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Indie Video Game Development Work: Innovation in the Creative Economy Alexander Styhre
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Preface
This volume is the outcome of a long-standing professional engagement I have maintained since the late 1990s, to study life science companies and their activities and relations. More recently, I have published at least two relevant books for this domain of research, Financing Life Science Innovation (2015, Palgrave Macmillan) and the more theoretically oriented volume Precarious Professional Work (2017, Palgrave Macmillan). This volume more explicitly addresses the question of why and on what basis rational individuals embark on careers in small-scale life science start-ups. This question is motivated by the empirically substantiated fact that many life science ventures are bound to default, or eventually become moribund as they end up in a state wherein they are starved of venture capital. Furthermore, also in the early stages, when finance capital is less pronounced than in the development phases, wherein for example, clinical trials and regulatory affair concerns put the venture under pressure to attract larger stocks of venture capital, this line of work is not fully compensated for the increased market risks the employee is exposed to in comparison to a position with a regular employer (the issue of what in fact a “regular employer” would mean these days can be left aside for the moment). Apparently, what is referred to as venture work in this volume, is quite simply defined as employment in venture-backed companies (and by default, in many cases, thinly capitalized firms) is primarily justified on grounds other than sheer calculated economic benefits.
While this volume presents empirical material collected within a study financed by the Bank of Sweden Tercentenary Foundation, it also includes theoretical perspectives that help make sense out of such choices. Human actors such as venture workers are not mindless dupes who are incapable of apprehending and responding to economic risks and uncertainty, for example; they are also meaning-making creatures that actively inscribe meaning and purpose to, for example, career choices and decisions. In this view, the choice to conduct venture work in life science start-ups being exposed to various risks and uncertainties is not of necessity unjustified. Instead, such ventures offer many benefits, including a sense of community and being a participant in a line of work that is meaningful and rewarding, at least to the extent that it sufficiently compensates for the risks now borne by venture workers. In this view, venture work is not only a reasonable career choice, it is also contributing to the wider community as any economic system needs actors willing to take on and carry risks in their day-to-day work. At the same time, venture workers cannot blindly submit to the consequences of market failure, for example, making a considerable proportion of life science ventures non-investable assets within extant risk management models, incapable of accommodating uncertainty, but need to be incentivized to expose themselves to such risk. For instance, the sovereign state, offering welfare provisions that protect private economic interests in the unfortunate event of the employer defaulting, and otherwise pursuing industry policies that are conducive to what has been called innovation-led growth, is a key actor in this setting. Free-market protagonists tend to portray state interventions as harmful to market efficiency and squandering tax money on projects with limited prospects for reasonable economic returns. In contrast, a more affirmative view of the sovereign state would underline that the state is de facto handling issues that cannot be resolved on the basis of the market-contracting mechanism, so that the critique of lower efficiency is only secondary to what these state-led activities add to innovation-led growth more generally. A critique of the role of the state and its defined agencies is always needed and welcome, but turning a blind eye to the limits of regular market transactions is not helpful when examining the role of, for example, venture labor in a contemporary economy. In this view, venture work is based on both a private business logic, structured
around contracts and collaborate activities within and across company boundaries, and an active state, acting either directly through, for example, policy-making and legislative reforms, or indirectly through its defined agencies in the innovation system, for example.
This volume adds to the literature on venture work in life science companies as such, and to the wider literature that examines so-called nontraditional employment, arguably an issue of growing importance in an economy dominated by finance industry interests and lowering transaction costs, resulting in the public, hierarchical, and divisionalized corporation (General Motor being perhaps the foremost exemplary case) no longer being the standard employer in future. In its place, a plethora of employment contracts and industrial relations may be established, potentially making contract work and free-agent work a more prominent employment form, in turn having considerable institutional consequences for the economic system of competitive capitalism. Many of these issues are still developing, but hopefully this volume adds in substantive ways to a scholarship that examines these changes; ones affecting all participants.
Gothenburg, Sweden Alexander Styhre
Acknowledgments
I am indebted to a number of individuals and institutions for being able to pursue this line of research work. First of all, my colleague Assistant Professor Maria Norbäck, with whom I have conducted the empirical research work within the current project, should be acclaimed for all her contributions. Originally studying freelance journalism and institutional changes in news media, Maria was also willing to do some “stretch-work” including life science venture work. Maria conducted several of the interviews in the project, co-authored a number of papers with me, and served as a speaking partner throughout this work.
Second and more generally, my colleagues at the Department of Business Administration, School of Business, Economics, and Law, University of Gothenburg, especially in the Organization and Management Section, should be recognized for providing a fertile ground for research in this domain. Several of my colleagues study changes in labor relations or conduct research on professional work, offering many insights into this area during seminars and the day-to-day department corridor small talk.
Third, as stated above, the Bank of Sweden Tercentenary Foundation has funded this research work, and it is my sincere hope that this research, and this volume more specifically, honor the privilege of receiving funding for a defined research program from this eminent financial institution.
Acknowledgments
Fourth, I would like to commend Madeleine Holder, Commissioning Editor, Business and Management, Palgrave Macmillan, for granting me the contract to publish this book. Lucy Kidwell, Editorial Assistant, Business and Management, Palgrave Macmillan, has been helpful in making the process run smoothly by useful and timely responses to my inquiries.
Finally, I would like to thank my family, Sara, Simon, and Max (in order of appearance), for making everyday life what it is, an existence supportive of the capacity to finalize intellectually exhausting and emotionally draining projects such as the publishing of an academic book.
Part I
Theoretical Perspectives
Introduction to Part I
Part I of this volume provides an overview of the theoretical framework that structures the empirical material reported in Part II, and which serves as the analytical tools and models used in Chap. 5 to discuss the empirical data. Part I is organized into two chapters: The first chapter (Chap. 6) discusses changes in corporate governance practices and how that affects labor markets and the economic security of salaried workers. The second chapter (Chap. 7) discusses how individuals to a varying degree make reasonable and rational decisions in everyday life, and how such capacities are involved when making career choice decisions. Furthermore, the ability to be motivated and to engage with current and potential work assignments is a matter of combining reasonable expectations and instrumental rationality regarding, for example, how work is compensated for by the employer, and how the employer otherwise signals a satisfaction and an understanding of the work effort made. These two theoretical chapters—wherein the former addresses more macrooriented structural and institutional changes, whereas the latter emphasizes the individual’s role in acting in accordance with, but also deviating from, structural and institutional conditions—jointly constitute the theoretical framework used to examine the empirical material reported in Part II of this volume.
New Forms of Work in the Postcorporate Economy: Venture Labor, Contract Work, and Freelancing
Vignette: Governing Innovation-led Growth
Peter Evans (1995) makes the argument that competitive capitalism is characterized by corporations that are embedded within the governance of the industrial sovereign state, yet being managed as autonomous legal and economic entities. In Evans’ view (1995), embedded autonomy is the governance model that has been most successful in promoting not only economic growth but also in securing a reasonable level of economic equality in advanced economies. For instance, Organisation for Economic Co-operation and Development (OECD) countries that invest in industry policy and support corporations report higher economic growth than states with such limited regulatory initiatives (Evans and Rauch 1999). In an historical perspective—and history does matter, at times surprisingly long after “cases have been closed,” as evidence shows (Banerjee and Duflo 2014)—such claims have been substantiated by empirical studies. As Sklar (1988: 15) remarks, examining the period 1890–1916 in the United States, the regime of corporate capitalism that we today tend to take for granted, “had to be constructed”: corporate capitalism “did not come on the American scene as a finished ‘economic’ product, or as a pure ideal type,” Sklar (1988: 15) says. Neither did corporate capitalism
A. Styhre, Venture Work, https://doi.org/10.1007/978-3-030-03180-0_1
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“take over society,” or “simply vanquish or blot out everything else.” Instead, this new economic regime was embedded within the existing economic structure and the institutions of American society, pre-dating corporate capitalism. Furthermore, in order to serve this role, as the blueprint for a new economic regime, what Sklar (1988) calls corporate liberalism was not simply a case of what Scott (1985: 40) refers to as the “symbolic alignment of elite and subordinate class values.” Corporate liberalism served the role of an intersection or a trading zone (with Galison’s 1997, handy phrase) wherein all kind of agents could advocate their interests:
[Corporate liberalism] emerged not as the ideology of any one class, let along the corporate sector of the capitalist class, but rather as a cross-class ideology expressing the interrelations of corporate capitalists, political leaders, intellectuals, proprietary capitalists, professionals and reformers, workers and trade-union leaders, populists and socialists. (Sklar 1988: 35)
Ultimately, corporate capitalism was instituted as a form of embedded capitalist regime of production, benefiting several rather than a few constituencies.
