Posts filed under ‘Business/Economic History’

ICC Special Issue on Steve Klepper

| Dick Langlois |

The new issue of Industrial and Corporate Change is a special issue devoted to the legacy of Steve Klepper, who died a couple of years ago at age 64. The editors provide a good survey of Steve’s work, and there are a number of interesting papers in the issue, including one by David Mowery comparing Klepper with Alfred Chandler.

17 July 2015 at 12:45 pm 1 comment

ISNIE is now SIOE

| Peter Klein |

logoI’ve long been involved with the International Society for New Institutional Economics (ISNIE). (In fact, I first met the esteemed Professor Foss at the inaugural ISNIE conference in St. Louis in 1997.) ISNIE was established as an global academic society promoting the study of institutions within the broad tradition established by the organization’s co-founders Ronald Coase, Oliver Williamson, and Douglass North. ISNIE has been a great success, holding annual conferences in the US and Europe, sponsoring an important working-paper series, and boasting thousands of members from all over the world.

Times change, and over the last two decades the study of institutions has moved from the periphery towards the center of economic, social, political, and legal analysis. The statement, “institutions matter,” which might have been controversial in social science in the 1990s, seems trite today. As such, some of ISNIE’s leaders and members saw a need to reposition and rebrand the society to reflect the current academic and policy climate. Last year ISNIE’s members voted, and this year the board approved, a name change. The organization is now SIOE, the Society for Institutional and Organizational Economics. Along with the change is a new website, featuring news, information, a blog, and many other features. The site is a work in progress and editors Bruno Chaves and Jens Prüfer would be happy to receive comments and suggestions.

I’m looking forward to the next twenty years with SIOE!

6 July 2015 at 1:01 pm Leave a comment

Casson on Methodological Individualism

| Peter Klein |

Thanks to Andrew for the pointer to this weekend’s Reading-UNCTAD International Business Conference featuring Mark Casson, Tim Devinney, Marcus Larsen, and many others. Mark’s talk (not yet online) focused on the need for methodological individualism in international business research. “Firms don’t take decisions, individuals do. When you say that a firm pursued an international strategy, you really mean that that the CEO persuaded the individuals on the board to go along with his or her strategy.” As Andrew summarizes:

Casson spoke at great length about the need for research that focuses on named individuals, is based on the extensive study of primary sources in archives, takes social and political context into account, and which looks at case studies of entrepreneurs in different time periods. In effect, he was calling for the re-integration of Business History into International Business research.

And a renewed emphasis on entrepreneurship, not as a standalone subject dealing with startups or self-employment, but as central to the study of organizations — a theme heartily endorsed on this blog.

14 June 2015 at 1:53 pm Leave a comment

Essays in Honor of Joel Mokyr

| Peter Klein |

O&M friends Avner Greif, Lynne Kiesling, and John Nye have edited an important collection of essays by students, colleagues, and friends of the distinguished economic historian Joel Mokyr: Institutions, Innovation, and Industrialization: Essays in Economic History and Development (Princeton University Press, 2015). Dust-jacket blurb:

This book brings together a group of leading economic historians to examine how institutions, innovation, and industrialization have determined the development of nations. Presented in honor of Joel Mokyr — arguably the preeminent economic historian of his generation–these wide-ranging essays address a host of core economic questions. What are the origins of markets? How do governments shape our economic fortunes? What role has entrepreneurship played in the rise and success of capitalism? Tackling these and other issues, the book looks at coercion and exchange in the markets of twelfth-century China, sovereign debt in the age of Philip II of Spain, the regulation of child labor in nineteenth-century Europe, meat provisioning in pre-Civil War New York, aircraft manufacturing before World War I, and more. The book also features an essay that surveys Mokyr’s important contributions to the field of economic history, and an essay by Mokyr himself on the origins of the Industrial Revolution.

Here are some useful book reviews by Doug Allen and Robert Margo, and here is some interesting dialogue between Mokyr, Nye, and Deirdre McCloskey as comments on an article by Don Boudreaux.

12 June 2015 at 9:39 am Leave a comment

Capabilities, Transaction Costs, and Buzz Lightyear

| Dick Langlois |

I joked in a comment on Peter’s last post about naming classes of articles after fairy-tale (or is it Disney?) characters. Is there a Disney moniker for a work that keeps getting reinvented? As I get older, I think about this more often, and I’m probably entering the dread legacy-protection phase of my career.

