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Managerial capitalism emerged in the late nineteenth and early twentieth centuries in the United States, and challenged the traditional regime of personal capitalism, which was built on competitive interaction among small firms within industries. Managerial capitalism, dominated by big firms, prevailed during the 1950–1970 period.
As pointed out by Alfred Dupont Chandler Jr. (1984), despite differences in the pace, timing, and nature of change, large firms in the United States, Europe, and Japan tended to evolve according to a common pattern. They were characterized by what Adolph Berle and Gardiner Means (1932) identified as the separation between ownership and control. Dispersed ownership associated with the concentration of power in the hands of top management defines the managerial revolution (Chandler 1977). Managerial capitalism underscored the problem of controlling managers, who were shown to trade desire for growth against fear of mergers and takeovers. In this perspective, inspired by the institutionalist approach of Thorstein Veblen (in particular his 1921 work The Engineers and the Price System), John Kenneth Galbraith (1967) developed a vision of managerial capitalism as an economic system based on a logic of endless accumulation where firms are run by the real decision makers—the managers (who make up the technostructure)—and not by the capital owners. For Robin Lapthorn Marris (1964), the long-run growth rates of large-scale “managerial” corporations are determined by the financial and market environment, on the one hand, and by the interests of both managers and shareholders, on the other hand.
While large conglomerates and powerful industrial groups were emblematic of affluent economies, social problems were raised, particularly in the United States. William A. Darity Jr. explains that “the social dominance of the captains of industry has given way to the social dominance of … a professional-managerial elite” (1990, p. 247). Class divisions and economic inequalities are derived from the managerial age. In this context, Darity justifies government intervention on the basis of employment policy, including recommendations for work-sharing and early retirement.
In the last two decades of the twentieth century, competition increased, technological change began advancing at a stronger pace, and finance became more widely available. In this context, managerial capitalism was challenged by the emergence of patrimonial capitalism. Patrimonial capitalism arrived with financial globalization and the increased importance of small shareholders and pension funds, notably in the United States. Therefore, a new mode of corporate governance based on financial criteria has been imposed. The main objective is to protect external investors by limiting the obstacles that affect their control. Transparency, responsibility from top management, contestability of corporate control, and managerial compensation associated with the maximization of shareholder value are advocated. However, scandals in the early 2000s involving the management of public corporations such as Enron, Vivendi Universal, or WorldCom stress the contradictions of a growth system built on market finance. In parallel, new kinds of firms built around human capital have arisen (Rajan and Zingales 2000), and interfirm relationships have rapidly increased (Langlois 2003). As a result, forms of capitalism—managerial and financial capitalism—experienced so far are highly questioned. The coevolution of organizational forms and the economic system (Chandler 1990) suggests a renewed capitalism that would protect the interests of all corporate stakeholders and guarantee social equality.
- Berle, Adolph A., and Gardiner C. Means. 1932. The Modern Corporation and Private Property. New York: Macmillan.
- Chandler, Alfred Dupont, Jr. 1977. The Visible Hand: The Managerial Revolution in American Business. Cambridge, MA: Belknap.
- Chandler, Alfred Dupont, Jr. 1984. The Emergence of Managerial Capitalism. Business History Review 58 (4): 473–503.
- Chandler, Alfred Dupont, Jr. 1990. Scale and Scope: The Dynamics of Industrial Capitalism. Cambridge, MA: Belknap.
- Darity, William A., Jr. 1990. Racial Inequality in the Managerial Age: An Alternative Vision to the NRC Report. American Economic Review 80 (2): 247–251.
- Darity, William A., Jr. 1991. Underclass and Overclass: Race, Class, and Economic Inequality in the Managerial Age. In Essays on the Economics of Discrimination, ed. Emily P. Hoffman, 67–84. Kalamazoo, MI: Upjohn Institute for Employment Research.
- Darity, William A., Jr. 1992. Financial Instability Hypothesis. In The New Palgrave Dictionary of Money and Finance, ed. John Eatwell, Murray Milgate, and Peter Newman, Vol. 2, 75–76. New York: Stockton.
- Galbraith, John Kenneth. 1967. The New Industrial State. New York: Mentor.
- Langlois, Richard N. 2003. The Vanishing Hand: The Changing Dynamics of Industrial Capitalism. Industrial and Corporate Change 12 (2): 351–385.
- Marris, Robin Lapthorn. 1964. The Economic Theory of “Managerial” Capitalism. New York: Free Press.
- Rajan, Raghuram G., and Luigi Zingales. 2000. The Governance of the New Enterprise. In Corporate Governance: Theoretical and Empirical Perspectives, ed. Xavier Vives, Chap. 6, 201–227. Cambridge, U.K.: Cambridge University Press.
- Veblen, Thorstein. 1921. The Engineers and the Price System. New York: Huebsch.
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