This view challenges the commonplace view that market-based competition is conducive to maximal economic efficiency. Besides the externality of opportunistic behavior being co-produced with increased competition (Charness et al. 2014; Mishina et al. 2010; Kilduff et al. 2016), there are additional empirical studies that challenge belief in the virtues of competition. Amable et al. (2017) argue that industry regulation, branded as a form of rent-seeking in neoclassical free-market advocacy (see e.g., Stigler 1971), and therefore imposing additional “costs” on market actors and their clients and beneficiaries (e.g., creditors) is in fact conducive to increased innovation output. In Amable et al.’s (2017: 2088) view, the conventional wisdom regarding the relationship between regulation and innovation is mistaken inasmuch as regulation in fact coincides with, or generates, innovative behavior. Using an empirical sample, including 13 manufacturing industries in 17 OECD countries during the 1977–2005 period, Amable et al. (2017: 2088) report results that contradict the idea that “technical progress at the leading edge should
be grounded on liberalisation policies.” Furthermore, the closer the industry or the specific firm is to the frontier of innovation, the more accentuated are the positive effects of regulation:
Regulation has a positive influence on innovation at the leading edge and, in several cases, directly on productivity as well. Besides, the relationship between the impact of PMR [Product Market Regulation] and the distance to the technological frontier that one can draw from the previous results contradicts the received view: PMR’s beneficial effects are stronger for industries that are closer to the frontier. (Amable et al. 2017: 2096–2097)
Amable et al. (2017) explain the positive correlation between regulation and innovation output on the basis of the risk-aversion premium in highcompetitive environments: when firms are exposed to fierce competition, they are reluctant to invest in firm-specific assets that eventually generate competitive advantages, and therefore they cannot create the resources needed to innovate. “Often, the most radical innovations cannot come from private entrepreneurs because they have neither the means nor the will to take the implied risks and make the necessary investments,” Amable et al. (2017: 2102) summarize.
Amable et al.’s (2017: 2102) findings thus challenge the conventional wisdom in some policy-making circles, inherited from the free-market and anti-statism doctrines of the Chicago School of Economics, for example, that product market regulation wields negative effects on innovation and economic growth. Such faulty beliefs may in turn have inhibited economic growth and innovation, with considerable consequences following. Aghion and Roulet (2014) make an important distinction between imitation-led and innovation-led growth, and suggest that the latter economic regime demands a more active state but also risk-tolerant actors willing to endure periods of uncertainty during their careers. In order to promote innovation-led growth, Aghion and Roulet (2014: 915) call for “smart state institutions and practices” to be implemented, and list Canada, Germany, the Netherlands, and the Scandinavian countries as examples of countries at the forefront of such industry policies. Furthermore, Aghion and Roulet (2014: 917) point out some of the requirements that need to be fulfilled to promote innovation-led growth.
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First, there is a need to adopt “a new approach to public spending,” which also means that highly precise and considerate investment decisions to allocate public funds to potential high-growth industries and firms are needed: “public investments should be targeted to a limited number of growth-enhancing areas and sectors,” claim Aghion and Roulet (2014: 917). Second, which underlines the role of the embedded autonomy of the corporation, public spending “should be accompanied by appropriate governance to ensure that public funds are efficiently used” (Aghion and Roulet 2014: 917). The monitoring of public investment demands both significant degrees of economic, financial, legal, and regulatory knowhow, but also integrity on the part of state-funded agencies and officers held responsible for the activities. The literature offers some evidence that an active state contributes to innovation-led growth. Howell (2017: 1162) examines early-stage innovation grants, and finds that such direct subsidies have “large, positive effects on cite-weighted patents, finance, revenue, survival, and successful exit” in recipient firms. Receiving an early-stage innovation grant enables the firm to “invest in reducing technological uncertainty,” which makes the firm “a more viable investment opportunity,” Howell (2017: 1162) argues. Furthermore, this class of grants offers the benefit of not “crowding out” private capital. Instead, these grants “enable new technologies to go forward,” and transform some of the “awardees” into “into privately profitable investment opportunities” (Howell 2017: 1137). In addition, Conti (2018) stresses the role of what Anderson (2018) refers to as policy entrepreneurs in designing research and development (R&D) subsidies. R&D subsidies, Conti (2018: 134) argues, often “come with multiple restrictions that governments impose on recipients to ensure that their goals are attained.” In some cases, a too strict framework for who is eligible for state-funded R&D subsidies may undermine the efficiency or the legitimacy of the policy, resulting in limited or disappointing outcomes. This condition offers a space for policy reform, wherein presumptive policy entrepreneurs may advocate and campaign for more relaxed selection criteria. Conti examines a R&D subsidy reform in Italy and provides empirical evidence that indicates that “restrictions on the external transfer of subsidized know-how made subsidies less effective in promoting innovation” (Conti 2018: 136). Howell (2017) and Conti’s (2018) studies suggest
that not only venture capital investors supply “smart money” (Sørensen 2007), but the state also offers these benefits when policies and R&D subsidies are carefully designed and monitored.
As innovation-led growth demands substantial finance capital investment, both in the build-up of regulatory activities and institutions supportive of firm-based activities, and as direct venture capital investment benefiting firm-specific development work, “credit constraints” are a primary concern for policy-makers promoting innovation-led growth. The lack of venture capital and qualified venture capital investors, for example, “[m]ay further limit or slow down the reallocation of firms toward new (more growth-enhancing) sectors,” Aghion and Roulet (2014: 918) warn. Furthermore, even in the case where the supply of venture capital funds is favorable, so-called knowledge spillover effects (Owen-Smith and Powell 2004) or “information leakage” (Pahnke et al. 2015) occurs, where the advancement of know-how in one firm may also benefit other firms, thus free-riding on others’ investments (as in the case, for example, where financial institutions such as banks develop algorithms that can be used for trading otherwise illiquid assets; see MacKenzie and Spears 2014: 437). In such cases, it may be difficult for firms to borrow or raise money from private capital markets to finance their growth as their assets are not assisted by legal protection that secures a return on an investor’s initial financial capital (Aghion and Roulet 2014: 918). In this situation, the sovereign state can make investments that benefit a broader set of actors, or a sub-field within an industry, as in the case of military research spending, or the financing of scientific programs such as in the European and North-American space programs.
In the end, Aghion and Roulet (2014) suggest, innovation-led growth is not the outcome of heightened competition (which instead inhibits innovative work; Amable et al. 2017; Aghion et al. 2005), but from reembedding the economy within the realm of the governance of the sovereign state, or within the transnational initiatives in which the state participates. This new model of innovation-led growth, the conventional wisdom of neoclassical economic theory, and policy-making doctrines derived therefrom, make up the free-market model, which stipulates the market as the origin and source of all meaningful rent-seeking activities, as being outmoded and even what undermines innovation-led growth
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initiatives, for example. Instead, the embedded autonomy of the individual corporation is recognized as a governance model that actively serves to share the risks between the sovereign state and its defined agencies, the finance capital investor community, entrepreneurs, and venture workers—the last being the principal organizational actors in this volume. Venture workers are individuals conducting salaried work in thinly capitalized firms, yet who do not receive full or at times even partial compensation for their increased market risk exposure vis-à-vis employees in better-capitalized firms and employers. While Evans’ (1995) term “embedded autonomy” may suggest that “embedded” de facto means that a considerable degree of the market risk is buffered by the state, in the era of innovation-led work, “smart state institutions and practices,” and venture work that is, ceteris paribus, undercompensated in terms of market risk exposure, the term “embedded” denotes rather that the sovereign state actively governs and participates in policy-making supportive of innovation-led growth.
Introduction
In folk belief and popular culture the gigantic corporation has always been a concern. Typically it is hierarchically organized into layers and layers of employees, middle managers, department bosses, division directors, and, at its apex, the top management team and the iconic figure of the chief executive officer, executing formal and real power over activities whose complexities and details are so vast that no human can practically overview and cognitively process all the information generated. As opposed to society proper, being widely understood as a set of sub-systems and functionally oriented activities that are at best loosely coupled, but in many cases operating in relative isolation, the large-scale corporation is commonly seen as an integrated whole, a machiner y for the production of goods, services, or both. Consequently, the corporation is simultaneously understood to be benevolent in terms of providing jobs and in delivering various commodities and other defined benefits, and a more unnerving entity inasmuch as faceless managers and executives have an enormous capacity to influence and shape the everyday lives of humans
in society and the local community (Anderson 2017). As most corporations are privately owned, either in the form of being a public company with dispersed ownership, or as closely held firms, the business charter of the corporation is protected from outsiders’ inspection. As opposed to democratically elected entities and public sector organizations, private corporations are shrouded in secrecy. No wonder corporations are sources of fascination and speculation.
