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Chapter 1

An approach by geographic areas of the diffusion processes of managerial practices

Chapter 2

An approach by point of interest: technique, branch, sector, company

Chapter 3

Disseminators of doctrine, authors and tenets of management

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Preface

Comparative Business History of Europe, America and Japan in the Twentieth Century

  • Leslie HANNAH

    London School of Economics

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A Keynote Address at the Maison Française conference, Oxford, 2011[I am grateful to members of the audience at the Maison Française, several of whom helpfully corrected some errors and made helpful suggestions for additions in the discussion.]

 

                      By being here, this audience demonstrates an interest in the idea that we can learn more about any country if we view its history in the mirror provided by the history of another. “What should they know of England, who only England know” strikes a responsive chord in most of us (though possibly not the one that Kipling was trying to strike) and England is hardly unique in this respect. Yet, I confess, I was a narrow national historian for longer than I should have been and I am a relatively late convert to global history. The catalyst in my case was my appointment in 2004 to a position as Professor of Economics at the University of Tokyo. That introduced me to many Japanese scholars whose comparative tastes were largely sated by understanding a large and significant country like the USA. Moreover, student patience with a European professor attempting to explain a more complex continental Union of 27 separate countries was very distinctly limited. A simplification of the characteristics shared by Europe’s separate histories was clearly necessary.  We know that German, French and English are not mere dialects of a common European language, but if you try to learn Mandarin or Japanese, you get some idea of why they are sometimes treated as such by Asians!

                  More important in facilitating my comparative research, however, was my discovery that, after the Meiji Restoration, a few Japanese libraries began buying a high proportion of all books published in the US, UK, Germany and France as well as some from other European countries. The paradoxical result of this historical acquisition policy, driven by their urgently-felt need to “catch up” with western technology and culture, is that for someone undertaking the comparative history of business in the last 150 years, Tokyo is a better place than Washington, London, Paris or Berlin in which to start. For example, one can find copies of the pre-1914 industrial censuses of the US, France, Germany, Britain (and many other countries) and multiple commentaries on them in Tokyo, while you will have difficulty doing so in any one of the Library of Congress, Staatsbibliothek zu Berlin, the Bibliothèque Nationale de France, or the British Library, each of which was then more nationally blinkered in its collecting policy.

                                       Many colleagues, with similar experiences of working and living in a foreign country, conclude that national cultures differ so profoundly and have such pervasive effects that comparative history must descend into the superficial, if it is not minutely informed about such contrasts. In this view it is essential to recognise the complex varieties of capitalism and industrial systems reinforced by national specificities and to recognise that apparent similarities may mask contrasting behavioural norms and different understandings. I should warn you that much of what I will be arguing here is precisely the opposite. The dominant view that all capitalisms are nationally specific is arguably a product of generations of historians who were preoccupied with a Europe (and a world) created by the nationalisms of the European civil war of 1914-1945 and the long and painful recovery from that dreadful aberration. In a more global society, which despite its present discontents, would be more recognisable to the cosmopolitans of pre-1914 than to many in the period in which I grew up, it is time for us to revisit the similarities of global societies and the surprisingly universal  origins of much of what we consider “modernity” in business. The widespread notion that the modern world’s dominant institutions were created by Anglo-Saxons, with a minor strain from “Rhenish” capitalism, is not sustainable. In order to advance this view, I will, of course, have to be highly selective, and I risk appearing to be half-blind. If you feel impatient with this, please bear with me and remember that I am deliberately closing one metaphorical eye (that which recognises cultural differences) to see with the other (which recognises our common humanity) more clearly.

