Introduction
“There are but three generations in America from shirt sleeves to shirt sleeves”, industrialist Andrew Carnegie observed famously in 1886. Compared to Britain, wealth matters far less in America where, he said, “it is much more easily acquired and, what is more telling, much more easily lost” – thereby bringing prominent families back to the worker's symbolic shirt sleeves by the third generation. More broadly, he concluded: “Wealth cannot remain permanently in any class if economic laws are allowed free play” (Carnegie Reference Carnegie1886: 365–366).
By comparing the history of two family firms, a Filipino media conglomerate and an American brewery, we can gain some understanding of the social forces that make Carnegie's maxim ring true for America but much less so for the Philippines. Over the span of three generations, the Lopezes of Manila have maintained their control over a dynamic media corporation, preserving the family's position in their society's upper stratum; while the Piel Bros. brewery in New York was sold in the third generation midst the US brewing industry's corporate consolidation, pushing its family downward into the American middle class. This comparison invites us to explore the eclipse of American family firms by the rise of corporate conglomerates and the continuity of Filipino “family dynasties” unchecked by the “free play” of those economic laws.Footnote 1
Populists across the Philippine political spectrum have, for the past half-century, criticised the persistence of family oligarchies, beyond those three generations, as a barrier to country's progress. First articulated by student demonstrators in the late 1960s and later appropriated by the Marcos dictatorship, an anti-dynastic rhetoric, with the Lopezes often serving as its bête noire, has persisted to the present. In a 1973 treatise defending his declaration of martial law, President Ferdinand Marcos insisted “the old alliances between oligarchs and their retainers…must now be uprooted” (Marcos 1973: 151); while the 1987 constitution written after his fall promised, under Section 26, “The State shall…prohibit political dynasties as may be defined by law.”Footnote 2 As recently as 2012, the Center for People Empowerment at the University of the Philippines was still reporting that, “The concentration, expansion, and consolidation of political dynasties over the past 100 years attests to the continuing hegemony of feudal politics….Thus this will be the state of politics in the generations to come: A government dominated by oligarchs will not equalize opportunities for growth and development among the vast majority of people.”Footnote 3
While activist Filipino academics bemoan their persistent family dynasties, mainstream American scholars, exemplified by Alfred Chandler's Pulitzer-prize winning study The Visible Hand, have celebrated their country's ‘managerial revolution’ that replaced family firms with modern corporations. Starting in the mid-nineteenth century, ‘entrepreneurial’ or ‘family capitalism’ yielded, in sectors requiring large funds for expansion, to ‘financial capitalism’. As both family- and financier-controlled firms expanded after the 1880s, they needed growing numbers of professional managers who had first appeared in the railroads. During the 1920s, as DuPont, General Electric, and General Motors developed innovative industrial management, while “new accounting, budgeting, and forecasting methods were becoming normal” (Chandler Reference Chandler1977: 463). With more than 100 universities offering business courses by 1916, trained specialists in cost accounting, finance, and marketing contributed to “the growing professionalization of the managers of large industrial enterprises” (Chandler Reference Chandler1977: 464). Through the sum of these changes, Chandler argues, “managerial capitalism soon replaced family or financial capitalism” (Chandler Reference Chandler1977: 10). Seeking to understand why this “institution appeared so quickly and in such profusion in the United States” Chandler (Reference Chandler1977: 298) posits several factors – a national market “not only larger and faster growing than in other nations” but “less defined by class lines than they were in Europe;” and, above all, “legal differences based on cultural values” exemplified by the US Sherman Anti-Trust Act “prohibiting cartels of small family firms” that survived, by contrast, “through holding companies in Britain or through cartels in Germany” (Chandler Reference Chandler1977: 498–500). Indeed, by 1963, just 200 industrial corporations, many of them conglomerates, controlled 56 per cent of all US manufacturing; while none of the leading 200 non-financial companies were still privately owned, whether by families or individuals (Chandler Reference Chandler1977: 492–493; Larner Reference Larner1966: 777–787).
Brewing was one major US industry that initially resisted these changes. The ‘managerial revolution’ of the 1920s coincided with Prohibition, stalling any modernisation of these family enterprises for nearly fifteen years. Even Pabst, one of the most dynamic of pre-Prohibition brewers, had to adapt to “the change that had taken place in methods of business policy” by introducing, during the 1930s, “modern functional divisions and specialized jobs” (Cochran Reference Cochran1948: 392–394). After World War II, however, these economic forces spread to brewing, and family-owned breweries were, in just a half-century, amalgamated into a few national and then transnational conglomerates.
Offering a global comparative perspective on this Philippine–American contrast, recent research has explored the state's role in advantaging major corporations over small, often family-based firms, which “account for 60–90 per cent of all companies in most countries” (Bennett Reference Bennett2014: 8). Since the 1920s in the older market economies such as Europe and the UK, “small firms, family firms and individual entrepreneurs lose out at each stage of policy to oligopolies and large firms that increasingly distort policy decisions away from economic efficiency” (Bennett Reference Bennett2014: 46). By the 1970s, large firms were so dominant in the US economy that policymakers tried to protect the ‘little guy’ by fostering small businesses, often family firms, “as vibrant sources of renewal” (Bennett Reference Bennett2014: 59). Over the past 40 years, a similar tension has recurred in the mature market economies of Japan, South Korea, the UK, and US: large corporations remain dominant through a mix of market advantage and state support (the 10 largest firms produced 79 per cent of South Korea's GDP in 2011), while governments struggle for strategies to assist the welter of small, often family-owned firms (4.8 million in the UK, 4.3 million in Japan), usually defaulting to a policy that favours the larger companies within this loosely defined sector (Bennett Reference Bennett2014: 63, 74–83, 94–100). Despite government attempts to promote small and medium enterprises, large corporations with professional management still dominate the world's more dynamic economies.
This oligopolistic bias finds its most extreme form in developing economies controlled by powerful oligarchies, particularly in Africa, Latin America, Eastern Europe, and, Western and Central Asia. As businesses divert resources to become “political entrepreneurs” who court the “close presidential allies that control state enterprises” (Bennett Reference Bennett2014: 53), the country's power players “favour policies that increase barriers to mobility” (Bennett Reference Bennett2014: 55). Hence, the key policy challenge is not support for entrepreneurs per se, but “broad institutional reforms and shifts in oligarchy control” that require “oligarchies to participate in the broader economy” beyond their borders – an assessment that seems to resonate with current Philippine conditions (Bennett Reference Bennett2014: 135). To summarise Bennett's implicit comparison, “corporatism” and its consequent oligopolies in the UK and Europe “distort policy decisions away from economic efficiency” (Bennett Reference Bennett2014: 46), a problem requiring moderate policy reforms; while the “endemic corruption by ruling elites” in the oligarchies of former Soviet republics and developing economies worldwide will serve as a serious drag on development until mitigated by major structural change.
By comparing families at opposite ends of an organisational spectrum, from the sweeping US managerial revolution to persistent Philippine family dynasties, we can better understand the forces at play in both societies and the wider world economy. While there is one collection of academic essays on Filipino families (McCoy Reference McCoy2009) and numerous American family histories, there are few if any multi-generational comparisons. Just Carnegie found the contrast between a declining Britain and ascendant America poignant in the late nineteenth century, so we, a full century later, might find juxtaposition of a fading America and an ascendant Asian nation equally revealing. And just as Chandler emphasised the role of the US economic regulation in superseding family firms, so we might explore the political dimension of the state's role in promoting or retarding such change.
The Lopez Family
Emerging as sugar planters on the Negros frontier in the 1870s, the Lopezes were leaders of a regional industry that quickly became integrated into the national economy, providing them with the capital and connections to begin harnessing the power of the state to bestow rents, or preferential access to restricted markets. Tracing a line of direct descent through six generations, we can follow the Lopez family from its progenitor, Basilio, a timber merchant and Iloilo municipal leader of the 1850s; to his great-grandson Eugenio, president of Manila corporations with assets over US $300 million in 1970; and then to Eugenio's eldest son ‘Geny’ or Eugenio, Jr., and his grandson ‘Gabby’ or Eugenio III. Among these six generations, the first three were prominent in the Western Visayas region, while the next three, the main focus of this article, have played major roles in the national economy. Within this familial line, the leaders of each generation seem to share some discernible personal and professional traits akin to what historian David Musto called a family “world view” (Musto Reference Musto1981: 41–42).