Davis (2013: 284) argues that much social science research and commentaries target “the unfettered power of large corporations,” implying that large-scale businesses are to some extent a threat to various social values and liberal freedoms, while in fact analysts should be more concerned about their loss of power:
Our current problems of higher inequality, lower mobility, and greater economic insecurity are in large part due to the collapse of the traditional American corporation. Over the past generation, large, public traded corporations have become less concentrated, less interconnected, shorterlived, and less prevalent: there are fewer than half as many public corporations today as there were fifteen years ago. (Davis 2013: 284)
With economic inequality rising sharply over the past four decades, now being back to interwar period levels (Duménil and Lévy 2004), slower economic recovery and growth after the 2008 collapse of the finance industry, and unemployment stabilizing at historically high levels, also during the upturns in the economic cycle, the issue of the corporation’s role needs to be revisited. In 1950, Davis (2010: 333) reports, the ten largest employers hired 5 percent of the American workforce; today, they hire only 2.8 percent. In 1950, eight of the top ten employers were manufacturers, while today all are in services, and seven are retailers. In fact, by March 2009, Davis (2009: 27) writes, “more Americans were unemployed than were employed in manufacturing, and all signs pointed to further displacement in the goods-producing sector.” At this point, WalMart, the American grocer y store chain, frequently criticized for its lowwage policy and lack of benefits for its employees, “employed about as many Americans (1.4 million) as the 20 largest U.S. manufacturers combined” (Davis 2009: 30). This decline of the American corporation,
primarily in the manufacturing sector, has wiped out much blue-collar work that provided a substantial proportion of the American workforce with stable and well-compensated work. The retailing companies and service industries that have generated new jobs more recently pay substantially lower wages and offer fewer benefits than manufacturing companies once did, which serves to push up economic inequality as working-class jobs are less generously compensated. Furthermore, Davis (2009: 27) concludes, this data indicates that “large corporations have lost their place as the central pillars of American social structure.” The era of large corporations, oftentimes leading to oligopolistic industries, dominating what has been called the era of managerial capitalism (1945–ca. 1970), seems to have reached its end-point. Competitive capitalism is of course still today dominated by a number of Behemoth corporations—the household names of General Electric, Mitsubishi, Unilever, and so on— but these corporations today employ a substantially lower proportion of workers: their power is grounded in financial and political resources, not in their roles as providers of stable job opportunities. We are now in the era of “jobless growth.”
Davis (2013: 294) uses the term “the postcorporate economic organization” to denote the new corporate landscape wherein a network-based structure is displacing the integrated, hierarchical, and divisionalized organization (whereof General Motors and its iconic, brand-based organizational structure is exemplary). In the post-corporate economic organization, the public company is substituted by a variety of new corporate entities including privately owned, closely held venture-capital-backed startups, free economic agents, and contract workers, all jointly constituting economic networks capable of delivering goods and services, innovation, and new business opportunities. The question is then: What mechanisms, institutional changes, political agendas, and unanticipated consequences of purposeful action jointly contributed to the decentralization of the major public corporation in Western competitive capitalism and paved the way for the “post-corporate economy” that Davis (2013) anticipates? To answer that question, or to at least encircle it in meaningful ways, the very legal invention of the business charter needs to be examined. Furthermore, the enactment of the corporation as a bundle of financial assets as the privileged and dominant theoretical
model, and the re-direction of the corporation toward the more singular end of enriching its investors, the shareholders, needs to be considered in some detail.
Defining the Corporation: The Corporation as a Financial Capital-raising Vehicle
The legal status of the corporation is a continuously debated issue in legal and economic theory. While corporate law, a constitutional law in the American legal tradition, clearly stipulates that business charters are incorporated sui juris, as a free-standing and autonomous legal entity, a variety of economic theory models have enacted the corporation as a vehicle for the creation of economic value that benefit the shareholders, who the proponents of the shareholder primacy model regard as the only legitimate residual claimants, solely carrying market risk (Collins and Kahn 2016). Such claims are rejected out of hand by legal scholars (Stout 2001) and other commentators (e.g., Ciepley 2013: 146; Garvey and Swan 1994), who suggests that shareholders are just one stakeholder group among others, and that there is no legal, theoretical, or empirical basis for making the firm’s investors a privileged constituency. As this debate is accounted for in detail elsewhere (see e.g., Styhre 2016), this argument will not be replicated in this setting.
It is important to note that the legal protection of a business charter incorporated by the sovereign state considers both insiders’ and outsiders’ activities. For instance, what is referred to as the “hold-up problem,” wherein resources committed to the corporation’s activities become illiquid for a considerable period of time, and are thus inaccessible to investors, means that the corporation needs to be protected against a liquidation initiated by either business partners or investors (Lamoreaux 1998). The corporation “owns itself”—in other words, it is instituted as an autonomous legal entity—and this legal status, accompanied by various subsidies, exemptions, and other privileges as well as certain defined obligations, protects the firm against disruptive plans of major investors, among others. Having said that, it is possible to consider the corporation as a legal device that enables the raising of capital from a relatively large number of
investors (e.g., Manne 1967: 260). Some scholars, such as Manne (1967), argue that the corporation-as-capital-raising-device in turn justifies the idea of a centralized management:
The concept of centralized management is directly related to the idea of the large corporation as a capital-raising device… As generally understood, this means that promoters, in forming a corporation and marketing its shares, perform an entrepreneurial function. But it also implies that the selection of the managerial group is a function of the entrepreneur, and not of the capitalist investor. (Manne 1967: 260)
In this view, the corporate governance function is separated into the board of directors, having the formal power to make decisions pertaining to business activities, and the CEO and the top management team, being the directors’ agents, bestowed with the real power to implement businessspecific decisions made by the board. Furthermore, the shareholders, the firms’ investors supplying the capital needed to fund, for example, development work, are merely one among many stakeholders participating in the team production work. In contrast, for proponents of shareholder primacy governance (e.g., Easterbrook and Fischel 1996), it is the shareholders who can claim the role of the principal, making the directors and top management their agents. However, in an economy where financial capital is in abundant supply, the corporation no longer assumes the role of a capital-raising vehicle. The cost of raising capital is thus considerably lower than it was in the mid-nineteenth century when American states enacted corporate legislation, which implies that the legal status of the business venture is less critical. For instance, when fewer firms are listed on the stock exchange but remain closely held—in other words, the entrepreneur and his or her closest business partners own the majority of the stock—the financial market control of the corporation becomes much weaker. As initial public offerings (IPOs) are in decline, as empirical evidence suggests (Deeg 2009: 565; Davis 2013: 292), this evidence can be interpreted as being an indication of the loss of attraction of shareholders tout court (Stout 2001).
Furthermore, as opposed to the “original funding” of business ventures when they were incorporated by the business promoter and entrepreneur,
large and medium-sized firms generate their own capital and therefore no longer need to rely on financial market actors to supply capital to finance development work, for example. The increased degree of institutional ownership of all public stock companies, now being in the range of 73 percent of all publicly traded Fortune 1000 stock (Gilson and Gordon 2013: 874), suggests that the stock market no longer effectively monitors managerial opportunism (as well as other factors) as agency theorists, for example, suggest they do (Fama and Jensen 1983). Instead, institutional investors more directly intervene in the day-to-day decision-making at board of director and top management team levels, participating in socalled shareholder activism. As institutional investors hold large shares of stock in specific companies, their holdings are essentially illiquid as their choice to signal dissatisfaction with a managerial decision, for example, by taking the “exit option” (i.e., selling off their stock on the market) would affect the stock market price unfavorably.1 To avoid biasing the market to their own disadvantage, institutional fund managers are incentivized to execute the “voice option,” in other words, they actively intervene in managerial decision-making when they believe it would benefit their interests. Coffee (1991) explicates this proposition:
If an easy, low-cost ʻexitʼ is possible (such as that provided by securities markets), the members will rationally have little interest in exercising a more costly ʻvoice.ʼ But if ʻexitʼ is blocked, the members will become more interested in exercising a ʻvoiceʼ in governance decisions. From this perspective, the new activism of American institutional investors can be
1 “By definition, a market is liquid if it can absorb liquidity trades without large changes in price,” Allen and Gale (1994: 934) write. By implication, large institutional investors (e.g., pension funds) often hold illiquid assets by default. Furthermore, in venture capital investment, qualified investors hold illiquid assets inasmuch as the companies they choose to invest in acquire their market value precisely on the basis of their close relationship with specific owners and their networks of contacts. Speaking more generally about the issuance of credit through loans, Diamond and Rajan (2001: 322) point at the same illiquidity problem, and suggest that certain loans can only be sold at a discount for this reason: “When a lender makes loans that can be collected only with her specific collection skills, the loans are illiquid. The reason is that the lender’s specialized human capital cannot be easily committed to collecting the loans; hence they will sell at a discount or will be poor collateral.” Liquidity is thus not only a quality to be examined on the structural level of the market, but also on the basis of the qualities and competencies of market actors, say, financial traders, venture capital investors, and mortgage industry institutions.
