Country of Exiles

by William R. Leach

  Everything imaginable passed through the Port of Long Beach in 1995: 22 million tons of petroleum; 12 million tons of plastics, clothing, and furniture; and 1.2 million tons of food—nuts and fruits from Israel, Chile, and Italy, fish from Peru, shrimp from Thailand. Most of it was not destined for the Los Angeles basin but for discount stores in Kansas City, Missouri, and the deli counters in Wells, Maine.36

  So much space was being opened for harbor expansion at this Long Beach complex that new space had nearly run out, forcing Long Beach/Los Angeles to spend millions for more dredging in San Pedro Bay.37 So many megaships docked to unload their cargo that bottlenecks of all sorts began to hobble the port. The Wall Street Journal wondered in the fall of 1997 “how the transportation infrastructure was going to handle the country’s growing appetite for goods.” “Nobody was ready for so much freight.”38

  “THE UNTHINKABLE HAS HAPPENED”

  But why had all this coordinated movement of goods and people, all this turbulent trade, come about in so short a timespan? How was it that in less than fifteen years so many trucks and ships and trains were moving so many goods on so many highways and through such extraordinary gateways as the Port of Long Beach? The answers are complex, to be sure. Some analysts see this commerce as an outcome of intensified global competition (attended by the collapse of trade barriers, and the government privatization of the economy in many countries) that accompanied the end of the Cold War. Others have looked at dropping interest rates, low labor costs, weak unions, or at what the Wall Street Journal called “the country’s growing appetite.” All these answers have merit, but I want to consider three conditions: the corporate mergers of the 1980s and nineties, which pressured business to distribute goods widely and quickly; government deregulation, which helped trigger both mergers and transport growth; and the promotion of intermodal transport.

  From the 1980s onward, the United States has experienced the greatest merger movement in its history, with only a few letups, such as a crisis of short duration at the end of George Bush’s presidency in 1991 when the stock market crashed. There have been merger phases before, times when corporate moguls erected giant firms to control markets, prices, and labor, and always to deliver goods with all due speed. The first great wave of mergers occurred at the turn of the century, when investment banker J. P. Morgan created U.S. Steel, the original $1 billion deal: oblivious to the goods themselves, Morgan’s plan was to get for himself and other bankers reliable streams of income. The next phase erupted in the 1920s, with the concentrations in manufacturing, mining, gas, and electricity, then another in the 1950s and sixties with the popularity of huge horizontal firms or conglomerates often consisting of totally dissimilar businesses. But none of that compared in magnitude to the mergers of our own time, especially in recent years when, according to the Wall Street Journal, “the unthinkable has happened”: since 1994, every year has set a record in the numbers and dollar value of the domestic mergers, from $347 billion worth in 1994 to $659 billion in 1996 and $991 billion in 1997.39 The year 1998 reached the $1.6 trillion mark, equaling the combined worth of all the mergers completed between 1990 and early 1996.40

  Mergers took place in a vast range of enterprises, from hospitals and pharmaceuticals to drugstores and book publishing. Telecommunications saw the coupling of four huge phone companies; two merged corporations alone controlled two-thirds of all phone lines in the U.S.41 Mergers also shrank the number of long-haul railroads from forty-two in 1980 to four in 1998.42 So, too, the airline business entered “the final phase of consolidation,” according to one analyst at Salomon Brothers, with the six major airlines forming routing and marketing alliances with one another.43 Shipping carriers, American and foreign, either merged or forged “strategic cross-border alliances,” securing their grip on many lanes of commerce. “The inevitable and inexorable process of consolidation continues,” said Ray Miles, president of London-based Canadian Pacific, of container shipping. “The whole concept of a national flag carrier is virtually dead. Across the board you are seeing the creation of truly global companies,” observed John Reeve, a maritime expert.44

  In the entertainment and media field, investment bankers managed the consolidation of the biggest movie theater chain in the world, linking together Regal Cinemas with United Artists Theater Group and promising to bring gigantic movie complexes—with identical movie fare but “loaded with amenities from better concessions to cozy love seats”—to anywhere in suburban America.45 In the mid-nineties, industries from gold mining and gambling to hotels and department stores united together, each becoming the largest of its kind either in North America or in the world.46

