A chaos reigns over the economic scene, a chaos we all have been forced to notice. The monetary “crises” of years past we could leave to the speculators in Zurich; but now the intricacies of financial life are making themselves known in unexpected quarters. The economy has become the modern equivalent of a mystical force, disrupting lives and altering fortunes for reasons beyond anyone’s knowing. Truck drivers and airline pilots, manufacturers of plywood and producers of plastic, find themselves out of work, and the cause is far away. The market in soybean futures and the international trade in oil need not have concerned us until the routines of daily life made their importance clear.
Beyond the cacophony of the experts we hear the worst diagnosis of all—that no one knows what has gone wrong. The American Economic Association held its annual convention last January, at the end of what had been a catastrophic 12 months for its seers. The hesitant tone of the pronouncements showed that the academics were not providing the answers. The new president, Walter Heller, said, “The energy crisis caught us with our parameters down. The food crisis caught us, too. There are too many things we really just don’t know.”
Contradictory action has grown from confused thought. The ill harvest of the Russian grain sale, and last summer’s embargo on soybean exports, foreshadow to many experts the beginning of a world-wide war of the granaries, an era of agricultural chauvinism. Yet through most of 1973 agents from American food interests were knocking on doors in Frankfurt and Florence, trying to expand European markets for American produce. Contradictory diagnoses are reported, and with them conflicting prescriptions. From one side we hear voices of the Depression, preparing once more to roll out the tired John Maynard Keynes to keep us from massive unemployment. From the other side comes a voice of the premature future, warning that old theories will not hold. Two years ago the Club of Rome published The Limits of Growth; it predicted that we might soon know large-scale unemployment, but that the cause would not be the slack demand which Keynes had taught us to combat. Rather, our undoing would be the progressive depletion Of the world’s resources, and a surfeit of industrial pollutants. Now, the shortages have begun to appear in timber and pulpwood, in petrochemicals and phosphates, and on, in chain-reaction style, through all the products made from these raw ingredients. Newsweek carries a cover asking whether we are “Running Out of Everything”; for the first time in 40 years newspaper headlines announce panic lay-offs. There are long holidays in Detroit; furloughs on the airlines. By January more than a million were out of work in England, whose flickering lights and three-day weeks seemed to signify that the Club of Rome’s ominous growth curves had lopped back on us sooner than anyone expected. Journals like The New York Review of Books have started asking new questions about the economy, including Jason Epstein’s recent speculation that “certain limitations may now have been reached in the techniques by which the middle class has traditionally supported itself and its culture.” He added:
Even with unusually high levels of employment and production, the world-wide demand for goods continues to exceed the foreseeable supply and no prophet has yet argued convincingly that the situation will change. Though the world-wide industrial machine is running at nearly its full capacity, the result is not the much anticipated conquest of want; it is the threat of eventual depletion as goods of all kinds grow scarce.
This is an almost unimaginably far cry from the economic wisdom of a decade ago, when the war industries were defended as a means of propping up demand, and tax cuts and public spending were the planners’ most important tools for coping with recession. From the Affluent Society we have come in the twinkling of an eye to an apparent Age of Malthus. How can the situation have reversed itself in so short a span of years—even years that encompassed the war and the devaluation of the dollar? What is happening?
How the Economy Grew
Two major trends have typified the development of the American economy during this century. One, of course, is the mechanization and automation of most productive activities. At the start of the century more than 65 per cent of the labor force was engaged in agriculture or other manufacturing work. Now only one in three workers is involved in directly “productive” work—four per cent in agriculture, six per cent in construction, and 23 per cent in manufacture. After World War II the United States became the first country ever to have more than half its work force employed in the “services” sector—that range of activities which includes enterprises as simple as barbershops and domestic servants, and as complex as education, transportation, and government.
As the services sector has risen from 60 to 66 per cent of the work force between 1960 and 1970, government has been by far the most rapidly expanding in the field. In 1960, 12 per cent of all American workers were on federal, state, or local government payrolls; by 1970 it was 16 per cent. The federal share of this total has remained roughly constant, at about four per cent of the entire work force. The enormous growth of state and local government accounted for the expansion of the public sector during the ’60s, and it shows no signs of abating. The Bureau of Labor Statistics (BLS) estimates that state and local government will be the fastest-growing employment sectors throughout the rest of this decade.
