Comments of kev|n Carson's Cr|t|que of A|fred DŦ Chand|er

8y AoJets Mlkkelseo

kevln Carson wroLe a fasclnaLlng crlLlque of Alfred Chandler


l Lhlnk heƌd flnd Lhe book 1he ÞurlLan ClfL qulLe lnLeresLlngŦ lL Lalks abouL managemenLţ and accordlng Lo
Lhelr reporLs old school uŦSŦ managemenL was acLually qulLe humaneţ boLLom upţ and colleglalŦ lL led by
naLural auLhorlLy more Lhan by ordersŦ ln facL 1aylorlsm was re[ecLed lnlLlally because lL wasnƌL humaneŦ
1aylorlsm mlghL look slmllar buL ls acLually qulLe dlfferenL and for Lhem Lhe source of many evllsŦ 1hey
argue as well LhaL !apanese flrms llke 1oyoLa are LhaL way because of whaL Lhey adopLed from AmerlcaŦ
1he ÞurlLan ClfL offers a qulLe lnLeresLlng perspecLlveţ Lhough cerLalnly Lhere's much Lo be read

8eadlng Lhe 8evlew of 8eblrLh of Amerlcan lndusLryţ l see Lhere'd be more Lo dlsagree wlLh ln 1he
ÞurlLan ClfLţ whlch doesn'L make Lhe book any less valuableŦ l agree 100Ʒ wlLh Lhe crlLlque of
accounLlng LhaL LreaLs unsellable lnvenLory as an asseLŦ
(noL Lo dlgressţ buL Lhls arLlcle covers many of Lhe fasclnaLlng lssues wlLh how corporaLlons do
accounLlng and performance measuremenLţ lssues because Lhey vlolaLe economlc law and lead Lo
wasLeful buslnessesŦ As below l recommend 1heory of ConsLralnLs lnslghLs ln Lhls areaŦ 1hls revlew
seems much more congruenL wlLh AusLrlan LconomlcsŦ l do wonder Lhough how Lhey explaln lord's
fallure ln Lhe decades before Penry lord ll Look overŦ)

Whlle readlng Lhe arLlcle on Chandlerţ l canƌL agree wlLh
ƍ1he prerequlslLes of largeŴscale producLlon are an arLlflclal sLaLe of affalrsŦƍ lŦeŦ large corporaLlons
depend on subsldlzed LransporLŦ

Whlle large corporaLlons depend on LransporLţ and Lhe LransporL ls ofLen subsldlzedţ LhaL doesnƌL mean
LhaL LransporL wouldnƌL exlsL wlLh subsldlesŦ (lL seems relevanL Lo polnL ouL LhaL Lhe dlvlslon of labor ls
whaL an economy ls all abouLţ and lL ls dependenL on LransporLaLlon and communlcaLlonŦ lnLeresLlngly
Lhe lnLerneL's enabllng of global lnsLanL communlcaLlon seems Lo be maklng lL posslble Lo be anywhereţ
whlle paradoxlcally lL ls even more lmporLanL Lo be ln Lhe rlghL localeŦ)

My lnlLlal reacLlon wasţ whaL abouL Lhe lncreaslng cosLŴeffecLlveness of waLer LransporL? ln Lhe absence
of rallroads one would sLlll see huge lncenLlves Lo use rlvers and oceans Lo llnk LogeLher clLlesŦ (MosL
clLles are bullL on harbors or rlvers as lL lsŦ) Maybe shlps plylng Lhe sea somehow creaLe negaLlve
exLernallLlesţ buL LhaL seems Lo be pushlng lLŦ Cne could lmaglne waLer LransporL alone llnklng Lhe easL
coasL of norLh Amerlcaţ Lhe Mlsslsslppl and lLs LrlbuLarlesţ Lhe CreaL Lakes and SLŦ Lawrence wlLh
wesLern Luropeţ especlally Lnglandţ Lhe 8alLlcţ and 8hlne and oLher rlver valleys of Cermanyţ Lhe low
counLrlesţ easLern lranceţ probably Lhe Þo valleyţ eLcŦ ln real llfe Lhls ls baslcally whaL happenedŦ 1hls llsL
of waLer accesslble areas roughly descrlbes Lhe greaL lndusLrlal hearL of Lhe world up unLll WWllŦ 1hls ls
noL Lo say LhaL Lhere weren'L dlsLorLlons and a loL of sufferlng Lo accompany lLţ only LhaL we mlghL have
had a falrly slmllar resulL wlLhouL Lhe dlsLorLlons and Lhe accompanylng sufferlng and lnsLlLuLlonallzed

l musL admlL l am qulLe susplclous of Chandlerƌs argumenL and l Lhlnk lƌll probably have Lo read 1he
vlslble Pand and see whaL lnslghLs he has and where bad economlcs may have dlsLorLed hls flndlngsŦ
(CerLalnly hls book Scale and Scope was excellenLŦ)

l absoluLely agree LhaL Lhe uŦSŦ and oLher counLrles were rlfe wlLh aLLempLs by blg buslness Lo use
governmenL power Lo proLecL Lhe reLurn on lnvesLmenL for blg buslness and Lhelr lnvesLorsŦ kolko alone
has made LhaL clearŦ

