Sommario

SLIDE 0...................................................................................................................................................... 2

WHAT IS INNOVATION? WHERE AND WHEN DID IT START?............................................................................................2

SLIDE 1...................................................................................................................................................... 2

HOW ARE SWITZERLAND, BELGIUM AND UK RELATED? HOW IS AGRICULTURE RELATED TO FIR?..........................................3
HOW IS SCIENCE AND TECHNOLOGY RELATED TO FIR?..................................................................................................3
EXPLAIN HOW THE PRODUCTION FACTORS INFLUENCED FIR, ESPECIALLY THE UK ECONOMY.................................................3

SLIDE 2...................................................................................................................................................... 4

WHAT DO HAPPEN THANKS TO THE STEAM ENGINE INNOVATION? HOW DO TECHNOLOGICAL INNOVATION WORK?...................4
WHAT CHANGED FROM 1750 AND 1820?................................................................................................................4
HOWE WERE TECHNOLOGICAL INNOVATION INTRODUCED IN FIR? WHY DO WE MENTION BOTTLENECKS? HOW DO WE
INTRODUCE AMERICA?...........................................................................................................................................5

SLIDE 3...................................................................................................................................................... 5

WHAT IS A PUT-OUT SYSTEM? WHAT IS CRAFT AREA?..................................................................................................5

HOW DID WE GO FROM CRAFTS TO FACTORY? EXPLAIN THE DIFFERENT FACTORIES AROUND THE WORLD................................6

SLIDE 4...................................................................................................................................................... 7

WHAT ARE THE MAIN INVENTIONS OF THE SIR?..........................................................................................................7

WHY ARE RAILWAYS IMPORTANT WHEN TALKING ABOUT SIR? HOW DID RAILWAY INFLUENCED FINANCE?...............................8

SLIDE 5...................................................................................................................................................... 9

WHEN DID LARGE COMPANIES STARTED TO APPEAR AND WHY? HOW IS THAT RELATED TO MASS PRODUCTION?......................9
HOW DID LARGE COMPANIES USE INTEGRATION? WHICH ADVANTAGES DOES VERTICAL INTEGRATION HAVE?...........................9
WHICH WAS THE DUALISM THAT TOOK PLACE DURING SIR?.........................................................................................10
HOW WAS MANAGEMENT ORGANIZED DURING THE SIR?............................................................................................10

SLIDE 6.................................................................................................................................................... 11

WHAT DO YOU KNOW ABOUT THE ASSEMBLY LINE? HOW IS IT RELATED TO FORD?..........................................................11
FROM PERSONAL TO BUREAUCRATIC MANAGEMENT – FROM BUREAUCRATIC TO DECENTRALIZED: EXPLAIN............................11
WHICH WERE THE MAIN BIG BUSINESS IN INTER-WAR EUROPE AND JAPAN AND CHINA?...................................................12

SLIDE 7.................................................................................................................................................... 12

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WHAT HAPPENED AFTER WW1?...........................................................................................................................12
WHAT HAPPENED IN SILICON VALLEY? WHY IS IT FAMOUS?........................................................................................13
IBM AND THE INTRODUCTION OF PERSONAL COMPUTER.............................................................................................14

SLIDE 8.................................................................................................................................................... 14

MULTINATIONALS VS CONGLOMERATES: EXPLAIN THE DIFFERENCE AND CHARACTERISTICS, AND THE FACTRS CONTRIBUTING
GROWTH OF CONGLOMERATES...............................................................................................................................14
WHAT PROBLEMS FACED AMERICANS CONGLOMERATIONS IN THE 70S AND 80S?............................................................15
EXPLAIN THE MAIN ASPECTS OF THE SECOND GLOBALIZATION.......................................................................................15

SLIDE 9.................................................................................................................................................... 16

HOW DID BRITISH BUSINESSES RESPONDED TO AMERICA’S DIVERSIFIED BUSINESSES? WHICH ARE THE MAIN MANAGEMENT
DIFFERENCES?.....................................................................................................................................................16
EXPLAIN THE MAIN GERMAN’S GOVERNMENT ACTION................................................................................................17
EXPLAIN THE JAPANESE BUSINESS IN THE 50-60........................................................................................................17

SLIDE 10.................................................................................................................................................. 18

EXPLAIN CHAIN’S ECONOMY AND BUSINESS RESPONSE................................................................................................18

MOCK TEST............................................................................................................................................. 20

WOOTCLAP............................................................................................................................................. 21

SLIDE 0

What is innovation? Where and when did it start?

Keyword: technology, organization, knowledge, arsenal, production line, failure innovation

Innovation is the result of technology + organization given the existing knowledge.

The arsenal, where galleys were built, was founded in 13 th century, is the first incubator anticipating the
production line. It completely improved the coordination, innovation and entrepreneurship for that time.
However, the arsenal is the first example of failure innovation because in the 18th century its capacity failed
and galleys were replaced by sailing ships.

SLIDE 1

2
How are Switzerland, Belgium and UK related? How is agriculture related to FIR?

Keywords: adoption of new technology, energy, produced the same goods, Dutch, Agriculture,
Landowners, resources, industrialization, flexible, labor migration

The industrial revolution happened thanks to the adoption of new technology, and these three countries
showed a similar trend: they all have energy and produced the same goods. Switzerland rich of
hydropower, Belgium is rich of coal.
The other countries followed later on.

Agriculture co-existed with manufacturing, the first employed the majority of the population. In fact In the
most successful cases (the Netherlands, Great Britain, France), agriculture and manufacturing were
perfectly integrated. The Dutch economy, important because was able to integrate agriculture and
manufacturing, buying agricultural products from foreign companies (aggiungi)
Agriculture revolution could finance industrial revolution , as the industrial was funded by landowners.
Agriculture created resources for subsequent industrial investments thanks to the adoption of new
agricultural techniques, thus agriculture contributed to industrialization. Then the investment trend shifted
from agriculture to manufacturing; the workers seemed to prefer manufacturing sector as it is more flexible
and easier to coordinate with private life. This caused labor migration attracted by job opportunities, and
the agriculture declined.
In order:
1- integration between agriculture and manufacturing,
2- agriculture sustained financially industrial revolution
3- high farm wages helped to prepare for revolution.

How is science and technology related to FIR (1760-1830)?

Keywords: The Repubblic of Letters, technology, technological society, steam engine, Technical
knowledge, Communication technology

The Scientific Revolution and the Industrial Enlightenment were Europe-wide phenomena that do not
distinguish Britain from the rest of the continent. The Repubblic of Letters  a way to represent the
European scientists, where you can define scientific competition between scholars of different countries.
There is a difference between applied and scientific knowledge. It is mainly believed that even if there was
a rise of science, the main application to business was through technology (the most important feature of
FIR). The British Industrial Revolution was the "only self-generated transition from a traditional to a
technological society.
UK was the technological creativity of the FIR (steam engine); but not the only one, many others where
developed in European continent (soda, bleaching…). Technical knowledge is spread through
apprenticeship rather than traditional education. Communication technology has transformed companies
and markets, but communication systems were developed and implemented by companies.

Explain how the production factors influenced FIR, especially the UK’s economy.

