by Gerald Berk. Cambridge and New York: Cambridge University Press, 2009. 296pp. Hardback. $85.00/£50.00. ISBN: 9780521425964. eBook format. $68.00. ISBN: 9780511577604.
Reviewed by David Brian Robertson, Department of Political Science, University of Missouri – St. Louis. Email: daverobertson [at] umsl.edu.
Political scientist Gerald Berk combines the tools of American political development and constructivism to develop a new perspective on the American response to business power in the early twentieth century. His book challenges scholars who emphasize that institutional constraints restrict policy-makers’ choices. Berk instead accentuates the opportunities that open up when institutions evolve and collide. These opportunities unleash the creativity of the ingenious participants who reconceptualize public problems and invent novel policy solutions to them.
According to Berk, the dominant institutional interpretation of American policy choices in the Progressive era emphasizes the way institutions placed increasingly tight shackles on policy-makers. The emergence of giant corporations gave reformers only two options, in this view. Progressives like Theodore Roosevelt accepted the existence of corporations and sought to steer their behavior toward national goals. Populists in the Democratic Party sought to cut the big companies down to size and police them. For Berk, this received wisdom cannot explain the important actions of key players, or the important developments in key industries. Instead, thoughtful and experienced participants like Louis Brandeis constructed an alternative framework for interpreting industrial trends in the early twentieth century. Brandeis’ framework influenced the design of the Federal Trade Commission (FTC), the FTC’s behavior through the 1920s, and resulting successes in specific industries. Despite political weaknesses and judicial rulings that seemed to block the FTC’s path, the agency found innovative ways to overcome these obstacles and pursue the path suggested by Brandeis.
Berk begins by arguing that “creative syncretism” provides a powerful tool for more clearly understanding the true innovativeness of these developments. Creative syncretism assumes that institutions consist of many parts, and that creative actors can assemble, partially take apart, and reassemble these parts in new ways. Through deliberation and imaginative narratives, including new understandings of their own culture, actors can invent new ways of understanding problems and inventing new institutional and policy solutions. For example, Berk points out that the concept of business costs is a social construct. In his view, companies at the turn of the century tended to overstate the degree to which costs were “fixed” (see Berk 1994). By recasting information about costs, and by smashing assumptions about fixed costs [*144] in particular, industries could not only improve productivity, but also could channel competitive urges away from destructive competition toward a positive sum competition that brought net benefits to their industry. An institution like the FTC could help improve the American economy by steering industries toward this new framework.
The uniquely influential Louis Brandeis is the central figure in the creative syncretism that drove this new framework for understanding business. Brandeis, the nationally prominent lawyer, policy advocate, and eventually Supreme Court Justice, was well positioned to influence the design of the Federal Trade Commission. Berk offers new insights into Brandeis’ economic thought and its influence on U.S. economic management. Brandeis valued small business as a cornerstone of a virtuous American republic. He saw big business as a threat to this civic republicanism as well as to the healthy competition that drove American economic development forward. Brandeis conceived of scientific management not as a uniform regimen for economic productivity, but as a bundle of separable ideas that could be decomposed and recombined in novel ways to serve republican ends. In the Massachusetts shoe manufacturing industry, for example, competitors shared information and developed useful innovations that made the industry more productive. Contracts between a supplier and retailer to maintain a given price encouraged innovation and reduced cutthroat competition in the industry. Brandeis concluded that such activities, and such trade associations as the German steel cartel, could serve a productive and beneficial purpose. In Brandeis’ view, these associations offered a third alternative to the atomized markets favored by populists and huge corporations accepted by the progressives. He urged reformers to evaluate whether restraints on trade facilitated competition, locked in power, and enhanced productivity. If market restraints encouraged these results, they were compatible with republican values, and reformers and businesses could collaborate in a kind of republican experimentalism to encourage such outcomes. Brandeis himself implemented these ideas in his approach to railroad regulation, an approach Berk terms “cultivational” regulation. This approach aimed to replace “rate of return” regulation (to establish a price in a regulated industry based on the costs of production plus some appropriate rate of profit) with British-inspired sliding scales (in which dividends increased as rates diminished) and “benchmarking,” the development of comparable cost data for all firms. Brandeis also sought to encourage more dexterous approaches to cost accounting that would prompt individual firms to search for new, non-predatory ways to improve costs.
“Cultivational” regulation influenced the design of the Federal Trade Commission Act of 1914. When progressives and populists arrived at an impasse over the FTC legislation, Brandeis pushed for this “third” approach. He urged policy-makers to develop a commission that could “redirect business administration from deceit and opportunism to engineering, invention, and incremental improvement” (p.97). Uniform information-gathering would make it possible to engage in benchmarking across all the firms in any industry, so [*145] that average costs could be publicized. This publicity, in turn, would improve and speed innovation. The final FTC bill itself was a creative product, recast in terms sufficiently ambiguous to allow both progressives and populist Democrats to claim it fulfilled their ambitions for regulating unfair competition. Between 1915 and 1932, Federal Trade Commissioners Edward Hurley, Nelson Gaskill, and William Humphrey used the FTC’s limited powers adroitly, building networks of common purpose with cost accountants, trade associations, and the U.S. Chamber of Commerce. These leaders built the “institutional infrastructure to make regulated competition possible” (p.118). The FTC nurtured the development of cost systems for industries, and encouraged trade practice conferences to share lessons about innovative techniques. For example, the FTC published and distributed nearly a quarter of a million archetypal cost manuals for manufacturing and retail. The Federal Trade Commission’s creative regulation clearly pushed the envelope of its legal authority. In the mid-1920s, the FTC organized trade practice conferences, expecting that industries ultimately would submit a set of principles of fair competition for FTC approval. The FTC would approve these statements of principle, and its leaders believed it could enforce some of them.