                       Much business history writing has been driven by a “Whiggish,”[Nineteenth century “Whig” history was originally pilloried by Sir Herbert Butterfield in his classic, The Whig Interpretation of History, Bell, London, 1931. He warned against the tendency to assume that history consisted of a struggle between those who had succeeded in creating the perfect modern world known to late Victorian English Whig historians and those who opposed them, pointing out that writing history backwards had pitfalls and that outcomes were often not intended and might be the result of compromises between opposites as of one-sided victories. The complexities of evolutionary economics suggest many similar lessons in the economic history sphere.] Panglossian perspective on the achievements of global capitalism, which tells a story of US capitalism in the forefront of progress and Europeans hesitantly following. Aspects of modernity that seem triumphant in the modern world, such as the MBA programmes of business schools, are easily misunderstood in the historical context. It is common, for example, to read in the US literature of the pioneering of the modern business school by Wharton at the University of Pennsylvania in the 1880s, though very similar developments were occurring not much later at Birmingham in the UK, and, as an audience familiar with French culture will well know, the grandes écoles were considerably older and, initially at least, clearly more academically distinguished. An Asian perspective on such pioneering is a helpful corrective to western views, because the Japanese were preoccupied not with interpreting the past but with creating a future, by taking the best of western experience.

                But, ex ante, it was not easy for them to see what to copy. We tend to emphasise such matters as joint-stock company organisation, modern machine technology and steam (later electrical and diesel) power systems for transport and industry, which certainly fascinated the Japanese, but they were convinced that cultural institutions were also an ingredient in western success. Among the things earnestly discussed by domestic reformers were whether adopting the Christian religion or a ban on nude bathing in public (the latter actually enforced by urban police on startled Japanese bathers in one “modernising” initiative) would help catch-up with the west. In this unseeing and often indiscriminate but enthusiastic ferment of adoption of western ideas it was hardly an exotic deviation to conclude that explicit teaching of business in a specialist school might be one of the pathways to capitalist progress in the west. Thus the Iwasakis (owners of Mitsubishi) and the Mitsuis sent their offspring to do the (very similar) commerce degrees at Wharton and Birmingham.[It would be interesting to know how they viewed the grandes ecoles, which arguably were better established and arguably more relevant, though the most impressive developers of Japanese commercial education appear more influenced by the German tradition of Betriebswirtschaftslehre, see Tamotsu Nishizawa, “Business Studies and Management education in Pre-war Japan: a Comparative Perspective, 1880s-1940s,” Entreprises et Histoire, 65, Décembre 2011, pp. 43-59.] In fact at that time a high proportion of both student bodies at these western schools were Japanese,[Stephen A. Sass, The pragmatic imagination: a history of the Wharton School 1881-1981, Pennsylvania University Press, 1982; Shirley Keeble, The Ability to Manage: a study of British Management, 1890-1990, Manchester University Press, Manchester, 1992, pp. 100-03; B. M. D. Smith, A Hundred Years of Business Studies at the University of Birmingham, Birmingham University, 2002; G. C. Allen, Appointment in Japan, Athlone Press, London, 1983, pp. 1-2.] for, of course, rich American and British businessmen were more likely to send their sons to read gentlemanly subjects like classics and history at Yale or Oxford than patronise such innovative, practical institutions. The Mitsuis and Mitsubishis were not alone in their respect for targeted education, however, and, while not developing along the same lines as American business schools, Japanese training in and recruitment from universities and colleges of commerce soon developed formidably.[Nishizawa, “Business Studies.”]

