Primary navigation:

QFINANCE Quick Links
QFINANCE Reference

Home > Regulation Viewpoints > The Credit Crunch Was Like an Atomic Bomb; It Will Profoundly Change How We Think and Behave

Regulation Viewpoints

The Credit Crunch Was Like an Atomic Bomb; It Will Profoundly Change How We Think and Behave

by William Hopper

Table of contents

What is the “gift” of the title of your book, and how is this relevant to today’s business and managerial culture?

The Puritan migrants who came to America from England in the 1630s brought with them a highly successful managerial culture. This was their “gift.” Over the course of the next three centuries we argue that the gift was the driving force for the economic development of the United States, which transformed itself from 13 former colonies into the most economically successful nation on Earth. During its occupation of Japan in 1945–52, the United States implanted this same culture into its defeated enemy, and we argue this was what gave rise to the Japanese economic miracle. Before World War II, “Made in Japan” meant “poor quality.” After the war, it increasingly meant the opposite. The Puritans’ gift to America became the United States’ gift to Japan. The Japanese later exported the gift to the Asian Tigers. Thus a managerial culture with its origins in sixteenth-century East Anglia ended up influencing a large part of the globe.

What did this culture consist of?

There were four main characteristics, all of which can be traced back to the earliest days of the early American settlers:

  • a conviction that the purpose of life was to create an ideal society;

  • a moral outlook that subordinated the interests of the individual to the common good;

  • an aptitude for the exercise of mechanical skills;

  • a high degree of managerial skill.

Do you believe this culture was still dominant in America in the 1960s?

Yes. Before anyone could become a manager they were expected to have learned the “craft” of management on the job from more senior colleagues. They would also absorb what we can call “domain knowledge” about their business and its sector. So banks were run by people who understood the nuts and bolts of banking, aero-engine manufacturers were run by people who knew how aero-engines were put together, and so on. This was how good management was taught and learned in the US corporate sector in the mid-20th century; it was not something that one learned in a class, or at college. The title of Paul Drucker’s book The Practice of Management is telling. He saw management as neither an art nor a science but as something one did in practice.

So when did US managerial culture start to stray from this ideal?

It started with the onset of so-called professional management and the rise of the MBA in the 1960s and 1970s. It was no longer seen as necessary for executives to learn the “craft” of management as they climbed the ranks—or even to acquire any domain knowledge. Managers became hired hands who were more interested in themselves than their institutions. At around the same time, growing short-term shareholder value came to be seen as the executive’s number one goal. Taken together, these changes have led to managerial incompetence on an unprecedented scale that has extended over much of society.

You have described the former General Electric boss Jack Welch as the “apostle of stockholder value.” What do you think is so bad about stockholder value?

It runs counter to what Adam Smith prescribed in The Wealth of Nations: “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.”

More than anyone else, Welch made the shareholder the customer and organized the corporation on a three-month time horizon with a view to maximizing short-term reported profits. There was little or no interest in the long term. That led to dangerous distortions and, in extreme cases such as Enron, to actual dishonesty. More than anyone else, Welch was responsible for the destruction of good corporate cultures from the 1970s on. His worst disciples in the financial sector included Chuck Prince and Robert Rubin, formerly of Citi, Citigroup and Sir Fred Goodwin, formerly of the Royal Bank of Scotland (RBS).

What sort of place was Morgan Grenfell when you were a director there?

In the 1970s Morgan Grenfell was a superbly competent and ethical merchant bank that put its clients first. I ran the eurobond department, issuing fixed-interest securities on clients’ behalf. The bank was already quite successful in the primary market, of eurobond issuance, but had no presence or domain knowledge of the secondary market—so-called market-making. The management wanted me to lead a charge into this new area. However, I was of the opinion that this would be disaster. Deutsche Bank was devoting huge resources to that market, which it was treating as a loss leader. I knew we would be slaughtered and strongly opposed the move, but my views were ignored and I ended up having to resign. It turned out that I was right—Morgan Grenfell was effectively destroyed as a result of its entrance into the secondary market and, paradoxically, it ended up being taken over by Deutsche!

The Chicago school of economics became dominant in 1970s and led to faith in monetarism and a “market fundamentalist” ideology—the notion that the market always knows best. How do you think this affected financial regulation and national economic and fiscal policies?

Although the governments of Ronald Reagan and Margaret Thatcher were supposedly based on liberalizing the economy, both acted contrary to their own theories. Instead of reducing the size of the state and cutting the deficit, both expanded the state. They also got into the business of using credit to expand the economy. But credit is to an economy what steroids are to athletes: it enhances short-term performance but, unless taken in moderation, it damages the economy’s health.

How did financial institutions see their roles before and after Thatcher and Reagan?

The City of London and the Wall Street that I knew in the 1960s and 1970s were “service industries” in which institutions saw their roles as being to serve clients in the real economy. But thanks to deregulation and other changes, the City came to “own” the real economy. In 1986 the Big Bang opened up the London market, with New York banks moving to London immediately afterwards. Greed took over.

Was there also a belief that there would be a redistribution of wealth in part through the tax system, the so-called trickle-down effect?

In an expanding economy people are less concerned about ethical considerations because wealth is being created and widely distributed. But at the end of the day trickle-down was a myth. If you read our book, The Puritan Gift, you will see evidence that the gap between rich and poor widened; not only that, the poor got poorer in absolute terms.

Back to Table of contents

Further reading


  • Chandler, Alfred D., Jr. The Visible Hand: The Managerial Revolution in American Business. Boston, MA: Harvard University Press, 1977.
  • Drucker, Peter F. The Practice of Management. Revised ed. Oxford: Butterworth-Heinemann, 2007.
  • Hopper, Kenneth, and William Hopper. The Puritan Gift: Reclaiming the American Dream Amidst Global Financial Chaos. London: I. B. Taurus, 2009.
  • Keller, Maryann. Rude Awakening: The Rise, Fall, and Struggle for Recovery of General Motors. Toronto, ON: HarperCollins Canada, 1990.
  • Smiles, Samuel. Self-Help: With Illustrations of Conduct and Perseverance (1859). New York: Cosimo, 2005.
  • Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations (1776). Chicago, IL: University of Chicago Press, 1976.

Back to top

Share this page

  • Facebook
  • Twitter
  • LinkedIn
  • Bookmark and Share