n the late nineteenth and early twenties, managerial capitalism started to show its prominence in the worlds organisational control. In this period, firms started to be managed by hierarchies of salaried managers who possessed little or no equity (Amatori, 2011). In large enterprises, ownership began to separate from control causing an incredible transformation of firms. Although most of the countries followed the same pattern, international differences showed slightly contrastive effects. Therefore, the first thing to be discussed is the differences between the US and UK's styles of managing businesses during the Industrial Revolutions. Afterwards, based on Hannah's “Strategic Games, Scale, and Efficiency, or Chandler goes to Hollywood 1” article and “Business History ” book by Amatori and Colli, the technology, export and agency problems consequences of managerial capitalism will be evaluated. Hannah and Chandler analysed the cultural differences and the managerial capitalism from different perspectives. Therefore, to get a clearer overview of the effect of managerial capitalism, American Tobacco and Imperial Tobacco company will be evaluated.
Overall, the managerial capitalism had two views, one positive from Chandler and one negative from Berle and Means. Chandler saw managerial capitalism as an opportunity to drive a manager from a wider pool, having more qualified skills (A. Chandler, 1984). While managerial capitalism emerged, countries started to benefit from economies of scale and scope and had a forward integration. Although, not all countries changed the same way due to the cultural, technological and educational difference. The negative view of managerial capitalism was concerned with agency problems. These problems lead to misdirection of managerial effort (Berle and Means 1932). Berle and Means considered that managers controlling the group will take actions in their advantage, rather than promoting the interests of the shareholders. This divergence of interests mainly occurs due to the change in the relationship between the corporation and its owners (Amatori, 2011). The best option being to let the entire community be held responsible for these actions.
As Chandler mentions, US had a better procedure to develop big businesses when compared to the UK. The country succeeded to embrace the new system very rapidly and thus by 1914 becoming firmly entrenched, even though some Americans distrusted the new ways of distribution and manufacturing (Amatori, 2011). The main reason why management capitalism emerged so rapidly in the US was due to the “American paradox “ effect, which promoted the appearance of giant corporate entities while political forces initiated opposite regulations. Moreover, as the new businesses arose, a new order was established based on efficiency, continuity and systematic controls, due to the developed educational and training systems (Amatori, 2011). Thus, US manifests an overall desire of growth in the economic sphere. An example can be the American Tobacco company which was the largest tobacco firm in the world, with a big managerial hierarchy and different departments of production, sales, and accounting. Thus, highlighting the importance of efficiency and controls in modern firms.
On the other hand, UK did not manage to take as much advantage of the Second Industrial Revolution as other countries did, due to its deeply rooted archaic method of management culture (Amatori, 2011). The UK enjoyed the glory of the first Industrial Revolution and thus, oversaw other opportunities. Antitrust policies were not applied, thus the country did not benefit from large mergers of enterprises as the US did. Moreover, the educational system was not that willing to adapt to the new environmental changes. As well, progress was regarded as something vulgar and regrettable by British businessmen. By proclaiming themselves traditional managers, they neglected the new methods of operating in business. Here an example can be Imperial Tobacco (IT), which still followed the archaic management system, where family members constituted the executive committee and only little staff was hired. Moreover, the subsidiaries were personally managed and thus independently produced and distributed their products. In this way, we can underline the country's unwillingness to switch from its traditional operating system and adapt to the new one. However, to defend the UK, Hannah argues that British companies were so focused on their businesses abroad that they did not manage to take advantage at home.
There are three main consequences of managerial capitalism that can be distinguished between Imperial Tobacco and American Tobacco. To start with, as Hannah's arguments focus on transportation opportunities, market size, and production, the first consequence is the companies' technology. Imperial Tobacco had a higher productivity, better-developed technologies and was the first one to convert tobacco consumers into cigarettes consumers (Hannah, 2013). Thus disapproving with Chandler, which focused more on the way firms were managed. He claimed that American Tobacco was a first mover in mechanization, standardization and mass marketing. The second consequence of managerial capitalism was linked to exports. According to Chandler, American Tobacco was dominating the export market. Although, it happened just because they did not manage to cope with the fall in sales and thus had to vastly export at low prices in the UK. While, managerial capitalism positively affected the export department of Imperial Tobacco, which eventually made a profit (Hannah, 2013). Even though American Tobacco dominated after the merger in 1902, Imperial Tobacco managed to increase its export shares, becoming one of the largest firms in the world by capitalization (Amatori, 2011). The last consequence can be retrieved from Berle and Means view of agency problems. Managerial capitalism allowed American Tobacco deliberately push down returns of shares sold on the stock exchange by losing money and lowering investors expectations, while insiders invested in the common stock (Amatori, 2011).
Overall, by allowing enterprises to exploit economies of scale and scope, managerial capitalism had a positive consequence. Although, there are many factors that can influence the evaluation of managerial capitalism in different countries. The most important factor being cultural differences which affected the way in which countries perceived this movement. Therefore, American Tobacco and Imperial Tobacco experienced different consequences on the export, technology and agency problems department. Secondly, the authors' points of view of analysing the economic evolution are very subjective, thus creating a biased assessment of management capitalism.
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