                        A similar prompt to the historian to look more carefully at overdrawn perspectives on “modernity” driven by hindsight rather than based on historical reality, can be seen in the proceedings of the many academic conferences and prize juries at the Paris Exposition Universelle of 1900. We have already heard of the genius behind the world fair, Albert Picard from Eugénie.[Reference to her article in this volume?] My own favourite vignette here is found in the compte rendu of the architecture jury, when faced with the rich variety of architectural forms then being experimentally generated in America and Europe. The exhibitors, attendees and jurors were, of course, very cosmopolitan in this, the greatest international gathering for many decades, but, inevitably French influence was strongest.[The best guide to the background of the 1900 discussions is Albert Picard’s multi-volume Le bilan d’un siècle 1801-1900, Paris, 1906. Some hundreds of volumes on the exhibits and proceedings are available in the Bibliothèque Nationale, including Picard’s Rapport générale administratif et technique, Exposition Universelle International de 1900, Paris, 1902-3.] The jury was very impressed with the 20-storey building which a New York architect was constructing on Broadway (a building which can still be seen). It is hard for us to credit that Frenchmen (in an age when the Tour Montparnasse is still Paris’s awful reminder of what a skyscraper can do to Haussmann’s Paris) had a clearer understanding of Manhattan’s future than contemporaries in America, but this was, of course only ten years after Eiffel’s triumph at the previous Paris exposition in demonstrating the potential of elevators and modern steel structures. Yet when the French-dominated jury decided to award the gold prize to the New York skyscraper for its commercial practicality and innovative technology, a pained voice of strong dissent came from the representative of the American Architectural Association. Give the prize to that monstrosity, he warned the jury, and more and taller buildings of the same kind inevitably would be erected: Manhattan’s glorious skyline would be ruined for ever! He wanted his French colleagues to strike a blow against the advancing skyscraper monstrosities. Eventually he persuaded the jury to downgrade it from gold to silver, though, of course, it was not this modest plaudit, but Manhattan land prices and innovative architects that ensured the unimaginative American would be ignored in his own country. Fortunately Manhattan’s skyline was “ruined,” to become one of the wonders of the twentieth century world. Such incidents are invariably forgotten in “upward and onward” narratives of America’s commitment to modernity, contrasted with “Old Europe’s” stuffy conservatism.

                                                                                          

 

                                     We have in the audience one of the pioneers of doing comparative business history properly, Youssef Cassis, who showed, in his book Big Business[Big Business: The European Experience in the Twentieth Century, OUP, Oxford, 1997.] that Alfred Chandler, the doyen of business historians, had in his classic of comparative history, Scale and Scope,[Alfred D. Chandler, Jr., Scale and Scope: the Dynamics of Industrial Capitalism, Harvard University Press, Cambridge MA, 1990.]completely misjudged the scale, scope and management characteristics of German relative to British enterprise. It is now even clearer why Chandler went so badly wrong also in his treatment of American relative to European enterprise: he adopted the stance of writing history with “Whiggish” hindsight. There is no doubt that by the middle of the twentieth century American corporations were larger and, on average, better managed than European ones. They also tended to have larger professional management hierarchies, while family ownership and management, though still found, had declined in the US in favour of more meritocratic selection and promotion procedures. This he felt must be the reason why the British fell behind, so he proceeded to trace back a lot of “evidence” on family ownership, unprofessional management, poor efficiency and low growth in British companies before 1914 (while finding that Germany more resembled the US), triumphantly concluding that he had unlocked the key to success in the twentieth century path to business modernity. Yet whether we examine the divorce of ownership from control, the degree of multinational investment, or many other aspects of the “modernity” of large enterprise before 1914, the evidence turns out to be the opposite of what Chandler asserted or, at least, rather more nuanced.[B. W. E. Alford, “Chandlerism: the New Orthodoxy of US and European Business History,“ Journal of European Economic History, 23, 1994, pp. 631-43; Leslie Hannah, “Strategic Games, Scale and Efficiency, or Chandler goes to Hollywood,” in Richard Coopey and Peter Lyth, eds, Business in Britain in the Twentieth Century, OUP, Oxford, 2009, pp. 15-47.] It is difficult today to find any serious student of international comparison who takes Chandler’s rather than Cassis’s view. I mention Chandler because he was obviously a great and original thinker in the field, so we should not be surprised if lesser writers share his vices.

                  His is simply the best known case of the “Whig” error in business history. Whig history, as practised by Victorian historians was, of course, first pilloried by the political historian Herbert Butterfield in 1931, but it is alive and well in America today. Indeed it is a universal human trait. Yoshiro Miwa, for example, has shown how the prevailing narrative of the genius of the Ministry of International Trade and Industry in steering Japan’s post-war industrial miracle can only survive with highly selective story-telling and a willingness to ignore its multiple planning failures (not to speak of its inability to explain Japan’s post -1990 stagnation).[Yoshiro Miwa, State Competence and Economic Growth in Japan, Routledge, London, 1998. See also Yoshiro Miwa and J. Mark Ramseyer, The Fable of the KeiretsuUrban Legends of the Japanese Economy, University of Chicago Press, Chicago, 2006 for a fresh perspective on some misconceptions about Japanese exceptionalism widely believed in the West and in Japan.]

