Paleontologists have been on a roll lately. In the science world, picking over old bones has reconstructed not just skeletons but a vastly clearer picture of the why and the way in which species fail to thrive.
Now come Nitin Nohria, David Dyer, and Frederick Dalzell, corporate bone assemblers par excellence, "paleontologists" because they go beyond mere historianship. Their book Changing Fortunes tackles its bone piles (these days politely termed
"case studies") of the type that MBA students pick over in search of an idea. It is the climate of the times that these authors abstract, and the forecast is not a sunny one. Unintentional or no, the unpleasant reality that emerges from their discussion is not that systems which fail to adapt die, but that they also die when they pollute their own habitat. If any recent book is a bone pile for Robert Heilbronner's thesis that capitalism is inherently self-destructive (summarized in the concluding chapter of 21st Century Capitalism), Changing Fortunes is that book.
A bit grand, this?
Maybe. But at this very moment the corporate/political alliance is puncturing an equilibrium that has been in place since the end of the Second World War. That equilibrium is the theory of creative destruction, the notion that to build a better widget you have to destroy not the previous widget, but its market. Today's corporate/political/media alliance shunts aside the idea of checks and balances. Allowed to continue, meaningful democracy
-- in the sense that elections really mean something -- will follow.
To a book reviewer accustomed to teasing out the subtexts in a novel in search of the root causes of human fallibility, a business book is usually a piece of cake. The causes are sitting there in full view. I read Changing Fortunes through once, making lots of notes. Then I boned up on the history of the Catholic Church from the time of St. Francis till the Reformation, and the Enlightenment from Giordano Bruno till James Watt. Then I read Changing Fortunes again, a wiser and more dolorous soul.
The authors make a solidly researched, reasoned, and documented case that large economic institutions
-- manufacturing corporations, in this case -- have a skewed bell-shaped curve of evolution. Each curve emerges almost unnoticed out of the debris of a fading economic institution
-- frontier agriculture in the case of the medieval Church, religion in the case of the Enlightenment, and piecework in the case of manufacturing. It rises rapidly to previously unimaginable heights of power and prestige (as peas in a pod, cathedrals and high rises are separated only by centuries), and then begins a long decline that never quite ends in demise (Christmas and Easter are relics of paganism, not the progeny of a new religion).
The reasons for the decline are varied and many, but several threads seem ever present: selfish interest replaces collective interest (American politics), accountability shifts from external to internal (American business), the network effect grows too inwardly dependent (Japan), and the life support of the whole thing
-- the everyday Joes and Joannes -- feel more and more betrayed as they watch corruption replace commonweal. The shabby little personal deals these days between CEOs and Congressmen reminds one of the commerce in Church offices during the 14th through 16th centuries, which led to unprecedented levels of disproportion between principle and practice. The book Silent Theft by William Bollinger comes to many of these same conclusions from the commonweal-holder's point of view.
However, a sea change from one econo-cultural institution to the next doesn't come from the Joes and Joannes. Their protest tends to take the form of peasant rebellions. Howard Jarvis and Prop 13 was such a rebellion
-- at first it worked, but then special interest reasserted itself, and today Prop. 13 has been defanged except for a few molars left way in the back. Rather, change comes from intellectuals in the leisure class who toil little but wordspin marvelously. If today's
disaffected intellectuals are creating a new mindset to breed lilacs out of the
dead land, wish them well. Today's gerontocratic model bases its decisions on ideas that were current thirty or forty years ago. (Listened to the Pentagon lately?)
Changing Fortunes documents its case very well. It is so lucidly written that typically leaden case studies are polished into brilliance by blunt, often witty assessments of corporate goofs. No softening the blow with genial dollops of well-wishing from this trio. And of goofs, boy, are there some dandies. The sequence of awful decisions that took Xerox from poster-child of TQM
(Total Quality Management) revolution of the 1980s to the blunderer of 2000 that
shredded both their billing system and customer loyalty makes one chortle, but
behind management's arrogant imbecilities are unemployment lines.
