The Basics of Business History: Nos. 40 to 21
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40. The OPEC oil shock: 1973-74.
Angered at the West's support of Israel in the Arab-Israeli War, King Faisal of Saudi Arabia in October 1973 sanctions an oil embargo by the powerful Organization of Petroleum Exporting Countries. The countries, including pals like Iran, Iraq, Kuwait and Nigeria, keep much of the world at their mercy for five months, with effects stretching well beyond. Among the most significant: Sammy Hagar's I Can't Drive 55.
The quadrupling of oil prices that would result from the embargo sends inflation soaring, throwing the U.S. and much of the West into a gas-line-laden recession. Vast Detroit land boats are relegated to history's scrapheap and the extremely useful Department of Energy is created a few years later.
39. The Marshall Plan: June 5, 1947.Two years after the end of World War II, Europe teeters on the brink of chaos. While the U.S. booms, Europeans face rationing for basics like bread. In Britain, fishing fleets are kept in port for lack of fuel. In Germany, the economy seems to slide toward subsistence farming and the Middle Ages. Threats of starvation and Communism loom over Western Europe. So Secretary of State George C. Marshall gives a speech. But not just any speech. Marshall offers "substantial" U.S. assistance to help Europe rebuild after World War II. "The remedy lies in ... restoring the confidence of the European people in the economic future of their own countries and of Europe as a whole." With more than its usual foresight, Congress rapidly agrees, and from mid-1948 to 1951, the U.S. pours $13 billion worth of economic support and technical expertise into Europe. (That's almost $100 billion in 1999 dollars.) The aid gives Europe an immediate boost, spurring new investment and pulling the Continent out of its slump.
38. The Berlin Wall falls, heralding the triumph of market capitalism: 1989.
|'We don't need no thought control.'|
|Photo credit: Corbis/Owen Franken|
37. Wage stagnation starts: 1970s.The U.S. economy has grown strongly over the last two decades, but the prosperity hasn't been shared equally. The statistics are unequivocal: While the income of the richest Americans would soar beginning in 1979, the poor would actually see their earnings decline. In fact, between 1979 and 1997, the average inflation-adjusted income of the richest 5% of Americans would rise to $235,000 from $148,000, a 58% increase, while the average income earned by the poorest 20% of Americans would fall to $12,000 from $13,000. Wage stagnation is more an effect than a cause of broader trends in the economy, from the decline of unions to increased immigration of unskilled workers to technological advances that have eliminated low-skill (but decent-paying) jobs. Still, attention must be paid; overwhelming economic gaps tend to cause widespread social unrest. (See Russia, circa 1918, or Indonesia, circa 1999.) Fortunately, in the late 1990s, this trend would begin to turn, as an ultratight job market finally would lift wages at the bottom of the ladder.
36. The Supreme Court orders the breakup of Standard Oil: May 15, 1911.
|John D. Rockefeller: Currently apologizing to God.|
|Photo credit: Corbis/Bettman|
35. New York's WEAF broadcasts the first radio ad: 1922Though there's vague evidence of some program sponsorship before this, the first ad on a commercial radio station (then called toll broadcasting) is on WEAF in New York -- a 15-minute spot for a Queens real estate development. In the years to come, broadcast ads would evolve in sophistication and cleverness, culminating in the groundbreaking "Swedish Bikini Team" TV commercials for Old Milwaukee in 1991.
34. President Ford signs ERISA into law: Sept. 2, 1974.The bill introduces the trippingly memorable phrase "401(k)" to the lexicon. Before President Gerald Ford signs the Employee Retirement Income Security Act into law, most workers have their money in company-managed pension plans that focus on stable, conservative investments. The plans offer predefined benefits, but many workers who leave companies before age 65 -- regardless of their years of toil -- forfeit their pensions entirely. ERISA creates safeguards to retirement plans and opens the door to the 401(k) plan, created in 1980 by R. Theodore Benna, a benefits consultant and probably not the ideal dinner-party guest. The 401(k) is a defined contribution plan. You put in the dough and you get the returns when you retire, or you take it with you when you leave one company for another. Defined contribution plans would lead to a massive flow of money into stock mutual funds and the market, pushing up demand for stocks and contributing to the bull market of the '80s and '90s. Until 2010 or so, that is, when the baby boomers all cash out their retirement plans and the market cracks like the transaxle on a '79 Chevette.
