A triumph of ‘competitive managerial capitalism’? Evaluate Chandler’s ‘visible hand’ thesis with reference to the rise of US business and economy from the late nineteenth century.
The Chandler thesis of the ‘visible hand’ is a play on the metaphor of economist Adam Smith of the ‘invisible hand’ of the market forces of demand and supply, which were always accepted to allocate resources in a perfectly competitive market. Up until Chandler’s ‘The Visible Hand: The Managerial Revolution in American Business’ (1977), the invisible hand which describes the self regulatory nature of supply and demand was used to coordinate flows of goods through existing processes of production and distribution, and to allocate funds and personnel for future production and distribution (Chandler, 1977). It was the transition to the internalisation of business functions and departmentalisation of booming firms during the rise of US businesses and the economy that led to the growth of competitive managerial capitalism in the late nineteenth century. Chandler’s thesis was effectively laid out by eight propositions, all of which related to the industrial boom in the United States from the middle of the 1800s, through to the turn of the century, a boom which was instigated by the construction of the railroads. The railroads were regarded as the first modern business enterprises and fitted into what Chandler named the M-Form (multi-divisional form). Because the railroads spanned the whole of the USA, Chandler (1977) explains how engineers formed companies to build the railroads during the railroad boom of the 1940-50’s, contracting smaller units (who became so big they turned to sub-contracting ) to perform each of the tasks that would have been carried out originally by one company. The first proposition is that modern multiunit business enterprise replaced small traditional enterprise when administrative coordination permitted greater productivity, lower costs and higher profits than coordination by market mechanisms (Chandler 1977), and the expansion of the railroads fits perfectly into this proposition, with each geographical station along the tracks acting like the first separate business units. The railroad boom which started in the 1840s was seen by many as the vehicle of managerial capitalism up until the 1870s, and by 1890, railroads carried 79.2 billion tonnes of freight over 163,596 miles of track operated by about 750,000 employees (Chandler and Tedlow, 1985). The expansion o f the railroads of course allowed for the expansion of every other industry in the country, but also for the spread of the population. In 1810, 54.6% of the population was concentrated in the Northeast of the country, but by 1860, the population had grown in size from around 7 million to over 31 million people, and the concentration of the population living in the Northeast had fallen to 36.5% (Chandler and Tedlow, 1985). Within the growing national population there was a huge growth in the urban population, with cities like New York, Philadelphia, Boston and Pittsburgh (especially due to the rich veins of anthracite coal in Pennsylvania (Chandler, 1977)) seeing massive industrialisation, with steel and iron works being established to cope with the demand coming from the railroads and other construction which was required as a result of the boom in business across the country (Gordon, 2012). With a newly developed infrastructure to transport raw materials, consumer goods, and, perhaps most importantly, labour, America prospered throughout the late 19th Century, and after seeing what Chandler describes as the M-Form (multidivisional form) of the railroads, entrepreneurs and business men began to adopt this organisational structure and soon found what Chandler calls his second proposition: advantages of the internalization of business activities could not be realised until a managerial hierarchy is created (Chandler, 1977). Without a clear hierarchy or...
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