Why did big business become so important

Why did big business become so important - Alexander Zouev...

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Alexander Zouev Management , SPC Why did Big Business become so important and why did the modern business organisation develop differently in the United States and Britain? The rise of the modern big business enterprise is perhaps one of the key, most important phenomena of the last several centuries. Its importance lies in the fact that big business essentially overpowered the economic market mechanisms used to allocate resources. As A.D Chandler (1977) famously wrote, “the visible hand of management replaced what Adam Smith referred to as the invisible hand of market forces.” Traditional business firms were single-unit enterprises where an individual or at times handful of owners operated a shop, office, bank or any small business. Usually this firm took charge of only one function, one product, and operated in one area. Price mechanisms and the market monitored the activities of these small personally owned firms. In due time modern enterprise began to operate in different locations and handled different lines of goods/services, essentially internalizing the activities and the transactions between small firms. As Chandler notes, business activity “became monitored and coordinated by salaried employees rather than market mechanisms.” This change did not happen overnight and nor was it international; growth of the industrial sector was much greater in United States, while Britain experienced a slower, sustained transformation. Even at the start of 1840 there were rarely any middle managers (managers who managed the work of other managers and had to report to a senior executive) in America. Almost all the top managers were themselves owners of the firm and the multiunit enterprise was nowhere to be found. By the end of the first war however, these were the dominant firms in the world. As Chandler notes, “rarely in the history of the world has an institution grown to be so important and so pervasive in so short a period of time.” Although factual questions about where, when and how the big businesses came about can be answered, the question of why these institutions became so important and powerful presents a mesmerizing challenge. As far as definitions are concerned then perhaps Chandler (1977) describes the concept of big business best by listing two of its specific characteristics, “it contains many distinct operating units and it is managed by a hierarchy of salaried executives.” Maybe because it is so easy to define and it is such a recent phenomenon, little literature has gone into specifically discussing the important reasons behind the development of big business. Bringing mass production and mass distribution all under one roof of a single organisation was perhaps the most influential aspect of the rise of big business. The first person to really pose the question of why the economy had moved past individuals providing goods and services to one another was British economist Ronald Coase. In his article “The Nature of the Firm” (1937), Coase
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Why did big business become so important - Alexander Zouev...

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