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Kirt Sechooler March, 1996

News Note: The New York Times, March 3, 1996, begins a week-long series entitled “The Downsizing of America.”

The Historic Purpose of Industrialization
Two hundred years ago, at the beginning of the American Industrial Revolution, the United States was a nation of approximately four million people, the overwhelming majority of whom lived in rural circumstances. Today the population of America stands at something over two hundred and sixty million, the vast majority living in and around urban centers. What made this massive trans-formation possible was the development, in the four technological cycles we have previously described, of capital as an economic factor of production and the corresponding creation of a vast store of capital wealth. It is impossible to overstate the magnitude of this accomplishment.

Capital and the Capital Base
The development of the great capital base produced during the industrial period represents more then just a mere quantitative or numerical increase in wealth, however, for the truth is that the increase in capital wealth in the Industrial Age has been so prodigious that it has resulted in a qualitative economic change, a change that fundamentally separates the Industrial and Post Industrial Ages.

Efficiency Defined as Increasing Scale and Resource Intensity
It can readily be seen then, that the historic mission of the Industrial Age was to develop capital as an economic factor of production and to create for a capital starved world a vast store of capital wealth. The creation of this great stock of capital was driven by a real need on the part of the human race and it gave to economic activity during the Industrial Era its central organizing attribute. The drive to increase capital during the Industrial Age would mean that the technologies of the age would inevitably sacrifice efficiency in a quest for scale. This is a very critical point, for during the Industrial Age, efficiency had in fact been defined as increases in scale. The result of the relentless pursuit of scale during the Industrial Period has meant that the technologies of the age have over time became increasingly large scale and increasingly resource intensive, with the last period of the Industrial Age, the Automotive-Petroleum Mass Suburbanization Age, being particularly so.

The Industrial Age Is Ending Because Its Historic Mission Has Been Accomplished.

The End of Industrialism
What is critical to understand today, however, is the simple fact that the Industrial Age is ending and that it is ending precisely because its great historical mission has been accomplished. There is in existence today in the world in general and in the United States in particular a truly vast store of capital wealth, wealth on a scale that would have been completely unimaginable two hundred years ago. There are also, today, tremendous problems associated with our overly intensive utilization of resources and in later issues of the Millennial Files, we will discuss those aspects of the transformation from the Industrial to the Post Industrial Age, but for now we need to deal with the end of Industrialization and its effects on the organizational structures of our day.

The Four Cycles of Technology
File #1 of The Millennial Files discussed the fact that the Industrial Age is ending and that the end of this Age represents one of the most significant events in history. Since virtually all the major problems confronting America today can only be understood in light of this watershed historical event the more that is understood about the movement from the Industrial Age to the Post Industrial Age the better the country's chances of successfully making this great historical transition. To that end, file #1 of The Millennial Files described how the Industrial Age has consisted of four distinct historical phases or cycles of development: the Textile-Cotton Cycle, the Railroad Cycle, the Cycle of Mass Production and Mass Urbanization and the Automotive-Petroleum Mass Suburbanization Age. Also as stated before, these four cycles were more than just a series of random or disconnected economic periods, rather they represent a series of interlinked cycles of development that constitute the mechanism that America employed to become an industrial giant, with each succeeding period built on the progress of the last.

Structures of Industrialism
The previous file of this newsletter, in further exploring the underlying nature of industrialization, described the fact the a modern industrial economy has four specific structures, two tangible and two intangible. The two tangible structures are: 1) a production superstructure of factories, mines, and power plants; 2) a transportation and communication infrastructure. The third and fourth structures are intangible: 3) a financial structure that is responsible for allocating capital within the economy; and 4) the structure that concerns us now, the organizational structure within which work itself is controlled.

Throughout the history of the last two hundred years the specific relationship between the cycles of industrialization and the structure of industrialization has always been extremely important, with each technological cycle being integrally involved with the development of one of the two tangible structures of an industrial society. Additionally, in the last two cycles, the Cycle of Mass Production and Mass Urbanization and the Automotive-Petroleum Mass Suburbanization Cycle, the two intangible structures have become increasingly important, with the collapse of the financial structure at the onset of the declining phase of the Mass Production and Mass Urbanization Cycle, the Great Depression, being the critical factor in turning that period into one of the most difficult times in history.

