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Business History and Economics PRESIDENTIAL ADDRESS Business History and Economics William Lazonick Barnard College,Columbia University The presidentialaddress is traditionallyheavily auto-biographical. As your typicalegotistical, white, male academic,I am in principlequite happy to perpetuatethe tradition. But for practicalreasons, I havesecond thoughts about tellingyou the storyof my life. Normally the presidentialaddress at the BusinessHistory Conferencehas been part of a banquetformat that has createda captiveaudience. With the receptionand the eveningstill aheadof you rather thanbehind you, I fear that if I try to take thishour to recountthe life and times of William H. Lazonickyou might all start headingfor the doors. It alsohappens that, despitemy still valid Canadianpassport, I am not the presidentof the CanadianBusiness History Conference. In view of the joint sponsorshipof thesemeetings, my "presidential"address is beingbilled as a "keynoteaddress". ! havestrong doubts about the wisdomof offeringmy life storyas the keynotetheme of thesemeetings. I shall, therefore,refrain from tellingyou that I wasborn and bred in the very city where we are havingthese meetings. And I won't let you know that just a ten minutewalk from where we standright now, my father has for overforty years run a businessthat bearsmy name(but just in caseanybody is interestedyou can look for a sign that saysH. WILLIAMS & CO. on ChurchStreet, north of Queen). Nor shallI bothertelling you that overtwo decadesago the Universityof Toronto awardedme a Bachelorof Commerce degree. Surely,you haveno interestin suchdetails of my personallife, so I shalloblige you by keepingthem to myself. But I mustwarn you that I won't spareyou completely. What I shall talk about is how an economistcame to the studyof businesshistory. In relatingthis tale, my purposeis to ask not what the economistcan do for businesshistory but what businesshistory can do for the economist.For, as manyof you may know,the academicdiscipline that callsitself economicsis in a sorrystate. The disciplineneeds some help. The sorry state of economicshas ideologicaland methodological origins. With its idealization of an economy that gives free vent to individualisticbehavior, the disciplinehas no way of comprehendingwhy, in a so-calledmarket economy,a businessorganization that brings together BUSINESS AND ECONOMIC HISTORY, SecondSeries, Volume Twenty, 1991. Copyright(c) 1991by the BusinessHistory Conference.ISSN 0849-6825. thousandsand tens of thousandsof people could be anything but a burdensomemarket imperfection,much less an institutionthat is centralto the processof economicdevelopment. More generally,the discipline's methodologicalobsession with static equilibriummeans that economists normallylack the trainingto analyzethe processof economicdevelopment. As a resultthey have great difficulty comprehending, let alone analyzing, how, within a so-calledmarket economy, the strategiesand structuresof business organizationsmight be criticaldeterminants of the developmentprocess. In effect,many of the mostprominent orthodox economists--numerous Nobel Prizewinners among them--have acquired a trainedincapacity to understand the centralfeatures of a moderneconomy. But, you may well now be askingyourselves, how did the economist Lazonicktranscend his formal education to do the typesof thingsthat he says moderneconomists are trainednot to do? To answerthis question,I must fightoff my secondthoughts and tell you somethingabout how I mademy intellectualescape from the clutchesof orthodoxeconomics. Let me begin by puttingit thisway. Anothereconomist, Oliver Williamson, has declared his adherenceto orthodoxeconomic ideology by the assertionthat "in the beginningthere were markets"[22, p. 87]. I learnedthe samestuff as an undergraduateat the Universityof Torontoand then as a master'sstudent at the LondonSchool of Economics.But by the timeI wasfinished at the LSE, I didn't believethe story. Somethinghappened during those years (or perhapseven long before) that ultimately convinced me that "in the beginning there were socialrelationships." For better or for worse, it has been the strategiesof peopleentering into social relationships in attemptsto control their livesthat has shapedthe marketsfor labor,capital, and productsthat have come to characterize the modern industrial world. The more I studied the economist'sstory of how impersonalmarket forces determineour economicfate--of how all of uswould be betteroff if everyoneavoided social relationshipsfor the sake of buyingcheap and sellingdear at every opportunity--themore I becameconvinced that thisstory of howa modern economyworks, or at leastshould work, not merelyobscures reality but is a prescriptionfor economicfailure should someone actually try to put sucha systemin