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Book Review
| Sally H. Clarke, Trust and Power: Consumers, the Modern Corporation, and the Making of the United States Automobile Market, New York: Cambridge University Press, 2007. Pp. 296. $56.00 (ISBN 978-0-521-86878-5).
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| Trust and Power is a book that should be read by students of contracts, torts, the law of insurance, and the structure of the firm. Historian Sally Clarke guides us through the legal microprocesses that give life to the industrial organization of the automobile industry in twentieth-century America. She gives us a tour of upstream and downstream relational contracting between the manufacturers and their suppliers (upstream) and their dealers (downstream). She walks us through the manufacturers' handling of early tort claims from allegedly defective products. And she leads us to see the crucial role of intermediaries such as insurers in shaping the automobile design process. |
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The book takes as its topic relations between manufacturers, dealers, and consumers in the automobile industry from the turn of the twentieth century to the 1960s. Clarke pursues the push and pull of two competing strategies by which manufacturers sought to organize these relations. From early on, manufacturers grasped the value of relationships of loyalty and trust with both their dealers and their customers. But from just as early, Clarke suggests, they also saw opportunities for exploiting those dealers and customers. As Clarke would have it, the story of the automobile industry in the twentieth century is largely driven by the way the competing aims of loyalty and exploitation played out against the backdrop of regulation by courts and administrative agencies. |
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Part 1 of the book describes the ways in which automobile manufacturers in the first decade and a half of the twentieth century handled the risks of product failure and accident. Clarke is particularly interested in the period leading up to 1916, when in the case of MacPherson v. Buick, Benjamin Cardozo and the New York Court of Appeals abolished the old privity doctrine and made manufacturers liable for injuries caused by their negligently designed products regardless of whether the manufacturer had an immediate relationship with the customer. Part 2 ranges across an array of management problems in the period of automotive expansion leading up to the Second World War. Clarke surveys Alfred Sloan's innovations in designing, marketing, and financing at General Motors in the 1920s and the rise of safety innovations in between the wars. Clarke's chapter 4 makes the book worth the purchase price all by itself with its wonderfully fine-grained account of products liability law in action in the 1920s and 1930s. On Clarke's account, tort law shaped automobile design through the regulatory influence of manufacturers' liability insurers, who set up safety research departments and demanded safety improvements in the cars of the manufacturers they insured. |
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Of special interest to historians of economic organization will be the contrasting stories in chapters 5 and 6. In chapter 5, Clarke shows how manufacturers and suppliers such as Fisher Body used long-term contracting and vertical integration to solve upstream industrial organization problems. Chapter 6's contrasting story is about the absence of such contractual or corporate devices in franchise contracts, despite the vulnerability of dealers who made manufacturer-specific investments. The book's slimmest part (part 3) brings the story of automobile manufacturer marketing strategies into the middle of the 1960s, when the mature industry developed aggressive strategies of consumer and dealer financing, brand identity, model churning, and advertising to increase its sales. |
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For all the book's many virtues, it has aggravating flaws. Part 1 of the book intriguingly suggests that the franchise relationship between manufacturers and dealers was an effort on the part of manufacturers to evade liability for injuries to consumers. But Clarke presents little evidence of this from her extensive archival sleuthing. Even if liability avoidance might explain the very earliest dealership arrangements, the book fails to explain why cars have been sold through independent dealerships rather than through vertically integrated retail outlets for almost one hundred years since the MacPherson case made the corporate structure of the manufacturer-dealer relationship irrelevant to manufacturer liability. In part 2, Clarke seems to suggest that the threat of tort liability directly shaped product design, but most of her evidence seems to be about manufacturers who responded to the value consumers placed on safety devices or about requirements that began to be imposed on manufacturers by their liability insurers. Similarly, Clarke never presents a satisfying account of why manufacturers' relationships with dealership franchises and upstream suppliers developed along such different paths. Here and elsewhere, Clarke does not help us get inside the economic logic of the organizational problems she describes. Indeed, some of her examples of conflict between manufacturers and dealers are not really organizational problems at all, but instead simple tussles over the relative share of the surplus that would be retained by the dealers and the manufacturers, respectively. |
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Although Clarke is well-versed in economics, law, and history, it is often unclear whether she deploys the right conceptual framework to make sense of the materials she has unearthed. Those materials will nonetheless hold great interest to students of the law in action. |
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| John Fabian Witt
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| Columbia University |
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