explained as the product of ʻvoiceʼ becoming less costly, because of the growth in institutional ownership of securities and the resulting increased capacity for collective action, while ʻexitʼ has become more difficult, because institutional investors, who increasingly own large unmarketable blocks, must accept substantial price discounts in order to liquidate these blocks. These trends toward greater ʻvoiceʼ and lesser ʻexitʼ seem likely to continue for institutional investors. (Coffee 1991: 1288–1289)
Taken together, the corporation as a financial-capital-raising device was an original motivation for the legal innovation of corporate law, in turn justifying the controversial limited liability statutes, for example, but when the finance industry differentiated and other institutional changes in competitive capitalism materialized, this feature of the corporate form become only secondary to other benefits. Yet, the idea that corporate activities should primarily benefit the firm’s investors lingered on, despite the fact that access to capital is abundant in the contemporary economy. This “master idea” of the period after 1980 and the “pro-business turn” in, for example, American politics (also addressed as the rise of “neoliberalism” or “neoconservatism”) has generated substantial changes in the global economy.
Institutional Ownership and the Question of Short-termism
Gilson and Gordon (2013) introduce the term agency capitalism to denote the dominance of institutional ownership in the contemporary financialized economy. Institutional investors are assessed on the basis of their ability to generate net economic returns for their clients, and fund managers are compensated on the basis of their capacity to generate a certain return at a pre-defined risk level. Therefore, in combination with the “exit” option being blocked on the basis of liquidity concerns, fund managers are incentivized to endorse short-termism in their trading work. Laverty (1996: 826. Original emphasis omitted) characterizes economic short-termism as “decisions and outcomes” that “pursue a course of action
that is best for the short term but suboptimal over the long run.” In other words, fund managers representing institutional investors have a preference for short-term returns over long-term and potentially higher returns, which justifies a short-term mindset that may undermine a willingness to invest in production capital and development work (e.g., R&D).
Connelly et al. (2010: 737) report empirical data indicating “that transient institutional owners may discourage strategic competitive actions, which limits the range of competitive options available to firms.” More specifically, Connelly et al. (2010: 737) show that transient institutional owners (e.g., owners that hold stock for a shorter period of time) actively use the “the threat of exit” to pressure executives “to consider only those competitive actions that will not result in short-term earnings shortfalls.” That is, institutional investors participate in shareholder activism campaigns to discipline managers to make investments that maintain or inflate the stock market evaluation of the share in a short-term perspective. The downside is that more long-term production capital investment, conducive to sustainable competitive advantage but demanding a considerable amount of investment in illiquid capital over longer periods of time, is disqualified. Says Dallas (2011):
Nonfinancial firms with an ownership base dominated by transient institutional shareholders are more likely to cut research and development expenses to meet short-term earnings targets than firms dominated by dedicated and quasi-indexer institutional shareholders. Such firms seek to increase current earnings to support stock prices through myopic investment decisions. (Dallas 2011: 304)
In the account by Dallas (2011), the tendency to favor short-term liquidity over long-term investment in illiquid production capital is today widespread in American industry, a tendency that is associated with the considerable market penalty on earnings re-statements, commonly corrected downwards in the new estimate (Coffee 2006: 83):
A 2005 survey of 401 financial executives demonstrates the pervasiveness of shorttermism. Financial executives confirmed that they would take an
action that is value decreasing for their firms to meet earnings expectations. Over 80% of financial executives said they would decrease discretionary spending, such as advertising expenses, maintenance expenses, and research and development expenses, to meet earnings targets. Over 50% of financial executives said that they would delay starting a new project even if this entailed a small sacrifice in value to meet earnings expectations or to smooth earnings. (Dallas 2011: 280)
On the basis of such evidence, Coffee and Palia ( 2016 ) argue that the “board-centric” system of traditional corporate governance is now being displaced by a “shareholder-centric” system. That is, shareholders and their market evaluation of the firm’s capacity to generate economic rents benefiting their interests and shareholder activism (a diverse term accommodating various attempts to influence the board or the top management team) increasingly influence firm-specific, day-to-day decision-making. In practice, this means, Coffee and Palia ( 2016 : 603) continue, that “public corporations are increasingly under pressure to incur debt and apply earnings to fund payouts to shareholders, rather than to make long-term investments.” In other words, short-termism is mandated in the shareholder-centric corporate governance system.
Zhang and Gimeno’s (2016) study of institutional investors’ shareholder activism campaigns in the airline industry demonstrates some differences between various institutional investors. If the focal firm had a “more dedicated institutional investor ownership” rather than a more “transient institutional investor ownership,” the short-termism and earnings pressure was less pronounced (Zhang and Gimeno 2016: 363). In addition, the economic compensation packages of CEOs also played a key role inasmuch as companies with a CEO whose compensation covaried with stock market evaluations were less successful in counteracting short-termism. In this view, CEO and top management team incentives affect how short-term and long-term objectives are balanced. However, under all conditions, the emphasis on generating short-term returns to benefit shareholders, including institutional investors and dispersed owners of stock, have significant implications for the labor market, as one example.
Economic Compensation and the Question of Economic Inequality
In this section, three principal drivers of the secular stagnation of realwage growth will be examined on the basis of the literature: (1) Industry structure, (2) finance industry expansion, and (3) declining unionism.
Industry Structure
Karabarbounis and Neiman (2014: 62) examine labor’s lower share of the profit generated in the private sector in 59 countries between 1975 and 2012. In the sample, 42 countries exhibited downward trends in labor share. “The decline in the global labor share reflects declines in the large majority of countries around the world and is not simply a reflection of trends in a few big countries,” Karabarbounis and Neiman (2014: 72) summarize. In order to explain these differences, Karabarbounis and Neiman (2014: 65) reject the conventional model wherein technological shifts (e.g., digitalization) or globalization are responsible for economic changes beyond the influence of managers and policy-makers. Instead, Karabarbounis and Neiman (2014: 62) argue, “most of the global decline in the labor share is attributable to within-industry changes rather than to changes in industrial composition.” For instance, in the American economy, the period 1996–2009 has been characterized by “a dramatic acceleration in aggregate labor productivity growth,” Haskel et al. (2012: 120) write. The U.S. Bureau of Labor Statistics reports that “nonfarm business sector output per hour growth” was at the level of 1.4 percent annual growth between 1973 and 1995, and thereafter almost doubled over the next 14-year period. Despite these productivity gains at historically high levels, two-thirds of American states experienced declines in labor share over the period 1975–2012, a period that roughly overlaps with Haskel et al.’s (2012) sample period. The key explanation for this change in how profits, the residual cash remaining after all other costs have been covered, are distributed is that “business earnings and corporate saving have increased” at the expense of labor share, so Karabarbounis and Neiman (2014: 102) contend. Furthermore, the “large change in the
flow of funds between households and firms,” where firms raise their payout to shareholders, either in the form of higher dividends or stock repurchases, may have “important macroeconomic repercussions,” Karabarbounis and Neiman (2014: 102) add. The shareholders’ win was labor’s loss.
Wilmers (2018) argues that the secular stagnation of real wage growth is an effect of large companies pushing down salaries among their suppliers on the basis of their cost-cutting activities. In the 1970s, American workers’ wages no longer grew in parity with productivity growth, and new labor relations were further substantiated by market restructuring, “lax antitrust enforcement,” and supply chain innovation that made many supplier companies dependent on sales to what Wilmers (2018: 213) calls “dominant buyers.” These changes exposed salaried workers to “hierarchical product markets” governed by dominant buyers, which served to undermine the “organizational bases of workers’ wage premiums” (Wilmers 2018: 214) In 2014, the average publicly traded manufacturing firm received “over 25 percent of its revenue from large buyers, up from 10 percent in the early 1980s,” Wilmers (2018: 213) notices. This novel industry structure results in a smaller proportion of equity being transferred to salaried workers: “A 10 percent increase in revenue reliance on dominant buyers lowers suppliers’ wages by 1.2 percent” (Wilmers 2018: 231). This empirically substantiated negative association between “increasing buyer reliance” and wages is robust, Wilmers (2018: 223) contends.
