Phil Collins’ concert in Hyde Park on Friday evening was exceptional. ‘In the air tonight’ brought back many memories, including that of the era-defining scene from the first ‘Miami Vice’ episode in 1984.
That year Michael Jackson was at the top of his career with ‘Thriller’, Duran Duran released ‘The Reflex’ and MTV was all the rage with the first Video Music Awards. This was also the year of ‘The Beverly Hills Cop’, ‘Terminator’ and ‘The Karate Kid’. The first commercial CD-players were introduced and Apple broke some ground with the Macintosh. The Olympic Games in L.A. were boycotted by the USSR after the US decided not to participate in the Moscow games in 1980. The Cold War provided a sense of stability, even security. Immediacy was not an obsession, and it certainly was not a business. Speed limits were barely enforced in Europe (few cars could achieve 120 miles an hour anyway), and the seatbelts were optional. Smoking was a wide-spread social activity. There was no mobile phone, no world wide web. The sense of privacy was real, and from that perspective George Orwell could not get 1984 more wrong.
In the Diversified Industrials sector, the 80’s witnessed a total U-turn in corporate strategy. Many large conglomerates were born from a wave of mergers in the 1960’s and 1970’s after a new approach to antitrust regulation made consolidation within a given industry more difficult in the 1950’s. External growth, from then on only achievable through diversification, led to the birth of the ‘firm-as-a-portfolio’ model. The conglomerate structure was institutionalized, backed by consultants and economists and embraced by empire-building managers. Fewer than 25% of the Fortune 500 largest industrial corporations generated all their revenues within a single, broadly-defined industry.
There is little evidence that much value was created through this process – on the contrary. The Economist (1991) went as far as declaring that the post-war mergers were ‘almost certainly the biggest collective error ever made by American business.’ Indeed, by the early 80’s, the conglomerates were being significantly challenged due to poor financial and market performance and lower protection versus hostile ‘bust up takeovers’ promoted by the Regan administration. A large scale trial-and-error experiment implemented over an entire generation ended with an error.
Nostalgia from the 80’s? No, one must move with the times. Except for one thing. Orwell did get the trends right. Privacy is now essentially gone and with it some degree of freedom. Indeed, modern science demonstrates that people act differently when watched. Worse, many citizens are choosing to give up some of their privacy through social media, now institutionalized. Information is power, and they feel somehow compelled to give it freely to others. This evolution is the most foreign to me. I believe it will someday be reversed, to the great chagrin of Facebook, Instagram and many others. This could represent another case of mass-scale trial and error lasting a generation and ending with an error.
The Journal of Finance, ‘The Value of Diversification During the Conglomerate Merger Wave’, Henry Servaes, September 1996
American Sociological Review, ‘The Decline and Fall of the Conglomerate Firm in the 1980s: The Deinstitutionalization of an Organizational Form’, Gerald F. Davis; Kristina A. Diekmann; Catherine H. Tinsley, August 1994
The Economist, ‘International Finance Survey - Official Influences On The Market’, April 1991