Theory of the Growth of the Firm
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continuity in life of, 20–1
definition of, 8, 9 ff., 165
diversification of, 94 ff.
economic function of, 13–16
economic power of, 18–19
and economies of growth, 87–91
and economies of size, 84–7
equilibrium of, 10, 60
failure of, 22
industrial vs. investment company, 17–19, 187–8
limits to size of, 10–12, 16–17, 186–8
and managerial co-ordination, 13–21
measuring size and growth of, 18, 21, 22, 173–4
motivation of, 23 ff.; optimum size of, 2, 78, 87, 90
organization of, for planning expansion, 44–5
in price and output theory, 9 ff.; productive opportunity of, 28 ff., 47
size and efficiency of, 17, 78
size of, and division of labour, 63–4, 142
small firms, special position of, 189 ff., 201–2
specialization of, 63–6, 121, 132
in a theory of growth, 12, 36
trade in ‘businesses’ of, 152 ff.
Florence, P. Sargant, 43 n. 47, 61 n. 66, 63n. 69, 64 n. 72, 65 n. 73, 79 n. 91, 84 n. 98, 86 n. 99, 92 n. 107, 193 n. 218, 198 n. 223
Fortune, Editors of, 75 n. 89
Foulke, Roy, 112 n. 130
Galbraith, John K., 204 n. 226, 226 n. 264, 229 n. 268
General Mills Corp., 137, 109–11
General Motors Corp., 154 n. 185, 167n. 194, 168 n. 196
expansion and diversification of, 90, 105–9
George, Edwin, 220
Goldberg, L., 210 n. 234
Goldstein, 217 n. 246
Gordon, Robert A., 15 n. 15, 161 n. 187
Gott, Rodney C., 113 n. 131
Great Britain, 221
Growth, biological theories of, 2
curve of, 70, 186–8
economies of, 87–91
and environment, 179–80, 189–91
meaning of, 1
and size, 1
testing theories of, 3
Haigh, Robert W., 129 n. 150, 130 n. 152, 131 n. 153
Harrod, R. F., 43 n. 48
Hart, A. G., 56 n. 64
Hart, P. E., 217 n. 246, 221 n. 252
Heller, Walter W., 56 n. 64
Herner, Meyer and Co., 120 n. 142
Hertz, David B., 75 n. 89, 101 n. 119
Hicks, J. R., 10 n. 8, 36 n. 40
Hocking, D. M., 210 n. 234
Houghton, M. F., 213 n. 241
Hutner, Frances G., 33 n. 36
Illinois McGraw Electric Co., 110 n. 127, 137
Indivisibility, 61–3
and diversification, 63n. 69. See also Economies of size Innovation, and acquisition, 211
and barriers to entry, 204–6
and business cycle, 214–15
and demand, 71–5
and diversification, 98–102
and monopoly, 100
and productive services of firms, 73–5
Interstices, and barriers to entry, 202 ff., 208–9
and business cycles, 214–15
and comparative advantage, 197–200
in a growing economy, 196–7
and limits on rate of acquisition, 212–14
and merger, 209–11
as opportunities for small firms, 194–6, 208–9
Investment, and competitive conditions, 116–18
expenditures for, as costs, 198. See also, Capital requirements
Jewkes, J., 102 n. 121
Kaldor, N., 12 n. 12, 15 n. 16, 92 n. 107
Kalecki, M., 11 n. 10, 51 n. 60
Kaplan, A. D. H., 62 n. 68, 75 n. 88, 193n. 218, 205 n. 257, 227 n. 265
Knauth, Oswald, 205 n. 227
Knight, Frank H., 50 n. 57, 69 n. 77
Knowledge, and acquisition, 112
embodied in fixed capital, 70
and external world, 70
incentives to increase, 68–9
and productive opportunity of firm, 47, 67–9
and services of resources, 67–9
Kruisinga, H. J., 143 n. 173
Kuh, Edwin, 73 n. 85
Kuznets, Simon, 218 n. 249
Lerner, Abba, 79 n. 91
Lilienthal, David E., 43 n. 46, 205 n. 227
Lintner, J., 139 n. 166, 140 n. 167, 168, 141 n. 170, 171, 143 n. 174, 185 n. 215, 209 n. 233, 210 n. 238, 213 n. 240, 241, 220 n. 250
Little, Arthur D., 111 n. 129
Livermore, Shaw, 168
Machlup, Fritz, 79 n. 91, 80 n. 94, 202 n. 225
McLean, John G., 129 n. 150, 130 n. 152, 131 n. 153, 231 n. 271