                             Financial historians have shown similar biases. It is difficult for modern Americans (and, indeed, some modern Frenchmen)[Michel Albert, Capitalisme contre Capitalisme, Seuil, Paris, 1990.] to accept that Anglo-Saxon capitalism – at least that represented by Wall Street’s equity markets – was in many respects more developed in Paris and London than in New York before 1914. This did not prevent American historians advancing complex explanations of why the opposite must be true (they readily assumed with Wall Street financiers that the latter had always led Europe).[It was seriously claimed in one volume published by (the American branch of) Cambridge University Press only a few years ago that “the capitalization of U.S. stock markets has always been significantly greater than that of any other nation” (Alfred D Chandler and Bruce Mazlish, eds, Leviathans: Multinational Corporations and the New Global History, CUP, New York, 2005, p. 205). For more accurate (though still disputed and inconsistent) views, suggesting that France - not to speak of the UK - was probably more securitized than the USA before 1914 see  Raghuram J. Rajan and Luigi Zingales, (The Great Reversals: the Politics of Financial Development in the Twentieth Century, “ Journal of Finance, 69,1, July 2003, pp. 5-50 ; Youssef Cassis, Capitals of Capital: A History of International Financial Centres, 1780-2005, CUP, Cambridge, 2006; Richard Sylla, “Wall Street Transitions, 1880-1920: from National to World Financial Centre, “ in Youssef Cassis and Laure Quennouëlle-Corre, eds, Financial Centres and International Capital Flows in the Nineteenth and Twentieth Centuries, OUP, Oxford, 2011, pp. 161-78] For example, Bradford De Long, in what is one of the most cited articles in economic history, shows that bankers at J P Morgan developed a method of “information signalling” in the period 1880-1914, which investors could rely upon, thus promoting the development of the NYSE and the greater divorce of ownership from control. He was, De Long explains, able to do this partly because his firm was so large that he could not risk cheating customers, as London bankers would be tempted to do, because their market share was so small. Any Parisian or London banker familiar with American finance at that time magically transported from that era to the present would simply have laughed at De Long’s misconceptions. Almost all elements in his fantasy are false. Morgan was not especially large by European standards: Credit Lyonnais employed 500 “information signallers” (research analysts) alone in its Paris headquarters at a time when Morgan’s total employment in America was only 225; and the Rothschilds had both more capital than Morgan and a century’s experience of securities offerings in which their reputation counted formidably.[Marc Flandreau and Juan H. Flores, “Bonds and Brands: Foundations of Sovereign Debt Markets, 1820–1830,” Journal of Economic History 69, Sept. 2009, pp. 646–84; Leslie Hannah, “J. P. Morgan in London and New York before 1914,” Business History Review, 85, 1, Spring 2011, pp. 113-50.] Our hypothetical time-travelling bankers would have well understood why information was considered a problem in America (after all a high proportion of US industrials did not even publish accounts, while this was almost unheard of in large firms quoted on Europe’s bourses), but would have needed some convincing that Morgan was the solution, when he had been involved in two of the most disastrous investments to be offered in Europe in the early twentieth century: International Mercantile Marine and Amalgamated Copper. Of course they were impressed by the rapid growth of the NYSE before 1914, but they were also perfectly aware that this was growth from a position of backwardness compared with the well-developed bourses of Europe.

