Co-Evolution of Finance and Manufacturing in the Late Twentieth Century US

The takeover boom of the 1980s and 1990s in the United States has been in the spotlight in the financialization literature as it not only contributed to the turn to finance, but also effectively showed the impacts of financial expansion on the “real” economy. Beginning in the late 1970s, mergers and acquisitions activities swept the US. The number of acquisitions of publicly traded companies increased more than tenfold, from 68 in 1974 to over 700 in 1999. The aggressive contest for corporate control instigated corporate managers to boost stock prices to satisfy shareholders. In addition, investment bankers earned handsome profits from the transactions. The takeovers also brought about significant changes in the economy, especially in the manufacturing sector.     

Analysts have debated the causes and consequences of the takeover movement, but they similarly have exaggerated the role of financiers while overlooking that of industrialists in the transition. Mainstream economists perceive the movement as a Darwinian process whereby financial advancement raised economic efficiency by prompting overdue economic restructuring. Other social scientists emphasize historical contingencies and intra-firm politics that produced the takeover mania. Unlike economists, they consider the alleged improved efficiency and profitability as the result of wealth transfer from labor to capital. Despite these disagreements, economists and others concur that financiers successfully engineered the market for corporate control against industrialists’ opposition. Also, they ascribe corporate restructuring in the late twentieth century primarily to financial pressures.

However, my research shows that the conventional view is limited. Using primary sources such as corporate records, newspapers, and takeover market data, I demonstrate that US non-financial corporations played important roles in the takeover movement and corporate restructuring. Specifically, US industrial firms not only created favorable conditions for the takeover market by pressuring the government to relax antitrust regulations, but also participated eagerly in the takeover markets. Although some firms and organizations resisted hostile takeovers, many non-financial firms initiated and executed the deals. Moreover, firms exploited takeover activities to expedite corporate restructuring. Horizontal mergers allowed for industry-wide consolidation, which they expected to enhance international competitiveness. They also accelerated corporate downsizing by selling off facilities.

This new perspective makes two contributions to the understanding of contemporary capitalist transformations. First, it addresses the capitalist dynamics in financialization by clarifying the role of industrialists. Some consider the recent financial turn as the result of a seamless capitalists’ action toward a new profit-making system, while others stress the intra-class conflicts between industrialists and financiers. Alternatively, I posit that distinctive sectoral goals but shared means among capitalists led to the shift. Industrialists’ efforts to rejuvenate industrial profits through mergers and acquisitions coincided with financiers’ initiatives to boost their profits. Second, this study points to where current financialization research went too far. Researchers attribute changed corporate strategies such as de-verticalization and downsizing to financial pressures, yet I find that such shifts occurred prior to and lasted even after the takeover boom. Recent changes in manufacturing were not simple byproducts of financialization. Instead, a distinct dynamic, endogenous to industry, was present in the restructuring.