Management, and acquisition, 112–15, 142, 166–70, 184–5
authority and responsibility of, 46
and changes in environment, 179–80
and character of expansion, 181–2
control, 24
and critical points in expansion, 142–4, 178–9
decentralization of, 46, 154
distinguished from enterprise, 28–9 n. 33, 30–1
economies, 82–4
experience of, 42–3, 47
growth in services of, 46 ff.; and knowledge, 67–9
and markets, 181–2
and planning expansion, 44, 46
and rate of expansion, 41 ff., 113, 175
role of chief executive, 42
significance of inherited, 44; ‘team’, 42, 53
and uncertainty, 52–4
and vertical integration, 128–31
Managerial diseconomies, 11
in static analysis, 49–50. See also Economies of size
Manchester Joint Research Council, 102n. 123
March, J. G., 29 n. 23
Market, and diversification, 98, 102–4, 118–20
and forward integration, 131
and problems of growth, 172–3, 179–80, 183–4. See also Demand; Competition; Selling efforts
Markham, Jesse, 136 n. 160, 209 n. 253, 210 n. 256, 211 n. 237
Marshall, Alfred, 79 n. 91, 226 n. 264
Marxian theory of concentration, 226 n. 264
Mason, E. S., 13 n. 13
Maurer, Herrymon, 26 n. 31, 42 n. 44, 205 n. 227
Means, Gardiner C., 230 n. 251
Meiklejohn, David S., 112 n. 130
Melman, Seymour, 177 n. 205, 178 n. 206
Merger, and monolopy or oligopoly, 210. See also Acquisition
Meyer, John R., 73 n. 85
Monopoly, appraisal of, 207
and control over price, 199
and empire-building, 163, 165–6
to encourage innovation, 204–6
and merger, 136, 148–9, 210
and sales programmes, 83
and technological competence, 116, 23
temporary nature of, 100
Morris, W. R. (Lord Nuffield), 34 n. 37
Newcomer, Mabel, 42 n. 44, 161 n. 187
Nutter, G. Warren, 209 n. 232, 210 n. 236
Optimum size of firm, 2, 78, 87, 90.
Osborn, Richard C., 198 n. 223
Ouweleen, H. W., 143 n. 173
Papandreou, Andreas G., 13 n. 13, 15 n. 15, 18 n. 18
Passer, Harold C., 119 n. 141
Patents, 208–9
Phillips, Almarin, 204 n. 226
Pound, Arthur, 168 n. 196
Prais, S. J., 217 n. 246, 221 n. 252
Proctor and Gamble Corp., 154 n. 185
Product, definition of, and diversification, 94–6
and concentration, 224
Productive opportunity of firm, and changes in knowledge, 46 ff., 67–71
definition of, 29, 98
and demand, 71 ff.
and expectations, 37–8
objective and subjective, 37–8
and resources of firm, 39–40
and selling efforts, 102
and static analysis, 50
Productive services, changes in, as firm grows, 181–2
creation of new, 69 ff.
creation
of unused, 60 ff.
and diversification, 99 ff., 125
and knowledge, 67–71
measurability of, 173–4
and merger, 113–14
and resources, 22, 65–6
and technological competence, 104
Profit motive, 23–6, 30–1
and dividend policies, 23–4
and entrepreneurial temperament, 30–2, 160–3
and growth, 26–7
and other objectives of firm, 27, 37
Profits, and calculation of costs, 198–9
rein-vestment of, 26–7
and risk-bearing, 54
Quinton, Harold, 26 n. 32
Research, appraising results of, 101–2
and competition, 93–4
importance of, 99–102. See also Knowledge; Productive services Resources, and diversification, 99
defined, 21–3, 60, 66
and demand, 69, 71–5
full use of, 60 ff.; heterogeniety of, 66–7
human, 22
indivisibility of, 61–3
and knowledge, 67–71
and merger, 114
physical, 21–3
and services, 21–3, 60, 66–7
significance of, in relation to environment of firm, 190–1
Risk, and demand for managerial services, 56
entrepreneurial response to, 50 ff.
as limit on expansion, 50 ff.
methods of reducing, 56–7
principle of increasing, 51, 54
and uncertainty, 11, 54 ff.