                                                                                      

 

                              This is beginning to sound like an anti-American diatribe, but that is not my purpose I am, in fact, a great admirer of most things American, and, indeed most of the rest of Chandler’s and de Long’s work. There is no doubt that much of what these historians erroneously saw in the pre-1914 years did happen later. American management did markedly improve and develop economies of scale and scope and learning organisations more impressively than Europeans. The NYSE did overtake London and Paris in the interwar years and, with the help of the Securities and Exchange Commission cleaned up aspects of poor information signalling.

                 In contrast to the over-exuberance of American singing the praises of their own country, Europeans have done a poor job of criticising themselves, partly because they have been inclined to underestimate their own potential and see America’s rise as inevitable. In particular business historians have largely failed to explain how disastrous was the period of repression of finance and trade and the emasculation of corporate growth that afflicted Europe in 1914-45. That was a period in which organisational capabilities were increasingly developing within firms which developed learning routines and applied them widely. In American firms they were free to do so. In Europe, by contrast, that potential was substantially suppressed by war and increasing nationalism and protectionism. Nothing illustrates that process of the disintegration of the European market more clearly than Oxford Street and Bond Street, London’s shopping centre. In 1914 it was stuffed full of European wares -a Renault car showroom, a German piano manufacturer, a Russian jeweller – but by 1939 it reflected the more purely British sourcing of such goods which had become the norm. Much the same happened in continental Europe: with, for example, Siemens hold on the French electrical market and St Gobain’s hold on the German market being substantially reduced. It was not just “le défi Americain” which weakened Europe’s organisational capabilities but Europeans’ own stupidity in pursuing a thirty year civil war which destroyed people, property, institutions, trust and trade.

                                Along with this goes a grotesque misclassification of the relative strengths of some European firms. Chandler, for example, greatly underplays the role of Solvay in Belgium as the key player in the development of alkali technology in Germany, Britain and the United States and thus quite fails to pick up that Solvay felt British-based Brunner Mond was the most impressive if its licensees, borrowing both finance and expertise from the British firm to develop its US licensee, American Solvay (which Chandler portrays as more developed). We hear from Chandler a great deal about the professional management of Du Pont in the early twentieth century (despite the fact that it was a small unquoted fourth-generation family partnership, licensing Swedish technology and running some weak explosives cartels), but stock market analysts around 1900 would have been very surprised to hear this. It was perfectly clear to them that the Nobel Dynamite Trust headquartered in London and the equivalent Latin Trust in Paris were larger and had more developed organisational capabilities and professional management in the explosives industry. And to such contemporary analysts the name Du Pont meant either the professional banker and chairman of the Mines d’Anzin (one of the world’s largest coal mines that already had about the same market capitalisation as the American Du Ponts were to achieve ten years later when they ventured onto the NYSE) or the promising private company E Dupont & Cie, the Beauvais-based manufacturer of toilet articles (later part of LVMH), with already 3,000 employees in its world-wide business at the time America’s Du Pont was reaching larger scale within the USA. What really ratcheted up the American Du Pont from its already impressive but slow incremental growth and developing managerial skills to its later technological leadership and global dominance was its exports of explosives after 1914 to Europeans then willing to pay anything for their mutually assured destruction and unable to extract themselves from the hell on earth that they had created. Du Pont’s sales increased from $25.2m in 1914 to $318.8m by 1916, providing unprecedentedly high profits to reinvest in multiple artificial fibre innovations, enabling the company to challenge European leadership in these and other chemical products![Science and Corporate Startegy: Du Pont R & D, 1902-1980, CUP, New York, 1988, p. 12.]

 

                                                                         

 

                             The important general point is that these American errors are simply egregious examples of what most business historians most of the time are tempted to do, which is to judge businesses policies and choices with the benefit of hindsight. To some extent this is inevitable and even desirable. Life is too short to consider every possible interpretation of every possible event (and one sometimes suspects that “critical business historians” and post-modernists venture too far in that direction) and one will often be right in assuming that what we now see in the economy is quite appropriate and efficient. It is possible to design a car with a tiller rather than a steering wheel, with three wheels rather than four, with square wheels rather than round - and so on - but the historian will not go far wrong if he assumes that the experimentation which has led most cars to abandon tillers and have four round road wheels probably tells us something useful about optimal car design. Yet it is a step too far also to claim that Henry Ford in 1910 in Detroit not only got all of these but many other points right in building the Model T in his new Highland Park plant and that his genius explains the success of the Ford Motor Company or why French producers who led Europe and America a decade earlier performed less well.

