The Theory of the Growth of the Firm

The Theory of the Growth of the Firm

The Theory of the Growth of the Firm

The Theory of the Growth of the Firm

Synopsis

This 'goldmine of concepts for understanding business and industrial organization' was originally published in 1959 but has been an influence in business schools ever since. The author combines rigorous theory with close observation of the real business world, and writes simply but with an original approach. Her focus on teams and organizational knowledge underlies contemporary discussion of 'organizational competences', and she has written a new introduction which assesses the book's impact and describes the subsequent development of her own ideas.

Excerpt

ByEDITH PENROSE

There has long been much discussion of the behaviour, growth, organizational structures, and managerial problems of firms. One of the earliest and most important was the work of Alfred Marshall both in his Principles and his Industry and Trade. In 1937 Coase published his classic article in Economica on The Nature of the Firm, which was little noticed for some years. In the few years after the publication of The Theory of the Growth of the Firm in 1959, a number of important works came out in which similar ideas to many of my own were independently developed by others. Two early books dealing with the factors determining the growth of firms, Chandler Strategy and Structure and Marris Economic Theory of Managerial Capitalism were published in 1962 and 1964 respectively. Chandler's book was finished before The Theory of the Growth of the Firm appeared, but the analytical structure within which its historical analysis was cast was remarkably congruent with my own work, using much the same concepts and very nearly the same terminology at many points. Although Marris did take account of my work, with generous acknowledgement, his own research and basic arguments had been well developed earlier and constituted a significant advance in the role of firms in 'managerial capitalism' generally consistent with, but adopting a very different approach, extending and modifying my own. It is not feasible here to attempt to refer to much of the work that quickly followed but I should like to mention a relatively neglected but splendid pioneering article by G. B. Richardson. The Organization of Industry, published in 1972 in the Economic Journal, which anticipated much that was to follow.

By the middle of this century the neoclassical 'theory of the firm', that is to say, the theory of perfectly competitive markets, relative prices and Pareto optimal resource allocation, could reasonably be looked on as a 'mature science' in the Kuhnian sense of a set of received propositions, the practitioners of which were trained in a rigorous traditional theory embodying well-established mathematical and verbal techniques; but they did not deal with institutions. They still form a particularly vigorous culture in economic science, dominating the teaching of economic theory but using a definition of economics very different from that of Alfred Marshall's 'study of mankind in the ordinary business of life' in the opening words of Book I (8th edition. 1920).

Students of industrial economics existed in a kind of border area of 'applied' economics. Sociologists, institutionalists, behavioural psychologists . . .

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