Keywords: new technologies, Capital, energy, unique wage and price, hydropower,

Workers were encouraged to learn new technologies. Capital and energy prices were unusually low.
The price and wage structure gave British companies an extraordinary incentive to invent technologies that
replaced labor with capital and energy. Britain's unique wage and price structure was the fulcrum around
which the industrial revolution revolved.

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It became desirable to substitute capital for labor, because of the rose of wages. Americans invented labor-
saving technologies in the 19th century.

Britain was a high wage economy in terms of exchange rate, higher living standards, high wages relatively to
energy prices. Outside Britain, something similar happened in Belgium, in the coal mining area around
Liège. The high cost of labour relative to fuel created a particularly strong incentive to substitute fuel for
labour in Britain. The situation was reversed in China, where fuel was expensive relative to labour.
Talking about new production factors it’s important to mention new energy sources such as hydropower
and steam engine. The former was highly used in textile processes and water transport. The latter required
coal to be accessible to everyone.
The factors that defined why some companies develop more and longer than others are:
- Tradition in the sector (textiles)
- Proximity to service center (banking, transport,....)
- Production diversification.
Recall: energy (cheapest), capital, Labor (most expensive).

Objectives: understand why the introduction of innovation found fertile ground in Britain, leading to the
first Industrial Revolution

SLIDE 2

What do happen thanks to the steam engine innovation? How do technological innovation work?

Keywords: steam engine, inorganic and organic economy. population pressure,

Thanks to the steam engine the production was no longer tied to the area where waterpower was available,
as energy could be transferred from one place to another. This innovation marked the development of the
second half of the nineteenth century.
Remember that the production of iron (and cast iron) and then of steel was an index of supremacy in
industrial production. It’s important to mention that the technological innovations take time to lead to
revolution: the English Industrial Revolution had only a modest impact on economic growth until 1815, and
no impact on real wages and living standards before 1840 (a century after the first steam engine appeared).

The Industrial Revolution represented the transition to an inorganic, mineral-based economy, in which
accumulated resources in the form of fossil fuels and iron replaced previous means of production such as
wood and animal traction, which is less susceptible to population pressure.

What changed from 1750 and 1820?

Keywords: economic growth, from casual to efforts of trained experts,

Before 1750 technological progress failed to generate sustained economic growth. The negative feedback
mechanisms that had prevented the economies of previous eras from growing weakened in the 18th
century. This happened because the knowledge could not support the advanced of technology innovation.
However, the main takeaway point form here is that innovation were mainly a result of casuality rather than
organized inventions.
The technological changes that took place in Western Europe between 1760 and 1800 were the preamble
to a new era in the generation of new knowledge.

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In 1820 however there have been some important innovations such as the gas preheater and the automatic
intermittent spinning machine. From 1820, some of the most important inventions were less the result of
chance and more the efforts of trained engineers, chemists and mechanics . However, some of the ideas
generated during this period were not realized until after 1860, marking the start of the second industrial
revolution.

How were technological innovation introduced in FIR? Why do we mention bottlenecks? How do
we introduce America?

Keyword: innovation, bottlebecks, coordination, spinning mahcines, standardization

Innovation can lead to bottlenecks if related to just one single stage of production, that comes from the lack
of coordination between the different stages of production.

The cotton textile industry is an example of how innovation arose from a series of challenges and
responses. The problem of supplying cotton weavers with enough cotton thread. Inventions overcame this
production bottleneck such as carding machines to prepare cotton fiber for spinning into yarn. These
spinning machines improved the yarn and required a lot of thread. These advances in spinning created a
bottleneck in weaving, as handloom weavers could not keep up with the supply of yarn. The power loom
(1787) removed this bottleneck. One power loom could do the work of seven and a half hand looms.
Development of the chemical industry removed bottlenecks in bleaching and dyeing cotton. This is the story
of the Industrial Revolution. The same process took place in the iron industry. (aggiungi)

Expansion of the iron industry: demonstrated the interconnectedness of Britain's industrial progress;
Iron was used to make steam engines  Steam engines were used to pump water out of coal mines 
Coal was used to power pumps and to make iron, which was used to make steam engines.

America’s manufacturers sought standardization as they had a shortage of skilled labor. Standardisation
was favoured as a way of reducing labour costs and controlling workers. America's industrial progress
surprised the British. In the 1850s, the British government sent commisioners to the United States to study
the secrets of America's industrial success, which the British called the American System.

SLIDE 3

What is a put-out system? What is craft area?

Keyword: putting out system, cottage industry, flexibility, capital and energy intensive, master,
piece-wage system, guild,

In the putting-out system, an entrepreneur 'put out' materials for processing on a piece-rate basis by
workers who usually worked at home.
1) low equipment use
2) labour intensive
3) Most workers: no special technical training (they didn’t need training).
- Cottage industry was associated with poverty.
- Peasants as labourers: at the bottom of the social scale and remained there.
- What stands out in the putting-out system is the flexibility of the workers and their ability to move
efficiently from one job to another.

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Craft Production was located in urban areas, close to sources of energy, as water, wood, coal:
- energy intensive
- capital intensive
In urban areas: jewelry, hats, leather, shoes, and gold. Durable goods for the aristocracy, the government,
and the army.
Organization of the craft production: highly skilled workers who work shoulder to shoulder with the master.
Example: Metalworkers, cobblers, gunsmiths, tanners: high degree of specialization.
Master sole responsible for: organization of production, marketing all the other business function
associated with the commercialization of the product. Wage based on the output not on the time: piece-
wage system, this reduced risk for the master.
The craft market was organized in guilds, the most famous one is: Goldsmith's guild  A guild was based:
on a rigid set of rules, often written rules.

How did we go from crafts to factory? Explain the different factories around the world.

Keywords: silk, Lombe’s Mill, factory, values, businesswoman, worker and lifestyle, time
management, economic explanations, mini, mum efficient scale, centralised production

The first successful powered continuous production unit in the world was Lombe's Mill, a silk
throwing mill(=mulino) built by Thomas Lombe on an island in the river Derwent in Derby. It was
founded by 2 brothers that learned the Italian technology and patented it in England. This
company employed over 300 people. Some stages of textile activity were immediately transferred
to the factory.
In the textile industry, the transition to the factory took more than a century, while in other
industries it was faster.

What happened in the 19th century in great Britain is that many craftsmen and masters turned
their shop into a small factory. There was a presence of social values and cultural aptitudes that
approve the entrepreneurial initiative and its social acceptance.
- Legal protection for intellectual property
- Bill of Rights limiting the power (and spending) of the monarch.
In the eighteenth century, businesswomen worked as furniture makers, printers, fan makers, silver
and gold smiths, milliners, and mantua makers.
For workers the factory system meant a change in their lifestyle. It means that time management
can no longer be that of artisans or of home workers.
The transition stimulated mental problems, due to inability to adapt to rhythms of the factory, to
the adaptation to the crowded dormitory.

Economic explanations for the emergence of the factory:

1. the minimum efficient scale of factories exceeds that of domestic units. Increasing returns
by expanding domestic production.
2. In a world of production requiring expensive and complex equipment, the employer, unable
to control domestic labour, prefers centralised production. Moreover, the new
technologies required teamwork rather than individual work.
3. Factory discipline was introduced to induce workers, who lacked self-control, to make more
effort and force themselves to work harder in order to earn higher wages.

