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The Vanishing American Corporation: Navigating the Hazards of a New Economy
It may be hard to believe in an era of Walmart, Citizens United, and the Koch brothers, but corporations are on the decline. The number of American companies listed on the stock market dropped by half between 1996 and 2012. In recent years we've seen some of the most storied corporations go bankrupt (General Motors, Chrysler, Eastman Kodak) or disappear entirely (Bethlehem Steel, Lehman Brothers, Borders).
Gerald Davis argues this is a root cause of the income inequality and social instability we face today. Corporations were once an integral part of building the middle class. He points out that in their heyday they offered millions of people lifetime employment, a stable career path, health insurance, and retirement pensions. They were like small private welfare states.
The businesses that are replacing them will not fill the same role. For one thing, they employ far fewer people the combined global workforces of Facebook, Yelp, Zynga, LinkedIn, Zillow, Tableau, Zulily, and Box are smaller than the number of people who lost their jobs when Circuit City was liquidated in 2009. And in the sharing economy, companies have no obligation to most of the people who work for them at the end of 2014 Uber had over 160,000 driver-partners in the United States but recognized only about 2,000 people as actual employees.
Davis tracks the rise of the large American corporation and the economic, social, and technological developments that have led to its decline.
The future could see either increasing economic polarization, as careers turn into jobs and jobs turn into tasks, or a more democratic economy built from the grass roots. It's up to us.
Gerald Davis argues this is a root cause of the income inequality and social instability we face today. Corporations were once an integral part of building the middle class. He points out that in their heyday they offered millions of people lifetime employment, a stable career path, health insurance, and retirement pensions. They were like small private welfare states.
The businesses that are replacing them will not fill the same role. For one thing, they employ far fewer people the combined global workforces of Facebook, Yelp, Zynga, LinkedIn, Zillow, Tableau, Zulily, and Box are smaller than the number of people who lost their jobs when Circuit City was liquidated in 2009. And in the sharing economy, companies have no obligation to most of the people who work for them at the end of 2014 Uber had over 160,000 driver-partners in the United States but recognized only about 2,000 people as actual employees.
Davis tracks the rise of the large American corporation and the economic, social, and technological developments that have led to its decline.
The future could see either increasing economic polarization, as careers turn into jobs and jobs turn into tasks, or a more democratic economy built from the grass roots. It's up to us.
240 pages, Hardcover
First published May 2, 2016
13 people are currently reading
255 people want to read
About the author
Gerald F. Davis
10 books7 followersGerald F. Davis is the Wilbur K. Pierpont Collegiate Professor of Management at the University of Michigan's Ross School of Business. He has published widely in management, sociology, and finance. Recent books include Social Movements and Organization Theory (with Doug McAdam, W. Richard Scott, and Mayer N. Zald) and Organizations and Organizing: Rational, Natural, and Open System Perspectives (with W. Richard Scott). He is currently Associate Editor of Administrative Science Quarterly and Co-Director of the Interdisciplinary Committee on Organization Studies (ICOS) at the University of Michigan.
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Displaying 1 - 16 of 16 reviews
February 21, 2019
A global vision of the current economy and what it means for the definition of work and career. Given that this is my field of study and work I knew a lot of the data introduced here, but the author made many connections I had not, and which expanded my effectiveness.
March 24, 2017
This was a bit dry, but the last few chapters made it all worthwhile. Davis has great support for the ideas he posits, and I fully bought into his idea of what the future economy will look like. I would strongly recommend this book for anyone in the business world.
