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The Central Economic Task of Our Times:



Kirt Sechooler Jan, 1996

History Note: The rate of economic growth in the United States has decreased by one-third since 1973, from a historic average of 3.4% to 2.3%. (LAT 11/12/95)

News Item: Jan. 2, 1996, AT&T announces a nationwide 40,000-job reduction. "It is not the people who have become obsolete. It is the jobs that have become obsolete." (NYT)

The Federal Budget crisis and shutdown of the Federal government, the unending downsizing of major American corporations, continuing alongside the wave of corporate mergers and stock buy back programs, the deep problems in the Los Angeles, Chicago and New York school districts, the Aldred Ames affair and the revelations concerning the CIA that the case has caused, the problems in the Philadelphia Police Department, along with the almost total breakdown in Americans’ faith in the two existing major political parties, all of these problems and more, are symptoms of a larger phenomenon, a phenomenon that represents one of the most critical issues that the United States and its people have ever confronted.

In the last edition of THE MILLENNIAL FILES, we outlined a model based upon the cycles of technological development that have defined the Industrial Age in the United States and the relationship between these four cycles and the generational progression that has also defined American history. By using this model, the problem discussed above can be put into a perspective in which it can be clearly understood, perhaps, for the first time.

I The Four Technocycles
The Industrial Age, as discussed in the last issue of this newsletter, can be said to have begun in America in 1790. In that year an English immigrant named Samuel Slater arrived in America with the secrets of the new British textile machinery saved in his memory. Building, or more accurately capitalizing on Slater’s memory, New Englanders like the Cabots and the Lowells launched the Textile and Cotton Cycle in the United States. The Textile Cycle was followed by the Cycle of the Railroads and Western Expansion. The Cycle of the Railroads in turn gave way to the Cycle of Mass Production and Mass Urbanization, a cycle beginning in the mid 1890s and lasting into the 1940s. The fourth and final cycle of the Industrial Period was the Automotive-Petroleum Mass Suburbanization Cycle, the Cycle that has taken up the last half a century, and the Cycle that is now ending.

1st: Textiles
While each of these four distinct periods of time shared certain basic characteristics, each cycle also had its own unique properties. In the first period, the Textile Cycle, the United States entered the Industrial Age when it mastered the mechanical skills and constructed the factories that were the basis for industrialization. In effect, the Textile Cycle represented the cycle in which the first industrial superstructure designed for the mass production of industrial goods was constructed.

2nd & 3rd: Railroads and Mass Production
In the Railroad Cycle, America built the first industrial transportation infrastructure in its history. During the next two cycles, the Cycle of Mass Production and Mass Urbanization and the Automotive-Petroleum Mass Suburbanization Cycle, America would scale up these two different industrial structures. In the Cycle of Mass Production and Mass Urbanization, the United States built a second mass production superstructure around heavy industry, led by companies such as United States Steel.

4th: Automotive-Petroleum
And finally, during the Automotive-Petroleum Mass Suburbanization period, America constructed a second transportation infrastructure, this time not with steel rails but with concrete. The National Highway System started in the Great Depression of the 1930s and expanded greatly after the war formed the basis for post war prosperity.

Declining Phases of Cycles
Each of the four cycles just described had an expansionary phase and a declining phase associated with it. In 1819, the first financial panic in U. S. history ushered in the declining phase of the Textile Cycle. This period lasted from 1819 until the early 1840s, when the new Railroad Cycle began and inaugurated a new period of national prosperity. The declining phase of the Railroad Cycle began in 1873 with a major financial panic and depression. It ended a few years after the depression and financial panic of 1893, a depression that saw all the nation’ s major railroads go bankrupt. It was during this particular declining phase that the Populist and Labor movements came into being as a response to the increasingly difficult economic environment of the times.

The declining phase of the Cycle of Mass Production and Mass Urbanization was the Great Depression of the 1930s. Now, the declining phases of the two previous Cycles involved the gradual decline of, in the case of the Textile Cycle, an industrial production superstructure and in the case of the Railroad Cycle, an industrial transportation infrastructure. But, the declining phase of the Cycle of Mass Production and Mass Urbanization -- the Great Depression of the 1930s was something else completely.

