Business lobbies and the power structure in America

"What's the difference between Tanzania and Goldman Sachs? One is an African country that makes $2.2 billion a year and shares it among 25 million people. The other is an i n v e s t m e n t bank that makes $2.6 billion and shares most of it among 161 people." Lisa Endlich, a former vice president and foreign exchange trader with the financial firm, has written a partly historical, partly administrative, but always fascinating study of one of the great s u c c e s s stories in American investment banking. Her account of Goldman Sachs's early years is derived almost entirely from published sources and covers only a fourth of the book. What makes her work so compelling is the remaining three-fourths, which describes changes in the ways important decisions were made and the new administrative structures developed during 1976-1998 as Goldman Sachs's leading partners tried to adjust to a constantly changing United States and world financial market. This latter section is mostly journalism, but of a high order, compiled from more than 80 interviews the author conducted with current and retired partners: John Weinberg, John Whitehead, Geoffrey Boisi, Stephen Friedman, Jon Corzine, and Larry Becerra. The firm dates its establishment from the post-Civil War era, when Marcus Goldman and Sam Sachs, German-Jewish immigrants related by marriage, dealt in commercial paper after being warned off railroad and utilities financing. With the rising number of industrial and mercantile companies, the firm entered into a long-term association with another young German-Jewish house, that of Lehman Brothers, and pioneered in underwriting stock flotations of such future giants as Sears Roebuck, United Cigar, and F.W. Woolworth. Along with later generations of Goldmans and Sachses, the firm profited greatly from the longtime presence of Sidney Weinberg, whose talent lay in his ability to make and cultivate many contacts throughout the business world, and who assisted the firm in 1956 to underwrite a Ford Motor Company stock offering of $650 million, the largest public flotation up to that time. Weinberg was followed by Gustave Levy, whose skill in trad80

ing earned him a reputation as one of Wall Street's "greatest arbitrageurs." If there is an overriding focus to Endlich's book, it is Goldman Sachs's enormous success, especially in the last 20 years, and how its leaders came to the inevitable decision to "go public." Nevertheless, she skillfully covers numerous other topics, particularly the embarrassments of the Goktman Sachs Trading Corporation in the 1920s and the over-involvement with Robert Maxwell in the years before his presumed suicide in November 1991. Upon Levy's death in 1976, Sidney Weinberg's son, John, and John Whitehead led Goldman Sachs, followed by Robert Rubin (the future Treasm T Secretary), Stephen Friedman, and.Ion Corzine. As the firm came to dominate numerous areas of fnance, such as inv e s t m e n t banking, arbitrage, and mergers and acquisitions, its profits grew phenomenally, thanks especially to its aggressive risk-taking in overseas operations, its heavy involvement in the complex process of privatizing government-owned assets during the early 1990s in 25 countries, and its performance in the area of proprieta W trading, where it invested more and more of its own capital in such stock as an Indonesian telephone company, an Israeli oil company, and even a chain of American bowling alleys. Though there had been earlier discussions among the Goldman Sachs partners about making a public offering of stock, the volatile financial climate of t994--with bond market declines, s e r i o u s l o s s e s in its proprieta W trading sector, and the Federal R e s e r v e raising interest rates six times--caused the firm to suffer the first major decline in its capital in more than half a centuw. Corzine, along with Hen W Paulson, set out to restructure and strengthen its quantitative and qualitative risk controls and cut costs. Under this new governance, the unlimited liability partnership was replaced by a private limited liability corporation. A raging bull market kept raising the firm's valuation and also led to major consolidations throughout the investment banking indust W, with the size and breadth of these mergers placing Goldman Sachs at a competitive disadvantage.

In June 1998, its 190 partners agreed to end Goldman Sachs's unique status as the sole remaining privately owned, major investment banking house on Wall Street. In May 1999, it made its first public offering of Goldman Sachs common stock and raised almost $3.7 billion--not that many Tanzanians noticed.

Goldman Sachs: The Culture o f Success, b3.,Lisa Endlich. Neu, York: K~7opf, 1.999. 319 pp.

Business Lobbies and the Power Structure in America Evidence and Arguments By David C.D. Jacobs

The reviewe~: T h o m a s A. Hemphill, is a./?scal o./.'ficer with the Neu,,/er~ey Departme~zt of StaW, Trenton, Neu',/eme~,. In this recent book, Professor Jacobs, an associate professor at the Kogod College of Business Administration, American UniversiW, Washington, D.C., offers a modest scholarly contribution to the literature addressing the role of collective business poveer in the American political process. Specifically, Jacobs focuses on whether the American business community is willing to pursue a dialogue with workers--in this case, union--and other stakeholders in an effort to establish a n e w American social contract. A major assumption in Jacobs's analysis is that public policymaking is enhanced and social justice served when social groups are engaged in dialogue rather than relying exclusively on market l-orces fl)r social provisions. Jacobs's philosophical st.pport for this assumption relies on John Stuart Mill's argument that flee debate is conducive to the truth, regardless of the merit's of one's position; John Dewey's concept of social intelligence (knowledge must be conmmnicated); and Michael Piore's critique of net)classical economics as a poor approxiBusiness ttorizons / MayJune 2000

