Chandler, Alfred. 1984. "The Emergence of Market Capitalism." Business History Review 58:473-503.


In the late 19th and early 20th centuries, a new type of capitalism emerged. It differed from the traditional personal capitalism in that basic decisions concerning the production and distribution of goods and services were made by teams, or hierarchies, of salaried managers who had little or no equity ownership in the enterprises they operated." p. 131

This was brought about by the industrial revolution and the invention of the railroad and communication technologies. The first managers arose out of the railroad and telegraph businesses. The manager ranks grew with the proliferation of mass production.

This paper is a comparison of large industrial firms in the US, Germany, and Japan.

Managing the flow of inputs and outputs in large manufacturing firms requires hierarchies. Only when mass production and economies of scale become important did managerial hierarchies become prominent. The firms who established economies of scale early tend to be the most dominant and persistent. The firm's organizations grew as they expanded their size, reach, and extent of vertical and horizonal integration. They often expanded when their distributors lacked the incentive or technology to market, sell, and service mass produced goods, and so firms moved into retail, distribution, and raw material supply.

This did not happen in industries where technology didn't have a high minimum efficient scale, were coordination was not complex, and where mass distribution didn't require specialized skills and facilities. There was no incentive to forward integration. In these instances often mass retailers took over the final role.

Comparing developments in the three countries, we see that:

United States

See above

 

UK

Owners retained control longer in the UK. Initially they had less incentive in the smaller country to exploit economices of scale, and as a result suffered from foreign dominance of certain markets in their own country. As a result the British economy failed to reap much of the benefit of the 2nd industrial revolution due to their family-style capitalism. After WWII more firms began to mimic the American style hierarchical structures.

Germany.

The Germans were big into complex machinery and chemicals, and those firms had large managing hierarchies and overseas marketing groups. They focused on these markets because early on they didn't have the internal consumer market like the US and UK. Their strength lied in science-based industries where their educational system had an edge.

Japan

Japan's system developed mostly after WWII.

Conclusion

Over time there has been a convergence between countries toward managerial capitalism.