The Managerial Revolution

The Managerial Revolution Plot Summary

Introduction

In the aftermath of World War II, as nations began rebuilding their societies, a profound shift in power was already underway—not merely in terms of geopolitics, but in the very structure of who controlled the means of production in advanced economies. This transformation was neither sudden nor obvious, but rather a gradual process that had been developing since the early 20th century, fundamentally altering the relationship between ownership and control in modern enterprises. Throughout history, those who owned the means of production generally controlled them directly—feudal lords managed their estates, and early capitalists ran their own factories. However, the rise of vast corporations, complex technologies, and specialized knowledge created a new reality. Increasingly, the actual control of production fell not to shareholders but to a new class of professional managers, technical specialists, and bureaucrats who possessed the expertise to operate these complex systems. This managerial revolution represents one of the most significant yet under-appreciated transformations in modern social and economic history, carrying profound implications for our understanding of power, wealth distribution, and the future direction of society.

Chapter 1: Capitalism's Golden Age: The World Before 1914

The world before 1914 represented the zenith of the capitalist order, a time when the principles of free enterprise and private ownership reigned supreme across the Western world. This period, roughly spanning from the mid-19th century to the outbreak of World War I, witnessed an unprecedented expansion of global trade, industrialization, and wealth creation. Nations like Britain, France, Germany, and the United States dominated the global economy through their industrial might and colonial possessions. During this golden age, ownership and control were largely unified in the same hands. The classic capitalist was an individual entrepreneur who both owned and actively managed his business enterprises. Men like Andrew Carnegie, John D. Rockefeller, and Henry Ford embodied this archetype—they were not merely shareholders but direct managers of their industrial empires. The typical enterprise was either a sole proprietorship or a partnership, where the owners made all significant decisions about production, distribution, and investment. The ideological underpinnings of this era rested on several key concepts: individualism, the sanctity of private property, freedom of contract, and limited government intervention in economic affairs. The relationship between capital and labor was defined by the market, with minimal state interference. Workers sold their labor as a commodity, while owners purchased this labor and retained full rights to the products created. This arrangement was supported by legal frameworks that protected property rights and enforced contracts. The political systems that emerged during this period reflected and reinforced these economic arrangements. Parliamentary democracy spread throughout Western nations, but political power remained largely concentrated among property owners. Even as suffrage expanded, legislatures and courts consistently protected property rights and maintained the economic status quo. The state's role was primarily to ensure domestic order, defend national interests abroad, and provide basic infrastructure—not to manage or direct economic activity. This capitalist golden age also witnessed remarkable technological innovation and material progress. The spread of railroads, telegraphs, electricity, and mass production techniques transformed daily life and created vast new wealth. However, this prosperity was unevenly distributed, with industrial workers often enduring harsh conditions while owners accumulated unprecedented fortunes. The extreme wealth disparities of this era would eventually contribute to social tensions and demands for reform. As the 20th century dawned, few could have predicted how dramatically this established order would soon be challenged. The contradictions within industrial capitalism—between owners and workers, between competing national interests, between unlimited economic ambition and limited natural resources—were building toward a crisis that would ultimately transform the very nature of ownership and control in modern society.

