GMGT 1010: Capitalism and Management in the 20th/21st Century

GMGT 1010: Capitalism and Management in the 20th/21st Century

Introduction

  • Carl Sagan Quote: "You have to know the past to understand the present" – Emphasizes the importance of historical context for current understanding.
  • Key Question for Consideration: What event had the biggest impact on business and capitalism between 1900 and now?
  • Note on Materials: For certain classes (like Classes 6 and 8), the slides and lectures are the primary source of information, as they are not always accompanied by readings. These are the best way to prepare for quizzes.

Roadmap: Evolution of Capitalism in the 20th Century and Beyond

  • Early 1900s
  • Roaring Twenties
  • Great Depression
  • World War 2
  • Golden Age of Capitalism
  • The 1970s
  • Globalization
  • Neoliberalism
  • The Great Recession and its aftermath
  • Trump and other recent trends

Early 1900s

  • Three Major Technological Breakthroughs:
    • Electrical power
    • Automobiles
    • Gasoline engine
  • The Automobile Industry Explosion:
    • By 1905: 121 establishments manufacturing automobiles.
    • By 1923: The number rose to 2,471 manufacturing establishments.
  • Effects of Automobile Technology:
    • Urbanization: Growth of cities as people moved for work.
    • Farm to City Shift: Rural populations moved to urban centers.
    • Interdependence: Increased specialization led to greater economic interdependence between regions and industries.
    • Sociological Effects: Shift in the nature of work, leading to more repetitive tasks (e.g., assembly line production).
  • Mass Production:
    • Significant reduction in assembly time (e.g., motor assembly dropped from 600 minutes to 226 minutes within one year).
    • Enabled economies of scale.
  • Rise of Big Business:
    • Change in the nature of competition, favoring larger entities.
    • Emergence of the corporation as a dominant business structure.
    • Threat of monopolies.
    • Rise of antitrust legislation to curb monopolistic practices.

The Classical Era (1910-1930) and Management Focus

  • Organizing: Ensuring tasks are assigned and an organizational structure is created to facilitate goal achievement.
  • Two Separate Schools of Thought in Management:
    • Micro Focus: How to design specific jobs.
      • "One Best Way" approach.
      • Scientific Management (Taylorism): Developed by Frederick W. Taylor. Focus on optimizing efficiency through scientific analysis of workflows.
      • Time-and-Motion Studies: Conducted by Frank B. Gilbreth, aimed at eliminating wasteful movements and increasing productivity.
    • Macro Focus: How all different jobs fit together in an organization.
      • Bureaucracy: Developed by Max Weber.
  • Max Weber’s Features of an Ideal Bureaucracy:
    • Division of Labour: Specialization of tasks.
    • Rules and Regulations: Formal guidelines for consistent operations.
    • Hierarchy of Authority: Clear chain of command.
    • Technical Qualifications: Employment and promotion based on merit and technical expertise.
    • Impersonality: Rules and procedures applied without personal bias.

Division of Labour: A Critical Perspective

  • Noam Chomsky's Reading of Adam Smith: Argues that Adam Smith believed the extreme division of labor could "destroy human beings" and make them "as stupid and ignorant as it is possible for a human being to be." Therefore, in any civilized society, the government would need to intervene to prevent division of labor from reaching its detrimental limits.

Summary of the Early 1900s and Economic Tensions

  • Technological breakthroughs (electricity, automobiles) propelled capitalism forward, leading to increased urban migration for factory work.
  • Management focused on efficiency through bureaucracy and scientific management.
  • Despite advancements, problems persisted: high unemployment, very low wages, and few labor laws regarding working conditions.
  • These factors created ripe conditions for social unrest, culminating in events like the Winnipeg General Strike.

Winnipeg General Strike of 1919

  • Precipitating Factors:
    • Large population returning from WWI, increasing competition for jobs.
    • Significant influx of European immigrants.
    • Combination of low wages and high unemployment.
    • Inflation and a rising cost of living.
  • Event:
    • On May 15, 1919, at 11am, approximately 30,000 workers in Winnipeg (including private and public employees like firefighters and police) walked off the job.
    • Fear of a communist overthrow of the government was widespread, with headlines like "Bolshevism Invades Canada" (New York Times).
  • Bloody Saturday:
    • Winnipeg Mayor Charles Frederick Gray called in the Royal Canadian Mounted Police (RCMP).
    • Resulted in 2 strikers shot and killed, and 45 others injured.
  • Resolution:
    • The strike was called off on June 26, and workers returned to their jobs.