March 6, 2018
Read this for the class I'm TAing, thought it was quite interesting. One narrative about inequality in the contemporary US is that the expansion of corporate power, mechanization, and outsourcing have wrecked the middle class career and sent inequality into the stratosphere. Davis agrees with the inequality part, but he flips the script in regard to corporations. He argues that it is actually the decline of corporations, or at least a certain type of big corporation, that is a core cause of inequality. Davis traces the rise of modern corporations, which by the early 20th century had become behemoths employing hundreds of thousands of people. Note, for example, that many "dark money" sources of concentrated wealth and outsized political influence are not actually corporations (the Kochs, for instance) Through a combination of labor activism and the New Deal, plus the desire of corporations to ensure good employees, had created the good middle class career for tens of millions of people that included long-term steady employment, solid pay, a clear advancement track, health insurance, and pensions. Weirdly enough, but quite convincingly, Davis shows that the big corporation actually played a significant role in lowering income inequality in the US to one of the lowest points in our history.
So what happened? Well, a whole bunch of factors started to break up this business model. One was various technological advances that reduced the need to be a huge employer. Another was the growing expense of health care and pensions, which pushed many companies toward issuing 401k retirement plans instead of steady pensions. This step linked tens of millions of Americans' retirements to the stock market, which, along with the rise of modern finance in the 1980's, made producing shareholder value an increasingly dominant corporate motivation at the expense of the broader set of responsibilities earlier big corporations had played. Davis also shows that Americans routinely neglect their 401K's, leaving them with inadequate retirement savings. Obviously outsourcing and mechanization of jobs played a part as well. Conservative economic policies that cut taxes for the wealthy and undermined unions also hurt. Corporations downsized, merged, and specialized, employing far fewer full-time salaried employees. In the meantime, inequality started to creep back up to Gilded Age levels as the bottom fell out on the middle class career.
Davis describes the economy that has emerged from this process as the "platform economy" or the Uberized" economy. Instead of having full time employees with all the burdens that come with them, corporations rely on tech platforms to effectively crowd-source temporary employment for a specific fee. This model has reduced the career (1 profession that keeps you set for life) to the job (moving around from position to position) to the task (performing minor contract work in which the employer has no broader responsibilities to the employee). He argues that without social/political movements against this process, which obviously expands inequality, this will become an increasingly widespread model of the corporation. Imagine, for instance, an Uber for doctors where doctors simply earn a fee (think race to the bottom in terms of prices) for competing to serve a smartphone-wielding set of patients.
Overall, this is a concise, well-argued, and interesting book. Sometimes I thought he hyped up the corporation and downplayed the role of government in ensuring the stability of the corporate career for everyone from auto workers to upper management. Still, I will definitely refer a lot to this book in my understanding of the modern economy, and I recommend it to anyone looking for a fresh change in how they think about corporations and inequality.
So what happened? Well, a whole bunch of factors started to break up this business model. One was various technological advances that reduced the need to be a huge employer. Another was the growing expense of health care and pensions, which pushed many companies toward issuing 401k retirement plans instead of steady pensions. This step linked tens of millions of Americans' retirements to the stock market, which, along with the rise of modern finance in the 1980's, made producing shareholder value an increasingly dominant corporate motivation at the expense of the broader set of responsibilities earlier big corporations had played. Davis also shows that Americans routinely neglect their 401K's, leaving them with inadequate retirement savings. Obviously outsourcing and mechanization of jobs played a part as well. Conservative economic policies that cut taxes for the wealthy and undermined unions also hurt. Corporations downsized, merged, and specialized, employing far fewer full-time salaried employees. In the meantime, inequality started to creep back up to Gilded Age levels as the bottom fell out on the middle class career.
Davis describes the economy that has emerged from this process as the "platform economy" or the Uberized" economy. Instead of having full time employees with all the burdens that come with them, corporations rely on tech platforms to effectively crowd-source temporary employment for a specific fee. This model has reduced the career (1 profession that keeps you set for life) to the job (moving around from position to position) to the task (performing minor contract work in which the employer has no broader responsibilities to the employee). He argues that without social/political movements against this process, which obviously expands inequality, this will become an increasingly widespread model of the corporation. Imagine, for instance, an Uber for doctors where doctors simply earn a fee (think race to the bottom in terms of prices) for competing to serve a smartphone-wielding set of patients.