33. The Supreme Court allows gene patenting: 1980.In 1980, the Supreme Court rules that an oil-eating micro-organism from Exxon (XON) could be patented. Before that it wasn't clear whether genetically altered life forms could be owned. Owned. That means, for one, that our friends Cohen and Boyer (see No. 67) can get a patent on their recombinant DNA techniques. Gene therapy, all sorts of genetic engineering -- verily, the biotech industry -- rise like Frankenstein's monster.
32. Xerox founds its Palo Alto Research Center: 1970.Xerox (XRX), flush with photocopier gilt, sets up PARC to research electronic materials and devices. The center gives rise to innovations like early personal computers, the Ethernet connectivity standard (which helps computers talk to one another), flat-panel displays and advances in laser printing and computer languages. PARC's inventions and improvements touch virtually every corner of technology but, incredibly, Xerox manages to not capitalize on most of them.
31. The Civil Rights Act: 1964.Among its other antibias provisions, this landmark legislation (proposed by Lyndon Johnson as a tribute to the slain JFK) outlaws race- and gender-based employment discrimination at any business with more than 25 employees. It also establishes the Equal Employment Opportunities Commission to review complaints, giving the federal government a new role in the hiring and firing process. In theory, this means minorities and women will get a better shot at the corner office. Though the legislation removes important barriers, more than 30 years later, the Fortune 500 would include just two female CEOs (Mattel's (MAT) Jill Barad and Golden West Financial's (GDW) Marion Sandler) and one black CEO (Fannie Mae's (FNM) Franklin Raines). But the debate would only continue and expand, as discrimination against homosexuals and the disabled as well as sexual harassment become issues for businesses to grapple with.
30: Toys R Us revives employee stock options: 1978.Emerging out of the 1978 bankruptcy of Interstate Department Stores, an obscure New Jersey retailer called Toys R Us (TOY) offers its executives and store managers stock options as an incentive to stick around. Options had been around for decades; Benjamin Graham, of all people (see No. 62), satirically predicted their utility in the '30s. But a stagnant stock market and changes in tax laws have caused them to fall into disuse. That would change when Toys R Us stock skyrocketed, turning the company's options into a giant windfall for Chairman Charles Lazarus and other top executives. During the 1980s, Lazarus would be the highest-paid CEO in America, earning $156 million, almost twice as much as Warner Communications Chairman Steven Ross, the No. 2. Greedy executives everywhere take notice, making stock options as American as corporate jets. Over the next decade, literally hundreds of billions of dollars in wealth would pass from public shareholders to company executives and managers. The good news: Over time, options would trickle down the corporate ladder, especially in Silicon Valley, making programmers and secretaries as wildly overpaid as the chieftains for whom they toil. But don't even get us started on repricing.
29. The Bretton Woods agreement: 1944.Bretton Woods establishes the postwar New World Order. The accord, reached at a meeting in Bretton Woods, N.H., goes into effect in 1947. It creates a currency agreement that establishes fixed exchange rates for major currencies and sets the price of gold at $35 an ounce. The agreement would control currency relationships for nearly 30 years. The agreement also starts the International Monetary Fund and what would become known as the World Bank, rendering emerging countries dependent on the blessings of Moody's and Standard & Poor's.
28. Three Bell Labs scientists invent the transistor: 1947.The transistor, probably the century's biggest "Bell Labs innovation," is made of semiconductor material and can act as both conductor and insulator for electric current. It would replace the larger, unwieldy and less-reliable vacuum tubes in radios, televisions and computers, transforming the electronics industry and making it possible for boombox-wielding teenagers to disturb the peace everywhere.
27. The first DC-3 flight: Dec. 17, 1935.The DC-1 isn't bad. The DC-2 is even better. But the DC-3 is da bomb, the plane that revolutionizes commercial air travel. Built by Douglas Commercial, the twin-engined prop can carry 21 passengers more than 1,000 miles at a speedy 170 mph. It becomes an instant success after its first test flight in Santa Monica, Calif. Within six months, American Airlines is flying the DC-3 commercially, and over the next 10 years, Douglas builds more than 10,000 DC-3s and C-47s (the plane's military version). Famous for its reliability, the plane quickly becomes the linchpin of the U.S. commercial airline fleet, and within three years, the vast majority of all U.S. passenger flights are flown on DC-3s. With the advent of jet aircraft, the plane would lose its place in the passenger fleet, but some 60 years later more than 1,000 DC-3s would remain in service around the world. The sturdy prop would even outlast its manufacturer, which would become part of Boeing (BA). (Arthur Raymond, the plane's designer, would prove pretty reliable himself. He would die in March 1999 at age 99.)
