Business History

Complexities and Comparisons

Franco Amatori, Andrea Colli

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136732416
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This major new textbook on business history brings together the expertise of two internationally renowned authors to provide a thorough overview of the developments in business – from just before the industrial revolution right up to the present day.

Business History is global in scope and looks at the major players – Europe, the US and Japan – as well as emerging economies, such as China and India. Focusing mainly on 'big business', Amatori and Colli critically analyze 'the firm' and its interaction with the evolution of economic, technological and political systems at the micro and macro levels.

This up-to-date textbook is an exceptional resource for students on economic and business history courses, as well as for practitioners interested in broadening their understanding of business.

Part I

Relevant issues

1 Introduction

This book is about modern economic development (Kuznets, 1971) as observed through the study of one of its most important actors, the business firm. In the wake of the Great Recession of 2008–2010, most of us have been thinking a great deal about businesses and their impact on our societies and economic opportunities. We add to those thoughts a perspective on the evolution of the firm, the primary social organization in the capitalist system. We know this is not all that can be written about business history, but we are certain that it is a crucial segment of our economic past and present.

Our volume is composed of 24 chapters. After we set the stage in this introduction, we explore some of the theoretical arguments that provide the foundation for our narrative. Chapter 2 focuses on the relationship between various economic theories of the firm and the history of business. In Chapter 3, we examine these issues via the firm’s leader—the entrepreneur—as this topic has been analyzed by historians, economists, and other social scientists.

With Chapter 4, we switch gears and begin a diachronic description and analysis of business evolution. Chapters 4–6 are dedicated to firms in the preindustrial era and their main characteristics during the First Industrial Revolution. Here, our reference country is England, as this is the country in which this truly revolutionary process started.

We then shift our focus in Chapters 7 through 9 to the United States, a leading economy during the Second Industrial Revolution. It was this period, with its mass production, that serves as the starting point of the times in which we live now. This section is organized with a chapter about the infrastructures (especially railways) that made possible this new form of production. This will be followed by another chapter that gets to the core of the problem by analyzing the issues of technology and organizational change. Then we will follow up with a chapter on the national developments within this broad technological paradigm both in frontrow nations such as the United States, the United Kingdom, and Germany, as well as in latecomers such as Russia, Japan, and Italy (from our perspective, France fits midway between the two groupings).

At the beginning of , our focus is once again on the United States. The next two chapters offer us an opportunity to examine how the Second Industrial Revolution developed in the interwar period. In , we discuss the origins of the M-form (the multidivisional enterprise). Then we will expand the scope by considering the debate on managerial capitalism in the United States and Europe.

In Chapters 11 and 12, we enlarge the international perspective, considering convergences and differences between the United States, Europe, and Japan. Many of these differences are related to the importance of cartels, the predominance of family-headed enterprises, the active presence of the State, and the different roles played by workers in societies that do not adopt the American “Fordist model.” From Europe, we will then go on to consider Japan and the origins of the Japanese “miracle” in the post-World War II period.

We examine the passage from the Second Industrial Revolution to the beginning of the Third Industrial Revolution—the Information Age—in Chapters 13–18, where we also discuss global competition in a divided world. The world becomes increasingly global in part because, at the beginning of the Third Industrial Revolution, electronics and jet transportation shrank space. Nevertheless, the world was still sharply divided by the presence of two opposing political systems: capitalism and communism.

Chapter 13 is important because it outlines the early stages of the Third Industrial Revolution. In the next three chapters, we examine what happened to business between the 1950s and the 1980s. We analyze the rise and decline of the American model, the failure of the Soviet Union, Japan’s outstanding economic growth, and the challenge that the Land of the Rising Sun presented to the United States and its leading position in the world economy. We then return to Europe, considering the fundamental research done at Harvard Business School as well as that of management scholars Richard Whittington and Michael Mayer on the evolution of strategies and structures in the “Old Continent.” Here, we address the Italian case and the industrial districts that for Italy (but not only for this country) were an important aspect of economic growth in the 1970s and 1980s. Looking again outside the leading industrial nations, we treat convergencies and divergencies, comparing, for instance, businesses in Argentina and South Korea. From the perspective of business history, the concepts of a Third World and developing countries are less useful than they have been to scholars in other disciplines.

