Posts filed under ‘Business/Economic History’
The “Age of Cobden”
| Peter Klein |
Leonard Liggio reviews a new collection of essays on Richard Cobden, the great English liberal and free trader who led the movement to eliminate the protectionist Corn Laws. Notes Liggio:
The contemporary world is focused on the issues Cobden raised. According to co-editor, Anthony Howe’s “Introduction”: “For the modern preoccupations with globalization, free markets, the retreat of the state, the importance of civil society are all ideas which took political shape in the ‘age of Cobden.’ While post-modernists may find in Cobden’s liberalism too many of the emblems of the ‘modernity’ project from which they are keen to distance themselves, historians and the public may still have much to learn from one of the first practical attempts to implant the ‘Enlightenment project’ within the fabric of the world order.” Cobden’s affinity with European Liberals reflected their shared heritage of the Enlightenment in the works of Vattel, Grotius, Voltaire, Rousseau, Franklin, Jefferson, Bentham and James Mill.
For more on Cobden and his contemporaries John Bright and Charles Dunoyer see these papers by Liggio and Ralph Raico and listen to Raico’s 2005 lecture “Classical Liberalism in War and Peace: The Case of Richard Cobden” (scroll down).
Berle and Means Were Partly Right
| Peter Klein |
Check out Kenneth Lipartito and Yumiko Morii’s revisionist account of The Modern Corporation and Private Property (1932) — what they call the “ur-text of managerial capitalism” — and its influence on the academic and policy literatures. Well known interpretations of the Berle-Means thesis from Robert Gordon, James Burnham, John Kenneth Galbraith, and others were far different from the original. Berle and Means cared little about efficiency, argue Lipartito and Mori, but were more interested in problems of power and social responsibility. They were wrong about dispersed ownership — stockholdings were actually more concentrated in the US than in other Western economies — but right that particular agents could exercise disproportionate control over corporate assets through family control and pyramid structures. Berle and Means’s main concern, in other words, was entrenchment more generally, not simply entrenched managers taking advantage of passive shareholders.
The paper is provocative but doesn’t cite the best modern work on corporate structure prior to the 1930s such as Holderness, Kroszner, and Sheehan (1999), which worries me. Worth a look in any case.
Is Innovation Overrated?
| Peter Klein |
Technological innovation is not as important as we think, argues David Edgerton in The Shock of the Old: Technology and Global History since 1900 (Oxford, 2006). Edgerton’s book, writes Steven Shapin in the New Yorker,
is a provocative, concise, and elegant exercise in intellectual Protestantism, enthusiastically nailing its iconoclastic theses on the door of the Church of Technological Hype: no one is very good at predicting technological futures; new and old technologies coexist; and technological significance and technological novelty are rarely the same — indeed, a given technology’s grip on our awareness is often in inverse relationship to its significance in our lives. Above all, Edgerton says that we are wrong to associate technology solely with invention, and that we should think of it, rather, as evolving through use. A “history of technology-in-use,” he writes, yields “a radically different picture of technology, and indeed of invention and innovation.” (HT: Against Monopoly)
Edgerton provides numerous examples, mainly from military history, of old technologies proving more important than new technologies (horses, for instance, were more important in World War II than V-2 rockets or atomic bombs). Useful innovation, not innovation per se, is what matters.
Most of us are attracted to novelty; it’s no wonder that we tend to overrate its importance. We also forget that many new technologies are modest variations on existing technologies.
The Methods of Management History
| Peter Klein |
Thomas Hobbes (1660/1994:32) observed that “Out of our conception of the past, we make a future.” It behooves us then, as managers and management scholars, to be satisfied that our conceptions of the past are developed in ways that, as far as possible, avoid the problems that would make them less than useful in creating that future.
Despite the importance of this subject, little attention has been given to the question of method/methodology in management history. A recent Google Scholar search found that, while the term “management history” produced 194,000 hits and “method in history” resulted in 674 hits, the terms “methodology in management history,” “method in management history,” “management history methodology,” and”management history method” produced no hits at all.