The Roaring Twenties

  • Apparent Resolution of 1919 Issues: By the end of the 1920s, it seemed that problems like those leading to the Winnipeg strike had been addressed:
    • Increasing population.
    • Growth of cities.
    • Low unemployment.
    • Increasing wages.
  • Herbert Hoover's Optimism (Nov. 1928): Stated that America was "nearer to the final triumph over poverty than ever before" and that poverty would soon "be banished from this nation."

Stock Market Crash and Great Depression

  • The Bubble Burst:
    • 30 billion dollars of wealth "disappeared" fundamentally affecting the economy.
    • Gross Domestic Product (GDP) was reduced by half between 1929 and 1933.
    • Unemployment soared, affecting 1/4 of the workforce.
  • Causes:
    • Speculation: Excessive risk-taking in the stock market.
    • Weakness on the Farm: Inelastic demand for agricultural products meant farmers struggled even as production increased.
    • Weakness in the Factory: Technological advancements led to increased production capacity but also contributed to unemployment.
    • Income Inequality: A significant gap between the rich and poor limited broad-based consumer demand.
  • The Boom and Bust Cycle: Illustrated by the surge in New York Stock Exchange sales and corporate stock issues leading up to 1929, followed by a sharp decline.

The New Deal and Rise of the Public Sector

  • Franklin D. Roosevelt's Presidency (1933): Marked a significant shift towards government intervention.
  • Government Intervention in U.S. Markets (The New Deal):
    • Glass-Steagall Banking Act: Separated commercial and investment banking activities to prevent risky practices.
    • Wagner Act: Protected labor unions and collective bargaining.
    • Social Security Act: Established a system of old-age benefits, unemployment insurance, and aid to dependent mothers and children.
    • Federal Housing Authority (FHA): Provided mortgage insurance to make housing more affordable.
    • National Recovery Act (NRA): Aimed at stimulating industrial recovery and combating unemployment.
  • Rise of National Banks: The Federal Reserve gained more power in managing the economy.
  • Monetary Policy:
    • Adjusting interest rates to control the money supply.
    • Public spending to stimulate the economy.

The Human Era (1930-1950) and Management Focus

  • Leading: Relating with others to ensure their work efforts contribute to organizational goals. This era marked a focus on the interpersonal aspects of management.
  • Key Concepts and Researchers:
    • "Hawthorne Effect" / Self-Fulfilling Prophecy (Mayo & Roethlisberger): The idea that employees perform better when they feel observed and valued.
    • Leader as Facilitator (Mary Parker Follett): Emphasized collaboration and shared power in leadership.
    • Job Stress (Lillian Gilbreth): Pioneering work on the psychological impact of work design.
    • Theory X / Theory Y (Douglas McGregor): Different assumptions about employee motivation and management styles.

Summary of the Great Depression and New Deal

  • The Great Depression fundamentally altered the organization of capitalism in the U.S. and Canada.
  • Before the Depression: A strong belief in laissez-faire capitalism (minimal government intervention).
  • Following the Depression: Government adopted a central role in the economy, seen as "saving capitalism from itself."
  • Important Caveat: The New Deal alone did not spur the full recovery of the U.S. and Canada.

World War 2 and its Economic Impact

  • Increased Governmental Role: Led to a massive expansion of government involvement in economic planning and resource allocation.
  • Employment Act of 1946: Committed the U.S. federal government to promoting maximum employment, production, and purchasing power.
  • Shift in Government's Role: The debate was no longer whether to intervene, but how to intervene effectively.
  • Emergence of Fiscal Policy:
    • John Maynard Keynes: Advocated for the use of government taxation and expenditure to influence economic conditions and boost the economy.
  • Post-WWII Advantages for U.S. and Canada:
    • Unlike many European cities, North America was not devastated by war.
    • Productive capacity rapidly expanded to meet war demands.
    • Technological efficiency significantly increased.
    • The anticipated post-war drop in demand never materialized, leading to sustained economic activity.