Both as a cause and a consequence of the shift to the services economy, mechanical energy has been substituted for human energy on the production line. Throughout most of the past 25 years the nation has increased its productivity-per-man-hour by three or four per cent each year. This overall rate includes the service jobs where productivity growth is slow, so it implies a much higher rate of increase in the productive sectors themselves. As people have moved from the farms and assembly lines into the offices and the classrooms, those left behind have been equipped with bigger, more productive machines and the fuel to run them. To give one example of the results, a man in an aluminum factory can produce more metal each hour than a steelworker can. But 15 times as much energy is needed to produce one ton of aluminum as one ton of steel. Similarly, agriculture, which has witnessed the most dramatic drop in manpower, has just as dramatically increased its inputs of machinery and fuel: the amount of petroleum used on American farms increased by 5,000 per cent between 1920 and 1970.
The second distinguishing feature of the American economy has been its agglomeration into larger and larger units. Before the Civil War, about half the working people in this country were self-employed, the other half drawing wages and salaries from an employer. By 1950, according to the National Commission on Productivity, less than a quarter of the work force was self-employed, and the rate is now preparing to fall below 10 per cent.
But as more and more people sign on with institutions, the number of institutions to choose from is decreasing. Between 1962 and 1968, 110 companies in the Fortune 500 disappeared through mergers. The conglomeration movement of the mid-sixties—in which long-established corporations were swallowed by others for reasons that had almost nothing to do with efficiency—symbolizes the change, but if anything it understates its effects on the working force. Fortune‘s reports on the nation’s largest companies show that more than 6.35 million people work for the two dozen companies which employ more than 100,000 each (they range from the biggest, AT&T, to International Harvester and Goodyear). Fortune‘s listings don’t even include all the companies employing more than 10,000 people (and neither the BLS nor the Census Bureau calculates employment by business size), but the partial statistics show that at least 18.8 million people work for businesses of more than 10,000 employees. When this is combined with the 16 million people working for federal, state, and local governments, it means that 35 million of us, two out of every five who are employed, are working for institutions so large that we never get to know (or probably even see) all our fellow employees, so large that we cannot really identify our own personal achievement and reward with that of the company (as long as the company stays in business), so large that the appropriate symbol of the American ethic should be not Franklin or Lincoln or the Brothers Wright, but William White’s organization man.
How It Grew Too Large
Much has been written over the years about these large institutions, especially about their political influence and their ability to mold consumers’ minds. But most commentators, speaking in apprehensive tones about ITT or the oil moguls, have given the institutions more credit than they deserve. The most serious grounds for complaint against the modern corporation may not be its political power but its inefficient use of resources, most especially manpower.
Any economist can tell you that up to a certain point bulk equals efficiency. The more admiring views of the American corporations, which usually come from Herman Kahn or foreigners like Jean-Jacques Servan-Schreiber, usually emphasize those parts of the economy where the largest units are still the most efficient. IBM can run any of its European competitors into the ground because it’s the only company with enough money to keep investing in new computers.
But the concept of “scale,” which most economists understand only as it applies to peewee enterprises, has a ceiling, too. If 10,000 tons per day is the efficient size for steel plants, five plants of that size will probably turn out 50,000 tons more efficiently than one enlarged factory. This is not to deny that a specific company might find advantages in growing beyond the “efficient” size—it may have an easier time bending the government’s ear if it speaks with the voice of an industrial giant, and it may dominate the market and eliminate its competition. But for those who are concerned—as all of us now have reason to be—about the most efficient use of resources, it is appropriate to speak of a “proper” size for industry. In most cases American companies have exceeded their proper size.
With increased size comes the need for numerous unproductive overhead activities. Marketing must know what Production is doing; coordinators have to be sure that the Parts division is sending enough raw material over to Assembly. There are public relations men to make sure the company is defended all along its expanding frontier, lawyers to keep the government satisfied, analysts and accountants do what the boss used to do at his desk, memo-writers and -readers, board meetings and planning sessions, and a lot of dead time in general.
