Managing Future Enterprise Staying

Ahead of the Curve with Symbiotic

Value Networks Friedrich Glauner
Visit to download the full and correct content document:
https://textbookfull.com/product/managing-future-enterprise-staying-ahead-of-the-curv
e-with-symbiotic-value-networks-friedrich-glauner/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...

Future Viability Business Models and Values Strategy

Business Management and Economy in Disruptive Markets
1st Edition Friedrich Glauner (Auth.)

https://textbookfull.com/product/future-viability-business-
models-and-values-strategy-business-management-and-economy-in-
disruptive-markets-1st-edition-friedrich-glauner-auth/

Valuation: Measuring and Managing the Value of

Companies 7th Edition Tim Koller

https://textbookfull.com/product/valuation-measuring-and-
managing-the-value-of-companies-7th-edition-tim-koller/

The Morality of Radical Economics: Ghost Curve Ideology

and the Value Neutral Aspect of Neoclassical Economics
1st Edition Ron P. Baiman (Auth.)

https://textbookfull.com/product/the-morality-of-radical-
economics-ghost-curve-ideology-and-the-value-neutral-aspect-of-
neoclassical-economics-1st-edition-ron-p-baiman-auth/

Symbiotic Interaction Jaap Ham

https://textbookfull.com/product/symbiotic-interaction-jaap-ham/
Managing Value Propositions in Service Ecosystems
Julian Boha

https://textbookfull.com/product/managing-value-propositions-in-
service-ecosystems-julian-boha/

The Future of Global Affairs: Managing Discontinuity,

Disruption and Destruction Christopher Ankersen

https://textbookfull.com/product/the-future-of-global-affairs-
managing-discontinuity-disruption-and-destruction-christopher-
ankersen/

Engineering Systems and Networks The Way Ahead for

Industrial Engineering and Operations Management 1st
Edition Marlene Amorim

https://textbookfull.com/product/engineering-systems-and-
networks-the-way-ahead-for-industrial-engineering-and-operations-
management-1st-edition-marlene-amorim/

Curve Benders How Strategic Relationships Can Power

Your Non linear Growth in the Future of Work 1st
Edition David Nour

https://textbookfull.com/product/curve-benders-how-strategic-
relationships-can-power-your-non-linear-growth-in-the-future-of-
work-1st-edition-david-nour/

Managing Projects as Investments Earned Value to

Business Value 1st Edition Stephen A. Devaux

https://textbookfull.com/product/managing-projects-as-
investments-earned-value-to-business-value-1st-edition-stephen-a-
devaux/
SPRINGER BRIEFS IN BUSINESS

Friedrich Glauner

Managing Future
Enterprise
Staying Ahead of
the Curve with
Symbiotic Value
Networks
123
SpringerBriefs in Business
More information about this series at http://www.springer.com/series/8860
Friedrich Glauner

Managing Future Enterprise

Staying Ahead of the Curve with Symbiotic
Value Networks
Friedrich Glauner
Cultural Images
Grafenaschau, Germany
Weltethos Institut/Global Ethic Institute
Eberhard Karls Universität Tübingen
Tübingen, Germany

Translated by Kevin Lee Potter

ISSN 2191-5482 ISSN 2191-5490 (electronic)

SpringerBriefs in Business
ISBN 978-3-030-03115-2 ISBN 978-3-030-03116-9 (eBook)
https://doi.org/10.1007/978-3-030-03116-9

Library of Congress Control Number: 2018959742

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2019

This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the
material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation,
broadcasting, reproduction on microfilms or in any other physical way, and transmission or information
storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication
does not imply, even in the absence of a specific statement, that such names are exempt from the relevant
protective laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information in this
book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or
the editors give a warranty, express or implied, with respect to the material contained herein or for any
errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional
claims in published maps and institutional affiliations.

This Springer imprint is published by the registered company Springer Nature Switzerland AG
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
Preface

A Future for Enterprise: An Enterprise for the Future

The historically unparalleled success of our modern economies and forms of enter-
prise has a dark underbelly: dramatic challenges, to our economy, our social world,
and our environment. Not only do they threaten our society at large, but more and
more frequently also the companies that have created that success story of modern
economic enterprise. Mastering these challenges will need a new type of economic
thinking and a new business practice. Entrepreneurs who dare to test these new ways
will become the star actors of a civil society that defends its liberal order with
enterprising courage by—a contradiction only on the surface—serving the greater
good and adding something of value to our world. Their actions will not only be a
model for all holistically minded and responsible enterprise to follow, but a model
for politics and all other social institutions that are still caught up in our old economic
ways of venturing that continue to fuel the fires that modern and future viable
enterprise has the power to put out.
This BRIEF volume is meant as a first guidebook on how this new thinking and
new practice can be embedded in businesses in concrete and commercially effective
ways. It comes from an attempt to condense the Tübingen Development Model for
Future Viable Enterprise for practical use. Working with companies and practi-
tioners in the real world, the model was the author’s brainchild at the Global Ethic
Institute of the University of Tübingen. Termed Ethicology, it reconciles the ethical
and ecological principles of successful practice in living systems with the established
tools of business management and organizational psychology for a values-driven
management of organizations.
I need to thank all of my colleagues at the Global Ethic Institute and all of the
entrepreneurs who are already working sustainable businesses and who rightly
deserve to be called models for enterprise. Specifically, I want to thank my colleague

v
vi Preface

Anna Tomfeah at the Institute, who gave the impetus for this BRIEF volume and
who has supported it with so many comments and suggestions, practical editorial
support, and her gift for the right turns of phrase.

Grafenaschau and Tübingen, Germany Friedrich Glauner

September 14, 2018
About This Book

What you will find in this BRIEF volume

• A how-to for greater competitiveness
• An introduction to the principles of sustainable business
• Recipes and approaches for developing value creation networks, sustain-
able business models, and resource-adding value cycles

Globalization, digitalization, automation, and new forms of organization are chang-

ing the face of all industries, markets, and processes at their very core. More than
ever, companies are forced to grow to survive and constantly expected to reinvent
themselves at ever shorter intervals. For them to survive, they need a new type of
thinking, new business models, and new strategies. The implications for modern and
successful management are enormous.
Viable and sustainable companies will be the ones that find a counterpoint to the
evolutionary dynamics of our current boundless and borderless global economy.
They will add value in resource-adding networks and free themselves from the
chokehold of our current competitive economy. They will remember their original
purpose, the reason for why they are needed: We need companies to fulfil a purpose
that individuals could not fulfil on their own. Think of major heart surgery or the
construction of modern aeroplanes. Remembering this purpose, we understand that
the essence of enterprise does not lie in making a profit, but in the need for
organizing cooperation to deliver substantial benefits. This can only be done in a
commercially rewarding manner if companies adopt values that help them organize
themselves as high-performance teams (cf. 2.3.1). The process of creating these
values represents the key value creation process, and it is the process through which
companies become viable for the future.
How this values creation process can be organized and initiated is the topic of this
volume. We will approach it in three steps. The chapter “Old wine in old skins” takes

vii
viii About This Book

another look at the problems facing all businesses today, thereby establishing the foil
(Sects. 1.1 and 1.2) and frame (Sect. 1.3) for viable enterprise. “Values creation as
value creation” explores the new paradigms of viable enterprise. And “Value adding
networks” highlights the aspects and processes that companies can use to apply these
paradigms today.

The Sustainable Enterprise

This BRIEF volume answers the following questions:
• What challenges will companies have to contend with if they want to
succeed in tomorrow’s markets?
• How do companies need to evolve to master these challenges?
• How can managers and decision makers instil the mindset and practices
needed to make their organizations viable for the future?
• How can entrepreneurs master the paradigm shift from a purely profit-
centric focus on processes to a systemic stance that adds more resources
than it consumes? How will this affect the innovative capacities of their
companies?
• How can an organization create added value that will sustain it for the long
term? How will this change its business model and strategy?
• Why are companies the key actors for solving the many local and global
problems that have arisen from our current market dynamics and economic
principles?
• Why are holistic responsibility and values-oriented practice the keys to
lasting success? How will they affect the commercial fortunes of
enterprises?
Contents

1 Old Wine in Old Skins: The Challenges for Modern Management . . . 1

1.1 Fallacies at Work: The Creeds of Competition and the Paradox
of Destructive Wealth Creation . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 The Dead Ends of Modern Enterprise: Swarm Stupidity, Warped
Time, and Growth by Sense Surrogate . . . . . . . . . . . . . . . . . . . . . 8
1.2.1 Warped Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.2.2 Growth in Saturated Markets, Sense Surrogates,
and Phishing for Phools . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.2.3 The Catch-22 of Modern Business . . . . . . . . . . . . . . . . . . 11
1.3 New Wine in New Skins: The Foundations of Future Viable
Enterprise and Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.3.1 Understanding Systems . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.3.2 Understanding Psychology . . . . . . . . . . . . . . . . . . . . . . . . 17
1.3.3 Managing Future Viable Strategies . . . . . . . . . . . . . . . . . . 21
2 Values Creation as Value Creation: The Paradigm of Lastingly
Viable Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.1 The Necessity of Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.2 Success: The Human Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.3 Ethicological Value Creation: Future Viability . . . . . . . . . . . . . . . 28
2.3.1 The Basics of Management: High Performance Teams . . . . 28
2.3.2 A Management Master Class: Added Value Cycles . . . . . . 30
2.3.3 Nature’s Law Of Success: Be Valuable . . . . . . . . . . . . . . . 32
3 Value Adding Networks: Paths Towards Future Viability . . . . . . . . 35
3.1 Value Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.1.1 Conceiving the Business Idea . . . . . . . . . . . . . . . . . . . . . . 36
3.1.2 Defining the Values Profile . . . . . . . . . . . . . . . . . . . . . . . 37
3.1.3 Defining the Business Model . . . . . . . . . . . . . . . . . . . . . . 39
3.2 Cultures of Organization and Networks . . . . . . . . . . . . . . . . . . . . 42
3.3 Staying in Control: The Values Cockpit . . . . . . . . . . . . . . . . . . . . 44

ix
x Contents

4 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.1 The Ethicological Axioms of Lastingly Viable Business Models . . . 47

What Readers Are Saying About the Author’s Works Published

by Springer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Chapter 1
Old Wine in Old Skins: The Challenges
for Modern Management

The as yet unbroken success story of today’s technology-driven business models has
led to a proliferation of new opportunities and a never before seen level of wealth for
great masses. At the same time, the continued belief in the old creeds of competition,
with its mantra of “faster, bigger, better”, means that many formerly successful
business models are falling apart, and the political, ecological, and social resources
fuelling our wealth and economic well-being are being exploited at an unsustainable
rate. If companies want to survive in this environment, they need new strategies and
business models that will stand the test of time.