First and Second Generations
The modern Lopez family begins with the marriage of Basilio Lopez, a Chinese mestizo timber merchant, and Sabina Jalandoni in the Jaro district of Iloilo City during the early 1830s. Between 1834 and 1859, Sabina gave birth to sixteen children of whom ten survived to maturity – the first of the couple's 2676 direct descendants over the next 150 years. Although Sabina bequeathed a 148-hectare hacienda in Sarabia, Negros Occidental to her heirs in the late 1870s, neither spouse participated actively in the opening of the plantation frontier on Negros Island and left that venture to their children (Lopez Reference Lopez1982: xxv–xxxix).
It was the third son, Don Eugenio (1839–1906), who became “the central figure among the second generation Lopezes” (Lopez Reference Lopez1982: xliv). As a teenager, Eugenio acquired 1500 hectares of sugar lands in Balasan, Iloilo, before crossing the straits to Negros in the early 1860s where he spent the next fifteen years developing sugar plantations. Between the 1850s and 1890s, Don Eugenio purchased 4000 hectares and sold 1000, leaving him with a net of 3000 hectares at the time of his death in 1906 – holdings that ranked among the region's largest (Lopez Reference Lopez1982: xliv–xlvi).
Not only was Don Eugenio himself a leading planter, but he also had six siblings with substantial haciendas of 1440 hectares, one of the five largest holdings of sugar lands on the Negros frontier.Footnote 4 By every possible index – urban property, sugar farms, and liquid capital – the Lopez family had emerged, by the 1890s, as one of the region's wealthiest families.
The Third Generation
In contrast to the family's second generation who prospered in Negros's 30-year sugar boom, Don Eugenio's twelve surviving children, born between 1866 and 1885, reached maturity during the long sugar crisis that lasted from 1882 to 1913. When Don Eugenio died in 1906, these children divided some dozen haciendas totalling 2500 to 3000 hectares, leaving each heir 200 to 250 hectares (Lopez Reference Lopez1982: xliv–xlvi, 167–168).
Benito Lopez (1877–1908) had, like his father, Don Eugenio, remained aloof from the Philippine Revolution, and later joined the conservative Federalista Party after a branch was established at Iloilo City in 1900. As publisher of El Tiempo, Iloilo City's leading newspaper, Benito became an influential politician and won the first elections for Iloilo's provincial governor in 1903. Four years later, Benito ran for re-election on the conservative Progresista ticket against Nacionalista Party candidate Francisco Jalandoni, another wealthy Jaro planter. On 27 December 1907, two months after Lopez's re-election, one of Jalandoni's followers walked into the governor's office and shot him four times. At his death, Benito Lopez left his widow Presentacion Hofileña and their two children, Eugenio and Fernando, a limited legacy of Hacienda Casalagan, a printing press, and miscellaneous properties.Footnote 5
Benito's surviving siblings proved formidable entrepreneurs and were among the few planter families that made the transition to industrial-scale sugar milling after World War I. In 1927, seven of Don Eugenio's ten surviving children combined their capital to establish Central Lopez at Cadiz, Negros Occidental, chaired by the eldest, Doña Maria Lopez. Although not active in the mill's management, Eugenio and Fernando were among its investors. With total profits of P3.5 million (Philippine Pesos) over ten years on an investment of only P700,000, Central Lopez had a 500 per cent return – ranking seventh among the country's 45 mills (Lacsamana Reference Lacsamana1939: F3–4, F18–19). Thus, the third Lopez generation's move into sugar milling created substantial resources that their orphaned nephews, Eugenio and Fernando, could later use to reach national prominence.
The Fourth Generation
To these familial assets, one of the orphaned brothers, Eugenio H. Lopez (1901–1975), added personal boldness and broader vision that made him the first Lopez to move beyond the family's home in the Western Visayas region and achieve national prominence. Instead of building individual corporations slowly, Eugenio was a financier who mobilised capital to purchase a succession of interlocking conglomerates, draining each acquisition's assets through management fees and then investing in new enterprises.Footnote 6 Through this pyramid-building technique, unrestrained by the regulatory efforts of a weak state, Eugenio steadily increased the size of the consortia he controlled – from the P250,000 of Panay Autobus in 1937 to P1,022,000,000 of the Manila Electrical Company in 1973 (Meralco Securities Corporation 1973: 28–35).Footnote 7 As he moved beyond the restraints of agriculture's slow natural rhythms to the ceaseless spinning of electrical dynamos, he accelerated capital accumulation, increased profitability, and reduced risk.
Paralleling Eugenio's financial success, his brother Fernando (1904–1993) built a formidable political apparatus at both provincial and national levels after World War II. Starting as mayor of Iloilo in 1945, Fernando became senator in 1947 and vice president of the Philippines in 1949. In 1965, Fernando ran for the Nacionalista Party presidential nomination, but withdrew to become Ferdinand Marcos's running mate and eventual vice-president. This symbiosis of the family's political influence and corporate growth was a key factor in Eugenio's spectacular rise from provincial bus operations to the Philippines' largest private fortune in only a quarter century.
Eugenio Lopez's phenomenal financial success seems to spring from his manipulation of the Philippine state by “rent seeking” (Buchanan Reference Buchanan, Buchanan, Tollison and Tullock1980: 7–8). Throughout his career, he used his capital to secure political protection, investing in elections and taking profits in political favours. Understanding the paramount importance of state power, at each step Eugenio won support from politicians through his powerful media organisations – from local newspapers in Iloilo City during the 1920s all the way to the Manila Chronicle after World War II. Most importantly, he recognised the unique power of the Philippine presidency and worked to cultivate close personal relations with the executive. His enterprises thus prospered when an ally occupied Malacañang Palace and suffered under the tenure of an enemy.
As the Lopez brothers moved beyond local newspapers into the state-regulated transportation business during the 1930s, they found relations with Manuel Quezon, president of the Senate and then the Commonwealth, essential to their success. Midst Iloilo City's long slide from national sugar entrepôt to provincial backwater during the 1930s (Bureau of Customs 1925, 1932, 1934: 37, 31, 33), the Lopezes launched a series of small enterprises – a dance band, an ice cream parlour, and rental properties – until Eugenio realised that transportation was the city's only profitable business. By 1933, he had built a comprehensive transport network – Iloilo Shipping Co. (inter-island ferries to Negros), Iloilo Transportation Co. (urban buses) and, later, Iloilo-Negros Air Express Company (national air transport) (Jose Jimagaon interview 19 April Reference Jimagaon1974).
During the Depression years of the early 1930s, the region's transport interests competed intensely to survive. In the first of their state-regulated enterprises, the Lopez brothers negotiated a generous government subsidy of P75,000 and monopoly rights on key routes to launch the Iloilo-Negros Air Express Company (INAEC) in 1933.Footnote 8 Under the terms of the franchise granted by the Philippine Assembly, INAEC received a 20-year permit to open routes anywhere in the islands, subject to approval by the Public Service Commission, in exchange for one per cent of gross revenues – a classic rent-taking arrangement.Footnote 9 As one of only three Philippine airlines, INAEC enjoyed a monopoly on several major routes, but volume was low and profits were limited.
After spending the war years quietly in Baguio, Eugenio moved to Manila after its liberation from Japanese occupation and soon emerged as a major national entrepreneur. The devastation of World War II had liquidated most of his investments in Iloilo City. But building upon the sugar industry's historic relations with state finance, he secured credit for his new corporations from the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP) that totalled P88 million by 1962.Footnote 10
In this rapid post-war expansion, Eugenio was riding a tide of economic nationalism that promoted Filipino entrepreneurs by establishing the Central Bank in 1949, reducing US economic privileges through the Laurel-Langley agreement of 1954, and, under legislation allowed by a nativist clause in the constitution, reserving retail trade for Filipinos, also in 1954. By the mid-1960s, these policies would raise the Filipino share of the import trade sharply to 70 per cent and investments in new enterprises to 88 per cent, but did so by “the replication of oligarchic formation in industry, partly because of the state's policy of encouraging Filipino entrepreneurship” (Doronilla Reference Doronilla1992: 50–57, 70–73, 88–89).
