The End of Power (8 page)

For many decades, even centuries, barriers to power sheltered massive armies, corporations, governments, parties, and social and cultural institutions. Now, those barriers are crumbling, eroding, leaking, or being rendered otherwise irrelevant. To appreciate just how profound this transformation is, and how much it reverses the tide of history, we need to review why and how power got big in the first place. The next chapter explains how, by the twentieth century, the world got to the point where—according to the conventional wisdom—power required size, and no better, more effective, and more sustainable way existed to exercise power than through large centralized and hierarchical organizations.

TAKE YOUR PICK AS TO WHEN THE STORY BEGINS. WAS IT
1648,
WHEN
the Peace of Westphalia ushered in the modern nation-state, in place of the post-medieval order of city-states and overlapping principalities? Was it 1745, when a French aristocrat and commercial administrator named Vincent de Gournay is said to have coined the term
bureaucracy?
Or perhaps it was 1882, when a constellation of small oil firms in the United States were melded into the gigantic Standard Oil—amid the rise of new large-scale industries, and foreshadowing a great wave of mergers one decade later that would end the heyday of small, local, family-firm capitalism and install a new order based on giant corporations?

At any rate, by the start of the twentieth century, these and other great advances—all generally understood to reflect human progress, science, and ingenuity—were cementing a broadly held consensus about how to accumulate, retain, and exercise power. And by roughly mid-century,
big
had triumphed; no longer could individuals, artisans, family firms, city-states, or loose-knit bands of like-minded people hold their own against the overwhelming advantages of large organizations. Power now required size, scale, and a strong, centralized, hierarchical organization.

Whether the body in question was General Motors, the Catholic Church, or the Red Army, how to organize to get and keep maximum power was a practical question with an obvious answer: get big.

To understand how the idea of big took hold, we must start with some whirlwind history. In particular, we must spend some time getting to know the American dean of business history, the German father of modern
sociology, and the British economist who won the Nobel Prize for explaining why, in business, bigger was often better. Taken together, their respective works illuminate not only how the creation of modern bureaucracy enabled the efficient exercise of power but also how the world's most successful corporations—as well as charities, churches, armies, political parties, and universities—have used the bureaucratic exercise of power to keep down rivals and advance their own interests.

Historians have identified the germ of modern bureaucracy in systems of government dating to ancient China, Egypt, and Rome. In both their military and administrative practices, the Romans invested heavily in large-scale, complex, centralized organization. Much later, Napoleon Bonaparte and others in Europe, absorbing the lessons of the Enlightenment, would commit to centralized and professionalized administration as the progressive and rational way to run a government. Drawing on that model and adapting American and European examples, Meiji-era Japan assembled a professional bureaucracy—including, above all, its Ministry of Industry, established in 1870—to reengineer its society and catch up with the West. By World War I the nation-state with a unitary government and civil service was the template for the world, including colonies. In India, for example, the British rulers set up the Indian Civil Service, which would carry on after independence as the prestigious Indian Administrative Service, a much-sought-after career path among the educated elite. Whether free-market or socialist, governed by a single party or robustly democratic, nations around the world in the twentieth century shared a commitment to a large central administration—that is, to a bureaucracy.

The same thing happened in economic life. Pushed by technology, the demands of large-scale industry, and new regulations, smaller companies gave way to large, multi-unit, hierarchically and administratively run firms, a species that had not existed before 1840. During what scholars call the first great merger movement in America—a decade-long period from 1895 to 1904—no fewer than 1,800 small firms disappeared in a wave of consolidation. The familiar names of many major brands date back to that era. General Electric was founded, out of a merger, in 1892. Coca-Cola was founded the same year, and Pepsi in 1902. The American Telephone and Telegraph Company (ancestor of AT&T) was founded in 1885; Westinghouse, in 1886; General Motors, in 1908; and so on. By 1904, seventy-eight corporations controlled more than half the production in their particular industry, and twenty-eight firms controlled more than four-fifths.
¹
Commenting on the upheaval these new organizations represented, a dyspeptic
Henry Adams observed that “the Trusts and Corporations stood for the larger part of the new power that had been created since 1840, and were obnoxious because of their vigorous and unscrupulous energy. They were revolutionary, troubling all the old conventions and values, as the screws of ocean steamers must trouble a school of herring.”
²

This “managerial revolution,” as the great business historian Alfred Chandler termed it, was also spreading from what he called its American “seed-bed” to the rest of the capitalist world. German industry was increasingly dominated by large firms such as AEG, Bayer, BASF, Siemens, and Krupp—many of them born in the mid-nineteenth century—that were themselves combining into larger formal and informal trusts. In Japan, with a helping hand from the government, the fledgling
zaibatsu
were expanding into new industries such as textiles, steel, shipbuilding, and railroads. Chandler persuasively argued that the more elaborate use of steam power in manufacturing during the nineteenth century as well as the popularization of electricity and innovations in management led to a
second industrial revolution
that spawned much larger companies than those that had emerged during the industrial revolution of the previous century. These new industrial plants used vastly more capital, workers, and managers. As a result, growth in scale became the precondition for business success and big became synonymous with corporate power. In his seminal work (aptly titled
The Visible Hand)
, Chandler argued that the visible hand of powerful managers replaced the invisible hand of market forces as the main driver of modern business.
³
The power and the decisions of these professional managers who led giant companies, or giant divisions within companies, shaped economic activities and outcomes as much as if not more than the prices determined by market exchanges.