Chapter 2: Signs of Change: The Rise of Managers and Bureaucracy

The first cracks in the edifice of classical capitalism began appearing in the early 20th century, as the scale and complexity of industrial enterprises grew beyond what individual owner-entrepreneurs could personally manage. Between 1900 and 1930, a fundamental transformation occurred in how businesses were structured and operated. The rise of large corporations, with their dispersed ownership through public shareholding, created a critical separation between those who owned businesses and those who actually controlled their daily operations. This period witnessed the emergence of professional managers as a distinct social group. Unlike the capitalist owners of the previous era, these individuals derived their position not from property ownership but from specialized knowledge, technical expertise, and organizational skills. They were engineers, production specialists, finance experts, and administrators who possessed the increasingly complex skills required to run modern industrial enterprises. While shareholders nominally owned these corporations, effective control increasingly passed to this new managerial class. Several forces drove this transition. Technological advancement demanded specialized knowledge that most owners lacked. The increased scale of enterprises required complex organizational structures and division of labor even among management functions. The geographical expansion of businesses across regions and nations made direct control by owners increasingly impractical. Perhaps most significantly, the diffusion of ownership through public stock offerings meant that no single shareholder or small group could effectively monitor or control management decisions. The implications of this shift were profound but initially unrecognized. In their landmark 1932 study "The Modern Corporation and Private Property," Adolf Berle and Gardiner Means documented how control had passed from owners to managers in most large American corporations. They noted that managers could now pursue objectives that might differ from maximizing shareholder returns, including growth for its own sake, technical excellence, or their own job security and compensation. Simultaneously, a parallel trend was occurring in government, as state bureaucracies expanded in size and scope. The administrative state grew dramatically during this period, creating another sphere where professional managers wielded increasing authority. Government agencies began regulating more aspects of economic life, requiring specialized expertise and creating another domain for managerial power. This transition did not occur without resistance. Many traditional capitalists fought to maintain direct control of their enterprises, and conflicts between owner interests and managerial priorities became common. However, the economic advantages of professional management in handling the complexities of modern business proved decisive. By the 1930s, the separation of ownership from control had become the dominant pattern in major industries across advanced economies. The stage was thus set for a more dramatic transformation in the wake of the Great Depression and World War II. What had begun as an organizational adaptation within capitalism would eventually challenge the foundations of capitalist society itself, as managers increasingly recognized their distinct interests and the potential power of their position.

Chapter 3: The Triple Battle: Capitalists, Masses, and Managers

The period between the World Wars witnessed an intensification of what can be understood as a three-way struggle for social and economic power. This complex battle involved the traditional capitalist owners struggling to maintain their privileged position, the working masses pushing for greater economic security and political rights, and the emerging managerial class quietly consolidating its influence within both corporate and governmental structures. The capitalists, having enjoyed nearly unchallenged dominance throughout the 19th century, found themselves on the defensive. The catastrophic economic collapse of the Great Depression severely undermined public faith in traditional capitalist arrangements. Business owners faced unprecedented challenges to their authority from labor unions, government regulators, and increasingly from the very managers they had hired to run their enterprises. Their response varied—some fought vigorously against these encroachments, while others adapted by transforming themselves into passive investors rather than active controllers of enterprise. The masses, comprising industrial workers, farmers, and a growing middle class of white-collar employees, pursued their interests through various channels. Labor unions expanded dramatically in many countries during the 1930s. Political movements ranging from democratic socialism to communism gained strength by promising to address the inequalities and insecurities of capitalism. The masses demanded not just higher wages but a fundamental restructuring of economic power through government intervention, social welfare programs, and greater workplace democracy. The managers, meanwhile, were emerging as the true beneficiaries of this period of crisis and transformation. Operating at the intersection of capital and labor, they positioned themselves as indispensable technical experts who could mediate social conflicts while ensuring economic efficiency. Within corporations, managers gradually assumed greater autonomy from shareholders. Within government, a new class of administrators gained unprecedented authority to regulate economic activity through agencies like the SEC, NLRB, and various planning bodies established during the New Deal. This three-way struggle manifested differently across nations. In the United States, it produced the New Deal coalition that dramatically expanded the regulatory state while preserving much of the capitalist framework. In Nazi Germany and Fascist Italy, it led to authoritarian regimes that subordinated both traditional capitalism and working-class movements to state control directed by managerial elites. In the Soviet Union, it resulted in a system where party managers exercised complete control over economic resources, despite the official rhetoric of worker ownership. The outbreak of World War II accelerated these trends dramatically. The necessities of wartime production required comprehensive economic planning, vastly expanding the role of government and elevating the status of technical experts. Traditional market mechanisms were largely suspended as economies mobilized for total war. Production decisions were increasingly made not by private owners seeking profit but by managers pursuing administratively determined objectives related to national survival. By 1945, the world that emerged from the war bore little resemblance to the classical capitalism of the pre-1914 era. The stage was set for a new social order in which managers would play an increasingly dominant role, regardless of whether the formal economic system was labeled capitalist, socialist, or something else entirely.

