PRESIDENTIAL ADDRESS

Business History and

William Lazonick Barnard College,

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 .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 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 yousomething about 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 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 reputedto 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 were not necessarilyeager for debate, but their candorand consistencyin espousingtheir viewof the worldmade it possibleto criticizetheir perspective. Now that I have taken the liberty of exposingyou to the intimate detailsof my intellectualformation, I mustmake a personalconfession-- somethingthat I have kept to myself all these years. As a critic of neoclassicaleconomic orthodoxy, I wasmade, not born. When I cameto the LSE in the fall of 1968,I basicallybelieved that perfectlycompetitive markets representedan ideal, even if not wholly attainable, mode of economic organization.I had not been exposedto any other type of economictheory, and, notwithstandingmy parentssocial democratic inclinations (they were stalwartsupporters of the CooperativeCommonwealth Federation and then the New DemocraticParty), my life experiencethrough my undergraduate yearscan onlybe describedas pettybourgeois. But by the summerof 1969,when I hadcompleted a Masterof Science degreein economics,I knew that the neoclassicalstory was fundamentally flawed. The politicalturmoil of the time, and the intellectualferment that it generated,helped me to seethat somethingwas missing from the neoclassical accountof the bestof all possibleworlds. I particularlyremember that, after a stirringLSE debatebetween Joan Robinson and Harry Johnsonon income distribution,I began telling anyone who'would listen that "the price system" had to be studiedas a set of socialrelationships. As it turns out, I was speakingthe truth. I also deviated from the intense and narrow curriculum at LSE to read (in the courseof oneevening) John Kenneth Galbraith's, The New Industrial State[10]. This book attackedeconomic orthodoxy for its neglectof "the planningsystem"--a system that, Galbraithargued, characterized the modern capitalisteconomy (by whichhe meantthe American economy). Despite an undergraduatedegree in commerceand finance, I wasat the time unawareof Alfred Chandler'sStrategy and Structure [3]. ReadingThe New Industrial State did nothingto alert me to Chandler'smomentous work in Americanbusiness history. Galbraith'sbook describedthe post-WorldWar II corporate economy;it did not explainhow it cameto be. As it turnedout, I wouldhave to make a voyageto the New World to becometruly educated. But nowI am gettingahead of the story(and sinceI haven'tbeen able to refrainfrom tellingit, I may as well tell it right). When I left LSE in the summer of 1969, I was confident that I understoodwhat conventional economicswas all about. But I had alsobecome aware that I knewvery little abouthow an actualcapitalist economy worked. In otherwords, I had come to the realization that understandingeconomics and understandingthe economywere not necessarilythe sameendeavors. As I lookedat the world aroundme, I becameconvinced that to transcendneoclassical orthodoxy was not a matter of correctinglogical inconsistencies by recourseto ad hoc theorizing,I had no idea what the relevanttheory was. In my five yearsof highereducation, I had beenexposed to onlyone theory--andit was a theory that turnedout to be out of touchwith reality. A relevanteconomic theory remained to be discovered. So what doesa youngperson, thirsting for knowledgeabout the real worM,do? I went off to Switzerlandin the guiseof a doctoralstudent at the Institut Universitaire de Hautes Etudes Internationales in Geneva. In terms of my personaleconomics, it wasa gooddeal. Thiswas a time whenone U.S. dollarwould buy four anda half Swissfrancs, when a goodmeal couldbe had in a Genevacaffi for lessthan 10 francs,and when $45US a month in total got me a quarter-sharein an apartmentin the centerof Genevaand a half- sharein a countryresidence by Lake Geneva. What'smore, to the surprise of my Swissfriends, I had managedto get a scholarshipfrom the Swiss governmentwithout even applying for one (it turnedout that beinga student of Harry Johnsonhad something to dowith it). If I wassearching for thereal world, I had surelyfound it. Naturally,I spentmost of the wintermonths and part of the spring skiingin the Swissalps. In betweentrips to placessuch as St. Moritz, Zermatt, and Grindelwald,I couldbe foundreading, debating, and drinking (althoughperhaps not in that order) in the very samecaffi in Genevathat Lenin had frequentedbefore his return