The Present and the Future
Today, however, at the end of the Automotive-Petroleum Mass Suburbanization Cycle, it is the second intangible structure, the organizational structure that is now coming under tremendous stress. That stress is do to the fact that the very organizational structures that control work and thus define our very lives are themselves products of industrial society; and the end of the fourth cycle, the end of the Automotive-Petroleum Mass Suburbanization Cycle, is also the end of the Industrial Age.

J.P. Morgan’s United States Steel Corporation Was the Prototype of the 20th Century American Corporation.

J. P. Morgan and United States Steel
To achieve a really clear understanding of how the end of the Industrial Period is placing such stress on our organizations, it will be helpful to go back in time for a moment and examine how and why our modern organizational structures were created. The business organizations of the nineteenth century, the textile mills of the early part of the century, the railroads of the later part of the century and the individual factories throughout the age were run by their founders, often in what seemed to be a somewhat idiosyncratic and arbitrary manner. Then on March 1, 1901 J.P. Morgan, the great financier of the Gilded Age, remedied that situation when he announced to the world the formation of United States Steel. U.S. Steel was formed by Morgan when he consolidated industrialist Andrew Carniege's steel works with those of smaller steel producers, thereby creating the first corporation ever to be capitalized at over a billion dollars.

United States Steel was also the prototype of the modern American corporation, the organizational colossus of the twentieth century. What is important to understand is that U.S. Steel and the other great American corporations formed at the beginning of this century were constructed to be formal, rational structures designed along legal and objective lines and not the personal and subjective lines of the business organizations of the nineteenth century. It is even more critically important to understand that this formal structure was deliberate and that the great industrial corporations was specifically created to formalize management and thus enable industrial production to advance on an ever increasing scale and that this was the key to the phenomenal growth that these organizations experienced in this century and to the massive increases in the scale of industrial production that accompanied that growth.

In the Industrialized World, It is through Market Mechanisms that Abstract Historical Forces Manifest Themselves.

The Present: Downsizing as Market Response
It becomes essential to understand now, however, that while the great business organizations of the twentieth century are, obviously, not going to simply disappear, they will no longer be in an expansionary phase and that fact has enormous consequences. All of this can easily be seen today. When the senior management of a modern corporation decides to downsize they are, of course, responding, just as Morgan did a century ago, to what they see as competitive market forces and not abstract historical analysis. BUT IN THE INDUSTRIALIZED WORLD IT IS THROUGH MARKET MECHANISMS THAT ABSTRACT HISTORICAL FORCES MANIFEST THEM-SELVES. Thus, for example, when AT&T made the decision recently to split into three separate companies and to reduce its labor force by 40,000 employees they, just as all the other downsizing American corporations, decried their actions in terms of the need to respond to increased competitive forces by becoming more efficient. They were, however, as all downsizing corporations, also acknowledging the same inexorable phenomenon namely that the age of ever increasing scale is over.

The Principle Organizing Tenet of the Post Industrial Age Will Be Its Emphasis on and Rewarding of Efficiency over Scale.

The Future: Efficiency over Scale
One way or another the United States will have to come to terms with the fact that the historic mission of the Post industrial Age is to reverse the central trend of the Industrial Period- namely the favoring of scale over efficiency. THE PRINCIPAL ORGANIZING TENANT OF THE POST INDUSTRIAL AGE WILL BE ITS EMPHASIS ON AND REWARDING OF EFFICIENCY OVER SCALE. This new historic trend is irreversible and is the driving reality behind not only the wave of corporate downsizing occurring today, but is also a key factor in the powerful calls for a smaller national government that now have so much political appeal.

There are two other critical points that need to be made here. First, the national media that exists today in the United States is itself the by product of the great organizational structures created at the turn of this century. Because of this organizational inheritance, the media finds it difficult to discuss any of the great issues of the day in terms that make much sense.

The end of the Automotive-Petroleum Mass Suburbanization Cycle, and the end of the Industrial Period represent the most significant events of our time. Historical events this significant must sooner or later to be confronted. To begin to deal effectively with these changes, however, a clear understanding of the purpose of industrialization itself is mandatory.

This is why The Millennial Files was created, to address Post Industrialism in a Post Industrial forum. The end of Industrialism and the current organizational crisis will be addressed as a continuing topic in the future files of this newsletter.

The second point that needs to be made here is that the transition from Industrialism to Post Industrialism has a very distinct generational aspect to it. For both the Boomers born after the end of World War Two and the succeeding members of Generation X, coming to terms the end of the Age of Increasing Scale and the beginning of the Age of Efficiency will represent the defining acts of their lives. mmm

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