The FTC evidently changed the way some industries conceived of competition. Trade associations, beginning with the Structural Bridge Builders Society, began to experiment with shared pricing information, and opened discussions of industry efficiency, competition and costs. These discussions resulted in collaborative learning. “Open price” associations evolved into “developmental associations devoted to upgrading competition through improved cost accounting, information pooling, and collective deliberation” (p.155). Cost accountants formed a distinct and separate association, using costs as engineering tools to improve industry efficiency and competitiveness. Creative syncretists at the new National Association of Cost Accountants, the Chamber of Commerce’s Manufacturing Division, and the American Trade Association Executives all provided experimental forums for new ideas about competition and collaborative learning. These actors developed industrial benchmarks for costs, and these benchmarked costs in turn provided industrial participants with both the incentive and the ability to upgrade competition. Drawing on his own collaborative research with sociologist Marc Schnieberg, Berk finds that thirty percent of manufacturing industries “devoted resources in this period to at least participate in discussions about developmental association and benchmarking and to monitor their development” (p.176). Thirteen percent of U.S. manufacturing industries were substantially involved in implementing these systems. While cultivational regulation touched every industry, the lumber, paper and printing, and iron and steel industries took these ideas furthest. Berk uses the printing industry as an exemplary case study, concluding that “developmental association improved individual firm performance and competitive conditions in local markets, and enabled technological innovations, which trebled productivity in commercial printing” (p.212). [*146]
Berk’s final substantive chapter, “The Politics of Accountability,” takes up the battle between the FTC innovators and the federal courts. Brandeis, the FTC, and other proponents of regulated competition insisted that it was impossible to draw a bright line between monopolistic and competitive trade association practices. The federal judiciary, the U.S. Department of Justice, and economists insisted on distinguishing practices that served public interests from those that served merely private ones. The federal courts insisted that the FTC could not legitimately regulate, for example, the restrictive gasoline distribution schemes developed by Standard Oil until it was proven that these business practices created a monopoly. The FTC objected that its authority gave it warrant to regulate such schemes before they hardened into monopoly. The FTC lost its case, but in the process of adjudication – potentially influenced by Brandeis’ dissents from the bench – the court itself gave ground, allowing finer legal distinctions that also allowed the FTC to continue to cultivate regulated competition. Berk concludes that cultivational regulation survived court challenges and influenced key industries such as the glass, envelope, and corrugated box industries during the New Deal. Benchmarking experienced explosive growth in both the private and the public sectors in the 1990s, by which time the cost accounts had created the distinct profession of business consulting. The FTC’s Trade Practice Conference Division endures to this day.
Berk’s book is very valuable for social scientists and historians of American political economy. First, it successfully challenges conventional wisdom that institutional, political, and mental straightjackets made both the FTC and 1920s business associations rather insignificant. This conventional wisdom does not give credit to Brandeis and others who viewed institutional boundaries as much opportunities as constraints, and used the tools at hand to greater advantage than commonly is recognized. Berk also deserves credit for bringing us a different interpretation of Brandeis as an engaged and thoughtful reformer who anticipated the challenges of reconciling modern capitalism, prosperity, and republican ideals. Brandeis tried to mark out a new pathway for economic development, and he enjoyed the influence to convince powerful people this path was practical.
Second, for legal scholars and historians, the book adds to our understanding of the politics of implementing statutes and legal decisions. Judicial decisions provide new political opportunities as well as new constraints. In the very process of foreclosing options, courts decisions can open new opportunities for ambitious, creative reformers who hold an ambiguous warrant of authority. Smart, politically skilled, and influential policy architects like Brandeis and the FTC leaders will find ways to exploit these opportunities, and the political actors who populate Berk’s book are shrewd and enterprising in the pursuit of their goals. These opportunities raise a number of interesting questions that merit more research. For example, judges without political experience may write decisions based on a different understanding of implementation than judges who have served in an elective office. If so, the current Supreme Court, which lacks any members with such political experience, provides a [*147] particularly good natural experiment for examining the results.
Readers will assess the limitations of this study in different ways. Some readers will find the arsenal of analytic tools developed the book to be more abstract than necessary. While I find Berk makes a persuasive argument that creative syncretism had a strong impact in this case, others will require more convincing evidence that the reported differences in industrial performance amount to truly substantial improvements. The administrative impact that the FTC retained after the court rulings of the 1920s is left unclear; most likely, this ambiguity is inevitable. Hopefully, though, readers will not allow these questions to overshadow the broad value of Berk’s approach for studying the development of American politics, law, and policy. Historical institutionalists have struggled to come to grips with the difficulty of identifying, describing, and explaining institutional change. Berk adds not only an important case to this discussion, but also a constructive approach for dealing with these daunting problems.
Berk, Gerald. 1994. ALTERNATIVE TRACKS: THE CONSTITUTION OF AMERICAN INDUSTRIAL ORDER, 1865-1916. Baltimore, MD: Johns Hopkins University Press.
© Copyright 2010 by the author, David Brian Robertson.