to Russiain 1917. Now, lest I be accusedof havingbeen totally self-indulgent at a time whenI shouldhave been focused first and foremost on the pursuitof a career, I shouldpoint out that even the skiingwas not a completeintellectual time out. I alwaystook a bookwith me to read on the mountaintrains, cable cars, gondolas,and chairlifts. One bookthat I carriedwith me up the mountains in the winterof 1970was Jean-Jacques Servan-Schreiber's, Le Ddfi Americain, publisheda coupleof yearsbefore [21]. His main pointwas that Europehad to build the scaleand scopeof its businessorganizations if it hopedto avoid becomingan economic,and perhapscultural, colony of the United States.As a Canadian,the argumenthad a certainresonance. This book, more than any other, convincedme that, once I had my fill of the SwissAlps, I should continueto studyeconomics in the United States. For if, as Servan-Schreiberargued, the Americanmodel of economic organizationrevealed the future to the rest of the world, then it was the American model that had to be studied. And needlessto say, the U.S. corporationsthat Servan-Schreibersaw challengingEurope hardly fit the modelof the passiveand powerlessbusiness firms portrayedin the many coursesin microeconomicsthat I had taken. Rather they seemedto have muchmore in commonwith the typesof corporationsthat characterized"the planningsystem" about whichI had read in Galbraith'sThe New Industrial State. One day, as the mountaintrain passedthrough the shadowof the Matterhorn, an Englishwoman spottedme readingGalbraith's American Capitalism--the1951 book which introduced the term "countervailingpower" into the discourseof American political economy[9]. This woman--an attractive medical doctor as I remember--told me that she had met Galbraith at Gstaad, the fashionableSwiss ski resort where he had a mountain home. Indeed, Galbraith had invited her to dinner. Now, for a studentof economicsin 1970,Galbraith was, alongwith Milton Friedman and Paul Samuelson,one of America's three most famous economists.And of the three, he was the only one who wasn'tneoclassical. His New IndustrialState was quickly becoming what I wouldsuppose is the mostwidely read bookwritten by a twentieth-centuryeconomist. So I wrote to Galbraithto let him knowthat I too happenedto be in Switzerland,and to inquire about the possibilityof meetinghim in Gstaad.(I didn't mention dinner,but assumedthat an invitationwould follow.) I did mentionthat I was in the midst of applyingto the Harvard Ph.D. program. Galbraith respondedthat he reservedhis time at Gstaadfor requisitephysical exercise, but that perhapshe wouldsee me at Harvardthe followingyear. I have never found out whethermy communicationwith Galbraith helpedor hinderedmy admissionto Harvard. AlthoughGalbraith would shortlythereafter be electedPresident of theAmerican Economic Association, he wasn't taken at all seriouslyby the mainstream of the economics profession.In any case,it turnedout that Galbraithwould have little if any influenceon the futurecourse of my career. For whenI cameto Harvard,I foundthat, quite apart from the iconoclastGalbraith, there were some15 to 20 studentsand four or five facultyin the Harvardeconomics department who,if not swimming,were at leastdogpaddling, outside the mainstream.I quicklygot caughtup in the samecurrent. As a group,we beganmaking waves. This groupof economistswas part of a nation-wideorganization, The Union for Radical Political Economics. URPE evolved out of the social protestmovements of the 1960s. Like the participantsin thosemovements, the ideologicaland politicalorientations of radicaleconomists were diverse andpartially formed. Intellectually,we knewtoo little andhad read too much to be dogmaticabout how theworld worked. What we did knowwas that the economicstextbooks didn't have the answers.Binding together the radical economicsmovement was a critiqueof neoclassicaleconomics as epitomized by the teachingsof both the conservativeMilton Friedmanand the liberal Paul Samuelson. At Harvard,most of the radicaleconomists of the early1970s assumed that the Marxiantradition in politicaleconomy was relevant to our searchfor a theoreticalalternative. But noneof ushad had a prior exposureto Marxian economicsin anyserious way. If therewas an intellectualtradition in which the most usefulwork by the Harvard radicaleconomists of the early 1970s couldbe cast,it wasthat of Americaninstitutionalism, with a heavyemphasis on the economicdeterminants and impactsof the historicalevolution of the Americanfamily, school, workplace, and state[2, 6, 7, 11]. The Marxian influence on this work was not so much in terms of specificeconomic theory but rather a methodologicalconcern with the