It’s like running a big city, or a big army, or a big office building; the more they grow, the more energy must be wasted on internal coordination. This couldn’t be the whole story, however; if it were, cheap little companies would drive the big ones out of business as quickly as a fat boxer is run out of the ring by a fighter who is fit. But as the institutions have grown larger, they’ve become steadily more secure; the more they need memo-writers and. PR departments, the more they’re able to afford them. Many of our large private corporations have reached that special combination of size and security that permits them to stop being businesses and start being institutions. The pressures of the marketplace don’t bear down so heavily when you and three of your competitors have a corner on the tire market—and they certainly don’t bear down heavily enough that you have to dispense with the executive offices or the illustrated quarterly reports. When you were small you worried about survival and paid close attention to quality; now you are more interested in increasing size than improving quality. Even when these private institutions are not subsidized by the government (as Lockheed and Litton have been), most of them are run like the government. There is more in common between E. I. duPont and the U. S. Department of Agriculture (each employing 100,000-plus people) than between duPont and one of its smaller rivals, because duPont and USDA are both institutions, while some of the others are still enterprises.
The Case for Competition
The security that permits institutional behavior is the corporation’s reward for growing large enough to dominate its particular market. This is a principle John Kenneth Galbraith and others gave us years ago, but like other familiar ideas its importance is often overlooked. The economist’s yardstick for measuring monopoly is the “four-firm/50-percent” rule—that is, any industry in which four firms do more than 50 per cent of the business can be considered a monopolistic industry (or at least a “shared monopoly”). Virtually every major consumer product from chocolate bars to automobiles comes from a shared monopoly (agriculture is the last important exception, and it is changing fast). Most industrial raw materials (steel, chemicals, oil, etc.) also come from monopolistic suppliers.
Some attempts have been made to quantify the effect of this constellation of monopolies and cartels. In their book, The Closed Enterprise System, Mark Green and two other researchers working for Ralph Nader estimated that monopoly cost the country $60 billion in lost production each year. There is a common misapprehension about how this loss shows up. The Nader report put it, “When consumers pay excessive prices, income from the consuming public is redistributed to the shareholders of particular corporations.”
That might be true if we were dealing with enterprises, but the monopoly companies are nearly all institutions and therefore subject to different ambitions and instincts. One provocative antitrust case shows why. The case involved manufacturers who had jacked up the prices of their folding chairs by 32 per cent. After the government ordered price competition reinstated, the prices fell once more by 32 per cent. But while the prices were inflated, the extra income showed up as only a nine per cent increase in profits. The rest disappeared inside the institution, where it supported extra people doing superfluous work.
The significance of this story is that institutional principles, and not some dusty remnants of capitalism, were directing the companies’ behavior. This should not come as a surprise. Anyone who had ever observed two of the main rules of government agencies (When In Doubt Write A Memo; and Everybody Should Have An Assistant) might have been surprised that the shareholder’s profit was as large as nine per cent. Unfortunately, an artificial division of specialties—”management” and business theory on the one hand, and “public administration” on the other—has prevented much of the best work on institutional behavior from being applied where it is needed—in the private sector. Critics have spent years demonstrating that the Defense Department’s payroll could be halved without incurring a risk of invasion, or that any agency above a certain critical size can generate its own work. The connection has only rarely been made between these axioms and KIT, GM, and the countless other private bureaucracies which are generating their own work as surely as the Pentagon. Another of the critics’ handicaps has been their apparently irrepressible humor. C. Northcote Parkinson, Laurence Peter, Galbraith—sharp students all—have thrown in the laugh lines and thereby discredited their views among the academic/government audience that identifies solemnity with seriousness.
One other impediment to analyses of business institutions should be mentioned: with all its secrecy laws and talent for procrastination, the federal government is still a hundred times more visible than corporations. Eventually most politicians and administrators can no longer resist the temptation to give their unabridged account of how the Small Business Administration really works, or the lessons we should learn from Project Mohole. Business insiders have been more taciturn, and reporters have been either uninterested or rebuffed. Robert Townsend’s Up the Organization, a bureaucratic-reform manual by the former chairman of Avis, is an exception to the first part of that generalization; Emma Rothschild’s book on the auto industry, Paradise Lost, is an exception to the second. The Rothschild book may open up a whole new territory for writers, for after finishing it most readers will want to know the same kinds of details about the oilmen, and the manufacturers of chemicals, and the other members of our great invisible administrative system.
By applying several long-established principles about public organizations to the behavior of the private economy, we can make sense of how business has reached its current position. The fundamental tenet of organizational life is that the institution and its members are dedicated to preserving their positions. The institution, then, is like a guaranteed income, but one offering higher rates of support and operating with a reverse-means test.