Finance Industry Expansion
Dünhaupt (2017) examines how agency capitalism and the financialization of the economy (Palley 2013; Epstein 2005) affect the distribution of economic wealth in society, primarily in terms of economic compensation for work in comparison to productivity growth. As indicated above, a short-term focus on stock-market evaluations of the firm’s shares has been widely supported in the community of shareholders and investors, with only a handful of institutional investors being concerned about the
long-term viability of the economic system. As Dünhaupt (2017: 291) remarks, what she refers to as a “shareholder value orientation,” defined as “net interest and net dividend payments of non-financial corporations as a share of the capital stock of the business sector” (Dünhaupt 2017: 293), results in employees’ loss of compensation on the basis of two changes:
[A]n increase in shareholder value orientation might influence labour’s share of income via two channels: (i) rising overhead costs in the form of interest and or dividend payments of the corporate sector; and (ii) the weakening of (trade union) bargaining power caused by an increase in shareholder value orientation. (Dünhaupt 2017: 291)
These two parameters easily lend themselves to empirical investigation. Dünhaupt (2017: 293–294) reports that on average, “net dividend payments as a share of capital stock increased from 1% in 1986 to almost 4% in 2007,” being a quadrupling of the corporate payout to shareholders. “Certainly, there is a shift in power in the economy away from traditional wage-earning workers and towards those who make money from nonwork activities,” Brennan (2014: 249) remarks. Stagnating real wage growth in the United States (Gordon 2015: 542)—Dünhaupt (2017: 299) speaks about “a significant negative effect on the adjusted labour share”—is a consequence of waning trade union power, no longer being able to claim a proportional share of the effects of productivity growth. In summary, shareholder value orientation, resulting in increases in “overhead obligations in the form of interest and dividend payments,” comes at the expense of “the share of wages in national income” (Dünhaupt 2017: 299). In this view, shareholder value orientation in corporate governance is based on zero-sum game logic, and does not, as agency theorists such as Easterbrook and Fischel (1996) have claimed, generate benefits for all constituencies.2
2 “[M]aximizing profits for equity investors assists other ‘constituencies’ automatically… Prosperity for stockholders, workers, and communities goes hand in glove with better products for consumers,” Easterbrook and Fischel (1996: 38) declare.
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CHAPTER XXIV I
was during his inquiry about clerical allies and rivals—they were the same thing—that Elmer learned that two of his classmates at Mizpah Seminary were stationed in Zenith.
Wallace Umstead, the Mizpah student-instructor in gymnastics, was now general secretary of the Zenith Y. M. C. A.
“He’s a boob. We can pass him up,” Elmer decided. “Husky but no finesse and culture. No. That’s wrong. Preacher can get a lot of publicity speaking at the Y., and get the fellows to join his church.”
So he called on Mr. Umstead, and that was a hearty and touching meeting between classmates, two strong men come face to face, two fellow manly Christians.
But Elmer was not pleased to learn of the presence of the second classmate, Frank Shallard. He angrily recalled: “Sure—the fellow that high-hatted me and sneaked around and tried to spy on me when I was helping him learn the game at Schoenheim.”
He was glad to hear that Frank was in disgrace with the sounder and saner clergy of Zenith. He had left the Baptist Church; it was said that he had acted in a low manner as a common soldier in the Great War; and he had gone as pastor to a Congregational Church in Zenith—not a God-fearing, wealthy Congregational Church, like that of Dr. G. Prosper Edwards, but one that was suspected of being as shaky and cowardly and misleading as any Unitarian fold.
Elmer remembered that he still owed Frank the hundred dollars which he had borrowed to reach Zenith for the last of his Prosperity lectures. He was furious to remember it. He couldn’t pay it, not now, with a motor-car just bought and only half paid for! But was it safe to make an enemy of this crank Shallard, who might go around shooting his mouth off and telling a lot of stories—not more’n half of ’em true?
He groaned with martyrdom, made out a check for a hundred—it was one-half of his present bank-balance—and sent it to Frank with a note explaining that for years he had yearned to return this money, but he had lost Frank’s address. Also, he would certainly call on his dear classmate just as soon as he got time.
“And that’ll be about sixteen years after the Day of Judgment,” he snorted.
II
Not all the tenderness, all the serene uprightness, all the mystic visions of Andrew Pengilly, that village saint, had been able to keep Frank Shallard satisfied with the Baptist ministry after his association with the questioning rabbi and the Unitarian minister at Eureka. These liberals proved admirably the assertion of the Baptist fundamentalists that to tamper with biology and ethnology was to lose one’s Baptist faith, wherefore State University education should be confined to algebra, agriculture, and Bible study.
Early in 1917, when it was a question as to whether he would leave his Baptist church or be kicked out, Frank was caught by the drama of war—caught, in his wavering, by what seemed strength— and he resigned, for all of Bess’ bewildered protests; he sent her and the children back to her father, and enlisted as a private soldier.
Chaplain? No! He wanted, for the first time, to be normal and uninsulated.
Through the war he was kept as a clerk in camp in America. He was industrious, quick, accurate, obedient; he rose to a sergeancy and learned to smoke; he loyally brought his captain home whenever he was drunk; and he read half a hundred volumes of science.
And all the time he hated it.
He hated the indignity of being herded with other men, no longer a person of leisure and dignity and command, whose idiosyncrasies were important to himself and to other people, but a cog, to be hammered brusquely the moment it made any rattle of individuality. He hated the seeming planlessness of the whole establishment. If
this was a war to end war, he heard nothing of it from any of his fellow soldiers or his officers.
But he learned to be easy and common with common men. He learned not even to hear cursing. He learned to like large males more given to tobacco-chewing than to bathing, and innocent of all words longer than “hell.” He found himself so devoted to the virtues of these common people that he wanted “to do something for them”—and in bewildered reflection he could think of no other way of “doing something for them” than to go on preaching.
But not among the Baptists, with their cast-iron minds.
Nor yet could he quite go over to the Unitarians. He still revered Jesus of Nazareth as the one path to justice and kindness, and he still—finding even as in childhood a magic in the stories of shepherds keeping watch by night, of the glorified mother beside the babe in the manger—he still had an unreasoned feeling that Jesus was of more than human birth, and veritably the Christ.
It seemed to him that the Congregationalists were the freest among the more or less trinitarian denominations. Each Congregational church made its own law. The Baptists were supposed to, but they were ruled by a grim general opinion.
After the war he talked to the state superintendent of Congregational churches of Winnemac. Frank wanted a free church, and a poor church, but not poor because it was timid and lifeless.
They would, said the superintendent, be glad to welcome him among the Congregationalists, and there was available just the flock Frank wanted: the Dorchester Church, on the edge of Zenith. The parishioners were small shopkeepers and factory foremen and skilled workmen and railwaymen, with a few stray music-teachers and insurance agents. They were mostly poor; and they had the reputation of really wanting the truth from the pulpit.
When Elmer arrived, Frank had been at the Dorchester Church for two years, and he had been nearly happy
He found that the grander among his fellow Congregational pastors—such as G. Prosper Edwards, with his down-town plushlined cathedral—could be shocked almost as readily as the Baptists
by a suggestion that we didn’t really quite know about the virgin birth. He found that the worthy butchers and haberdashers of his congregation did not radiate joy at a defense of Bolshevik Russia. He found that he was still not at all certain that he was doing any good, aside from providing the drug of religious hope to timorous folk frightened of hell-fire and afraid to walk alone.
But to be reasonably free, to have, after army life, the fleecy comfort of a home with jolly Bess and the children, this was oasis, and for three years Frank halted in his fumbling for honesty.
Even more than Bess, the friendship of Dr. Philip McGarry, of the Arbor Methodist Church, kept Frank in the ministry.
McGarry was three or four years younger than Frank, but in his sturdy cheerfulness he seemed more mature. Frank had met him at the Ministerial Alliance’s monthly meeting, and they had liked in each other a certain disdainful honesty McGarry was not to be shocked by what biology did to Genesis, by the suggestion that certain Christian rites had been stolen from Mithraic cults, by Freudianism, by any social heresies, yet McGarry loved the church, as a comradely gathering of people alike hungry for something richer than daily selfishness, and this love he passed on to Frank.
But Frank still resented it that, as a parson, he was considered not quite virile; that even clever people felt they must treat him with a special manner; that he was barred from knowing the real thoughts and sharing the real desires of normal humanity.
And when he received Elmer’s note of greeting he groaned, “Oh, Lord, I wonder if people ever class me with a fellow like Gantry?”
He suggested to Bess, after a spirited account of Elmer’s eminent qualities for spiritual and amorous leadership, “I feel like sending his check back to him.”