Robertson, D. H., 118 n. 139
Robinson, E. A. G., 61 n. 66, 67, 79 n. 91, 86 n. 99, 88 n. 103, 182 n. 211
Robinson, Joan, 2 n. 3, 22 n. 22, 202 n. 225
Rosenbluth, Gideon, 210 n. 235, 216 n. 244, 245, 217 n. 246, 221 n. 254, 255
Salter, W. E. G., 70 n. 79
Schenley Distillers Corp., 101 n. 120
Schmidt, Emerson P., 116 n. 137, 124 n. 146
Schmookler, Jacob, 54 n. 61
Schroeder, Gertrude, 174 n. 203, 186 n. 217, 215 n. 242
Schumpeter, Joseph, 33 n. 35, 74 n. 86, 100 n. 116
Scitovsky, Tibor, 217 n. 246
Selling efforts, and diversification, 102–4
economies in, 83
and forward integration,131
and market area of specialization, 97. See also Economies of size; Economies of growth; Market
Sherrard, Alfred, 72 n. 82
Simon, H. A., 15 n. 15
Smith, Caleb, 79 n. 91
Solo, Carolyn S., 99 n. 114
Specialization, and acquisition, 114–15
and diversification, 65, 97–8, 121
of resources, 62–63. See also Diversification; Firm; Resources Staub, Hans, 198 n. 223
Staudt, Thomas A., 75 n. 88
Steindl, J., 193 n. 218
Stigler, George, 21 n. 20, 135 n. 159, 210n. 236
Stocking, George, 220 n. 250
Stryker, Perrin, 47 n. 54
Sweezy, Alan, 25 n. 29
Taxation, and acquisition, 141–2, 155
and calculation of costs, 198 n. 223
and risky investment, 54 n. 62
Technology, and acquisition, 112 ff.
and big business competition, 204–6
and costs, 80–1
and demand, 71–2
and diversification, 92–4, 104–12, 114
andeconomiesof size,79–82;and knowledge, 67–71
as a production base, 97–98, 114 n. 135
Tennant, Richard B., 182 n. 212
Thorp, Willard, 211 n. 237
Triffin, Robert, 12 n. 12
Turvey, Ralph, 46 n. 53
Uncertainty, and demand for managerial services, 56
and diversification, 126–8
entrepreneurial response to, 51–2
and information, 52–4
methods of reducing, 56–7
and risk, 11, 50 ff.; unavoidable, 54
and vertical integration, 128
Unilever, 162 n. 190, 164 n. 191, 167 n. 195
United States, 94, 141, 165
concentration in, 217, 219, 220, 226–7
Department of Commerce, Office of Technical Services, 120
diversification of firms in, 97–8
Federal Trade Commission, 95, 133n. 156, 148 n. 181, 153, 216 n. 245, 219, 220 n. 250, 222 n. 257, 224 n. 261, 227, 228 n. 267
National Resources Committee, 19 n. 19
National Science Foundation, 100 n. 117
National Science Survey, 102 n. 122
Tax laws and merger, 144, 153
Temporary National Economic Committee, 63 n. 69, 95, 95 n. 109, 115 n. 136
United States Steel, 170 n. 200, 209
Vertical integration, and merger, 148, and saving on costs, 129–30
as means of diversification, 126–8
Wall Street Journal, 127 n. 148, 178 n. 208
Walton, C. W., 133 n. 157
Watson, Alfred N., 166 n. 194
Weston, J. Fred, 138 n. 162, 169 n. 198, 210 n. 236
Whitehead, Donald, 212 n. 239
Williamson, H. F., 118 n. 140
Wilson, Charles H., 3 n. 4, 162 n. 190, 167 n. 195
Young, Allyn, 64 n. 71
ALSO AVAILABLE FROM OXFORD UNIVERSITY PRESS
The Growth of the Firm
The Legacy of Edith Penrose
Edited by Christos Pitelis
‘Pitelis’s book opens our eyes to the variety of contexts in which Penrose’s theory of firm-level growth is applicable. . . Rereading Penrose (1959) after reading Pitelis’s book should result in a different learning experience for the reader, who will connect the dots between Penrose’s ideas and different research contexts more naturally.’