Apparently wary of depending solely on government for operating capital, Eugenio worked with close allies during the 1950s to organise his own source of finance, the Philippine Commercial & Industrial Bank (PCIB). After long delays springing from policy disputes between the sugar bloc and the Central Bank, PCIB's incorporators finally won a license in 1958 and opened for business in February 1960 (Golay Reference Golay1956: 253–264).
Drawing from these diverse sources of capital, Eugenio made a series of major acquisitions after the war. His first post-war investment was Far Eastern Air Transport Inc. (FEATI), the successor to the pre-war INAEC, which was now reorganised as an international flagship and equipped with US war-surplus aircraft.Footnote 11
Reflecting the character of regulated airlines as rents, FEATI's fortunes would follow the ebb and flow of the Lopez group's relations with Malacañang Palace. Under President Sergio Osmeña, the Lopez-owned FEATI won routes through the cabinet officer responsible for aviation policy, Defence Secretary Alfredo Montelibano, Eugenio's close ally.Footnote 12 After his inauguration in mid-1946, however, President Manuel Roxas cancelled FEATI's monopoly by declaring an open skies policy – thereby rewarding his ally Andres Soriano, owner of Philippine Airlines, and punishing the Lopez brothers who were ambiguous in their support for his candidacy in the April presidential elections.Footnote 13 In May 1947, Eugenio Lopez sold his family's 78 per cent interest in FEATI to Philippine Airlines for P2.8 million.Footnote 14
With his profits from FEATI and other investments, Eugenio acquired the Manila Chronicle Publishing Company in September 1947 and then purchased a network of radio stations. With bylines by many of the capital's leading journalists, The Manila Chronicle quickly established itself as a leading national daily. By acquisition of a radio-television conglomerate, the Lopez brothers gained political leverage in post-war Manila through two different audiences – peasant voters who listened to vernacular broadcasts on transistor radios and Manila's middle-class professionals who viewed television as a less partisan medium than the daily press.
Recognising the profit potential of US army surplus goods, Eugenio established the Bolinao Electronics Corporation in June 1946 to manufacture radio receivers from war surplus parts. When the exhaustion of these supplies and import controls closed manufacturing in 1949, Bolinao opened its first station, Radio DZBC, in the Manila suburb of San Juan. In 1953, Bolinao, now called ABS, opened Radio DZAQ with a powerful 50-kilowatt transmitter that covered the country. That same year, Bolinao introduced television to the Philippines, operating at a loss for several years until there were enough consumer receivers to make the medium profitable. Thereafter, the Lopezes' radio network expanded quickly since their ally President Ramon Magsaysay had reportedly foreclosed on government loans to stations owned by Antonio Quirino, brother of their mutual enemy President Elpidio Quirino (Pineda-Ofreneo Reference Pineda-Ofreneo1984: 124–125).
Established as a separate network in 1956, the Chronicle Broadcasting Network (CBN) opened a string of radio and television stations until the two were later merged into the sprawling ABS-CBN network. Indicative of this corporation's success, Eugenio ‘Geny’ Lopez, Jr. (1928–1999), Eugenio's first born, opened the ABS-CBN Broadcast Center in 1968 as the most modern media studio in Asia after the NHK complex in Tokyo.Footnote 15 By 1972, ABS-CBN had become the largest media network in the Philippines with seven television channels, 21 radio stations, 2300 employees, and assets of P119 million (Almeda-Lopez Reference Almeda-Lopez1984). The Lopez brothers financed this growth from internal sources and controlled both ABS-CBN and The Manila Chronicle through their Benpres Corporation, an investment firm wholly owned by the two brothers (Lopez Reference Lopez1987). Throughout this quarter century of steady expansion, the dozens of ABS-CBN broadcast licenses required an initial government approval and periodic renewals, a process that would have been prohibitive without political connections.
Illustrating the value of their proximity to the presidency, the Lopez fortunes waxed under the administration of Carlos Garcia and then waned under his successor Diosdado Macapagal. In 1957, the Lopez brothers became the “chief contributors” to Carlos Garcia's successful presidential campaign and prime beneficiaries of his ‘Filipino First’ programme of economic nationalism (Doronilla Reference Doronilla1992: 74–75, 87–88; Reynolds and Bocca Reference Reynolds and Bocca1965: 183). In the final months of the Garcia administration, Eugenio organised leading businessmen to acquire the country's premier utility, the Manila Electrical Company (Meralco), valued at P244 million in early 1961 (Manila Electric Company 1976: 57). In the largest transaction in Philippine business history, Eugenio formed the Meralco Securities Corporation (MSC) to purchase Meralco from its American owners in January 1962 and install an all-Filipino board – including Eugenio, his son Geny, Salvador Araneta, and Luz Magsaysay, the widow of their former ally.Footnote 16 In keeping with their rent-seeking approach to politics, the Lopez acquisition of Meralco, finalised only days after President Garcia left office on 30 December 1961, had required six months of sustained government support, including permission for transfer of the franchise and state finance for the acquisition (Manila Electric Company 1976: 59).
After 1961, however, the Lopez alliance with President Garcia proved a liability when opposition candidate Diosdado Macapagal scored a surprising upset in the presidential elections. In January 1963, the Palace intensified its pressure on the Lopezes by demanding that Meralco's directors fire Eugenio from its board for franchise violations.Footnote 17 In a withering blast at their rent-seeking, the president's press secretary enumerated government loans to thirteen Lopez-owned corporations totalling a remarkable P88 million, saying their “adroit…application of political power and connections allowed the Lopezes to acquire…a vast radio-television network”.Footnote 18
When the Meralco board defied the President's demand that they fire Eugenio, the Palace threatened to cancel its license to distribute electricity and repeated its demand for his dismissal.Footnote 19 Represented by ex-Senator Vicente Francisco, however, the Lopez brothers soon won an injunction from the Supreme Court blocking the government's planned seizure of TV Channel 9 that was later extended to include all radio and television stations owned by their Chronicle Broadcasting Network.Footnote 20 As these legal battles merged into the 1965 presidential campaign, Eugenio pursued two alternatives – first, his brother Fernando's candidacy that stalled for want of delegates at the Nacionalista Party convention, and then a fusion ticket with Ferdinand Marcos backed by P14 million in Lopez campaign funds (Roces Reference Roces1990: 143, fn. 185, 187).Footnote 21
After Marcos's victory in the 1965 campaign, Eugenio launched a major expansion and diversification program at Meralco. Along with purchasing adjacent electric companies to give his company the widest possible distribution area, management created subsidiaries for the manufacture of transformers, construction of power stations, and, in 1969, the refining of lubricating oil (Lopez Reference Lopez1987). In the decade before Marcos declared martial law in 1972, the revenues of MSC, Meralco's public holding company, increased from P5 million in 1962 to P69 million in 1972. During the same period, MSC assets grew seven-fold from P155 million to P1037 million (Meralco Securities Corporation 1973: 26–27).
For the first six years, the Lopez–Marcos alliance was amicable. With Lopez support and Fernando Lopez again on the ticket, President Marcos overcame formidable odds to win re-election in 1969. In January 1971, however, a break erupted into the most vitriolic split in Philippine political history. According to Marcos, the Lopezes were demanding concessions to advance their interests. According to the Lopezes, Marcos was demanding shares in their family corporations (Mijares Reference Mijares1976: 174). Using the Manila Chronicle, the Lopezes began their attack by publishing exposés of “the hidden wealth of the Marcoses” (Lopez Reference Lopez1987). Marcos counter-attacked, denouncing the Lopezes as “oppressive oligarchs” (Mijares Reference Mijares1976: 177). After suffering five months of constant criticism, Marcos finally sued for peace by calling on Eugenio Lopez at his Parañaque residence and helicoptering to the Chronicle Building for reconciliation with Vice President Fernando Lopez (Mijares Reference Mijares1976: 180–181). In his own account written two years later, Marcos recalled “the humiliating exercise of seeking to propitiate some of the oligarchs, visiting them in their lairs, breaking bread with them and temporizing on their demands for special favours from the Government” (Marcos Reference Marcos1976: 23). The humiliation clearly stung, and his revenge came quickly.