dynamicinteraction between the relationsand forces of production--thatis, betweenorganization and technology--inthe processof historicalevolution. This focusfound particularemphasis in the provocativecontribution of StephenMarglin, "What Do BossesDo? The Originsand Functionsof Hierarchyin CapitalistProduction," a piecewritten around 1970and first publishedin 1974 [14]. Marglin'sargument was that the mainstream economist'snotion of efficiencyignores the structuresof socialpower that characterizelabor-management relations and the ways in which these structuresof socialpower influencethe level of productivityand shapethe directionof technologicalchange. The issuesraised by Marglin'swork had an importantimpact on myown decisionto undertakea detailedexamination of the evolutionof organizationand technologyin the Britishcotton textile industry. My purposewas to do a detailedcase study that could reveal the dynamicinteraction of organizationand technology in capitalistdevelopment. In doingso, I also wantedto acquirewhat I think Schumpetermeant by "historicalexperience"--a historical methodology relevant to dynamiceconomic analysis. I wantedto useinstitutional history to generateeconomic theory, and then usethat economictheory as a guideto the furtherexploration of history. In the attemptto integratehistory and theory in this way, the problem is that the further explorationof historyalso has to test the assumptionsof the verytheory that is guidingthe historicalresearch. To do so requiresthat the verifiedstrengths and the potentialweaknesses of the theoryalways be kept in view. One hasto guardagainst theory taking on a life of its own. For whentheory takes on a life of its own,we tendto impose preconceivedinterpretations on "historicalreality" rather than studythat realityin a waythat canilluminate the relevanceof the theorybeing used. In the historyof economics,the one economist who explicitly sought to bringhistory and theoryinto a symbioticrelation with eachother was . JosephSchumpeter viewed Marx's contribution in thisregard as of "fundamentalimportance to the methodologyof economics."As Schumpeter put it: Economistshave always either themselvesdone work in economichistory or elseused the historicalwork of others.But the facts of economichistory were assignedto a separate compartment.They enteredtheory, if at all, merelyin the role of illustrations,or possiblyas verificationsof results. They mixedwith it only mechanically.Now Marx's mixtureis a chemicalone; that is to say,he introducedthem into the very argumentthat produces the results. He wasthe firsteconomist of top rank to see and to teachsystematically how economic theory may be turned into historicalanalysis and how the historicalnarrative may be turnedinto histoireraisonnde [19, p. 44]. From this perspective,the validityand utility of a body of theory can be judgedin termsof its abilityto capturethe essenceof the historicalrecord that it is tryingto explain.In Marx'scase, the relevanthistory was the riseto internationalindustrial leadership of Britainin the nineteenthcentury. In the firstpart of mybook, Competitive Advantage on the Shop Floor, I havewritten in detail about the strengthsand weaknessesof the Marxian analysisof nineteenth-centurycapitalist development [12]. Sufficeit to say here that Marxvastly overestimated the extent to whichBritish capitalists wielded power overBritish workers. Marx didnot recognizethe extentto which,even in the presenceof mechanization,capitalists remained reliant on the skills and effortsof particularshop-floor workers, in large part becausekey categories of operativesperformed what we would today consider to be managerialroles on the shop floor. Nor did he recognizethe extent to which fragmented competitionamong capitalistsoften gave the much more cohesive organizationsof workersthe upperhand in determiningthe conditionsof work and pay. Writing in the third quarterof the nineteenthcentury, moreover, Marx was unable to see how the institutional foundations of capitalistdevelopment in Britain wouldbe differentfrom thosethat would prevailin nationssuch as Germany, the UnitedStates, or Japan--nationsthat we know in historicalretrospect ultimately would surpassBritain in technologicaldynamism and economicpower. As I have already mentioned,my own extendedcase study of the Britishcotton textile industry showed that Marx had not correctlyunderstood the evolutionof employmentrelations in particularand business organization moregenerally in nineteenth-centuryBritain. This conclusionwas reaffirmed by casestudies of otherBritish industries that revealedsimilar patterns of organizationalfragmentation on the part of employersand the exerciseof considerablecontrol