Undercover Economist

Shock of the new

Alfred Chandler, the great business historian, died in May. One of his many achievements was to highlight the way technology influenced the organisation of corporations. Chandler realised that ”the railroad and the telegraph, the steamship and the cable” had made it possible for companies to grow to a vast scale. That in turn meant handing control of the corporations over to professional salaried managers in place of owner-entrepreneurs.

Naturally, the story did not end with the railroad and the telegraph. Economists believe that technology and business performance shape each other. If history is any guide, the impact of the latest technologies on business organisation is likely to be vast; it is also likely to be more gradual than the rolling hype of the last decade suggests.

Paul David, an economic historian at Stanford, presented a brief, prescient research paper to the American Economic Association back in 1990, titled ”The Dynamo and the Computer”. Professor David’s aim was to persuade economists that the history of the electric dynamo would tell them something about the ongoing information revolution.

Electric light bulbs were available by 1879, and there were generating stations in New York and London by 1881. Yet a thoughtful observer in 1900 would have found little evidence that the ”electricity revolution” was making business more efficient…

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