The Bureaucratization of American Leadership


In newsletter #63 I discussed the managerial revolution, or the way that we transitioned from an entrepreneurial capitalist system dominated by owners to a bureaucratic system dominated by managers and technocrats spanning the public and private sectors.

Today I will give an example of the practical outworking of this, namely how it has changed the nature and culture of American civic leadership. My policy background is in urban affairs, so I will talk specifically about changes in the leadership of local communities.

Managerialism primarily developed out of the revolution in scale as companies, cities, and government went from small to big after the introduction of the railroad. However, gigantic firms were primarily in the industrial sector – autos, chemicals, etc. Many sectors remained fragmented, often due to regulation.

Banking is an example. Most states severely restricted the size of banks and their ability to expand. Banks were often limited to opening branches only in their home county, for example. Up through 1980, cross-state bank mergers were all but banned. There was legal separation between commercial banking (deposits and loans) and investment banking (stocks and bonds). Financial institutions were also restricted in their ability to own industrial companies. As a result, pretty much every community had its own locally banks, each with their fortunes tied to the local community. Because they couldn’t expand beyond their home markets, they could only grow to the extent that their hometown grew.

Other industries were likewise fragmented and localized. This included utilities (again, federal law basically prohibited utility mergers), department stores and other retail, and media (especially newspapers).

This created a landscape in which the leadership of most cities were dominated by CEOs of moderately sized companies, whose personal success was aligned with that of the overall community. This was still a step removed from entrepreneurial capitalism. The business leaders who commissioned Daniel Burnham to create his famous 1909 Plan of Chicago included many self-made entrepreneurs. The bank and utility presidents of 1980, by contrast, where mostly corporate managers. But they still exercised immense personal power in their communities.

Deregulation, the rise of information technology, globalization, and other factors resulted in significant consolidation across these industries. Today, most of the banks in your town are probably owned by national giants like JP Morgan Chase or Bank of America. Similarly, the utilities were bought out, the department stores either failed or are now part of Macy’s, the newspaper is owned by a national chain or PE fund, etc.

These companies are now represented in local markets by what are effectively branch managers. Over time, the authority of those managers has steadily diminished. For a while, it was still a substantive role, perhaps still occupied by a local mover and shaker. But increasingly, the job of the local “bank president” has declined towards simply sitting on various local boards, doling out some grants, engaging in government relations, etc. The same is true for other industries. These folks are more purely managers (not business runners or owners).

This created a change in the composition of local public leadership. The local leadership had been dominated by blue bloods and by these CEOs of operating companies. But as the blue bloods faded away and the operating businesses got acquired, the remaining locally owned businesses were heavily transaction oriented, like law and construction. They used to have a banking expression “3-6-3”: pay three percent on deposits, charge six percent on loans, and hit the golf course by 3pm. Banks made money on the spread between interest paid on deposits and charged on loans. The bank CEO made money on the links because he had a crash register back at the office that never stopped ringing. This is very different from project oriented or bill by the hour industries like law. A law partner is only making money on the golf course if he is closing a deal. Hence, local leaders became less focused on growing their community, and more focused on the community doing deals like publicly subsidized real estate projects.

But now even the transactional businesses are merging, as industries like law and engineering have started to consolidate as well. This will wipe out even more of what remains of local autonomous leadership. To the extent that companies do now remain locally headquartered, it is generally because they were the winner of the consolidation game, meaning they are now national or global not just local concerns. And their CEO’s perspective reflects that change. Especially post-Boomer corporate CEOs feel less obligation to get involved in “civic” stuff in the city where they are headquartered, and increasingly rely on government affairs or corporate foundation underlings to do that for them.

Read the rest of this piece on AaronRenn Substack.

Aaron M. Renn is an opinion-leading urban analyst, consultant, speaker and writer on a mission to help America's cities and people thrive and find real success in the 21st century. He focuses on urban, economic development and infrastructure policy in the greater American Midwest. He also regularly contributes to and is cited by national and global media outlets, and his work has appeared in many publications, including the The Guardian, The New York Times and The Washington Post.

Photo: Al Ashraf via Wikimedia under CC 4.0 License.