Chapter 4: Political Transformation: From Parliament to Administrative State

The shift from parliamentary supremacy to the administrative state represents one of the most consequential political transformations of the 20th century. Throughout the capitalist era, parliaments (or legislatures) served as the principal institutions of sovereignty and lawmaking. These bodies, comprising elected representatives engaged in open debate and compromise, embodied the political ideals of liberal democracy while providing a forum where capitalist interests could be effectively defended and reconciled. However, beginning in the 1930s and accelerating dramatically during and after World War II, actual governing authority increasingly migrated from legislative bodies to administrative agencies staffed by specialized experts. This transformation was neither accidental nor temporary, but reflected fundamental changes in the complexity of governance and the nature of social power. As economic and technological systems grew more intricate, traditional parliamentary processes proved too slow, too partisan, and too lacking in technical expertise to effectively manage modern society. The rise of the administrative state manifested in several key developments. First was the proliferation of regulatory commissions, bureaus, and agencies with broad authority to create and enforce rules governing economic activity. In the United States, bodies like the Federal Reserve, Securities and Exchange Commission, and National Labor Relations Board acquired quasi-legislative and quasi-judicial powers that had traditionally belonged to Congress and the courts. Similar institutions emerged across other advanced nations. Second was the expansion of executive authority, as presidents and prime ministers increasingly governed through administrative orders, emergency powers, and control of the bureaucratic apparatus rather than through legislation. Presidents like Franklin Roosevelt in America and national leaders across Europe claimed unprecedented powers to address economic crises and security threats, often bypassing traditional parliamentary constraints. Third was the emergence of planning as a central function of government. Whether in the form of Soviet five-year plans, Nazi four-year plans, or more limited economic planning in democratic states, governments increasingly attempted to coordinate and direct economic activity rather than merely regulating it. This planning function required specialized knowledge and continuous administration that parliaments could not provide. The consequences of this shift were profound for democratic governance. Policymaking increasingly occurred within bureaucratic agencies rather than legislative chambers, often through processes opaque to public scrutiny. Technical expertise rather than electoral mandates became the basis for legitimate authority. Law itself was transformed from the product of deliberation among elected representatives to the output of administrative processes conducted by career officials. Critics viewed this transformation as a threat to democratic accountability and individual liberty. They warned that the administrative state created a "new despotism" where unelected officials exercised vast power over citizens' lives. Defenders countered that complex modern societies required expert management and that administrative agencies could actually enhance democracy by addressing problems that market forces and traditional political processes had failed to solve. By the 1950s, the administrative state had become the dominant form of governance across ideologically diverse societies. Whether in American regulatory agencies, Soviet planning bureaus, or Western European welfare states, managers rather than elected representatives increasingly made the crucial decisions shaping economic and social life. Parliament had not disappeared, but its role had fundamentally changed from the sovereign lawmaker to, at best, a supervisor and legitimator of administrative governance.

Chapter 5: Economic Restructuring: State Ownership and Control

The period from the 1930s through the 1970s witnessed a fundamental transformation in the relationship between the state and the economy across virtually all advanced nations. This transformation involved not merely increased regulation of private enterprise but a dramatic expansion of direct state ownership and control over productive assets. While the extent and forms of this economic restructuring varied between countries, the overall direction was remarkably consistent—toward greater public sector involvement in economic decision-making. State ownership expanded across multiple sectors previously dominated by private capital. Public utilities were among the first to be nationalized, with electricity, gas, water, and telecommunications services brought under government control in most European countries and many developing nations. Transportation infrastructure followed a similar pattern, with railways, airlines, and shipping companies becoming state enterprises. Even manufacturing industries considered strategic—steel, coal, shipbuilding, aircraft—came under state ownership in countries ranging from Britain and France to India and Brazil. The motivations for this expansion of state economic control were diverse. In some cases, it reflected ideological commitments to socialism or economic nationalism. In others, it represented pragmatic responses to market failures, regional underdevelopment, or the need to rescue failing industries. National security concerns also drove state involvement in industries deemed vital to military preparedness. Across the political spectrum, there emerged a consensus that certain economic functions were too important to be left entirely to private enterprise. Beyond outright ownership, governments developed numerous mechanisms for controlling nominally private enterprises. These included subsidized credit through state investment banks, detailed planning requirements, price controls, foreign exchange restrictions, and mandatory production quotas. Even in the United States, where direct nationalization remained limited, the government effectively directed substantial portions of the economy through defense contracts, agricultural programs, and financial regulations. This economic restructuring fundamentally altered the nature of managerial authority. In state-owned enterprises, managers derived their position not from private shareholders but from political appointment. Their objectives were defined not primarily by profit maximization but by various social, political, and technical criteria established by government. Success was measured by output targets, employment levels, technological achievements, or contribution to national development rather than by returns on investment. The massive expansion of state economic activity created new career paths and power bases for the managerial class. Public sector managers often enjoyed greater autonomy than their private sector counterparts, as they were insulated from shareholder pressures and market disciplines. They formed close alliances with technical specialists, planners, and administrators in government ministries, creating networks of influence that transcended the traditional boundaries between state and economy. By the 1970s, the state sector accounted for between 20% and 50% of GDP in most advanced economies, and even higher percentages in many developing countries. While this expansion would face challenges from neoliberal policies in subsequent decades, it permanently altered the landscape of economic power. Even after later privatizations, the experience of state ownership left a legacy of increased government intervention and managerial rather than proprietary control as the dominant mode of economic organization.