Clven LhaL people Lend Lo congregaLe around LransporLaLlon hubsţ lL seems llke mass markeLs would
Lend Lo developŦ lƌm noL convlnced elLher we have no examples of free markeL rallroadsŦ

l geL Lhe lmpresslon from kolko and oLhers LhaL compeLlLlon Lo Lhe sLaLus quo blg buslness was ln Lhe
form of new companles wlLh newer Lechnology drlvlng down proflL marglns by explolLlng Lhe lower cosL
of Lhelr caplLal goodsŦ Powever Lhese new compeLlLors were companles LhaL were presumably llLLle
dlfferenL from blg buslnessţ and would grow Lo become blg buslnessŦ (!usL as we see loLs of Lurnover
among Lhe Lop companlesŦ) lL ls one Lhlng Lo show how sLaLe lnLervenLlon suppressed and dlsLorLed
compeLlLorsţ qulLe anoLher Lo show LhaL Lhese soclal lnsLlLuLlons belng dlsLorLed baslcally wouldn'L exlsL
wlLhouL Lhe sLaLeŦ 8oLh are posslbleţ buL l Lhlnk Lhe second parL doesn'L follow from Lhe flrsL parLŦ

lL seems llke a loL of Lhe blame for forelgn pollcy also can be ascrlbed Lo Lhe aLLempLs of Lhe lnvesLor
class Lo make above markeL proflLsţ as well as Lhe problems of lnvesLor's spendlng Loo much Lo lnvesL ln
or merge old blg buslnesses Lo Lhe proflL of Lhe Pouse of Morgan and oLher underwrlLersŦ

Agaln whlle Lhe sLaLe played a role ln creaLlon of broadcasL medla and loved lLţ l Lhlnk Lhe record ls
preLLy clear LhaL Lhe sLaLe regulaLed lL for lLs own ends raLher Lhan creaLed lLŦ 1hereƌs no reason Lo Lhlnk
adverLlslng funded broadcasL medla wouldnƌL developŦ

lL ls noL clear why consumers were so foollsh Lo buy branded arLlcles lnsLead of generlc arLlclesŦ We
should remember LhaL Penry lordƌs faulL was LhaL he Lrled Lo push generlc auLomoblles for Loo longŦ
Sloan and CM reallzed LhaL people wanLed more Lhan generlc carsţ and were wllllng Lo pay a premlumŦ
Many people qulLe llke cars wlLh heaLţ alr condlLlonlngţ power sLeerlngţ and muslcŦ (none of Lhls ls Lo
deny LhaL manufacLurers would llke sLaLe help LhaL subsldlzes LhemŦ)

lor many flrms Lhelr problem ls preclsely LhaL Lhey Lry Lo mass produce arLlcles and 'push' Lhemţ raLher
Lhan bulldlng Lo markeL demandŦ l suggesLed readlng books on Lhe 1heory of ConsLralnLs of 1CCŦ 1he
Coal and 1he MeasuremenL nlghLmare are boLh excellenLŦ (Clearly Loo Lhe auLhors of 8eblrLh of
Amerlcan lndusLry are aware of many of Lhese lssues as wellŦ)

lf we're honesL we reallze LhaL new producLs LhaL compeLe by reŴdeflnlng Lhe producL or caLegory are
well belovedŦ Look aL AppleŦ 1he lÞodţ lÞhoneţ and lÞad all helped deflne Lhelr caLegorlesŦ Androld for
lnsLance wouldn'L be Androld wlLhouL Lhe lÞhone as an exampleŦ 8y creaLlng lnLerneLworked userŴ
frlendly producLs Apple seL Lhe bar for everyone else and made Lons of money selllng hlgh proflL l1hlngsŦ
(SLeve !ob's vlslon always saw Lhe poLenLlal of an lnLerneL comblned wlLh consumer frlendly compuLlng
devlcesţ buL lnlLlally he was ahead of hls Llme)

1he problem ls LhaL many companles reslsL Lhe commodlflcaLlon of Lhelr LrendŴseLLlng producLs and Lry
Lo use sLaLe power Lo prevenL compeLlLlonţ allowlng Lhem Lo reLaln hlgh proflL marglns lndeflnlLely and
for Lhem Lo resL on Lhelr laurelsŦ 1he laLer parLs of arLlcle make clear LhaL Chandler dldn'L undersLand
whaL kolko dldţ Lhe use of Lhe sLaLe Lo boosL marglns on old sLaLus quo producLsţ flrmsţ and
lnvesLmenLsŦ (1hls laLLer parL of Lhe arLlcle does seem Lo conLradlcL Lhe earller parLsŦ) WhaL happens ln a
free markeL ls LhaL prlces and proflL marglns decllne ln Lhe old producL llne or caLegoryţ and companles
looklng for hlgh proflLs musL creaLe someLhlng newŦ

Cne of Lhe Lhlngs whlch makes economlc hlsLory so dlfflculL as well ls LhaLţ as 8oLhbard noLedţ Lhere ls a
duallsmŦ Cne Lhe one hand mosL of Lhese blg buslnesses goL LhaL way by servlng Lhe markeL and maklng
more efflclenL use of avallable resourcesţ wlLh obvlous excepLlons llke heavlly subsldlzed
LransconLlnenLal rallroadsţ on Lhe oLher hand once Lhey geL blg Lhey and Lhelr bankers are consLanLly
looklng for Lhe sLaLe Lo keep up Lhelr proflLsŦ 8ockefeller would noL have been successful lf he hadn'L
helped radlcally decrease Lhe consumers cosL of reflned peLroleum producLsţ on Lhe oLher hand hls
flngerprlnLs are all over sLaLlsL aLLempLs Lo beLLer 'manage' socleLy lf noL Lhe world and self servlng
forelgn and domesLlc pollcyŦ

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