“Let’s see it,” said Bess and, placing the check in her stocking, she observed derisively, “There’s a new suit for Michael, and a lovely dinner for you and me, and a new lip-stick, and money in the bank. Cheers! I adore you, Reverend Shallard, I worship you, I adhere to you in all Christian fidelity, but let me tell you, my lad, it wouldn’t hurt
you one bit if you had some of Elmer’s fast technique in lovemaking!”
CHAPTER XXV I
had, even in Zenith, to meet plenty of solemn and whiskery persons whose only pleasure aside from not doing agreeable things was keeping others from doing them. But the general bleakness of his sect was changing, and he found in Wellspring Church a Young Married Set who were nearly as cheerful as though they did not belong to a church.
This Young Married Set, though it was in good odor, though the wives taught Sunday School and the husbands elegantly passed collection plates, swallowed the Discipline with such friendly ease as a Catholic priest uses toward the latest bleeding Madonna. They lived, largely, in the new apartment-houses which were creeping into Old Town. They were not rich, but they had Fords and phonographs and gin. They danced, and they were willing to dance even in the presence of the Pastor.
They smelled in Elmer one of them, and though Cleo’s presence stiffened them into uncomfortable propriety, when he dropped in on them alone they shouted, “Come on, Reverend, I bet you can shake a hoof as good as anybody! The wife says she’s gotta dance with you! Gotta get acquainted with these Sins of the World if you’re going to make snappy sermons!”
He agreed, and he did dance, with a pretty appearance of being shocked. He was light-footed still, for all his weight, and there was electricity in his grasp as his hands curled about his partner’s waist.
“Oh, my, Reverend, if you hadn’t been a preacher you’d have been some dancing-man!” the women fluttered, and for all his caution he could not keep from looking into their fascinated eyes, noting the flutter of their bosoms, and murmuring, “Better remember I’m human, honey! If I did cut loose—Zowie!”
And they admired him for it.
Once, when rather hungrily he sniffed at the odors of alcohol and tobacco, the host giggled, “Say, I hope you don’t smell anything on
my breath, Reverend—be fierce if you thought a good Methodist like me could ever throw in a shot of liquor!”
“It’s not my business to smell anything except on Sundays,” said Elmer amiably, and, “Come on now, Sister Gilson, let’s try and foxtrot again. My gracious, you talk about me smelling for liquor! Think of what would happen if Brother Apfelmus knew his dear Pastor was slipping in a little dance! Mustn’t tell on me, folks!”
“You bet we won’t!” they said, and not even the elderly pietists on whom he called most often became louder adherents of the Reverend Elmer Gantry, better advertisers of his sermons, than these blades of the Young Married Set.
He acquired a habit of going to their parties. He was hungry for brisk companionship, and it was altogether depressing now to be with Cleo. She could never learn, not after ten efforts a day, that she could not keep him from saying “Damn!” by looking hurt and murmuring, “Oh, Elmer, how can you?”
He told her, regarding the parties, that he was going out to call on parishioners. And he was not altogether lying. His ambition was more to him now than any exalted dissipation, and however often he yearned for the mechanical pianos and the girls in pink kimonos of whom he so lickerishly preached, he violently kept away from them.
But the jolly wives of the Young Married Set—— Particularly this Mrs. Gilson, Beryl Gilson, a girl of twenty-five, born for cuddling. She had a bleached and whining husband, who was always quarreling with her in a weakly violent sputtering; and she was obviously taken by Elmer’s confident strength. He sat by her in “cozy-corners,” and his arm was tense. But he won glory by keeping from embracing her. Also, he wasn’t so sure that he could win her. She was flighty, fond of triumphs, but cautious, a city girl used to many suitors. And if she did prove kind—— She was a member of his church, and she was talkative. She might go around hinting.
After these meditations he would flee to the hospitality of T. J. Rigg, in whose cheerfully sloven house he could relax safely, from whom he could get the facts about the private business careers of his more philanthropic contributors. But all the time the attraction of
Beryl Gilson, the vision of her dove-smooth shoulders, was churning him to insanity.
II
He had not noticed them during that Sunday morning sermon in late autumn, not noticed them among the admirers who came up afterward to shake hands. Then he startled and croaked, so that the current hand-shaker thought he was ill.
Elmer had seen, loitering behind the others, his one-time forced fiancée, Lulu Bains of Schoenheim, and her lanky, rugged, vengeful cousin, Floyd Naylor.
They strayed up only when all the others were gone, when the affable ushers had stopped pouncing on victims and pump-handling them and patting their arms, as all ushers always do after all church services. Elmer wished the ushers were staying, to protect him, but he was more afraid of scandal than of violence.
He braced himself, feeling the great muscles surge along his back, then took quick decision and dashed toward Lulu and Floyd, yammering, “Well, well, well, well, well, well—”
Floyd shambled up, not at all unfriendly, and shook hands powerfully. “Lulu and I just heard you were in town—don’t go to church much, I guess, so we didn’t know. We’re married!”
While he shook hands with Lulu, much more tenderly, Elmer gave his benign blessing with “Well, well! Mighty glad to hear it.”
“Yep, been married—gosh, must be fourteen years now—got married just after we last seen you at Schoenheim.”
By divine inspiration Elmer was led to look as though he were wounded clear to the heart at the revived memory of that unfortunate last seeing. He folded his hands in front of his beautiful morning coat, and looked noble, slightly milky and melancholy of eye. . . . But he was not milky. He was staring hard enough. He saw that though Floyd was still as clumsily uncouth as ever, Lulu—she must be thirtythree or -four now—had taken on the city. She wore a simple, almost smart hat, a good tweed top-coat, and she was really pretty. Her eyes were ingratiatingly soft, very inviting; she still smiled with a
desire to be friendly to every one. Inevitably, she had grown plump, but she had not yet overdone it, and her white little paw was veritably that of a kitten.
All this Elmer noted, while he looked injured but forgiving and while Floyd stammered:
“You see, Reverend, I guess you thought we played you a pretty dirty trick that night on the picnic at Dad Bains’, when you came back and I was kind of hugging Lulu.”
“Yes, Floyd, I was pretty hurt, but—— Let’s forget and forgive!”
“No, but listen, Reverend! Golly, ’twas hard for me to come and explain to you, but now I’ve got going—— Lulu and me, we weren’t making love. No, sir! She was just feeling blue, and I was trying to cheer her up. Honest! Then when you got sore and skipped off, Pa Bains, he was so doggone mad—got out his shotgun and cussed and raised the old Ned, yes, sir, he simply raised Cain, and he wouldn’t give me no chance to explain. Said I had to marry Lu. ‘Well,’ I says, ‘if you think that’s any hardship—’ ”
Floyd stopped to chuckle. Elmer was conscious that Lulu was studying him, in awe, in admiration, in a palpitating resurgence of affection.
“ ‘If you think that’s any hardship,’ I says, ‘let me tell you right now, Uncle,’ I says, ‘I been crazy to marry Lu ever since she was so high. Well, there was a lot of argument. Dad Bains says first we had to go in town and explain everything to you. But you was gone away, next morning, and what with one thing and another—well, here we are! And doing pretty good. I own a garage out here on the edge of town, and we got a nice flat, and everything going fine. But Lule and I kind of felt maybe we ought to come around and explain, when we heard you were here. And got two fine kids, both boys!”
“Honestly, we never meant—we didn’t!” begged Lulu.
Elmer condescended, “Of course, I understand perfectly, Sister Lulu!” He shook hands with Floyd, warmly, and with Lulu more warmly. “And I can’t tell you how pleased I am that you were both so gallant and polite as to take the trouble and come and explain it to me. That was real courtesy, when I’d been such a silly idiot! That
night—I suffered so over what I thought was your disloyalty that I didn’t think I’d live through the night. But come! Shall we not talk of it again? All’s understood now, and all’s right!” He shook hands all over again. “And now that I’ve found you, two old friends like you—of course I’m still practically a stranger in Zenith—I’m not going to let you go! I’m going to come out and call on you. Do you belong to any church body here in Zenith?”
“Well, no, not exactly,” said Floyd.
“Can’t I persuade you to come here, sometimes, and perhaps think of joining later?”
“Well, I’ll tell you, Reverend, in the auto business—kind of against my religion, at that, but you know how it is, in the auto business we’re awful’ busy on Sunday.”
“Well, perhaps Lulu would like to come now and then.”
“Sure. Women ought to stick by the church, that’s what I always say. Dunno just how we got out of the habit, here in the city, and we’ve always talked about starting going again, but— Oh, we just kinda never got around to it, I guess.”
