insurance. But they were huge and hugely expensive, kept in special air-conditioned rooms and tended by men in white coats. Very few Americans had ever actually seen one. Today, about the only way for an American not to see one every day would be to stay in bed with the lights off.
The difference is the development, beginning in 1969, of the microprocessor, essentially a dirt-cheap computer on a silicon chip. A little more than a decade later, the calculator had sent the slide rule into oblivion, word processing had made the typewriter a relic, and Apple Computer had introduced the personal computer.
In 1954, American exports totaled less than $14 billion, or 3.7 percent of GDP. In 2001, exports amounted to $729 billion, or 7.2 percent of GDP. Fifty years ago, the American economy was effectively an island. The only great power whose industrial base had been strengthened, not diminished, by World War II, the United States was still self-sufficient in all but a few commodities (such as tin). Almost all the cars on the road in 1954 were, in their entirety, American-made by the Big Three auto companies, plus American Motors. What foreign automobiles there were, were mostly in niche markets, such as sports cars.
Today, that is but a distant memory. American Motors is long gone, and the Big Three have only a little over half the American automobile market, about what GM had all by itself 50 years ago. The number-one best-selling car in this country is not a Ford or Chevrolet; it’s the Japanese Toyota Camry. But many of the “foreign” cars on the roads today are in fact manufactured in the United States, and many of them are subsequently exported to other countries.
Automobile companies no longer have nationalities, except perhaps in terms of the locations of their corporate headquarters and their greatest concentration of stockholders. Ford now owns Sweden’s Volvo and Britain’s Land Rover; GM owns Saab; Chrysler is part of Germany's Daimler. Every major automobile company manufactures parts or assembles vehicles in many countries. General Motors, with 15 percent of the global vehicle market, manufactures in 32 countries and sells in 192. The other great auto companies are equally dispersed.
That is increasingly true of companies in other lines of business, such as electronics and computers. It is also becoming true of retail companies. Wal-Mart, the world’s largest company, in terms of gross revenues (if it were a sovereign nation, it would have the world’s 30th-largest economy), sells in ten countries and buys products in many more. McDonald’s and KFC peddle their wares from Bangor to Bangalore, from Peoria to Paraguay, while American shopping malls are full of foreign products and foreign companies selling them.
In 1950, about a million overseas phone calls originated in the United States. In 2001, the number was a staggering 6.27 billion. In 1954, only radiotelephony, with a very limited capacity, was available. Today, a cat’s cradle of undersea cables, together with communications satellites, provide nearly limitless capacity. In 1954, you needed a reservation to make an overseas phone call, and it would likely have cost a significant percentage of your weekly wages. Now, it often costs less to call London than it did to make a local call 30 years ago. When you dial an 800 number, you may well find yourself talking—absolutely free—to someone in India.
Even domestically, the increase in communications has been profound. You cannot walk down a city street, or even a supermarket aisle, without seeing people talking away on cellphones. Airports are full of folks working on laptop computers, connected wirelessly to their companies’ computer networks, while they wait for their flights. The increase in executive efficiency as a result has been enormous (and the ability to “get away from the office” much diminished).
Many Americans in 1954 still handled their financial affairs largely in cash. They received their pay in cash, and they paid their bills in cash. The reforms of the New Deal had ended the fear of banks’ collapsing. So, many families maintained savings accounts to safeguard their rainy-day funds, but far fewer had checking accounts or ready access to bank credit.
In 1951, a Long Island banker named William Boyle invented the credit card. It was a classic capitalist win-win-win situation: Credit cards allowed merchants to avoid the expense and risk of maintaining charge accounts; they gave banks handsome profits on unpaid balances; and they spread credit, formerly reserved largely to the affluent, to a whole new class of consumers. By the 1960s, credit cards were common. Today, they are ubiquitous, with 1.2 billion in use in the United States in 2002 by 190 million cardholders. Thanks to credit cards—and their latter-day descendants debit cards—cash is rapidly disappearing from American retailing.
Other parts of our economy’s financial sector have also grown beyond all expectations in the last 50 years. In 1954, the Dow Jones Industrial Average finally topped its 1929 high of 381.17. Today, the Dow Jones stands more than 26 times higher than it did then. In 1954, there were 115 mutual funds in operation in this country, with investments worth $6.1 billion. In 2002, the number was more than 10,000 mutual funds controlling $7 trillion in capital. The percentage of people owning stocks and mutual funds has grown explosively, as well, with over half the population directly holding financial securities. Many more have interests in pension funds.
Capitalism has become truly democratic in the last 50 years, and it is getting more so every day.
In 1954, more than a third of all American workers belonged to unions, mostly of the old-fashioned blue-collar variety. In 2002, only about 14 percent did. But that doesn’t tell the whole story, for nearly half of today’s union members are government employees, such as teachers and hospital workers, virtually none of whom were unionized in 1954.
Meanwhile, the number of strikes has greatly diminished. In 1960, there were 222 work stoppages involving more than 1000 workers, with 13,260,000 workdays lost. In 2002, there were only nine such strikes, with 660,000 lost workdays, although the size of the American work force has doubled in the last 50 years.
