The Bureaucratization of American Leadership

In newsletter #63 I discussed the managerial revolution, or the way that we transitioned from an entrepreneurial capitalist system dominated by owners to a bureaucratic system dominated by managers and technocrats spanning the public and private sectors.

Today I will give an example of the practical outworking of this, namely how it has changed the nature and culture of American civic leadership. My policy background is in urban affairs, so I will talk specifically about changes in the leadership of local communities.

Managerialism primarily developed out of the revolution in scale as companies, cities, and government went from small to big after the introduction of the railroad. However, gigantic firms were primarily in the industrial sector - autos, chemicals, etc. Many sectors remained fragmented, often due to regulation.

Banking is an example. Most states severely restricted the size of banks and their ability to expand. Banks were often limited to opening branches only in their home county, for example. Up through 1980, cross-state bank mergers were all but banned. There was legal separation between commercial banking (deposits and loans) and investment banking (stocks and bonds). Financial institutions were also restricted in their ability to own industrial companies. As a result, pretty much every community had its own locally banks, each with their fortunes tied to the local community. Because they couldn’t expand beyond their home markets, they could only grow to the extent that their hometown grew.

Other industries were likewise fragmented and localized. This included utilities (again, federal law basically prohibited utility mergers), department stores and other retail, and media (especially newspapers).

This created a landscape in which the leadership of most cities were dominated by CEOs of moderately sized companies, whose personal success was aligned with that of the overall community. This was still a step removed from entrepreneurial capitalism. The business leaders who commissioned Daniel Burnham to create his famous 1909 Plan of Chicago included many self-made entrepreneurs. The bank and utility presidents of 1980, by contrast, where mostly corporate managers. But they still exercised immense personal power in their communities.

Deregulation, the rise of information technology, globalization, and other factors resulted in significant consolidation across these industries. Today, most of the banks in your town are probably owned by national giants like JP Morgan Chase or Bank of America. Similarly, the utilities were bought out, the department stores either failed or are now part of Macy’s, the newspaper is owned by a national chain or PE fund, etc.

These companies are now represented in local markets by what are effectively branch managers. Over time, the authority of those managers has steadily diminished. For a while, it was still a substantive role, perhaps still occupied by a local mover and shaker. But increasingly, the job of the local “bank president” has declined towards simply sitting on various local boards, doling out some grants, engaging in government relations, etc. The same is true for other industries. These folks are more purely managers (not business runners or owners).

This created a change in the composition of local public leadership. The local leadership had been dominated by blue bloods and by these CEOs of operating companies. But as the blue bloods faded away and the operating businesses got acquired, the remaining locally owned businesses were heavily transaction oriented, like law and construction. They used to have a banking expression “3-6-3”: pay three percent on deposits, charge six percent on loans, and hit the golf course by 3pm. Banks made money on the spread between interest paid on deposits and charged on loans. The bank CEO made money on the links because he had a crash register back at the office that never stopped ringing. This is very different from project oriented or bill by the hour industries like law. A law partner is only making money on the golf course if he is closing a deal. Hence, local leaders became less focused on growing their community, and more focused on the community doing deals like publicly subsidized real estate projects.

But now even the transactional businesses are merging, as industries like law and engineering have started to consolidate as well. This will wipe out even more of what remains of local autonomous leadership. To the extent that companies do now remain locally headquartered, it is generally because they were the winner of the consolidation game, meaning they are now national or global not just local concerns. And their CEO’s perspective reflects that change. Especially post-Boomer corporate CEOs feel less obligation to get involved in “civic” stuff in the city where they are headquartered, and increasingly rely on government affairs or corporate foundation underlings to do that for them.

The shift in the 1990s towards a more nationalized and globalized economy also brought a change in outlook of the leadership of firms towards a more managerial perspective. Corporate preferences, which previously had been obviously financially self-interested (e.g., lower taxes) now became more ideological, such as with the adoption of “ESG” or “DEI” approaches.

This has produced a remarkable uniformity of public views among the leaders of all institutions. Peter Thiel once observed that in a democracy, if you win 51% of the vote you are a winner and that’s great. If you get 60%, that’s a landslide and it’s incredible. But when you start getting to 95%, something is wrong. That’s a North Korea style result.

In fact, 95% understates the levels of uniformity on a variety of issues. I’ve attended many conferences were there were zero fundamentally dissenting perspective presented. Every panel was simply variations on the major themes everyone had already agreed to in advance. On the rare times someone does question one of these ideological lines, the consequences can be swift and severe. For example, Stuart Kirk of HSBC gave a presentation in which he argued that the financial risks from climate change for investors (not the reality of climate change or need to adapt to it or mitigate it) were very small. He was suspended. (The fact that foundations now fund so many initiatives surely plays a role in the rise of managerial ideologies as well, but that’s the subject of a future post).

In a world dominated by local capitalist elites, individual leaders could and often did take unpopular stances - and get away with them. For example, one reason that Chicago’s Grant Park is today’s magnificent downtown lakefront jewel is because department store magnate A. Montgomery Ward filed multiple lawsuits and made a nuisance out of himself in order to keep the park “forever free and clear” of buildings.

In today’s world dominated by managerial elites tethered to national and global, not local markets and concerns, too often they can’t even have an have an honest discussion about matters like crime. Bureaucrats have a tendency towards uniformity of thinking, diffusion of responsibility, and process over results. This ever increasing domination by more purely managerial elements helps explain our persistent inability to face and address the major problems in our society.

We see this challenge, for example, in Chicago. Chicago was once famous for the strength of its business community, with many local titans of industry and CEOs. I could already see when I lived there that the leadership of the community was increasingly dominated by managers. There are fewer genuine movers and shakers, and more managers (even among the ranks of CEOs). Not that long ago, a leader like Lester Crown could see the competitiveness of O’Hare Airport eroding and convince the city to invest north of $10 billion to improve it. There are fewer of those types around today and more people with the branch manager mindset. I’d be willing to bet that the size of most local civic initiative committees have ballooned as well. Hence, Chicago’s problems have become ever more difficult to solve.

My analysis mostly deals with localities, but I believe similar problems are at play nationally. America seems to increasingly be Chicago writ large.

Even those founder-owner-CEO types who do remain in this world now find it difficult to avoid complying with the managerial system because it is so pervasive (including among their own employees). I mentioned Mark Zuckerberg back in newsletter #63, for example. Even most rich people today don’t seem to want to rock the boat. But we do sometimes see the exceptions that prove the rule. Look at the Elon Musk, for example, who refuses to fully toe the managerial line. There are still a few another Silicon Valley mavericks as well. And someone other wealthy people who are less controversial decide to take it upon themselves to reshape their communities, such as a Dan Gilbert in Detroit or a George Kaiser in Tulsa. These are reminders of an older way of doing business.

If you are old enough, think back to your community in the 1990 or 1980. What were the major locally owned companies and what was their profile? Who were the leaders at that time? Compare that to today. While James Burnham wrote his book The Managerial Revolution in the 1940s, many of us alive today have personally witnessed a very large extension of managerial domination into American civic leadership.

Cover image credit: Al-Ashraf/Best Chicago Image, CC BY-SA 4.0