“I hope, uh, I hope, Brother Floyd, that our miscomprehension, yours and mine that evening, had nothing to do with your alienation from the church! Oh, that would be a pity! Yes. Such a pity! But I could, perhaps, have a—a comprehension of it.” (He saw that Lulu wasn’t missing one of his dulcet and sinuous phrases; so different from Floyd’s rustic blurting. She was pretty Just plump enough. Cleo would be a fat old woman, he was afraid, instead of handsome. He couldn’t of married Lulu. No. He’d been right. Small-town stuff. But awful nice to pat!) “Yes, I think I could understand it if you’d been offended, Floyd. What a young chump I was, even if I was a preacher, to not—not to see the real situation. Really, it’s you who must forgive me for my wooden-headedness, Floyd!”
Sheepishly, Floyd grunted, “Well, I did think you flew off the handle kind of easy, and I guess it did make me kind of sore. But it don’t matter none now.”
Very interestedly, Elmer inquired of Floyd, “And I’ll bet Lulu was even angrier at me for my silliness!”
“No, by gosh, she never would let me say a word against you, Reverend! Ha, ha, ha! Look at her! By golly, if she ain’t blushing! Well, sir, that’s a good one on her all right!”
Elmer looked, intently
“Well, I’m glad everything’s explained,” he said unctuously. “Now, Sister Lulu, you must let me come out and explain about our fine friendly neighborhood church here, and the splendid work we’re doing. I know that with two dear kiddies—two, was it?—splendid!— with them and a fine husband to look after, you must be kept pretty busy, but perhaps you might find time to teach a Sunday School class or, anyway, you might like to come to our jolly church suppers on Wednesday now and then. I’ll tell you about our work, and you can talk it over with Floyd and see what he thinks. What would be a good time to call on you, and what’s the address, Lulu? How, uh, how would tomorrow afternoon, about three, do? I wish I could come when Floyd’s there, but all my evenings are so dreadfully taken up.”
Next afternoon, at five minutes to three, the Reverend Elmer Gantry entered the cheap and flimsy apartment-house in which lived Floyd and Mrs. Naylor, impatiently kicked a baby-carriage out of the way, panted a little as he skipped up-stairs, and stood glowing, looking at Lulu as she opened the door.
“All alone?” he said—he almost whispered. Her eyes dropped before his. “Yes. The boys are in school.”
“Oh, that’s too bad! I’d hoped to see them.” As the door closed, as they stood in the inner hall, he broke out, “Oh, Lulu, my darling, I thought I’d lost you forever, and now I’ve found you again! Oh, forgive me for speaking like that! I shouldn’t have! Forgive me! But if you knew how I’ve thought of you, dreamed of you, waited for you, all these years—— No. I’m not allowed to talk like that. It’s wicked. But we’re going to be friends, aren’t we, such dear, trusting, tender friends . . . Floyd and you and I?”
“Oh, yes!” she breathed, as she led him into the shabby sittingroom with its thrice-painted cane rockers, its couch covered with a knitted shawl, its department-store chromos of fruit and Versailles.
They stood recalling each other in the living-room. He muttered huskily, “Dear, it wouldn’t be wrong for you to kiss me? Just once? Would it? To let me know you really do forgive me? You see, now we’re like brother and sister.”
She kissed him, shyly, fearfully, and she cried, “Oh, my darling, it’s been so long!” Her arms clung about his neck, invincible, unrestrained.
When the boys came in from school and rang the clicker bell down-stairs, the romantics were unduly cordial to them. When the boys had gone out to play, she cried, wildly, “Oh, I know it’s wrong, but I’ve always loved you so!”
He inquired interestedly, “Do you feel wickeder because I’m a minister?”
“No! I’m proud of it! Like as if you were different from other men— like you were somehow closer to God. I’m proud you’re a preacher! Any woman would be! It’s—you know. Different!”
He kissed her. “Oh, you darling!” he said.
III
They had to be careful. Elmer had singularly little relish for having the horny-handed Floyd Naylor come in some afternoon and find him with Lulu.
Like many famous lovers in many ages, they found refuge in the church. Lulu was an admirable cook, and while in her new life in Zenith she had never reached out for such urban opportunities as lectures or concerts or literary clubs, she had by some obscure ambitiousness, some notion of a shop of her own, been stirred to attend a cooking-school and learn salads and pastry and canapés. Elmer was able to give her a weekly Tuesday evening cooking-class to teach at Wellspring, and even to get out of the trustees for her a salary of five dollars a week.
The cooking-class was over at ten. By that time the rest of the church was cleared, and Elmer had decided that Tuesday evening would be a desirable time for reading in his church office.
Cleo had many small activities in the church—clubs, Epworth League, fancy-work—but none on Tuesday evening.
Before Lulu came stumbling through the quiet church basement, the dark and musty corridor, before she tapped timidly at his door, he would be walking up and down, and when he held out his arms she flew into them unreasoning.
He had a new contentment.
“I’m really not a bad fellow. I don’t go chasing after women—oh, that fool woman at the hotel didn’t count—not now that I’ve got Lulu. Cleo never was married to me; she doesn’t matter. I like to be good. If I’d just been married to somebody like Sharon! O God! Sharon! Am I untrue to her? No! Dear Lulu, sweet kid, I owe something to her, too. I wonder if I could get to see her Saturday—”
A new contentment he had, and explosive success.
CHAPTER XXVI I
the autumn of his first year in Zenith Elmer started his famous Lively Sunday Evenings. Mornings, he announced, he would give them solid religious meat to sustain them through the week, but Sunday evenings he would provide the best cream puffs. Christianity was a Glad Religion, and he was going to make it a lot gladder
There was a safe, conservative, sanguinary hymn or two at his Lively Sunday Evenings, and a short sermon about sunsets, authors, or gambling, but most of the time they were just happy boys and girls together. He had them sing “Auld Lang Syne,” and “Swanee River,” with all the balladry which might have been considered unecclesiastical if it had not been hallowed by the war: “Tipperary” and “There’s a Long, Long, Trail,” and “Pack Up Your Troubles in Your Old Kit Bag and Smile, Smile, Smile.”
He made the women sing in contest against the men; the young people against the old; and the sinners against the Christians. That was lots of fun, because some of the most firmly saved brethren, like Elmer himself, pretended for a moment to be sinners. He made them whistle the chorus and hum it and speak it; he made them sing it while they waved handkerchiefs, waved one hand, waved both hands.
Other attractive features he provided. There was a ukulele solo by the champion uke-player from the University of Winnemac. There was a song rendered by a sweet little girl of three, perched up on the pulpit. There was a mouth-organ contest, between the celebrated Harmonica Quartette from the Higginbotham Casket Factory and the best four harmonicists from the B. & K. C. railroad shops; surprisingly won (according to the vote of the congregation) by the enterprising and pleasing young men from the railroad.
When this was over, Elmer stepped forward and said—you would never in the world have guessed he was joking unless you were near enough to catch the twinkle in his eyes—he said, “Now perhaps
some of you folks think the pieces the boys have played tonight, like ‘Marching Through Georgia’ and ‘Mammy,’ aren’t quite proper for a Methodist Church, but just let me show you how well our friend and brother, Billy Hicks here, can make the old mouth-organ behave in a real highbrow religious hymn.”
And Billy played “Ach Du Lieber Augustin.”
How they all laughed, even the serious old stewards! And when he had them in this humor, the Reverend Mr. Gantry was able to slam home, good and hard, some pretty straight truths about the horrors of starting children straight for hell by letting them read the colored comics on Sunday morning.
Once, to illustrate the evils of betting, he had them bet as to which of two frogs would jump first. Once he had the representative of an illustrious grape-juice company hand around sample glasses of his beverage, to illustrate the superiority of soft drinks to the horrors of alcohol. And once he had up on the platform a sickening twisted motor-car in which three people had been killed at a railroadcrossing. With this as an example, he showed his flock that motor speeding was but one symptom of the growing madness and worldliness and materialism of the age, and that this madness could be cured only by returning to the simple old-time religion as preached at the Wellspring Methodist Church.
The motor-car got him seven columns of publicity, with pictures of himself, the car, and the killed motorists.
In fact there were few of his new paths to righteousness which did not get adequate and respectful attention from the press.
There was, perhaps, no preacher in Zenith, not even the liberal Unitarian minister or the powerful Catholic bishop, who was not fond of the young gentlemen of the press. The newspapers of Zenith were as likely to attack religion as they were to attack the departmentstores. But of all the clerics, none was so hearty, so friendly, so brotherly, to the reporters as the Reverend Elmer Gantry. His rival parsons were merely cordial to the sources of publicity when they called. Elmer did his own calling.
Six months after his coming to Zenith he began preparing a sermon on “The Making and Mission of a Great Newspaper.” He informed the editors of his plan, and had himself taken through the plants and introduced to the staffs of the Advocate-Times, its sister, the Evening Advocate, the Press, the Gazette, and the Crier.
