Category Archives: Business History

On Associational Self-Government and Regulatory Capture

The direct antecedent of the National Recovery Administration can be found in the expanding role of the government during the tenure of Herbert Hoover as commerce secretary under presidents Harding and Coolidge. Hawley (1974) explores Hoover’s role in the creation of a corporatist state prior to the New Deal years. The Hooverian philosophy contained a vision of business and government cooperating to modernize, rationalize and manage the American economy.  Hoover believed in a community of interests between capital and labor, and promoted cooperative associations as means to private sector self-government and ultimately the material and moral advancement of the US.
As secretary of commerce, Hoover engaged in an ambitious program of administrative re-engineering, whereby he sought to subsume varied aspects of economic life. Hoover attempted to transform the Department of Commerce into an agency propelling and managing economic development, relying on private “networks of cooperating committees and allied associations” (Hawley 1974, 129). For this aim, Hoover enlisted business, academia and the media, and enrolled technocrats and topical experts, in what the author calls “adhocracies” (Hawley 1974, 131). Hoover found resistance to his project and fought institutional inertia: Hawley’s evidence suggests there were several groups of interest within and outside the government which opposed thoroughly the Hooverian ideal of an associative state.
Hoover’s reaction was to decrease the pace and scale of reform. The secretary’s stance yielded a set of regulating committees and overseeing boards with representatives from the government and the private sector, in what the author calls “quasi public organs” (Hawley 1974, 125). Hoover secured government intervention in new areas such as aviation and radio by arguing about their “public nature”, and intervened decisively in areas such as construction planning, housing and children’s welfare (Hawley 1974, 127). Hawley’s article thus raises questions on administrative history and the relationship between policymakers of distinct public agencies with their peers (such as the Federal Reserve Board, Treasury and State Departments) and with the private sector.
The approval of the National Industrial Recovery Act (NIRA) in 1933 gave momentum to “the associational idea of self-government” first essayed in the Hoover administration (Hawley 1995, 62). NIRA was an ambiguously written law that granted “unprecedented peacetime powers” to President Roosevelt for counteracting the effects of the economic downturn (Hawley 1995, 20). NIRA was an “enabling act, an economic charter” (Hawley 1995, 33), that placed the executive branch as an ultimate arbiter of industrial relationships. Also called the Wagner act, NIRA was a law that appealed to different ideologies and conflicting constituencies, such as “business planners […], trade unions, social workers, […policymakers,] spenders and pump-primers (Hawley 1995, 25).
Hawley’s account on the making of NIRA is an interesting instance of legislation under critical circumstances. Initially, politicians, businessmen and labor representatives stood behind the bill; opposition came from small business leaders and antitrust advocates. Hawley offers an interesting framework to approach the ideological contradictions of NIRA: the act echoed competing and conflictive visions of the American societ, as “business commonwealth […], cooperative, collectivist democracy [… and], atomistic economy” (Hawley 1995: 35-36). Big businesses sought to codify oligopolistic practices. Technocrats tried to apply modern management techniques from the private sector to public problems. The American intelligentsia divided itself between those who saw an almost natural progression towards market concentration and those who urged the government to enforce competition and restore economic flexibility.
The case of the National Recovery Administration (NRA) led by Hugh Johnson offers a cautionary tale of a regulatory agency captured by interest groups. NIRA presented a dilemma for economic policymakers: how could price policies be enacted without incurring in plain oligopolistic power? Code-making was in its core a “bargaining process” (Hawley 1995: 56), and industry representatives aimed to set minimum prices, open-price systems, terms of sales and controls of production, often with the complacency of NRA authorities. Soon, however, the collusion of big private interests affected small businesses and undermined public support for NIRA. The complexity of industrial chains often ended in overlapping and chaotic regulation. The NRA entered in conflicts with other public agencies, and industrial price fixing schemes derived in the rise of consumers as a constituency in American politics. Roosevelt could not remain deaf to these claims, and henceforth his administration had to move away from the Hooverian vision of “industrial self-government and the association idea” (Hawley 1995: 90).

On the New Deal

Thomas Ferguson tackles a fascinating question: how can we explain the occurrence of the New Deal? Existing works have difficulties in explaining the contingent nature of arrangements within the business community, the stance of industrialists and financiers with regards to the international sphere or the relationship of the Democratic Party with labor. Ferguson tries to address this question in terms of three variables: industrial structures, political competition and public policy, and asserts that FDR’s alliance with the leaders of “capital-intensive industries, investment banks, and internationally-oriented commercial banks” (Ferguson 1989, 7) was the truly decisive factor that stood behind the policies enacted by the Roosevelt administration. In so doing, Ferguson attempts to explain why the Democratic party became identified as the party of “the comparatively advantaged [… and] labor” in opposition to Republicans supporting “big business” (Ferguson 1989, 24).

