The economist Alfred Marshall came to believe that industrial titans were all but immortal: they “often stagnate, but do not readily die.” Some companies do seem to last forever. The most valuable ones in 1912 included Procter and Gamble, General Electric and Shell. And all three not only survived but prospered. P&G was the 52nd most valuable company in the world, General Electric the seventh most valuable, and Shell the fifth. By 1995, according to economic historian Leslie Hannah, all three companies had risen up the ranks to be the tenth, second and most valuable companies in the world.
It was what Marshall expected. But, looking closer, was he really right? The world’s most valuable company in 1912 was US Steel, a gigantic corporation even by today’s standards, employing 221,000 workers. It had everything going for it as the market leader in the world’s leading economy in an industry that never became obsolete. US Steel even had luck on its side, dodging a bullet when Standard Oil and Du Pont were broken up by the US government in 1911. And yet over time US Steel disappeared completely from the list of the most valuable 100 global companies. Last year it didn’t make the top 500.
Third on the list in 1912 was British company J&P Coats, which was acquired by Viyella in 1986 and has dropped out of the top 100. Next was Pullman, bought out by Wheelabrator-Frye in 1980. Other top ten companies included Anaconda, Singer, American Tobacco and International Harvester. None made the top 100 in 1995.
Many seem to have limped into obscurity for no obvious reason. If General Electric was such a star, why did its old rival Westinghouse not keep up? If Procter and Gamble flourished in fast-moving consumer goods, why not Cudahy Packing?
Ten of Hannah’s top 100 vanished inside a decade. Over half disappeared over the next 83 years, and just 19 retained their position in the top 100. In fast-growing new industries, too, from the dot-coms to the early auto industry and even the 15th-century printing industry, most firms disappear.
The marketplace’s paradox is that it delivers prosperity despite endemic failure — even due to endemic failure. Many 1912 titans failed because they were replaced by something better. That is one reason why the financial crisis is challenging the idea that markets work well. We are told that banks are “too big to fail”. If that is true, it is a major departure from the lessons of the past.
Tim Harford is a Financial Times columnist and bestselling author of The Undercover Economist and The Logic of Life
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