Out of his visits he managed to seize and hold the acquaintanceship of at least a dozen reporters. And he met the magnificent Colonel Rutherford Snow, owner of the Advocate, a white-haired, blasphemous, religious, scoundrelly old gentleman, whose social position in Zenith was as high as that of a bankpresident or a corporation-counsel. Elmer and the Colonel recognized in each other an enterprising boldness, and the Colonel was so devoted to the church and its work in preserving the free and democratic American institutions that he regularly gave to the Pilgrim Congregational Church more than a tenth of what he made out of patent medicine advertisements—cancer cures, rupture cures, tuberculosis cures, and the notices of Old Dr. Bly. The Colonel was cordial to Elmer, and gave orders that his sermons should be reported at least once a month, no matter how the rest of the clergy shouted for attention.
But somehow Elmer could not keep the friendship of Bill Kingdom, that peculiarly hard-boiled veteran reporter of the Advocate-Times. He did everything he could; he called Bill by his first name, he gave him a quarter cigar, and he said “damn,” but Bill looked uninterested when Elmer came around with the juiciest of stories about dance-halls. In grieved and righteous wrath, Elmer turned his charm on younger members of the Advocate staff, who were still new enough to be pleased by the good-fellowship of a preacher who could say “damn.”
Elmer was particularly benevolent with one Miss Coey, sob-sister reporter for the Evening Gazette and an enthusiastic member of his church. She was worth a column a week. He always breathed at her after church.
Lulu raged, “It’s hard enough to sit right there in the same pew with your wife, and never be introduced to her, because you say it
isn’t safe! But when I see you holding hands with that Coey woman, it’s a little too much!”
But he explained that he considered Miss Coey a fool, that it made him sick to touch her, that he was nice to her only because he had to get publicity; and Lulu saw that it was all proper and truly noble of him . . . even when in the church bulletins, which he wrote each week for general distribution, he cheered, “Let’s all congratulate Sister Coey, who so brilliantly represents the Arts among us, on her splendid piece in the recent Gazette about the drunken woman who was saved by the Salvation Army. Your pastor felt the quick tears springing to his eyes as he read it, which is a tribute to Sister Coey’s powers of expression. And he is always glad to fellowship with the Salvation Army, as well as with all other branches of the true Protestant Evangelical Universal Church. Wellspring is the home of liberality, so long as it does not weaken morality or the proven principles of Bible Christianity.”
II
As important as publicity to Elmer was the harassing drive of finance.
He had made one discovery superb in its simple genius—the best way to get money was to ask for it, hard enough and often enough. To call on rich men, to set Sunday School classes in competition against one another, to see that every one received pledge-envelopes, these were all useful and he pursued them earnestly But none of them was so useful as to tell the congregation every Sunday what epochal good Wellspring and its pastor were doing, how much greater good they could do if they had more funds, and to demand their support now, this minute.
His Official Board was charmed to see the collections increasing even faster than the audiences. They insisted that the bishop send Elmer back to them for another year—indeed for many years—and they raised Elmer’s salary to forty-five hundred dollars.
And in the autumn they let him have two subordinates—the Reverend Sidney Webster, B.A., B.D., as Assistant Pastor, and Mr.
Henry Wink, B.A., as Director of Religious Education.
Mr. Webster had been secretary to Bishop Toomis, and it was likely that he would some day be secretary of one of the powerful church boards—the board of publications, the board of missions, the board of temperance and morals. He was a man of twenty-eight; he had been an excellent basket-ball player in Boston University; he was tight-mouthed as a New England president, efficient as an adding machine, and cold as the heart of a bureaucrat. If he loved God and humanity-in-general with rigid devotion, he loved no human individual; if he hated sin, he was too contemptuous of any actual sinner to hate him—he merely turned his frigid face away and told him to go to hell. He had no vices. He was also competent. He could preach, get rid of beggars, be quietly devout in death-bed prayers, keep down church expenses, and explain about the Trinity.
Henry Wink had a lisp and he told little simpering stories, but he was admirable in the direction of the Sunday School, vacation Bible schools, and the Epworth Leagues.
With Mr. Webster and Mr. Wink removing most of the church detail from him, Elmer became not less but more occupied. He no longer merely invited the public, but galloped out and dragged it in. He no longer merely scolded sin. He gratifyingly ended it.
III
When he had been in Zenith for a year and three-quarters, Elmer formed the Committee on Public Morals, and conducted his raids on the red-light district.
It seemed to him that he was getting less publicity. Even his friend, Colonel Rutherford Snow, owner of the Advocate-Times, explained that just saying things couldn’t go on being news; news was essentially a report of things done.
“All right, I’ll do things, by golly, now that I’ve got Webster and Wink to take care of the glad hand for the brethren!” Elmer vowed.
He received an inspiration to the effect that all of a sudden, for reasons not defined, “things have gotten so bad in Zenith, immorality is so rampant in high places and low, threatening the morals of youth
and the sanctity of domesticity, that it is not enough for the ministry to stand back warning the malefactors, but a time now to come out of our dignified seclusion and personally wage open war on the forces of evil.”
He said these startling things in the pulpit, he said them in an interview, and he said them in a letter to the most important clergymen in town, inviting them to meet with him to form a Committee on Public Morals and make plans for open war.
The devil must have been shaken. Anyway, the newspapers said that the mere threat of the formation of the Committee had caused “a number of well-known crooks and women of bad reputation to leave town.” Who these scoundrels were, the papers did not say.
The Committee was to be composed of the Reverends Elmer Gantry and Otto Hickenlooper, Methodists; G. Prosper Edwards, Congregationalist; John Jennison Drew, Presbyterian; Edmund St. Vincent Zahn, Lutheran; James F. Gomer, Disciples; Father Matthew Smeesby, Catholic; Bernard Amos, Jewish; Hosea Jessup, Baptist; Willis Fortune Tate, Episcopalian; and Irving Tillish, Christian Science reader; with Wallace Umstead, the Y. M. C. A. secretary, four moral laymen, and a lawyer, Mr. T. J. Rigg.
They assembled at lunch in a private dining-room at the palatial Zenith Athletic Club. Being clergymen, and having to prove that they were also red-blooded, as they gathered before lunch in the lobby of the club they were particularly boisterous in shouting to passing acquaintances, florists and doctors and wholesale plumbers. To one George Babbitt, a real estate man, Dr. Drew, the Presbyterian, clamored, “Hey, Georgie! Got a flask along? Lunching with a bunch of preachers, and I reckon they’ll want a drink!”
There was great admiration on the part of Mr. Babbitt, and laughter among all the clergymen, except the Episcopal Mr Tate and the Christian Scientific Mr. Tillish.
The private dining-room at the club was a thin red apartment with two pictures of young Indian maidens of Lithuanian origin sitting in native costumes, which gave free play to their legs, under a rugged pine-tree against a background of extremely high mountains. In Private Dining-room A, beside them, was a lunch of the Men’s
Furnishers Association, addressed by S. Garrison Siegel of New York on “The Rented Dress Suit Business and How to Run It in a High-class Way.”
The incipient Committee on Public Morals sat about a long narrow table in bent-wood chairs, in which they were always vainly trying to tilt back. Their table did not suggest debauchery and the demon rum. There were only chilly and naked-looking goblets of ice water.
They lunched, gravely, on consommé, celery, roast lamb, which was rather cold, mashed potatoes, which were arctic, Brussels sprouts, which were overstewed, ice cream, which was warm; with very large cups of coffee, and no smoking afterward.
Elmer began, “I don’t know who is the oldest among us, but certainly no one in this room has had a more distinguished or more valuable term of Christian service than Dr Edwards, of Pilgrim Congregational, and I know you’ll join me in asking him to say grace before meat.”
The table conversation was less cheerful than the blessing.
They all detested one another. Every one knew of some case in which each of the others had stolen, or was said to have tried to steal, some parishioner, to have corrupted his faith and appropriated his contributions. Dr. Hickenlooper and Dr. Drew had each advertised that he had the largest Sunday School in the city. All of the Protestants wanted to throw ruinous questions about the Immaculate Conception at Father Smeesby, and Father Smeesby, a smiling dark man of forty, had ready, in case they should attack the Catholic Church, the story of the ant who said to the elephant, “Move over, who do you think you’re pushing?” All of them, except Mr. Tillish, wanted to ask Mr. Tillish how he’d ever been fooled by this charlatan, Mary Baker Eddy, and all of them, except the rabbi, wanted to ask Rabbi Amos why the Jews were such numbskulls as not to join the Christian faith.
They were dreadfully cordial. They kept their voices bland, and smiled too often, and never listened to one another. Elmer, aghast, saw that they would flee before making an organization if he did not draw them together. And what was the one thing in which they were
