Forces & Names 3

Here's another rewrite of the paragraph I worked on on Wednesday. Notice what happens when we remove the organizing gesture of "two forces":

The 1970s were a tough decade for U.S. corporations. Slow economic growth meant that the major markets of many firms stopped expanding, causing their profits to stagnate. High inflation meant that interest rates were quite high over the period, which pushed investors toward fixed-income securities like government bonds and away from stocks, and this caused stock prices to drift downward over the decade. Inflation also caused firms to have assets on their books that were increasing in value, but from which they were not earning higher profits. Since many measures of firm performance were based on returns to assets or investments, this meant that firms looked even less profitable. Meanwhile, foreign competition, particularly with the Japanese, heated up. American firms lost market shares and, in some cases, like consumer electronics, entire markets. Taken together, profit margins were squeezed by inflation, competition, and slow economic growth. By the late 1970s, with low stock prices, undervalued assets, and slow growth in sales and profits, many large U.S. firms had stock prices that valued them as being worth less than the value of their assets and cash.

It becomes easier to read because the reader is not tasked with organizing the information under the headings of "slow economic growth and high inflation" and "increased foreign competition"; instead, late in the paragraph, the sense in which things were "tough" is summarized as follows: "profit margins were squeezed by inflation, competition, and slow economic growth". Indeed, this could have been the first sentence. Watch what happens:

During the 1970s, profit margins were squeezed by inflation, competition, and slow economic growth. Slow economic growth meant that the major markets of many firms stopped expanding, causing their profits to stagnate. High inflation meant that interest rates were quite high over the period, which pushed investors toward fixed-income securities like government bonds and away from stocks, and this caused stock prices to drift downward over the decade. Inflation also caused firms to have assets on their books that were increasing in value, but from which they were not earning higher profits. Since many measures of firm performance were based on returns to assets or investments, this meant that firms looked even less profitable. Meanwhile, foreign competition, particularly with the Japanese, heated up. American firms lost market shares and, in some cases, like consumer electronics, entire markets. By the late 1970s, with low stock prices, undervalued assets, and slow growth in sales and profits, many large U.S. firms had stock prices that valued them as being worth less than the value of their assets and cash.

Here the opening sentence doesn't introduce a theme of "things were tough" but three specific pressures that "squeezed" profit margins.

* * *

You'll notice I've removed the reference to Friedman 1985. Like I said on Wednesday, it's not my field, so I don't feel qualified to make a final judgment, but the reference seems very imprecise to me. Here's the entry in the reference list:

Friedman, B. (ed.).1985. Corporate Capital Structures in the United States. Chicago: University of Chicago Press.

As we can see, Friedman did not write this book; he edited it. So the reference might be to the introduction he contributed or to the whole book, but this is not made clear. Referencing a whole book for such a specific account is not ever entirely helpful, of course, but it gets even harder to understand once we look at the book itself.

It can be previewed at Google Books. Strangely, a search for "foreign competition" comes up empty. And "competition" alone doesn't shed much light on things either. "High inflation" gets us similarly inconclusive results. You can also watch the results dwindle as we narrow the search from "growth" (42 pages) to "economic growth" (12 pages) to "slow economic growth" (0). While a search for "1970s", does give us results, like page 238, that describes them as "inflationary", it is hard to see the argument for "two forces" presented as such in Friedman 1985.

Maybe an economist would know how to use the reference to the Friedman volume more effectively. But I for one would have liked a page reference, or a reference (or several references) to the chapter (or chapters) in the book that the account is based on. More on this on Monday.