To address this deficiency the Journal of Management History is seeking contributions for a special issue on “Scholarship in Management History: The Importance of Methodology.” (I assume they know the difference between method and methodology.) Here is the call for papers.
Can readers suggest good books or papers on the methods of management history?
Concise Summary of Chandler’s Achievements
| Peter Klein |
Louis Galambos, writing at EH.News:
When Alfred D. Chandler, Jr., entered the subdiscipline of business history, the field was producing very little scholarship of great interest, even to other historians. When Chandler, the world’s leading historian of business, died recently (May 9, 2007) at the age of 88, his legacy included a vibrant, influential body of scholarship and active scholars producing studies that intersected creatively with important developments in economics, sociology, and political science — as well as modern history. Chandler remade business history by publishing a long series of works characterized by meticulous, penetrating research; careful analysis of the data; and, above all, original, imaginative synthesis. Drawing upon the sociology of organizations and Schumpeterian economic analysis of innovation, Chandler reconstructed our understanding of the rise of large enterprise in America and Europe. The business bureaucracies he described were innovative and efficient. Economies of scale and scope, as well as aggressive, successful research and development, enabled them to hold their positions in a capitalist system that was changing rapidly in the second and third industrial revolutions. Their leaders were investors, not Robber Barons; they guided the evolution of the giant, multinational, multidivisional enterprises that have played a central role in capitalist progress since the late nineteenth century. Chandler left the politics of political economy, the labor relations of the firm, and the gender and racial themes of interest to many American scholars of late to other historians of business. His focus throughout his long, amazingly productive career was on the large, successful corporations that have played the central role in global economic development in the modern era.
Today in Business History
| Peter Klein |
The Friends of Business History newsletter includes a fun feature, This Day in Business History. June 1 was a busy day.
- 1495: Friar John Cor records the first known batch of Scotch whiskey in the Exchequer Rolls of Scotland.
- 1774: The British government orders Port of Boston closed.
- 1812: President James Madison calls on Congress to declare war on Great Britain, after fiscally minded measures fail to dissuade the British from harassing American ports and ships.
- 1869: Thomas Edison receives a patent for a voting machine. It was his first patent for a device.
- 1905: The first world’s fair to be held in the Pacific Northwest, the Lewis & Clark Centennial and American Pacific Exposition and Oriental Fair opens in Portland, Oregon.
- 1911: The Equitable Life Assurance Society of New York issues the first U.S. group insurance policy to the Pantasote Leather Company and its 121 employees.
- 1917: Henry Leland, founder of the Cadillac Motor Car Company, resigns as company president.
- 1947: Corning Glass Works publicly announces its development of photosensitive glass.
- 1961: Regular FM multiplex stereo broadcasting debuts in Schenectady, New York and Chicago, Illinois.
Celebrate with me by pouring a glass of scotch, buying an insurance policy, selling your Cadillac, turning up the radio, and punching an Englishman.
Paul David on Path Dependence
| Peter Klein |
The second issue of Cliometrica features essays by heavy hitters Paul David, Eugene White, and Angus Maddison. David’s contribution is a summary and overview of his work on path dependence. Note the rather immodest title: “Path Dependence: A Foundational Concept for Historical Social Science.” Well. . . . David’s attachment to the QWERTY concept appears as strong as ever, though the facts of David’s examples have been seriously contested, including not only the typewriter keyboard but also the choice between AC and DC power, the VHS format over Beta, and so on. David’s response to his critics here seems surprisingly weak and tentative:
The contention that the process of “market competition” eventually works to rectify the mistakes of profit-motivated agents by harnessing the interests and capabilities of other profit-seekers — who will find opportunities for gain by eliminating existing sources of inefficiency — undoubtedly warrants serious consideration in this regard (see Liebowitz and Margolis 1990; Puffert 2002). But that means it ought not be accepted on faith. Rather the opposite approach, however, seems to be adopted by those who argue that it is implausible to suppose that market incentives will not operate rapidly to eliminate sources of substantial inefficiencies in the production and use of commodities, and that the burden of empirical proof therefore should lie upon those who claim that sub-optimal outcomes of decentralized market-guided choices in the past have saddled subsequent generations with quantitatively significant economic costs.
