I grew up in a planned economy. Bureaucrats didn't run
everything: Small-business men were more or less free to buy and sell
as they saw fit. But those who controlled the economy's "commanding
heights," its key industries, were administrators rather than
entrepreneurs, conformists who were valued less for their
productivity than for their loyalty, whose career advancement
depended on their political skill. For ordinary workers, the system
had some benefits: It was hard to get ahead, but once you had a good
job, your life was secure. Still, the economy was often appallingly
inefficient and consistently unresponsive to consumer needs.
No, I am not an immigrant from Eastern Europe. I'm talking about
the U.S. economy of the '50s and '60s, when General Motors was the
very model of a modern major company.
In those days progressive thinkers like John Kenneth Galbraith
used to ridicule economists who still believed what they had learned
from Paul Samuelson's textbook, which was that free markets could be
counted on to match supply and demand. After all, business itself
was clearly moving away from markets and toward planning. More and
more of the economy was dominated by large corporations, and those
corporations didn't place much faith in the invisible hand. For
example, AT&T owned it all--not just the long-distance lines, but the
local phone systems, the factories that made telecommunications
equipment, even the phones in your home. By contrast, in today's
cutting-edge e-businesses (see Cover Stories), the company often
owns--or rather, rents--little but brainpower.
That's a long way from the era of the man in the gray flannel
suit, when the great business empires were not run according to the
principles of supply and demand: They were command-and-control
systems, and people did what they were told. As technology grew more
complex, as big corporations grew ever bigger, as computers made it
easier to impose centralized control, it was clear to smart people
that the economy would bear ever less resemblance to the competitive
system described in obsolete economics textbooks.
But over the past two decades the market has steadily gained
ground--not only against socialism but against big-business
capitalism. Large companies account for a steadily declining share
of employment and value added. Moreover, even within corporations
there is a growing tendency to rely on individual initiative, on
independent profit centers free to take risks and do it their way.
(True, sometimes individual initiative leads to something that looks
like mass conformity--seen one Banana Republic, you've seen 'em all.
But we're talking about management here, not tastes.)
The retreat of business bureaucracy in the face of the market was
brought home to me recently when I joined the advisory board at
Enron--a company formed in the '80s by the merger of two pipeline
operators. In the old days energy companies tried to be as
vertically integrated as possible: to own the hydrocarbons in the
ground, the gas pump, and everything in between. And Enron does own
gas fields, pipelines, and utilities. But it is not, and does not
try to be, vertically integrated: It buys and sells gas both at the
wellhead and the destination, leases pipeline (and
electrical-transmission) capacity both to and from other companies,
buys and sells electricity, and in general acts more like a broker
and market maker than a traditional corporation. It's sort of like
the difference between your father's bank, which took money from its
regular depositors and lent it out to its regular customers, and
Goldman Sachs. Sure enough, the company's pride and joy is a room
filled with hundreds of casually dressed men and women staring at
computer screens and barking into telephones, where cubic feet and
megawatts are traded and packaged as if they were financial
derivatives. (Instead of CNBC, though, the television screens on the
floor show the Weather Channel.) The whole scene looks as if it had
been constructed to illustrate the end of the corporation as we knew
it.
What happened to the man in the gray flannel suit? No doubt he
was partly a victim of sex (er, I mean gender) and drugs and rock &
roll- -that is, of social change. He was also a victim of
information technology, which ended up deconstructing instead of
reinforcing the corporation. But probably the biggest force has been
a change in ideology, the shift to pro-market policies. It's not
that government has vanished from the marketplace. It's still a good
guess that in a completely unregulated phone market, long-distance
companies would buy up local-access companies and deny their
customers the right to connect to rivals, and that the evil
empire--or at least monopoly capitalism--would rise again. However,
what we have instead in a growing number of markets--phones, gas,
electricity today, probably computer operating systems and high-speed
Net access tomorrow--is a combination of deregulation that lets new
competitors enter and "common carrier" regulation that prevents
middlemen from playing favorites, making freewheeling markets
possible.
Who would have thunk it? The millennial economy turns out to look
more like Adam Smith's vision--or better yet, that of the Victorian
economist Alfred Marshall--than the corporatist future predicted by
generations of corporate pundits. Get those old textbooks out of the
attic: they're more relevant than ever.