  In a time bursting with bravado about free markets, oligopoly also reared its face in banking, just as it did in real estate and newspapers. Perhaps the most startling bank merger of the era was the $69 billion union in 1998 of Citicorp with Travelers Corporation, though by 1995 banking was already well on its way to slimming down to a “handful of gigantic institutions,” according to the Wall Street Journal. Thus continued the delocalization of the banking system, the moving of headquarters hither and yon across the country, and the liquidation, through the introduction of ATMs in every viable place around the world, of face-to-face banking (except in the case of lucrative mortgages and auto loans).47

  Delocalization of ownership marked newspapers as well, with the Gannett newspaper chain devouring one family-owned and local newspaper after another to achieve an astonishingly uniform and predictable approach to reporting throughout suburban America; so, too, the New York Times—already owner of twenty-one regional newspapers, twenty magazines (including McCall’s, Tennis, Golf Digest, and Family Circle), and several television and radio stations—acquired the independent Boston Globe, for the sum of $1.1 billion.48 Not surprisingly, the Time’s editorial page, in the spirit of its own business method, told its readers, in three separate editorials over the course of two months, that they had little to fear from the “monster mergers” in banking. Of the Citicorp-Travelers merger, the Times observed: “The fact is that Citigroup threatens no one.” Americans have “nothing to fear from huge banks,” the paper reiterated a week later, “as long as there are other huge banks lurking in the same neighborhood,” but how many big banks could be expected to fit in the same neighborhood?49

  Real estate, long an atomistic industry made up of thousands of private, family-owned companies (like banks and newspapers) also consolidated into real estate investment trusts (REITs) or publicly traded corporations worth billions. Congress first created REITs in the 1950s to give average Americans the chance to invest in real estate the way they invested in stocks. Very shareholder-friendly, paying 95 percent of their net income in dividends, they were also liquid, allowing investors to withdraw their money at any time if investments failed or threatened to fail. This, of course, pressured REITs to succeed. For years, however, they attracted little capital. Then, after 1985, Congress lifted many restrictions and even permitted pension funds (a giant public reserve of money) to be invested in REITs. The result was a flush of publicly traded megacompanies (again, like banks and newspapers) with deep billion-dollar pockets, constantly on the prowl for opportunities.50

  All these transactions belonged to the new era of global capitalism, an era that before the world fell victim to a vast financial crisis, promised to fulfill the hopes of the late-nineteenth-century American socialist Edward Bellamy, author of Looking Backward (1888). Bellamy fantasized the dawning of a true one-world economy, administered by state-owned firms, with all peoples joined into a single planetary consumer market by an intricate network of “pneumatic tubes” (through which all the goods would pass). The quaint tubes and state ownership aside, in the 1990s Bellamy was having his day, as the United States was “moving toward a period of the megacorporate state in which there will be a few global firms within particular economic sectors,” according to Steven Nagourney, an investment strategist for Lehman Brothers.51

  The wheelers a
nd dealers executing these combinations were a motive force behind the new movement of goods on land, on sea, and in the air. Their mergers represented “the massive amounts of money on a world-wide basis” that “is looking for opportunities” and must find its outlets, to quote financial expert Adrian Dillon.52 “If we only distributed pictures in the U.S.,” explained William Mechanic, VP at Twentieth Century Fox, “we’d lose money. It takes the whole world now to make the economics of movie-making work.”53 The men behind these mergers sought global command of “the channels of distribution,” to get their goods to people everywhere fast. “Companies that control the channels of distribution,” said the Wall Street Journal in 1995, “are pushing a wave of consolidation.” They are transforming “distributive work … into networks, coordinated by computers and communications technologies and used to build empires once considered too complicated or unwieldy to be managed effectively on a big scale or over huge distances.” Today, the Journal said, “Connectivity is King.”54

