Organizational Capabilities and the Economic History of the Industrial Enterprise

TLDR

The modern industrial firm emerged in the 1880s and evolved through World War II. The paper describes similarities in the origins and evolution of large industrial firms and explains these through four economic theories. The study compares the fortunes of more than 600 firms across the United States, Britain, and Germany at World War I, 1929, and World War II. It highlights the usefulness of transaction‑cost and evolutionary theories for explaining the origins and growth of modern industrial enterprises.

Abstract

In my book Scale and Scope (1990), I focused on the history of the modern industrial firm from the 1880s, when such firms first appeared, through World War II. I did so by comparing the fortunes of more than 600 enterprises—the 200 largest industrial firms at three points in time (World War I, 1929, and World War II) in each of the three major industrial economies (those of the United States, Britain, and Germany). In this paper, I first describe the similarities in the historical beginnings and continuing evolution of these enterprises and then outline my explanation for these similarities. Next, I relate my explanation of these “empirical regularities” to four major economic theories relating to the firm: the neoclassical, the principal-agent, the transaction cost, and the evolutionary. Finally, I suggest the value of the transactions cost and evolutionary theories to historians and economists who are attempting to explain the beginnings and growth of modern industrial enterprises.