Chapter 6: Rival Powers: The Three Super-States Emerge

The post-World War II global order witnessed the crystallization of three distinct centers of power, each organizing vast territories and resources according to its particular variant of managerial control. By the 1950s, the contours of these super-states had become clearly visible: the American-led Western bloc, the Soviet-dominated Eastern bloc, and an emerging constellation of non-aligned and developing nations increasingly conscious of their distinct interests and potential power. The American-centered domain represented the most sophisticated adaptation of managerial principles within a formally capitalist framework. Through institutions like the World Bank, International Monetary Fund, and various military alliances, the United States established mechanisms for coordinating economic and security policies across the "free world." While private ownership remained the nominal basis of economic organization, actual control increasingly resided with professional managers operating within parameters established by government planning agencies, regulatory bodies, and corporate bureaucracies. In Western Europe and Japan, reconstruction occurred under American supervision through programs like the Marshall Plan. These efforts deliberately strengthened managerial institutions while rehabilitating market economies. The resulting "mixed economies" featured extensive state ownership of key industries, comprehensive social welfare systems, and various forms of economic planning alongside private enterprise. Corporate ownership became increasingly dispersed among institutional investors, further separating formal ownership from effective control. The Soviet bloc developed a different variant of managerial society, eliminating private ownership of productive assets entirely. Economic decisions were centralized in planning bureaus staffed by technical specialists, party officials, and industrial managers. Despite the official ideology of worker control, actual authority resided with the managerial elite who directed enterprises according to plan targets rather than market signals. This system proved remarkably effective at rapid industrialization and military mobilization, though less successful at providing consumer goods or technological innovation. The third emerging center consisted of former colonies and less developed regions seeking autonomous development paths. Nations like India, Egypt, and Indonesia rejected both American capitalism and Soviet communism in favor of various forms of state-led development. Their economic systems typically featured extensive public ownership, planning mechanisms, and restrictions on foreign capital, combined with limited private enterprise in designated sectors. Political leadership in these countries often came from managerial elites—military officers, civil servants, and technical specialists—rather than traditional landowning classes or industrial capitalists. Relations among these three power centers were characterized by both conflict and accommodation. The Cold War provided the overarching framework for competition between the American and Soviet blocs, with each seeking to demonstrate the superiority of its managerial model. Yet practical necessities frequently led to pragmatic cooperation across ideological lines. Meanwhile, the non-aligned nations maneuvered between the superpowers, extracting resources and concessions while attempting to preserve their autonomy. By the 1960s, this tripartite division of the world had become the defining feature of international relations. While political rhetoric emphasized the conflict between capitalism and communism, the underlying reality was the emergence of three distinct variants of managerial society, each claiming to represent the most effective form of modern social organization. Their competition would shape global development for decades to come, even as the internal structure of each continued to evolve toward greater managerial control.

