From Monopoly to Competition: The Transformations of Alcoa, 1888–1986 by George David Smith

Abstract

TECHNOLOGY AND CULTURE Book Reviews 137 As a result, the book will have limited appeal beyond specialized audiences in the telecommunications, regulatory, and scholarly com­ munities. But those audiences are influential and should in turn be influenced by Temin’s provocative analyses of ideological, market, and technological forces as they relate to changes in business and public policy. In time, interested readers ought to give this book the close attention, the thought, and the debate it deserves. George David Smith Dr. Smith is clinical professor of economics at New York University’s Stern School of Business Administration and is president of The Winthrop Group, Inc. From, Monopoly to Competition: The Transformations ofAlcoa, 1888—1986. By George David Smith. New York: Cambridge University Press, 1988. Pp. xxxiv + 554; illustrations, tables, notes, appendixes, in­ dex. $29.95. George David Smith arrived at Alcoa’s crisis-bound Pittsburgh headquarters in 1983 to uncover the firm’s “corporate culture.” Smith parlayed this commission into a full-scale corporate history; two colleagues are researching the firm’s research and development. Smith’s study charts Alcoa’s business strategy, corporate structure, and market relationships; it is distinctive for integrating labormanagement issues into a Chandlerian framework (though the IWW was not the “International” but the Industrial Workers of the World). The volume, based on sixty-one interviews, annual reports, and skimpy corporate archives, fails to take the reader “inside” the corporation. Actions, not aspirations and negotiations, are the focus. In the end, Smith achieves not the executive manager’s perspective he aimed for but the stock market analyst’s. Alcoa was shaped during its half-century monopoly and trans­ formed by increasing competition, first from new domestic firms, then from abroad. Charles Hall’s key process patents, active from 1888 to 1909, were the firm’s technical and legal foundation. Smith details the Hall-Heroult process that permitted producers to trans­ form aluminum from a luxury metal worth more than gold to a commodity priced lower than copper. Hall’s electrolytic process of reducing aluminum ore (bauxite) first to aluminum oxide (alumina) and then to aluminum metal has remained unchanged for a century. Scale has not. Smith maintains that Alcoa’s vast expansion, funded by vast infusions of Mellon money, yielded “economies of scale” that secured the firm’s dominance; through 1945 Alcoa held 90 percent of the North American market. Smith’s evidence, however, rests uneasily with his argument. First, while Alcoa’s patents precluded domestic competition, stiff import tariffs excluded foreign competition. More­ 138 Book Reviews TECHNOLOGY AND CUL I URE over, Alcoa erected formidable barriers to entry through controlling sources of aluminum ore and electrical power—the two critical raw materials—in Canada, the Caribbean, and especially Dutch Surinam. As Naomi Lamoreaux has shown for steel, such vertical integration can be independent from economies of scale or speed. Finally, even after a 1912 antitrust consent agreement barred Alcoa itself from the international cartels that “stabilized” world prices and market shares, its closely held Canadian subsidiary participated fully in the cartels and brought Alcoa the benefits of such stability. Alcoa’s failure to replicate the German invention of Duralumin, an aluminum alloy as strong as mild steel, or to produce aluminum for airplanes during World War I, propelled the firm into research and development, which secured Alcoa even greater dominance in interwar markets for aluminum cooking utensils, wire, tubing, and castings. The complex story of how Alcoa lost its monopoly pivots around 1945. Sensibly, Alcoa built and managed the $672-million wartime effort that doubled America’s aluminum capacity. Simultaneously, the Department ofJustice won its eight-year antitrust case against Alcoa, a landmark in framing antitrust policy. The firm was helpless against the late New Deal’s energetic trustbusting; nor was it exculpated by its long-standing ties with Hoover’s conservative Treasury secretary Andrew W. Mellon. Here Smith follows not the political analysis of Ellis Hawley but the economic criteria of Robert Bork, finding, unsurprisingly, that antitrust is undesirable. The decision against Alcoa fitted perfectly with the War Surplus Property Board’s disposal of the fifty federally owned aluminum plants: all but one were sold to Alcoa’s incipient competitors. By 1950 aluminum had...