The book is a goldmine of facts. Between 1982 and 1992 the number of U.S. business consultants went from 30,000 to 81,000 (if you can't do it, teach it). In 1998, 102,171 MBAs graduated from American universities (enough to populate a medium-size city, and wouldn't that be a dull place). Such statistics hint at the explosion in business information and expertise now revolutionizing U.S. corporate life. Yet how many bright young things lust for life at a widget factory? The authors cite many examples of manufacturing sector decline, but in the end the example they don't cite is the most telling of all: employment in the manufacturing sector is at its lowest point since 1961, and out-of-work statistics have risen every month for the last 27. Somebody's hurting, and it's not the guys at the top. Now recall that every seismic shift in thinking in the West since Rome has happened because the Joes and Joannes have become ill-served to the point where they no longer believe what they are told.
Changing Fortunes certainly has its virtues. For one, its procedure is sound. The authors examine the Fortune 100 lists from the turn of the 20th century up till today. They find a scowly mask behind the veil with the smile: American industrial companies may be turning out more products than ever, and many of them may have healthy balance sheets, but their relative importance in the economy is inexorably declining in favor of firms based on technology, finance, and services. Classic Schumpeter creative destruction. Wonderful, until you realize that corruption is far easier in a service economy than in a manufacturing one. Enron, WorldCom, and the Wall Street analysts didnšt manufacture a thing.
For another, the authors' analysis is impressive. The companies they study are household names
-- General Motors, Xerox, Merck, Kodak. It's not hard to relate to those. These companies have survived some bad shakes
-- the 1974 oil price shocks, the rise of an information economy that sucks up the best brains, a compliant but aging workforce, and globalization that hurts as much at home as it does abroad. In search of lifebuoys, corporations spent 13 years trying to convert to TQM, six years to soak up Business Process Re-engineering, and three years to embrace network technology. The first two had inward effects: management got better. IT, on the other hand, made for better informed and therefore more footloose customers. Despite all these stopgaps, the decline continues.
In addition to its analytic interest, Changing Fortunes is a formidable resource of interpretive history. One detects the hands of dozens of grad students busily scrabbling together the raw material. The authors' main point
-- that industrial companies are on the way out -- has a flaw, however: it is very US-centric. Offshore, manufacturing is still an extremely important engine of global wealth. Asia and Latin America set the pace in steel, cars, computers, televisions, and so on. If the authors had examined the top 100 global corporations instead of the Fortune 100, quite different conclusions might have turned up. One is that globalization has brought sovereign nations to grovel for the blessings of corporations the same way corporations grovel for the blessing of consumers.
For those who hold out high hopes for the Internet economy, disappointment came soon but in the nick of time. With nearly 100 percent of the Internet economy's blossoming dot-coms vanished into that great bankruptcy court in the sky, the belief that information will transform us all seems less than persuasive. And a good thing, too, because the so-called
"Network Effect" -- that the value of a service increases as more and more people use it (a sort of reverse wear-and-tear)
-- is becoming the biggest Frankenstein since the atomic bomb. It gives us unprecedented access, but we are accessed in turn, without knowing when, why, and by whom. The Network Effect is so pervasive and invasive that any business with bucks can insert itself into our lives to a degree unimaginable even to the former East German government. The most worrisome fact about corporations and government today is that their spanky new network economy is accountable to no one at all. (How's your email box looking these days?)
This gets us back to the bell-shaped curves of econoculture and their rise from completely unexpected places like comfy salons. Robert Heilbronner's thesis was that capitalism will destroy itself because it is unable to subserve economic wealth to social health. The world around us, on these shores and off, is largely run by geezocracies, and the Joes and Joannes know they're being had. Changing Fortunes frames their dilemma very well on page 217:
Sharlow had started with Kodak as a machinist at the age of 23, and eventually moved into managerial ranks.
"Kodak was everything. How far I could go seemed to depend on my own ambition,"
he recalled feeling, neatly articulating the social contract that had governed
corporate managerial employment. "...I knew there were hundreds, even thousands being laid off. I guess I thought I was special. Then the day came when they made a business decision to let me go. It was,
'Bye, and donšt let the door hit you.'" The event was a deeply wounding blow for Sharlow, and a lesson for his (grown) daughter, Karen:
"We've been taught all our lives that if you give your loyalty to something or
someone, it gives you something back. Now we know. No one will take care of
The Great Wall of China didn't succeed at keeping the barbarians out nearly as well as it did at keeping the Chinese in. The ultimate penalty for the regressive thinking that congealed over the great corporations analyzed in Changing Fortunes is the inspiration it gives to the tiny little lumps on the next bell curve
-- the inspiration to respond to a brick wall by walking around it.
© 2002 by Dana De Zoysa for Curled Up With a Good Book