Response to the Symposium: Framing Business History

Editor's Note: The following is an except from a letter received from Professor Chandler, responding to the symposium published in Enterprise & Society in the September 2004 issue. Following the response is the preface to the paperback edition of Professor Chandler's Inventing the Electronic Century (Harvard University Press, 2005), to appear this spring. We thank the Harvard University Press for permission to print the preface.

The contribution by Richard Langlois essentially supports my approach. Naomi Lamoreaux, Dan Raff, and Peter Temin (LRT) disagree in terms of economic theory. Charles Sabel and Jonathan Zeitlin, again in terms of economic theory, disagree with both Langlois and LRT on the creation of the New Economy.

I begin my comments by challenging Langlois's statement that "a quarter century later, however, the Chandlerian firm no longer dominates the landscape. It is under siege from a panoply of decentralized and market-like forms" (p. 355). This statement is echoed by the other contributors, but it violates historical realities. As the new preface to Inventing the Electronic Century indicates, the information revolution that created today's New Economy was carried out by enterprises as large as those that created the earlier industrial revolution.

RCA commercialized the new audio and video technology. After RCA destroyed itself in the 1960s and 1970s through unrelated diversification, Japanese giants, Sony, Matshushita, Sanyo, (split off from Matshushita), and Sharp fully dominated the American, European, and the rest of the world's markets in a way that the "Chandlerian" companies in the industrial revolution never did. (For example, Ford only achieved 50 percent of the U.S. market in one year, 1920).

So, too, in information technology (IT), IBM had dominated the information-processing industry from its beginnings in 1912. This dominance increased once it completed the conversion from the vacuum tube to the electronic transistor. IBM's revenues in 1963 were $1.2 billion, while those of all of its U.S. competitors combined reached just $7.1 million! With the resulting profits, IBM created the system 360/370 and has continued to dominate large-scale computing ever since. As pointed out in the preface, neither the European nor the Japanese enterprises were able to build an effective competitor until Gene Amdahl took the IBM technology to Japan. Within a decade Fujitsu, NEC, Toshiba, and Hitachi all became giant, "Chandlerian" companies that served not only Asian but also, on an original equipment management (OEM) basis, European markets. In the 1970s IBM transformed IT once again by mass producing and mass marketing the personal computer (PC), which in turn made Intel the world's largest producer of microprocessors, and essentially gave Microsoft, which provided the software, a monopoly of the PC software business, which it still has.

What is significant is the short time in which Intel and Microsoft grew. It took Rockefeller, Carnegie, Ford, Eastman, and others a lifetime to dominate their industries. By 1996, IBM led the IT industry with annual revenues of $80 billion, followed by Hewlett Packard's $31 billion, Fujitsu's $30 billion, Compaq's $18 billion, Hitachi's and NEC's $15 billion, Toshiba's $14 billion. Whereas it took Carnegie, Rockefeller, Ford, and Eastman decades to create their "Chandlerian" enterprises, Andy Grove and Bill Gates did so much faster. Gates, in fact, became "the richest man in the world" within a single decade.

As the Preface also stresses, the modern chemical and pharmaceutical industries, after the 1920s, were shaped by enterprises in the "Chandler model" that had been established between the 1880s and the 1920s, during what historians term the Second Industrial Revolution. Of the fifty largest chemical companies and thirty largest pharmaceutical enterprises in 1993, all ranging from $1 billion to $16 billion in annual revenues, only two successful enterprises were established after the 1920s, and both emerged in response to the emergency demands of World War II. The top chemical and pharmaceutical enterprises were largely based in Germany or the United States. The American producers entered world markets after World War I. Just before and during World War II, the pharmaceutical companies created the modern prescription drug industry...