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Learning by Doing in Markets, Firms, and Countries
Published by EH.NET (February 2000)
Naomi R. Lamoreaux, Daniel M.G. Raff, and Peter Temin, editors, Learning by
Doing in Markets, Firms, and Countries. Chicago: University of Chicago
Press (National Bureau of
Economic Research Conference Report), 1999. vii +
347 pp. $65.00 (cloth), ISBN: 0-226-46832-1; $22.50 (paper), ISBN:
Reviewed for EH.NET by Henry A. Gemery, Department of Economics, Colby College.
The "learning by doing" in the title of this NBER volume has little to do with
the classic case of the Horndal effect or with the productivity effects of
learning associated with the long production runs of aircraft or ship
construction. Instead, this volume deals with "scaled-up" learning by doing
concepts with an analytical reach that extends to a number of forms of
organizational learning and, in Gavin Wright's concluding chapter, to learning
as a "national network phenomenon" (p. 296). The volume, drawn from an
interdisciplinary conference of business and economic historians,
is premised on the notion that information - its acquisition and use -
"effectively determines whether firms, industry groups, and even nations will
succeed or fail" (p. 15). Thus the learning examined in these studies falls
within that broad compass.
The first two essays examine how firms learn of the technological frontier and,
as well, learn how to appropriate best-practice technologies for competitive
advantage. In "Inventors, Firms, and the Market for Technology in the late
Nineteenth and Early Twentieth Centuries," Naomi R. Lamoreaux and Kenneth L.
Sokoloff utilize patent data to develop a quantitative picture of the market
for technology. That market, they conclude, was well developed and thus
allowed firms to keep track of technological advances via intermediaries in the
market (patent agents and solicitors) or by direct contact with inventors. By
the beginning of the twentieth century,
however, firms increasingly attempted to move inventive activity within the
firm and that in turn required further learning on the part of the firm,
e.g., in minimizing employee turnover and insuring that patents received by
employees were assigned to the firm. The following essay by Steven W.
Usselman examines exactly this form of learning by American railroads and
their "internalization of discovery" (p. 63). Railroad managers from early in
the nineteenth century saw technical innovation in their industry as stemming
largely from "the efforts of ordinary
mechanics and engineers, not through discrete acts of patentable invention" (p.
63). Since railroads saw firm-specific knowledge as critical to the innovation
process, they not only attempted to internalize inventions but also attempted
to buffer the impact of external technical developments by forming railroad
associations and patent pools that insured patents would be cross-licensed to
the member firms. In a detailed and perceptive comment on the Usselman paper,
Jeremy Atack notes that such "... collusion stilled the winds of 'creative
destruction' that jeopardized the value of existing investment" (p. 101).
Forms of collusion or, more neutrally, institutionalized forms of information
interchange, were not confined to railroads. Avoiding the cartel label and yet
still providing interfirm coordination on pricing represents another form of
organization learning. In "The Sugar Institute Learns to Organize Information
Exchange," David Genesove and Wallace P.
Mullin study a "technologically stagnant industry" (p. 106), U.S. sugar
refining from 1928 to 1936, where the learning question shifts away from
production technology to organizational innovation in interfirm information
sharing. The Institute did learn to organize and collect data while insuring
members' confidentiality, thus allowing for "increases in the correlation of
firm decisions" (p. 133) as price and sugar stock data became available to all
members of the Institute. Not incidentally, the availability of common
information also precluded secret
A Supreme Court decision ended this particular form of organizational learning.
Kazuhiro Mishina's paper on "Learning by New Experiences: Revisiting the Flying
Fortress Learning Curve" is the only paper in the volume that approaches
learning in its familiar learning curve form and the only one to draw on
econometrics in its analysis. The magnitude of the productivity increase in
Boeing's B17 production from 1941 to 1944 was huge: the direct labor hours per
airframe dropped from 142,83 7 to 15,316, falling to nearly a tenth of the time
required at the beginning of the production run. What accounted for a
productivity increase of that size? Mishina rejects "the learning-by-doing
hypothesis that holds direct workers or engineers as the learning agent" (p.
175). Instead he finds the answer in the reduction in through-put time and "the
operating know-how that enabled it" (p. 175). No direct econometric test of
that conclusion is possible and the absence of learning taking place by direct
labor and engineers appears improbable. Not surprisingly then, Ross Thomson,
in his comment raises the question of whether the learning involved might have
been a cumulative process in which output growth, productivity growth, and
prior learning interacted.