over conditionsof work and pay by key groupsof workers. When the institutionalevolution of nineteenth-centuryBritish capitalismis properlyunderstood, moreover, it is impossibleto acceptMarx's well-knownargument that "the countrythat is more developedindustrially only shows,to the lessdeveloped, the imageof its own future"[15, p. 91]. Howevereffective the British model of capitalistdevelopment was for securing economicleadership in the lasthalf of the nineteenthcentury, it is simplynot a modelthat enablesone to comprehendthe rise to industrialpower of economiessuch as thoseof Germany,the United States,and Japanin the twentieth century. Comparedto the institutionsof market-coordinated capitalismthat enabled the British economyto assumea position of internationaldominance in the late nineteenthcentury, planned coordination of economicactivity, particularly at the level of the businessorganization, characterizedthe institutionsthat enabledthe economiesof Germany,the United States,and Japanto becomeinternational economic powers in the twentiethcentury. Indeed, in the volumethat Bernie Elbaum and I put togetheron the declineof the Britisheconomy, we arguedthat individualistic institutionsof proprietarycapitalism remained as obstaclesto the collective responsesrequired if the Britishwere to build new institutionsto meet the new competition[8]. Alfred Chandler'sbook, The Visible Hand [4], hada profoundinfluence on our perspectiveon British decline. My own detailedresearch focused on cottontextiles. As a relativelylabor-intensive industry, cotton textiles was not of coursean industrythat figuredprominently in Chandler'saccount of the managerialrevolution in U.S. capitalism.Yet by the mid-twentiethcentury, the organizationof the U.S. cottontextile industry looked much more like the organizationof the more capital-intensiveindustries in the United Statesthan like the Britishcotton textile industry. Chandler's most recent book, Scale and Scope[5], affirmsthis perspective. Yet thereare thosewho haveargued that in cottontextiles at leastthe relevantcomparison for assessingthe sourcesof Britishdecline is notwith the United Statesbut with Japan. For it wasJapan that in the interwarperiod rose to dominateinternational exports of cotton cloth. Accordingto the economichistorians, Gary Saxonhouse and Gavin Wright, the Japanese cotton textile industry was characterizedby an industrial structure at least as fragmentedas the British[18]. Thiscriticism has recently been repeated by the veryneoclassical economic historian Donald McCloskey [17]. In a recent articlein BusinessHistory, Bill Massand I haverecognized the importanceof makingthe Japanesecomparison for cottontextiles [16]. At the sametime we haveclaimed that a correctunderstanding of the sourcesof international competitiveadvantage in the Japanesecotton textile industry only reaffirms our argumentsconcerning the growingimportance of collectiveorganization in successfulcapitalist development. Indeed, we argue that, in historical perspective,what happenedin the Japanesecotton textile industry between about 1890 and 1930 was nothingless than "the first Japanesemirade"--a transformationcharacterized by virtuallyall of the institutionalfeatures to which scholarshave attributedthe post-WorldWar II Japanesemiracle. Whether in Japan or elsewhere,central to successfulcapitalist developmentin thetwentieth century is the innovative business organization--a businessorganization (and not necessarily simply a businessfirm) that has the concentratedeconomic power and collectivized social structures necessary to generatehigher qualityproducts at lower unit costs. In my book,Business Organizationand the Myth of theMarket Economy, I elaboratethe conceptual, theoretical,and historicalframework for making the innovativebusiness organizationcentral to the analysisof the wealthof differentnations [13]. Resurrectingneglected insights of not only Karl Marx, but also and (especially),the book details how mainstreameconomists elaborated "the myth of the marketeconomy" even as, in termsof successfulcapitalist development, such an economyceased to be a reality. One sectionof the book especiallyof interestto businesshistorians showshow AI Chandler'shistorical analysis of the causesand consequences of the modernbusiness organization differs markedly from that of Oliver Williamson[13, ch. 6-7]. An intellectualcaptive of individualistideology and staticmethodology, Williamson analyzes the structureand performance of the modern businessorganization in terms of deviationsfrom a market- coordinatedideal rather than in terms of a dynamicprocess of collective organizationthat hasrendered the market-coordinatedideal a myth. I argue 10

