Scale and Scope: The dynamics of Industrial Capitalism Summary of Chapter 1

Scale and Scope: The dynamics of Industrial Capitalism Summary

Chapter 1: The modern industrial enterprise

·Focus of the book: beginnings and growth of managerial capitalism globally, focusing on the history of its basic institution, the modern industrial enterprise in the world’s three leading industrial nations

·The modern industrial enterprise played the most fundamental role in the transformation of Western economies (had been rural, agrarian and commercial and became industrial and urban)à that transformation, in turn, brought the most rapid economic growth in the history of mankind.

·In each of the three countries, industrial activities played the central role in transforming an agrarian commercial economy into a modern industrial enterprise.

·Simon Kuznets: three basic sectors of national economies: agriculture, industry and services

·Largest economic growth in all three countries came in the industry sector, agriculture drastically declined in the long run. The industrial sector grew significantly in the US and Germany while in GB the development was slower but sustained (table 2).

·Industrial growth was concentrated in the manufacturing sub division (table 3). Growth in manufacturing was more notable in the US and Germany than in Great Britain

·Industry created more employment opportunities than did either agriculture or services (table 4). Again, GB enjoyed only a moderate change in employment structure after the 1880s, the US and Germany to a lesser degree, showed a dramatic transformation from an agrarian to a modern economy.

·Those enterprises that were most responsible for the economic growth of the world’s three largest industrial nations-have provided a fundamental dynamic or force for change in capitalist economies since the 1880s (not just manufacturing firms).

·Large manufacturing firms were the prototype of the modern industrial enterprise.

·As a result of the regularity, increased volume and greater speed of the flows of goods made possible by the new transportation and communications systems, new and improved processes of production developed, for the first time enjoying scale and scope economies

·In order to benefit from the cost advantage of the new, high volume tech. enterprises had to make three sets of interrelated investments.

1.      investment in production facilities large enough to exploit the technology’s potential economies of scale or scope.
2.      investment in national and international marketing and distribution networks so that the volume of sales might keep pace with the volume of production
3.      investments related to management to benefit from the first two to coordinate and monitor those two basic functional activities and to plan and allocate resources.

·The first entrepreneurs to create such an enterprise à competitive advantage , their industries quickly became oligopolistic (dominated by a small number of first movers). These firms no longer competed on the basis of price but the competed for market share and profits through functional and strategic effectiveness. Functionally by improving  their product, their production processes, marketing, purchasing etc. Strategically  by moving into growing markets more quickly and out of shrinking ones more rapidly than their competitors. à these organizational dynamics in turn provided and internal dynamic for the continuing growth on the enterprise. They stimulated the owners and managers to expand in more distant markets, become multinational and to diversify and so become a multiproduct enterprise.

·Managerial capitalism Industries where the new technologies provided cost advantages of scale and scope came to be operated through a system that the author calls managerial capitalism. Salaries managers, not owners came to make the decisions about current operating activities and long-term growth and investment. Their decisions determine the ability of the enterprise and of the industries in which they compete.

·Despite the variability of the individual choices , taken cumulatively they produce clear patterns of institutional change

·In each of the new industries there were only a small number of major playersà the decisions of their managers often determined the ways in which the entire industries and even national economies responded the changing market, industries, economic and political environments.

·Part II: in the US competitive managerial capitalism

As early as WWI the new institutions dominated the core industries in the US. By WWI nearly all of these enterprises were administered by teams of full-time, experienced largely salaried managers. And since these firms competed for market share at home and abroad, it can be said that these industries had been operate through a system of competitive managerial capitalism.

·GB: personal capitalism

Failure of the British entrepreneurs to make investments, recruit managers and develop the organizational capabilities needed in order to obtain and retain markets share abroad and at homeà result continuing commitment to personal managementà Britain become a late industrializer in many of the new industries of the Second Industrial revolution. These British industries only became competitive with those from the US and Germany after modern industrial firms were belatedly created. Even than they remained handicapped in national and international markets because of their late start.

·Germany: Cooperative managerial capitalism

German experience close to the one of the US (entrepreneurs made the right investments and created the organizational capabilities needed to form a number a major industries). But the new large enterprises in Germany concentrated on the production of industrial goods, US produced consumer goods as well.
Basic difference: industrial leaders in the US continued to compete functionally and strategically for market share while in Germany the often preferred to negotiate with one another to maintain market share. In the US managerial capitalism was more competitive in Germany however it became more cooperative.
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