  OPEN SKIES

  Yet these companies could not have gone this far, indeed would not have existed at all, were it not for the second condition behind the movement of goods, the deregulatory policies of the federal government, which propelled the mergers and the revolution in transport. Since the late 1970s, Washington has followed a lenient antitrust policy and promoted deregulation, on the grounds that only “the marketplace should prevail,” not government policy or management.55

  Thus, government, since the late 1970s, has deregulated, or begun to deregulate, airlines, trucks, rail, and ships. Under presidents Gerald Ford and Jimmy Carter, the deregulation of the airlines commenced, igniting at first fierce competition but then drifting into extreme consolidation. In 1980 Congress passed the Motor Carrier Act, which lifted requirements for entry into the trucking business and caused the quadrupling of truck applicants in the first year; it paved the way for the rise of such large trucking firms as Schneider Inc. and J. B. Hunt, with their fleets of vehicles hauling cargo everywhere in America.56 In 1994 Congress terminated the regulatory authority of states over truck movements within their borders, thus triggering interstate expansion by the trucking industry.57

  In 1982 the Staggers Rail Act was passed, sponsored by Representative Harley Staggers, Sr. (Democrat, West Virginia) and shepherded through by ardent Jim Florio (Democrat, New Jersey), who considered this one of his finest achievements. The Staggers legislation limited federal authority to impose maximum rates on railroads, and it also freed railroads to sell off rapidly aging unprofitable lines, to explore a wide range of prices and services, and to combine with other forms of transport. It allowed shippers and carriers to enter into “confidential rate and service contracts.”58

  In 1998 Congress expanded the deregulation of the shipping industry, begun tentatively by the Shipping Bill of 1984. For years American shippers were under the thumb of a worldwide system of cartels, consisting of carrier lines grouped into what were called “conferences” that set transport prices. The 1998 law allowed U.S. shippers to make secret deals with carriers, thus eluding the power of the cartels. (It did nothing, however, to curtail the ongoing concentration of the industry globally or to repeal an old antitrust exemption, in force since 1916, which permitted carriers to group into cartels in the first place. It also favored the big U.S. shippers.)59

  But Congress did more than deregulate individual transport industries. It also encouraged cross-modal consolidations. In 1983 it ended most of the regulatory controls enacted in 1935 to protect the fledgling trucking industry from rail competition; now railroads could freely merge and tap the potential of intermodal transport, that is, join with trucking firms and shippers to move goods swiftly, in a single transaction.60 Ten years later, in 1995, Congress also removed the last prohibitions against common ownership of different modes of transportation. Back in the fifties, when trucking magnate Malcolm McLean had sought to acquire the Pan Atlantic Steamship Company (which he later renamed Sea-Land Services), he was forced by law to sell off most of his own trucking business, McLean Trucking. But by the late nineties, such obstacles had vanished, and not only was the company CSX the second-biggest railroad in America, it also owned the country’s biggest barge business, several motor carriers, and the nation’s biggest containership company (McLean’s Sea-Land Services!).61

  Throughout this entire time, the very word regulation tasted like bile in the mouths of such free market champions as Newt Gingrich and Richard Armey in Congress, as well as Clintonian New Democrats. So much was this the case that in 1995 Congress dismantled the Interstate Commerce Commission (ICC), which for decades had regulated competition among the railroads, and which the above-mentioned laws, in any case, had rendered irrelevant. In 1995 the ICC was replaced by the Surface Transportation Board, an independent agency, housed inside the Department of Transportation (DOT), highly receptive to mergers.

