Transaction Man: The Rise of the Deal and the Decline of the American Dream, Lemann - B

                                    The title of this book is a counterpoint to a 1950's one called 'Organization Man'. Then, the American economy and society were dominated by big corporations and other institutions such as unions, governments, colleges and school systems that offered lifetime employment in exchange for security and  conformity. That world is long gone and today's transactional world is its opposite in every measure. Wealth is now concentrated, and the public arena is fraught with anger. "This book aims to lay out the history of our move from an institution-oriented to a transactional-oriented society." The transactional society is now slowly becoming networked by big technology. The history is told through the eyes of Adolf Berle, Michael Jensen and Reid Hoffman. 

Berle was born in 1895 as America was in the middle of its multi-generational struggle to determine how to control the concentration of power in big business. By 21, he had obtained three Harvard degrees. He practiced as a lawyer and gave serious consideration to the role of the corporation and its relationship to its shareholders. He published 'The Modern Corporation and Private Property'. Large corporations with tens of thousands of shareholders were essentially answerable to no one, and only the federal government was capable of controlling them. He became an advisor to Governor Roosevelt  and sketched out the essentials of the New Deal for him. Controlled capitalism came out of the Depression, managed the war effort and treated post-war America to a period of unimaginable prosperity. The large corporation and its people reigned supreme and was responsive and responsible to all stakeholders. In the 1950's, management consultant Peter Drucker proposed that big companies had social responsibilities, and America's biggest, GM, responded by offering health care and retirement benefits to the UAW. This world in which the forces of capital had been tamed began to change in the 1970's when substantial pools of money in pension plans and mutual funds came to the fore. Corporate pension plans owned a third of the stock issued in America, leading Drucker to announce that the workers of America owned the means of production. Soon, the providers of capital would demand higher returns on their investments. 

Mike Jensen enrolled in the graduate economics program at the University of Chicago in the early sixties at a time when the idea that the markets were the proper governing institution of the postwar world was gaining traction. Milton Friedman, among others, argued that corporate America was not sufficiently market oriented. Jensen and a partner published in 1976 a 'Theory of the Firm', castigating corporate managers for not acting as owners and not maximizing profits. Soon thereafter, corporate raiders, mergers, and hostile takeovers were the rage.  One third of the companies on the Fortune 500 did not maintain their independence in the 1980's. Wall Street changed from genteel provider of advice to its corporate accounts to swashbuckling raiders and traders. And more importantly, the social construct of running business for the well being of the community vanished. The Financial Stabilization Act of 1999 further deregulated Wall Street as financiers pushed boundaries more and more.   Eventually, Jensen concluded that the markets had overplayed their hand, as all anyone did anymore was manage for quarterly earnings. The new century saw a headlong rush from deregulation to outright speculation. It all fell apart in the Great Recession. The transaction men had demolished  the organization men, and in turn, were laid low by their own hubris. The system was adrift. 

Reid Hoffman was born in California in the late 60's. He was a gamer, and a Stanford grad who became CFO of PayPal and believed in the power of the network. He went on to found LinkedIn and became a proponent of 'social operating systems', whereby people connected person to person, and not to or from a larger entity. Money was to be made owning the connective infrastructure, not providing the content. In 2011, LinkedIn went public and today has 500 million members. In 2016, the firm was sold to Microsoft.

 The information about and the ideas generated in Silicon Valley are fascinating. But at no point does the author tie them in to the big issues that the previous ideas tackled: how to control big capital and big business, how to weigh the needs of a society, how to regulate and control fair outcomes? He closes with the observation that the organizing ideas of the past cannot make a comeback and that we are both economically and politically in hot water. He suggests a sort of return to basics,  and having interest groups fix the day to day issues and not worrying about grandiose concepts as the solution. 

Throughout the book, the author returns again and again to a neighborhood in Chicago to illustrate his points. Chicago Lawn was once an all white blue collar neighborhood just east of Midway Airport. In the 1950's, it was filled with working class Catholic ethnics, who were the bastion of the postwar world order in America. They worked for the plants in the neighborhood:  General Foods, car parts fabricators and other small manufacturers. Many worked for the city and regardless of where they worked, they voted Democratic and went to church on Sunday. The 60's saw an occasional person of color move in. The 80's saw all of the public companies in the neighborhood close up their local plants and stores. Their withdrawal ended  the economic stability of the neighborhood. The banks that financed homes were gone, and in the 2000's, many, particularly Hispanics, were victimized by mortgage brokers. Soon, community leaders met with bankers, the Governor, Senator Durbin and  the local organizer, Barack Obama, in an attempt to do something about the foreclosure crisis. Of course, they failed. The US saved the financial institutions, but not their customers. 

This has been an enlightening and informative read. I have tended to think of our nation's income inequality and the hollowing out of the middle class as caused by globalization and technology. Perhaps I've overlooked the financial services sectors' deregulation because I prospered from it. Clearly, globalization, technology and deregulation of the financial markets are the three primary reasons for our predicament. That said, the author finished with an almost incoherent whimper.