When President Marcos declared martial law sixteen months later, the Lopez family became the main target of his ‘revolution from above’. Just before midnight on 22 September 1972, Metropolitan Police Command troopers occupied ABS-CBN Broadcast Center in Quezon City while other soldiers seized Lopez properties across the archipelago (Almeda-Lopez Reference Almeda-Lopez1984: 2–3). In exchange for “the unsealing of the Chronicle Building by the military”, the Lopezes allowed Imelda's brother, Benjamin ‘Kokoy’ Romualdez, to purchase the Chronicle's presses worth P50 million for a mere P500,000 (Lopez Reference Lopez1987: 2–3). After all broadcast companies automatically lost their licences, rendering the Lopez network's P119 million in equipment useless, Roberto S. Benedicto, a Marcos's intimate and owner of KBS television, reached an agreement with ABS-CBN for temporary use of the Lopez Broadcast Center. For the next six years, Benedicto's KBS grossed over P1 billion in broadcast revenues without paying “a single centavo as rent or compensation”, and then transferred the facilities to the National Media Production Center after the Marcos regime confiscated the complex to settle customs fines levied against the Lopezes (Almeda-Lopez Reference Almeda-Lopez1984: 3–27).
While expropriations of the Chronicle and the ABS-CBN network were crudely done, Marcos's moves against Meralco were subtler since its holding company, Meralco Securities Corporation (MSC), “was a public corporation with 12,000 stockholders, including many foreign creditors” (Lopez Reference Lopez1987: 1–5). In November 1972, Marcos used his martial law powers to imprison Geny Lopez, Eugenio's son and heir apparent, and two years later ordered him charged with plotting to assassinate the president (Mijares Reference Mijares1976: 305–312). With his son facing possible execution, Eugenio signed over his US $20 million share of Meralco to the Marcos Foundation for a payment of US $1500 (Psinakis Reference Psinakis1981: 140–142). On 6 July 1975, Eugenio Lopez died of cancer in San Francisco while his son Geny was still in prison awaiting trial on capital charges (Mijares Reference Mijares1976: 148–149).
The Fifth Generation
President Marcos's fall from power in 1986 brought the restoration of the Lopez fortunes. On 28 February 1986, only 48 hours after Marcos fled to Hawaii, his successor President Corazon Aquino appointed Manuel M. Lopez, Eugenio Sr.'s fourth child, as officer-in-charge of Meralco, a designation that was soon confirmed by the new board.Footnote 22 That April, President Aquino appointed Oscar Lopez, Eugenio Sr.'s second son, president of First Philippine Holdings, the holding company for Meralco (Lopez Reference Lopez1987: 1–2).
Landing at Manila from San Francisco only four days after Marcos's flight, Geny Lopez, who had earlier escaped from Marcos's military prison, began rebuilding the ruined tri-media conglomerate that he had headed before martial law.Footnote 23 In July 1986, the Aquino administration leased Channel 2 to ABS-CBN and the Lopez company began broadcasting on 17 August.Footnote 24 Using his “close ties with officials in the Aquino administration”, Geny leased equipment from the sequestered networks of Marcos crony Roberto Benedicto and cut the cost by avoiding any payment during the six years of Aquino's rule.Footnote 25
But when Geny petitioned the Aquino administration for return of the entire ABS-CBN network of six television and 21 radio stations, including the government's Channel 4,Footnote 26 an Aquino administration spokesman responded that “returning PTV-4 to the Lopezes would revive oligarchy which is inimical to public interest”.Footnote 27 The administration also blocked Geny's ambitious plans for a 50-year license to operate a satellite-powered television channel that would integrate local broadcasting with global telecommunications.Footnote 28 Clearly, the identification of the Lopez family as oligarchs who were a barrier to the nation's progress had persisted beyond Marcos and his martial law regime.
With his media ambitions momentarily checked, Geny turned to banking. In a test of his entrepreneurial ability, he joined with Chinese-Filipino financiers John Gokongwei and Antonio Chan in November 1987 to form a consortium with a capital of P1.34 billion for the successful takeover bid of PCIB against strong local and international competition.Footnote 29 Under this leadership, PCIB posted an impressive 38.2 per cent increase in gross earnings during 1989 and 26.5 per cent in 1990 – while expanding its branch network to 226, the largest among private banks in the Philippines.Footnote 30
Reinforcing this financial success, Geny also negotiated a skilful shift of presidential patrons during the 1992 elections – a critical transition for any rent-seeking entrepreneur. In the tumult of the 1992 elections, Geny simultaneously backed Fidel Ramos, President Aquino's anointed successor, and formed the Media Citizen's Quick Count (MCQC), leading other media executives in an effort to frustrate vote fraud by professional politicians.Footnote 31
When the counting was over after weeks of tension and Fidel Ramos proclaimed president-elect, Geny had a new patron in the Palace, a former employee as presidential press secretary, and prestige as the leader of a non-partisan movement for good government. As Ramos's term drew to a close in 1997, one account described Geny as “a billionaire with perhaps the most far reaching influence in Philippine society, being the leader in strategic industries, such as electric power generation and distribution, broadcasting and cable, film making, toll expressway, water services, telecommunications, real estate and banking” (Brazil Reference Brazil1999). When he died from cancer in San Francisco in 1999, Geny, then 70, was about to stand as sponsor at the marriage of his nephew to the daughter of the newly elected president, Joseph Estrada.
By then, Eugenio ‘Gabby’ Lopez III, Geny's son and a leading figure in the family's sixth generation, had completed his second year as chief executive officer of ABS-CBN. Showing the dynamism of his grandfather and father, Gabby was presiding over the family firm's diversification into multi-media platforms as head of SkyCable, a subscriber television network, and Bayan Telecommunications, one of the country's leading cell phone providers (Lopez Holdings Corp. 2011: 17, 32–33).
Over the span of five generations, this line of the Lopez family had demonstrated the vision to perceive change and the dynamism to seize new opportunities. Throughout the twentieth century, each Lopez generation produced at least one entrepreneur who grasped the importance of both technological and political change. While sugar milling created great profits for the third Lopez generation during the 1920s, this industry's income was still tied to nature's slow seasonal rhythms. Instead of mills and plantations, Eugenio H. Lopez, the most prominent member of the family's fourth generation, began his career by investing in transportation, and later accelerated his capital accumulation by moving into national energy and media markets. Freed from the constraints of sun and season, Meralco's electrical generating dynamos spun ceaselessly, accelerating capital accumulation and servicing a diverse market that could weather any economic downturn.
Carrying on his father's flair for innovation, Geny, the most skilful entrepreneur among the fifth generation, tried, albeit unsuccessfully, to recast the country's broadcast industry by linking his regional television network to global telecommunications. But just a few years later, Geny's son Gabby began moving the family's media conglomerate beyond print and broadcast to multi-platform information services.
While these three generations under Benito, Eugenio, and Geny maintained the rent-seeking symbiosis of politics and business, the Lopez family's future direction, at this writing, remains unclear. If their rising sixth generation were to remain aloof from politics, then we might see some discontinuity in the country's persistent rent seeking. The family's ties to their home region, with the consequent inclination to politics, have attenuated, but the main Lopez enterprises – media, electrical power, and water – are still state-regulated and their survival depends on political patronage.
The history of the Lopez family, in particular the story of brothers Eugenio and Fernando, illustrates the symbiosis between the weak Philippine state and the country's dominant political families. By skewing regulations and their enforcement to favour its allies, the Philippine executive has compromised the integrity of the bureaucracy and allowed the privatisation of public resources, limiting the state's capacity to direct entrepreneurs and lead the country's development. Through this problematic pairing of weak state/strong families, the Philippine economy declined steadily in the late twentieth century when compared to its more dynamic neighbours in eastern Asia. In sum, the Philippines became, in the half-century after independence, a very poor country with a very wealthy oligarchy (Boyce Reference Boyce1993: 1–3).
Such a system has left a tangled legacy. By fusing politics and business, elite Filipino families have proven adept at rent seeking, subverting public institutions to promote private accumulation. Many of these families have, like the Lopezes, also proven skilled entrepreneurs, introducing innovation and a modicum of economic dynamism. Yet these oligarchs have also accumulated sufficient power, prestige, skill, and wealth to perpetuate a system that sustains their privileged position beyond Carnegie's three generations to four or, in the case of the Lopezes, five. Any attempt to use the state to restrain these families may, as in the Marcos era, mask a partisan attack on established elites by new families even more ambitious and avaricious.
