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The Rise and Fall of the Socially Beneficial Corporation

The rise of the neoliberal order in the 1970s and 1980s coincided with the demise of the socially beneficial corporation. Since then, the US federal government and other institutions have managed to offset the loss of only part of the broader contributions that big business once made.

CAMBRIDGE – In his new book Slouching towards Utopia, the economist J. Bradford DeLong points out, correctly, that the “industrial research laboratory and the modern corporation” were the keys to unleashing a radical increase in the rate of scientific and technological innovation, and thus economic growth, from 1870 onward. DeLong also identifies the Treaty of Detroit, a landmark 1950 settlement between General Motors and the United Auto Workers, as a linchpin of American-style post-World War II social democracy. But what ever happened to the behemoth corporations that unlocked decades of growth while sponsoring health insurance and pensions for their employees?

As scientific discovery supplanted mechanical tinkering as the basis for economically meaningful innovation in the late nineteenth century, the required research funding was supplied by the corporations that the Second Industrial Revolution (steel, railroads, mass production) had spawned. “In firms such as American Telephone & Telegraph, General Electric, U.S. Steel or DuPont,” write David Mowery and Nathan Rosenberg in Technology and the Pursuit of Economic Growth, “the development of a strong central office was closely associated with the establishment or significant expansion of a central research facility.

By allocating their monopoly profits to scientific research and development of technological applications, these corporations extended their market power while also serving a larger, social purpose. Before World War II, this purpose was not being met by the US government, which, starting in the Lincoln administration, had provided federal research support only for the agriculture sector. By 1940, the US government was allocating more research funding to agriculture than to all the constituent agencies that would make up the post-war Department of Defense.

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