As Kindleberger argued before, Ferguson identifies the disruption in the international monetary and financial system following WWI as the major structural change in the world economy. With the emergence of the US as a net creditor, the American business community faced a challenge: on the one hand, labor-intensive industries stood for protectionism, on the other, capital-intensive industries and financial institutions developed a multinational perspective. The Great Depression set the stage for a successful challenge to Hoover’s conservative economic policies.

After Roosevelt’s inauguration, business groups in conflict tried to shape the course of economic reform, as vividly shown by the case of financial regulation, which once enacted acted directly against the interest of J. P. Morgan & Co. The abandonment of the gold standard required the construction of a new consensus, in which industrialists, retailers and large farming organizations backed the President’s decision. Once the worst of the deflation ended and the economy started to recover, interests collided again in “interindustrial and class conflicts” (Ferguson 1989, 18), which allowed the emergence of a political coalition where capital-intensive industries had the lion’s share. The 1938 recession prompted new demands for relief, but a new consensus emerged favoring balanced public accounts and free trade.

Colin Gordon posits the centrality of the New Deal as a “central landmark of the modern U. S. political economy” (Gordon 1994, 1). In his account, we can see how business communities formed collective associations to advance their agendas, and we are able to understand what problems of economic strategy and collective action were at stake on a sectoral level. His chapters are a superb example of how political economy analyses and industrial organization theory can help us in the historical framing of the economy.

American Appropiations of Intangible Property: The Curious Case of Tacos Dorados and Taco Bell

A most interesting article in the New York Times on the origins of Taco Bell:

Mitla Cafe, a modest restaurant serving typical Mexican-American food, has been on this corner since 1937 and is still owned by the descendants of its founders, Vicente and Lucia Montaño. It’s the oldest Mexican restaurant in the Inland Empire, the vast tract of sage and scrub east of Los Angeles, now covered with housing developments and strip malls, and home to millions of Mexican-Americans. (San Bernardino County’s population is almost 50 percent Hispanic, according to 2010 Census figures.)

Mitla is not a destination for huitlacoche, epazote or a rigorously authentic mole negra. It is old-school Cal-Mex, with burgers and grilled cheese on the menu. Plenty of patrons eat fries with their enchiladas; Pepsi products, not aguas frescas, fill the drinks cooler. But Mitla does serve a signature Mexican-American dish: tacos dorados con carne molida, “golden” tortillas fried to order and folded around a spicy compressed wedge of ground beef, blanketed with iceberg lettuce, chopped tomatoes and shredded Cheddar. (The hard-shell taco is not unknown in Mexico, but it is usually deep-fried with the stuffing already sealed inside it. These proto-tacos can still be found at Cielito Lindo on Olvera Street in downtown Los Angeles, where the recipe hasn’t changed since 1934.)

At Mitla, the tortilla is hot and crisp, the meat is beefy and satisfying, but other than that, this specialty — which has been on the menu as long as any of the Montaños can remember — very closely resembles the taco served to more than 36 million customers every week at 5,600 Taco Bell locations in the United States.

Coincidence? Mr. Arellano thinks not.

In 1950, one Glen Bell, an entrepreneur possessed by envy of the McDonald brothers’ success, opened a burger stand across the street from Mitla. (The building is still there; today, it’s a taco stand.) According to Mr. Arellano’s research, Mr. Bell ate often at Mitla and watched long lines form at its walk-up window; later, having persuaded the Montaños to show him how the tacos were made, he experimented after hours with a tool that would streamline the process of frying the tortillas.

He started serving his own tacos in 1951 (this according to Mr. Bell’s 1999 biography “Taco Titan,” which Mr. Arellano has practically memorized), and the business went through several name changes (Taco Tia, El Taco) before starting as Taco Bell in 1962. Now, at Mitla, the lines are gone; only the brown vinyl booths and the lunch regulars remain; while on the Taco Bell Web site, Mr. Bell is cited as the creator of the “fast food crunchy taco.” The Montaño family members are philosophical about this outcome, but Mr. Arellano isn’t.

