The Fall of the Bell System: A Study in Prices and Politics by Peter Temin, Louis Galambos

Abstract

TECHNOLOGY AND CULTURE Book Reviews 133 War II rise of a military-industrial complex—and their relation to changes taking place in the nature of the firm and public policy toward business. While largely succeeding in explaining the historical development of American business and government-business relations, this study is weaker in its attempts to unravel present-day trends and to prescribe solutions to the problems currently afflicting America’s business system. Throughout their work, Galambos and Pratt show that America has lacked a coherent set of policies designed to foster business development, and they strongly argue that this is proving especially harmful in today’s extremely competitive global economy. True enough. Just how this situation is to be changed is, however, unclear. Galambos and Pratt suggest “the creation of a narrowly focused independent agency ... to serve as a combined mediator and investment banker” (p. 255). Precisely how this agency would func­ tion, and especially how it would decide which industries and com­ panies to help, is not adequately explained. The implication made at several points that Americans might look at Japan’s MITI for inspiration is, I think, unwise. There were many reasons for Japan’s postwar economic “miracle,” and MITI’s actions were only part of the story, perhaps only a minor part at best. Americans would do better, as Galambos and Pratt themselves point out in the introduction, to examine the historical flexibility of America’s business system to find solutions to their nation’s current difficulties. Mansel G. Blackford Dr. Blackford is a professor of history at Ohio State University, where he teaches business history. He is the coauthor of Business Enterprise in American History (Houghton Mifflin, 1986) and the author of The Rise ofModern Business in Great Britain, the United States, andJapan (University of North Carolina Press, 1988). The Fall of the Bell System: A Study in Prices and Politics. By Peter Temin with Louis Galambos. New York: Cambridge University Press, 1987. Pp. xviii + 378; illustrations, figures, notes, index. $27.95 (cloth); $13.95 (paper). For most of the century, the nation’s core telecommunications services were designed, developed, and administered by one great corporation, AT&T and its expansive, vertically integrated Bell Tele­ phone System. Today, as the result of a dramatic out-of-court settle­ ment that took effect on January 1, 1984, AT&T has been shorn of its regional telephone-operating companies, which has had the effect of opening the nation’s telecommunications to competition in all its major aspects, from research and development to the provision of service. This astonishing (and sudden) transformation of what might 134 Book Reviews TECHNOLOGY AND CULTURE well be the center industry of the American economy is the subject of Peter Temin’s fascinating and important book. Though The Fall of the Bell System was underwritten by AT&T, Temin’s (and Galambos’s) views of the recent government antitrust case against the company, and of the events flowing into and out of it, fly in the face of long-standing Bell System doctrine. According to the company doctrine of “universal service,” which had its origins in Theodore Vail’s response to regulatory pressures between 1907 and 1913, the integrated Bell Telephone System was the one best—that is, most efficient—way to manage the inherently unitary, wire-based, natural monopoly of telephony. Temin clearly comes down on the side of the new order: not that he endorses it; he simply finds no reason to support the technologically determined claims of the ancien régime. Nor does he offer support for AT&T’s preference for excluding competitors from a market in which telephone services were priced in accordance with a complex formula based on rate-of-return regula­ tory theories and an arcane “separations” process by which telephone costs had been calculated since World War II. The separations process (which Temin deciphers with far more clarity than all the lawyers and accountants who tried to explain it during the protracted policy debates of the 1970s) was an arbitrary methodology dating back to World War II for allocating costs and revenues between interstate and intrastate jurisdictions and between the long-distance and local oper­ ating companies. The Fall’s subtitle suggests the central importance of pricing...