1.1 Fallacies at Work: The Creeds of Competition

and the Paradox of Destructive Wealth Creation

In a nutshell, the essence of business management is: To make companies more

competitive. This is measured by how companies manage “scarcity”: Companies are
considered more competitive if they make a profit by working creatively with
“scarcity”. The underlying belief is that profit is only possible when the rewards
gained are higher than the means invested. This combines some of the key concepts
of our modern economic thinking: profit, scarcity, competition, and growth. All
actors in all markets are caught up in these beliefs in their attempts to gain more than
they invest. All of this is made possible by the three sources of value creation:
gaining interest on capital, exploiting the creativity and innovative potential of
human labour and ingenuity, and exploiting natural and social resources without
having to pay the actual price for them (in the sense of sustaining the full costs). If,
however, all actors seek to take out more from the system than they put in, they all
strive for systematically to externalize the costs of their activities. In the end, this
creates a spiral of the concentration of market power and economic rewards in the
hands of the few and the depletion of means and resources on the side of the many,

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2019 1

F. Glauner, Managing Future Enterprise, SpringerBriefs in Business,
https://doi.org/10.1007/978-3-030-03116-9_1
2 1 Old Wine in Old Skins: The Challenges for Modern Management

the system as a whole. As Robert Frank, Philip Cook, and Tony Seba conclude with
different appraisal regarding the outcome and consequences, fewer and fewer
winners will take all (Seba 2006, 2014), paid for by more and more losers who go
wanting (Frank and Cook 1995). In the end, this leads to the political, commercial,
ecological, and social turmoil that is already starting to show itself and that has the
potential to threaten not only the survival of our liberal societies but too the prospects
of a rich, healthy and vivid mankind and nature.

Paradoxes of Destructive Wealth Creation

Our modern market paradigms have created a depletory spiral of acceleration,
concentration, and resource exploitation. It results in the fact that, in the
economic games of competition, all market players seek to gain competitive
advantages by at least partly externalizing costs to others, thus fuelling a
downward spiral of resource depletion and disruption. Drawing on what
Garrett Hardin and Joshua Greene call the “tragedy of the commons” (Hardin
1968; Greene 2013) and what Robert Frank calls the “Darwin Economy”
(Frank 2011), this development can be termed the ‘paradox of destructive
wealth creation’. It consists in the fact that our individually rational and, in
itself, highly successful economic behaviours lead, on the group level and the
level of the whole system, to an outcome which places the social, ecological,
and economic sources of this wealth creation process in existential jeopardy.
What this means in practice can easily be seen by looking at the following four
aspects of modern day enterprise:
Depletion: The Downward Spiral of Globalized Competition
That our economic games of competition are, at heart, fuelling a downward
spiral of resource depletion and disruption becomes apparent if we turn to one
of the core beliefs of economic thinking. It is the understanding that the
better will kill the good and that even good business models will eventually
have to give way to better models. However, the real-world effects of the
Schumpeterian idea that creative destruction is a way of creating wealth and
opportunities for everyone (Schumpeter 1942) must be read as a continuous
process of widespread impoverishment and disenfranchisement, both in terms
of the broader participation in wealth and in terms of the wide-ranging erosion
of the human and natural resources that are the fuel of our current forms of
wealth creation.
This becomes plain when we combine the consequences of technological
evolution with the key premises of the economic worldview in a causal chain:
Premise 1 People and enterprises are rational maximizers of their own good.
Premise 2 Goods and resources are scarce.
Premise 3 In the fight for scarce goods and resources, people and enterprises
are in competition.

(continued)
1.1 Fallacies at Work: The Creeds of Competition and the Paradox of. . . 3

Premise 4 The optimal form of managing scarce goods is competitive

forums (liberalized markets) governed by the free rules of
supply and demand.
Premise 5 An advantage in the profit-driven competition for scarce goods
and resources generates greater profit, which can again be used to
gain more competitive advantage.
Premise 6 Creativity and intelligence can overcome scarcity in means,
goods, and equity, so that the invention of novel, disruptive
business models can make long-established “top dogs” obsolete.
If we combine these premises of the economic mental model with the
real-world developments caused by the technological changes brought about
by our human ingenuity, we can see the following feedback spiral forcing the
hand of the economic actors and accelerating the economization of our world:
– Competition in an iterative process of profit and loss is leading to the
concentration of assets in the hands of a few selected players.
– This concentration creates additional competitive advantages for the big
players (economies of scale and horizontally or vertically integrated
value chains), which are reinforced with dominance strategies closing
off their markets.
– Competitors in markets closed off by dominance strategies are forced
to find disruptive business models as the only way forward for
smaller or less established players.
– Globally disruptive business models are leading to new
concentration.
– This wave of concentration is putting countless jobs and a
broad and diverse enterprise landscape at risk.
– The erosion of a broad, small-scale employment and enter-
prise landscape is leading to increased pressure on the prices
for the products and services of the remaining actors.
– The increasing pressure on prices for products and ser-
vices can only be balanced with new disruptive business
models or even more cost-reduction measures in produc-
tion (reducing labour and resource costs, outsourcing the
costs through the supply chain, production in cheap
labour countries with low or no social or environmental
standards)

(continued)
4 1 Old Wine in Old Skins: The Challenges for Modern Management

– The increasing pressure on prices echoes around the

world, and is putting the resources and the income of a
broad spectrum of suppliers and their employees
under pressure.
– The pressure on resources is again accelerating the
spiral.

The result of this spiral is an accelerating drifting-apart of those who are

winning and those who are losing the games of competition. As the Boston
Consulting Group puts it in its research paper “Global Wealth 2015: Winning
the Growth Game” (BCG 2015), the index of private wealth has increased by
11.9% in 2014, after having grown by 12.3% in 2013—2 years with histori-
cally low interest rates. For comparison: In the same time, the global GDP
grew by 3.41% in 2013 and 3.39% in 2014. We can assume that the increased
wealth recorded by BCG is the product of a disproportionate increase in the
value of highly unequally distributed wealth as analysed not only by the
Boston Consulting Group, but also by highly respected economists, such as
Collin Crouch and Nobel laureate Joseph Stiglitz (Crouch 2016; Stiglitz
2012). Their findings are being mirrored even by reports issued from the
financial industry itself, for example in the recent study on the “Work cri-
sis—a divided tale of labor markets” (Kocic 2015), published by Aleksandar
Kocic, the Managing Director Research at the Deutsche Bank in New York.
The core message of the Deutsche Bank study is stark: “For the first time since
the Industrial revolution, new technology is destroying more jobs that it is able
to remobilize. And as ever less labor is needed to produce the same output, it is
becoming clear in some countries that growth is now possible without rising
employment and wages. Such a profound change is bound to have immense
economic and social implications” (l.c. 47). One of these implications will be
that, in the winner-takes-all markets of technology-driven disruptive business
models, the gap between winners and losers is widening more and more, thus
leading to the erosion of broad economic wealth creation.
Disruption: The Destructive Logics of “Winner-Takes-All” Markets
Let us take the case of UBER: Originally invented as a platform for a
business model of the “sharing economy”, many other companies, many local
communities, and even our entire society have come to realize that its negative
consequences outweigh its positive promise. The following, intentionally
fictional and simplified, calculation shows this by revealing the mechanisms
at work with such disruptive business models.

(continued)
1.1 Fallacies at Work: The Creeds of Competition and the Paradox of. . . 5

The market for taxicab services before the advent of UBER: There are one
million taxicab operators in the world, employing ten million drivers who
make a living from their services. Working on 250 days, they carry an average
of ten passengers at an average rate of €10 per journey. This means 25 billion
journeys and a total turnover of €250 billion per year. Take away an assumed
30% rate of tax, that is, €75 billion going to the state to pay for infrastructure or
other services.
The market for taxicab services after UBER: With its digital ride sharing
platform, UBER has radically changed the face of the taxicab industry. Every
car driver—a potential of 100 million suppliers in our rough model—can pick
up UBER passengers via the app to earn a little extra. The passengers also
benefit: They only pay a lower contribution for the ride. Assume an average of
€6 per journey, this saves them 40% on our imaginary taxicab fees. With
25 billion rides per year, the market makes a total of €150 billion in turnover,
of which 20% or €30 billion goes to UBER for providing the platform,
deducting 30% tax for our calculation. The remaining €120 billion are shared
among the drivers. Although UBER pays taxes on its corporate earnings, the
drivers do not do so, saving them a minor amount in tax at the expense of not
making a living wage of UBER. In the end, UBER is the only real winner with
its almost monopolistic hold over the market. The customers and providers of
the ride services are only secondary beneficiaries in this business model. On a
higher level, everybody who depended on the old taxicab economy loses, and
society at large loses double: The state loses a considerable source of fiscal
revenue, and it has to stomach the costs of the new model, starting with the
need to provide for or retrain the taxi drivers now left unemployed.