The final section of this volume provides an examination of the era of “boundless globalization” (the version that was created with the fall of the Berlin Wall and thanks to the Internet). This brings us up to current times. In Chapter 19, we analyze an essential actor in this global scenario, the multinational firm. We enter into the very heart of the Third Industrial Revolution in Chapter 20, as we consider its forms of enterprise and the technological tools that foster new styles of company organization.

In this context—one dominated by globalization and the Third Industrial Revolution—in Chapters 21 and 22, we examine the surprising American recovery versus the slower development that characterized Europe and Japan. The Japanese problems are particularly telling because the nation’s strengths became, in an era of globalization, its major weaknesses.

Of course, we would be remiss if we did not briefly survey the recent changes in business in China and India (Chapter 23). The former differs from the other Asiatic models because of the system’s ability to play across the technological spectrum from labor-intensive sectors to high-tech ones, its recent openness to the activities of multinational companies inside its borders, and the actions of the State (especially those concerned with the liberation of the so-called “animal spirits” from the legal constraints that were typical of all communist regimes). What appears to be especially relevant in the case of India is the nation’s capacity to transform the heritage of British colonialism into a positive force, the capacity to grow from a very ancient culture into an ultramodern scientific center at the service of enterprises (Bangalore), and, finally, the strong ethical inspiration that guides many of its entrepreneurs. When we consider its subtle lights and shadows, the Indian experience makes us confident of a better future.

Our volume ends with Chapter 24 that offers an overview of the settings of the firm, the technology, and the local contexts for business—three variables that play a central role in our general framework for a new narrative of the role of business in economic growth. We briefly explore some of the implications, for business, of the changes in the global political economy induced by the Great Recession of 2008–2010. But we leave to others an elaborate exposition along these lines, hoping that they will take into consideration the long-term historical perspective on the firm that our book provides.

Following this quick summary as regards the volume’s contents, let us now try to single out some issues that the reader will find throughout the work.

Micro and macro developments

We can observe throughout the history of business the strong relationship between the two, a relationship that becomes clear in the efforts we make in providing context and also because, de facto, in our narrative, the main character is the large enterprise that often dominates its industrial sector. As a result, a single company’s fate can often be directly related to the wealth of the nation where the firm is based. In this volume, our unit of analysis will be national economic systems with one exception, post-World War I Europe, where many of the Western European nations shared a number of common features that stand out most clearly when compared with the United States.

Industrial revolutions

These are sharp transitions in technological paradigms that were determined by aspects such as technical skills, scientific knowledge, forms of energy, and capital intensity. Many actors contribute to them. Among these was the enterprise, so that a long-term technological paradigm is at the same time both exogenous and endogenous to the firm. Technical progress is cumulative, but there are also substantial discontinuities.

Entrepreneurs and managers

We define entrepreneurs as persons who innovate, take risks, grab opportunities, and, above all, make decisions at the highest level. The most important are those who are able to synchronize their firm’s activities with the form of the Industrial Revolution with which they are involved. From this point of view, there are different levels of entrepreneurship, and there is a typology of entrepreneurs.

Managers, instead, are individuals who, over the course of acquiring theoretical and practical experience, have developed a precise, often firm-specific, functional know-how. Typically, they have autonomy in a significant segment of the company’s activities, usually inside a framework designed by the entrepreneur.

Markets

We are concerned mainly with national markets. They are determined by factors such as the number of inhabitants and per capita income. It is true that a company may also look toward international markets, as have many British, German, and Japanese businesses. But for most firms for most of the history we examine, it has usually been the domestic market, at least for a medium or large nation, that is the more reliable point of reference. Very important for a market is its dynamicity, more so than its absolute size.

Cultures

Culture is the attitude of a nation toward economic activity and economic change. It helps us understand the British entrepreneurs’ propensity to risk during the First Industrial Revolution, the United States’ search for order around 1900 (a search that favored the advent of big business), the marriage between science and technology in Germany in the same period, and Japan’s unique form of radical, probusiness nationalism.

State

This entity plays various roles in our tale. In many contexts, the State served as a guarantor of the legal framework. In others, it was also a supplier of physical and intangible infrastructures. It can be a regulator, entrepreneur, and opponent, as well as a central or sector-specific planner.