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Factories were different all around the world. In Britain large factories did not spread quickly,
which is the contrary of the US. In continental Europe some owners provided dormitories and
housing and sometimes there were villages for workers near the factories, child education and
some kind of social security.

In the US, In the year 1800, 74 percent of the American labor force worked on farms.
There were some prosperous tobacco plantations in Virginia and Maryland, but most farmers and
their families grew crops primarily for their consumption. They had already started to barter
(=baratto) with each other, and to buy and sell products in significant quantities. So, some
specialization had begun.
From the rising productivity in agriculture, including the lucrative slave-based cotton economy,
came the burst to growth that engendered mass capitalism in the United States.  In the 1820s
and 1830s: the factory production dominated the manufacture of cotton textiles to the United
States. Manufacturers operated under a strict system of moral supervision that would protect the
health and virtue of their workers as well as republicanism.

In Germany there were 6 main institution that helped german’s development:

1. in 1827: abolishment of the ban on all new factories adopted in 1824;
2. Zollverein, or custom union, which was a free-trade area with a joint commercial policy and
a common external tariff. (important point)
3. Railroads. The rail networks were constructed first on regional basis and were connected to
form a national network around 1850, after which they grew enormously.
4. craft tradition which to this day allows for a swift transfer of technical processes and less
managerial supervision of production.  favored technical education
5. comprehensive educational system, ranging from primary to vocational school, and from
polytechnical to university courses.
6. business associations. These associations tend to blur the boundaries between private and
public affairs, between market and politics.

In Japan (1600-1868) companies were possessed by families which at that time were also known
as clans. The corporate governance of this companies was thus derived from traditions and codes
of the controlling family. The decision-making power was distributed between a so-called family
council and the patriarch. The values where provided from confucionism: based on respect for
the hierarchy, a high commitment to training, a though work ethic and harmonious relationships
between the members of the society.
The villages which cultivated rice during the Tokugawa government (1603-1868) had three
elements in common, which later on have been translated to the well-known Japanese
management practices:
- lifelong membership
- age is equated with wisdom
- collective behavior: familism (large firm large family).
The east wanted to catch up with the west in 1868-85. The old Togukawa rice tax was replaced by
a land tax, which not only reduced fluctuations in government revenues but also constituted the
bulk of these revenues in the early Meiji period (1869-1912). The government established modern
property rights in Japan.
The government enacted universal compulsory primary education for both boys and girls in 1872,
earlier than Great Britain. Also established in 1872 was the Tokyo Institute of Technology, which

7
had become the world’s largest technological university by 1877. Employment of foreign experts
accounted for 2 percent of government expenditures.
Japanese government introduced Western agricultural techniques and built model factories, using
Western technology in silk spinning, shipbuilding, cement and glass. These attempts generally
failed. The government thus withdrew from direct ownership of firms, but it continued to play an
important role in the economy. It made crucial investments in infrastructure, including roads and
bridges and modern form of communication and transportation.

SLIDE 4

What are the main inventions of the SIR (1870-1914)?

Keywords: chemical industry – malvein, steel, steam engine – thermodynamics, electricity, cotton
gin, mechanical graper, electromagnetic telegraph, canals, railways

The main inventions come form the chemical industry, in particular one revolution was the malvein (first
synthetic dye, once used to dye silk) in 1856, and from there different chemical dyes and researches found
place. In the SIR there is a shift from cast iron to steel, around 1856, and the steel was discovered adding
carbon to the iron at the right time, but it was half accidental half studied discovery. Thanks to the steam
engine in the 19th century a lot thermodynamics studies took place.
Another important invention was electricity in 1831, when Faraday demonstrated that it was possible to
generate electricity by mechanical means.

As for Americans innovators we have in 1793 Whitney created the first prototype of the cotton gin, that
cleaned cotton. Since them cotton export exponentially increased: the bottlenecks had been overpassed.
Another important innovation has been the mechanical graper by McCormick, and also the
electromagnetic telegraph invented by Morse. Morse presented his idea to the government that refused it,
so he could continue working on his project thanks to the private sector.
America also created huge canals and railways to improve transportation. The main 4 railways where:
Pennsylvania, Baltimore & Ohio and the New York Central. Railways are a perfect example of complex
management as they employed a huge number of workers and also needed coordination to work.
Recall: Arrange in order of temporal appearance: 1 st RAILWAYS 2nd LARGE MARKETS 3rd BIG
COMPANIES

Why are railways important when talking about SIR? How did railway influenced finance?

Keywords: single business unit, travel time, first manual of management, flexible, decentralized
decision making, line operators, staff, unions, unitarist vs pluralist management, no short-term
profits, first economic globalization thanks to the reduction of costs - EU, lenders - UK, universal
banks – Germany,

Railways have been the first huge invention of the 19 th century. Railway companies were the first to face
the challenge of handling men, money, and materials within a single business unit. They had the power to
change market, as they came before big companies. They revolutionized travel time for both people and
goods. In particular, Baltimore & Ohio company created the first manual of management. Pennsylvania
railroad Co, introduced the first divisional structure where authority was defined as well as the
responsibility. The organization was flexible of control and had decentralized decision making.
Railways used line operators to monitor the movement of people and trains, and staff that was responsible
for the standards and quality of the rail tracks. For the first time had to be trained and managed as they
work in vast area. Until the first world war that introduced unions, workers were not allowed to express
8
their opinion. Large railway companies of the United States, the United Kingdom and continental Europe:
"unitarist"(= share common interests and goals) rather than a "pluralist" management model (=not have
similar interests and goals.).
Other sectors such as steel, chemical and oil refining took a bureaucratic management of labor model, that
started in railways.
Railways companies were listed on Wall Street. However the construction of railways often led to financial
crises because they were long-term investments but did not lead to short-term profits. In US the long
depression of 1873 was caused by railways, also the Britain crisis of 1847-48. In Italy we did not have the
crisis as the development of railways had been really slow.
The strategic and organizational know-how acquired in the railways was quickly transferred to other
industrial sectors.
In Europe railways created the first economic globalization thanks to the reduction of costs. (1st
globalization (second half 19th century)) - Others globalization, two ancient globalization 11 th century when the European
merchant moved toward ASIA (1st ancient globalization), second ancient 16th century with experience of companies of Indian, dutch
and british traded with india and asia, different from 1 st one because in this case the companies not only traded with asia and india
but they started organizing the production in those countries.
In UK railways boom was in 1840s, and moved a lot of investments. However, this lead to a financial crisis in
uk due to the Monetary shortage (no liquidity) that caused by the restrictions imposed by the Bank Charter
Act. The economist explained that measure adopted to counter the expansion of credit induced by the
construction of the railway system. As commercial banks started to having crisis, lenders took place,
because they were able to avoid crisis. The institution as international lender is the IMF (international
market fund).
In Germany the railways had been the first important investement since unifaction in 1871. Railway lead to
the creation of large universal banks and the basis for the development of sectors such as metallurgy and
machines. Important large banks that are not possible to find in US. Important role, they gave important
contribution in all the development in German.
Also China and Japan started development their railway system.