  Congressional Republicans and Democrats, collectively, have done little to stop businessmen from doing what they have wished to do. Recent presidents have behaved similarly. Bill Clinton, for instance, has proved to be among the most pro-business, pro-merger presidents in history, certainly equal to Hoover and Coolidge, and probably surpassing Reagan. Echoing Theodore Roosevelt, but without Roosevelt’s feisty faith in government supremacy over business, he explained to the Wall Street Journal in 1998 that mergers are “inevitable.”62 His Commerce Department, under all his secretaries (Brown, Kantor, and Daley), has acted as a virtual arm of American corporate business abroad by, among other things, setting up meetings between U.S. and foreign firms, and by providing firsthand detailed accounts of markets (maps, reports, guides) so that U.S. companies would know best where to invest.63 Clinton’s policies have moreover fueled the concentration of the transportation industry. In 1996 he allowed the merger of two big aircraft producers, Boeing and McDonnell Douglas, creating an “incredible powerhouse with massive technical, financial, manufacturing, and marketing resources.”64 Following in the footsteps of the Bush administration, Clinton’s Department of Transportation also negotiated a series of “Open Skies Agreements”—“to create new pathways for commercial activity.”65

  These Open-Sky pacts deregulated travel between designated countries, giving each national airline access to the other’s air space, limited only by the availability of landings and ramps.66 As a way of persuading countries to join, the agreements granted special immunity from antitrust laws. They also permitted carriers to share costs, revenues, and customers, and to pool data about routes, fares, flier programs, and marketing. Since 1994, the government has negotiated agreements with nearly thirty countries, including Canada, Germany, Switzerland, Japan, Italy, and Peru. At the same time it has granted immunity to such big companies as United Airlines and Lufthansa AG; Delta Airlines and SwissAir; and American Airlines and Canadian Airlines International.67 “This agreement will transform air transportation as we know it,” said Gerald Greenwald, chair of United Airlines, of the Japanese-American accord. “It [allows] the airline industry to provide convenient access to virtually every major city in the world for the first time.”68

  Nothing better than Open Skies showed the direction Clinton and Congress wanted to take the country. The outcome, of course, caused “much stronger traffic growth” in passengers and commercial freight than ever in history and muddied further the boundaries between countries.69 Along with the other deregulation policies, the new airline agreements helped to “partly denationalize national territory.”70 As Holman Jenkins, an editor of the Wall Street Journal, said of Open Skies, “one more citadel of nationalist chauvinism is falling, and the planet can’t be the worse for it.”71

  THE INTERMODAL REVOLUTION

  The last component in the creation of the turbulent river of goods was intermodalism, a far-reaching departure in transportation.72 By the late eighties it was the fastest growing and most-talked-about feature of commerce; it joined trucks, railroads, and ships into a series of alliances “to maintain continuous flow
throughout the entire transportation and transfer process,” according to an authority on the subject, Gerhardt Muller.73 Central to it was the creation of standardized containers to carry freight. Before the 1950s, longshoremen hauled goods off and onto carriers by hand and crane, which took a lot of time and many workers. In that decade, however, Malcolm McLean, an insightful, no-nonsense trucker from the South, who on his trips north was frustrated by “all that waste,” came up with the idea of moving goods in standardized containers.

  The Edison of the container revolution, McLean was born to poor parents in Maxton, North Carolina, in 1914. His father was a farmer and mail carrier, and McLean’s first job was selling eggs. In 1934, after pumping gas, he bought his first truck and formed his own business, McLean Trucking, which soon matured into the largest in the South and took him as far north as Hoboken. It was in Hoboken, in fact, that he saw how much time was squandered transferring goods from ships to trucks to trains; he proposed instead that they be loaded in trailer-sized containers that could then be mounted interchangeably on truck chassis, the decks of ships, or railroad cars. Such containers, he believed, would greatly speed the flow of all kinds of commodities.74

  McLean viewed transportation almost as an art form. Rather than thinking about specific modes of transport (trucks or ships, for instance), he fixed on streamlining the process itself. “The key to his thinking,” said a colleague in 1979, “is transportation. He looks at things in terms of getting [cargo] from here to there at the lowest possible cost.”75

  In 1956 he entered the shipping business. He converted a World War II–era tanker into the first container-vessel, the Ideal X, which sailed out of Port Newark, New Jersey, to Houston loaded with fifty-eight containers. When it docked in Houston, few people observed that only a handful of men removed the cargo in just two days, whereas previously it would have required a week or more with three times as many men. A few years later McLean created Sea-Land, the first containership company, and soon a multimillion-dollar operation.76