June 22, 2003

Notes: Intro to History of American Corporate Control

I'm going to talk about the rise of American financial and bank-group capitalism, and Marco is going to talk about its fall. Together we'll talk about the waxing of the House of Morgan and the Dynasty of Rockefeller and their other peers, and then their waning. How the U.S. first becomes and then moves from being, a century ago, a "normal" country--with family pyramids and powerful investment banks--as far as corporate control and financial organization is concerned to being a distinctly abnormal country. Our general rhetorical strategy is to take refuge in historians' standard argument #3: that things are really complicated, and all neat, clean theories by people like our friends Mark Roe (1993) and Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer (1998) are only partial and incomplete because they do great violence to historical reality and ignore complexity, contingency, just dumb luck, and sheer chance.

So let me start with a passage from the tallest Canadian economist. A generation ago on the very first page of his New Industrial State John Kenneth Galbraith wrote about--perhaps mourned?--the passing of the influence of the great business families of America:

Seventy years ago the corporation was the instrument of its owners and a projection of their personalities. The names of those principals...Carnegie, Rockefeller, Harriman, Mellon, Guggenheim, Ford... were known across the land. The men who now head the great corporations are unknown... [and] own no appreciable share of the enterprise... selected not by the shareholders but, in the common case, by a Board of Directors which narcissistically they selected themselves.... Subordination to the market... has disappeared.... [T]he modern large corporation is, quite typically, controlled by its management? (Galbraith 1967, pp. 111-15).

Today American corporate control has crawled a small part of the way back from its Galbraithian heights of managerial domination. Managerial autonomy today is limited to some degree by takeover market... by some degree by the possibility of taking companies private... but only to some degree... and is limited to some degree by the impact of the academic finance community on the Delaware Chancery which, in my judgment at least, is pushing the Delaware Chancery toward the position that there is a prima facie case Board actions that destroy lots of shareholder value quickly are violations of the Board's fiduciary responsibility. Nevertheless, the U.S. is effecrtively at a corner solution today. But up until 1911 or so, the United States looked like a "normal" country as far as corporate control and the organization of high finance is concerned...

Posted by DeLong at June 22, 2003 10:56 AM | TrackBack

Comments

JK Galbraith is the Tallest Canadian economist!?!

What about Robert Mundell (before he went crazy). Or William Vickrey (legally Canadian). And isn't David Card Canadian?

I didn't think JK Galbraith was taken very seriously by mainstream economics profs. He didn't do any math.

Posted by: Ikram Saeed on June 22, 2003 01:07 PM

Galbraith did not mourn the passing of the influence of specific great business families, rather the distancing of corporate ownership and management.

Given the "enormous" gains in conpensation for corporate leadership, we may actually have returned to the days of the "great" business families.

Posted by: anne on June 22, 2003 01:58 PM

JK Galbraith was a wonderful influence on so many of us. An elegant thinker and writer, and a generous spirit always true to the generousity. We thought of Galbraith as William James seems to have been thought of, an inspiration to every student we knew.

Posted by: anne on June 22, 2003 02:08 PM

I am in total agreement with Paul Krugman on one thing: John Kenneth Galbraith was to Economics as Steven Jay Gould was to Evolutionary Biology - a great popularizer with a flair for words and a talent for self-dramatization, but very much overrated as an original thinker.

http://www.pkarchive.org/theory/evolute.html

How can you tell if someone knows very much about evolutionary biology, or is just a bluffer? If he can quote Steven Jay Gould chapter and verse, but can't tell you who John Maynard Smith, W.D. Hamilton or George Williams are, much less what they've done. But enough of the digression ...

Brad, are you planning to make your paper available on here at some point? Also, are you planning to say very much about the effects of legislation on the market for corporate control?

Posted by: Abiola Lapite on June 22, 2003 05:43 PM

Ha ha ha. I guess everyone missed Brad's pun.
JKG's height: 6'8".

Wonder whether there are many that tall, economists or otherwise, who are not NBA players.
http://www.sjsu.edu/faculty/watkins/galbrait.htm

Posted by: MRM on June 22, 2003 10:28 PM

There is an amusing picture in one of Galbraith's books of him walking with Lyndon Johnson down a corridor somewhere. Johnson was maybe 6'3", but Galbriath's ungainly 6'8" figure towers over him, making him look like a dwarf.

Posted by: PJ on June 23, 2003 02:25 AM

Was JK Galbraith a fine economist? Rather we thought Galbraith a fine fine teacher and friend. A prevoker of thought. Same for Gould. Harry Potter may not be Midsummer Night's Dream, but what else is?

Posted by: anne on June 23, 2003 09:55 AM

Very interesting post. Please continue.

Posted by: vachon on June 23, 2003 04:38 PM
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