that it is a myth that, to maintain logical coherence,requires individualist ideologyand staticmetholodogy. It is a myth that requiresthat economists ignore the comparativehistory of businessorganization and capitalist developmentof the pastcentury. Whichbrings me backto the questionI raisedat the beginningof this talk: What canbusiness history do for economics?In termsof scholarship, the answer is obvious. The work of business historians can enable economists to comprehendhow the economyworks. I offer myselfas a livingexample that it canbe done! Of course(as I fearyou now know only too well), I have had my own peculiarhistory. Long ago I chosenot to swim in the mainstreambut to plungeinto the historicaldepths. Are there mainstream economistsout there who are readyto divebelow the surface? Perhaps. To stretch the aquatic metaphor, a flood of industrial innovation across the ocean has muddied some intellectual waters at home. The successof Japanhas raiseddoubts in the minds of some prominent mainstreameconomists concerning the generalapplicability of neoclassical economictheory. For example,in a recentBusiness Week column, Princeton economist Alan Blinder observed:

Much has been written aboutJapan's formidable challenge to Americanindustrial preeminence, But the amazingJapanese economyposes another challenge--one that has been barely noticed. I refer to Japan'schallenge to receivedeconomic doctrine. Statedbriefly and far too boldly,the Japanesehave succeededby doing everythingwrong (accordingto standard economytheory). That shouldmake economic theorists squirm [1, p. 211.

After citinga hostof so-called"market imperfections" in the operation of theJapanese economy--everything from cartels to permanentemployment-- Blinder commented:

All in all, economistsweaned on Western economicthought mustconclude that Japandoes almost everything wrong. Such a litanyof errorsshould cost them dearly. Yet Japan'seconomy is a dynamo. How do they do it?

Americancapitalism rests on a grandtheory begun by Adam Smith. Thereis no comparabletheory of Japanesecapitalism, but we needone if we are to formulatean intelligenteconomic policytoward Japan. The Japanesethemselves seem less concernedwith conceptualizationsthan with results.So, we may have to producethat theoryourselves.

Blinder'sconventional eyes are onlypartly opened. Before American economiststake up thechallenge of producinga theoryof Japanesecapitalism that will permitthem "to formulatean intelligenteconomic policy toward Japan,"they mustproduce a theorythat can comprehendthe evolutionof 11

managerialcapitalism in the United States.The standardeconomic theory to whichBlinder refers is not onlywrong for Japan,it is wrongfor the United States.When the historiesof capitalistdevelopment in both the United States and Japanare properlyunderstood, the institutionsof plannedcoordination that have been responsiblefor Japan's rise to internationalindustrial leadershiprepresent less a departurefrom U.S. experiencethan a more thoroughgoingelaboration of thebusiness institutions of plannedcoordination that had previouslybrought leadership to the United States. Economistssuch as Blinder would learn much by studyingthe business historyof the United States. In discoveringhow the American economy works,the conventionallytrained economist would find that he or shehas to let go of a substantialamount of receivedeconomic theory. For the conventionallytrained economist actually to addto our knowledgeof howthe American economyis evolving,he or she would have to acquire a new methodologicalexpertise. In other words,significant intellectual investments wouldhave to be made and significantintellectual constraints would have to be overcome. The work that we, as businesshistorians, are doing makes this intellectualtask possible. But, aswith anyattempt at innovation,the problem is notjust to developnew products--in this case comparative business history-- but also to diffusethese products to thosewho can make use of them. If businesshistory is to have an impacton economics,our comprehensionof historyneeds to be diffusedto economists.If suchintellectual innovation is one of our goals,then we, as a group of businesshistorians, have to think about how we can influencethe processof diffusingthe facts,the concepts, the methods,and the messagesthat we have to offer. The media for diffusionare not necessarilyin place. Many major economicsdepartments in the United Statesno longer offer coursesin conventionaleconomic history, let alonebusiness history. My ownvery recent experienceat Columbiais a case in point. Since taking up my present appointmentas a professorof economicsat Barnard College of Columbia Universityin the mid-1980s,I taught a graduatecourse in economicand businesshistory in the Columbiaeconomics department. Although the Columbiaeconomics department had not hasits own full-timeAmerican or European economichistorian for years, it has continuedto require that graduatestudents complete a coursein economichistory. In the wakeof the recentbudget crisis at Columbia,the economicsdepartment eliminated almost all coursestaught by Barnard faculty,including my own. I wrote to the chairmanof the Columbiadepartment inquiring how graduate students in his departmentwould fulfill the economichistory requirement. I shouldhave expected the response;the following week the Columbia economics department considered a proposal to abolish the economic history requirement. Nor can studentsof economicsnecessarily find coursesin business historyin historydepartments. It wouldbe usefulto have a surveyof the historydepartments in whichbusiness history is offered. I know that, now that Stuart Brucheyhas retired from the Nevinschair, the Columbiahistory departmentwould no longerbe one of them. Nor is the chair likely to be 12