A model calculation of the Taxicab market before and after UBER

Potential
The No. of No. of Taxi Total market Tax earnings per
market companies drivers journeys turnover revenue driver
Before 1 million 10 25 €250 billion €75 €25,000
UBER million billion billion
After 1 100 25 €150 billion €9 €1200
UBER million billion billion

UBER, the model enterprise: All markets, not just taxicab services, are
currently being threatened by a new technological leap that will enshrine
monopoly returns for the winners like Amazon, Apple, Google, and their ilk,
allowing them to virtually dominate entire markets at their leisure. A 2015
study of the Commerzbank has shown that a quarter of the 4000 participating
companies cannot see a viable future for their business models as a result of
recent developments and new platform economies (Commerzbank 2015); the
figures rises to a full 60% in the case of retail. The consequences of this

(continued)
6 1 Old Wine in Old Skins: The Challenges for Modern Management

become plain in similar studies conducted by the Deutsche Bank, ING-Diba,

high-profile consulting specialists like McKinsey, or researchers in Oxford
and Boston: The new technologies will, for the first time in the history of
enterprise, not have a trickle-down effect that will let workers share in the
value that is being created (Bryan and Farrell 1996). The studies also show that
technology-driven business models and the combined impact of digitalization
and automation are placing possibly more than half of all current regular jobs
in jeopardy (Brynjolfsson and McAfee 2014; Frey and Osborne 2013; Kocic
2015; ING-Diba 2015). For the remaining enterprises, this not only means
that business models that used to be successful are at risk. What is even worse:
they might be losing swathes of affluent consumers.
Externalization: Exergy and the Limits of Growth
The logics of externalization, i.e. the pursuit of profits by either exploiting
the common good or by outsourcing costs and risks to third parties, such as the
public at large or the supply chain, can best be understood if we turn to the
Solow residual. It consists in a surplus of annual GDP growth which,
according to Nobel Prize winner Robert Solow (1956), cannot be linked to
capital and labour, that is, the two central factors which are accounting for the
growth of productivity. To explain this residual, we need to turn to a third
factor accounting for the growth of productivity. It comes from the use of what
Robert Ayres and Benjamin Warr call ‘exergy’, i.e. the exploitation of fossil
fuels and other natural resources (Ayres and Warr 2005, 2009). Acknowledg-
ing this factor, the exponential growth since the original Industrial Revolution
has, for the most part, been due to the exploitation of fossil fuels and natural
resources. To quote Martin Stuchtey: “Taming wind and hydro energy, and
inputting them into the economy, once allowed mechanization of grinding,
pumping, sawing, irrigation and many other laborious tasks . . . Taming coal
and vastly increasing the amount of energy put into the economy was crucial
for the first industrial revolution. While our modern economy has of course
moved on from horses and steam engines, it is still striking how many
industries continue to depend heavily on natural resources: food, transport,
construction and all primary material production, for instance” (Stuchtey et al.
2016, p. 59). Thus the success of modern day wealth creation “is largely built
on transforming natural capital, the economist’s word for natural resources,
into other forms of capital” (l.c., p. 9). Since global resources are limited, this
success formula of wealth creation will eventually suffocate on its own
success. If we continue with today’s untenable rate of resource depletion,
this will lead to an inevitable collapse in the accepted model of constant
economic growth: “Since the mid-1980s and with ever-increasing speed,
environmental depletion has reached a global scale and scope where it actually
starts to threaten the viability of our model of wealth creation itself. Our

(continued)
1.1 Fallacies at Work: The Creeds of Competition and the Paradox of. . . 7

economy has grown so big, so fast, that it is quickly depleting the very same
natural capital on which it thrives. In a way, it is falling victim to its own
success” (l.c., p. 11)
Concentration: The Loss of Cultural Diversity
A fourth phenomenon pinpointing the paradox of destructive wealth crea-
tion can be seen if we turn to the loss of diversity. This loss is commonly being
discussed in the terms of what Edward Wilson has called “the sixth great
extinction spasm” (Wilson 1992, p. 30), i.e. the loss of species and the
depletion of as yet highly diverse flora and fauna. Remembering the phenom-
ena of concentration, disruption, and externalization, however, this loss can
also be analysed in cultural terms, i.e. in terms of the erosion of cultural
resources—resources we eventually might need as an intact, diverse, and
rich spring of living and natural resources if, as mankind, we want to stay
viable for the future. The loss of cultural resources is expressed in the rising
number of endangered languages. According to the UNESCO “at least 43% of
the estimated 6000 languages spoken in the world are endangered” (Moseley
2010). As the web-based platform Ethnologue: Languages of the World states,
for the end of 2016 “7,097 languages are spoken today. That number is
constantly in flux, because we’re learning more about the world’s languages
every day.” “A full third” of these, or in absolute terms, a figure which is in
line with the UNESCO findings, “are now endangered, often with less than
1,000 speakers remaining. Meanwhile, just 23 languages account for more
than half the world’s population” (Ethnologue 2017). This erosion is mirrored
by the languages in Wikipedia and by the development of global GDP. There
are only 296 Wikipedias, of which 285 are active. These active languages in
Wikipedia do not essentially reflect how many people of a culture speak a
specific language, but rather how dominant the culture is in economic terms.
As Marc Davis highlights that, over the period from 1975 to 2003, 87.5% of
global GDP in 2003 was created by people speaking one of only 18 languages,
including, by order of prominence, English with 29.3% of gGDP, Chinese
with 12.5% of gGDP, Japanese with 7% of gGDP, Spanish with 6.5% of
gGDP, German with 5.5% of gGDP, French with 4.6% of gGDP, Portuguese
with 3.3% of gGDP, Italian with 3.2% of gGDP, and Russian with 2.6% of
gGDP (Davis 2003). Thus, the growing number of endangered languages not
only highlights the erosion of cultures, but furthermore shows how this erosion
is an effect and mirror of present day unequal wealth creation.

If we condense all of these trends into one set of practices that describe our current
economic model, we get the mantra of modern enterprise:
8 1 Old Wine in Old Skins: The Challenges for Modern Management

In the worst case, this mantra will turn competition into a zero-sum game, with
fewer and fewer winners taking all, and more and more losers taking nothing. In the
best case, it leads to a win-win situation, with fewer and fewer actors gaining shared
advantages at the expense of third parties or the general public. Without the
(historically unique) chance to become the next UBER, more and more companies
will see their very existence threatened by this situation.

1.2 The Dead Ends of Modern Enterprise: Swarm

Stupidity, Warped Time, and Growth by Sense
Surrogate

The mantra of modern enterprise affects society at large, but it also affects the
everyday actions of actual companies. This can be seen when we follow this
unquestioned pursuit of competitiveness down to the level of management practice.
The first and foremost goal of all management is to avert disaster: the forced
expulsion from the market by insolvency, by hostile takeover, or by the loss of a
sustainable business model.
As long as companies remain beholden to our current economic mantras, they
will try to face that disaster with a strategy of paradox: They will try to become more
flexible and more inimitable at the same time. Following the banner of “agility”, they
will fall in line, lemming-like, with a type of conformist and swarm stupid practice
that keeps powering the wheel of acceleration, concentration, and exploitation.
Swarm stupidity is a phenomenon of collective behavioural feedback loops, created
by pre-emptive expectations and beliefs that individuals or organizations ascribe to
certain other actors and pre-emptive actions in response to those beliefs. This kicks
into being a loop of mutual pre-reactions that have all the hallmarks of self-fulfilling
prophecies.
In concrete terms, modern companies show signs of swarm stupidity in three
specific patterns that need to be challenged for companies to achieve lasting viabil-
ity: First, the pattern of warped timeframes, second, the pressure to grow, and third,
the pattern of sense surrogates.

1.2.1 Warped Time

John Maynard Keynes’ adage that “in the long run, we are all dead” was meant as
a reminder that “this long run is a misleading guide to current affairs” (Keynes
1923, p. 80). By this, he meant that we ought to get active on the problems facing us
right now. In business, this is called looking after your everyday operations. This
short-termist outlook is reflected in the fact that around 90% of all insolvencies are
the result of short-term liquidity issues, not systemic debt. Maintaining short-term
1.2 The Dead Ends of Modern Enterprise: Swarm Stupidity, Warped Time, and. . . 9

liquidity is the first commandment when it comes to avoiding an unintentional exit

from the market. The threat of long-term debt burdens or the potential loss of a
familiar business model can only be averted with medium to long-term measures.
This calls for a strategic, long-termist outlook that does not stop at the end of one’s
working day. When a business model indeed comes to the end of its working life or
when a company crumbles under a mountain of debt, this is not only due to mistakes
made a long time ago; it is also a situation that cannot be resolved with short-term,
cosmetic interventions. This is where our warped time perception becomes the
second key challenge: Cognitively, that is, both psychologically and physiologi-
cally, people are predisposed to not noticing exponential trends or impending sudden
“step” changes before they are there. Our brain is preprogramed to think that
anything that used to work will continue to work. Our psychological and
bio-chemical reward systems are conditioned to make us prefer smaller, but imme-
diate rewards over greater rewards that can only be achieved with long and patient
effort. A bird in the hand is always worth two in the bush (which we might not catch
after all).
The actual truth is that more and more long-term trends, such as the structurally
caused loss of long-established business models, are becoming short-term events
that companies are forced to respond to. This applies even more to the consequences
of trends like the accumulation of wealth, exploitation of resources, the new extinc-
tion event, climate change, or due to all of these developments the looming global
refugee crisis with an estimate of up to one billion people on the run,1 trends that
occupy our minds and our news cycle, but also trends we tend to ignore with our
short-term minds. Lastingly viable companies will need to change the focus of their
temporal thinking: They will stay successful if their business models offer solutions
that genuinely engage with the long-term trends.