Mention of “guaranteed income” or “featherbedding” often inspires images of surplus railroad firemen playing poker in the caboose, or citizens of Nicaragua chewing sugar cane on a public works project. The distinction of the institutional featherbed is that no one appears to be idle. It is a question of supply and demand, the same as any other economic function. In the short run participants may increase the supply of work through such tasks as updating their phone directories or monitoring the memo flow. In the long run they may create whole new categories of work and then supervise new departments to carry them.
Robert Kharasch, author of The Institutional Imperative, has given these examples of how institutions can guarantee that the supply of work never falls below the critical minimum at which overt idleness would become apparent:
[Bureaucrats in need of extra activity may] turn to those two favorite time wasters, 1) coordination, and 2) planning. Time-wasting coordination is easily foreseen. Creating 10 sub-institutions to do one job leads to incessant memo-writing, coordination, paper shuffling, meetings, reviews. So says the Fitzhugh report [a 1970 study by a “blue-ribbon” group] : “Function analysis of these [military headquarters] staffs reveals an astonishing lack of organizational focus and a highly excessive degree of ‘coordination,’ a substantial portion of which entails the writing of memoranda back and forth between the lower echelons of parallel organizational elements and which serves no apparent useful or productive purpose.” The second great occupation of administrators with too little to administer is “planning”…. The sheer volume of “planning” is staggering. A hint of its magnitude is the 47 volumes which the Pentagon Papers fill.
Kharasch is talking about government here, but the corporate equivalent of the Fitzhugh report must be kicking around in company headquarters somewhere.
But if disenchanted corporate men have not gone public as frequently as government officials, there are still substantial indications that the institutional theory of corporate behavior is the right one. Consider this quote from Jerome Rosow, an executive of Standard Oil of New Jersey (and a former Assistant Secretary of Labor):
A few years ago Esso was hard hit by the competition of small local refineries. People started saying that these companies were more efficient than we were, but we wouldn’t believe this because it was incompatible with our self-image. When we got comparative data, management was at first incredulous, then astounded.
All that’s left out of the story was its outcome. In the closed world of the oil industry, Esso continues to prosper (albeit under a new name, which cost it tens of millions to introduce), while small refineries have regularly gone under in the last three years.
Another important piece of evidence is the 1963 survey of 30 industries, looking for a connection between a corporation’s size and security, and the rewards it gave its management. The conclusions, published in the American Economic Review, were that the more a company dominated a market and the higher the barriers protecting it from new competition, the more its executives would be paid. As Robert Townsend made the point in Up the Organization:
Small companies must be Spartan to succeed. Big companies are small companies that succeeded. Most of them have become epicurean institutions…. I realized that friends in one small company were being diverted by the glitter of the monster models. If Time, Inc. puts its executives in fancy offices, that must be the way to be big.
It makes perfect sense that frugality decreases as size and security increase, for this is an extension of the institutional immorality much remarked on during the war. Bomber pilots never saw their victims; they were shielded from the results of their actions. In a large institution, the worker is also shielded; in effect, he never sees the balance sheet. Neither energy nor sloth on his part will have a measurable effect on the corporation’s performance. In his latest book, Economics and the Public Purpose, Galbraith explains the other side of this equation. The only truly exploited laborers left in the economy, he says, are farmers, small businessmen, and other members of the vanishing race of the self-employed. They can get from their enterprise only what they put in; the cheapest thing they can invest is their time. Having no minimum hours they also have no maximum.
The small businessman must be dedicated to his own product, but those in the institutional system owe their loyalty not to the specific functions they perform but to the system itself. Without large organizations they would not be paid $25,000 to manage and consult. Most people retain enough self-awareness to realize, at least in flashes, that there is nothing God-given about their comfortable berth and that a lot of what they do does not really need to be done. But while many people will take the leap of faith and assume that small illustrations of military padding symbolize a whole ethic of waste in the Pentagon, our critical faculties seem blunted in dealing with the private economy. Since the large
companies are “private” and nominally subject to the rigors of the marketplace, each individual is tempted to classify the waste he sees as an exception to the general rule.
And even if business did begin to look like the Pentagon, what then? Certainly most people would prefer to perform make-work at AT&T than to stay home and receive their salary through the mail. This is the distinction between “a job” and welfare or public works, a distinction momentous in symbol even when scanty in reality. On welfare one bears a stigma; unemployed, one is left to create his own identity. In an institution each one is part of the whole and is identified with its aims—even if these are nothing more than continued existence.