The ascent and dominance of these large industrial companies led Chandler to identify three distinct models of capitalism, each associated with one of the three leading bastions of capitalism at the time of this second industrial revolution: (a) the “personal capitalism” found in
Great Britain
, (b) the competitive (or managerial) one common in the
United States
, and (c)
Germany
's “cooperative capitalism.”
⁴
In Chandler's view, even successful large industrial firms in Britain were impaired by the familial nature of the dominant entrepreneurial dynasty that owned and managed them; they lacked the drive, agility, and ambition of their American counterparts. In contrast, the separation of ownership and management that Chandler called “managerial capitalism” enabled American companies to adopt new organizational forms—notably, the multi-divisional, or “M,”
structure (M-form)—that were far superior for raising and allocating capital, attracting talent, and innovating and investing in production and marketing. The M-form, which entailed a confederation of semi-independent product or geographical groups within a central headquarters, allowed more efficient handling of large-sized operations and created faster-growing corporations. In turn, the propensity of German companies to cooperate with labor unions led to a system that Chandler labeled “cooperative capitalism,” which eventually became known as “codetermination.” German firms strived to include more stakeholders in the companies' governance structure beyond shareholders and top managers.

Although these three systems differed in many ways, they had one paramount similarity: in each case, corporate power resided in large-sized companies. Size led to power and vice versa.

Whether we call it Big Business, Big Government, or Big Labor, this triumph of large, centralized organizations validated and reinforced the increasingly common assumption that big was best, and that achieving power in any relevant domain was a task best suited to a certain kind of modern and rational organization that was most effective when centralized and large. And if this idea had the force of received wisdom, one key reason was that it found compelling intellectual backing in economics, sociology, and political science. All such backing proceeded, fundamentally, from the seminal work of a remarkable social scientist: Max Weber.

Max Weber was more than a German sociologist. He was one of the most remarkable intellectuals of his time, a prodigious scholar of economics, history, religion, culture, and more. He wrote on Western economic and legal history; studies of Indian, Chinese, and Jewish religion; public administration; the life of the city; and, finally, a massive tome,
Economy and Society
, published in 1922, two years after his death. He was also, as the political scientist and sociologist Alan Wolfe observed, “the leading scholar of questions of power and authority in the twentieth century,”
⁵
and it is in that capacity that we draw on him here. Indeed, Weber and his theories about bureaucracy are critical to understanding how power can actually be used.

Born in 1864, Weber came of age in Germany as it was unifying out of an assemblage of regional principalities, under the impetus of the Prussian chancellor Otto von Bismarck, and turning into a modern industrial nation. Weber, though an intellectual, took part in this modernization in
multiple roles—not just as an academic but also as an adviser to the Berlin stock exchange, a consultant to political reform groups, and a reserve officer in the Kaiser's army.
⁶
He first came to public attention with his controversial study of the plight of German agricultural laborers being displaced by Polish migrants, in which he argued that large German estates should be broken up into plots that could be given to workers to encourage them to stay in the area. Subsequently having taken a position at Freiburg University, he again courted controversy with proposals that Germany follow a path of “liberal imperialism” to build up the political and institutional structures needed for a modern state.
⁷

In 1898, after a fiery family argument that precipitated his father's death, Weber had a breakdown and developed a form of nervous exhaustion that often left him unable to teach. It was during his recovery from one such bout, in 1903, that he was invited by Hugo Münsterberg, a Harvard professor of applied psychology, to join a gathering of international scholars that was assembling in St. Louis, Missouri. Weber accepted, drawn by the lure of the United States and what he considered to be its relatively undeveloped economic and political forms, the chance to delve deeper into Puritanism (his most influential work,
The Protestant Ethic and the Spirit of Capitalism
, would appear shortly), and a fat honorarium. As the German historian Wolfgang Mommsen later put it, the trip would prove to be “pivotally important to his social and political thought.”
⁸

Visiting the United States in 1904, Weber expanded his lecture invitation into a grand observation and data-gathering tour across much of the country; he would spend more than 180 hours on trains over a period of nearly three months, visiting New York; St. Louis; Chicago; Muskogee, Oklahoma (to see Indian country); Mt. Airy, North Carolina (where he had relatives); and sundry other destinations (meeting with William James, for example, in Cambridge, Massachusetts). Weber was coming from a modern country to one even more so. Indeed, as Weber viewed America, it represented “the last time in the long-lasting history of mankind that so favourable conditions for a free and grand development will exist.”
⁹
America was the most intensely capitalist society Weber had seen, and he recognized that it presaged the future. The skyscrapers of New York and Chicago appeared to him as “fortresses of capital,” and he was awed by the Brooklyn Bridge and by both cities' trains, trams, and elevators.

But Weber also found much to lament in the United States. He was shocked at labor conditions, the lack of workplace safety, the endemic corruption of city officials and labor leaders, and the insufficient ability of
civil servants to regulate the whole mess and keep up with the dynamic economy. In Chicago, which he called “one of the most unbelievable cities,” he wandered through stockyards, tenements, and streets, watching its residents at work and play, cataloguing the ethnic pecking order (Germans were waiters, Italians were ditch-diggers, and the Irish were politicians), and observing local customs. The city was, he observed, “like a human being with its skin peeled off and whose intestines are seen at work.”
¹⁰
Capitalist development was moving rapidly, he further noted; everything “opposed to the culture of capitalism is going to be demolished with irresistible force.”
¹¹