Completing the Infrastructure: The Organizational Response

The organizational response to the new technologies in communication was comparable to that in transportation. Both came to be operated through modern business enterprises with career middle managers co- ordinating flows and top managers allocating resources. In the railroads, in urban transit enterprises, and to a lesser extent in the telephone and telegraph companies, top managers shared decisions concerning the raising and spending of money with investment bankers or representatives of their institutional investors. Owners continued to manage their enter- prises only where administrative coordination was not essential for safe, efficient movement of traffic—that is, in the operation of steamship lines on the less-traveled routes and of horse-drawn vehicles carrying local freight and passengers.

With these same exceptions, American transportation and communica- tion companies no longer competed in the traditional manner. The opera- tional requirements of the new technologies had made obsolete the competition between small units that had no control over prices—prices that were set by the market forces of supply and demand. At the opening of the new century, economists, businessmen, and politicians were groping for a new theory of “natural monopoly,” and for new methods of public control over and regulation of those enterprises that were no longer regulated by market mechanisms.

In the late nineteenth century, comparable business enterprises appeared to provide light, power, and heat in American towns and cities. In most urban areas, the generation and transmission of gas and electricity was carried out by a single privately owned enterprise operated by a full- time, technically trained manager who shared investment and pricing decisions with financiers and representatives of local public commissions or municipalities.31 Such utilities were managed in much the same manner as urban transportation companies.

In the second and third decades of the twentieth century, both urban transit and urban power and light companies began to expand beyond their original localities. System-building in electric power and electric traction resembled, particularly in the 1920s, railroad system-building in the last two decades of the nineteenth century.32 Investors, speculators, and investment bankers played much the same types of roles. Yet even when these local enterprises grew larger, they remained smaller and less complex than the older railroad systems. They employed less capital and fewer workers. Their operations involved only a single operating activity — the generation and transmission of electricity—or, in the enlarged traction systems, the movement of passengers. The administration of the flow of such traffic required less complicated statistical and accounting procedures and fewer administrative decisions than did coordinating traffic movements on large railroad systems.

The railroad was, therefore, in every way the pioneer in modem business administration. The great railway systems were by the 1890s the largest business enterprises not only in the United States but also in the world. As the century opened, each of more than thirty railroad systems had a capitalization greater than any urban transit system, greater than any power or light company, and greater than Western Union (and seventeen had a capitalization greater than American Telephone and Telegraph).33 They employed more workers and carried out a greater number and variety of operations.

No public enterprise, either, came close to the railroad in size and complexity of operation. In the 1890s a single railroad system managed more men and handled more funds and transactions and used more capital than the most complex of American governmental or military organiza- tions. In 1891 the Pennsylvania Railroad employed over 110,000 workers.34 In the same year the total number of soldiers, sailors, and marines in the United States armed services was 39,492. The Post Office, the largest government office in terms of employees, had 95,440 workers in 1891, but the majority had jobs in one of the 64,000 post offices as payment for political services rendered. The permanent managerial staff in that depart- ment was smaller than that of the major railroad systems. Two years later when the expenditures of the federal government were $387.5 million and its receipts $385.8 million, those of the Pennsylvania were $95.5 million and $135.1 million. That year the total gross national debt of $997 million was only about $155 million more than the Pennsylvania’s capitalization of $842 million. In the United States, the railroad, not government or the military, provided training in modern large-scale administration.

In Europe, on the other hand, the much larger military and govern- mental establishments were a source for the kind of administrative training that became so essential to the operation of modern industrial, urban, and technologically advanced economies. In Europe, too, the government played a much larger role than it did in the United States in financing, locating, and even operating the transportation and communication in- frastructure. Except for Great Britain, the European nations gave their railroads more support and direction than did the American government. Even in Great Britain, the telegraph and telephone came under the owner- ship and operation of the central government. And all seafaring nations except the United States subsidized their shipping lines. One clear dif- ference between the rise of modern business enterprise, and with it the rise of modern capitalism, in the United States and Europe was, therefore, the role the central government played in providing the transportation and communication infrastructure and in furnishing modern administrative procedures. In Europe, public enterprise helped to lay the base for the coming of modern mass production and mass distribution. In the United States this base was designed, constructed, and operated almost wholly by private enterprise. State and federal governments assisted in its financing. Yet by 1900 probably no more than 20 percent of the capital funds required to build the modern transportation and communications systems—those based on steam and electrical power—came from public sources.

Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.

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