Certainly the private institutions are not blind to this facet of their appeal. Consider an advertisement from the fourth largest private employer, ITT. Last December was the month of the first major lay-offs, the month when federal officials spoke more seriously about continuing shortages. In December, ITT, an association of 428,000 employees, advertised not the productive might of this vast work force or the quality of its output. In an advertisement that might have been written in 1934, ITT stressed the simple fact that it kept bread on so many tables. “Creating jobs is our most important responsibility,” it said. “Creating jobs is what we do best. . . . When you consider that American business will have to develop jobs for 27 million new workers by 1990, it’s clear that the contributions of multinational companies will be critical to the future growth of America’s economy.” If it came from a public institution this would rightly be labeled make-work talk.
The Urgency of Introspection
There is abundant cause for anxiety about the economy, but the anxiety should do more than tighten the bonds of insecurity that draw individuals back to their institutions. Uncertainty and risk, traditional catalysts of creativity, seem to retain only their threatening overtones. How else can we explain the fury with which decent and well-paid people lash back at those who threaten to shake their foundations? Henry Durham, a Lockheed supervisor, was nearly driven from his home in Georgia after he reported waste and dishonesty in the airplane assembly plants. For each one like him there must be hundreds whose complaints have died unvoiced. Many managements and most unions have met the external threat from the Japanese and the Germans not with invigorated efforts but with calls for a sea wall of protective tariffs.
Indictments of the institutional economy have for years had a shrill and futile tone. The complaints have borne the sound of the “hungry-children-in-India” lectures to families with unemptied plates. The corporations waste money while millions are poor; they build electric toothbrushes while millions go homeless. All this is true, but unpersuasive; for behind it is the understanding that the corporations are not what keeps us from dealing with poverty in this nation any more than the multinational companies are what keeps us from dealing with poverty in the world. Moreover, there is a fear of looking too close. If we were to classify people as “surplus” and drive them from the institutions, where would they go? AT&T may be better than the dole.
Within the last year the stakes have changed. Close examination of our institutional life is now a necessity. The potential reward for this self-examination is that it may help us learn how to use our human resources to adapt to shortages of other materials. For three centuries this country has pursued a paradoxical kind of “efficiency,” in which our efforts to get men off the assembly line have been matched in intensity only by efforts to provide work for them in the offices. Now we may have reached the point Japan and Israel occupied a generation ago: they were countries short of everything but talented manpower
First, we should put the “resource shortage” in perspective. It is true, as Lester Brown wrote in World Without Borders, that we have grown constantly more dependent on external sources for most of our raw materials. Already we import nearly our whole supply of chromium and tin, of nickel, manganese, and bauxite. In a world prone to dispute, there is little cheer in this fact. Many of the products we don’t need to import will cost more, since the rest of the world will be bidding for them (as the Japanese demand has raised prices for our soybeans and timber.)
Still, there is nothing like a genuine resource shortage in the foreseeable future. If there is a fuel shortage this year, for example, its size is smaller than the increase in per capita consumption since the 1960s. That is the kind of “scarcity” America will know in the 1970s—not a general retrenchment like the blackout-Britain of today, but a slowdown in the rate of increase and in some cases a drop in consumption.
By these criteria, both the food and fuel shortages have been relatively mild. But their calamitous effect on our attempts to manage the economy shows their impact. The central challenge they pose is that they work outside the realm of traditional economic controls. Rules of public finance don’t really have a place for commodities skyrocketing in price because of international affairs. When that does happen, the best the government can do is try to cope with the results. The government may let the prices rise and try to cushion the impact on the poor; it may impose overt rationing; or it may use any of the indirect rationing measures now familiar in the U. S. (cutbacks in airline schedules, Sunday closings of gas stations, exhortations for meatless meals).
Within the next few years, rationing-type controls will almost certainly be extended to cover a much wider range of the economy. One reason is that shortages tend to develop a momentum of their own and to transfer scarcity from one part of the economy to another. Last year’s beef shortage immediately inflated prices of chicken and cheese. The shortage of petrochemicals for making plastics has already tightened markets for substitutes ranging from sisal to paper.