Chapter 7: The American Transition: New Deal to Managerial Society

The transformation of American society from traditional capitalism to managerial dominance followed a distinctive pattern, reflecting the nation's particular historical circumstances and political traditions. While the process began earlier, the New Deal era of the 1930s marked the decisive turning point when managerial institutions and practices became firmly established within the American economic and political system. The Great Depression catalyzed this transition by thoroughly discrediting laissez-faire capitalism. The market crash of 1929 and subsequent economic collapse revealed the inadequacy of traditional business leadership and created an opening for new approaches. Franklin Roosevelt's administration responded with an unprecedented expansion of federal authority, creating dozens of new agencies staffed by a new breed of government managers. The Tennessee Valley Authority, Securities and Exchange Commission, National Recovery Administration, and numerous other bodies established patterns of governmental planning and regulation that would endure long after the Depression ended. World War II accelerated the managerial transformation dramatically. The wartime mobilization required comprehensive economic planning on a scale never before attempted in America. The War Production Board, Office of Price Administration, and similar agencies directed the conversion of industry to military purposes, allocated scarce resources, controlled prices, and coordinated the activities of thousands of enterprises. This experience demonstrated that large-scale economic planning was not only possible in America but could achieve remarkable results in terms of productive efficiency. The post-war economic order institutionalized many wartime innovations. The Employment Act of 1946 committed the federal government to maintaining economic stability and growth, a responsibility that required continuous managerial intervention. The military-industrial complex emerged as a permanent feature of American society, with defense spending providing a mechanism for de facto industrial policy. New regulatory agencies proliferated, extending governmental oversight into virtually every sector of the economy. Meanwhile, corporate America underwent its own managerial revolution, as professional executives replaced proprietary capitalists at the helm of major enterprises. American political culture adapted to these changes by developing distinctive ideological justifications. Unlike European social democracy or Soviet communism, the American version of managerialism maintained a rhetorical commitment to free enterprise while expanding state power in practice. Technical expertise rather than class interest was presented as the basis for policy decisions. Planning was described as "coordination" or "partnership" between government and business. This allowed the managerial transformation to proceed without directly challenging American political traditions or provoking effective resistance from traditional elites. The social consequences of this transition were profound. A new professional-managerial class emerged as the dominant social group, distinguished by educational credentials rather than property ownership. This class occupied key positions in government agencies, corporate bureaucracies, universities, and major cultural institutions. Its members shared a characteristic worldview emphasizing rational planning, technical solutions to social problems, and faith in organizational efficiency rather than market mechanisms. By the 1960s, American society had become managerial in its essential structure, despite retaining many capitalist forms and symbols. While the subsequent decades would witness challenges to specific managerial arrangements—particularly during the Reagan era—there was no genuine return to traditional capitalism. Rather, managerial control continued to evolve and adapt, incorporating new technologies and responding to changing global conditions while maintaining its fundamental dominance over American economic and political life.

Summary

Throughout this examination of the managerial revolution, we have traced a fundamental transformation in how modern societies are structured and governed. The core shift involved the transfer of effective control over productive resources from traditional property owners to a new class of specialized managers, administrators, and technical experts. This transition occurred across ostensibly different economic systems—whether capitalist, socialist, or mixed—suggesting that the rise of managerial power represented not just an organizational adjustment but a fundamental social revolution comparable to the earlier transition from feudalism to capitalism. This historical development carries profound implications for our understanding of contemporary power structures and future social possibilities. The concentration of decision-making authority in the hands of those who possess specialized knowledge rather than property rights has created new forms of social stratification and control. As we navigate an increasingly complex technological landscape, the role of expertise in governance continues to expand, raising critical questions about democratic accountability and individual autonomy. Rather than viewing current social arrangements through outdated ideological lenses focused on the market versus the state, we might better understand our world by examining how managerial power operates across these conventional boundaries, shaping our lives through organizational systems that increasingly transcend traditional political categories and national borders.

About Author

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James Burnham

James Burnham was an American popular political theorist, best known for his influential work The Managerial Revolution, published in 1941. Burnham was a radical activist in the 1930s and an important factional leader of the American Trotskyist movement. In later years, as his thinking developed, he left Marxism and produced his seminal work The Managerial Revolution. He later turned to conservatism and served as a public intellectual of the conservative movement. He also wrote regularly for the conservative publication National Review on a variety of topics.Librarian Note: There is more than one author in the GoodReads database with this name. See this thread for more information.

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