1.2.2 Growth in Saturated Markets, Sense Surrogates,

and Phishing for Phools

“Thou shalt not covet” is a commandment very few of us can truly claim to abide
by: It might not be our neighbour’s ox that we covet, but it might well be our
neighbour’s wife, or maybe that nice roadster as a second car for the weekend. What
few of us will covet, however, is a third toaster, a fourth washing machine, or a sixth
stereo. If we see our modern markets in their naked glory, we will see that they are
not just saturated, but almost biblically flooded with a surfeit of opportunities and
offers that even our high-powered search engines cannot keep on top of. This is a

1
In 2007, the Christian development agency ‘Tearfund’ estimated that there will be as many as
200 million climate refugees by 2050 and as many as one billion by the end of the century if global
warming and its impact continue (Watts 2007, p. 101). This estimate has been refined recently by
the Global Biodiversity Council (Intergovernmental Science-Policy Platform on Biodiversity and
Ecosystem Services). According to the IPBES “land degradation and climate change are likely to
force 50 to 700 million people to migrate by 2050” (IPBES 2018).
10 1 Old Wine in Old Skins: The Challenges for Modern Management

problem for businesses: They are facing the economic pressure to keep growing and
reinventing themselves in these oversaturated markets. To do so, they only keep
flooding the markets with new products and new services, very few of which have
real sense to offer. What they offer is a sense surrogate.

Sense Surrogates and Phishing for Phools

In order to survive in their markets, companies have come to rely on a new
grand narrative, called marketing, heralding something very special that only
exists in their imagination: a unique selling proposition. The safety razor is
out. Three-bladed razors are ramped up to five blades, sold as the newest
“Turbo Power Glider” model that promises a “astrogalactic shave with a
sensual after-feel”. Today’s USPs are sense or value propositions that give
the customer the feeling of either acquiring a very exclusive item that every-
body would want or an unmissable deal that nobody could refuse. In the sober
light of day, most of these USPs or marketing claims are only good for giving
mass-produced and essentially interchangeable products more marketing
clout. Following the originators of the positioning concept, Al Ries and
Jack Trout, USPs are positioned as highly creative inventions to advertise a
product in such a way that it creates a want in the heads of the target audience.
They are “basically cosmetic changes done for the purpose of securing a
worthwhile position in the customer’s mind”, with no real changes to the
product itself (Ries and Trout 1986, p. 19). Positioning is an artificial staging
of a certain sense conveying a certain perception that customers are to have of
a certain product. All the while, the USP is only a feat of psychological
sleight-of-hand, a valence and value implied by deception and manipulation
to prettify a mass product in oversaturated markets to get people to buy
it. Noble laureates George Akerlof and Robert Shiller call this “phishing for
phools” (Akerlof and Shiller 2015). It is a hallmark of degenerate economies
in which corporations need to base their value propositions systematically in
manipulation and lies.

The urge to grow by peddling easily interchangeable products or sense surrogates

is made worse by the fact that the global concentration and depletion spirals are
leading to an increasingly unequal distribution of wealth. As the case of UBER
shows, the world is increasingly falling apart into a small elite of top performers and
beneficiaries of wealth, knowledge, and opportunity, and the bigger masses that lack
these opportunities despite their—in historical terms—relative wealth and well-
being.2 They do not have the means anymore to truly satisfy their needs and wants

2
“In 1990, 1.9 billion were living in extreme poverty. By 2015 that number had been cut by more
than half, to 830 million, while in parallel the global middle class had almost tripled. And most
citizens of advanced economics today command goods and services that were beyond the reach of
even kings and emperors only 200 years ago” (Stuchtey et al. 2016, S. 8). Even if these figures
sound extremely positive in the abstract, they need to be taken with a pinch of salt: As the Pew
Research Center authors Rakesh Kochhar and Russ Oats stress in their study “A global middle class
1.2 The Dead Ends of Modern Enterprise: Swarm Stupidity, Warped Time, and. . . 11

and, as a consequence, fuel the growth that companies need. “Phishing for phools”
becomes a catch-22 and only worsens the pressure on businesses.

1.2.3 The Catch-22 of Modern Business

When we analyse why and how markets and societies collapse, we can see a pattern
discovered by NASA scientists (Motesharrei et al. 2014). In the past millennia,
societies have collapsed as a result of one of two possible and mathematically
predictable conditions: They either destroyed the resources sustaining them, such
as the Easter Island people, or they became unequal to an extent that caused
revolution, such as France under the ancien regime. What differs today from these
mechanisms in the past is that, for the first time in history, both conditions are
present. The mantra of competition leads to a collective and globalized depletion
spiral of a pressure on prices, economic concentration, resource exploitation, and
social upheaval, which is directly affecting the survival of individual enterprises on
the ground (Fig. 1.1).
This development demands a new type of economic viability, in which enterprises
break with the mental patterns and the shackles of thinking in terms of scarcity,
profit, competition, and growth that force them into the behaviours of swarm
stupidity and might lead to their self-caused downfall.

Fig. 1.1 The catch-22 of

destructive wealth creation Resource
Inequality
exploitation

Prices

Unrest

Common wealth

is more promise than reality”, poverty is defined as an income of less than $2 a day, average and
high middle-class income as $10.01 to $20 or $20.01 to $50 per day, and high income as $50 per
day. People above the global poverty line and up to those defined as the global middle classes
therefore have an income of between $730 and $7300 per year: “Even those newly minted as middle
class enjoy a standard of living that is modest by Western norms. As defined in this study, people
who are middle income live on $10–20 a day, which translates to an annual income of $14,600 to
$29,200 for a family of four. That range merely straddles the official poverty line in the United
States—$23,021 for a family of four in 2011.” (Kochhar and Oats 2015, p. 6).
12 1 Old Wine in Old Skins: The Challenges for Modern Management

1.3 New Wine in New Skins: The Foundations of Future

Viable Enterprise and Economy

Recapitulating the developments described so far, it seems that our economic struc-
tures are collapsing under their very success. The result of this is an ever growing
choir of calls for another kind of business conduct. Most prominent among these calls
are the voices calling for natural capitalism (Hawken et al. 1999), regenerative
capitalism (Fullerton 2015), humanistic management (Pirson 2017), a circular econ-
omy (Pauli 1998, 2010; Braungart and McDonough 2002, 2013), the economy of the
common good (Gemeinwohlökonomie) (Felber 2010), or the concepts of collective
value (Donaldson and Walsh 2015) and of shared value (Porter and Kramer 2011).
However, all these approaches, as necessary and important as they are, stay stuck
in the conceptual framework of present-day economic thinking, namely in the
shackles of the concepts of scarcity, competition, value creation, and growth.
While adherents and critics of the market economy quarrel over how to interpret
and deal with competition, value creation, and growth, they seem to share the same
view of scarcity. To phrase it with Lionel Robbins, they share the understanding that
“economics is the science which studies human behavior as a relationship between
ends and scarce means which have alternative uses” (Robbins 1932, p. 16), thus
taking scarcity to be the headstone of economic rationality.
With this shared assumption that dealing with scarcity is the core task of real-world
enterprise and economic thinking, they differ only insofar as the critics reference
scarcity with a normative claim on just distribution and sustainable enterprise, while
the adherents approach the problem of scarcity in functional terms. For them, the
proper allocation of scarce goods is a means for securing the best results in a generally
fair distribution, which they define with Nobel laureate John Nash as the Nash
equilibrium. But as long as we stick to the notion of scarcity, we cannot escape the
fly bottle of the paradox of modern wealth creation. This is due to two facts: The first
concerns the understanding that economic reasoning evolves from a self-fulfilling
feedback loop, in which our basic assumptions determine our expectations. These in
turn determine our actions, which again facilitate counteractions that foster the kind of
reality we expect and upon which we supposedly act in the first place.3 The second

3
As Juan Elegido found in his study “Business education and erosion of character”, our mental
models and attributions of what human beings are and how they act have major consequences. If
people understand themselves as rational maximizers of self-interested benefits, they will change
their behavior to match the expectations triggered by our economic concepts of scarcity and
competition: Whenever a win-win outcome is impossible, the mission is to maximize your gains
at the expense of the others involved (Ghoshal and Moran 1996). Since we cannot ever be
absolutely certain that the other side will be cooperative, every economic relationship suffers
from an inherent lack of trust. This is made worse by the mental models of our economy, such as
the principal-agent problem in contractual relations put forward by Michael Jensen and William
Meckling (Jensen and Meckling 1976). Almost all facets of competitive thinking are governed by
the idea that human beings will follow their own good first. Selfishness abounds. In the case of the
economics undergraduate: “Students will come to expect that other people will act that way [i.e.,
1.3 New Wine in New Skins: The Foundations of Future Viable Enterprise and Economy 13

fact is a direct consequence of the first. If we base the mental model of the economy
upon the concept of scarcity, we cannot evade two mental traps that condition our
behaviour when thinking about scarcity in economic terms.
The first of these traps is our human psychology, which most often guides our
actions when we are confronted in real-world encounters with the manifold phe-
nomena of scarcity:

The second trap lies in the economic focus on yield, i.e. the understanding that
revenue only comes when one invests less than one gets in return:

Companies trying to evade these traps and wishing to use viable business models to
help break the vicious cycles of destructive value creation need certain guidelines and
tools to free themselves from the traps that are ingrained in their current economic
thinking and in all of our commercial life (Glauner 2018a, b, c). They can find them in
the concepts of ‘future viability’ and of ‘future viable enterprise’. Both are designed to
transform the mentioned calls for another kind of business conduct and business purpose
in such a way that it aligns the rationale of the micro-logics of corporate action with the
necessary conditions that breach the ‘paradox of destructive wealth creation’. However,
in order to excel in this task, entrepreneurs, managers, and all who are engaging in
enterprise under real-world conditions must master four skills: understanding systems,
understanding psychology, understanding enterprise, and, on top of these, managing
future viable strategies. While “understanding enterprise” will be the assignment for
Chaps. 2 and 3, we will begin with a brief look at the tasks of understanding systems,
understanding psychology, and managing future viable strategies.

