Big Mistake

When Progressive intellectuals convinced Americans that bigger is best--for business, labor, and government--they corrupted capitalism and dumbed down work. We're finally correcting their error, but at a price.

Brink Lindsey from the February 1996 issue

(Page 3 of 6)

The problem, in their view, was that the new world had not yet fully supplanted the old. The old traditions of private ownership and competition still refracted the logic of the machine; engineering remained subservient to profit. As a result, much of the productive power of the new industrial processes was wasted in either idleness or duplication; moreover, production was too often diverted from serving the needs of the many in order to satisfy the extravagances of a parasitic few.

This then was the goal of collectivism: to render industry less wasteful and more equitable by extending the principle of central control. Power would be stripped from various industrial fiefdoms and vested in the true center: the state. There it would be exercised, not for private gain by businessmen, but for the common good by public servants.

The logical extreme of such a program was the full-fledged socialism preached by Bellamy, but such radicalism never took firm hold in mainstream American public opinion. In the United States, the collectivist spirit was expressed more in proposals to reform private ownership through regulation and government spending than in plans to eliminate it altogether.

While the ambitions of radicals and reformers may have varied, their driving social vision was the same: to take the triumph of planning and organization at the factory level and apply it to society as a whole--in short, to engage in "social engineering."

It is commonly imagined today that the regulatory reforms of the Progressive Era and the New Deal were staunchly opposed by Big Business. All too often, however, leaders of the new corporate giants saw no room for competition in the industries they ran, and welcomed government intervention (short of expropriation). Judge Elbert Gary, the first chairman of the board of U.S. Steel, held weekly dinners with other steel executives to set prices. Gary defended this "cooperative plan," stating that "the law does not compel competition; it only prohibits an agreement not to compete." If such "friendly association" did run afoul of the antitrust law, Gary had another idea: "I would be very glad if we had some place we could go, to a responsible governmental authority, and say to them, `Here are our facts and figures, here is our property, here our cost of production: now you tell us what we have the right to do and what prices we have the right to charge.'"

Precisely this approach was adopted in industry after industry--frequently with the support, and sometimes at the instigation, of the businesses involved. Thus, AT&T's president Theodore Vail reacted to AT&T's falling market share by lobbying for regulated monopoly status. Such a move, he argued, was necessary to ensure universal access: "It is not believed that this can be accomplished by separately controlled or distinct systems nor that there can be competition in the accepted sense of competition."

In the midst of the Great Depression, confidence in market competition was at a low ebb in the business community as elsewhere. In 1931 Gerard Swope, president of General Electric, put forward a plan for the cartelization of industry, to be administered by trade associations; the U.S. Chamber of Commerce and the National Association of Manufacturers endorsed similar proposals. In 1933, in the famed first 100 days of the New Deal, the National Industrial Recovery Act put such cartelization into effect. Henry Harriman, president of the Chamber of Commerce, praised the new law as a "Magna Charta of industry and labor"; laissez faire, he contended, "must be replaced by a philosophy of planned national economy."

Ignoring Ignorance

The rejection of market competition, and consequent embrace of government-led social engineering, represented a misreading of industrialization at the most fundamental level. The social engineers simply assumed away the root problem of economics: the problem of ignorance, of figuring out what to make and how to make it. They assumed that these were purely technical issues whose solutions were already within the grasp of engineering. Accordingly, they believed that the most important economic problem was putting the people with that knowledge in charge and having them tell everyone else what to do. On those assumptions, private ownership and competition did indeed seem a hindrance.

What they failed to see was that the question of what to do is in fact enormously complicated, and cannot be answered without reference to what millions of consumers actually want. In particular, they did not understand that the despised pecuniary considerations of price and profit are indispensable in communicating those wants to producers, or that competition among producers--for both customers and investment capital--is the best way of ensuring that better answers to the question of what to do are occasionally concocted.

For all of their fondness for engineering and scientific metaphors, the devotees of technocratic central planning abandoned the essential humility of the scientific method. Instead, they claimed that a small group of people had all the answers. Just at the time that industrialization was delegating brain work throughout the economy to an utterly unprecedented extent, an immensely powerful intellectual movement sprang forth which sought (albeit unwittingly) to restrict sharply the amount of brainpower applied to economic life.

The movement changed the country in waves: the Progressive Era and the New Deal, the mobilizations of the two world wars, and finally, the calamitous reign of "the best and the brightest" in the 1960s. As a predictable result, the country has been saddled with a set of rigid, unresponsive, and dysfunctional government policies, from the original sin of the Interstate Commerce Commission to the current bloated, sclerotic, $1.6 trillion a year mess. And of course, America's suffering at the hands of would-be social engineers has been mild compared to many other places in the world--most notably the former Communist bloc.

Dumbing Down Work

As the misplaced faith in top-down control altered the larger American economy, so its effects were replayed in microcosm in the development of the internal structure of the new large corporations. Nowhere were those effects more destructive than in the area of management-labor relations.

In the early decades of industrialization, what happened on the factory floor remained largely outside the purview of owners and managers. How work was to be divided up, what procedures to follow, what tools should be used, who should do what, and what pace was appropriate--all of these were decided by the workers themselves (or, less idyllically, by their often brutal and domineering shop foremen).

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