Judging the Giant

The U.S. corporation is a modern leviathan that has greater impact upon the lives and fortunes of Americans than any other force outside Government. The 500 largest U.S. corporations embrace nearly two-thirds of all nonagricultural economic activity, employ one in every seven U.S. workers, wield massive economic power over the whole U.S. economy. How are corporations using that power? What problems has it created?

In The Corporation in Modern Society (Harvard University Press; $6.75), 14 topflight economists, lawyers and political scientists take a searching and comprehensive look at the corporate giant. A. A. Berle Jr., whose books on corporate power have become classics, calls the book, in his foreword, "the best body of material on the American corporate system yet offered." Edited and with an introduction by Edward S. Mason, professor of economics at Harvard, it is held together by a single theme: the U.S. corporation is a new and unique system that has left behind old-style capitalism and socialism alike--and suffered some worrisome growing pains in the process.

Smiling Bureaucrats. Although the corporation dates back to the 14th century, it was the U.S. businessman who developed it into the most efficient machine to handle the enormous complexities of mass production, mass markets and mass financing. In the process, the corporation has become a political and social system as well as an economic one--a state within a state. "Imperial decisions are ratified in this regal atmosphere," says Earl Latham, professor of political science at Amherst College, "decisions to divide up the U.S., develop Venezuela, support an Arab oligarchy, lengthen cars so that they fit nobody's garage, approve treaties with other satrapies of economic power and influence."

With the change in the corporation's stature, points out Eugene V. Rostow, dean of the Yale Law School, the public image of it has drastically changed. Once, the corporation was symbolized by "a grim and energetic tyrant, single-mindedly driving his staff on to new feats of money-making." Today it proudly boasts of its duties to society, gives out scholarships to deserving students, sparks fund drives, joins in community affairs.

Is this change all to the good? Not at all, says Dean Rostow. It has put the corporation in danger of forgetting that its real business is making money for its stockholders. While not sweeping away legitimate social advances, he gives the back of his hand to the idea that a corporation has any other prime duties, calls it "bewildering balderdash." For example, despite all the current calls for corporate statesmanship in price setting, he insists that prices should not be set on the basis of public or political policy, but on the needs of the corporation and what the market will bear --the higher the better. To do otherwise, he says, often does more harm than good: "The new corporate morality may result in prices and wages which sabotage the market mechanism and systematically distort the allocation of resources." Shareholders' Democracy? This new corporate morality is the product of the professional manager, the new type of corporate boss, who has taken over from the oldtime owner-entrepreneur. Such men, says W. Lloyd Warner, professor of social research at Michigan State University, are nothing like the popular caricature of the Organization Man. What makes a top executive is that he has a highly developed sense of independence, can make great individual decisions that would drive less capable men into nervous breakdowns.

What bothers most of the book's contributors is that there are virtually no private citizens left to question such decisions. Despite the talk of "shareholders' democracy," says Abram Chayes, professor of law at Harvard, stock is so widely scattered that shareholders have little say in how their money is used. Large stockholders, who might wield power, often dodge the issue. If dissatisfied, they simply sell out and put their money elsewhere. The one man who is still a threat to unbridled corporate power is the raider. Though he is now considered "almost illegal," says Dean Rostow, he performs a useful service by getting rid of deadhead management, or even by carrying on a fight that frightens management into reform. One suggestion for restoring the stockholders' voice: trustees to vote their shares, watch out for their interests.

Violating Values. The popular idea that unions are gradually taking over management, says Neil Chamberlain, a director of the Ford Foundation, is nonsense. Unions have won some of management's power to legislate wages, hours and working conditions, but they have done all their fighting on ground chosen by management. U.S. unionism has none of the militancy of a "labor movement," usually fights for a few immediate benefits rather than basic, longterm social changes. "What idealist can be challenged now by the 'plight' of workers struggling to secure an increase in pay so that they may purchase a color television set, a better car, a more up-to-date kitchen appliance?"

For all its great and good points, the corporation has set up a system, says Professor Latham, "which violates the prevailing values of the American democracy." A single steel company can establish "administered prices" for the whole industry. Auto companies can decree the bigger cars and higher tail fins that they insist the consumer wants--though Professor Latham points out that the consumer is not completely helpless. By rebelling against Detroit in the marketplace, for example, he has forced the compact-car revolution on management.

Model for the World. The most important fact about The Corporation in Modern Society is that its authors criticize without condemning. There is no crying voice for drastic reform, but rather a well-reasoned belief that the corporation would be healthier if it were made more responsive to the democratic process. Most of the contributors do not want more Government control, would like to see the corporation and society--so closely identified with it--work out reforms together. The difficulty of such reforms is evident in the fact that the contributors do not always agree among themselves about what is good for the corporation, sometimes present contradicting theses.

Throughout the book runs a critical recognition that, despite its many faults, the U.S. corporation has, by and large, used its awesome efficiency well, has become a model for the world. "No one doubts the superiority of American business management," says Professor Mason. "Unwitting testimony, if testimony is needed, is supplied by the care with which Soviet planners examine American management practices." In its race to catch up with the U.S., Russia, even in its "socialist" world, is moving more and more toward enterprises that are beginning in many respects to resemble the U.S. corporation.

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