Ironically, the only available antidote to these entrenched Filipino families may be a different kind of family firm. While the Filipino oligarchs damaged themselves in martial law intrigues, the so-called Chinese taipans quietly focused on business to emerge from the Marcos dictatorship as the country's most dynamic entrepreneurs. At the end of his regime in 1986, Chinese-Filipinos already owned 45 per cent of the top 120 manufacturing firms. After Marcos's downfall, these Chinese-Filipino families profited from the fire-sale privatisation of some P43 billion in mismanaged government corporations, including the national flag carrier Philippine Airlines. By 1994, Chinese banks held 38 per cent of the country's total commercial banking assets, and the six top Chinese entrepreneurs controlled conglomerates with some visible corporations – banks, insurance, shopping malls, popular alcoholic beverages, the national airline, telephone networks, and the capital's premier newspaper. Yet this ethnic leavening did not change the overall oligarchic character of Philippine business since many of these Chinese families were even “more predisposed to a family-based type of business than their Filipino counterparts” who often mitigated the familial influence with foreign equity or public listing (Hedman and Sidel Reference Hedman and Sidel2000: 67–71; Rivera Reference Rivera, Rivera and Koike1994a: 3–4, 9, 19, 23; Rivera Reference Rivera1994b: 99–106).
Although the top taipan firm Gokongwei Holdings established joint ventures with Geny Lopez and grew into a diversified conglomerate of 36 major corporations by 1994, the family retained firm control through a holding company, JG Summit Holdings, Inc. With an executive committee of seven Gokongwei relatives, ranging from 68-year-old John to 28-year-old Lance, any “non-family member is definitely excluded from decision making at the Group's headquarters, indeed” (Rivera Reference Rivera, Rivera and Koike1994a: 21–22). In their centralisation of management under family control, a trait shared with Spanish-Filipinos at Ayala Corporation and Filipinos such as the Lopezes, these Chinese taipans were thus ensuring “transfer of power along their hereditary lines to solidify their concerns as family business in the true sense of the word” (Koike Reference Koike, Rivera and Koike1994: 39–45, 60–63).
In the decades since Marcos's downfall, Filipino scholars have identified family-based political dynasties and economic oligarchies as an impediment to both democracy and development. In 1988, the Institute for Popular Democracy argued that the “continuing domination of political clans was one of the most formidable obstacles that block genuine democratization” (Gutierrez et al. Reference Gutierrez, Torrente and Narca1992: 4–11). A careful study of the 2010 elections reported “an expansion of political dynasties” to 68 per cent of the House and 80 per cent of Senate – a concentration of power that arose from “a social structure where a tiny elite of families maintains economic hegemony…by political dynasties for 2–4 generations” (Tuazon Reference Tuazon2012). Summing up these trends in 2007, one analyst concluded that until socio-economic change leavens the country's symbiosis of weak state/strong oligarchy, the Philippines is likely to struggle through “its perpetual state of varying levels of crisis”, mired in a politics marked by slow development and spreading poverty (Cibulka Reference Cibulka2007: 257).
The Piel Family
By contrast, the Piel family of New York provides a clear example of Carnegie's three-generation maxim. Landing at New York in 1883 during the high tide of European immigration to America, the founders of the Piel Bros. brewery brought with them a modest capital and considerable entrepreneurial skills as the managers of farms and small factories in Germany's Rhineland. Migrating to New York as an import–export merchant, Gottfried Piel (1852–1935) found opportunity in the form of a derelict brewery in the East New York section of Brooklyn. Since his older brother Michael (1849–1915) had recently trained as a brewmeister back home in Dortmund, Gottfried invited him to join this new enterprise. In their first year of operation, 1883, the Piel Bros. brewery produced just 850 barrels of beer, a slender start for a major corporation.
The Piel brothers founded their Brooklyn brewery in the 1880s just as craft factories for consumer goods were benefitting from industrial innovation that cut costs and amplified sales. In America's Gilded Age, capital was still industry's servant, though it would, in a matter of decades, become its master. In America's industrial age, German-American breweries, almost all family firms, began producing lager beer in cities across America, reaching a peak of 2011 plants in 1887.Footnote 32 In this creative business climate, Michael Piel, adapting the traditional craft practices he had learned in Germany, began building his new model brewery in Brooklyn, with modest finance from family savings and local banks, using methods that balanced quality with efficiency.
The First Generation
To the challenge of starting a new business in a foreign land, the Piel brothers brought considerable resources – Gottfried's money and Michael's knowledge of brewing. Born in March 1849 at Stofflen, Düsseldorf, Michael was descended from farming families who, in the words of an anonymous biographer, “successively aimed to expand their patrimony of tillable lands.” To the original Piel farm at Stofflen, his father added substantial fields at Mörsenbroich just outside Düsseldorf where Michael spent his youth learning “the arduous discipline of farm labor from sun-up to sun-down” (The Cyclopaedia of American Biography 1918: 403). At the age of eighteen, Michael started his compulsory military training with the Kaiser Alexander First Grenadier Guard Regiment at Berlin, earning an Iron Cross for service with this unit during the Franco-Prussian War.
Stimulated by his exposure to city life in Berlin, Michael returned to the family's Mörsenbroich farm at war's end bent on modernisation – developing a new breed of bees, inventing a prize-winning centrifuge for honey extraction, and eventually turning his talents to brewing. “As the protégé of a machine manufacturer,” his biographer continues, “he visited the industrial centers of the progressive Rhineland and soon chose the ancient German industry of brewing as the one offering the best opportunity for his talent of applying machinery to natural processes.” Fascinated by “the new science of modern refrigeration,” Michael completed a brewing apprenticeship “in the old-style subterranean cellars at the breweries of Dortmund, Westphalia.” He had just finished this training when the summons arrived from his brother Gottfried to join him in New York (The Cyclopaedia of American Biography 1918: 403).
The Piel brothers arrived in America in an era when fortunes could be made brewing beer. Between 1850 and 1890, the country's annual consumption of beer surged from 36 million gallons to 855 million annually. By 1900, there were 300,000 saloons nationwide, many of them important social institutions. Across the country, German-American immigrants became wealthy beer barons in a single generation – a success exemplified by Frederick Pabst's lakefront resort in Milwaukee with 10,000 daily visitors in 1889 and Adophus Busch's brewery that covered 70 acres of the St. Louis riverfront by 1900 (Okrent Reference Okrent2010: 26–33). The most devout of these drinkers in saloons and beer gardens were German Americans, the largest group of immigrants to the US from 1840 to 1880, numbering some ten million by 1910 (US Senate 1919: vi; Wittke Reference Wittke1952: 43–55).
Michael Piel's extraordinary energy was central to the firm's ability to overcome the ruthless competition in Brooklyn's saturated beer market. “At the outset,” reads a biography about his role building the company, “Michael was its brewer, superintendent and engineer, his accumulated experience fitting him admirably for the multiplicity of his duties. In the early days of the converted plant, Michael found that his hours were four o'clock in the morning till ten at night” (The Cyclopaedia of American Biography 1918: 403). After five years of these eighteen-hour days, this effort secured the firm's survival. “At last, in 1888,” Michael's biography continues, “the ability of his brother as the financial head of the firm and excellence of his own products assured success and the long struggle was won” (The Cyclopaedia of American Biography 1918: 403).
Brewing beer in Brooklyn was a challenge and an opportunity. As site of 48 breweries by 1898, Brooklyn was one of the country's leading beer producers with large plants and cut-price distribution could readily crush a small firm like Piels. Instead of building a large, mechanised plant like their competitors, Piel Bros. started small, emphasising quality and clientele. Instead of the usual arrangement of discount marketing through ‘tied’ saloons, the Piels made their brewery a resort destination, selling direct to consumers through a beer garden attached to their East New York brewery. After modernising and incorporating in 1898, they expanded sales within the New York metropolitan market, taking advantage of the Brooklyn Bridge, which offered ready access to Manhattan.