The next two essays are intensive examinations of organizational
decision-making/learning. David Hounshell focuses on one critical meeting of
the Ford Motor Company Executive Committee on December 2, 1949. This is the
"Whiz Kid" era at Ford and Hounshell sees the meeting as defining a turning
point in Ford's strategic course since the meeting reversed Ford's strategy of
a decentralization of production. Hounshell asks how such a reversal came
about, explores several hypotheses, but concludes he can do no more than
speculate on the mechanisms that might have accounted for the Executive
Committee's about-face on strategy.
Daniel M.G. Raff and Peter Temin's essay also examines strategy decisions
within a firm, in this case two marketing decisions made by
Sears, one in the 1920s and a second in the 1980s. At the earlier date,
retailing channels were expanded from mail order operations to own retail
stores; in the latter case, financial services were added to the product array
in its retail stores. Again, as with Ford, the question is how these decisions
were made and whether they relied on the firm's learning of its corporate
strengths and accurate perceptions of its competitive advantages in evolving
markets. Differences in leadership capability in the two eras were, in Raff
and Temin's view, the critical variable at work. Leadership in the 1920s
focused on an attractive market that could be tapped by
"exploiting [the] firm's existing competitive strength" (p 246). The 1980s
leadership failed in both learning the market and in recognizing Sears'
Perhaps of most interest methodologically is Leslie Hannah's test of whether
the "lump of corporate capability" (p. 257) presumably possessed by the giant
corporations of 1912 grew or declined by 1995. Survivability to the 1995 date
is the first test, but Hannah also poses a second: among the survivors, how did
a given firm's growth in market equity capitalization compare with a
price-deflated market index? Using those tests, Hannah notes that
"disappearance or decline was nearly three times more likely among the giants
than growth" (p. 271). Observing that high incidence of corporate decline and
failure, he turns to a consideration of what types of
"corporate architectures" and strategies
allowed large firms to "retain their position, continue to add value, and
expand their capabilities" (p.
In the final essay, Gavin Wright questions whether learning should be equated
solely with changes in total factor productivity. Rather, when looking at the
learning associated American economic growth in the nineteenth century, the
learning "was substantially a national network phenomena" (p. 296). As such,
"collective national learning may reside just as much in the discovery,
expansion, and accumulation of the factors of production as in their
productivity" (p. 296). To develop his point, he examines the U.S. mineral
industry, "one of the earliest and largest American technological networks,"
(p. 307) and the development of chemical engineering as it changed the way in
which chemical knowledge was acquired.
A collection of learning-by-doing studies as diverse as these serve to expand
definitions of the forms of learning. Can one measure the learning taking place
or generalize from the case studies, as Leslie Hannah and the editors attempt
to do? The answer would appear to be: with considerable difficulty. The problem
lies not only with the diverse definitions of learning employed, but also with
the difficulty of devising any empirical measures of the learning taking
place. Once one moves beyond the patent data of Lamoreaux and Sokoloff or the
production data of Mishina, measurement is elusive. One test would appear to
be success in the marketplace,
perhaps indicated by firm size and survivors hip - a measure that Hannah
attempts to make explicit. Market success may be an appropriate measure, if the
firm's organizational capability, its use of patented technologies, or its
"ability to collect and use information effectively"
(p. 15) represent the major forms of learning occurring and can be linked to
market outcomes. However, as Bruce Kogut points out in his comment on Hannah's
paper, there are more variables involved. "... a firm's duration is contingent
on the evolution of its broader competitive and institutional landscape. This
broader landscape consists of firms, workers (sometimes organized in unions),
governments, political interests, research centers,
suppliers and buyers, idea merchants, and, of course, mechanisms of financial
intermediation and corporate governance" (p. 289). With that array of
variables at work, it may be that business and economic historians will not be
able to move significantly beyond case studies in examining these larger forms
of organizational and national learning. Or, as Leslie Hannah resignedly puts
it for the large corporation case: "To date, ... we have made great strides in
storytelling, but a clearer, surer recipe for sustained success for large
corporations has remained elusive" (p. 270).
Henry A. Gemery is the author of "The Microeconomic Bases of Short-Run
Learning Curves: Destroyer Production in World War II," (with Jan Hogendorn) in
Geoffrey Mills and Hugh Rockoff, editors, The Sinews of War:
Essays on the Economic History of World War II, Ames:
Iowa State University Press, 1993.