26. The first Japanese car, a Toyota, is sold in the U.S.: 1957.As stylistically different from the behemoth U.S.-made sedans as Oscar De La Hoya is from George Foreman, Japanese cars would gain popularity amid the 1970s concern about energy conservation. Though the U.S. auto industry would first try to combat the flood of Hondas with patriotic bumper stickers, asserting that buying American ranks right up there with loving one's mother and not burning the flag, it would soon figure out that building higher-quality and lower-priced cars would be an even more successful strategy. Eventually, General Motors (GM) and its kin would adopt many of the design and production standards originated in Asia.
25. A Merck scientist synthesizes streptomycin: September 1943.
|Photo credit: Corbis/Bettman|
24. Volcker becomes Fed chairman: August 1979."Money matters," Milton Friedman has been saying since the 1950s, pleading the case for the importance of monetary policy in the business cycle and inflation. It takes a while, but people finally listen. In 1976, he wins the Nobel Prize for his work, and in 1979, his ideas get put into practice when Paul Volcker becomes chairman of the Federal Reserve, replacing the ineffective G. William Miller. Volcker's mission is to squash the double-digit price increases that are crippling the economy. His elegant solution: open up a can of monetary whupass on inflation by raising interest rates. It works, though the painful tradeoff is a 10% unemployment rate and massive recession. Alan Greenspan is appointed Fed chairman in 1987 and continues the inflation fatwah -- though he has his own minirecession in 1990-91. As the 1990s would progress and the economy would rebound with no signs of higher prices, pundits would begin to talk about the death of inflation, crediting the Fed's vigilance (and its resulting credibility in the financial markets) as well as warm fuzzies like technology-inspired higher productivity rates. Whatever the cause, the facts speak for themselves: The U.S. economy is still humming along, unemployment is at near-record lows and prices aren't climbing. For that, the Friedman-Volcker-Greenspan trifecta deserves a hand.
23. The first commercial television broadcast: April 20, 1939.As the age of industrialization dawned in the 19th century, inventors and philosophers alike looked forward to a new era in human history. For the first time, more than a privileged few among us would be released from the toil of striving endlessly to produce life's most basic necessities. The threescore-and-ten we spend on this mortal coil would become a time for leisure and contemplation, a pleasant freedom from work. Nobody quite realized how bored we'd get. Fortunately, David Sarnoff, president of Radio Corp. of America (see No. 75) and a huckster for all time, steps up to solve the problem. While Sarnoff doesn't invent television -- that honor goes to Philo Farnsworth, a proto-dork in San Francisco -- he is the first to see its endless commercial possibilities, and through the '30s spent millions of dollars to make television a reality. Finally, after a decade of feverish research, Sarnoff and RCA are ready to offer television to the world. Always a showman, he picks the 1939 World's Fair in New York to make his demonstration. The response would surpass even Sarnoff's greatest expectations. While World War II would slow the adoption of television, within a decade 7 million sets would be in use in the U.S., and by 1960, the box would be a part of nearly every American home. Broadcast television would become a $40 billion industry, drive the growth of practically every other medium, provide a platform to develop national brands quickly and efficiently, and provide an insatiable demand for vacuous, buff twentysomethings. And, of course, NBC's Manimal.
22. Bank of America launches the first credit card: September 1958.Sears (S) has been granting credit since about 1910, and by 1958, many Americans have a variety of individual charge cards. Diners Club exists, but you have to pay that off every month. The credit idea is floating around, but Bank of America is the first to do it and get it right: In September 1958, it mails out the first buy-stuff-at-more-than-one-place or get-a-loan-from-it credit card to its customers in Fresno, Calif. Credit limits are $300 to $500. Loans are offered at a rate of 18% a year. The ruination of America wouldn't happen. But millions would go deep into debt, pay usurious APRs and suffer bad credit. Then again, Americans' buying habits would be forever altered, leading to massive consumer spending and booming economic growth. Finally, Americans would be able to rent cars, call at midnight for the Tae Bo video and get frequent flier miles simply for buying that new cappuccino maker.
21. Microsoft is tapped to provide the IBM operating system: 1981.William H. Gates III, a nice young nerd from a good family, licenses his company's computer operating system, called "Quick and Dirty Operating System" and renamed MS-DOS, to International Business Machines (IBM). IBM cedes control of the license for all non-IBM personal computers. This is not a good decision. Microsoft goes on to "improve" everything Apple (AAPL) ever comes up with and Gates becomes really rich.
In Part 5, the valley rises, workers sit down, No. 1 is revealed and would you like fries with that?
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