SLIDE 5

When did large companies started to appear and why? How is that related to mass production?

Keywords: first economic globalization, reduction transport costs, steam engine, iron, banking
system, economies of scale and scope, Carnegie, Carnegie Steel, scientific management, vertical
integration, James Buchanan Duke, American Tobacco, continuous production, interchangeability
of parts, cost reduction through mass production, market industrial output

Large companies started to appear with first economic globalization (last decade 19th century), that should
be explained by the reduction of transport costs (important). Protagonist of this globalization is the steam
engine. From 1850 the use of steam energy revolutionized maritime transport. Large companies were
involved in tradition sectors such as iron. Also, the banking system was characterized by big companies.

The first factor that led to the emergence of large companies in the new industries in SIR is economies of
scale and scope made possible by significant advances in production techniques. Economies of scale
reduced unit costs allowing to charge lower prices for their products.

An important name when talking about large companies is Carnegie: he worked in the Pennsylvania railroad
where at the age of 23 was a divisional superintendent. Carnegie invested in bridges and iron foundries. He
then founded Carnegie Steel that was destined to revolutionize the industry, capturing a quarter of the

9
ingot market. He was a pioneer of scientific management (important). He introduced cost accounting to
his mills and hired chemists to learn how to control the quality of blast furnace charges.
He promoted vertical integration, beginning with the addition (through amalgamation) of Henry Frick's
coke properties. However, he treated poorly his workers.

Another name that changed America large companies scenario is James Buchanan Duke the founder of the
American Tobacco, the firm which brought the mass production of cigarettes to the American public. He
expanded from plug and pipe tobacco to cigarettes.

These companies used continuous production and focused on interchangeability of parts. This last point
has been a huge innovation of that time, that is more common in the mechanical engineering sector,
including electrical engineering, and in the manufacture of metallurgical products.  the capacity of
producing similar products in the same factory. Spectacular cost reduction through mass production.
The market had the following structure the US, Germany and Britain accounted for two-thirds of the world's
industrial output.

How did large companies use integration? Which advantages does vertical integration have?

Keywords: high production, backwards, forwards, ensure supply, keep profits, insulated from
national market shocks, marketing system, horizontal integration – decrease competition, mergers,
trust

More production required widespread distribution, this lead to vertical integration. In the United States,
not in Europe, vertical integration was the answer to the demand for wider distribution. Vertically
integrated firms dominated the US industrial landscape much more than in other countries. Vertical
integration had two directions: a company could integrate backwards to control the source of its raw
materials – typical of European companies, and it could integrate forwards to control the production and
sale of its finished goods – used by American companies.
The main advantages of vertical integration are that allowed managers to ensure adequate supply during
periods of peak demand. By controlling all stages of production, managers could keep all profits within their
own companies; and firms were partially insulated from national market shocks.

Vertical integration started marketing system. New practices related to the consumer started their path in
that period. Direct contact with the buyer provided the manufacturer with useful information about
customer preferences. New practices such as financing the consumption, financing consumers purchasing,
and also to serving the costumer.
Also, horizontal integration took place. Horizontal int means a number of companies join together to
control one step in the production and sale of goods. The aim was to decrease competition and control the
variability of the national market. Horizontal int, led to vertical integration after.
Both vertical and horizontal integration took place through mergers.
Integration lead to trust as the case of Standard Oil. In 1880, there were 40 companies in the sector, this a
cartel or alliance allowed them to control production; it was illegal.

Which was the dualism (dichotomy) that took place during SIR?

Keywords: steel and chemical replaced workers, textile and labor-intensive without replacing
workers

As the impact of the technologies of the Second Industrial Revolution was not the same across all sectors
and industries a dichotomy emerged between sectors with large companies and other sectors . The sectors
10
in which the largest firms were concentrated remained the same until the 1970s, here the machines helped
workers without replacing them. Neither the quantity produced nor the speed of production changed
significantly.
On the other hand, steel and chemical sectors that replaced workers with machines, as they were capital
intensive productions; while textile and in general labor-intensive sectors introduced machines but still
without replacing works.

How was management organized during the SIR?

Keywords: Teamwork, separation of fixed and variable costs, return on investment, multi-unit
enterprise, interrelated management changes: Central offices - Middle management - New
accounting methods - Separation of ownership and management, invention of the R&D
department.

Big business became complex in a relatively short period of time, thus implying a high degree of managers
training. Teamwork became essential. Innovations were quickly introduced by managers themselves such as
the separation of fixed and variable costs and the concept of return on investment.
Firms became too large to be managed by one and many firms became multi-unit enterprise, that are
characterized by 4 interrelated management changes.
1. Central offices responsible for making big strategic decisions.
2. Middle management to run the day-to-day operations
3. New accounting methods to help them plan for the future, like financial accounting and capital
budgeting and depreciation.
4. Separation of ownership and management

Another important revolution is the invention of the R&D department, introduced by the chemical
company Du Pont.

SLIDE 6

What do you know about the assembly line? How is it related to Ford?

Keywords: collaboration, Ford, inefficiencies, practices from all these industries, none integrate
into production, 5 practices,

It has not been invented by a single individual as it was born as a collaboration of people that put together
different knowledge. It grew out of Ford engineers' efforts to reduce perceived inefficiencies - their quest
for incremental improvement in the production process. The ability to identify inefficiencies itself was the
cultural result of centuries of practical knowledge gained through hard work in many different industries.
Workers at Ford Motor Company had experience in gun making, bicycle making, meat packing, steel making
and brewing. The assembly line synthesized practices from all these industries and became more than the
sum of its parts. Several industries contributed to the eventual emergence of the assembly line, but none
managed to integrate all the individual improvements into a new production system because consumers
wanted variety, and because styles changed frequently, their product lines could not be maintained long
enough to justify building dedicated machines.
The assembly line focuses on 5 practices:
- division of labor
- interchangeable parts
- single-function machines
- sequential arrangement of machines
11
 - movement of work to workers via slides and belts – to them is needed to add also the
electrification of factory.
As the mass automobile production started in 1929, they started to build roads and bridges, a new
transportation form arose.

From personal to bureaucratic management – from bureaucratic to decentralized: explain

Keywords: salaried managers, centralized, managerial hierarchy, standardization of processes,

administrative coordination, diversify, coordination, decentralized management, M-form,
independent, general staff, resources, General motors, decentralized management, Du pont, clear,
responsibilities, division, communication, 3 main innovations, disadvantages

At the beginning owners and decision makers of companies where the same individual (personel
management), however that changed with the introduction of salaried managers that usually do not have
any ownership. Multi-unit business enterprises expanded, and it was found that the businesses could be
operated more profitably through a centralized managerial hierarchy. (bureaucratic management)
The standardization of processes allowed to cut production and distribution costs . This standardization
comes also from an improvement in administrative coordination.
To deal with consumers spending preferences, firms started to diversify. Diversification led to coordination
and monitor problem of the hierarchies as it started to be complex to supervise all those different
production lines.
This brought managerial practices to decentralized management with innovative structures such as M-
form. The multidivisional structure allowed each division to be independent as each had its own full-time
manager, administrative offices etc, but at the same time where all centralized coordinated by general staff
that helped allocating resources to the divisions.