Overall, this is a concise, well-argued, and interesting book. Sometimes I thought he hyped up the corporation and downplayed the role of government in ensuring the stability of the corporate career for everyone from auto workers to upper management. Still, I will definitely refer a lot to this book in my understanding of the modern economy, and I recommend it to anyone looking for a fresh change in how they think about corporations and inequality.
February 27, 2022
I'm not sure if other people do this in book reviews but I like to annotate how I came to the book in question, because I think it's helpful for others to compare their recent life story to mine in order to better make sense of the review.
It's entirely coincidental that this is second book that I came to via Ranjan Roy's tweeting (see my previous review for why Ranjan matters to me). Ranjan ringingly endorses not this book but Julius Krein's longread, "The Value of Nothing: Capital versus Growth". Like Ranjan, I absolutely loved Krein's piece and when I finished it, I began trawling its bibliography, which is how I found this book: cites Davis for the helpful term "Nikefication".
Krein's thesis, which builds on a previous piece also in American Affairs by Herman Mark Schwartz, "Corporate Profit Strategies and U.S. Economic Stagnation" which is also fantastic, is that in the US (and less so in other countries), corporate profits and share prices come from specific financial engineering techniques, including share buybacks, spinning off higher-valuation subsidiaries, and recentering on intellectual property. They do not come from the things that you would hope corporations, both public and private, do, like invest in capacity or R&D—those are positively awful ways to try to generate profits and shareholder value. I think you can see this most clearly in looking at American firms' hurdle rates: "In theory, firms should invest in a new project whenever the expected returns on the investment exceed the firm’s cost of capital". In practice, firms only invest in new projects when the expected return is 7% to 15% higher than the cost of capital, a gap that's persisted over decades and over multiple interest rate cycles.
The aforementioned Nikefication is a superb shorthand for this basket of financial engineering mechanisms that American public and private firms use to maximize shareholder value even if it means decreasing competitiveness and accepting malinvestments.
Only the middle third of this book is about Nikefication, but the first third is valuable because it's a deep look at the social and business environments that preceded today's Nikefied field. Beginning with the birth of corporations as mechanisms to raise enormous amounts of capital needed to build American canals and railroads, and their subsequent co-evolution with the American social experiment, was really helpful, because as Davis elucidates, other countries like the UK and Germany, with much stronger central governments and banking sectors, followed a very different path.
After discussing the deep past (pre-Nikefication) and the recent past (Nikefication), Davis discusses the future. The corporate structure is already a thing of the past: the vast majority if IPOs in recent decades didn't need capital, they IPO'd to cash out founders and earlier investors. Gone is the social pact whereby big corporations hire huge swaths of the population and provide jobs and benefits. Vizio and Flip and Google and Nike and Hilton can coordinate huge amounts of business activity with tiny workforces. What comes next? This part of the book is speculative and describes a range of possibilities all along the utopia–dystopia scale—no doubt the future will be two steps forward, one step back.
Davis' prose is clear and approachable, frequently revisiting points and restating them. It's much easier to read than Krein or Schwartz' pieces in American Affairs and just takes longer because it's much longer. I'd love a Krein-ified version of the book but am very glad I read it!
It's entirely coincidental that this is second book that I came to via Ranjan Roy's tweeting (see my previous review for why Ranjan matters to me). Ranjan ringingly endorses not this book but Julius Krein's longread, "The Value of Nothing: Capital versus Growth". Like Ranjan, I absolutely loved Krein's piece and when I finished it, I began trawling its bibliography, which is how I found this book: cites Davis for the helpful term "Nikefication".
Krein's thesis, which builds on a previous piece also in American Affairs by Herman Mark Schwartz, "Corporate Profit Strategies and U.S. Economic Stagnation" which is also fantastic, is that in the US (and less so in other countries), corporate profits and share prices come from specific financial engineering techniques, including share buybacks, spinning off higher-valuation subsidiaries, and recentering on intellectual property. They do not come from the things that you would hope corporations, both public and private, do, like invest in capacity or R&D—those are positively awful ways to try to generate profits and shareholder value. I think you can see this most clearly in looking at American firms' hurdle rates: "In theory, firms should invest in a new project whenever the expected returns on the investment exceed the firm’s cost of capital". In practice, firms only invest in new projects when the expected return is 7% to 15% higher than the cost of capital, a gap that's persisted over decades and over multiple interest rate cycles.
