The Rise and Fall of Finance and the End of the Society of Organizations (a little “serious reading”)

Here’s a serious reading suggestion for a snowy Sunday afternoon.  (yes – we got three inches of snow in Richardson, Texas, on a cold March 21 Sunday.  Amazing!)

Bob Morris, our fellow blogger and book reviewer extraordinaire, likes to remind that there are some great books that never make it to best-seller status, and there are some best-sellers that are not necessarily worthy of their over-hyped reputation.  I know that he is right about this, but I, like so many, become too easily enamored by the hype and buzz.  Here’s a blog post in agreement with his premise.

I apologize that I do not remember which site/blog pointed me in the direction of this article.  It is an excerpt of a book that is not a best seller, but one that I suspect would be worth a careful read.  The article is:  The Rise and Fall of Finance and the End of the Society of Organizations by Gerald F. Davis.  This article is largely based on his book Managed by the Markets: How Finance Reshaped America. Oxford, U.K.: Oxford University Press, 2009.

This is an interesting and important book to me because it deals with an issue that I am slowly becoming obsessed by, and have written about frequently on this blog:  where will the jobs be? In the article, the author includes a chart showing the decline of manufacturing jobs and the flat (almost no) growth of retail jobs.  There is also a table that shows the ten largest employers from 1960, 1980, and 2009.  It provides quite a contrast.

This is an academic article – what I call “serious reading” — the kind that requires a little undivided attention, and your thinking hat to be firmly on your head.  But I commend it to you.  I am including a few paragraphs here, but still just a teaser.

Here is the executive overview, and a few excerpts:

Executive Overview:
Large corporations were a dominant force in American society for generations through their employment practices, expansion choices, and community connections. As the United States has shifted to a postindustrial economy, however, finance has increasingly taken center stage. This article documents shifts in corporate employment, institutional investment, corporate organization, financial services, governments, and household ties to financial markets over the past three decades. I argue that all these shifts can be seen as part of an interconnected movement toward a finance-centered economy, and that the recent economic downturn can be viewed as one outcome of this broader movement.

other excerpts:
The global economic downturn that closed the first decade of the 21st century revealed the centrality of finance to American society. Problems with arcane securities traded by obscure financial institutions rapidly spun out of control, potentially putting global capitalism itself at risk. Like a loose thread that manages to unweave an entire sweater, the mortgage crisis evolved into a credit crisis and ultimately into an economic crisis that is rivaling the Great Depression of the 1930s. The economic crisis in turn has forced us to grapple with the fact that the United States is now a fully postindustrial economy. By March 2009, more Americans were unemployed than were employed in manufacturing, and all signs pointed to further displacement in the goods-producing sector.

The argument is as follows. As manufacturing employment gave way to services and the largest employers shifted from firms such as GM to those such as Wal-Mart, the nature of the employment relation changed: The long-term mutual obligations of old were replaced by expectations of more temporary attachments.

By the end of the decade, any lingering doubt about the purpose of the corporation, or its commitment to various stakeholders, had been resolved. The corporation existed to create share-holder value; other commitments were means to that end.

The argument of this paper has had many moving parts, but the underlying theme is that finance shaped the transition from an industrial to a postindustrial society in the United States over the past three decades. From a society of organizations, in which corporations were essential building blocks that shaped the daily lives of their members, we evolved into a portfolio society in which household welfare was increasingly tied to the vagaries of the financial markets.

… states are more business service providers than sovereign nations.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s