During the first decade of its incorporation, 1898 to 1907, the brewery's performance confirmed the optimism of its initial million-dollar capitalisation. By sticking to their principles of quality, financial independence, and industrial innovation, the Piel Brothers achieved financial success, marked by a ten per cent dividend on capital stock only two years after incorporation and a steady increase in total sales from $545,000 in 1900 to $838,000 by 1906. Reflecting the reputation that drove this success, Piels was one of just four among the 1500 US breweries that “made beer according to the brewing methods and standards used in Germany” (Piel Reference Piel1920: 1–4). This quality was responsible for the 35 per cent increase in sales from 1900 to 1906 since the brewery did not use “modern advertising,” did not employ salesmen, and deployed only a “minimum number of ‘Collectors’” (Meeting of the Piel Bros. Directors 1900).
But at the very moment when this upward trajectory in sales and profits seemed so promising, Piels faced a ‘boycott’ by Manhattan's established breweries. As the 1907 recession and Piels' success cut into their sales, other New York brewers decided to “shut out” this competitor whose rising sales threatened their markets (Meeting of the Piel Bros. Directors 1915). In the decades before Prohibition in 1920, most breweries controlled so-called tied saloons, through loans or direct ownership, which served as the main outlet for their beer and a powerful mechanism to choke off competition (Joyce Reference Joyce1962: 40). By 1909, over 80 per cent of all the saloons in New York City were somehow ‘indentured’ to the major breweries – an oligopoly that made this shut-out of the Piel's product devastatingly effective (Okrent Reference Okrent2010: 30).
The Second Generation
Faced with a sudden drop in sales that threatened the firm's survival, Piel's second-generation management, led by Michael's eldest son William (1883–1953), was forced to innovate. Not only was William the eldest among his seven surviving siblings but he also been groomed as his father's successor – given a costly education that included a personal library, schooling at an elite academy, and both a Bachelors of Arts and legal training at Columbia University. In later conversations, William would express his “frustration at having been dragooned out of his own budding law practice into running the family business so that his immigrant father…could…shoot bear in Maine and take his yacht down the Intracoastal [waterway] for winter fishing in Florida” (Piel and Moore Reference Piel and Moore1981: 184–185).
To break out of the New York boycott, in 1909 William initiated long-distance marketing and creative advertising to spread the brand. Within a few years, Piels closed the beer garden and was selling to bars, hotels, and grocery stores along the eastern seaboard through an aggressive sales force and creative advertising. Over the next five years, this effort recovered sales lost to the boycott and raised bulk keg revenue by 20 per cent to $510,000 (Piel Reference Piel1920: 13; Meeting of the Piel Bros. Directors 1913). After the brewers' shutout reduced the value of Piel's assets from $970,000 in 1908 to $907,000 in 1910, this marketing strategy raised the company's worth steadily to $1,273,000 by 1916.Footnote 33
Just about the time Piels had mastered their new marketing strategy, the United States prohibited the sale of alcohol in 1920. By brewing low-alcohol cider and near beer, Piels survived the fourteen years of Prohibition under William's leadership, emerging in 1933 with plans to borrow heavily and become a major national brand. But bitter sibling rivalries among the second-generation shareholders blocked that move, consigning the firm to a decade of slow growth in New York's regional market.
Prohibition's end brought New York's mid-sized American breweries both the promise of expansion and threat of competition from national brands, located in the Midwest, that were determined to capture a share of the lucrative New York market. With the guidance of a professional board that included lawyers and corporate executives, the Piel brewery moved beyond the closed, familial management that marked its first half century – first, Gottfried and his brother Michael from 1883 to 1912, and then, for the next 20 years, Michael's two sons, William and Henry. Both sets of Piel brothers had combined the essential skills of brewing and management, but intense competition with national brands for New York's beer market after the repeal of Prohibition in 1933 required specialist skills that only a modern corporation could provide – notably, advertising, marketing, finance, and legal counsel. A new board of external directors, most of them executives in major national firms, led the brewery in hiring professional management to address these critical areas, lifting the firm from stagnant sales circa 1940 to steady growth by the end of World War II.
During the post-Prohibition decade from the mid-1930s to mid-1940s, the need for expertise to meet competitive pressures eased most of the Piel family out of the business, producing a clear division between management and stockholders. In the four years after repeal, William removed the relatives who had been his partners during the difficult years of prohibition – his younger brother Rudolf, a contrarian critical of his executive perquisites; brother Henry, a brewmeister highly skilled in the traditional craft; and cousin Arthur, a specialist in plant management. As rising dividends allowed family members to buy homes or farms and pursue private interests, siblings who once fought passionately over the brewery's direction at company meetings sent proxies concerned solely with the size of the dividend.
By 1940, moreover, finance capital was becoming dominant within the US economy, consolidating industries into conglomerates that supplanted craft quality with standard brands marketed through nationwide advertising on radio and television. To grow the firm, William Piel embraced the tenets of modern management – Madison Avenue advertising, Wall Street financing, professional executives, and large-scale production.
While national brands encroached relentlessly on New York's post-war beer market, Piel's management made expansion their first principle. Advantaged by economies of scale for mass production and television advertising, national brands were squeezing regional brewers in their home markets, cutting the number of US breweries from 725 in 1934, to just 440 by 1949 (Maeder Reference Maeder2002). To survive, William devoted his last decade at the brewery – 1943 to 1953 – to an expansion of sales that would cut the unit cost for advertising.Footnote 34
With major finance finally secured in 1944, William expanded the brewery's production by aggressive advertising and plant acquisition, raising annual sales to a million barrels of beer by 1951. That landmark figure, which came near the end of William's 40-year tenure as company president, made Piel's the seventeenth largest beer producer in the United States (Modern Brewery Age 1952: 34). Yet if William hoped to survive by raising Piels a few notches further, then his strategy suffered from an underestimation of powerful forces driving the US brewing industry toward heightened concentration that would, within several decades, leave just a few conglomerates.
The Third Generation
After leading the brewery for nearly 40 years, William Piel died in April 1953.Footnote 35 Three months later, the directors elected Henry J. Muessen, who had joined the firm as a salesman in 1933, as the third president of Piel Bros.Footnote 36 Although Muessen was the brother-in-law of former technical director Henry Piel, he had risen through management ranks as the protégé of a former general manager and thus was the first non-family member to head the firm. As a ten-year veteran of William's management team, Muessen continued his strategy of expansion, acquiring capacity that was never utilised and ignoring quality to the point that the plant would soon be producing tainted beer.
During the 1950s, competition from national brands, which had the advantage of bulk production and nationwide advertising, slowly squeezed the nation's regional breweries. And no regional market was tougher than New York's, with militant unions, expensive advertising, and costly transport. A series of bad business decisions by Piels' management compounded these problems. In retrospect, the company's entire expansion strategy, launched by William Piel and pursued by his acolyte Henry Muessen, spent almost $6 million, equivalent to a decade of dividends, to acquire production capacity that was never fully utilised. Not only was the expansion redundant, but it was arguably damaging as management was distracted by brewing at three different plants, contributing to a serious slide in the beer's quality.
Indeed, the company's focus on marketing and its inattention to craft soon proved fatal. Although the firm launched phenomenally popular advertising during the 1950s, Piel's sales had remained stubbornly stagnant – climbing slowly from 1,208,000 barrels for 1956 to 1,321,000 by 1959 before sliding downward to 1,202,000 barrels in 1960.Footnote 37 Muessen, a career salesman, had mastered the art of promoting the product, but his corporate management failed to maintain the Piel family's tradition of quality beer. As the newsletter Beer Marketer's Insights explained: “Because of the great ads, all kinds of people bought it for the first time, hated it and spread the news everywhere about how awful it was. It was a case of terrible word of mouth caused by a wonderful ad campaign” (Johnson Reference Johnson1988).
In 1962, after several years of declining sales and beer quality, Piels sold their brewery to a larger Midwest firm. By then, the number of US breweries had declined to only 225 (Maeder Reference Maeder2002). By then as well, the Piel family's second generation were moving toward retirement, and their children, the family's third generation, were establishing themselves in other fields.
