The Not Quite Golden Age : Part 2

Supercapitalism: The Transformation of Business, Democracy, and Everyday Life
By Robert B. Reich, Ph.D.

(Page 2 of 2)

Productivity surged. While the typical American worker in the early 1800s had produced a tiny .3 percent more each year (seeding and harvesting crops, logging, fishing, or applying his craft with hand tools), by the last decades of the century his productivity was rising at six times that rate. Output also exploded. Iron production doubled in just a few years; steel production multiplied twenty-fold. Railroad and telegraph networks expanded in tandem. Fast, regular, and reliable transportation and communication brought raw materials from far corners of the country into factories and sent finished goods out to wholesalers and retailers all over the nation.

An economic revolution on this scale inevitably had large social consequence. Supply outran demand, leading to a severe depression that jolted much of Europe and America in 1873. Another depression in the summer of 1893 impoverished thousands of farmers, closed banks, and left more than a quarter of America's unskilled urban workforce unemployed. A growing chorus of socialists in Europe and America proclaimed the imminent collapse of capitalism. A swelling cadre of western populists in deepening debt to eastern bankers demanded that currencies be converted from gold to silver. With silver far more abundant than gold, this would inflate currency values and thereby shrink the debts. Manufacturers on both sides of the Atlantic wanted higher tariffs to protect themselves from foreign imports. (Only Britain, whose advanced manufacturers were the primary beneficiaries of free trade, declined to raise its tariffs, resulting in what were seen there as German and American "economic invasions.")

Hundreds of thousands of people moved from farms to factories. In 1870, fewer than 8 percent of America's adult population worked in a mill and only one in five lived in a place with 8,000 or more inhabitants; a half century later, almost a third were in factories and almost a half lived in cities. During this tumultuous span of time, New York City's population swelled fourfold; Chicago became ten times its former size. In the 1870s, 280,000 immigrants entered the United States each year. In the 1880s, 5.5 million came; in the 1890s, another 4 million. By the first decade of the twentieth century, the flow of immigrants, most of them destitute when they arrived, rose to a million a year. According to a 1908 government study, almost three-fifths of the wage earners in principal branches of American industry had been born abroad. Immigrants then constituted a higher percentage of the total American workforce than they would a hundred years hence.

As America and every other manufacturing nation began scouring more backward regions of the globe for potential markets, the term "imperialism" entered common speech. Teddy Roosevelt asserted America's imperial destiny in Latin America."Territorial expansion," explained an official of the United States State Department in 1900, "is but the by-product of the expansion of commerce." Britain and Germany equated their economic prowess with their nations' global spheres of influence. The British economist J. A. Hobson dourly predicted the logical end-point of such competition: Businessmen, he warned, opt for war when they have exhausted their home markets. Like John Maynard Keynes three decades later, Hobson urged instead that advanced nations increase their domestic markets by making more of their citizens rich enough to buy domestically produced goods. "If apportionment of incomes were such as to evoke no excessive saving, full constant employment for capital and labor would be furnished at home." But the world war Hobson feared would occur before enough citizens had the wherewithal to buy a substantial portion of what they produced.

In the first decades of the twentieth century, productivity again surged. Sweatshops and mills were replaced by large manufacturing plants, inspired by Frederick Winslow Taylor's new theories of "scientific management," which broke down every factory job into highly specialized and repetitive steps. Henry Ford's assembly line became the model. Not only could workers positioned along the line produce more cars in a shorter time but production could be concentrated in a few giant factories and materials could be bought in bulk at great savings. In 1909, Ford produced 10,607 cars; in 1913, 168,000; the following year, 248,000. By the beginning of World War I, much of American industry had consolidated into giant firms whose names became almost synonymous with America - Ford Motor, U.S. Steel, American Telephone & Telegraph, United States Rubber, National Biscuit, American Can, the Aluminum Company of America, General Electric, General Motors, and Rockefeller's Standard Oil.

The size of such enterprises became an almost impregnable barrier to entry. They dominated the American, and much of the world's, economy for most of the twentieth century. Of the Fortune 500 largest corporations in 1994, more than half were founded between 1880 and 1930. A far smaller portion was founded during the long stable period between 1945 and 1975, an important fact to bear in mind as the story unfolds.

Copyright © 2007 by Robert B. Reich

About the Author

Robert B. Reich is University Professor at Brandeis University and Maurice B. Hexter Professor of Social and Economic Policy at Brandeis's Heller Graduate School. He is also a visiting professor at the University of California at Berkeley. He served as secretary of labor under President Bill Clinton. His writing has appeared in The New Yorker, The Atlantic Monthly, the New York Times, the Washington Post, and The Wall Street Journal. This is his tenth book. He lives in Cambridge, Massachusetts.