By 1917 the large industrial enterprise, the most influential American economic institution abroad, had taken its place at the center of the nation’s economy at home. Whereas the country’s basic transportation and communication infrastructure had been shaped by the 1890s, its underlying industrial organization had been solidified by World War I.
Table 11 shows that as the twentieth century progressed, the large industrial enterprise continued to operate in much the same industries.32 In 1929, 88 percent of the largest 81 manufacturing firms were in food and tobacco, oil, rubber, chemicals, primary metals, and the three machin- ery-making groups (35-37). If the integrated paper, glass, can, and photographic equipment firms are added, the total is over 90 percent. The overall percentages remain, and the number of firms in each industrial group is much the same for 1935, 1948, and i960.
Source: Alfred D. Chandler, Jr., “The Structure of American Industry in the Twentieth Century: A Historical Overview,” Business History Review, 43 : 25 7 , 283-284 (Autumn 1969), table 2 by P. Glenn Porter and Harold C. Livesay. United Fruit Company and Cleveland- Cliffs Iron Company were excluded as not manufacturing, and the categories of Koppers, National Lead, American Radiator, and Crane Company were altered.
The two-digit groups used by the U.S. Bureau of the Census in its Standard Industrial Classification.
These industries, where the visible hand of management had the great- est opportunity to increase productivity and reduce costs, were the most critical to the current health and continuing growth of the rapidly indus- trializing American economy. Robert Averitt in his Dual Economy has defined 41 “key industries” which in 1963 had the maximum impact on the American economy.33 These were the industries that led in technological convergence (that is, disseminating technological advances), in investment in research and development, in capital goods production, and in interindustrial dependence (having extensive forward and backward linkages) ; that had the greatest price/cost and the strongest wage-setting effects on other industries; that were in leading growth sectors; and that were full-employment bottlenecks (that is low employment in them, reduced employment in others). Of these, 5 were electronic and aircraft industries which were just getting started in 1917. Of the 36 in full operation at that time, all but 3 were in oil, rubber, chemical, and machinery and metals two-digit SIC groups. These 3 were scientific instruments, mechanical measuring devices, and sheet pipe and tube. All but 4 of these 36 key industries were concentrated ones, with the 8 largest firms account- ing for more than 48 percent of the total value of shipments. And in the remaining 4 (these included the 3 just listed plus steel foundries) the largest 8 accounted for between 32 and 42 percent of the total value of shipments. Of those industries in which the large firm had come to cluster before 1917, only food and tobacco were not on Averitt’s list. And these may have had a greater impact, in terms of Averitt’s criteria, forty years earlier, when the economy was more agrarian and less industrial.
The leading enterprises in these vital industries continued to grow both by internal expansion and by merger. After World War I, however, mergers much more often involved the acquisition of one integrated enterprise by another than, as at the turn of the century, consolidations of many small single-function firms. Normally the personnel and activities of the smaller or acquired firms were internalized by the core organization of the larger or acquiring megacorps.
Very few managerial hierarchies therefore actually disappeared. Of the 278 largest industrials in 1917 listed in Appendix A, only 14 had been liquidated, dissolved, or discontinued by 1967.34 All others that were no longer independent enterprises had been incorporated into the hierarchies of existing companies. Of the 14 that no longer existed, only 4 had built extensive managerial organizations.35 The other io included 3 mining, 3 agricultural, 1 lumber, and 3 manufacturing firms. These 3—2 textiles and 1 shipyard—had remained single-function enterprises.38 Once an enterprise had set up a managerial hierarchy and once that organization had provided efficient administrative coordination of the flow of materials through the processes of production and distribution it became self- perpetuating.
Nevertheless, these self-perpetuating human organizations appeared and continued to flourish only in industries where the technology of high- volume production and the needs of high-volume distribution offered the greatest potential for the administrative coordination of the flow of goods through the economy. The first of these big businesses were in the food and machinery industries. As the economy continued to industrialize and urbanize, those in oil, rubber, chemicals, and primary metals acquired the same characteristics.
Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.