We’ll Have More Controls
We could avoid expanded controls, of course, if our supply system could keep up with the shifting demand—if, for example, Detroit could stop making Cadillacs one day and produce all Vegas the next. On the evidence is not a realistic hope. We need only recall the performance of the agribusiness companies during the beef shortage and the ongoing public service of the oil consortium. Both of them, like other large organizations, have traded away adaptability in exchange for security. They are in business to stay in business and not to take risks.
Mechanically, too, the institutional economy has made us prisoners. The assembly line of 1940 used less fuel and more men to produce each refrigerator or tin can than today’s factories do. But when fuel gets tight we can’t just switch back to the old process; instead, the factory may have to cut production and lay off men. Our economic evolution has also eliminated another form of adaptability. Thanks largely to Detroit, cities all over the country have ripped out their trolley tracks (even Los Angeles had them) and abandoned their inter-city rail lines. The final catch is that the large institutions have tied up and immobilized so much of the nation’s wealth that no one else can rush in where America, Inc. fears to tread.
The point is simply this: since we can’t count on a flexible supply, we must expect a more restricted demand. Gasoline rationing, now being being imposed piecemeal, is the most familiar example of what managed demand will mean. It may be a deceptive example, however, because it is so benign. (We can’t let people freeze in Minnesota while they’re cruising the freeways in California.) The complications that a more widespread system of controls would bring are suggested by the contrast between gasoline rationing in Los Angeles and gas rationing in Paris. In the one case (Los Angeles), regulation becomes the pivot of economic and social life. There is no ready alternative to the service under restriction. Consequently other activities may suffer, and other shortages can develop. It is in the regulators’ power to confer or deny a whole range of personal and economic freedoms; so the rationing plan must be worked out in careful detail. It may have to include restrictions on sports, agriculture, and other businesses.
In the second case (Paris), the painless alternative of an adequate system of public transport is at hand. Rationing is a possibly inconvenient, but certainly non-oppressive, way of absorbing a shortage.
So if an inflexible economy means that American controls are more like the first model than the second, what is the danger? At the most personal level, the kind of people who will enjoy filling out ration books or assigning timber-use permits are the very people we don’t want to put in charge of how we live. There is a more important hazard, a style of life and thought best illustrated not by domestic example but by the Russian administrative state. To say this is not to Red-bait, but to suggest that Russia is a product less of socialist principles than of institutional ones. Soviet life stands as the emblem of the creative extension of bureaucratic controls, of energy concentrated on restriction, of ambition stifled or aborted. In the U. S., the institutional economy already controls production and half-controls demand by deciding what to offer us and by providing such a glut of misinformation. It takes a strong stomach to welcome more of the same. Jason Epstein speculated on some of the consequences:
What will happen to the future of our technology—to say nothing of our art, our literature, and our personal lives—should it eventually appear that official control of the use of capital and the use of one’s time has become the inescapable condition of national survival as it has already become the basis of corporate survival?
If there is another choice, it means creating more flexibility; that, in turn, means freeing people and their abilities from the institutions that have absorbed so much of both.
Lester Brown has suggested an analogy from the world’s food situation. This year the world’s grain reserves are at their lowest level in years; if catastrophe forced everyone to live off stored grain, the supply would last less than a month. Paradoxically, we have at the same time entered a period of greater protection against disaster in the world’s food supply, and that is because people all over the world are eating more meat than they used to. Since it requires roughly 10 pounds of grain to produce one pound of beef, the meat amounts to a cushion; a slight drop in meat consumption releases a sizable amount of grain. In the United States the average person eats almost 120 pounds of beef each year, up from 55 pounds in 1940. This leaves us a much greater “food cushion” in tight times. In the same way, our economic institutions amount to a “manpower cushion”—if only we can find ways to re-apply the talents.
The traditional assault on big business has been a restrictive one. Break up the conglomerates, restore competition to the markets, dismember GM into its component factories. Admittedly there is merit in this, especially in removing the weapons corporations use to squash competition. But as a major policy weapon, antitrust is unbearably awkward and slow. Litigation may drag on for six or eight years after a case is first filed, and at the end the judge may order divestiture within the following 10 years.
Even under the toughest conceivable judicial assault, no corporation is going to be prosecuted into creativity and vigor. Those are the traits of another kind of organization, usually smaller and younger. The government recognizes this difference, and when it wants to get the greatest mileage out of a program it sets up, a new agency to carry it out. By the time the agency reaches middle age three or four years later, it will have tired of its hard-charge and will look forward to the slower pace of a mature institution.
