Alfred D. Chandler's notion of managerial capitalism



Describe and assess Chandler's notion of managerial capitalism

Introduction

The Visible Hand: The managerial Revolution in American Business was written by Alfred Chandler n 1977. According to chandler the modern business is characterized by specific operating units and how it is managed by compensated managers. Each division has its own set of offices, book and accounts and each division can also function independently.

Many changes were brought into the new modern business it eliminated some of the previous practices, within the modern business; hierarchies became a source of power and continued growth. Training became more formalized and lengthy. Managers were separated from the ownership. Stockholders didn't have the experience, knowledge or understanding to participate in high commands. As these modern businesses began flourishing the whole structure of the economy was altered

The visible Hand by Chandler therefore focuses on the changing processes of distribution and production and how they are managed within the United States. The basic theme of this book is how modern businesses have taken over the market mechanism in coordinating the actions and allocating its possessions (Chandler, 1977).

Discussion

According to Chandler this alteration in the economy was considered as managerial capitalism, Chandlers stresses upon the importance of the modern vertically integrated corporation. In short Chandler's major argument was within the 19th century the vertically integrated corporations emerged in the United States and had replaced the fragmented and localized structure of distribution and production. The factor behind this rapid change was due to the increased population and increase in per capita income, the reduced transportation and communication costs were also another reason behind the rapid development of the economy, the development of railroads and shipping along with the telegram system all became reasons for the changes within the economy (Chandler, 1977).

Chandler states that with the progression of the transport system mass production and distribution of goods was made easy. The buying and selling process of marketers and distribution to large consumers was transformed due to the transportation innovations which reduced transaction costs of moving goods from one place to another. Managers following the visible hand theory started maximizing their production and ultimately this increased production and efficiency resulted in a economic growth. Alongside corporations continued industry expansion which resulted in the development of numerous businesses. Moreover, managerial capitalism, the form in which managers ran large corporations spread across the country and allowed greater productivity and reduced costs. In short the visible hand principle divided American business into two phases; the first phase before 1850 represents the market economy with perfect competition. The second phase was the managerial capitalism. The transformation from one phase to the other began the American business revolution.

This managerial revolution as presented by Chandler had replaced the Invisible hand of market forces which was presented by Adam Smith. Chandler has repeatedly critiqued Smith's Invisible hand. In order to better understand the ground for these critiques we must firstly understand the principles presented by Adam Smith (Chandler, 1977).

Adam Smith's the invisible Hand Principle

The invisible ...