place. To comprehendwhy and how a moderneconomy is successful,the economistmust be ableto tell a storyof the impactof socialrelationships on economicoutcomes. To figure out just what the relevantstory is, the economistmust study history. The studyof historyis not a matterof locating somestylized facts that fit a preconceivedtheory. To understandthe process of economicchange, the economistmust become a historian. At leastone leading twentieth-century economist came to recognizethe fundamentalimportance of historicalanalysis. Toward the endof hiscareer, JosephA. Schumpeteridentified three fundamentalfields of economics: history,theory, and statistics. He advisedthat "if startingmy work in economicsafresh, I were told that I couldstudy only one of the three but couldhave my choice, it wouldbe economichistory that I wouldchoose. And this on three grounds" First, the subjectmatter of economicsis essentiallya unique processin historictime. Nobody can hope to understandthe economicphenomena of any,including the presentepoch, who has not an adequate command of historicalfacts and an adequateamount of historicalsense or what may be described as historicalexperience. Second,the historicalreport cannot be purelyeconomic but must inevitably reflect also "institutional"facts that are not purely economic:therefore it affords the best method for understandinghow economic and non-economicfacts are related to one another and how the various social sciences shouM be related to one another. Third, it is, I believe, the fact that most of the fundamental errorscurrently committed in economicanalysis are due to the lack of historicalexperience more often than to any other shortcomingof the economist'sequipment [20, pp. 12-13]. My first introductionsto economichistory came at the Universityof Toronto,but it wasnot until I becamean economicsgraduate student in the Ph.D. program at Harvard that I began to comprehendthe processof historicalchange. An important,and perhapscritical, determinantof my intellectualtrajectory was the fact that I did not haveto choosehistory instead of theoryor statistics.When I cameto Harvard to studyeconomics I had the confidenceto studyhistory because I had alreadyreceived a thoroughtraining in theory and statistics,first at the University of Toronto and then, more importantly,at the London Schoolof Economics. Teachingin economics departments--firstat Harvard Universityand more recentlyat Columbia University--ithas been my experiencethat economicsgraduate students shy awayfrom studyinghistory because of theirlack of confidencein theirabilities to performup to conventionalstandards in theoryand statistics. Even if they are giventhe opportunityto studyhistory--which is by no meansalways the casein majoreconomics Ph.D. programstoday--very few get aroundto doing so seriously. As for me, the economictheory that I learned before enteringthe HarvardPh.D. programwas highly orthodox, deeply rooted in the neoclassical tradition. At the London School of Economics the people who taught neoclassicaltheory appearedto really believe that individualismexercised throughimpersonal markets leads to optimaleconomic outcomes. At Harvard in contrastmost professors did not really believethe free-marketstory and substitutedmathematics for substancein what they taught. My first-year advisorat Harvardinformed me that my trainingin economictheory at the LSE had been virtuallyworthless. I do not think so--at the LSE I had receiveda rigorouseducation in the neoclassicalview of the economicworld. Suchlearning would prove invaluable for someonewho wanted to explorehow and why that worldviewwent wrong. At the LSE in the late 1960sthe neoclassicalguru was Harry Johnson, the Canadian-borneconomist who broughtthe ChicagoSchool to England. At the time of his death in the mid-1970s,Johnson was reputed to be the 4 mostpublished economist in history.Be that asit may,there was certainly no historyin his economics.Johnson preached the statictheory of the market economy. As a result, he was ideologicallyand methodologicallyon an intellectualcourse that made it impossiblefor him to understandthe ever- growingimportance for economicdevelopment of businessorgani?ations characterizedby long-termsocial relationships and plannedcoordination of productiveactivities. But becauseJohnson and his followersbelieved so ferventlyin the efficacyof marketcoordination, they made clear their substantive assumptions of how the worldworks rather than,as hasbecome increasingly the trend amongeconomists, hide behinda complexfacade of mathematicalformulae that is then marketedas "science." The fundamentalassumptions of the systemof economicthought that was taught at the LSE could be easily grasped,and hence, if one had the inclination,easily questioned. The proponentsof neoclassicalorthodoxy
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