I hardly think the critics are asking that their revisionist historical analysis be taken on faith! (more…)
Alfred D. Chandler, Jr. (1918-2007)
| Peter Klein |
Alfred D. Chandler, Jr., passed away last Wednesday at the age of 88. Chandler was an inspiration and informal mentor to my own dissertation adviser, Oliver Williamson, so I feel like I’ve lost a grandparent. Essential reading on Chandler (besides Strategy and Structure and The Visible Hand) includes Williamson’s 1981 The Modern Corporation: Origins, Evolution, Attributes, David Teece’s review essay of Chandler’s Scale and Scope, and former guest blogger Dick Langlois’s Vanishing Hand project. Chandler’s 2006 paper on the technology sector turned out to be (I think) his last published paper. Chandler’s father, by the way, may have been a closet Misesian.
This Bud’s For You
| Peter Klein |
Most of my academic colleagues are anti-American food snobs. Why, those poor Yanks, they think Parmesan cheese is the white, powdery stuff in plastic cylinders rather than the expensive, thick wedge with its maker’s mark on the skin. (Note the section “Other cheeses erroneously named Parmesan” in the Wikipedia entry on Parmigiano Reggiano.) Americans even think Budweiser comes from St. Louis, not České Budějovice!
Well, I myself am a bit of an anti-American food snob but I do insist on getting the facts right. In Bud’s case, as pointed out in this brilliant piece by Daniel Davies, the original, and better, Budweiser is Adolphus Busch’s American brew, not the Czech Budvar pretender. Davies explains:
- Anheuser-Busch has been selling Budweiser since 1876, 20 years before the Budvar brewery was even built. Its brew is the original Bud.
- Bud is all natural, failing to comply with German “purity” standards only because it contains rice (as do Kiran, Bintang, and Efes).
- More generally, and most importantly, the beer we know and love today — even the fanciest, premium beer — is a product of capitalism, not some romanticized, pre-industrial “craft brewing” era. Beer brewed before the Industrial Revolution was probably horrible and until recently couldn’t be produced in small batches with any acceptable level of quality. Three cheers for the Factory System!
The Diffusion of IT in the Workplace
| Peter Klein |
Much research on information technology focuses on the IT sector itself (software, computer hardware, telecom, biotech). Less attention has been paid to the effects of IT on the rest of the economy, particularly “old economy” manufacturing and service industries. (Erik Brynjolfsson’s work constitutes perhaps the most prominent exception.) And yet we know that IT has had a significant impact on a range of industries including steel, machine tools, trucking, and banking.
One of the first book-length, single-industry, long-range studies of the effects of IT on workplace practices is JoAnne Yates’s 2005 book Structuring the Information Age, an analysis of the life-insurance industry over the last hundred years. As noted by Thomas Haigh, reviewing the book for EH.Net, life insurance is a conservative, heavily regulated industry concerned primarily with stability, not growth. But because its main activity is processing paperwork, improvements in record-keeping and information processing have always been critical to the industry’s performance. Life-insurance firms have been not only early adopters, but also creators and developers of IT. During the 1920s and 1930s they were the first to add printing capabilities to the tabulating machines that had been around since the 1890s and to develop the ability to process letters as well as numbers. From the 1940s to the 1970s they were among the earliest adopters of digital computing.
Writes Haigh: “I hope Yates succeeds in her stated aim of convincing historians that businesses can be creative users of technologies. We would all benefit if it can also serve what must have been an implicit aim: to remind business school faculty that history explains a great deal about how technology does and doesn’t work when applied within an industry.”
The Division of Labor in Artistic Production
| Peter Klein |
Delegation, agency, team production, monitoring, group entrepreneurship — these issues and more suffuse David Galenson’s new paper on the division of labor in artistic production, “Painting By Proxy: The Conceptual Artist as Manufacturer.”