II The Four Structures of an Industrial Economy

1st & 2nd: Infrastructure and Superstructure
There are four structures, if you will, that taken together comprise a modern industrial economy. The first two mentioned above are tangible: 1) an industrial production superstructure, the production and extraction of raw materials, together with the factories and shops that transform those raw materials into products; and 2) an industrial transportation infrastructure, canals, railroads, bridges, highways, and a unifying communiction network. The third and fourth structures, however, are intangible. We will deal with the fourth structure shortly, but the third structure is critical to an understanding of what happened in the devastating declining phase of the Cycle of Mass Production and Mass Urbanization -- the Great Depression of the 1930s.

3rd: The Financial Structure
The third structure that composes a modern economy is the Financial Structure - the system of banking and financial arrangements that allows capital to flow in a modern economy. It was the collapse of this intangible third structure, beginning in 1929, that made the declining phase of the Cycle of Mass Production and Mass Urbanization the Great Depression so devastating.

The Great Depression began with the stock market collapse of l929, and went on to see scores of small unregulated banks go under in the early 1930s, before FDR declared his famous banking holiday. During this period of time, the modern credit system did not exist; home mortgages were for five to seven year periods; there was no social security or any other type of safety net. All of this would mean that when the declining phase of the Cycle of Mass Production and Mass Urbanization began, the third structure, the financial system, was too weak to absorb the stress, and it collapsed.

Reforming the Financial Structure
Some hard lessons were learned, however, and the resultant reforms initiated in the wake of the Great Depression of the 1930s made it possible for the United States to financially contain the declining phase of the Automotive-Petroleum Mass Suburbanization Cycle that started with the Arab oil embargo of 1973. Imagine, just for example, what would have happened to the American economy with an uncontrolled Savings and Loan debacle, or what the effects of the stock market crash of 1987 would have been if 1929 style margin requirements had been in place that year, or if during the real estate busts of the late 1980s and 1990s people had only revolving trust deeds that had to be paid off in five years, instead of thirty year mortgages in place.

4th: The Organizational Structure
History, however, does not rest. The United States having solved one set of difficult problems now confronts another, for this country, along with the rest of the industrialized world now faces a new challenge. There are, as indicated above, four structures that comprise a modern economy. We have already enumerated the first three; and the fourth, like the third, is also intangible. It is the Organizational Structure: the network of private and public entities that are charged with defining and accomplishing work.

After two hundred years of industrialization, in this last decade of the twentieth century, a few years away from a new millennium, the industrialized world now finds itself confronted by the most intellectually complex problem it has ever faced. That problem is the transformation of our old industrial organizations into a modern post industrial organizational structure. While we have, after two centuries, solved the basic problems of how to mass produce and distribute industrial goods, all of the problems outlined at the beginning of this essay, all of the problems of the industrial world are now organizational problems.

If our corporations are contracting and the United States government is hopelessly gridlocked and the political system ineffective at all levels, we will not be able to enter the Post Industrial Age in a forceful and effective manner. And if we do not enter the Post Industrial Age in an effective manner, we will see our own and most certainly our children’s standard of living go into a massive decline.

Long Journeys and First Steps
In the last issue of THE MILLENNIAL FILES we discussed how every Cycle in the Industrial Age represents a period of time in which a generation of Americans has lived out their lives. In other words, the problems posed by each period of the Industrial Age were not simply the problems of business or economic history, but the problems of a particular generation. The problem of transforming the nation’s industrial organizations into a set of post industrial organizations is the central problems in the lives of the Boomer Generation, the generation born after World War Two and now poised to take over adult leadership in our society.

The solution of every problem is always made invaluably easier once the problem is clearly stated and defined. If we can put the problem of organizational change into its proper perspective, it will be possible to solve the great challenge that history has given this generation of Americans. To do that, an open and honest discussion of the Central Task of Our Times must begin. It is toward that end that THE MILLENNIAL FILES is being directed. It is toward that end that we invite your participation. mmm

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