EH.Net Mailing List Archive: EH.Teach

Recommendations for Reading (and Re-Reading): Hejeebu on Teaching the  
History of the Firm 
 
Santhi Hejeebu, Department of Economics and Business, Cornell College. 
 
 
My task is to suggest readings to colleagues who care about teaching  
effectively -- or teaching better than last semester in any case. At  
Cornell College, we have no semesters or trimesters.[1] Cornell, a  
residential liberal arts college of 1200, follows the “block plan” in  
which faculty teach and students take one course at a time. Students do  
not multi-task across courses and faculty do not compete with each other  
for students’ attention and effort levels. The nine months of the  
academic year are divided into nine blocks of nearly a month long. Thus  
every course is taught in 18 consecutive class days on the block plan.  
_The pace is intense_. Teaching at Cornell means meeting students 3 to 4  
hours per day, every day, in small classes plus office hours. The long  
sessions and daily meetings also mean that course readings, homework  
sets, and in-class projects must be meticulously planned. It is simply  
impossible to ad-lib 3 to 4 hours in the classroom. The calendar lends  
itself well to active learning styles, to depth rather than breadth of  
coverage, and to pursuing well-defined learning objectives. Cornell  
College has followed the block plan for thirty years. This is my third  
and I’m still trying to figure out what works and what does not. 
         
Here are some of the readings I will experiment with in my course  
entitled “Multinational Corporations in Historical Perspective.” I will  
attempt to pinpoint what I hope students to learn from the readings. The  
course reflects my broad interest in economic organizations, in the  
social organization of production and in the mitigation of conflicting  
interests through contracts. I am drawn to the cacophony of criticisms  
and adulations over global firms. I use the scholarly discourse about  
their causes and impacts as a means for learning and teaching economic  
analysis -- including its limits. By understanding how dead firms  
engaged market forces, hopefully students can appreciate the complicated  
roles living firms play in today’s global economy. 
 
My first reading is a viewing: _The Corporation_. Released in 2004 and  
produced in Canada, the documentary is based upon the recent work of  
Joel Bakan, a constitutional law expert at the University of British  
Columbia. The film critiques “the firm,” in particular the multinational  
corporation, as a governing institution rather than private economic  
association. _The Corporation_ presents a collage of episodes in  
(recent) corporate history in order to determine the “personality  
profile” of the corporation. 
 
In chapter 4, the narrator claims “We can analyze it [the firm] like a  
psychiatrist would analyze a patient. We can even formulate a diagnosis  
on the basis of case histories of typical harm it has inflicted on  
others selected from a universe of corporate activity.” Given this  
“analytical” framework and the quality of the sample selection, is there  
any wonder that the film portrays the corporation as a psychopath and  
public menace? Interviewees range from Michael Moore, Naomi Klein, and  
Vandana Shiva to Milton Friedman, seven CEOs, 3 VPs, and Michael Walker,  
a senior fellow at the Fraser Institute. Such diversity pretends to  
“expose the institutional constraints many good people working inside  
big corporations struggle with,” according to the producer Mark Achbar.  
Most students are not fooled. The film succeeds only in portraying the  
corporation as a singular horror. 
 
Yet, the things I find unpalatable -- the lop-sidedness of the message  
and goofiness of the analysis -- make the film valuable for classroom  
dissection, discussion and debate. The extreme presentation provides a  
wide opening for critiquing the arguments, chapter by chapter. The  
Fourteenth Amendment to the U.S. Constitution, according to the film,  
was hijacked by commercial interests to create the fiction that the  
corporation was a legal person. The merits of such an argument aside,  
the images of slaves juxtaposed against those of cigar-puffing robber  
barons equates the supposed deceptions of the corporate form with the  
evils of chattel slavery. The powerful image appeals immediately to  
pathos; but, I ask my students, does it stand to reason? 
 
In an age in which college students get their news from late night  
comedy shows, I think it is enormously important to teach them to be  
critical viewers. A century ago, Ida Tarbell captivated a national  
readership with a sizzling serial about John D. Rockefeller. Because  
today’s muckrakers reach their mass audiences through film, it is  
crucial that undergraduates become savvy “readers” of economic arguments  
conveyed visually. 
 
The film provokes one question I want my students to answer: “what is  
the social responsibility of business?” Is it simply to increase  
profits, as Friedman famously wrote in his 1970 _New York Times  
Magazine_ piece? How does one justify the vast wealth of firms alongside  
the poverty and hopelessness in many communities in which global  
corporations operate?   I want my students of business history to  
articulate about the preconceptions with which they approach such a  
question. Some students may believe that maximizing profits or  
shareholder wealth is the only goal to which an organization should  
aspire. Why? They should justify such a position and explore fully its  
implications. Others may believe that the firm owes more than what it  
contracts to deliver and more than the tax burden it cannot avoid. If  
the corporation owes more, then what form should such responsibility  
take? The biblical ten percent? Students who feel that firms bear a  
special responsibility should justify such a position and explore fully  
its implications. For me, there’s no point in teaching the history of  
capitalism unless students can question and substantiate their own  
beliefs on the vices and virtues of this most basic capitalist institution. 
 