In 1958, the French philosopher Etienne Gilson observed that painters are related to manual laborers by a deep-rooted affinity that nothing can eliminate, because painting was the one art in which the person who conceives the work is also necessarily the person who executes it. Conceptual innovators promptly proved Gilson wrong, however, by eliminating the touch of the artist from their paintings: in 1960 the French artist Yves Klein began using living brushes — nude models covered with paint — to execute his paintings, and in 1963 Andy Warhol began having his assistant Gerard Malanga silkscreen his canvases. Today many leading artists do not touch their own paintings, and some never see them. This paper traces the innovations that allowed a complete separation between the conception and execution of paintings. The foundation of this separation was laid long before the 20th century, by conceptual Old Masters including Raphael and Rubens, who employed teams of assistants to produce their paintings, but artists began exploring its logical limits during the conceptual revolution of the 1960s and beyond. Thus by the end of the twentieth century Jeff Koons explained that he did not participate in the work of painting his canvases because he believed it would interfere with his growth as an artist, and Damien Hirst defended his practice of having his paintings made by assistants on the grounds that their paintings were better than his. Eliminating the touch of the artist from painting is yet another way in which conceptual innovators transformed art in the twentieth century.
The paper is gated for NBER subscribers here.
Organizational Innovation
| Nicolai Foss |
Organizational economists, new institutional economics, contract theorists, etc. are taken up with assessing alternative feasible allocations of decision and income rights, contracts, governance structures and institutions in terms of their impact on value creation for a relevant social system, whether a dyad, a multi-person firm, an industry, or a whole economy.
However, they usually assume that the set of alternatives is given to the choosing agent or set of agents. For example, in the Grossman/Hart/Moore property rights view, agents may not entirely understand the sources of payoffs, but they know exactly how alternative allocations of property rights impact payoffs. Of course, this is entirely in line with what we — given Peter’s post on Lionel Robbins below — may call “Robbinsian maximizing” in which the discovery and/or creation of new alternatives is deliberately disregarded. (more…)
Classic Books in Business and Economic History
| Peter Klein |
EH.Net’s Project 2000/2001 features new reviews of classic works in business and economic history. Here are some that may be of particular interest to O&M readers:
- David Landes on Chandler’s The Visible Hand: The Managerial Revolution in American Business
- Thomas McCraw on Schumpeter’s Capitalism, Socialism and Democracy
- Stanley Engerman on Weber’s Protestant Ethic and the Spirit of Capitalism
- Cynthia Taft Morris on Davis and North’s Institutional Change and American Economic Growth
- Paul Hohenberg on Landes’s The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present
- Winifred Rothenberg on Horwitz’s The Transformation of American Law
- Albert Fishlow on Gerschenkron’s Economic Backwardness in Historical Perspective
- Philip Coelho on North and Thomas’s The Rise of the Western World: A New Economic History
Utility Strategy
| Steven Postrel |
Skeleton of a Harvard Business Review article:
How do you get sustainable advantage in a service business today? One approach: Become a new-wave utility. Think about Google or Yahoo, eBay, Amazon, etc. on the Internet; think about UPS or FedEx, Grainger, Ryder, Public Storage in logistics; think about McDonald’s, Starbucks, 7-Eleven, in convenience food consumption. (more…)
Accounting: A Brief History
| Peter Klein |
Despite widespread rumors to the contrary, we agree with Monty Python that accounting is not boring. After all, Ludwig von Mises was fond of quoting Goethe’s remark that double-entry bookkeeping was “one of the finest inventions of the human mind.” Who can disagree?