After the Piel's brand was sold and re-sold several more times during the next decade, the Brooklyn brewery shut down in 1973 and was soon demolished, leaving a field of rubble where Michael Piel's model factory once stood. By 1976, Rheingold and Schaefer, the last companies brewing in Brooklyn, closed their local plants, ending an important chapter in New York's history and leaving the city without a brewery for the first time since the seventeenth century.Footnote 38
As this trend toward consolidation within the brewing industry gathered momentum, just two conglomerates emerged to dominate both national and international markets. Only four years after Belgian brewer Interbrew and Brazil's Companhia de Bebidas das Américas (Ambev) merged to form InBev in 2004, this Belgian-Brazilian multinational spent $52 billion to purchase America's biggest brewer Anheuser-Busch, which had just acquired one of China's largest breweries, Harbin. The merger of these three firms created a global brewing giant with $36 billion in annual sales that surpassed the former number-one brewer, London-based SAB Miller. Founded in 2002 when South African Brewery purchased the US brand Miller, SAB Miller went on to acquire Coors in America, Foster's in Australia, and Efes in Russia. After a decade of such acquisitions totalling $195 billion, these two global conglomerates controlled 210 beer brands in 42 countries. By 2012, just two transnational conglomerates, the Belgian InBev and London-based SAB Miller, controlled 80 per cent of US beer sales (Chappell Reference Chappell2013a, Reference Chappell2013b; Kenney Reference Kenney2013: Pearlstein Reference Pearlstein2013). Once the servant of industry, capital had become its master, with quality and craft suffering accordingly.
As consolidation was transforming the US brewing industry, the Piel family's third generation, particularly its most prominent lineage, was building upon their parents' success to become respected professionals. While William was serving as president of the brewery, his wife Loretto Scott, daughter of a distinguished Canadian family whose uncle was twice that country's Secretary of State, had laboured tirelessly to win acceptance in New York society – entering the city's exclusive Social Register by 1938.Footnote 39
From this social promontory, Loretto launched the lives of her six children by arranging Ivy League educations for her four sons and society marriages for her two daughters – social connections that proved helpful to those who pursued careers in New York. During his last year at Harvard Law School in 1935, William Piel, Jr. (1909–1998), was interviewed, through personal contacts, at Sullivan & Cromwell where he worked for the next 35 years, becoming partner in 1946 and the firm's senior litigator by retirement in 1980. During World War II, professional connections also won him appointment as chief of the order of battle section in the Military Intelligence Service, preparing the daily briefings on Germany and Japan for the president and secretary of war. After representing firms such as Ford Motor Company, Phillips Petroleum, and Goldman Sachs, William scored a major victory in 1979 by cutting a $113 million judgment against Kodak to just $7 million on appeal. Such service won him seats on the boards of American Re-Insurance Company, Campbell Soup Company, and Phillips Petroleum – placing him at the apex of US corporate power (Marquis Reference Marquis1999: 3509; Piel and Moore Reference Piel and Moore1981: 184–189).Footnote 40
William's fourth child Gerard (1915–2004) also found his New York social connections important at a critical turning point in his career. Upon graduation from Harvard in 1937, Gerard failed the test for an editorial post at Fortune magazine but was hired as office boy in the J. Stirling Getchell advertising agency because “Mr. Getchell had great ambitions to get the Piel brewery account” (Piel Reference Piel1984: 42–44). Fortuitously, Getchell soon launched his short-lived Picture Magazine, giving Gerard both his first experience as a reporter and a pretext for asking his Connecticut neighbour, Ralph Ingersoll, then executive vice-president of Time-Life-Fortune publications, to get him a job at Life as an office boy (Piel Reference Piel1984: 71–72). There he was soon plucked from the pool of young copy editors to become the magazine's science editor for the next six years (Piel Reference Piel1984: 58–60).Footnote 41
During a routine interview in August 1944 for Life, a scientific instruments manufacturer told Gerard: “They're engaged in making the most frightful weapon.” This elderly physicist added: “They're going to destroy mankind, they're going to destroy all life on earth. They can make a fine explosive, but they're forgetting about the aftermath of it, and the poisoning of the ground…with radioactive elements” (Piel Reference Piel1984: 66–69; Piel Reference Piel1999; Dieke Reference Dieke1993: 450–451). From that moment, Gerard realised that the world was entering “the Age of the Atom” with terrible weapons that must somehow be tamed (Piel Reference Piel1999). After the war, Gerard envisioned a new kind of science publication that would engage the peril of atomic weapons by allowing scientists to dialogue about their dangers across national boundaries (Piel Reference Piel1999).
Through his New York social connections, Gerard raised an initial $450,000 by 1947 from leading venture capitalists – Lessing Rosenwald, former chair of Sears Roebuck; John Hay Whitney, publisher of the New York Herald Tribune; retail tycoon Marshall Field; industrialist Henry Kaiser; presidential adviser Bernard Baruch; former GE president Gerard Swope; and “barracuda financier” Royal Little, founder of Textron Corporation. These funds were just enough to re-launch the venerable but moribund Scientific American magazine as the vessel for Gerard's vision, just as Henry Luce had once bought the old Life to start his new photo magazine. Although Gerard paid just $40,000 for a famous name that first appeared in 1845, he would need an additional million dollars to bring his Scientific American into the black – funds he secured slowly through social contacts (Piel Reference Piel1984: 157–158).Footnote 42
Meanwhile, the FBI was watching the loyalty of these men who knew too much. After Gerard recruited colleagues from Life to staff Scientific American, famed informer Whitaker Chambers, then an editor at Time, told the FBI “that a group of three or four people left Time and became editors of Scientific American. ‘Jerry’ Piel was the leader of this group, which included Dennis Flanagan”, whom the Bureau identified as the “son of Nan Brayman, well-known CP [Communist Party] member.” Chambers reported, “the group members were probably Communist sympathizers,” adding, scurrilously, “a mysterious subsidy became available for the purchase of Scientific American.”Footnote 43
The months following Scientific American's first issue in 1948 saw a succession of events that fostered a climate of fear across America – a successful Soviet nuclear bomb test in September 1949, President Truman's decision to build the powerful hydrogen bomb in January 1950, Senator Joseph McCarthy's charges of communist infiltration of the US government in February, and legislation that the FBI screen the loyalty of nuclear scientists in March. Throughout 1950, Gerard's new magazine punctured this suffocating political climate with short, critical commentaries and then that March launched a four-part series criticising Truman's decision to build the hydrogen bomb (Ridenour Reference Ridenour1950: 11–15; Swanberg Reference Swanberg2008: 1–15).Footnote 44
The test of Gerard's political skills came in April 1950 when the Atomic Energy Commission (AEC) burned, on grounds of national security, the current issue of Scientific American because it contained an article by famed atomic physicist Dr. Hans A. Bethe arguing that “we must save humanity from this ultimate disaster” by reconsidering the president's decision to build the hydrogen super bomb (Bethe Reference Bethe1950: 18–23).Footnote 45 After the New York Times made this incident a cause célèbre by reporting it on page one, Gerard told the American Society of Newspaper Editors, “we have tolerated too much secrecy and neglected too long this phase of the Government's relation to the press.” The Times seconded his critique with an editorial warning that “censors … run the risk of doing great harm”.Footnote 46
Gerald's bold speech on nuclear issues won him both admiration from the press and closer surveillance by the FBI. In the months following this censorship incident, agents reported that Gerard and his wife Mary Bird Piel “were active in the ‘12th Street Neighbors for Peace,’ which was connected with the Stockholm Peace Petition,” a movement advocating an absolute ban on nuclear weapons. At one of their meetings, Gerard reportedly “spoke on the hydrogen bomb.” In October 1950, the FBI interviewed Gerard “concerning his association with…Abraham BROTHMAN and Miriam MOSKOWITZ [who] were convicted in the Federal Court…on charge of obstructing justice in connection with the trial of Julius ROSENBERG” – who was later executed as a Soviet spy. Gerard replied that he knew Brothman as “a chemist of distinction” whom he had once tried to recruit for an employer, and had spoken to his colleague Moskowitz when she “had called him after her arrest asking for financial help”, a request he had refused.Footnote 47 Gerard's daring combination of critical publications about the bomb and anti-nuclear activism risked arrest or anti-communist black listing.