General motors was a pioneer in decentralized management in 1920. Durant, the founder, brought
together over twenty-five previously independent companies. He failed to provide appropriate
management as he spent a large sum in new plants to build more cars even though sales dropped 20
percent in one year. DuPont, that had 29% of gM, decided to rebuild the structure with Sloan. The objective
was to adopt the decentralized management, giving clear duties and responsibilities to the division and
promoting communication and cooperation. In practice they differentiated their cars; eliminated overlap in
the prices, products, and markets; and, introduced advertising and annual model changes identifying each
make of car.
The three main innovation they introduced are:
1. central office received weekly and monthly production reports from each group and division.
2. It received reports every ten days from dealers on how many cars were actually being sold, and this
information made market forecasting possible.
3. It assigned the work of each division, using new accounting techniques that measured its rate of return
on investment, making it easier for those on top to decide where to expand or contract the company’s
operations.

Many firms started following the decentralized management structure, despite it disadvantages such as the
high number of layers of management, companies reacted only to market changes, dependence on reports,
distance between managers and operations.

Which were the main big business in inter-war Europe and Japan and China?

Keywords: cartels, Holding companies, zaibatsu,

12
Cartels are voluntary agreements among firms that remained largely independent, usually those in the
same industry and carrying out the same phase of production; their aim was to establish a common policy
in the market. The most successful cartel were often called syndicates. Price and quota controls were a
serious constraint on incentives to pursue integration and growth strategies.
Sectors involved: chemical, pharmaceutical, man-made fibers, electro-mechanical, and mining.

Holding companies in EU were smaller than in US. Here the companies are wholly or partially owned by a
Holding Company. Generally, such structures arise from merger or acquisition activity. The product range,
production facilities, and management structures are often left largely unchanged, and the constituent
companies can therefore be considered undigested. Direct control exercised by the holding company is
limited, if not the receipt of profits.

Japan in 1931 had an aggressive military expansion in China. With the WW1 Japan had an economic boom,
but then they started to recover. In 1920 the economic recovery ended. In the 30s again Japan started
trading internationally silk cotton and tea, and its exports revived. In 1931 the military government
approved the “Important Industries Law” which authorized the creation of cartels managed by so-called
control committees composed of officials and managers. A new company structure arose, the Zaibatsu.
The New zaibatsu is a complex business based upon heavy industries- steel, chemicals, engineering,
electrical machinery, and automobiles. Most important: Japan Nitrogen, Nissan, Nakajimd Aircraft, and
Toyota.

China’s political economy was affected by two elements: efforts to unite the country internally and attempts
by Japan to establish hegemony over the nation. Both elements affected business growth.
Some modern firms continued to develop along lines laid down over previous decades, but many others
were deeply affected by political developments, even uprooting factories to move inland to escape
Japanese domination.
In China cotton textile mills employed 57 percent of the nation’s industrial workers.
The twenty-six modern banks belonging to the Shanghai Bankers Association controlled over three-
quarters of the resources held by modern banks in China.

SLIDE 7

What happened after WW1?

Keywords: economic growth, macro-inventions, Science, micro-inventions, 'institutionalization of

innovation', Nuclear energy, Antibiotics, penicillin, Semiconductors, telephone system, transitor,
institutionalize innovation

There has been a period of economic growth, and some macro-inventions took place. Science grew
exponentially and led to a huge number of micro-inventions.
The main innovation is the introduction of research in corporate and academic spheres, a phenomenon
called 'institutionalization of innovation'.
An important innovation is nuclear energy. Nuclear fusion, which has the potential to produce unlimited
energy at low cost, has so far failed to materialize, except in hydrogen bombs. However, the introduction of
quantum mechanics improved the development of modern computing and telecommunication
technology. 30% of American GNP is generated by inventions made possible by quantum mechanics,
including microprocessors, lasers, and magnetic resonance imaging.
Antibiotics could be invented thanks to the discovery that bacteria caused disease. The discovery of
Fleming’s penicillin was accidental (1928). Other key discoveries were the jet engine, catalytic pyro scission
(petrol), the appearance of fibers and man- made materials such as nylon.

13
The boundaries of the chemical industry expanded, and the most incredible invention was the
semiconductor. Semiconductors were discovered in 1878, when Edwin Herbert Hall (1855-1938)
demonstrated the deflection of moving charge carriers by an applied magnetic field, known as the Hall
effect.
Another important invention was the expanding telephone system, that relied on electromechanical
switching systems. The aim of the researchers was to replace the vacuum tube diodes and triodes of the
radio era, resulting in the transistor, a solid-state electronic device based on semiconductors.
The semiconductor is an innovation with unusual characteristics because of its ability to be recombined
with other technologies, its complementarity with other innovations and its ubiquity, to the extent that it
can be described as a "generalist" technology, similar to electricity.

Large companies started to institutionalize innovation, thanks to universities, researches, laboratories etc,
this led to a lot of knowledge spillovers.

What happened in Silicon Valley? Why is it famous?

Keywords: high-tech district, Shockley, Transistor, microprocessors, Frederick Terman, William Hewlett
and David Packard, proximity, social model

It is a business high-tech district. The name came from a reporter for Electronic News who wrote a
journalistic history of the San Francisco Bay Area's semiconductor history in 1971. The name stuck because
the region had long been home to the manufacture of computer hardware that used silicon in large
quantities.
In 1956, Shockley founded Shockley Transistor Laboratories. Soon, leaders of firms in Silicon Valley and
Texas combined transistors with other devices on silicon wafers to make integrated circuits. Integrated
circuits were capable of sending complex electrical signals from a miniaturized component. Transistor and
integrated circuits quickly replaced bulk and less reliable vacuum tubes in such tasks. By the early 1970s
Silicon Valley firms were assembling also microprocessors, the heart of personal computers. Small and
medium-size firms were the life-blood of Silicon Valley.
Frederick Terman was a pioneer in forging links between academia and industry, training students in high-
tech fields and helping them to enter the business world: Two of his best-known graduate students were
William Hewlett and David Packard, who founded Hewlett-Packard in 1937 with a loan of $538 from
Terman.

Military spending help silicon valley to develop. This attracted individual company to the region.

From the high-tech companies that emerged, other smaller companies sprang up. One example was
Fairchild Semiconductor, founded in 1957 by Robert Noyce and other scientists who broke away from
Shockley Transistor Laboratories. The company became intel in 1968.

The most important aspect of SV is proximity. Rather than vertical integration, these firms created a flexible
network of linked but independent companies. Because they were all located in one region, this clustering
of many SMEs allowed producers to benefit from economies of scale without creating large companies. The
proximity of businesses encouraged communication between them and stimulated growth.

Silicon valley can be seen as a social model as well, because people do not care about their race or
nationality, and everyone adheres to beliefs and values related to technology. What matters is whether
technical design can solve problems more effectively, whether venture capital can be raised, whether
products can be marketed and continually improved, rather than the exchange of ideas and dialogue
between people. Key aspect is technological integration.

