The Model of Large-Scale, Integrated Managerial Enterprise - Chandlers Ideas - Coursework Example

How effectively does the model of large-scale, integrated managerial enterprise provide a corporate blueprint to explain the performance of leading national economies? Introduction There is an undeniable connection between the businesses in operation in a country and the success of that economy. Alfred Chandler Jr. in his 1991 monumental work, ‘Scale and scope: The Dynamics of Industrial Capitalism’, examined the relationship between the economic prosperity of major world economies and the management of their large business corporations. The major agenda that is pushed by much of his work is enshrined within his thesis ‘The Visible Hand’ which is a departure from the previously almost universally accepted dogma of the explanation of the working of capitalism as being the invisible hand, as put forward by Adam Smith in ‘Wealth of Nations’. Chandler stresses the importance of the managerial functions that had been necessitated by the development of and electric power, and the accompanying enormous capital mobilization which sought to exploit the opportunities that these new technologies presented. Industries thus shifted focus and became more capital intensive, which put overwhelming pressure on the managers to increase their performance so that the large investments could be safeguarded. Chandlers’ work identified three capitalist systems that emerged in the midst of this second industrial revolution, namely personal capitalism which he connected to the United Kingdom (Great Britain), competitive capitalism, associated with the United States, and co-operative capitalism, which is depicted in the economy of Germany. Though each system is quite distinct from the other two, there are several elements that run right through all of them, especially in terms of their function such as enabling the effective focus of capital and labour in profitable ventures, increasing a country’s technical in terms of important technological knowledge and also ensuring the growth of managerial skills. The question concerns the application of this theory to the real world, and whether the ideas presented therein hold true for the real world. The theories put forward by Chandler enjoy massive empirical support and I therefore agree with them for the reasons that will be mentioned in the forthcoming sections. The approach will consist of analyzing each of the different capitalism structures in the context of their associated economies, and also in other similar economies where their effects can be traced, and relevance of the theories to the wide range of economies that will be covered. Personal capitalism Associated with the Great Britain, personal capitalism is characterized by major large scale businesses being run by owner managers. This system is heavily reliant on the actions, motivations and effects of the entrepreneur, wherein they were the people responsible for the gathering of the factors of production and arranging them in such a manner as to create value and therefore enrich the entrepreneur through the profits that accrued. On the large scale, the entrepreneurs were the proprietors/promoters of the firm in its initial stages, who then in pursuit of greater capital for the purposes of expansion and diversification invited others to contribute by way of issuing shares, albeit retaining the majority stock in the company so as to maintain their control over the enterprise. Thus this led to the majority of the corporations in the Great Britain to be in the hands of a few individuals (the entrepreneurs). One of the industries in which Britain has enjoyed a comparative advantage for a long time is the textile industry, in which there are quite a few notable entrepreneurs who shaped the face of the economy using their managerial strategies, one of which was Richard Arkwright, who despite of having born into a poor family created several textile processing machines and built very many textile factories all over the country. His effect on the economy is that on account of the success of his factories, other businessmen sent spies to determine the organization of his factories and in turn establish their own using his model of management. This system of capitalism is also observable in other areas of the world, notably in Japan, with examples such as Suzuki motors, which started by the entrepreneur named Suzuki, who was primarily a loom maker, but who after acquiring more capital from various sources such as share issues, venture capital and even the government diversified into the motor industry and was particularly successful in the motorbike industry. The adoption of an entrepreneur’s management ideologies and the involvement of the government in the activities of an entrepreneur are just a few examples of how internal management has an effect on the overall national economy. Critics of this thesis and in relation to the personal capitalism approach argue on the basis of the decline of the prevalence of the entrepreneurs and an increase of bureaucratic organization as the companies increase in size. Entrepreneurship is largely defined as being derived from charismatic leadership, as found in the analysis of Schumpeter and Weber, in which the members of the company have no definite boundaries and responsibilities, and the leaders’ main task is to intervene where he feels that the staff is inadequate in solving a particular problem or he feels it should be done in a different way. This type of leadership is more or less extinct in modern economies, as emphasis is placed especially on the matching of responsibility and authority. The entrepreneurship approach has to succumb to bureaucracy eventually as the question of succession is raised. With the above facts, personal capitalism has both its pros and cons and is very much relevant to modern economies, therefore Chandler’s theory holds true on this account. Competitive capitalism Mostly concerned associated with the United States, this is where all persons are given equal opportunity to develop themselves by starting up enterprises and reaping the rewards of the enterprises. The so called free market economy, characterized by perfect markets, which depend on free flow of information, many seller and buyers and minimal government intervention in economic activities is mostly dominant in the west, and particularly in the United States whose economy is looked upon as the model of a totally free market economy. This economy is based on the Smithsian tenet of the invisible hand, which states that allowing persons and corporations to go after their individual interests the overall welfare of the society will be improved because competition will ensure that only the most deserving corporations/individuals (those which can afford and therefore are best placed to utilize) have access to capital and other factors of production resulting the optimal allocation of the society’s resources and a greater well being for every one in the society. Most of the requirements for this type of capitalism are self fulfilling for example, the requirement for many sellers in the market is allowed for by there being minimum restrictions (government intervention being most significant) to entry into enterprise, which in turn