By creating an independent forum for discussion of science policy during the Cold War, Gerard Piel elevated his own status from neophyte editor to public intellectual. Instead of being stigmatised, he was honoured with directorships of the American Museum of Natural History (1955), the American Civil Liberties Union (1957), and Harvard University (1966); awarded a dozen honorary degrees; and given a number of prestigious prizes including the George Polk Award (1961) (Marquis Reference Marquis1999: 3508–3509).Footnote 48
Only two years after that issue of the magazine had been burned in 1950, Scientific American was in the black with circulation above the 100,000 mark, and Gerard was well on his way to building the world's premier science journal. By making the complexities of science comprehensible to the thinking citizen, Gerard, in the words of one analyst, “virtually invented modern science journalism” (Amarelo Reference Amarelo2004). By publishing Albert Einstein, Linus Pauling, and nearly a hundred Nobel Prize winners, the magazine built a circulation that reached 335,000 by 1963 with an enviable $4.6 million in advertising revenues.Footnote 49
This success did not deter the Bureau's surveillance. Gerard's FBI file showed that he was “invited to a reception on 24 September 1960 sponsored by the Fair Play for Cuba Committee in honor of Fidel Castro in New York City.”Footnote 50 But the FBI failed to note that in April 1962 Gerard and his wife were also invited to a White House dinner hosted by President John Kennedy for the nation's Nobel Prize winners (Piel pers. comm. 13 August 2002).Footnote 51 Such social agility allowed Gerard to survive the heavy Cold War repression of dissidents like himself unscathed.
Starting in 1968, Gerard launched a dozen foreign editions, including in China and Russia, giving his magazine a global reach.Footnote 52 For nearly 40 years under Gerard's leadership, Scientific American exercised an influence far beyond its modest status as a science magazine – inspiring informed science writing, contributing to critical analysis of US nuclear policy, and encouraging scientific dialogue across the Iron Curtain.
As Gerard's long tenure at Scientific American drew to a close, corporate pressures brought changes, welcome and unwelcome, to the magazine's distinctive institutional culture. In 1984, Gerard, then 68, moved up to chairman of the board while his eldest son Jonathan replaced him as president and also succeeded the magazine's long-serving editor, Dennis Flanagan.Footnote 53
Two years later, however, the magazine's sustained success sparked take-over bids by outside investors. Midst a bidding war among Time, The Economist, and British press baron Robert Maxwell, Gerard found a white knight in Germany's second largest publisher, the von Holtzbrinck Group, then moving aggressively into the American market. Though there were higher bids, Gerard persuaded his board to accept a $53 million offer that came with a promise to respect what son Jonathan called “our commitment to quality and integrity in publishing.” Eight years later, however, Jonathan resigned as the magazine's editor, apparently forced out.Footnote 54
Just as William had once replaced his siblings at the brewery with professional managers, so that same corporate culture, in its relentless quest for profit, had now forced his son and grandson out of a publishing venture to which they had devoted most of their working lives. They both moved on to other pursuits, and Scientific American became just another magazine among the many imitators now crowding the market for science journalism.Footnote 55
Conclusion
There are significant similarities and differences in the history of these two families. From the mid-nineteenth to the mid-twentieth century, both the Lopezes and the Piels followed parallel paths from agriculture, to food processing, and then mass media. And among the multiple lines within both families, a single lineage proved the most capable in making these transitions. In both cases, moreover, migration released latent entrepreneurial talent, with Eugenio Lopez building a vast corporate conglomerate after his move to Manila, just as the Piel brothers achieved success as brewers by crossing the Atlantic to New York. In managing these enterprises, both families were acutely aware of the power of the state to damage their businesses or disrupt their lives.
But here, of course, we reach the realm of contrasts, with the American state acting more impersonally in its economic regulation or national security and the Philippine state advantaging or disadvantaging individual entrepreneurs. The US prohibition of alcohol was a poor policy equitably administered, while Marcos's anti-oligarchy campaign was questionable policy implemented in a blatantly partisan manner. Reflecting and reinforcing these different political cultures, Eugenio and Geny Lopez used their media innovation to perfect the Filipino form of rent seeking, while Gerard Piel employed his new magazine to create the modern field of science journalism and to campaign for global nuclear disarmament. While the Philippine security services often acted in a ruthlessly partisan manner, US national security agencies punished ideological deviation uniformly.
On balance, therefore, this tale of two families seems a study in contrasts. In the Philippines, as the Lopez history demonstrates, political culture and state policy have sustained a financial oligarchy and thus encouraged intra-familial succession within key enterprises. Instead of operating in an open market that would allow take-overs, consolidation, and liquidation, the Lopezes secured their operating capital through consortia of kin or ritual kin, their own banking firms, or government finance allocated preferentially to elite Filipinos. Moreover, the fusion of political office and family firms served to militate against government reform that might challenge the privileged position of this economic elite. Less tangibly, there seems a shared cultural norm, among the society's elite, that corporate leadership should, quite properly, pass through family hands to the next generation, shaping government policy for both routine loans and the economic restructuring that followed World War II and the fall of the Marcos dictatorship.
This persistence of oligarchic firms in the Philippines comes with some marked costs. Within the country's large pool of entrepreneurial talent, comparatively few have the wealth and connections for a successful business career. And the slower pace of growth arguably reduces employment at all levels. Among the 9.5 million Filipinos overseas as of 2010 – about eleven per cent of the country's population – were countless workers whose creative talents were lost to the nation (Commission on Filipinos Overseas 2010). For the past half-century, moreover, the country's economic growth has suffered from recurring crises, arising arguably from a fusion of political power and rent seeking, reducing both opportunity and prosperity.
For the foreseeable future, it seems unlikely that the Philippines will undertake the “broad institutional reforms and shifts in oligarchy control” that would allow it to move beyond the “corruption, poor legal protections and perverse state institutions” (Bennett Reference Bennett2014: 135) that currently preclude the development ideal of “rapid policy adaptability to ensure entry barriers remain low” (Bennett Reference Bennett2014: 145). After the country's population hit 100 million in 2014, with 54 per cent under the age of 25, and a quarter of the country still miserably poor, it would seem that Philippine society can ill afford this oligarchic drag on development.Footnote 56 Absent of any internal pressure for reform or multi-national access to the country's protected capital markets, Philippine family firms, with all their strengths and weaknesses, are likely to persist into the foreseeable future.
By contrast, in America during the late twentieth century, the rise of finance capital and professional management eclipsed family firms in a number of economic sectors, notably brewing and publishing. Thus, after the repeal of Prohibition in the 1930s, William Piel pushed his siblings out of the brewery's management into a role of distant shareholders and replaced them with professional executives – a transitory reform that slowed but could not block his firm's liquidation by the national and then transnational consolidation of the brewing industry. Similarly, his son Gerard lost control of a magazine to which he had devoted his working life when a German media conglomerate acquired his firm and fired his son and successor. While both these US industries, brewing and publishing, have been consolidated by the rise of transnational conglomerates, Filipino family firms, protected by nationality laws and state policy, have been insulated from such globalisation, allowing their survival well beyond that third generation.
Looking back on the history of the Piel Bros. brewery, there were gains and losses from the rise of capital in America's food and beverage industry. Family firms that once took pride in their craft and quality gave way to impersonal corporations focused on profit and loss. Quality of food and beverages suffered accordingly, with long-term consequences for the society's health and nutrition. Throughout the twentieth century, over a thousand local brewers, family firms that once took pride in purity and flavour, gave way to two transnational conglomerates that sold an indifferent mass-produced alcohol through saturation advertising. So bland did their beer become that, during the 1990s, countless craft brewers started springing up across America, winning customers with quality and flavour. By 2012, there were 2347 craft brewers producing thirteen million barrels, about ten per cent of the nation's beer output.Footnote 57
The Piel family's management of their brewery, across three generations, exemplifies the character of family businesses in America, both the commitment that comes from ownership and the personal rivalries that can complicate sound business decisions. The mixture of blood, money, and power can, in some instances produce stable management over the span of several generations. Often, however, this same fusion of business and family can yield deep jealousies and bitter struggles over strategy or corporate control. Over time, there is a relentless market pressure to rely on expert executives and thus push family owners to the shareholder margins, creating an impersonal society that often seems the sum of its corporate parts.
In the end, this tale of two families serves to highlight contrasts and similarities in two societies, Filipino and American, on opposite sides of the Pacific. This comparison allows us to see choices and their consequences for each country somewhat more clearly – unchecked globalisation in the United States versus protected markets for national entrepreneurs in the Philippines; and sustained corporate growth in the United States that eclipsed once viable family firms versus persistent oligarchies in the Philippines that serve as drag on both democratisation and development.