Our economic approach should be a balance—doing what we can to restrain and invigorate the large institutions, but also looking for places to encourage new activities. There are at least three general ways to do so. While all are aimed at reforming large institutions, they do not all call for cottage industries. Building a national railroad, for example, isn’t something to be left to the Small Business Administration. The dominant concept is appropriate scale—small when possible, but large when necessary.
I. Back to the Farm
Agriculture exports are usually identified with the poor countries or with the underpeopled prairies of Australia and Canada. For the United States, they may well hold the key to continued prosperity. North America already controls 90 per cent of the world’s exportable grain—the U. S. three fourths of that total and Canada the rest. One by one the other continents of the world (excluding Australia) have become dependent on American food; first Europe, then Asia, then Africa, and finally Latin America have become net food importers.
The one economic certainty for the rest of this century is that demand for food will grow. Population continues to rise, and with greater affluence comes a higher demand for meat instead of grain. Soybeans are already the nation’s most valuable export, and it is conceivable that by the end of the century the U. S. would be able to balance its international payments with food alone. At the very least, rising food exports may help us pay for the minerals and oil we must import from the rest of the world.
The tightening food market, together with the changed prices for oil and other resources, may finally give us a chance to reverse the evolution of American agriculture. Since the end of World War I people have been moving off the farm. Now only 4.5 per cent of the work force is left there (as compared with 25 per cent in agriculture in Russia, 15 per cent in France, and 10 per cent in West Germany). At the same time we have encouraged extraordinarily intensive use of the cultivated land. Support payments have been based on the amount of land a farmer holds out of production, not on the size of his total crop, so farmers have applied machinery and fertilizers to the land in staggering quantities.
Two forces could change this pattern. The first is the constant increase in demand for food. Last year the U. S. Department of Agriculture ordered all idle cropland back into production—this after years of land-retirement payments. That decision by no means exhausts the supply of good agricultural land. In a recent Iowa State University study, World Food Demand, Production, and Trade, three agronomists estimated that the potential U. S. cropland was perhaps 30 per cent greater than what is now planted. While this figure included some land now used for non-agricultural purposes, it did not envision victory gardens in every backyard or a larger scale reconversion of suburbs into farms. No other developed country has a land reserve this large.
A potentially large farmland could mean more opportunities for people to move to the farms. According to a recent poll by the National Opinion Research Center, more than half the people living in cities of more than 50,000 said they wanted to move to the country. If one tenth of these replies are sincere, they will guarantee a healthy supply of new farmers. Of course, the major deterrent until now has not been the shortage of land but the sense of pointlessness: why move to the farm if the million-acre Iowa tracts could produce more than you could and if subsidy payments would be your major source of income? Within the next few years, that calculation may change. One reason, again, is that all farming should become more lucrative as prices rise. More important, standard mechanized farming will become more costly. Petroleum to power the machinery will become more expensive; so will artificial fertilizers, some of which are made from natural gas and all of which require large amounts of energy to produce.
For the million-acre commercial farmer, these considerations probably won’t be enough to make him give up the combine and take on more hired help. But for the family farmer they do improve the chances for success. His disadvantage in mechanical energy is less of a drawback than before; manual application of fertilizer may be more efficient than using a machine because less of the fertilizer will be wasted.
Evidence from other countries also supports the small farmer. Farms in many other developed countries are much smaller than those in the U. S. The average farm in Germany, for example, is only seven per cent as large as the American average; France, at 13 per cent of the American average, is the largest in Europe. Although these tiny farms are less efficient in terms of manpower, they can often produce greater yields per unit of land. In 1967-69, for instance, per; acre wheat yields in Germany, Belgium, and the Netherlands were more than twice as high as in America. Both labor-intensity and high fertilizer use lie behind these results, and both could be duplicated by the small farmer.
The small farmer may have another advantage whose importance will increase if fertilizer costs rise. One of the manpower-saving features of American agriculture is the feedlot system, where cattle are gathered for a final dose of grain before the market. The manure from these feedlots produces more water pollution, than all the municipal sewage in the country. It is, moreover, an essentially free source of fertilizer; it’s not used much now because the cost and bother of hauling it back to the farm is too great. The man who raises his own cattle and uses the fertilizer may have another edge. It will not let him drive the big operations out of business, but it may let him support himself.