translates to there being more buyers, wince more people have purchasing power. From the perspective of large businesses, competition ensures that only the best managed businesses (lowest risk) gain access to the production resources, which minimizes chances of wastage and increases efficiency. On another level, the firms that do get the resources have no choice but to improve their own efficiency so as to survive in the highly competitive environment. Thus the national economy benefits from the competition of the large businesses to outdo each other and gain market share thus boosting their sales. Competitive capitalism has been historically more successful than personal capitalism as mentioned earlier for the following reasons. First of all, the appointment of the management staff of the enterprises in the competitive environment are also based n merit as opposed to the personal case wherein they are imposed on account their being the proprietors. The efficient resource allocation function is also a factor as the entrepreneurs in the personal capitalism may not be the most deserving with respect to the utilization of the resources. Examples where the free market economic system has been adopted include Britain where it is fast phasing out personal capitalism as the country tries to remain globally competitive, and other surrounding nations such as Italy and Sweden. Criticism of competitive capitalism comes in two varieties, there are those who criticize it on technical grounds, that even though it is believed the most efficient way of utilizing a nation’s recourses thus increasing the welfare if the citizen there are always cases of market failure and economic downturns that have a devastating effect on the population, a case in point being the 1930s’ US depression that had close to half the entire population unemployed. Another criticism is on the basis of morality, where it is argued that the economic system by relying on private ownership of the means of production leads to the emergence of social classes, in which the owners of capital are the rich and powerful which those who do not have it are forced to work for those who do and get paid less than is their due in an attempt to ensure that they do net get access to their own sources of capital and therefore continue to enrich the already rich. Chandler’s analysis, which considers all the above factors is therefore relevant to the real world as far as the competitive capitalism depiction of the effect of large business on the national wealth is concerned. Cooperative competition Mainly associated with Germany, this is the system is based on the underlying factor that all resources, belong to all people, since all people are located on the earth and therefore no person has a bigger right to the earth than the other, a extension of which is argued that even all inventions such as electricity, steam power amongst others are all part of nature, and since nature is the property of all, all also part of the common wealth. The biggest focus of the cooperative capitalism approach is on monopolization of productive resources, which are argued to belong to all naturally, for example land is found on earth and since we all live on land every one has equal claim to land. However, the approach also recognizes the capitalist need for private ownership of that land so as to enjoy the efficiencies that result from the same. The existence of these monopolies is considered to be mankind’s biggest obstacle to increased national efficiency, and equitable distribution of welfare. The biggest propagator of these monopolies are the education systems, that ensure that all are enlightened into the status quo that some people have more right to own public property and others do not such that we rarely even notice the existence of these monopolies. For example, take the case of technology. Ideally all technology is owned by everyone and is just waiting to be discovered, so when someone does discover it he has no right to hold it back from everyone else. Of course private ownership is by all means encouraged, only that it should not go as far as restricting the use/development of the technology. In the context of the national economy, the monopolies as defined by the cooperative capitalism framework contribute greatly to the operational inefficiencies that reduce the nation’s total output and growth capacity. The cooperative capitalism philosophy also has an element of social togetherness which has the effect of boosting the morale of the citizens within the country and therefore increasing the output per worker since they have the motivation to work harder since they know they are working for their own good and not for the benefit of some one else as is the general feeling under a competitive capitalist environment. As mentioned earlier the country that formed the case study of cooperative capitalism is Germany as evidenced by recent changes in both their legal and societal approaches to the wealth of the nation. Other countries are also following suite as their citizens gain consciousness of its postulations and increase the pressure on the relevant authorities to effect sustainable reforms. Some of the critiques that have been advanced for this theory include that the loss of rights to use resources as one wants has the effect of reducing the motivation to acquire it, which if not offset by the desire to contribute to the overall wellbeing of the society can potentially reduce the nations output. Also, innovation can be seriously hindered because one of its most important determinants is the ability to enjoy the benefits of ones efforts towards discovering it. It is argued still that with the rising global population, it becomes almost impossible to allocate all available resources to everyone and still manage to realize optimal use of the resources since those who have the capacity (talent) to most effectively employ the production resources will get less the balance going out to others who may lead to wastage. In this respect, monopoly has its advantage of keeping waste to a minimum. The major flaw in this argument lies in the fact that just because someone has the monopoly doesn’t mean he is best suited to use it therefore bringing huge losses in terms of waste. Conclusion Chandler’s ideas seem to have a strong empirical backing as can be seen in the economic structures inn which large corporations practice either of the economic systems portrayed in his thesis. There are however some questions that may be raised as far as the sensitivity of his research to differing environments that are not economic for example, does the Japanese intrinsic social cultural inclination as manifested in their management processes have any effect on the national economic progress, what is the effect of his classifications on economies that are in the process of transformation such as China and Cuba, and what about mixed economies that have large businesses employing any of the three management approaches but have to contend with government involvement in the business operations? These are some of the questions that were left unanswered in the development of his thesis and deserve closer attention. References A.D.Chandler, Scale and Scope: The Dynamics of Industrial Capitalism (Harvard University Press, 1990) Read More