Witness At The Revolution

August 1 1997 by JP Donlon


Do ideas have consequences? John Kenneth Galbraith was fond of quoting John Meynard Keynes’ observation that all businessmen, believing themselves practical men and therefore immune to intellectual enthusiasms, were in fact slaves to the ideas of some dead economist. When I came to CE as a senior editor in the spring of 1978, business leaders, indeed business itself, was on the defensive. Capitalism was said to be on the ropes. Corporations had become artifacts of something Galbraith called “the techno structure,” whose managerial elites could set prices and manage demand, thereby escaping the rigors of market forces. Even CEOs such as Henry Ford II, who scoffed at Galbraith’s fantasies, had implicitly accepted his fabian premise. The rise of OPEC, trade protectionism, and a decade of Nixon-Carter stagflation had made talk of greater government involvement in the economy respectable. (Earlier Nixon had instituted wage and price controls saying, “We are all Keynesians now.”) In 1977, RCA chief Thornton Bradshaw wrote an article in Fortune arguing that his fellow business leaders might as well get used to the idea of some form of national economic planning. (Invited to appear on a local Boston TV talk show to discuss “excessive CEO salaries,” I found myself sharing the platform with the chairman of Babcock & Wilcox, makers of the Three Mile Island nuclear reactor, patiently explaining that business leaders like himself didn’t have horns and that “profit” was a social good. Our talk show host wasn’t buying.)

One can only defeat an idea with a more powerful idea. As it happens, Chief Executive magazine came into existence on the eve of a revolution in ideas about growth, markets, management, and the political economy. If there ever was a time when business needed a forum where leaders could regroup and share ideas in order to go forward, this was it. Finding the right voice wasn’t easy. When a chance meeting at a wedding brought me face-to-face with the Sun King of corporate America, Chase Manhattan

Chairman David Rockefeller, I asked him to take up the challenge in our pages. His piece, “Free Trade In Ideas” (Autumn 1978), raised the banner about the growing burden of government regulation on business. It would be a theme repeated by many others in our pages, from DuPont’s Irving Shapiro to W.R. Grace’s Peter Grace. From 1970 to 1975, federal spending on regulation grew by 77 percent and regulatory staffs grew by 46 percent. President Nixon, who talked about getting government off the back of business, actually moved in the opposite direction by creating new oversight agencies such as EPA and OSHA. Rockefeller pegged the cost to the economy in 1977 at $103.1 billion, calling this the fourth branch of government.

Such was the mood of the times, that we launched a consecutive three-part series in 1979 on “The Future of the Corporation,” in which CE solicited contrary views from CEOs, politicians, and academics on leadership, governance, and the role of private enterprise. The pending failure of Chrysler cast CEOs in the role of Tom Lehrer’s Christian Scientist with appendicitis. How could they advocate free markets and limited interference and then look to the state for subvention? No fan of the Chrysler bailout, Ingersoll-Rand

CEO Bill Wearly compared it to the U.K.‘s support of British Steel and British Leyland, “the biggest boondoggle of all.” Nonetheless he allowed that “American companies will begin to see themselves as quasi-public institutions, as European companies do now…which will be forced to maintain steady employment regardless of cost to maintain good will.”

The leadership crisis in the private sector mirrored the challenge U.S. political leadership faced in foreign affairs. The Soviet defense buildup, coupled with the Brezhnev doctrine and the prospect of European peace groups frustrating NATO’s attempt to redress the Euromissile threat, triggered great concern over international security. In a 1980 CE poll, 96 percent of the 821 CEO respondents disapproved of the Carter administration’s emphasis on the limits of U.S. power. Almost half advocated a build-up to leap ahead of the Soviets in strategic weaponry. Democratic Senator Sam Nunn, physicist Dr. Edward Teller, and Chief of Naval Operations Admiral Thomas Hayward, among others, debated and exchanged views in CE’s two-part series “After Detente,” about U.S. options in foreign and defense policies.

However disquieting the dominant trend seemed, a counter-trend was getting underway. In 1978, Congress passed legislation abolishing the Civil Aeronautics Board and deregulating airlines. In the two decades since, both parties have moved to deregulate major industries such as trucking, railroads, natural gas, and long-distance telecoms.