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IBM and the introduction of personal computer

Keywords: 3 stages, Part of the success of the PC has come from rapidly falling costs – microchip,
open architecture

The main US competitors in computer field were Japanese (Toshiba example). The diffusion of the computer
went through 3 stages, in order:
- military market
- business market
- home market

Minicomputers less expensive used primarily for scientific and academic purposes were introduced in the
mid-1960s. By the 1970s, these new machines accounted for nearly 30 per cent of all installed computers.
The microcomputer, or PC, was introduced in the late 1970s.
The number of PCs shipped by US manufacturers rose an almost thirty fold increase in just a decade.
Part of the success of the PC has come from rapidly falling costs of the microchip, an essential part of the
machine, is a striking example.
The number of transistors that can be put on a microchip double about every eighteen months without a
corresponding increase in price. This is the most radical sustained increase in the efficiency of any product
in industrial history. The popularity of the PC also soared when the industry achieved compatibility - that is,
uniform standards that allowed consumers to mix and match components from different manufacturers.
IBM's pivotal decision in 1981 to adopt an open architecture went a long way towards making compatibility
a reality, as its smaller competitors decided to follow the new standards IBM set.

SLIDE 8

Multinationals vs conglomerates: explain the difference and characteristics, and the factrs
contributing growth of conglomerates

Keywords: international economy, foreign markets, decentralized multidivisional management

system, International Telephone & Telegraph ITT, Mature sectors, increasing fiscal pressure,
management science, Reduced risk, Lower cost of capital, Managerial resources

Thanks to the expansion of international economy and the development of US market new opportunities
started to arise for companies, allowing them to enter foreign markets. This allowed for both product and
market diversification and allowed American’s companies to adopt a decentralized multidivisional
management system. Thanks to FDI Multinational corporations (MNCs), defined as companies with
production facilities in more than one country, were an important response by American business leaders to
expanding business opportunities around the world. Indeed US had a close economy until now, the WW2.
America’s first multinational corporations target Europe in the 50s and 60s.

Conglomerates started to arise in 60’s, are an extreme form of corporate diversification (large companies
operating in different industries). One of the most important is International Telephone & Telegraph ITT
Europe had become the seventh largest company on the continent. Diversification concerned mainly
Mature sectors such as heavy metals, standardize consumer goods.
The main factors contributing to the growth of conglomerates are:
- 1960s: increasing fiscal pressure favored the growth of conglomerates (e.g. use of profits to offset
losses of recently acquired companies, investment in less taxed sectors). Instead of paying taxes on
profits, they preferred to use profit investing in other companies.
- Developments in management science: new techniques to solve new business problems;
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 - Reduced risk: the results of different units were negatively correlated, making it possible to achieve
more stable returns and aggregate profits.
- Lower cost of capital: conglomerates could raise equity or debt at a lower cost than a single
company;
- Managerial resources: conglomerates could hire expensive experts; and the talents and special
skills of top management could be better utilised across a large number of companies.
- New generation of managers (men, white) that made a lot of errors

In the 70s conglomerates faced a crisis because it was not easy to sustain conglomerates in long run due to
differences in cultures and huge different markets as well ass administratice problems.

What problems faced Americans conglomerations in the 70s and 80s?

Keywords: not reinvest enough of their profits in capital improvements, high number of layers,
modernization in Japan

The main problem: they did not reinvest enough of their profits in capital improvements, and when they
did it they failed to reinvest. They often invested in existing facilities. It was a lack of investments and errors
in investment. Important reason explaining decrease in competitiveness.
A second problem derived from decentralized managers is the high number of layers that made it difficult
for them to respond quickly to changes in their markets and business environments.  In the early 1970s,
General Motors had 20 major layers of management, compared with Toyota's 9.

The productivity of Japanese firms had a completely different condition. The modernization of the factory.
In Japan there were efficient factories, while in the US it was ineffective. JAPAN used more robots. US lower
use of robots. Japanese companies were more productive then America companies. A Japanese small car
could be assembled in 14 hours, while a similar American car took 33 hours.

Explain the main aspects of the second globalization.

Keywords: rise in interest rates, increase in debt servicing, debt crisis, political aspects and
liberalization, acceleration of transport, confirmed their positions as first movers, niche producers,
de-verticalization, modularization,

In 1979 the rise in interest rates, lead to an increase in debt servicing. There was a debt crisis in developing
countries. The policies and conditionality of international institutions lead to re-globalization. Liberalization
by Thatcher and Reagan, but not the cause of globalization. The main new aspect is the abolition of
exchange controls and tariffs.

While the first globalization at the end of the nineteenth century was driven by the reduction of transport
costs, the second globalization has been driven by political aspects and liberalization. More than the
reduction of transport costs, it was the acceleration of transport that was a decisive factor in the circulation
of goods. As a result, world trade grew faster in the second half of the 20th century than at any time in
history. However, regional differences should be taken into account. Globalization has not been uniform.
Regional analysis suggests that global openness has only occurred since the 1970s and 1980s. To explain
second globalization it is important to mention the world intra-industry.

The increase of the volume and intensity of world trade allowed established businesses to renew their
strategies and confirmed their positions as first movers (automotive), And there were opportunities for

16
new entrepreneurial initiatives and niche producers (computer industry). This allowed for networks to arise
in the sense of the removal of barriers to the movement of people, goods, capital, knowledge and data.

Here started the "disintegration" of once vertically integrated structures. Many large corporations have
begun to crumble under the pressure of outsourcing called de-verticalization. New organizational
architecture that has allowed them to take full advantage of decentralization.
The importance of modular products, characterized by components that are assembled using standardized
interfaces.
Modularization (important)  possibility of having a product that can be design by the costumer selecting
the components. We can consider each stage of production as autonomous, so we can find better
technological innovation in each specific module. From long to different modules. Each one is autonomous.
It is a kind of reorganization of production. Example of sectors: computer manufacturing, car (fiat tipo, first
car adopted modularity approach)
In summary, in response to these challenges, American companies, particularly those in the manufacturing
sector, restructured their operations. Restructuring involved a search for profits, which in turn led to an
increased focus on what business leaders considered to be the core capabilities.

SLIDE 9
TRI
How did British businesses responded to America’s diversified businesses? Which are the main
management differences?

Keywords: renewed rationalization, Encouraged, mergers, national champions, British Aircraft

Corporation, British Steel Corporation, increase the power of big business in Britain, decentralized
their management, McKinsey and Co, diversification, general managers at headquarters, divisional
managers were often involved in policy making

British business leaders responded to increased competition with renewed rationalization. They believed
that larger companies were more competitive in world, and the british government encouraged these
mergers. They tried to create national champions supporting them, for example supported the creation of
the British Aircraft Corporation in 1960 and the British Steel Corporation seven years later as a merger of
fourteen previously independent companies.
In fact, the mergers did not bring about any substantial increase in economic efficiency, but they did
increase the power of big business in Britain. British companies became large by international standards.
British companies diversified their product ranges and decentralized their management structures, also
thanks to McKinsey and Co, the American management consultants, who suggested diversification by
product and market. Diversification came to the UK later than to the US and was initially slower to take hold
in the UK. However, when diversification did occur, it did so rapidly, in the 1960s.