II. Improving the Railroads
If America has experienced any real shortage within the last year, it has been in transportation. Even if the “oil crisis” ends, the problem will continue. Essentially it is a question of scale: autos are too small-scale for most transportation in big cities (it is as if every person in an office building had to provide his own heater); airplanes are inefficiently large for much of the short-haul flights they now make.
An improved railroad system would not replace the airplane for coast-to-coast flights, nor would it do more than reduce car use. But it would be a useful way to provide the transportation we want with the resources we have. It is preeminently efficient on fuel; according to Thomas Southerland and William McCleery’s The Way to Go, a train requires .36 gallons of fuel per hundred passenger miles, compared to 4.4 gallons for a car, and 5.5 for an airplane. Historically it has been very inefficient on manpower; “featherbedding” got its name on the railroads and has only in places been eliminated. Featherbedding is so prevalent on train lines around the world that it is hard to draw clear conclusions on whether an efficient railroad would use more or less labor than an efficient airline. It is clear, however, that air pollution, fuel restraints, and urban congestion will keep us from indefinitely expanding our airline and car systems in the future. So developing an alternative—a functioning national railroad system on a par with European lines— is an important place to invest our energies. The 30 per cent rise in Amtrak business within – the last half year points out the trend.
Poor struggling Amtrak, for all its failures, represents a large step forward from the passenger rail service we had learned to hate during the ’50s and ’60s. One of Amtrak’s major problems has been that it’s board is filled with all the wrong people. Louis Menk, for example, served on Amtrak’s board of directors while making public statements hostile to the idea of passenger rail service.
Under-funded and compelled to drop “unprofitable” cities and routes, Amtrak is at best a shadow of a genuinely effective national rail system. Such a system would not be merely a nostalgic adjunct to cars and planes, but a serious alternative means of transportation for both passengers and freight. This involves restoring the quality of service between the major cities, of course, but it also means massive construction of small-city networks and commuter routes. This will be expensive, but so would any other antidote to recession, whether overt (unemployment payments) or indirect (defense spending), and the train has the distinction of being useful. Learning from their friends the highwaymen, the railroads might sell this package to Congress as “the National Defense Railroad Act.”
III. Working from Within
Institutions will always be with us, but they needn’t be as bad as they are now. Both in government and in business, there are organizations that get their jobs done, whose members work at 90 per cent of their potential rather than 30 per cent. Nearly every government agency goes through a phase like this when it is young; so do some companies when they’re trying to avoid bankruptcy.
Although there is no easy formula for the problem of bureaucracy, there are a few hints of where to begin. One is to return some honesty to the process of communication and judgment. A deadly insecurity makes people turn away from the question of institutional featherbedding; the “cast the first stone” principle daunts those who might otherwise point out waste. A similar hesitation works against open assessment of how people are performing in our institutions. So few people are able to put distance between their professional achievement at any given time and their own identity and worth, that to tell someone he’s made a mistake often means calling him a failure. More often, the judgments just aren’t made and we go along for years hearing false praise and not understanding why we’re never promoted.
Second, the very structure of bureaucratic life—with its endless organization charts emphasizing boxes rather than people—thwarts any open communication; a man who is separated by three boxes and several connecting lines from someone else may be hesitant to tell him why his program is going to hell. Among government bureaucracies, this is a well-recognized—if rarely solved—problem. It is difficult to cope with because it undermines the system of hierarchy and titles that organization is all about. If you want your junior assistant to tell you about a mistake you’re making, it’s harder to keep him in line at other times—harder, too, to explain why he can’t come on the executive jet.
Finally, institutions—the public ones especially—would profit by a greater turnover in manpower’. If some accountant wanted to guarantee that employees, once signed on, would never leave an institution, the civil service pay system (and many private pension plans) would be the ideal trap. Every organization needs a balance between those who stay for years and provide some continuity, and those who are avowedly temporary and are therefore free of the constraints of the careerist. Now the balance is absurdly skewed in favor of the time server.
We must recognize too that people stay in institutions not only because of the attractions there, but because of the perils of leaving. The cost of college education, and the mounting risk of medical bills, means that there’s only a brief period in life when most people can afford the risks they might like to take. Encouraging a greater feeling of private security may be one of the most important ways to put the nation back to work.