The Golden Age of Capitalism

  • Reasons for the Name: A period of unprecedented economic prosperity and social stability.
  • Booming Business: Fueled by new consumer goods and industries:
    • Tourism flourished.
    • Widespread adoption of televisions.
    • Increased sales of home appliances (dishwashers, washers, dryers, etc.).
  • Capital-Labour Accord: A period of relative harmony between workers and managers.
    • Key Role of Unions: Unions played a crucial role in negotiating for workers.
    • Wages Tracked Productivity: Workers' real wages generally increased in line with productivity gains.
    • Management and Labour often cooperated.
  • Active Role for Government in the Economy:
    • GI Bill: Provided substantial benefits (education, housing loans) to returning WWII veterans, stimulating the economy.
    • Massive military spending continued, supporting industries.
    • Highway production and other public infrastructure projects.
    • Expansion of other social spending programs.
  • Wages and Productivity: Data from 1964-2008 (index relative to 1970) shows that during portions of the Golden Age, real hourly wages and household median income largely tracked major sector productivity.

The Calculating Era (1950-1970) and Management Focus

  • Planning: Identifying an organization's goals, strategies, and the necessary resources to achieve them.
  • Key Concepts and Frameworks:
    • Management Science / Operations Research / Management: Application of quantitative methods to decision-making.
    • Strategic Management: Long-term planning for organizational success.
    • Mechanistic vs. Organic Structures (Burns & Stalker): Different organizational forms suitable for stable vs. dynamic environments.
    • Contingency Theory and Strategic Choice (Child): The idea that there is no one best way to organize; effectiveness depends on the congruence between the organization's structure, environment, and choices.

The Golden Age Comes to an End

  • The period of prosperous growth from 1950-1970 (unprecedented in advanced democracies) eventually ended.
  • What Caused the Demise?
    • OPEC Oil Shocks: Dramatic increases in oil prices in the 1970s led to economic disruption.
    • Inflation: A general increase in prices and fall in the purchasing value of money.
    • Stagflation and Unemployment: A combination of stagnant economic growth, high inflation, and high unemployment (a phenomenon not previously observed together).
    • Income Inequality Begins to Widen:
      • 1970: Worker ext{estimated income} = ext{ extdollar}25,000 ; CEO ext{estimated income} = ext{ extdollar}1,000,000
      • 2004: Worker ext{estimated income} = ext{ extdollar}43,000 ; CEO ext{estimated income} = ext{ extdollar}15,000,000

Understanding the 1970s

  • The 1973 Oil Embargo: A major event that highlighted economic vulnerabilities.

The Values and Beliefs Era (1970-1990) and Management Focus

  • Controlling: Ensuring that the actions of organizational members are consistent with the organization’s values and standards.
  • Key Concepts:
    • Social Construction of Reality (Berger & Luckman): How individuals and groups create their understanding of the world.
    • Institutionalization (Selznick, Zucker): The process by which certain practices or structures become taken for granted and embedded in an organization or society.
    • Organizational Culture (Edgar Schein): The shared values, beliefs, and practices that characterize an organization.

Summary of the 1970s

  • The 1970s challenged many assumptions underlying the Golden Age of Capitalism.
  • Shift in Power: Business saw some of its power diminish compared to workers and emerging social movements (e.g., environmentalism) that gained prominence in the 1960s.
  • This period set the stage for business to regain its power significantly in subsequent decades.

The Beginnings of Globalization

  • Precipitating Factors:
    • Collapse of the Bretton Woods System: Led to the end of fixed exchange rates.
    • Flexible Exchange Rates: Currencies were allowed to float, influencing international trade and finance.
  • Globalization of Production and Finance:
    • Increased Mobility of Capital: Money could move more freely across borders.
    • The emergence of China as a global economic power.
    • The rise of BRICS (Brazil, Russia, India, China, South Africa) as significant economies.
    • Outsourcing: Companies moved production or services to other countries for lower costs.
  • The Emergence of International Organizations:
    • International Monetary Fund (IMF): Promotes global monetary cooperation, financial stability, and international trade.
    • World Trade Organization (WTO): Regulates international trade.
    • World Bank: Provides financial and technical assistance to developing countries.
  • Growth in International Trade: Illustrated by increasing trade volumes and FDI (Foreign Direct Investment) flows worldwide, particularly from the 1980s onwards.

Neoliberalism and the 1980s

  • Definition: A modern politico-economic theory favoring free trade, privatization, minimal government intervention in business, and reduced public expenditure on social services.
  • Essentially: The re-emergence of a laissez-faire approach to capitalism, echoing ideologies from the early 20th century.
  • Conceptualization: Often depicted as a "free trade and globalization machine" accelerating global GDP, but with negative consequences like pollution, environmental destruction, reliance on global cheap labor, and consumption of "consumer junk" and natural resources.
  • Left-Wing Backlash: Significant protests and movements against neoliberal globalization (e.g., protests against the WTO, Rainforest Action Network).