The aforementioned Nikefication is a superb shorthand for this basket of financial engineering mechanisms that American public and private firms use to maximize shareholder value even if it means decreasing competitiveness and accepting malinvestments.
Only the middle third of this book is about Nikefication, but the first third is valuable because it's a deep look at the social and business environments that preceded today's Nikefied field. Beginning with the birth of corporations as mechanisms to raise enormous amounts of capital needed to build American canals and railroads, and their subsequent co-evolution with the American social experiment, was really helpful, because as Davis elucidates, other countries like the UK and Germany, with much stronger central governments and banking sectors, followed a very different path.
After discussing the deep past (pre-Nikefication) and the recent past (Nikefication), Davis discusses the future. The corporate structure is already a thing of the past: the vast majority if IPOs in recent decades didn't need capital, they IPO'd to cash out founders and earlier investors. Gone is the social pact whereby big corporations hire huge swaths of the population and provide jobs and benefits. Vizio and Flip and Google and Nike and Hilton can coordinate huge amounts of business activity with tiny workforces. What comes next? This part of the book is speculative and describes a range of possibilities all along the utopia–dystopia scale—no doubt the future will be two steps forward, one step back.
Davis' prose is clear and approachable, frequently revisiting points and restating them. It's much easier to read than Krein or Schwartz' pieces in American Affairs and just takes longer because it's much longer. I'd love a Krein-ified version of the book but am very glad I read it!
March 4, 2018
a really interesting book. davis succinctly and clearly summarizes the history of american corporations with a focus on how recent cultural, economic and political trends have changed the very nature of corporations over the last several decades. one of davis's core arguments is that corporations, per se, served as a source of important social stability throughout the american post-war economic expansion. by promoting careers as opposed to only jobs and in virtue of sufficient scale and independence, corporations could (for better or worse) define their own set of norms and responsibilities. as corporations have been increasingly pulled into responsibility to their shareholders as their first, foremost and only concern, these norms have eroded and with them we have lost a potentially important source of social and economic stability.
April 1, 2023
I read this book for my Sociology of Organizations class. It was interesting to see how the role of corporations has changed over time in society, especially in regards to technology, the gig economy, Wall Street, pop-up companies, and changes when corporations entered society around Reagan's administration.
I would recommend this book to myself or others specifically if they are looking to read something to learn about politics, business changes in society, or corporations specifically.
4 stars because it was a good book for what it was.
I would recommend this book to myself or others specifically if they are looking to read something to learn about politics, business changes in society, or corporations specifically.
4 stars because it was a good book for what it was.
December 5, 2019
Didn't expect to enjoy a book on this topic, but it was indeed dreadfully interesting. Good research, fun history, and light speculation.
Plus it's always nice to read a book by a Gerald.
Plus it's always nice to read a book by a Gerald.
December 23, 2019
The corporation as the primary method of conducting business in America might be in decline and this will cause social problems because of a "paradox of hierarchy" i.e. bigger corporations are more internally unequal but economies composed of them are on average overall more equal. Since the modern American economy developed in a manner which placed responsibilities onto corporations to provide welfare, when agreements such as the "Treaty of Detroit" seemed workable, alternative institutions will have to step up to stabilize and make living standards more predictable if private ownership of societies productive resources is going to be justifiable for much longer.
The "law and economics movement", the efficient market hypothesis and the hostile takeovers of the 80s breaking up conglomerates made a transition to a uncertain "platform capitalism" possible... the internet further extending competition to a worldwide scale and lowering costs of entering markets, not necessarily overregulation, is what guarantees corporate power becomes more precarious.
I doubt even the best liberal education and any value from the sort of "coding" which the average pleb is capable of learning is going to in anyway improve living standards which is a social problem which schooling, as an institution, is a product of not a solution to.