1.3.1 Understanding Systems

We can find a way out of the mental traps of our current economic thinking by
becoming aware of the roles that companies and economic thinking play for us as

selfishly]. This has clear practical consequences because it is well established in prisoner dilemma
experiments that most subjects will defect if they are told that their partners are going to defect
(Dawes 1980). In other words, the mere fact that people expect that others will behave selfishly will
tend to make them behave selfishly (Miller 1999)” (Elegido 2009, p. 18).
14 1 Old Wine in Old Skins: The Challenges for Modern Management

people and for our environment. Companies are the actors and carriers of a crucial
system of exchange with which we sustain our lives. As such, they and their conduct
form one of the key organizational systems in the ‘system of systems’ (Fig. 1.2) that
is the world we live in. Three fundamental levels exist in an intricate mesh,
overlapping and influencing each other: the level of closed and determined cyclical
systems (the physical world and the laws of nature), the level of open and adaptively
learning cyclical systems (the world of the living), and the level of cultural and
semantically determinist systems (the world of meanings). We use the latter to
describe our world and its systems.
The difference between the natural systems of the physical world (of the physical
systems), the world of the living (of the biological systems) and the cultural systems
of our concepts of the world can be explained as follows:
The physical world is closed and clearly delimited. It does not grow and only
develops according to the laws of physics (the laws of thermodynamics). However
our universe might change and evolve, the sum total of its atoms will stay the same
forever and ever.
The natural, biological world, by contrast, is a world of growth, made possible by
the processes of transforming energy and organic or inorganic substances (photo-
synthesis) into the building blocks that the world of the living needs to continue to
differentiate and diversify (phylogenesis). In this sense, nature is nothing other than a
constant transformation of natural substances and energy into the building blocks of
life (biomass) that fuels the continued evolution of the living world. The most
important example of nature diversifying in this way is the creation of breathable
air with the oxygen given off by bacteria and microorganisms. This is a process that
started approx. 3.5 billion years ago and continues to stabilize our living systems
today in the form of photosynthesis. This process was the essential condition for the
evolution of higher forms of life. As long as this resource creation process is intact, it
will fuel the growth of new resources for life, which in turn enrich and continue to
diversify the sub-systems of the living world in ever more unique niches.
The human world of cultural systems, finally, influences how we behave in this
world and whether ours is a positive or a negative effect. More specifically: by
contrast to the natural, biological systems that power the growth of resources as a
basic principle of life, we often interfere in such a way with this world that its
resources are disappearing and that life is suffering, instead of growing and diver-
sifying. Our typically commercially inspired actions makes us concentrate or trans-
port certain substances to places where they can only damage life (think of high
carbon dioxide or ozone concentrations in the atmosphere or microplastic waste in
ocean organisms). Conversely, we take them away from places where they would be
needed as the building blocks of life (think of the erosion of fertile soil or the
consumption of irreplaceable resources like phosphorus). In a nutshell, the differ-
ence between the nature processes of life (the biological systems) and the human,
cultural processes (the systems of culture) is: the excessive, wasteful, and lavish
processes of nature, seen from the level of the wider system) are adding resources.
The growth and surplus processes of the homo oeconomicus are depleting
resources. For deceptively rational economic purposes or only as the by-product
of our economic practices, we are concentrating, transforming, or displacing our
 closed (invariable) cybernetic circular
systems (determined systems)

Physical Systems
Tides, Gravity ... open (variable) cybernetic circular
Maschines … systems (adaptive / learning systems)

Living Systems semantic systems

(determining systems:
Social Systems mental models, sense
constructions …)
Natural
Systems
Non-Biological
Physical Social
Psychological Systems Non-Physical
Systems
(Cognitive Systems) Social Systems
(Semantic Systems)
Biological Systems Humans
Politics / Law / Economy /
Flora, Fauna
Sciences / Religion ...
Corporations,
Families, Groups …

Non-Psychological
Bio-Social Systems
Lions, Ants, Wolfes, Cultural Systems
Dolphins ...
1.3 New Wine in New Skins: The Foundations of Future Viable Enterprise and Economy
15

Fig. 1.2 The system of systems

16 1 Old Wine in Old Skins: The Challenges for Modern Management

resources in a way that directly damages life or at least takes them away from the
natural world that needs them.
The dynamics of cultural systems within the system of systems consist in the fact
that all our actions are determined by what we could call the bio-socio-psychological
construction of reality. In this construction, we have to distinguish the level of the ‘I’
(the level of psychological systems, i.e. human individuals) from the level of the
‘We’ (the level of groups, i.e. non-biological physical social systems). Within these
realms of the ‘I’, the ‘we’ and ‘culture’, the semantic systems of a given culture, are
the fundamental vehicles with which we construct our reality. The essence of this
third systemic level is that we not only choose what we consider true and relevant
with our semantic systems, such as religion, sciences, or the concepts of law,
politics, or economy. It also defines how we act and behave in this reality we
build for ourselves.
It might be hard to accept that these semantic systems are man-made constructs
with which we define (determine) our knowledge of the world and our actions in
it. However, acknowledging this determinist power of semantic systems gives us the
key to future viability. As beings capable of learning, we can learn and change our
definition of the world and give our conduct and rationale a new form and direction.
In the economic realm, this new direction can be found in the concept of the
lastingly viable enterprise. Future viable enterprises are enterprises whose business
models cut through the paradox of destructive wealth creation, thereby fostering and
sustaining not only the economic wellbeing of the firm, but of all surrounding systems
which are affected by its corporate actions. The term ‘surrounding systems’ entails
not only all stakeholders who have an influence on how a corporation fares, but—on
the systemic levels of the micro, meso, macro and supra-levels (Fig. 1.3)—all other
persons, institutions, and systems who are affected by corporate actions, but have no
means of influencing business conduct by any means.
In this aggregation of the micro, meso, macro and supra-level, the supra-dimension,
i.e. the global level of nature and human culture, must be understood as the frame in
which the specific dynamics of the micro, meso and macro-level unfold, thereby
altering the natural and social form and quality of the supra-level. This process of
altering the supra-level has to be understood as the responsiveness of both nature and
society (i.e. the physical and biological state of nature as well as the basic human belief
systems and mental models of reality) to human action. And this brings us back to the
micro-level. On the micro-level (humans, corporations), individual actors engage
according to personal goals influenced by the opportunities of their space (meso,
i.e. markets) on the one hand and the limitations created by societal (macro) or by
natural and cultural (supra) circumstances on the other. In this individual engagement,
two sets of “what is given” are crucial for individual actors (humans/organizations).
The first is the cultural frame (the semantic systems consisting of legal and social
institutions, like the law, the religion, or political institutions) that defines the norma-
tive rules (do’s and don’ts) of specific forms of life, which, in turn, determine the
opportunities of space (i.e. meso) for individual actors. The second set of “what is
given” is the mental frames, such as our understanding of the economy or the sciences,
by which that “what is given” is interpreted. These mental frames are the fundamental
belief systems with which we constitute the laws, objects, and structures of the given.
1.3 New Wine in New Skins: The Foundations of Future Viable Enterprise and Economy 17

Fig. 1.3 Micro–Meso–Macro–Supra

In line with cybernetic and holistic thinking as developed by Norbert Wiener (1948),
Ross Ashby (1956), Heinz von Foerster (1972, 1973, 1974, 1981), Ernst von
Glasersfeld (1995), Humberto Maturana and Francisco Varela (Maturana 1970,
1978; Maturana and Varela 1975), we can conclude: Fostering future viable enterprise
and economy must entail a change in the mental model with which we interpret and
determine our economic actions.

1.3.2 Understanding Psychology

Changing the mental frame of our economic thinking is only the first step towards
becoming viable for the future. The second step must address the confines of our
cognitive set-up as depicted in Fig. 1.4.
18 1 Old Wine in Old Skins: The Challenges for Modern Management

Fig. 1.4 Human cognitive development

Another random document with
no related content on Scribd:
"What America owed abroad can never be computed; it is enough
that it reached an enormous sum, to refund which, even under
favorable circumstances, would have taken years of effort;
actually forced payment brought the nation to the brink of a
convulsion. Perhaps no people ever faced such an emergency and
paid, without recourse to war. America triumphed through her
inventive and administrative genius. Brought to a white heat
under compression, the industrial system of the Union suddenly
fused into a homogeneous mass. One day, without warning, the
gigantic mechanism operated, and two hemispheres vibrated with
the shock. In March, 1897, the vast consolidation of mines,
foundries, railroads, and steamship companies, centralized at
Pittsburg, began producing steel rails at $18 the ton, and at
a bound America bestrode the world. She had won her great
wager with fate. … The end seems only a question of time.
Europe is doomed not only to buy her raw material abroad, but
to pay the cost of transport. And Europe knew this
instinctively in March, 1897, and nerved herself for
resistance. Her best hope, next to a victorious war, lay in
imitating America, and in organizing a system of
transportation which would open up the East.

