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INNOVATION, CORPORATE ORGANISATION AND INDUSTRY POLICY: WILLIAM LAZONICK ON THE FIRM AND ECONOMIC GROWTH
Abstract
In two recent books and several articles, William Lazonlck has examined the proper industry policy for countries during periods of significant innovation. On the basis of the historical development of Britain, the USA and Japan, he concludes that successful innovation requires the establishment of large, vertically-integrated firms that are able to manoeuvre flexibly because their workers are willing and able to cooperate with change. Although Lazonick's arguments are persuasive in many respects, they are based on assumptions of future developments that are not necessarily correct. In particular, large firms may not be the best vehicles for the development and implementation of innovation. Moreover, increasingly ‘intelligent’ machines may erode the need for a flexible workforce, much as happened with the advent of Fordism in the early decades of the twentieth century. As a result, nations should be wary of committing themselves to centralised and uniform policies when the nature of the problem is still uncertain.
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NOTES AND REFERENCES
Nevertheless, modelling is becoming increasingly common. See, for example, the articles in the Journal of Evolutionary Economics.
A sample of the various approaches is given in Richard N. Langlois (ed.), Economics as a Process: Essays in the New Institutional Economics, Cambridge, Cambridge University Press, 1986.
Competitive Advantage on the Shop Floor, Cambridge, Ma,. Harvard University Press, 1990 and Business Organization and the Myth of the Market Economy, Cambridge, Cambridge University Press, 1991. More recently, a collection of Lazonick's articles has been published (Organisation and Technology in Capitalist Development, Aldershot, Edward Elgar, 1992), but the content of most of these has been incorporated into the other two books.
Lazonick describes his intellectual development in ‘Presidential Address’, Business and Economic History, 20, 1991, pp.1–13.
Additional effort is not always called for since many innovations are, of course, labour saving. However, if the workforce dislikes an innovation, perhaps because they believe it will lead to reduced employment, they may refuse to cooperate at all or may sabotage its introduction in more subtle ways.
For example in Paul L. Robertson and Lee J. Alston, ‘Technological choice and the organisation of work in capitalist firms’, Economic History Review, 45, 2, May, 1992, pp.330–349.
Lazonick explains his version of the labour theory of value in the appendix to Competitive Advantage, ‘The basic analytics of shop-floor value creation’, pp.333–352.
Lazonick uses “value-creation” to approximate the meaning of both “productivity” and “output”.
This treatment of training expenses is central to Lazonick's paper on “Learning and the dynamics of international competitive advantage”, which was presented to the Conference of the International Joseph A. Schumpeter Society, Kyoto, 18–22 August, 1992.
Particularly in The Visible Hand, Cambridge, Ma., The Belknap Press of Harvard University Press, 1977.
Chandler has restated these propositions in transaction cost terms in the introductory chapter to Scale and Scope, Cambridge, Ma., The Belknap Press of Harvard University Press, 1990.
Lazonick has recently expanded on these ideas in ‘Industry clusters versus global webs: organisational capabilities in the American economy’, Industrial and Corporate Change, 2, 1, 1993, pp.1–24.
William Lazonick, ‘Controlling the market for corporate control: the historical significance of managerial capitalism’, Industrial and Corporate Change, 1, 3, 1992, pp.445–488. Lazonick is reacting against attitudes such as those of Michael C. Jensen as outlined in ‘Takeovers: their causes and consequences’, Journal of Economic Perspectives, 2, 1988, pp.29–48; and ‘Eclipse of the public corporation’, Harvard Business Review, 67, 1989.
As articulated in The Work of Nations: Preparing Ourselves for 21st-century Capitalism, New York, Knopf, 1991.
These ideas are expanded upon in ‘Learning and the dynamics of international competitive advantage’ and ‘Industry clusters versus global webs’.
Lazonick implies that the decision to layoff workers was a matter of discretion and that firms might have persisted with guaranteed employment despite sharp and sustained falls in output. Competitive Advantage, pp.270–271.
Michael Porter E.. 1990. . The Competitive Advantage of Nations . , New York : : The Free Press. .
Industry clusters versus global webs’, especially pp.2–9. W. Mark Fruin has recently argued, however, that Japanese firms are far less centrally controlled and more responsive to market pressures than Lazonick indicates (The Japanese Enterprise System: Competitive Strategies and Cooperative Structures, Oxford, Oxford University Press, 1992).
Business Organization, p.167.
ibid, p.169.
They, like Lazonick, have generally “come to the realization that understanding economics and understanding the economy [are] not necessarily the same endeavors”. Still it must be conceded that many economists prefer economics to the economy and have a tendency to use caricatures of reality to test theory. For a similar distinction between economic modelling and “how economists talk about particular events”, see Richard R. Nelson, ‘The tension between process stories and equilibrium models: analyzing the productivity-growth slowdown of the 1970s’, in Langlois (ed.), Economics as a Process, p.136.
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Business Organization, pp.271–273.
Michael J. Piore and Charles F. Sabel, The Second Industrial Divide: Possibilities for Prosperity, New York, Basic Books, 1984; Charles F. Sabel and Jonathan Zeitlin, ‘Historical alternatives to mass production: politics, markets, and technology in nineteenth-century industrialisation’, Past & Present, 108, August, 1985, pp.133–176; Charles F. Sabel, Garry Herrigel, Richard Kazis, and Richard Deeg, ‘How to keep mature industries innovative’, Technology Review, 90, 3, April, 1987, pp.26–35; Charles F. Sabel, ‘Flexible specialisation and the re-emergence of regional economies’, in Paul Hirst and Jonathan Zeitlin (eds), Reversing Industrial Decline? Industrial Structure and Policy in Britain and Her Competitors, Oxford, Berg, 1989, pp.17–70.
Barry Supple, ‘Scale and scope: Alfred Chandler and the dynamics of industrial capitalism’, Economic History Review, 44, 3, August, 1991, pp.500–514; David S. Landes, ‘Introduction: on technology and growth’, in Patrice Higonnet, David S. Landes and Henry Rosovsky (eds), Favorites of Fortune: Technology, Growth, and Economic Development since the Industrial Revolution, Cambridge, Ma., Harvard University Press, 1991, pp.1–29.
John Kay provides a sceptical evaluation of the importance of economies of scale in modern industry, noting that, “I have yet to encounter a firm or an industry where managers did not initially overestimate the importance of scale economies.” (Foundations of Corporate Success: How Business Strategies Add Value, Oxford, Oxford University Press, 1993, p.172).
Lynn Krieger Mytelka, ‘Dancing with wolves: global oligopolies and strategic partnerships’, paper presented to the Conference on Convergence and Divergence in Economic Growth and Technical Change: Maastricht Revisited, Maastricht, December 10–12, 1992.
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