A Very Pertinent Reflection on the Argentinean Nationalization of YPF Repsol

Found in El Semanario Sin Límites, Revista Semanal, a column by Antonio Reyes:

YPF fue la primera empresa pública de energía creada en el continente americano en 1922, habiendo constituido el antecedente de los YPF de Bolivia y de Pemex en México.  La empresa fue inicialmente privatizada de manera parcial en 1992 en plena reforma económica, denominada neoliberal, bajo el objetivo de sanear las finanzas públicas nacionales y de algunas provincias argentinas.

En este acontecer, Argentina desde el inicio de los YPF asumió la propiedad soberana de los recursos energéticos bajo el principio nacional del interés general.  De igual manera, en la privatización se consideró la naturaleza de concesión pública de la exploración, extracción, refinamiento y distribución de los petrolíferos.

Esta situación enmarca los llamados derechos de propiedad, normalmente asociados al derecho y al interés privado, en un contexto más amplio que el de las empresas convencionales.  De esta manera, desde su inicio, YPF ha involucrado el derecho público y el interés general como normativos de la naturaleza de su propiedad y el alcance de su interés privado.

Por ello, la forma en que se dirige y administra YPF en relación con los intereses va más allá del gobierno corporativo tradicional (corporate governance), que normalmente involucra mayormente el interés privado, especialmente de los propietarios y de otros.  Así, YPF queda inscrita en un sistema de gobernanza en el que debe prevalecer el interés general sobre el interés particular.  Tal situación también sucedería en otro tipo de concesión pública, tales como la televisión, radiotelefonía, entre otras industrias.

De esta forma, con el simple retiro de una concesión pública en virtud del interés general una empresa podría perder su viabilidad y hasta su mera existencia.  Obviamente, bajo tal supuesto se debería partir de la evidencia justificada de la existencia del interés público, para dar certeza jurídica al retiro de la concesión involucrada.

Dicho de otra manera, cumplido el supuesto invocado, con el simple retiro de la concesión pública a YPF se habría hecho inviable la existencia real de la empresa, aunque formalmente se mantuviera con vida.  Por ello, la denominada expropiación de YPF va más allá de la simple concesión pública, de naturaleza intangible, al involucrar activos productivos, como también pasivos y capital de la empresa, que deberían considerarse en su valor para que las partes convengan el sano equilibrio de los intereses involucrados, es decir del interés público y el interés privado.

Bajo estas consideraciones, la expropiación terminará por llevar a las partes, aún con la mediación internacional, a un acuerdo económico que en derecho sea justo a los intereses involucrados.  El interés general del estado argentino debe ser satisfecho y el interés particular de Repsol debe también ser respetado, pero bajo la parte proporcional accionaria expropiada, sin asumir el principio de que la concesión es una propiedad privada.

Estricta y legalmente la acción de Argentina es un asunto soberano, enmarcado en un sistema de gobernanza en donde el interés público debe prevalecer sobre el interés privado y cuya existencia de YPF es producto de una concesión otorgada a particulares.  Pretender dictar cátedra sobre el deber ser, asumir un pensamiento unidimensional y unidireccional es entrar en la mera prescripción, colocarse cerca del dogma y pensar, como se nos ha hecho creer con el viejo laissez faire, que los Estados han dejado de ser soberanos y que ha dejado de existir el interés general.

Para desgracia de muchos, ni el mercado como soberano, ni el simple interés particular han conformado la sociedad en la que vivimos, aquí y allá.  Esa es la realidad aún en los países que se han alarmado por lo acontecido en Argentina.  Más valdría la pena de poner un poco más de atención a sus propios problemas y sus afanes prescriptivos que parecen no curar sus pesares.

The Maculate Expansion of Wal*Mart in Mexico

Business historians will have to factor in their historical accounts of retailing and distribution in Mexico the bribes Wal*Mart executives paid to Mexican authorities in order to accelerate its expansion in the country. Yet all of the buzz is coming from this side of the border. Surely President Felipe Calderón might be “scandalized” because of this, but Wal*Mart is still the largest employer in the country.  Calderón is a politician that advertised himself as the “president of employment” in the hotly contested 2006 elections, whose administration presided over the greatest decline in Mexican economic activity since the 1930s. So the incentives to act legally against Wal*Mart are very low. The coming presidential elections might act as a bait, but prosecuting Wal*Mart would be a double edged sword for Calderón: Reforma reported yesterday that Gerardo Ruiz Mateos, the head of the presidential office, has close links with high executives in Wal*Mex (the Mexican branch of the retail giant).

Crony Mexican-Gringo capitalists and politicians. Compadres south and north of el Rio Grande.