20 August 2024

And no one puts new wine into old wineskins; or else the new wine bursts the wineskins, the wine is spilled, and the wineskins are ruined. But new wine must be put into new wineskins. Mark 2:22, New King James Version1 In 1901 financier J. P. Morgan orchestrated the creation of US Steel, then by almost any measure the largest company in the world. Two years earlier, John D. Rockefeller had consolidated his activities into Standard Oil of New Jersey, which controlled around 90 per cent of refined oil products in the United States. Steel and oil were essential elements in the rise of the automobile industry, which would transform both everyday life and the ways in which people thought about business. Business historian Alfred Chandler documented the rise of the modern managerial corporation in his magisterial Strategy and Structure (1962).2 The book showcased General Motors, along with chemical giant DuPont, retailer Sears Roebuck and Standard Oil of New Jersey. These companies dominated their industries in the United States and increasingly operated internationally. They exerted political influence, and their turnover exceeded the national product of many states. Their combination of economic and political power seemed to secure their dominance in perpetuity. It didn’t. In 2009 General Motors (GM) entered Chapter 11 bankruptcy. GM is still – just – the top-selling US automobile supplier, but its global production lags far behind that of Toyota and Volkswagen. DuPont has broken itself up, and Sears Roebuck is more or less defunct. These failures are not because people have ceased to drive cars and shop or because business no longer requires chemical products. Incumbents lost out because other businesses met customer needs more effectively. Among Chandler’s examples only Standard Oil of New Jersey – now ExxonMobil – continues to enjoy its former leadership status. Somewhat quixotically, in view of the widespread demand for a transition from fossil fuels. In the 1970s you might presciently have anticipated that information technology would be key to the development of twenty-first-century business. And many savvy investors did; their enthusiasm made IBM the world’s most valuable corporation. The leading computer company of the age would surely lead the race to the new frontier. That wasn’t how it worked out. On Wall Street they called the upstarts ‘the FAANGs’ – Facebook (Meta), Apple, Amazon, Netflix and Google (Alphabet). Then the fickle fashion of finance favoured the ‘Magnificent Seven’, with Netflix replaced by Nvidia, and Tesla and Microsoft added to the list – the latter restored to fortune after missing out on the Apple-led shift to mobile computing in the first decade of the new century. Microsoft is actually the longest established of these titans of the modern economy, famously founded in 1975 by Harvard dropouts Paul Allen and Bill Gates. Four of these businesses companies began trading only in the twenty-first century. None of the FAANGs is a manufacturer (I will explain Apple later.) The employees of these companies are not the labouring poor, victims of class oppression; many hold degrees from prestigious universities. (I will come back to Amazon later.) The workers are the means of production. In 2023 investors believed that the ‘Magnificent Seven’ represented the future of business. They clamoured to buy their stock, as they had once clamoured to buy US Steel, General Motors and IBM. And these investors are likely to be right – for a time. But experience suggests the dominance of the seven is likely to be as transitory as that of the large businesses of earlier generations. As I write this, negotiations are proceeding for the rump of US Steel to be bought by Nippon Steel of Japan, and Andrew Carnegie and the Gilded Age have become a footnote to history. Thus the mighty fall – or just slowly fade away. A central thesis of this book is that business has evolved but that the language that is widely used to describe business has not. The world economy is not controlled by a few multinational corporations; such corporations have mostly failed even to control their own industries for long. In the nineteenth and twentieth centuries capital was required to build, first, textile mills and iron works, then railways and steel mills and subsequently automobile assembly lines and petrochemical plants. These ‘means of production’ were industry-specific – there is not much you can do with a railway except run trains along it, and if you want to be an engine driver you need to seek employment with a business that operates (but, as I will explain, does not necessarily own) a track and a train. The leading companies of the twenty-first century have little need of such equipment. The relatively modest amounts of capital they raise are used to cover the operating losses of a start-up business. The physical assets required by twenty-first-century corporations are mostly fungible: they are offices, shops, vehicles and data centres which can be used in many alternative activities. These ‘means of production’ need not be owned by the business that uses them and now mostly they are not. Thus the owners of tangible capital, such as real estate companies and vehicle lessors, no longer derive control of business from that ownership. Labour is no longer subjected to the whims of capitalist owners of the means of production. Often workers do not know who the owners of the physical means of production are, or who the shareholders of the business they work for are, and they don’t know because it doesn’t matter. They work for an organisation that has a formal management structure but whose hierarchy is relatively flat and participative. Necessarily so. In modern businesses the ‘boss’ can’t issue peremptory instructions to subordinates, as Andrew Carnegie and Henry Ford did, because modern bosses don’t know what these instructions should be: they need the information, the commitment and, above all, the capabilities which are widely distributed across the organisation. The modern business environment is characterised by radical uncertainty. It can be navigated only by assembling the collective knowledge of many individuals and by