Decentralization implies general managers at headquarters making the big policy decisions. In British
companies, divisional managers were often involved in policy making, not just operations.
Secondly, management hierarchies and financial controls were not as well developed in Britain. Annual
budgets were not as precise as in American companies such as General Motors.
As late as 1968, two-thirds of the 120 largest British companies had no hierarchy beyond that of chairman
and managing director. But when leading British companies adopted American management practices and
structures, they suffered from the same problems as US companies. In fact: In the 1970s and 1980s, some
large, multidivisional, decentralised British companies became parochial or myopic. With their many layers
of management, and with managers increasingly trained in finance, British companies, like their American
cousins, struggled to cope with the rapid economic changes taking place in the global marketplace.

17
However, the afterwar crisis kicked in and only few government policies supported small firms in the
immediate post-war decades. The main British business problems were that they were risk averse, avoiding
to take risks and in general little effort was dedicated to increase the engineered education.

Explain the main German’s government action.

Keywords: Locomotive, Promotion of Economic Stability and Growth Act of 1967

After the 2WW businesses reorganized and government policies were instrumental in supporting
this business development, as for example with The Promotion of Economic Stability and Growth
Act of 1967 culminated earlier efforts.
The law made currency stability, economic growth, full employment and a positive trade balance
official government goals.
Germany has been seen as Locomotive of Europe in terms of economy, meaning that a it does not
have a deficit in trade balance, it favors growth of other countries by importing goods from them.
The other favors because export to the locomotive country. Germany did not adopt decentralized
management or participate in mergers as they preferred to adopt holding structure.
Germany thought that since the market is not able to work efficiently on its own, the state should
help the market to increase its efficiency (prices, wages, ...). Debt should be avoided. This means
that Germany based its policies on ordoliberlism ideology (market and laissez faire failed to handle
fair competition and social equality/equal opportunities for indivuduals).
Cooperation has typically characterised industrial relations in Germany. A 1976 co-determination
law required companies with 2,000 or more employees to have supervisory boards with equal
representation of workers.
SMEs (mittelstand in Tedesco) represented 70% of germany’s workforce. SMEs have become more
dependent on external finance and also somewhat more dependent on professional rather than
family management. Finally, they often acted as subcontractors to large companies. German
capitalism remained export-oriented.

Explain the Japanese business in the 50-60

Keywords: rapid growth, zaibatsu, broken, room for entrepreneurial firms, heavy industry
expanded more, cheap raw materials, third largest in the world, limit foreign investment in its
companies, Zaibatsu, keiretsu, subcontractors

1960s was characterized by rapid growth, even more so than in the United States and in sharp
contrast to the UK. Demand for what the Japanese called the three Cs:
- Cars
- color televisions
- air conditioning - was particularly important.
Older zaibatsu - including Mitsui, Mitsubishi, Kikkoman and Nissan - were broken up by the
American authorities in the 1940s in the interests of economic democracy. There was also more
room for entrepreneurial firms in the Japanese economy than before. Companies in heavy
industry expanded more rapidly than those in light industry, continuing a trend that had begun in
the late 1920s as the availability of relatively cheap raw materials and oil encouraged this trend.
By 1968, Japan's expanding economy was the third largest in the world, behind only the United

18
States and the Soviet Union. Japan's more traditional large corporations also reorganised in the
post-war years.

Japan was able to use special arrangements under the GATT agreement to limit foreign
investment in its companies and to restrict the entry of undesirable goods into the Japanese
market until the 1970s and 1980s. Legislation enacted in 1949 and 1950, limited imports into
Japan and restricted foreign investment in the country. Imports were not liberalized until the late
1960s and 1970s.

The Japanese government, through the Ministry of Finance and the Ministry of International Trade
and Industry (MITI), sought to guide the development of the nation's economy. MITI, in particular,
attempted to provide planning for economic development; it also rationalized inefficient firms.
difficult to assess exactly how important government support was in Japan's postwar economic
recovery and expansion.

Zaibatsu started to exit the market as keiretsu entered. Zaibatsu were large business groups
usually consisted of a bank, a trading company and many manufacturing firms. Instead, the
groupings - often called keiretsu - were much looser, as they lacked a central headquarters or
holding company that owed shares to subsidiaries. They were held together by informal meetings
of the heads of the various companies and some bartering between the companies.

Large Japanese manufacturers were able to expand rapidly at home and abroad because of their
increased use of subcontractors. The importance of subcontracting distinguished the Japanese
manufacturing system from the American one. The American system did not rely heavily on
subcontracting. By using subcontractors, Toyota and other companies were able to expand
production greatly at low cost.

Japanese businesses used ringi - a proposal made by the head of a department and passed on to
the heads of related departments and finally to the president. As the proposal was passed around,
anyone who saw it could make comments on an attached form.
Closely related to the ringi system was nemawashi - a horticultural term referred to the informal
discussion and consultation that took place in Japanese society before a formal proposal was
made, in the same way that the roots of a shrub must be carefully tied up before it is replanted.

Japanese companies were less diverse in their product range and in the markets they served. As
there was less need for decentralized management, and most Japanese companies did well with
centralized management systems.
Some moved to decentralized management but less responsibility was delegated to the divisional
level in Japan than in the UK and the US. Rather than becoming large, multidivisional,
decentralized firms, Japanese large firms operated more as parts of constellations of firms linked
together in various kinds of business networks, as they had in the past.  Networks linking banks,
trading companies and manufacturers in keiretsu were one type of such arrangement. The link
between industrial firms and their suppliers was another.

SLIDE 10

Explain Chain’s economy and business response.

19
Keywords: Guanxi, administrative bureaucracies, functional unites, full-time to domestic affairs
including the socialization, iron rice bowl, low wages, heavy industry, Town and Village Enterprises
(TVEs), separation between large-scale heavy industry and smaller rural industries, bad weather
and floods, The Great Leap Forward, Great Proletarian Cultural Revolution, Chinese Communism,
Market-based solutions, peasants - right to private plots, factory workers - limited right, strikes,
Four Modernizations, bureaucracy, Nixon'  Prosperity, sell surplus agricultural production on
open market, private companies, bankruptcy law, business associations and cross-holdings, by
state enterprises, privatization of the economy

Guanxi can be considered a source of competitive advantage, influencing the benefits and costs of the
company. A social rule on which guanxi is based, in fact, is the reciprocity of favors, which generates
obligations to reciprocate the favor received from the guanxi partner. Cultivating relationships involves
investing time and money. Guanxy is a network.

Mid-1930s, China possessed a modern banking sector composed of a relatively small number of very large
banks. Networks of interlocking directorates linked these banks.
China’s government controlled state-owned enterprises. In addition to control of weapon arsenals, between
1936 and 1945 the Nationalist government took over or established 130 enterprises in heavy industries,
including metallurgy, electrical equipment, chemicals, mining, and energy. The largest was the Dadukou Iron
and Steel Works (DISW)
These enterprises moved inland to avoid Japanese attack and occupation.