Today electrical power and local telecommunications are in line for open competition. In the same year, Jude Wanniski’s “The Way the World Works” was published, introducing the world to the counter-revolution known as supply-side economics. Wanniski wrote for CE arguing that economic growth needs to be centered on the incentives to produce derived from low marginal tax rates and not on cozy big business/government partnerships. Some business leaders went further. In his CE article “Will Businessmen Be the Death of Free Enterprise?” Koch Industries’ Charles Koch argued that some CEOs simply wanted “socialism for the rich,” and should instead put their competitive house in order.

If Wanniski was the John the Baptist of tax cuts and growth, George Gilder was the St. Paul of entrepreneurialism. His 1981 “Wealth and Poverty,” was an epistle on the entrepreneur as a moral agent of social good. The American business system would be saved, not by the managerial elites of the Business Roundtable, but by people such as Steve Jobs, Gordon Moore, and (at the time) obscure nerds named Bill Gates. Many CEOs had read it and felt invigorated by its affirmation of economic freedom and creativity.

Throughout the 1980s, CEOs felt the heat of Japanese competition, but a spirit of confidence prevailed. What CEOs called the office of the future and the factory of the future in our pages later came together in what we know as information technology. Hostile takeovers and M&A concerns grabbed headlines, and proved to be colorful and contentious CE roundtables, but terms like “six sigma,” “workout,” “corporate culture” entered our pages, indicating how much CEOs were experimenting with new techniques to improve efficiency and enhance competitiveness.

By 1990, restructuring had run its course. CEOs were beginning to focus on growth and the globalization of markets. In creating the Chief Executive of the Year award in 1986, we wanted to illuminate the effectiveness of leading CEOs in meeting this challenge.

In the march of ideas that have influenced the business world, one cannot overlook President Ronald Reagan’s speech in March 1983 in which he labeled the Soviet Union an “evil empire.” His prose proved prophetic: “I believe that communism is another sad, bizarre chapter in human history whose last pages even now are being written.” Reagan was ridiculed by the lumpen intelligentsia of the establishment news media and policy sophisticates of Georgetown. Nonetheless, it was an ideological shot heard around the world and one of a series of catalytic events that set in motion the ultimate demise of the Soviet Union.

In 1990, seven years after this speech and a year after the fall of the Berlin wall, I traveled with a dozen business people to the city of Novgorod to meet with young Russian leaders and nascent entrepreneurs. Irina Kibina, a young Russian woman who is now that city’s deputy mayor in charge of economic development, confided to me that, “we have lost the last 70 years. What they [CPSU] have done to us was evil.” Believing that commerce between our countries would help Russians recover those lost years, I felt compelled to have the magazine participate in this historic moment. CE would later undertake two roundtables in Russia published in 1991 and 1993 and another roundtable in Eastern Europe focusing on Poland, Hungary, and Czech Republic in 1994. These events followed earlier excursions to London, Mexico, Hong Kong, Tokyo, and Berlin where CE helped North American CEOs explore market opportunities, meet their counterparts, and understand first-hand the dynamics of other markets.

The end of the Cold War and the rebirth of entrepreneurial capitalism not just in the U.S. but in places as far afield as New Zealand, Chile, and the U.K have redrawn the map of the future. In some ways, the challenges facing CEOs today are more daunting than when CE started up 20 years ago. Then the competitive arena was confined to the developed world. Capital and physical resources counted for a lot. Size was sought for its own sake. One’s competitor was a rival company one already knew. Today an enterprise of any size coming from almost any industry can enter one’s market. Then producers had the whip hand; today it’s the customer. Capital and technology are fungible. Size is no guarantor of capability and may even be a handicap. A CEO in 1977 could count on an average of 10 to 12 years on the job. Today, if he isn’t producing, he’s lucky to last 18 months. CEOs will need to pay more attention to the so-called softer issues of human capital and creativity in order to thrive. CE will do its best to illuminate the path.

J.P. Donlon is editor-in-chief of Chief Executive.