mat]on of hunmn behavior (it is a multilateral process rather than a succession (ff bilateral deals). Borrowing from sociologist C. Wright Mills's typologies, Jacobs categ~rizes the business community in tw~ conservative camps. The first, "s(~ph isticated c(mservat ives," a re th(~se corporate leaders who accomm~clate organized labor and the welt]m_' state. The second, "practical conservatives." are business leaders who t~)lcrate nc~ compromise with unions (>n the t)lant floor or in legislative chambers. Prorninent in the I940s, sophisticated conservative business leaders' influence in business associations had significantly diminished by the 1980s and 1990s. In their place, practical c(mservatives have risen to leadership ascendancy in such peak I~usiness ass()ciations as the If.S. (~hamber {)f Commerce, the National Association {)f Manufacturers, the National Federation of Independent Bus]he',s, and the Business Roundtable. In supp~)rt of his thesis, lacobs (fffers 1990s-era case studies of legislalive initiatives covering mandated he:tlth insurance, occupational disease n(~tification, family medical leave, and civil rights v,here these peak business associations c~msistently opposed (and us]rally succeeded in ctefeating) these sotial legislative proposals. But Jacobs also) disc(~vered business support for these legislative initiatives among indt~stry'-Ievel associations and indi\'iclual corp(n'ations. What are Jacobs's conclusions? After rcsearchhqg primary and second:tr\- inf()rlnati(m sources on rnajor peak business associations, he concludes th:tt most
I:()cus ()1~ |~o()ks

bership resolve against compromising on proposed legislative initiatives (thus supporting the will of many leading companies). To further clarify his analysis of the divisions among the business community, Jacobs provides speeches and excerpts of sophisticated and practical conservative business views on social security, social responsibility, and global competitiveness. He also considers the roles of state politics, international competiti~m, conservative think tanks, and p~)litical language in sustaining the cohesiveness of mainstream business lolfl~ies. Jacobs makes a convincing case for peak business association o)hesiveness opposing major social legislation initiated in the I990s. P,ut ibis united fr(mt was not always successt\]l, such as with civil rights and maternity leave. Peak business associations, by their very nature, must accommodate a political-economic philosophy broadly representative of its membership. Maior social legislation generally represents a (me-size-fits-all apt)roach affecting industries and businesses unequally, thus creating competitive disadvantages. Today's dialogue between the business comnmnity and stakel~olders occurs v,ith increasing frequency at the indus] W and corporate levels. Industry self-regulation regimes have been established involving stakehoMer participation in the chemical, apparel, and internet industries, to name a few. Hundreds of corporations (many of them members of Business f()r S()cial Responsibility, an organization that Jacobs describes in some detail) regularly communicate and participate with stakeholders on a range of i'nth tual issues. For many socioeconomic issues, American business preff'rs its dialogue directly with stakeholders rather than through the legislative policy process. One problem with Jacobs's stated research approach is that he R)cuses almost entirely on organized labor :is the proxy for all stakeholders ~f the corporation. Thus public policy issues with strong labor-management orientation, such as heahh care reform, occupational disease notification, social security, phmt shutdowns, and striker replacements, are documented in case

studies. Though an important stakeholder in certain industries, unions in 1998 represented only 13.9 percent of all U.S. wage and salad ~workers and 9.5 percent of all private sector employment. Can it be saM, then, that unions accurately represent the demands of the average employee in the knowledge-based economy of twentyfirst centul T America? What of case studies involving public policy issues salient to t~usiness and (>ther stakeholders, such as environmentalists. c ( ) n s u m e r g r ( ) u p s , ()r human rights organizations? ls there evidence (~f a difference in the level {)f dialogue and consensus betv,'e:en the business c(m> lnunity and other stakeholders? One recent example ()f stakeholder differences can be found in the White tt(~use Apparel Indusn T Partnership Agreement. A task f()rce (~riginally c(msisting of 18 members, inclucting ch~thing and shoe naanufacturers, consumer, tort)orate s()cial responsibility, and human rights organizations, and hlbor unions, the Partnership agreed t(~ an inctustrv-wide selg reguhttkm regime t() eliminate gh)bal apparel sweatshops. ()f the ~)riginal 718 members ()f the task f()rcc, 1"5 signed on]<3 the 13rokered accord. The h(>ld()cuts wcrc a human rights organization and Ix)th labm)r unions. It is,lacobss contentk)n that mail> stream business c(>nservatism (fitCh obstructs justice and s(~cial pr(~gress. But it is m()dem liberalism's tendency t() sec itself as th.e exclusive enllx)dimen] of ()pcn-mindedness, enlightenment, and progress that is often at fault. This can bc seen in affirmative action policies based ~n tie fact() raceand gender-I~ased qtl~)ta systems, government-mandated entitlement (and dependency) programs, increasing federal, state, and local taxatkm ~)[ U.,';. middle-class inc(m:~e (reducing fl'cedom n unions as the only fl)rm off employee representali(m. It is imp()rtant to remember that diah)guc and coI~l)r()mise are a two way slreet. Business Lobbies and the Power S t r u c t u r e in A m e r i c a : E v i d e n c e a n d A r g u m e n t s , t)~, D a v i d C.D.

.[aco/)s. P&,slport, C?m~zecticttl: Qtt.otTtm Books. 1099. I~'~ pp.

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