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Continued from previous page
What was the business environment like in the 1940s,
and how did World War II affect the economy?
Understanding what happened in the 1940s
requires recalling what happened immediately
beforehand. The nation had never had a depression
as severe as the one that reached its nadir in
1933; and we didn't start to pull out of it until the
last couple years of the decade. Images of out-of-work
executives selling apples on the street and the
lines of the unemployed outside soup kitchens are
familiar. The position of Midwest farmers was desperate.
Industrial capacity utilization had essentially
collapsed. It was in the context of an economy
with such radically underused resources that an
activist role of the federal government really began
to emerge. Roosevelt experimented with counter-cyclical
fiscal policy (though not very aggressive by
modern standards), and the federal government
began to intervene actively in conditions at the
industry level as well. Then, of course, the world
descended into war. Those responsible for running
the American economy needed to worry about
using the productive capacity of the economy not
just to provide consumers with things that they
wanted, but to produce badly needed war materiel
like jeeps, navy boats, airplanes, ammunition. The
war mobilization was a very big deal. This involved
a lot of manufacturing for the government on a
cost-plus basis, as well as the government taking an
interest in how shop-floor labor relations worked,
because strikes in military supply industries during
times of war would have a very corrosive effect on
general civilian support for war.
By the end of WWII, our manufacturing sector
was in radically better shape than those in all of
the other industrialized nations. It was also true
that an active regulatory role of government in
the economy had become widely accepted. So by
the end of the 1940s, we had massive productive
capacity as well as room for big government.
If massive productive capacity and big government
shaped business in the 1940s, what shaped it in
the 1950s?
Towering over the 1950s you find the post-WWII
– Cold War – suspicions of the Russians
and their allies as well as concerns about revolution
in China and, in response, a very substantial
defense budget. You also saw development within
American capitalism. Managerial corporations
were becoming widespread and very large. Being a
successful businessman increasingly meant having
a corporate job.
The most striking development of the 1950s
was the early growth of diversified conglomerate
corporations. International Telephone and
Telegraph (ITT), a prime example, had hundreds
of subsidiary firms. The divisions were in many
different lines of business that the corporate office
really had to run them by the numbers – executive
committees couldn't really have expertise on such a
wide variety of areas. So the conglomerate companies
had to play at being capital markets. Yet they
didn't have great difficulty raising external finance,
and they weren't penalized for their diversification.
It's an interesting puzzle why this was so.
The simplest explanation for this lies in the
idea that what conglomerates often brought to
companies they purchased was systematic thinking
about resource allocation, marketing, and finance.
There still were not many people in business who
had had any kind of systematic business education.
Wharton had been granting undergraduate
business degrees for three-quarters of a century,
but we were the first, and even in the 50s there
were not many such institutions. Nor were MBA
programs as common as they are now. So the type
of training which Wharton and a few other
schools were providing was scarce and quite valuable.
The conglomerates exploited it intensively.
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