State enterprises shared several characteristics. They had formal administrative bureaucracies, possessing a
governance system characterized by administrative unit composed of divisions and department ranked
according to their size and importance within the administrative hierarchy. These were functional units,
such as divisions of work affairs, technology, accounting, and welfare.

When the Korean war ended in 1953 Mao and other Chinese Communist Party leaders devoted themselves
full-time to domestic affairs including the socialization (state ownership) of their nation’s economy. In the
late 1950s no private businesses remained in china.

Socialization took several forms. For peasants it meant land reform and redistribution in the early 1950s and
then collectivization in the mid-1950s and later. Wealthy peasants and those who lived on rents from lands
worked by others lost much of their land.
By 1956 most farmers belonged to cooperatives. Still later in the 1950s farmers were forced by join
communes, which were much larger than the cooperatives. Some 26,000 communes were set up.
Industry followed the same trend, following the soviet union example.
The state owned all the railroads and a majority of steamships in China’s home waters. State trading
companies handled nearly all of China’s imports and export. The goal was to have a planned economy.

Workers laboring in state enterprises had what was called an “iron rice bowl”: they were rarely fired even if
they performed poorly; they had low-cost, state-subsidizing housing; and they received many other benefits
from the state, including free medical care.  These benefits made the low wages they received tolerable.

The government tried to favor the development of heavy industry elsewhere in China throughout the
1950s and 1960s. The government encouraged the formation of Town and Village Enterprises (TVEs) in the
late 1950s and early 1960s, continuing a separation between large-scale heavy industry and smaller rural
industries.

However, problems arose. Agricultural efforts were hurt by bad weather and floods in the 1950s. Then, too,
in what was billed at the time as “The Great Leap Forward”, aimed at catching up with Great Britain in steel

20
production, the CCP decreed in 1957-58 the building of backyard furnaces to make steel. Much of the
resulting steel was of poor quality and unusable, but making it took peasants away from their agricultural
jobs. The result of these policies – and the bad weather – was famine, in which 20-30 million Chinese died.
But the creation of TVEs prevented even more widespread suffering by giving some peasants income
alternatives to farming.

Further disruptions occurred with the “Great Proletarian Cultural Revolution”, which was at its high tide in
1966-68. The goal was to preserve Chinese Communism by purging remnants of capitalist and traditional
elements from Chinese society. Massacres followed.

Market-based solutions developed from the 1970s onwards, with precursors in some regions dating back to
the 1960s. By 1975, peasants had won the right to private plots and factory workers had a limited right to
participate in demonstrations and strikes.
There was general agreement that economic reform (the Four Modernisations) was the top priority, but
from the outset there were probably two schools of thought in the central leadership: China could be
modernised by modernising the bureaucracy, or it could be modernised by loosening the bureaucracy's
control over the market.
President Nixon' decision to allow direct investment in designated special economic zones and through
joint enterprise arrangements.  Prosperity was immediate in those areas where reform took place

Than after Mao’s death the economy started to open, farm families could sell surplus agricultural
production on open markets as long as they kept a certain amount of their produce for the state. Farmers
were also able to engage in part-time production, which led to the expansion of Town and Village
Enterprises (TVEs) in light industry. (important, there is a spread of legalization through contracts). The
government allowed entrepreneurs to set up private companies, some of which grew rapidly in size and
importance.

Chinese government in 1986 amounted to a coherent programme of maintaining control while allowing
enterprise managers greater flexibility in making their own decisions. Three measures were introduced: the
bankruptcy law, business associations and cross-holdings by state enterprises.
These various measures may have been implicit in the Seventh Five-Year Plan presented in April 1986,
elements of which had been introduced at various times in 1985. Taken together, they represented a
significant departure from the practices advocated and followed since 1978.

In 1992 All trends in China were towards privatisation of the economy, although all banks remained state-
owned, as the designment of Accounting Law of 1993, in line with a movement towards corporate
transparency in Japan and most Western countries at about the same time.

In conclusion, institutions supported by private contracts between individuals or groups, without reference
to or support from the state, were given considerable room to develop from the sixteenth century onwards.
By the nineteenth century, Chinese people, were experts in the use of private contracts. But China was
backward in financing capital-intensive projects. The institutions for financing such projects could not have
evolved without the support of the state, and without the state's willingness to give way to the market.

MOCK TEST

1. Why need coordination? To avoid bottlenecks

2. Railway was the first large company that had to face an exponential growth in order to
develop a way of manager that adapted to this type of company. Railway were larger
because of markets or other reasons?  railways developed because they had to provide a

21
 service for larger country like US, only after this the railways large company were imitated,
they were taken as models. Recall at the beginning railway were private not public. The
business of private large company was to provide a product for a market, so the demand
for transportation was huge.
3. Shift from hierarchical to managerial capitalism  competitiveness, diversification
4. Economic globalization that has been driven by more technological factors is the first. Tech
innovation and transportation (steam engine etc)

WOOTCLAP

Slide 1
- During early industrialization UK, Belgium and Switzerland produced the same goods.
- Republic of Letters  a self-proclaimed 17th and 18th century republic of European literate and cultured
men.
- Order from cheapest to most expensive in comparative terms with other countries, these three factors
of production in UK: energy (cheapest), capital, Labor (most expensive).

SLIDE 4
- Arrange in order of temporal appearance: 1st RAILWAYS 2nd LARGE MARKETS 3rd BIG COMPANIES
- Have European countries adopted the US unitary model or other model?  unitary model
- Why did political power help finance railways? To favor businesses
- Which country was affected by a financial crisis originating from the construction of the railway?
GERMANY (no Italy no France)
- Why has railway construction often produced financial crises? Long-term investments without short-
term profits (no errors of construction companies, no lack of public funding)

SLIDE 5
- Carnegie sees Business as a war – We would say that it’s also coordination.
- Carnegie is remember for steel production, but also for his inability to answer to the demand coming
from his workers.

SLIDE 6
- The model T was a huge success why? A car suitable for rural areas and the countryside

SLIDE 7
- Interesting things of silicon valley: connection between firms, knowledge
- Diffusion of the computer went through 3 stages, in order: 1st military market, 2nd business market, 3rd
home market

SLIDE 8
- What areas of the planet did America’s first multinational corporations target in the 50s and 60s? Europe
- Diversification mainly concerned: MATURE SECTORS (not new technologically more advance, not all
sectors indiscriminately)
- Sort the largest conglomerated by nationality: UAE, INDIA, USA, JAPAN, Ireland; Sweden
- An important consequence of the interest rate hike implemented by the US in 1979? Rising public debt
in the developing countries. (not rising inflation on a global scale, not rising public debt in Europe)
- Which word must be considered to fully understand the growth of international trade between the 80s
and 90s? Intra-industry (not inter-industry, not technology)
- What kind of new skills are required of a manager operating in a network based manufacturing system?
Communication skill, problem solving, adaptability…

SLIDE 9

22
 - Should we be looking for a European management model or is management converging on a global
scale? It is converging, but limited to certain aspects (company size…) (not European model not
managing is conveying)
- Expanding the size of companies favors: The competitiveness of companies (not market competition, not
the efficiency of markets)

SLIDE 10
- With an abundance of labor factors, do you think that large or small farms are more productive in
agriculture? ANSWER IS SMALL

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