Reading Nicholas Lemann’s Transaction Man puts me in mind of the plaintive appeal issued by Rodney King during the Los Angeles riots of 1992: “Can we all just get along?” Lemann, a longtime staff writer for The New Yorker, conducts a tour of American economic history since the start of the 20th century in search of a system that would bring a measure of fairness to a country where income inequality, lack of opportunities for many, and a stagnant, or in some cases falling, standard of living are tearing our social fabric.
A Century in Review
It’s hard to escape the sense that part of Lemann pines for the years following World War II—akin, in financial markets, to the period between the arrival of the pill and the scourge of AIDS when sex was safe—after the S.E.C. and other regulatory agencies had clamped down on much of the behavior that led to the economic collapse of 1929. This was long before the geniuses on Wall Street had started trading options, inventing derivative instruments, and peddling junk bonds, or investment firms had concocted mutual funds and index funds, or Charles Schwab had waged war against fixed trading commissions. It was also long before corporate-asset strippers, some of whom, these days, hiding behind the pious and misleading moniker “private equity,” had systematically used mountains of debt to enrich themselves while laying waste to hundreds of companies—denuding communities all across the country.
Lemann divides the period under scrutiny into several episodes: the time in the 1930s when, under Franklin Roosevelt, government was seen by some theorists as the arbiter of economic justice, and there was a fervent belief in some quarters that federal institutions could control corporations; and the subsequent rise of “corporation man” in the 1950s, when many Americans spent their lives working at companies that gradually assumed responsibility for their health and dotage. Lemann conjures up a nostalgic evocation of the era of corporation man by documenting the gradual disintegration of a part of Chicago, once the safe home of a cluster of automobile dealerships, into a spot where squealing tires are now associated with murder scenes.
Lemann pines for the years following World War II, before the geniuses on Wall Street had started trading options, inventing derivative instruments, and peddling junk bonds.
It’s here that Lemann’s connections start to feel a tad tenuous. While he points out that, in 1970, Morgan Stanley employed only 230 people while General Motors had 500,000, he comes up short in showing how and why the ballooning of the bank’s payroll (and those of plenty of other financial institutions) caused the shrinkage in the rolls of the automobile companies or the rest of industrial America.
Was it really the rise of “Transaction Man” and the deregulation of parts of the financial markets that caused the automobile companies to teeter? Hardly. Have the great American companies of the past 50 years—such as Intel, Microsoft, Alphabet, Apple, FedEx, and Costco—been started or run by people who either thought of themselves as Transaction Men or conducted themselves as such? Definitely not.
Toward the end of his book, Lemann staples on a section devoted to a new economic animal, “Network Man,” as personified by Silicon Valley entrepreneurs convinced that forms of social networks could re-distribute political power, create fresh economic benefits, and rejigger approaches to philanthropy. It’s clear that the author is unconvinced that Network Man has the answers to what ails us.
I cannot help but wonder whether Lemann paid enough attention to three areas that have much to do with our current dilemma and may make Transaction Man (no matter how great his villainy) less of the primary culprit. The first is the rise of China, which has put a permanent end to America’s dominance of the global economy, and which, while bringing us scores of benefits, has helped trigger profound dislocations. The second is the bite that publicly administered pension and health-care funds have taken out of the operating budgets of all forms of government, crippling countless services—especially public schools and universities. The third is the cruel reality that, for the first time, the most powerful tools are beyond the reach of all but the well educated.
For the first time, the most powerful tools are beyond the reach of all but the well educated.
Part of the reason living standards rose as they did following the time when people flocked from the countryside to the city was that it was still possible to make a living (particularly after the United Auto Workers tamed the automobile companies at the end of the 1940s) from physical work, although it took place on a production line rather than behind a plough and horse. Of course, many employed in today’s vast service economy—warehouses, supermarkets, hospitals, and the so-called “gig economy”—still earn their livelihoods from forms of manual labor. But today’s potent tools—computers and software, which have replaced the assembly line as the engine of productivity—are unattainable for all but the best educated. That’s why you can have a pair of 26-year-olds working for the same company, but one, a software engineer, gets a $1 million compensation package, while her counterpart, who delivers meals or drives a car, is paid $15 an hour.
Lemann ends (with an echo of Rodney King) by asking whether the best way to organize economic life is for a plethora of interest groups to work in harmony. It’s a noble question, and a lovely idea, but I fear the response will be silence.
Michael Moritz is a partner at Sequoia Capital