Forms of enterprise

They are defined by their general design, by their size, by their strategies, and by their interrelationships. A crucial aspect of any enterprise is the relationship between headquarters and the operating units. The various forms of enterprise (the unitary form, the multidivisional, the conglomerate, and the holding company) are, theoretically, neutral as to the economic performance. The important thing is to clarify the way they have worked in specific historical settings; how they have or have not allowed the technical and organizational potential of the firm to develop. It is extremely important to recognize that inside each national economic system there is a community of companies (i.e., companies with different strategies and different dimensions) that is operative.

Varieties of capitalism

This is the intersection between the economy and its institutions. It determines the regulation of competition, the relationship between finance and companies, the nature of industrial relations, and the structure of the society’s welfare systems. As for the forms of enterprise, it cannot be said that there is one typology of capitalism that is absolutely superior to the others.

Change and how it is unforeseeable

A lesson we can draw from our history is the volatility of the relative positions of the different nations and the fact that it is extremely difficult to make forecasts about international competition. What works in one phase does not necessarily work in the following one. Who would ever have imagined in 1800 the decline of the United Kingdom at the middle of the nineteenth century, the rise of the United States and Germany around 1900, the decline of the United States after the 1960s, the rise and decline of Japan in the last four decades, or the huge growth of China after the end of the Maoist period?

Post-Chandlerism

Any scholar who reflects on the state of business history invariably uses an adjective to define the present phase as post-Chandlerian. For some, this seems reasonable just because Alfred Chandler (1918–2007), the world’s leading business historian, passed away and is no longer writing books and articles (something that he did practically until his final days). For others, his passing has provided a type of liberation because they perceived Chandler as an obstacle to progress in the discipline.

With his adamant persistence on industrial big business as the engine of economic development, Chandler placed some scholars in a predicament. They found it difficult to explore other aspects of business history because Chandler was the scholar who gave academic and scientific status to business history. Before him, the discipline was isolated, of little note to historians or economists; it was trapped in the middle of a battle between those accusing or defending the “robber barons” and those publishing a series of soulless company histories. Chandler’s distinctive methodology (with its sharp focus on the entrepreneurial actions that gave birth to big business and a comparison of the structural changes in hundreds of companies) made it possible to develop generalizations that were indispensable reference points not only for business historians but also for scholars in other disciplines. Strategy and Structure (a comparison of companies) became almost a “bible” for students of management. The Visible Hand (a comparison of sectors) was almost as useful for institutional economists and lawyers interested in issues related to antitrust. Scale and Scope (a comparison of nations) emphasized the importance of organizational capabilities for building the wealth of a nation and reassured the evolutionary economists about some of their most important concepts.

For Chandler, the essential task of entrepreneurs was to give birth to an extended managerial network. His work thus enabled him to reconcile Max Weber, the pioneering sociologist of bureaucracy, with Joseph Schumpeter, the preeminent student of entrepreneurship. Chandler’s framework emphasized the centrality of technology, making some sectors more “equal” than others: they are the sectors that can exploit the economies of scale and scope, giving birth in this way to the big businesses that came to dominate the world’s leading economies in the Second Industrial Revolution. Technology was seen as both a constraint and an opportunity that could not always be grasped, an affirmation that left plenty of room for historical research.

While our history builds on the Chandlerian paradigm, we bring into our story a number of elements that Chandler either ignored or left for other historians to explore. Thus, we give substantially more emphasis, than he did, to the political context for business activity, both in a negative (as with antitrust) and a positive sense (as with State entrepreneurship and demand for innovative products). We also give more emphasis to globalization. We carefully consider culture as an independent variable, and we look beyond the giant, integrated firm into a present that includes more emphasis on business networks and specialization of function. Nor do we minimize, as Chandler did, the instability and social problems that can arise from developments like the Great Recession of our time. In this way, we hope to do credit to a neo-Chandlerian framework that links the technology, entrepreneurs, markets, culture, and State actions that impact the businesses central to our ability to produce the goods and services that constitute the wealth of all of our nations.

Further reading

F. Amatori and G. Jones (eds.), Business History Around the World, Cambridge Uni...