From Organization Man to Transaction Man

Transaction Man – The Rise of the Deal and the Decline of the American Dream

By Nicholas Lemann. (Farrar, Straus and Giroux, $28.)

Reviewed by Richard K. Rein.

If you had to name today’s biggest companies you might quickly tick off Microsoft, Apple, Google, Facebook, or Amazon. If you were asked to name the biggest firms of 50 years ago you might mention General Motors, GE, IBM, AT&T, or Westinghouse.

Easy. But if you were asked to explain how those corporate behemoths from mid-20th century America gave way to the 21st century big guys you might guess that it was a matter of foreign competition, bad management, or failure to keep up with changing technology. Nicholas Lemann, author of Transaction Man – The Rise of the Deal and the Decline of the American Dream, has a different answer. The transformation of America’s corporate landscape, Lemann writes, “isn’t the result of inexorable processes that were too powerful to resist. Instead, it came from a series of choices that we, or at least America’s business and political elites, made.”

Lemann charts those choices and the resulting transformation from the golden age of the Institution Man, epitomized by William H. Whyte’s 1956, bestseller, The Organization Man, to the era of the Transaction Man, represented by the aggressive investors and dealmakers of the 1980s and 1990s, to the current era of the Network Man, in which large-scale and highly disruptive online platforms and Internet services occupy the corporate pinnacle.

Those choices are shown through portraits of men central to each of the three business epochs. Those portraits, in turn, are positioned around a series of vignettes of a single neighborhood on the southside of Chicago. The cast of characters in Chicago Lawn include a longtime GM auto dealer, a woman who had marched in support of Martin Luther King Jr. in 1966, a neighborhood organizer who was shot in the back as he was trying to quell a disturbance on his street, and others whose lives were touched by the disruption in the social order caused at least indirectly and sometimes directly by the macro-economic changes.

It’s a challenging narrative structure, with lots of moving parts. In an effort to make the book feel less academic, the footnotes are not displayed in the text but consolidated at the end of the book. Thus, when Lemann reports that in 1976 “the leading economics journal that focused on organizations” refused to print a paper describing a paradigm shift in corporate leadership, a reader might wonder if a footnote will reveal the name of the journal. You have to turn to the back of the book to see if there even is a footnote. There is, but it sheds no light on the unnamed journal. (I since have learned that it was the Quarterly Journal of Economics, then edited by Oliver Williamson.)

But that quibble with current publishing practices aside, Lemann, a staff writer at the New Yorker and a professor at the Columbia Graduate School of Journalism, skillfully sustains his narrative. Lemann begins with the “institution man,” Adolph Berle, an influential advisor to Franklin D. Roosevelt whose vision of controlled capitalism helped shape a world in which corporations could reach their greatest scale. The fact that the corporate scale brought with it a sense of blind allegiance and dull conformity that was famously exposed in Whyte’s The Organization Man did not concern Berle. “The age of individualism had ended, succeeded by an age of institutions,” Lenmann writes.

Berle died in 1971 at age 76. Had he lived a few more years he would have witnessed a series of disruptive events engineered by “transaction men,” represented by Michael Jensen, a University of Chicago-trained economist. Jensen had figured out ways to trade stock that would empower legions of corporate shareholders, especially those represented by pension and hedge funds, to go in and out of the market virtually instantaneously. When computing technology finally caught up to Jensen’s theories, the trading of stocks, bonds, and their derivatives became an enterprise of its own. At the same time the Reagan administration began interpreting anti-trust laws more loosely. Companies were acquired and consolidated with abandon. The Fortune 500 list in 1990 included only two-thirds of the companies on the 1980 list. “The lifetime job security that had been an unstated part of the corporate social compact was gone,” Lemann writes. “Nobody was talking about the Organization Man anymore.”

But alarms were being sounded. The Clinton administration had formed a Working Group on Financial Markets to facilitate deregulation of the financial system. At least two members of the group raised concerns: Brooksley Born, head of the Commodities Futures Trading Commission, and Janet Yellen, then head of the Council of Economic Advisers and the future chair of the Federal Reserve.

The organizations dissected by Whyte in the 1950s had changed dramatically by the 1990s, but “organization men” had by no means vanished. The manner in which the concerns of Born and Yellen were dismissed will not surprise feminist-minded readers. “Brooksley is thumbing her nose at the Working Group,” griped one of her male colleagues. Whyte (1917-1999), who coined the term “groupthink” in the early 1950s, would not be surprised either.

The organizations dissected by Whyte in the 1950s had changed dramatically by the 1990s, but ‘organization men’ were still at work and still practicing ‘groupthink,’ a term Whyte coined in the early 1950s.

The Transaction Man era’s colossal returns were soon followed by unimaginable losses. Lemann paints a vivid picture of one very bad day for Morgan Stanley – a $9.2 billion (with a b) loss on a single trade in 2007. For the GM dealer and the struggling homeowners in the Chicago Lawn neighborhood, the losses were proportionately greater.

Just as the economic framework of the transaction era was collapsing, another approach to economic order was blossoming. The Network Man is represented by Reid Hoffman, a founder of PayPal who built his fortune around LinkedIn, the networking app. Using virtual, online platforms, entrepreneurs such as Hoffman, Lemann writes, “imagined that conventional business organizations were becoming unnecessary.” Moreover, the networked economy “would benefit everybody rather than helping some people at the expense of others.”

Like many other economic dreams chronicled by Lemann, the idealism of the Network Man eventually crashed into reality. As Lemann writes in an afterword, “The three big ideas . . . share a conceptual grandeur, a conviction that if we aim at producing a good society by adopting one all-encompassing principle, the result will be a positive for everybody.”

Grand ideas, but not lasting. Lemann proposes an alternative: a pluralistic approach that “envisions a messy, contentious system that can’t be subordinated to one conception of the common good . . . It honors a process in which nobody, good or bad, ever gains control.”

That view is not inconsistent with The Organization Man of the 1950s. Whyte argued that “there is a conflict between the individual and society. There must always be, and it is the price of being an individual that he must face these conflicts.” Whyte also was leery of conceptual grandeur. In his 1968 book, The Last Landscape, he documented the adverse effects of neatly constructed, expansive suburban developments. In 1988 in City: Rediscovering the Center Whyte noted the unintended consequences of urban renewal. The best cities, as envisioned by Whyte, would have the same unavoidable elements foreseen by Lemann in his vision of a pluralistic society — a messy, contentious system.

And women would be part of the mix. If there’s a sequel to Transaction Man, will it be Pluralism Person?