The "law and economics movement", the efficient market hypothesis and the hostile takeovers of the 80s breaking up conglomerates made a transition to a uncertain "platform capitalism" possible... the internet further extending competition to a worldwide scale and lowering costs of entering markets, not necessarily overregulation, is what guarantees corporate power becomes more precarious.
I doubt even the best liberal education and any value from the sort of "coding" which the average pleb is capable of learning is going to in anyway improve living standards which is a social problem which schooling, as an institution, is a product of not a solution to.
September 4, 2021
Yes, the times they are a changing. We are living through it. We know somethings happening here, but we don’t know what it is. And other Bob Dylan quotes. Maybe the first inkling was the ’74 recession. Foreign competition was reemerging for the first time since the war. And energy was a problem. Then globalization. But globalization alone doesn’t tell the story. You need to combine this with computers, networks, and all the rest of information technology and logistics and operations. There’s no need for most of most companies to exist. So they aren’t. Anymore. Fewer and fewer large companies and fewer of those in the form of the corporation. Undoubtedly true. And depressing if you care about the happiness of the bulk of humanity. Fewer and fewer people making more and more. And more and more people doing things with nearly no value added. Driving. Personal care.
The author states these things simply and repetitively. They are good points. He also gives a bit of background, like about the postwar labor agreements that led to the time before the present. That’s mostly fluff. Disappointing is his prescriptions. Basically we’re stuck and do the best you can. And facile personal suggestions. Liberal arts ed is OK if you take a stats course and a programming course. Nonsense.
The author states these things simply and repetitively. They are good points. He also gives a bit of background, like about the postwar labor agreements that led to the time before the present. That’s mostly fluff. Disappointing is his prescriptions. Basically we’re stuck and do the best you can. And facile personal suggestions. Liberal arts ed is OK if you take a stats course and a programming course. Nonsense.
June 7, 2016
Out with the corporations and in with the task-based economy. This book hits today's world right where it hurts...history. After reading this, one will realize that our career paths just aren't what we preach and teach. In the past, corporations were the way to go and where you wanted to begin. This book concentrates on this topic and proves it is not however where we are headed. Without giving this book completely away, I suggest you read it, if you are a corporation person especially. It will definitely make you think about today's modern businesses!
October 20, 2016
I received a short review copy of this book from the publisher. It looked interesting to me, and I may pick it up sometime to read it, but it seems more like it was written for a younger generation, one still moving through the work force. Still, it well researched and historically of some interest to us older folks who will enjoy the trip down memory lane and also a peek behind the scenes on how this all came about.
Want to read
June 23, 2016I received this book as a giveaway in response for a accurate review thank you. I have not had the opportunity to read this book at the time due to lack of schedule. However I am excited about this read and will post a review once I get the opportunity to read it. Again thank you author, publishing company and goodreads for this wonderful work of art.
June 21, 2016
I received this book from goodreads giveaways.
I found this book to be very interesting and insightful. At first I really wasn't looking forward to it and thought I would get bored with it pretty fast but it was actually the complete opposite. Definitely worth reading!
I found this book to be very interesting and insightful. At first I really wasn't looking forward to it and thought I would get bored with it pretty fast but it was actually the complete opposite. Definitely worth reading!
July 14, 2021
Read this for my first business class.
Insightful but uninteresting. Written well enough for anyone to understand even without business knowledge, but reads like a collection of Encyclopedias and not riveting stories about the ups and down of business.
Insightful but uninteresting. Written well enough for anyone to understand even without business knowledge, but reads like a collection of Encyclopedias and not riveting stories about the ups and down of business.
September 1, 2016
A fascinating and somewhat sobering look at economic evolution over the last century.
September 15, 2016
I won this from a Goodread giveaway contest
Excellent read. Highly recommended, especially for younger people starting out in the business world
Excellent read. Highly recommended, especially for younger people starting out in the business world
Displaying 1 - 16 of 16 reviews