"Carnegie achieved the new industrial revolution in March,

1897. Within a twelvemonth the rival nations had emptied
themselves upon the shore of the Yellow Sea. In November
Germany seized Kiao-chau, a month later the Russians occupied
Port Arthur, and the following April the English appropriated
Wei-hai-wei; but the fact to remember is that just 400 miles
inland, due west of Kiao-chau, lies Tszechau, the centre,
according to Richthofen, of the richest coal and iron deposits
in existence. There with the rude methods used by the Chinese,
coal actually sells at 13 cents the ton. Thus it has come to
pass that the problem now being attacked by all the statesmen,
soldiers, scientific men, and engineers of the two eastern
continents is whether Russia, Germany, France, England, and
Japan, combined or separately, can ever bring these resources
on the market in competition with the United States."
 B. Adams,
The New Industrial Revolution
(Atlantic Monthly, February, 1901).

UNITED STATES OF AMERICA: A. D. 1897 (January-May).

Arbitration Treaty with Great Britain rejected by the Senate.

See, (in this volume),

VENEZUELA: A. D. 1896-1899.

The correspondence which took place between the governments of

the United States and Great Britain, on the subject of an
arbitration of the Venezuela Boundary dispute, having led to
the revival of a project for the negotiation of a general
treaty of arbitration, which the late American Secretary of
State, Mr. Gresham, had broached to the British government in
the spring of 1895, the terms of such an arrangement were
carefully and fully discussed between Secretary Olney and Lord
Salisbury, during the year 1896, and an agreement was reached
which took form in a solemn compact for the settlement by
arbitration of all matters in difference between the two
countries, signed at Washington on the 11th of January, 1897.
The treaty thus framed was as follows:

"ARTICLE I.
The High Contracting Parties agree to submit to Arbitration in
accordance with the provisions and subject to the limitations
of this Treaty all questions in difference between them which
they may fail to adjust by diplomatic negotiation.

"ARTICLE II.
All pecuniary claims or groups of pecuniary claims which do
not in the aggregate exceed £100,000 in amount, and which do
not involve the determination of territorial claims, shall be
dealt with and decided by an Arbitral Tribunal constituted as
provided in the next following Article. In this Article and in
 Article IV the words 'groups of pecuniary claims' mean
pecuniary claims by one or more persons arising out of the
same transactions or involving the same issues of law and
fact.'

"ARTICLE III.
Each of the High Contracting Parties shall nominate one
arbitrator who shall be a jurist of repute and the two
arbitrators so nominated shall within two months of the date
of their nomination select an umpire. In case they shall fail
to do so within the limit of time above mentioned, the umpire
shall be appointed by agreement between the Members for the
time being of the Supreme Court of the United States and the
Members for the time being of the Judicial Committee of the
Privy Council in Great Britain, each nominating body acting by
a majority. In case they shall fail to agree upon an umpire
within three months of the date of an application made to them
in that behalf by the High Contracting Parties or either of
them, the umpire shall be selected in the manner provided for
in Article X. The person so selected shall be the President of
the Tribunal and the award of the majority of the Members
thereof shall be final.

{578}

"ARTICLE IV.
All pecuniary claims or groups of pecuniary claims which shall
exceed £100,000 in amount and all other matters in difference,
in respect of which either of the High Contracting Parties
shall have rights against the other under Treaty or otherwise,
provided that such matters in difference do not involve the
determination of territorial claims, shall be dealt with and
decided by an Arbitral Tribunal, constituted as provided in
the next following Article.

"ARTICLE V.
Any subject of Arbitration described in Article IV shall be
submitted to the Tribunal provided for by Article III, the
award of which Tribunal, if unanimous, shall be final. If not
unanimous either of the High Contracting Parties may within
six months from the date of the award demand a review thereof.
In such case the matter in controversy shall be submitted to
an Arbitral Tribunal consisting of five jurists of repute, no
one of whom shall have been a member of the Tribunal whose
award is to be reviewed and who shall be selected as follows,
viz:—two by each of the High Contracting Parties, and one, to
act as umpire, by the four thus nominated and to be chosen
within three months after the date of their nomination. In
case they shall fail to choose an umpire within the limit of
time above-mentioned, the umpire shall be appointed by
agreement between the Nominating Bodies designated in Article
III acting in the manner therein provided. In case they shall
fail to agree upon an umpire within three months of the date
of an application made to them in that behalf by the High
Contracting Parties or either of them, the umpire shall be
selected in the manner provided for in Article X. The person
so selected shall be the President of the Tribunal and the
award of the majority of the Members thereof shall be final.

"ARTICLE VI.
Any controversy which shall involve the determination of
territorial claims shall be submitted to a Tribunal composed
of six members, three of whom (subject to the provisions of
Article VIII) shall be Judges of the Supreme Court of the
United States or Justices of the Circuit Courts to be
nominated by the President of the United States, and the other
three of whom (subject to the provisions of Article VIII)
shall be Judges of the British Supreme Court of Judicature or
Members of the Judicial Committee of the Privy Council to be
nominated by Her Britannic Majesty, whose award by a majority
of not less than five to one shall be final. In case of an
award made by less than the prescribed majority, the award
shall also be final unless either Power shall, within three
months after the award has been reported, protest that the
same is erroneous, in which case the award shall be of no
validity. In the event of an award made by less than the
prescribed majority and protested as above provided, or if the
members of the Arbitral Tribunal shall be equally divided,
there shall be no recourse to hostile measures of any
description until the mediation of one or more friendly Powers
has been invited by one or both of the High Contracting
Parties.

"ARTICLE VII.
Objections to the jurisdiction of an Arbitral Tribunal
constituted under this Treaty shall not be taken except as
provided in this Article. If before the close of the hearing
upon a claim submitted to an Arbitral Tribunal constituted
under Article III or Article V either of the High Contracting
Parties shall move such Tribunal to decide, and thereupon it
shall decide that the determination of such claim necessarily
involves the decision of a disputed question of principle of
grave general importance affecting the national rights of such
party as distinguished from the private rights whereof it is
merely the international representative, the jurisdiction of
such Arbitral Tribunal over such claim shall cease and the
same shall be dealt with by arbitration under Article VI.

"ARTICLE VIII.
In cases where the question involved is one which concerns a
particular State or Territory of the United States, it shall
be open to the President of the United States to appoint a
judicial officer of such State or Territory to be one of the
Arbitrators under Article III or Article V or Article VI. In
like manner in cases where the question involved is one which
concerns a British Colony or possession, it shall be open to
Her Britannic Majesty to appoint a judicial officer of such
Colony or possession to be one of the Arbitrators under
Article III or Article V or Article VI.

"ARTICLE IX.
Territorial claims in this Treaty shall include all claims to
territory and all claims involving questions of servitudes,
rights of navigation and of access, fisheries and all rights
and interests necessary to the control and enjoyment of the
territory claimed by either of the High Contracting Parties.

"ARTICLE X.
If in any case the nominating bodies designated in Articles
III and V shall fail to agree upon an Umpire in accordance
with the provisions of the said Articles, the Umpire shall be
appointed by His Majesty the King of Sweden and Norway. Either
of the High Contracting Parties, however, may at any time give
notice to the other that, by reason of material changes in
conditions as existing at the date of this Treaty, it is of
opinion that a substitute for His Majesty should be chosen
either for all cases to arise under the Treaty or for a
particular specified case already arisen, and thereupon the
High Contracting Parties shall at once proceed to agree upon
such substitute to act either in all cases to arise under the
Treaty or in the particular case specified as may be indicated
by said notice; provided, however, that such notice shall have
no effect upon an Arbitration already begun by the constitution
of an Arbitral Tribunal under Article III. The High
Contracting Parties shall also at once proceed to nominate a
substitute for His Majesty in the event that His Majesty shall
at any time notify them of his desire to be relieved from the
functions graciously accepted by him under this Treaty either
for all cases to arise thereunder or for any particular
specified case already arisen.

"ARTICLE XI.
In case of the death, absence or incapacity to serve of any
Arbitrator or Umpire, or in the event of any Arbitrator or
Umpire omitting or declining or ceasing to act as such,
another Arbitrator or Umpire shall be forthwith appointed in
his place and stead in the manner provided for with regard to
the original appointment.
{579}

"ARTICLE XII.
Each Government shall pay its own agent and provide for the
proper remuneration of the counsel employed by it and of the
Arbitrators appointed by it and for the expense of preparing
and submitting its case to the Arbitral Tribunal. All other
expenses connected with any Arbitration shall be defrayed by
the two Governments in equal moieties. Provided, however,
that, if in any case the essential matter of difference
submitted to arbitration is the right of one of the High
Contracting Parties to receive disavowals of or apologies for
acts or defaults of the other not resulting in substantial
pecuniary injury, the Arbitral Tribunal finally disposing of
the said matter shall direct whether any of the expenses of
the successful party shall be borne by the unsuccessful party,
and if so to what extent.

"ARTICLE XIII.
The time and place of meeting of an Arbitral Tribunal and all
arrangements for the hearing and all questions of procedure
shall be decided by the Tribunal itself. Each Arbitral
Tribunal shall keep a correct record of its proceedings and
may appoint and employ all necessary officers and agents. The
decision of the Tribunal shall, if possible, be made within
three months from the close of the arguments on both sides. It
shall be made in writing and dated and shall be signed by the
Arbitrators who may assent to it. The decision shall be in
duplicate, one copy whereof shall be delivered to each of the
High Contracting Parties through their respective agents.

"ARTICLE XIV.
This Treaty shall remain in force for five years from the date
at which it shall come into operation, and further until the
expiration of twelve months after either of the High
Contracting Parties shall have given notice to the other of
its wish to terminate the same.

