ORGANIZING AMERICA: Wealth, Power, and the Origin of Corporate Capitalism.

ORGANIZING AMERICA: Wealth, Power, and the Origins of Corporate Capitalism.

By Charles Perrow. Princeton Univ. Press. 259 pp. $34.95

It seems obvious to most people that advanced societies require big organizations. In 1998, about half of job-holding Americans worked for companies with more than 500 employees. We must tolerate the curses of bigness—impersonality, excessive economic and political power—to enjoy the benefits of mass production and high living standards.

Not so, says retired Yale University sociologist Perrow. America could have attained its prosperity without the drawbacks of giant businesses. Smaller companies could have provided comparable gains while treating workers better and minimizing the dangers of concentrated power.

It’s a seductive argument, but unpersuasive. In the years when big enterprises began to dominate, the United States overtook Europe in living standards. In 1870, per capita U.S. income totaled $2,445 (in 1990 dollars), according to economic historian Angus Maddison. The amount was only slightly higher than the European average, and behind the averages of three major countries (Britain, Belgium, and the Netherlands). By 1913, American per capita income had reached $5,301, a figure that exceeded Britain’s average and was roughly 40 percent above Europe’s. If big companies didn’t create U.S. prosperity, the coincidence is certainly striking.

To make the alternative case, Perrow examines the 19th-century origins of corporate capitalism by focusing on textiles and railroads. In textiles, he says, there were two models: the big New England mills, usually owned by corporations with hundreds or thousands of employees; and a collection of smaller firms in Philadelphia, usually owned by partnerships and families. The New England firms concentrated on inexpensive textiles, while the Philadelphia mills made smaller batches of more specialized products. According to Perrow, the Philadelphia mills were profitable, employed greater numbers of skilled workers, and generally treated labor better.

As for railroads, he says that governmentregulated networks in Britain and France were efficient, which demonstrates that large, unregulated companies weren’t necessary for efficiency. Large companies became dominant in the United States, he contends, by creating political and legal advantages for themselves. Railroads bribed Congress and the states for subsidies. Corporations won legal advantages over other business forms: Limited liability, for example, meant that owners weren’t liable for the corporation’s debts. Perrow also cites the Supreme Court’s Dartmouth College decision (1819), which, he says, placed chartered corporations "above the state law."

But little of this is convincing. New England textile mills produced the low-cost goods necessary for a mass-consumption society, while the Philadelphia mills served smaller, more selective markets. Perhaps Britain and France regulated railroads efficiently, but could American politicians have done so? This seems dubious. Rivalry among states was intense; Perrow cites instances when states tried to reroute tracks to help themselves and hurt their neighbors—hardly efficient. Limited corporate liability created economic advantages by attracting investment capital and promoting risk taking. Finally, the Dartmouth College ruling didn’t put corporations above the law. Rather, it said that once states granted a charter, they couldn’t alter the terms without violating the Constitution’s protection of contracts.

Early American capitalism was a messy mixture of private money and public privilege, as Perrow reminds us. Eager to protect "property rights," courts often intervened on the side of business. There were corruption and industrial strife. The system’s great virtue was that it permitted continuous change, including the rise of modern industry. Bigger does not always mean better, but that’s not to say there was an idyllic alternative for pioneering and spreading mass—that is, democratic—markets.

—Robert J. Samuelson