Alfred Chandler 8 Propositions

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ALFRED CHANDLER, THE VISIBLE HAND BACKGROUND AND STUDY POINTS The US valorizes the free market and entrepreneurial skill, but capitalism is not the same in every country. Each nation has had its own path to industrial development. The American path was distinctive. First, the size of the country provided an opportunity to entrepreneurs simply unavailable to their competitors in England, France, Germany, or Belgium. The challenge was to develop the means to deliver products to customers all across the US. Once that could be achieved, the volume of production would lead to a rapid decline in unit prices and high profits based on quality goods becoming more affordable. Second, family ownership proved to be less important in the overall than the development of a management cadre. A national economy in the US encouraged the development of large-scale firms that far exceeded the ability of any one person or any family to run. An administrative sector emerged that looked at the firms within which they worked from a different perspective of the owners. The key question was: How to develop predictability? The answer seemed to be to increase the scale and scope of production and marketing, both possible within US boundaries with a relatively large population earning relatively high wages. The managerial revolution was backed up by development of a national government in which courts and regulatory agencies became the most powerful instruments of economic policy. Chandler details three features essential to realizing the full potential of the U.S. national market: First, the emergence of the railroads and their extension, with government subsidy, across every state. Secondly, the development of national marketing firms that because of the expansion of the transportation system could jump into every regional market within the country and compete with local merchants by offering goods at lower prices. Third, marketing led to the development advertising and the organization of national media, whose primary purpose was to sell the products of advertisers. Mass-circulation periodicals emerge first in the 1890s, growing each decade thereafter until the 1950s. Editorial copy and advertising and ultimately the advertising most important. Along with newspaper chains and national magazines, there developed national books, lecture circuits, films, and after 1920 radio markets. The national media linked every community and allowed Americans to think of themselves as being effected directly by events in other parts of the country. National politics increasingly became as important as state and local politics, and indeed the nation seemed to be the place where the most pressing problems should be addressed, even though the constitutional structure at the federal level had been designed to frustrate the development of a strong central power.

Chandler argues that the modern business enterprise of the late 19th and early 20th centuries sought to protect itself from the free play of market mechanisms by coordinating the activities of the economy and allocating its resources. The formation of trusts and cartels was one strategy (what came to dominate capitalism in Germany and Japan), but the American approach favored what Chandler calls the “visible hand” of management. Managers developed techniques for the organization of resources, the evaluation of costs and outcomes, as well as methods for predicting how controlling variables will affect the process, the end product, and the bottom line. If it sounds like engineering, that’s because the first truly national enterprises were railroads and they were started by engineers, not by men with expertise in either production or sales. They adapted the principles they had learned in construction to the modeling of business problems, and the pioneers of the American railroad repudiated the tried and true customs that had governed English and American commerce since the 17th century. Chandler presented eight...
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