Part of the reason for the decline of the labor movement is the shift from manufacturing to services as the major source of jobs in the American economy. The United States has not stopped making things (total manufacturing output grew by more than a third between 1990 and 2001), but is becoming ever more efficient at it, thanks to the rapidly increasing use of computers in the process.
The recent history of manufacturing in this country is very similar to the longer history of agriculture. Farm production has steadily increased, while the percentage of the population living on farms has steadily declined, as has the percentage of GDP that is derived from agriculture. That trend did not stop in the last 50 years; it accelerated.
In 1954, 11.6 percent of the population lived on farms. Today, less than two percent does. The amount of land devoted to agriculture has also declined, from 1.16 billion acres in 1954 to 941 million in 2001. In 1954, 82 million acres were planted in corn; in 2002, the number was down to 79 million. Yet corn production went from close to three billion bushels to nine billion. Wheat acreage has held steady at about 60 million, but production has gone from 984 million bushels in 1954 to 1.6 billion in 2002.
In 1954, the typical American woman was a housewife. That is certainly no longer the case, with more than 60 percent of American women in the work force. Moreover, women in business are no longer confined to the steno pool by any means. (The steno pool, of course, disappeared years ago.) In 1967, Muriel Siebert became the first woman to own a seat on that ultimate male bastion, the New York Stock Exchange. All major corporations now have female executives, half the Forbes 500 companies have female corporate officers, and eight have female CEOs. There is no question that these numbers will rise as talented women who started working in the last few years reach their career peaks.
While the feminist movement has had a powerful influence on the attitude toward women in business in the last 50 years, there has been another major factor in increasing the number of women in business, rather than as housewives: domestic productivity. Greatly improved and much more widely distributed household appliances—washing machines, dryers, stoves, dishwashers, microwave ovens, ice-makers, vacuum cleaners—make housework far less time-consuming than it was 50 years ago, while the proliferation of prepared and semi-prepared foods has made it much easier to get a meal on the table. In 1954, only the new TV dinner was available as an alternative to a home-cooked meal. Today, there are hundreds of options, and some of them actually taste good.
A few months before American Heritage first appeared, the last comedy by George S. Kaufman (in collaboration with Howard Teichman) opened on Broadway, and two years later, it was made into a highly successful film. It was titled The Solid Gold Cadillac, and it told of chicanery in high corporate places. But, while recent scandals have shown that management wrongdoing is still alive and well in American business, if no worse than it was in the past, management compensation has gone through the roof.
Charles E. Wilson, the chief executive of General Motors before becoming Secretary of Defense in 1953, was paid $652,000 a year, plus some stock options (he took a $580,000 pay cut when he left GM to head the Pentagon). That was a tidy sum in the economic universe of the early 1950s, even though 91 percent of it was taxed by the federal government. In 2002, the CEO of General Motors was paid more than $12 million in total compensation. He paid over a maximum of 35 percent in taxes, but because much of that compensation came in the form of stock options, he actually paid far less tax than that. Many CEOs did a lot better.
Anti-trust was one of the big political issues in the 50 years before American Heritage was born, but it has nearly disappeared in the half-century since. One reason, to be sure, is that mere bigness is no longer perceived as inherently bad, especially as more and more Americans have become stockholders, and thus, more inclined to see things from the capitalist point of view.
More important, however, has been the accelerating change in the economy caused by the micro-processor, and the glacial pace at which anti-trust suits necessarily run. When the outgoing Johnson administration sued IBM under the anti-trust statutes in 1969, the company’s dominance over the American computer industry resembled Standard Oil’s over the petroleum industry 70 years earlier.
But, by the time the government abandoned the suit, in 1982, IBM’s hegemony was a distant memory, and it was facing the most difficult decade of its corporate existence. Rapid technological change has proved a far-more-efficient policeman of the marketplace than has any army of anti-trust lawyers.
The internet is a communications medium that's very much part of the communications revolution. But it is so new—barely a decade old as a popular medium—and so fundamentally important, that it deserves an entry all its own. As the railroad was to the steam engine, so the internet is to the micro-processor, the most important spinoff of the basic technology. What is perhaps most impressive about it is that it erupted into existence almost spontaneously. Railroads had to be built with iron and wood and sweat. They were very expensive. The internet costs so little to operate that almost anyone can have a website. That is why there are now about four billion such sites in existence, and tens of thousands more are added every day.
The internet allows people with common interests to find one another easily, including buyers and sellers. So, it performs much the same function as a broker. That, in turn, means that all traditional brokerage businesses—real-estate agencies, stockbrokerages, auction houses, travel agencies—must change fundamentally or go out of business.
The news business as well is changing rapidly because of the internet. Bloggers and internet journalists like Matt Drudge (who uncorked the Monica Lewinsky scandal) can respond to breaking news much faster than can newspapers and TV-news organizations (although, now, all major news organizations are on the web, as well). And because a website is so cheap to set up and operate, every news organization now finds its mistakes and biases mercilessly revealed by what The New York Times columnist William Safire has dubbed the “gotcha! gang.” Retailing, as well, is moving to the web, growing at about 30 percent a year. This is very bad news for the printers who produce catalogues, and the post office that delivers them.
As we look back on the past half-century of business in America, we see not only change—our restless country has always offered that—but something truly singular, change on a vaster scale than has happened during any 50-year period since the lookout on the Santa MarÍa first sighted land.