In this spirit, I’d like to share a terrific bibliography on the history of accounting provided by Sudha Shenoy, responding to a listserv query on the “organic” emergence of accounting practice. Someone asked whether accounting conventions can be interpreted as a kind of “spontaneous order,” in Hayek’s sense, or if the standard rules are the result mainly of state intervention. Sudha replied with these reading suggestions (lightly edited by me): (more…)
Temin on Landes
| Peter Klein |
We reported a while back on David Landes’s book Dynasties: Fortunes and Misfortunes of the World’s Great Family Businesses. Here is a review by the eminent economic historian Peter Temin of MIT. Excerpt:
[Landes] acknowledges the force of Chandler’s emphasis on managerial capitalism, but he argues that family firms have a prior role in economic development. In this claim, he associates himself on the one hand with Marc Bloch, who argued that Europe picked itself up from chaos in the tenth century by relying on the value of family connections. Landes associates himself on the other hand with modern economics and its concerns with asymmetric information and principal-agent problems. Landes argues that the failure of many development programs has been the neglect of the information and loyalty that are qualities of families — in his word, dynasties.
The stories illustrate these points, but Landes’s urge to tell a good story is at gentle odds with this justification for them. Most of the dynasties in this book have ruled over substantial enterprises. These enterprises employed many people other than family members. Normal business practice prevailed once these enterprises became major banks, auto firms, or mining companies. The importance of asymmetric information must have been concentrated in the early years.
Call for Papers: Technological Change in Low- and Medium-Technology Industries
| Peter Klein |
Paul Robertson, author of many fine works with former O&M guest blogger Dick Langlois, is co-organizing a special issue of Research Policy on “Technological Change in Low- and Medium-Technology Industries.” Details below the fold (courtesy of EH.Net). (more…)
Toyota at the Crossroads
| Steven Postrel |
The recent NYT article (not the Sunday Magazine story but an earlier business sectiion piece by Martin Fackler) describing Toyota’s struggle to transmit its methods and culture to large numbers of foreign workers, in the face of unprecedented recalls and quality problems, provokes a number of thoughts about the company’s past successes and its current problems. (more…)
Market-Based Management: Two Blogs and a Book
| Peter Klein |
Here are two blogs on market-based management: one official (more content, please!) and one unofficial. And here’s a forthcoming book on Koch Industries, birthplace of MBM (appears to be an inside job, unfortunately).
Here are our own reflections on MBM. (Thanks to Tyler Cowen for the link to the unofficial blog.)
Update: Charles Koch himself has a forthcoming book.
The Business of Weddings
| Peter Klein |
The wedding business is a $70 billion industry in the US. Vicki Howard’s Brides, Inc.: American Weddings And the Business of Tradition (University of Pennsylvania Press, 2006) explains how it got this way. Janice Traflet’s review for EH.Net focuses on the industry’s great marketing achievement:
As Howard expertly highlights, it was no easy task for businesses to supplant certain older wedding practices (which often held religious and ethnic significance) with newer ones that held more profit potential for them. Doing so required the creation of “invented traditions,” to borrow historian Eric Hobsbawm’s phrase. To make new practices (like diamond engagement rings and the groom’s band) acceptable and desirable, the wedding industry needed to make them appear as if they were rooted in ancient customs. At the same time, the industry also sought to subtly encourage the public to jettison practices that were not conducive to growing their businesses — such as the bride wearing an heirloom ring or a handed-down dress.
But the book does not support the Galbraithian image of consumers as hapless dupes. Notes Traflet:
It is interesting to contemplate (as Howard does) the degree to which consumers had the power to accept or reject the wedding industry’s “strategies of enticement,” to borrow William Leach’s term. Howard insists, “Women, who were understood to be the main consumers of wedding-related goods and services, were not mere victims of advertising and merchandising campaigns, nor did they simply accept wedding industry advice uncritically” (p. 5). In one example of a failed “invented tradition,” the male engagement ring never caught on, in part because it was unable to transcend contemporary gender mores. Howard also emphasizes the ways in which women, not just men, historically have been involved in marketing wedding products and services.
Don’t get me started on Galbraith, the celebrity “economist” who didn’t know any economics. As Murray Rothbard aptly observed, “Galbraith’s entire theory of excess affluence rests on this flimsy assertion that consumer wants are artificially created by business itself. It is an allegation backed only by repetitious assertion and by no evidence whatever — except perhaps for Galbraith’s obvious personal dislike for detergents and tailfins.”
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