Three strands of thought have emerged during the past decade to explain how the economy, industry, and business develop. Among these, probably the most sympathetic to the neoclassical economic theory is the so-called new growth theory or the endogenous growth theory. This theory recognizes technical progress as a major force in economic growth and tries to formulate an equilibrium growth model in which technical progress is generated as an endogenous outcome of an economic system (see Romer, 1990, 1994; Grossman and Helpman, 1991, 1994). For an earlier effort in this direction by one of us, see Odagiri ( 1981).
The second, which is more in line with the Schumpeterian view, is the evolutionary theory proposed by Nelson and Winter ( 1982). They do not assume that firms maximize profits over well-defined and exogenously given choice sets. Instead, these firms are assumed to have certain capabilities and decision rules at any given time. 'Over time these capabilities and rules are modified as a result of both deliberate problem-solving efforts and random events. And over time, the economic analogue of natural selection operates as the market determines which firms are profitable and which are unprofitable, and tends to winnow out the latter' ( Nelson and Winter, 1982: 4).
The concept of capabilities has been also emphasized by Chandler in his discussion of the development of industry and business in the USA, the UK, and Germany since the mid-eighteenth century. To him, 'at the core of this dynamic [in the development of modem capitalism] were the organizational capabilities of the enterprise as a unified whole. These organized capabilities were the collective physical facilities and human skills as they were organized within the enterprises.... But only if these facilities and skills were carefully coordinated and integrated could the enterprise achieve the economies of scale and scope that were needed to compete in national and international markets and to grow' ( Chandler, 1990: 594). That is, to create, maintain, accumulate, and utilize