                         Such outcomes have complex determinants. One very simple one is that France was more dependent than America at that time[But not today: the US now sends a higher proportion of its freight by rail than Europe (the contrary impression believed by many applies only to passenger trains).] on railways, while America depended more on horses. Naturally the American market for “horseless carriages” was bound to be larger than in Western Europe, which used horses less and so had a smaller market for automobile manufacturers to win.[Leslie Hannah, “Logistics, Market Size and Giant Plants in the Early Twentieth Century: A Global View,” Journal of Economic History, 68, 1, March 2008, p. 51.] Replacing trains rather than horses was also possible (indeed it eventually happened on both sides of the Atlantic) but replacing horses, carts and carriages by cars and trucks was simpler and (for consumers, manufacturers and service stations, if not for government road-builders) cheaper.  Technology is fickle and “modernity” is not always an advantage in promoting it: on the contrary America won out in this market partly because it used horses more than trains.

                    What good business historians do is examine very carefully both the environment and the decision-making to come to critical conclusions about the role of the different factors. They may have been sufficiently impressed by the results of market competition to consider it likely that the observed outcome generally had some advantages over what was rejected, but they are remiss if they do not also ask whether special factors – demand conditions, pre-existing skills, or some other factor - tipped the market balance one way when other outcomes might have been possible. The debate on the “QWERTY” keyboard is a salutary reminder of the difficulties of doing this properly, and of why it must, nonetheless, be done.[Paul David, “Clio and the Economics of QWERTY,” American Economic Review, 79, 2, May 1985, pp. 332-7; Stan J. Liebowitz and Stephen E. Margolis, “The Fable of the Keys,” Journal of Law and Economics, 33, 1990, pp. 1-25.] Only by adopting a critical and open-minded stance can historians avoid the obvious errors that led business school professors confidently to assert in numerous published case studies that Enron had invented a quite new and weightless way of doing business which was a model for others to follow.  It would be a good idea if all historians and all MBA students were forced to read those obviously misguided case studies and the teacher’s guides which accompanied them, though for obvious reasons it is now harder to get hold of such material than it was when they were being enthusiastically peddled! Historians are luckier in having failures and mistakes more fully documented though they often fail to pick up such signals.[Patrick Fridenson, “Business Failure and the Agenda of Business History,” Enterprise and Society, 5, 4, 2004, pp. 562-82; Tim Harford, Adapt! Why Success always starts with Failure, Farrar, Straus and Giroux, London, 2011.]

 

                                                                                        

                            I hope I have persuaded you that the differences among the leading countries of the world in 1900 were not quite as sharp as they later became and that the globalisation that we discern today reversing that trend had many manifestations at the beginning of the twentieth century. I have possibly convinced you that we sometimes exaggerate international differences but I have probably not convinced you that national culture is quite unimportant. If you have a residual feeling that perhaps Americans did sometimes embrace modernity more enthusiastically than Europeans or perhaps the Japanese were wise to emphasise education and government industrial policy more enthusiastically than Europeans, you may not be entirely wrong. But as I began by saying, I am deliberately closing one eye in order to see with the other more clearly. I hope I have convinced you that the exercise is worthwhile.

 

POSTSCRIPT

 

In the discussion after the talk, the speaker was asked how he identified so many cases, questioning the conventional wisdom of “Whig” history written backward from the present, leading to the misinterpretation of early international differences. His answer was essentially to look at contemporary documents from as many countries as possible: historians could usefully stop reading each other and pay attention to contemporary sources. Comparative historians need to start out from a deep scepticism about the perspectives of today, and rather attempt to understand the options as they appeared at the time and why the constraints on achieving them were sometimes greater in some countries than in others.