Yasemin Y. Kor and Joseph T. Mahoney, Academy of Management Review
CONTENTS:
1. On the garden of Edith:some themes— C. Pitelis
2. Edith Elura Tilton Penrose:life, contribution and influence—P. Penrose and C. Pitelis
3. Mrs Penrose and neoclassical theory—G. B. Richardson
4. The significance of Penrose’s theory for the development of economics—B. J. Loasby
5. Edith Penrose and economics—R. Marris
6. Hercules and Penrose—N. Kay
7. The growth of new ventures:analysis after Penrose—E. Garnsey
8. A theory of the (growth of the) transnational firm:a Penrosean perspective—C. Pitelis
9. Edith Penrose:economics and strategic management—N. J. Foss
10. Edith T. Penrose and Ronald H. Coase on the nature of the firm and the nature of industry—J. T. Ravix
11. Regional growth dynamics:a capabilities perspective—M. H. Best
12. Mismatching by design:explaining the dynamics of innovative capabilities of the firm with a Penrosean mark—M. Turvani
13. Innovation, profits and growth:Penrose and Schumpeter—J. Cantwell
14. The US industrial corporation and The Theory of the Growth of the Firm—W. Lazonick
15. Management competence, firm growth and economic progress—S. Ghoshal, M. Hahn and P. Moran
16. Edith’s garden and a glass half full:further issues—C. Pitelis
Available in paperback (9780199248520) and hardback (9780199244164) from www.oup.com.
* This introduction draws and builds upon earlier work by Penrose and Pitelis (1999) and Pitelis (2004, 2005, 2007a, 2007b). I am grateful to numerous colleagues for comments and discussion on earlier drafts, especially Mie Augier, John Dunning, Joe Mahoney, Robin Marris, Perran Penrose, David Teece, and Alain Verbeke. Errors are mine.
1 Chandler’s sum total for his three classic books, Strategy and Structure, The Visible Hand, and Scale and Scope (Chandler, 1962, 1977, 1990) is around 9,500. Nelson and Winter’s (1982) classic An Evolutionary Theory of Economic Change leads with around 12,000 citations—a remarkable record partly attributable to the more general scope of the book, as an alternative to neoclassical
economics as a whole.
2 This section is a slightly edited version of a text written by Perran Penrose, see also Penrose and Pitelis (1999).
3 See e.g. http://mises.org/story/2094 for one account.
4 There would only be a tenuous connection between this work and her subsequent work. However, the analysis includes the organization of the food industry and its tendency towards consolidation and collusion, ideas she later pursued in TGF (see below).
5 At her Ph.D. oral examination she was asked by Professor Clarence Long (who later became a US Congressman) to give a brief discourse on the economics of the shmoo, which was a creature in the comic strip L’Il Abner and which reproduced instantly, produced milk and eggs, and on request would lie down and die and become a cooked ham. The shmoo was a free good. Edith hadn’t read the comics and had no idea what a shmoo was. She was very annoyed at Professor Long for asking such a question and let him know it. She passed unanimously.
6 Parkin and King (1992). Other quotations in this section are from the same source unless otherwise indicated.
7 However, the relationship was by no means unidirectional: Machlup was seeking Penrose’s advice on his various writings and even lamented its absence. The dedication to Penrose in Machlup’s 1962 book The Production and Distribution of Knowledge in the United States reads, ‘This book probably shows that I have missed your guidance, criticism and stylistic taste. As ever, Fritz’. For a view on the Machlup–Penrose mentorship relationship, see Connell (2007).
8 As explained below, she took the view that the economic independence of a country is not necessarily threatened by extensive foreign investment, though it could be under certain circumstances, and that the main question was whether state intervention could increase the net contribution that multinational firms can make to the economy.
9 She argued that there was little in the economic literature on the subject apart from a straight discounted cash flow approach regardless of circumstances. There was, therefore, a lack of economic principles on which to base resolution of conflicts arising between private and public interests where the law only recognized private interests, particularly in the case of nationalization where exhaustible national resources were involved (see below).
10 See also Machlup & Penrose (1950) and Penrose (1973).
11 Despite her critique, Penrose chose not to quarrel with the extant theory of the ‘firm’ as part of the theory of price and production, ‘so long as it cultivates its own garden and we cultivate ours’ (1959/2009, p. 9).