This came to mind because I happened upon an interesting paper from Nick Argyres and Todd Zenger, which has been out for a while but which I hadn’t seen. The authors propose to synthesize capabilities theory and transaction-cost economics. A worthy goal. Except that Paul Robertson and I did this twenty years ago. Argyres and Zenger point out, as Paul and I did, that neither capabilities alone nor transaction-costs alone can explain the boundaries of the firm. They settle on an account in which firms integrate because of strong complementarities among assets that create hold-up problems if accessed through markets. Their example is Disney’s relationship with and eventual acquisition of Pixar. (I know! A work that gets constantly reinvented is a Buzz Lightyear!) Far from being a general theory of capabilities and transaction costs, however, this is a special case of the general theory Paul and I proposed. We talked specifically about this kind of case (see especially pp. 38-40), which we called the appropriability variant of our account, associated with Teece (1986), to distinguish it from the entrepreneurial variant. In the entrepreneurial variant, firms integrate into complementary activities because of the dynamic transaction costs of using markets. Argyres and Zenger cite my 1992 ICC paper on dynamic transaction costs, but they make it out to be a claim that capabilities alone can explain vertical integration, which is of course the opposite of what the article actually says. They offer the gnomic remark that my definition of dynamic transaction costs “mirrors that of Williamsonian transaction costs.” But isn’t that the point? They really are transaction costs, and you can’t explain vertical integration without transaction costs. I’m sure there are a lot cases like Pixar out there, and I have certainly never denied that hold-up threats are sometimes a cause of vertical integration. But as I learn more about the history of vertical integration as part of the Corporation and the Twentieth Century manuscript I’m now working on, dynamic transaction costs are on the whole much more important than hold-up threats. (Also extremely important is government policy, which is really the point of this new project.) I’m sorry this sounds a bit negative, since the Argyres and Zenger paper really is a terrific article that is right-headed and develops the appropriability variant in much more depth than Paul and I did in our quick sketch.

Another paper that reinvented (and significantly extended) Langlois and Robertson (1995) is Jacobides and Winter (2005). Of course, I can’t very well criticize Sid Winter, since the whole idea of dynamic transaction costs came out of my effort in the 80s and 90s to apply Nelson and Winter (as well as Coase) to the problem of the boundaries of the firm, something that Nelson and Winter themselves had not then gotten around to.

2 June 2015 at 10:28 am Leave a comment

Is Economic History Dead?

| Peter Klein |

An interesting piece in The Economist: “Economic history is dead; long live economic history?”

Last weekend, Britain’s Economic History Society hosted its annual three-day conference in Telford, attempting to show the subject was still alive and kicking. The economic historians present at the gathering were bullish about the future. Although the subject’s woes at MIT have been echoed across research universities in both America and Europe, since the financial crisis there has been something of a minor revival. One reason for this may be that, as we pointed out in 2013, it is widely believed amongst scholars, policy makers and the public that a better understanding of economic history would have helped to avoid the worst of the recent crisis.

However, renewed vigour can be most clearly seen in the debates economists are now having with each other.

These debates are those about the long-run relationship between debt and growth initiated by Reinhart and Rogoff, about the historic effectiveness of Keynesian monetary and fiscal policy, and about the role of global organizations like the IMF and World Bank in promoting international coordination.

I guess my view is closer to Andrew Smith’s, that while history should play a stronger role in economics (and management) research and teaching, it probably won’t, for a variety of professional and institutional reasons. Of course, there is a difference between, say, research in economic or business history and “papers published in journals specializing in economic or business history.” In the first half of the twentieth century, quantitative economics was treated as a specialized subfield; now virtually all mainstream economics is quantitative. (The same may happen to empirical sociology, to theorizing in strategic management, and in other areas.)

14 April 2015 at 9:13 am 1 comment

Microeconomics of War

| Peter Klein |

The old Keynesian idea that war is good for the economy is not taken seriously by anyone outside the New York Times op-ed page. But much of the discussion still focuses on macroeconomic effects (on aggregate demand, labor-force mobilization, etc.). The more important effects, as we’ve often discussed on these pages, are microeconomic — namely, resources are reallocated from higher-valued, civilian and commercial uses, to lower-valued, military and governmental uses. There are huge distortions to capital, labor, and product markets, and even technological innovation — often seen as a benefit of wars, hot and cold — is hampered.

A new NBER paper by Zorina Khan looks carefully at the microeconomic effects of the US Civil War and finds substantial resource misallocation. Perhaps the most significant finding relates to entrepreneurial opportunity — individuals who would otherwise create significant economic value through establishing and running firms, developing new products and services, and otherwise improving the quality of life are instead motivated to pursue government military contracts (a point emphasized in the materials linked above). Here is the abstract (I don’t see an ungated version, but please share in the comments if you find one):

The Impact of War on Resource Allocation: ‘Creative Destruction’ and the American Civil War
B. Zorina Khan
NBER Working Paper No. 20944, February 2015

What is the effect of wars on industrialization, technology and commercial activity? In economic terms, such events as wars comprise a large exogenous shock to labor and capital markets, aggregate demand, the distribution of expenditures, and the rate and direction of technological innovation. In addition, if private individuals are extremely responsive to changes in incentives, wars can effect substantial changes in the allocation of resources, even within a decentralized structure with little federal control and a low rate of labor participation in the military. This paper examines war-time resource reallocation in terms of occupation, geographical mobility, and the commercialization of inventions during the American Civil War. The empirical evidence shows the war resulted in a significant temporary misallocation of resources, by reducing geographical mobility, and by creating incentives for individuals with high opportunity cost to switch into the market for military technologies, while decreasing financial returns to inventors. However, the end of armed conflict led to a rapid period of catching up, suggesting that the war did not lead to a permanent misallocation of inputs, and did not long inhibit the capacity for future technological progress.

10 February 2015 at 11:16 am 1 comment

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Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

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