"ARTICLE XV.
The present Treaty shall be duly ratified by the President of
the United States of America, by and with the advice and
consent of the Senate thereof, and by Her Britannic Majesty;
and the mutual exchange of ratifications shall take place in
Washington or in London within six months of the date hereof
or earlier if possible."

United States, 54th Congress, 2d Session,

Senate Document Number 63.

Public feeling in both countries gave joyful welcome to this

nobly conceived treaty when it was announced. All that was
best in English sentiment and American sentiment had been
shuddering at the thought of possible war between the kindred
peoples, and thanked God for what promised some certitude that
no dispute would be pushed to that barbarous appeal. Only the
mean thought and temper of either country was provoked to
opposition; but, unhappily, the meaner temper and the narrower
and more ignorant opinion on one side of the sea had been
getting so strong a representation in the United States Senate
as to prove capable of much mischief there, on this and other
matters of most serious public concern. When the great
covenant of peace went to that body for approval, there were
senators who found it offensive to them because it came from
the hands of President Cleveland and Secretary Olney; and
there were other senators whose dignity was hurt by the eager
impatience with which the public voice cried out for their
ratifying vote; and still others there were who looked with
official jealousy at the project of an arbitral tribunal which
might sometimes take something from senatorial functions in
foreign affairs. And the combination of pitiful motives had
strength enough to baffle the high hopes and defeat the will
of the American people.
Of the public feeling thus outraged, the following is one
expression of the time, among many which it would be possible
to quote:

Many people "are represented by influential papers like the

St. Paul 'Pioneer Press' and the Minneapolis 'Journal,' the
latter declaring that it is humiliating to think that, widely
as the treaty is favored throughout the country, a few
ill-natured men in the Senate have the power to delay
ratification. In the Central West the feeling is generally
strong for arbitration, if we may judge from the Chicago
'Times-Herald,' the St. Louis 'Republic,' the Indianapolis
'Journal,' and the Cleveland 'Leader.' In the South there are
such cheering reports as this from the Memphis 'Scimetar'; 'If
the treaty now under consideration in the Senate Committee on
Foreign Relations should fail of ratification, public opinion
in this country would demand that the incoming Administration
provide another embodying the same vital principle.' In the
East the sentiment in favor of immediate ratification of the
original draft has been almost universal, the only two
journals of note differing from this being the New York 'Sun'
and the Washington 'Post.' The trend of opinion is shown in
the adoption by the Massachusetts House of Representatives of
an endorsement by a vote of 141 to 11. An important meeting
took place last week in Washington in favor of ratification.
The speakers were ex-Secretary of State Foster, Mr. G. G.
Hubbard, Professor B. L. Whitman, ex-Senator J. B. Henderson,
ex-Governor Stanard, and Justice Brewer, of the Supreme Court.
The last named said; 'I do not believe in saying to the
gentlemen charged with the duty of considering carefully that
treaty, that "you must vote for it." There is something in my
own nature which, when anybody says to me "you must," causes
something to run up my spinal column which says "I won't." It
is the Senate's duty to consider that treaty carefully, and
when I say that, I say it is no trespass upon their rights for
American citizens to express their views of that treaty. What are
the errors and losses incidental to arbitration compared to
the horrors of war? What are a few million dollars of wrongful
damages in comparison to the sacrifice of thousands of human
lives?'"
The Outlook, February 6, 1897.

"This treaty was greeted with widespread favor in the press,

but was antagonized at once in the Senate by the jingo element
and by the personal adversaries of the administration. The
committee on foreign relations reported the draft favorably,
but with certain amendments, on February 1. The ensuing debate
soon revealed that a vote on ratification could not be
obtained before March 4, and the whole matter was dropped. At
the opening of the new Congress the Senate Committee again
considered the treaty and reported it, with amendments, on
March 18. During two weeks' discussion the Senate adopted the
committee's amendments and also others, with the result that
the draft was radically transformed.
{580}
Instead of the general reference of all disputes to the
tribunals, it was provided that any difference 'which, in the
judgment of either power, materially affects its honor or its
domestic or foreign policy,' should be submitted to
arbitration only by special agreement; that no question should
be submitted save with the consent of the Senate in its
treaty-making capacity; and that no claim of a British subject
against a state or territory of the United States should be
submitted under any circumstances. The first of these changes
was due mainly to the objection that without it the Monroe
Doctrine might be subjected to arbitration; the second to the
sensitiveness of senators as to their constitutional functions
in foreign relations; and the third to a desire to protect
states against claims on their defaulted bonds. Other changes
modified materially the method of appointing the arbitrators
for the United States, and struck out entirely the designation
of the King of Sweden as umpire. Even with these amendments,
the opposition to the treaty was not overcome; and the final
vote on ratification, taken May 5, resulted in its rejection,
the vote standing 43 to 26, less than two-thirds in the
affirmative. Thirty Republicans and 13 Democrats voted for the
 treaty; 8 Republicans, 12 Democrats and 6 Populists against
it."

Political Science Quarterly,

June, 1897.

UNITED STATES OF AMERICA: A. D. 1897 (March).

Inauguration of President McKinley.
Leading topics of the inaugural address.
The President's Cabinet.

The inauguration of President McKinley was performed with the

customary ceremonies on the 4th of March. In his inaugural
address, the new President laid somewhat less emphasis than
might have been expected on the need of measures for reforming
the monetary system of the country, but strongly urged that
instant steps be taken to increase the revenues of the
government by a return to higher tariff charges. "With
adequate revenue secured," he argued, "but not until then, we
can enter upon such changes in our fiscal laws as will, while
insuring safety and volume to our money, no longer impose upon
the government the necessity of maintaining so large a gold
reserve, with its attendant and inevitable temptations to
speculation. Most of our financial laws are the outgrowth of
experience and trial, and should not be amended without
investigation and demonstration of the wisdom of the proposed
changes. We must be both 'sure we are right' and 'make haste
slowly.' …

"The question of international bimetallism will have early and

earnest attention. It will be my constant endeavor to secure
it by cooperation with the other great commercial powers of
the world. Until that condition is realized, when the parity
between our gold and silver money springs from and is
supported by the relative value of the two metals, the value
of the silver already coined, and of that which may hereafter
be coined, must be kept constantly at par with gold by every
resource at our command. The credit of the government, the
integrity of its currency, and the inviolability of its
obligations must be preserved. This was the commanding verdict
of the people, and it will not be unheeded.

"Economy is demanded in every branch of the government at all

times, but especially in periods like the present of
depression in business and distress among the people. The
severest economy must be observed in all public expenditures,
and extravagance stopped wherever it is found, and prevented
wherever in the future it may be developed. If the revenues
are to remain as now, the only relief that can come must be
from decreased expenditures. But the present must not become
the permanent condition of the government. It has been our
uniform practice to retire, not increase, our outstanding
obligations; and this policy must again be resumed and
vigorously enforced. Our revenues should always be large
enough to meet with ease and promptness not only our current
needs and the principal and interest of the public debt, but
to make proper and liberal provision for that most deserving
body of public creditors, the soldiers and sailors and the
widows and orphans who are the pensioners of the United
States. …

"A deficiency is inevitable so long as the expenditures of the

government exceed its receipts. It can only be met by loans or
an increased revenue. While a large annual surplus of revenue
may invite waste and extravagance, inadequate revenue creates
distrust and undermines public and private credit. Neither
should be encouraged. Between more loans and more revenue
there ought to be but one opinion. We should have more
revenue, and that without delay, hindrance, or postponement. A
surplus in the treasury created by loans is not a permanent or
safe reliance. It will suffice while it lasts, but it cannot
last long while the outlays of the government are greater than
its receipts, as has been the case during the last two years.
… The best way for the government to maintain its credit is to
 pay as it goes—not by resorting to loans, but by keeping out
of debt—through an adequate income secured by a system of
taxation, external, or internal, or both. It is the settled
policy of the government, pursued from the beginning and
practiced by all parties and administrations, to raise the
bulk of our revenue from taxes upon foreign productions
entering the United States for sale and consumption, and
avoiding, for the most part, every form of direct taxation
except in time of war.

"The country is clearly opposed to any needless additions to

the subjects of internal taxation, and is committed by its
latest popular utterance to the system of tariff taxation.
There can be no misunderstanding either about the principle
upon which this tariff taxation shall be levied. Nothing has
ever been made plainer at a general election than that the
controlling principle in the raising of revenue from duties on
imports is zealous care for American interests and American
labor. The people have declared that such legislation should
be had as will give ample protection and encouragement to the
industries and the development of our country. … The paramount
duty of congress is to stop deficiencies by the restoration of
that protective legislation which has always been the firmest
prop of the treasury. The passage of such a law or laws would
strengthen the credit of the government both at home and
abroad, and go far toward stopping the drain upon the gold
reserve held for the redemption of our currency, which has
been heavy and well-nigh constant for several years. In the
revision of the tariff, especial attention should be given to
the re-enactment and extension of the reciprocity principle of
the law of 1890, under which so great a stimulus was given to
our foreign trade in new and advantageous markets for our
surplus agricultural and manufactured products."

{581}

Without effect, the incoming President urged the ratification

 of the treaty of arbitration with Great Britain, negotiated by
his predecessor and still pending in the Senate. In concluding
his address he announced his intention to convene Congress in
extra session, saying: "The condition of the public treasury
demands the immediate consideration of congress. It alone has
the power to provide revenue for the government. Not to
convene it under such circumstances, I can view in no other
sense than the neglect of a plain duty."