Summary of Neoliberal Globalization (1980s, 90s, Early 00s)

  • Globalization and neoliberal reforms significantly increased business power, reaching levels not seen since the early 1900s.
  • Most political leaders during this era (e.g., Mulroney, Chretien, Bush, Clinton, Obama) were generally proponents of neoliberal policies.
  • Economic Outcomes: Strong economic growth, rising GDP, and increasing corporate profits.
  • Contrast with Golden Age: Unlike the Golden Age, this period saw declining wages for many and a widening gap between the rich and the poor.
  • This perception of capitalism "figuring it out again" was challenged by the Great Recession.

The Great Recession

  • Forewarning: The book "Can 'It' Happen Again? Essays on Instability and Finance" by Hyman P. Minsky (released in 1986) explored the possibility of another major depression.
  • What Happened?
    • Short-Term Collapse:
      • Housing Bubble: The U.S. housing bubble burst.
      • Mortgage-Backed Securities: The value of these complex financial products collapsed.
      • Investment Banks: Large investment banks were heavily invested in these securities, leading to significant losses.
      • Lehman Brothers: A major investment bank went out of business.
      • Stock Market Fall: The stock market fell by 44 ext{%} between May 2008 and March 2009.
      • Credit Markets: Credit markets froze, hindering business operations.
    • Long-Term Trends (Underlying Causes):
      • Wage Stagnation and Household Debt: Stagnant wages forced households to take on more debt.
      • Housing Bubble: Unsustainable rise in housing prices.
      • Financial Deregulation (or "Financialization"): Loosening of regulations in the financial sector allowed for more risky behavior.
  • Effects of the Great Recession:
    • Unemployment: Doubled, peaking at 10.1 ext{%}.
    • World Trade: Decreased by 38 ext{%} in just 9 months.
    • Financial Institutions: Three major financial institutions failed.
    • Government Bailout: Massive government bailouts were enacted for other financial institutions.
    • Stimulus Spending: ext{ extdollar}780 billion in government spending was used to stimulate the economy.
  • Discussion of Capitalism: The crisis made it acceptable to openly discuss and critically analyze capitalism within business schools, as evidenced by new publications.

Why Did Canada Avoid the Worst of the Crisis?

  • Integrated Regulation: Canada had integrated regulation of banks, insurance companies, and large investment dealers.
  • Less Highly Leveraged: Financial institutions were less exposed to risk due to regulatory caps on leverage (e.g., 20:1 asset-to-total-capital ratio).
  • Higher Capital Requirements: Canadian banks had capital requirements above international standards.
  • Incentives Against High-Risk Lending: Regulatory structures discouraged lending in high-risk scenarios.

Recent Trends and Backlash

  • The "Past Five Years" (Context of the Lecture): Marked by the rise of the gig economy (Uber Eats, DoorDash, Airbnb, Fiverr) and social movements (Black Lives Matter).
  • Right-Wing Backlash to Globalization and Neoliberalism:
    • While resistance always existed, recent years have seen major pushback from parties traditionally associated with globalist policies.
    • Examples: Donald Trump's presidency, Brexit, and anti-globalization parties in Germany, France, and the Netherlands.
    • Nationalistic Policies: A shift towards policies challenging existing forms of globalization (e.g., NAFTA renegotiations).
    • Broad Critique: People across the political spectrum are increasingly speaking out against the negative aspects of globalization and neoliberalism. Such rhetoric would have been "unheard of 10 years ago" (prior to the lecture).

The "Gig" Economy

  • Impact of New Technologies: Creation of new economic models and changes to many occupations (e.g., taxi driving, food delivery, odd jobs, hotel industry).
  • Major Implications:
    • Working Conditions: Often precarious, flexible, with varying benefits.
    • Worker Power: Can be diminished due to lack of traditional employment relationships.
    • Consumer Choice: Increased convenience and variety for consumers.

COVID-19 Pandemic

  • The Coronavirus pandemic has had a "pretty big impact" on lives and significantly influenced capitalism.
  • Key Questions:
    • What is the changing role of government in crises?
    • How has the profit motive been affected?
    • What is the role of business in society during a crisis?
    • How has consumer culture adapted and evolved?

The Story Continues

  • Capitalism remains an ever-changing and evolving system.
  • The next 10 years are considered "particularly critical" to the future of capitalism, with many scholars suggesting it is at a "critical juncture." The system is constantly adapting and being challenged by new events and ideologies.