filled in the foreseeablefuture. The Columbiahistory department, like many historydepartments around the country,seems to have an aversionto the analysisof howgoods and services have been produced and how people have made a living. The other possibilityfor the teachingof businesshistory, and one that offersmore scopethan historydepartments for integratingbusiness history witheconomic analysis, is businessschools. My ownintellectual life hasbeen incrediblyenriched through my associationwith the businesshistory group at the HarvardBusiness School over the pastseven years. As mostof youknow, "The Coming of Managerial Capitalism"is one of HBS's most popular electives,in part becauseof great material and .in part becauseof great teachers. It is easier to diffuse the material than the teachers. But it seems remarkableto me that the enormoussuccess of businesshistory at HBS has not led to a rushto businesshistory at businessschools in general. Again,a surveyof offeringswould be useful. But, once again, my experienceat Columbiagives me causefor pessimism.No businesshistory is taughtat the ColumbiaBusiness School. Two yearsago I was told that an assistant professorhad beenhired to teachbusiness history. He wasa veryintelligent Ph.D. in economicswho had really been recruited to teachinternational trade. His qualificationsfor teachingbusiness history, I wastold, couldbe foundin somegraduate course papers he had written on the Irish potatofamine! Somethingelse troubles me. At the HarvardBusiness School, business historyis strongnot only becauseof the material and teachersbut also because,long before even A1 Chandler arrived, there happenedto be a tradition of businesshistory, complete with a journal and a postdoctoral fellowship. Clearly the businesshistorians at Harvard have taken superb advantageof the opportunitythat the existenceof this traditioncreated. But I have often wonderedwhether, in the absenceof sucha tradition and hence the absenceof businesshistorians, anyone with controlover the allocationof resourcesat a placelike the Harvard BusinessSchool would see fit to invest in the teachingand researchingof businesshistory. Largelybecause of the limitedextent to whichthe Harvardsuccess in businesshistory has diffused to otherbusiness schools that indeedlack sucha tradition,I havea nagging feelingthat the answeris no. My pessimismmay be ill-founded.If there is anythingthat makesme optimisticabout the possibilitiesthat businesshistorians can changethe way people--includingeconomists--think about the economy,it is becauseof the researchpresented at and the people who attend the BusinessHistory Conference. The BusinessHistory Conferencehas brought together academicsfrom differentdisciplines and with differentperspectives. Here economistsand historians,as well as politicalscientists and sociologistsdo cometogether. Increasingly,research in businesshistory has become well- integratedwith researchin labor history,history of technology,history of science,political history, intellectual history, and eveneconomic history. A highlightof thisyear's meetings has been a discussionof howthe analysisof genderrelates to businesshistory. As I haveindicated, I believe that we face formidablechallenges in making the fruits of our labors more widely accessibleand the implicationsof our researchmore widely debated. But it 13

is the existenceof a communityof scholarssuch as we havehere that makes me optimistic.

References

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