On the day following his inauguration, the President sent to

the Senate the following nominations for his Cabinet, which
were confirmed:

Secretary of State, John Sherman of Ohio;

Secretary of the Treasury, Lyman J. Gage of Illinois;
Secretary of War, Russel A. Alger of Michigan;
Attorney-General, Joseph McKenna of California;
Postmaster-General, James A. Gary of Maryland;
Secretary of the Navy, John D. Long of Massachusetts;
Secretary of the Interior, Cornelius N. Bliss of New York;
Secretary of Agriculture, James Wilson of Iowa.

UNITED STATES OF AMERICA: A. D. 1897 (March-July).

Passage of the Dingley Tariff Act.

Carrying out an intention announced in his Inaugural Address,

President McKinley called Congress together in extra session
on the 15th of March, asking for immediate action to increase
the revenue of the government by increased duties, "so levied
upon foreign products as to preserve the home market, so far
as possible, to our own producers." In his Inaugural Address
the President had expressed the understanding of his party as
to the chief meaning of the late election, by saying that "the
country is … committed by its latest popular utterance to the
system of tariff taxation. … The people have declared that
such legislation should be had as will give ample protection
and encouragement to the industries and development of our
country. … The paramount duty of Congress is to stop
deficiencies by the restoration of that protective legislation
which has always been the firmest prop of the treasury." To
the majority in both Houses of Congress these views were
entirely acceptable, and they were acted upon at once. The
Ways and Means Committee of the House of Representatives in
the previous Congress had already prepared a comprehensive new
tariff bill, which it passed on to its successor. This
ready-made bill was reported to the House on the first day of
the session, by Mr. Dingley, chairman of the newly appointed
committee, as he had been of the one before it. Debate on the
measure began a week later, and was controlled by a fixed
programme, which required it to be ended on the 31st of March.
The bill was then passed, by a vote of 205 against 121. Of the
action of the Senate upon it, and of the main features of the
bill as it was finally shaped and became law, the following is
a succinct account:

"The bill, referred at once to the Senate Committee on

Finance, was reported after a month, on May 8, with important
amendments. There was an attempt to impose some purely revenue
duties, and, as to the protective duties, the tendency was
towards lower rates than in the House bill, though on certain
articles, such as wools of low grade, hides, and others (of
which more will be said presently), the drift was the other
way. The Senate, however, paid much less respect than the
House to the recommendations of the committee in charge. In
the course of two months, from May 4 to July 7, it went over
the tariff bill item by item, amending without restraint,
often in a perfunctory manner, and not infrequently with the
outcome settled by the accident of attendance on the
particular day; on the whole, with a tendency to retain the
higher rates of the House bill. As passed finally by the
Senate on July 7, the bill, though it contained some 872
amendments, followed the plan of the House Committee rather
than that of the Senate Committee. As usual, it went to a
Conference Committee. In the various compromises and
adjustments in the Senate and in the Conference Committee
there was little sign of the deliberate plan and method which
the House had shown, and the details of the act were settled
in no less haphazard fashion than has been the case with other
tariff measures. As patched up by the Conference Committee,
the bill was promptly passed by both branches of Congress, and
became law on July 24. In what manner these political
conditions affected the character of the act will appear from
a consideration of the more important specific changes.

"First and foremost was the reimposition of the duties on

wool. As the repeal of these duties had been the one important
change made by the act of 1894, so their restoration was the
salient feature in the act of 1897. … Clothing wool was
subjected once more to a duty of 11 cents a pound, combing
wool to one of 12 cents. On carpet wool there were new graded
duties, heavier than any ever before levied. If its value was
12 cents a pound or less the duty was 4 cents; if over 12
cents, the duty was 7 cents. … The duties on carpet wool, as
has already been noted, were made higher than ever before. In
the House the rates of the act of 1890 had been retained; but
in the Senate new and higher rates were inserted. … They were
demanded by the Senators from some States in the Far West,
especially from Idaho and Montana. … They [the Senators in
question] needed to be placated and they succeeded in getting
higher duties on the cheap carpet wools, on the plea of
encouragement for the comparatively coarse clothing wool of
their ranches. … The same complications that led to the high
duty on carpet wool brought about a duty on hides. This rawest
of raw materials had been on the free list for just a quarter
of a century, since 1872, when the duty of the war days had
been repealed. … But here, again, the Senators from the
ranching States were able to dictate terms. … In the Senate a
duty of 20 per cent. was tacked on. The rate was reduced to 15
per cent. in the Conference Committee, and so remains in the
act. The restored duties on wool necessarily brought in their
train the old system of high compensating duties on woollens.
 … In the main, the result was a restoration of the rates of
the act of 1890. There was some upward movement almost all
along the line; and the ad valorem duty alone, on the classes
of fabrics which are most largely imported, crept up to 55 per
cent. …

{582}

"On cotton goods the general tendency was to impose duties

lower than those of 1890. This was indicated by the drag-net
rate, on manufactures of cotton not otherwise provided for,
which had been 50 per cent. in 1890, and was 45 per cent. in
1897. On two large classes of textile goods new and distinctly
higher duties were imposed,—on silks and linens. … The mode of
gradation was to levy the duties according to the amount of
pure silk contained in the goods. The duties were fixed by the
pound, being lowest all goods containing a small proportion of
pure silk, and rising as that proportion became larger; with
the proviso that in no case should the duty be less than 50
per cent. … Thus, the duty on certain kinds of silks was $1.30
cents per pound, if they contained 45 per cent in weight of
silk; but advanced suddenly to $2.25, if they contained more
than 45 per cent. … On linens another step of the same kind
was taken, specific duties being substituted here also for
ad-valorem. … Linens were graded somewhat as cottons had been
graded since 1861, according to the fineness of the goods as
indicated by the number of threads to the square inch. If the
number of threads was 60 or less per square inch, the duty was
1¾ cents a square yard; if the threads were between 60 and
120, the duty was 2¾ cents; and so on,—plus 30 per cent.
ad-valorem duty in all cases. But finer linen goods, unless
otherwise specially provided for, were treated leniently. If
the weight was small (less than 4½ ounces per yard), the duty
was but 35 per cent. On the other hand, linen laces, or
articles trimmed with lace or embroidery, were dutiable at 60
percent.,—an advance at 10 per cent. over the rate of 1890. …
It was inevitable, under the political conditions of the
session, that in this schedule something should again be
attempted for the farmer; and, accordingly, we find a
substantial duty on flax. The rate of the act of 1890 was
restored,—3 cents a pound on prepared flax, in place of the
rate of 1½ cents imposed by the act of 1894. …

"On chinaware the rates of 1890 were restored. The duty on the
finer qualities which are chiefly imported had been lowered to
35 per cent. in 1894, and was now once more put at 60 per
cent. On glassware, also, the general ad-valorem rate, which
had been reduced to 35 per cent. in 1894, was again fixed at
45 per cent., as in 1890. Similarly the specific duties on the
cheaper grades of window-glass and plate-glass, which had been
lowered in 1894, were raised to the figures of 1890. … The metal
schedules in the act of 1897 showed in the main a striking
contrast with the textile schedules. Important advances of
duty were made on many textiles, and in some cases rates went
considerably higher even than those of 1890. But on most
metals, and especially on iron and steel, duties were left
very much as they had been in 1894. … On steel rails there was
even a slight reduction from the rate of 1894—$6.72 per ton
instead of $7.84. On coal there was a compromise rate. The
duty had been 75 cents a ton in 1890, and 40 cents in 1894; it
was now fixed at 67 cents. On the other hand, as to certain
manufactures of iron and steel farther advanced beyond the
crude stage, there was a return to rates very similar to those
of 1890. Thus, on pocket cutlery, razors, guns, we find once
more the system of combined ad-valorem and specific duties,
graded according to the value of the article. … Copper
remained on the free list, where it had been put in 1894. …
For good or ill the copper duty had worked out all its effects
years before. On the other hand, the duties on lead and on
lead ore went up to the point at which they stood in 1890.
Here we have once more the signs of concession to the silver
Republicans of the far West. … The duty on tin plate, a bone
of contention under the act of 1890, was disposed of, with
little debate, by the imposition of a comparatively moderate
duty. …

"A part of the act which aroused much public attention and
which had an important bearing on its financial yield was the
sugar schedule—the duties on sugar, raw and refined. … The act
of 1890 had admitted raw sugar free, while that of 1894 had
imposed a duty of 40 per cent. ad valorem. … The price of raw
sugar had maintained its downward tendency; and the duty of 40
per cent. had been equivalent in 1896 to less than one cent a
pound. In the act of 1897 the duty was made specific, and was
practically doubled. Beginning with a rate of one cent a pound
on sugar tested to contain 75 per cent., it advanced by stages
until on sugar testing 95 per cent. (the usual content of
commercial raw sugar) it reached 1.65 cents per pound. The
higher rate thus imposed was certain to yield a considerable
increase of revenue. Much was said also of the protection now
afforded to the beet sugar industry of the West. That
industry, however, was still of small dimensions and uncertain
future. … On refined sugar, the duty was made 1.95 cents per
pound, which, as compared with raw sugar testing 100 per
cent., left a protection for the domestic refiner,—i. e., for
the Sugar 'Trust,'—of 1/8 of one cent a pound. Some intricate
calculation would be necessary to make out whether this
'differential' for the refining interest was more or less than
in the act of 1894; but, having regard to the effect of the
substitution of specific for ad-valorem duties, the Trust was
no more favored by the act of 1897 than by its predecessor,
and even somewhat less favored. The changes which this part of
the tariff act underwent in the two Houses are not without
significance." In the bill passed by the House. "the so-called
differential, or protection to the refiners, was one-eighth of
a cent per pound. In the Senate there was an attempt at
serious amendment. The influence of the Sugar Trust in the
Senate had long been great. How secured, whether through party
contributions, entangling alliances, or coarse bribery, the
public could not know; but certainly great, as the course of
legislation in that body demonstrated." The Senate attempted