A new book, _Leviathans: Multinational Corporations and the New Global  
History_ edited by Alfred D. Chandler and Bruce Mazlish (Cambridge  
University Press, 2005) does better than most in organizing the  
interdisciplinary aspects of gigantic economic enterprises. The agenda  
is ambitious and may account for the editors’ unwieldy and redundant  
introduction. All the same, the individual essays were for me more  
satisfying than the strained effort to make them cohere. The book is  
divided into three parts: scope of the multinational phenomenon, social  
and cultural implications of multinationals, and governance of  
multinationals. 
 
The book’s first section includes Brian Roach’s “A Primer on the  
Multinational Corporation,” two surveys of the growth of multinationals  
by distinguished business historians Mira Wilkins and Geoffrey Jones,  
followed by a case study of Japanese multinationals. I found the  
“Primer” essay particularly lucid and accessible. It offers students  
basic vocabulary and facts regarding multinationals in today’s global  
economy. Broad issues such as the distributions of multinationals,  
different ways of assessing size, and explanations of their size are  
presented succinctly and effectively. Socio-political issues including  
the firm’s political power and ability to shape or evade regulation are  
also presented in ways that inform rather than preach. 
 
The two historical surveys trace the development of multinationals from  
the 1600s to the 1930s and from the 1930s to the 1980s. Wilkins’ essay  
emphasizes the role of nineteenth century multinationals in building  
basic transportation and communication infrastructure, their dominance  
in extractive industries, and, by the 1920s, their emergence as  
vertically integrated manufacturers. Although at times cryptic, Wilkins’  
footnotes provide students with many exciting leads for independent  
papers on specific industries and specific firms. The footnotes in  
Jones’ essay on multinationals through the 1980s likewise reflect great  
erudition and command of a broad literature. Students will find in both  
essays broad trends -- such as European cartelization in the 1930s and  
subsequent localization of multinationals, especially in post-colonial  
nations -- illuminated by well-chosen examples. Both essays provide  
bird’s-eye views of the emergence of great firms. Instructors will have  
to look elsewhere for greater depth of coverage. 
 
The second part of the volume introduces cultural and social  
implications of multinationals. Such topics intimately connect market  
history with social history. They provide a natural entry point for  
discussing the firm's regulatory environment. Government intervention is  
writ large on the evolution of the corporation and, as Amartya Sen once  
wrote, institutional constraints often prove more important than  
objective functions in determining economic outcomes.  Neva Goodwin’s  
essay “The Social Impacts of Multinational Corporations: An Outline of  
the Issues with a Focus on Workers” succeeds in the same way Roach’s  
lead essay does: it provides a basic framework for informed  
conversation. Although Goodwin’s occasional polemics about firms’  
supposedly escaping competition can be annoying, one could see them as  
pedagogical opportunities or simply ignore them. Investment regimes,  
dual-labor market theory, and X-inefficiency all blend with the author’s  
passionate concern with the distribution of productive output. Goodwin’s  
framework, more sociological than economic, will challenge students’  
understanding of neoclassical labor markets and market imperfections. 
 
The remaining essays of the Chandler and Mazlish volume are less  
historical and more concerned with post-1980 political economy issues.  
They address the roles of global elites and contemporary challenges to  
corporate governance. These topics will not fit in my economic history  
courses. 
 
For a fuller and more traditional survey of the evolution of the  
corporation, consider adopting Geoffrey Jones’ _Multinationals and  
Global Capitalism_ (Oxford University Press, 2005). It is far more  
focused on global firms than the Chandler and Mazlish book and unlike  
other recent volumes, for instance _Foundations of Corporate Empire_ by  
Karl Moore and David Lewis (2000) and _The Company: A Short History of a  
Revolutionary Idea_ by John Micklethwait and Adrian Woolridge (2003),  
Jones’ book does not water down scholarship for wider accessibility. It  
is comprehensive but not dry. It is full of fascinating case studies but  
sophisticated analytically. Jones explicitly recognizes the influences  
of policy environments, the role of corporate lobbying in shaping  
policies, and jurisdictional tensions that persist between firms and  
host governments. Yet, he does not pretend to carry the cross of  
contemporary policy makers: what is to be done now? 
 
_Multinationals and Global Capitalism_ is a very well crafted book. The  
author begins with theories of the firm, applying them specifically to  
multinationals. The instructor can easily supplement Jones’ verbal  
descriptions with the necessary graphs and equations. The book proceeds  
with three chapters of chronological business history divided into  
natural resource/extractive industries, manufacturing industries, and  
services. The next group of chapters looks carefully at the managerial  
strategies that were used to expand and adapt across borders. Here we  
find a deft blending of organizational theory and historical cases.  
Indeed Jones’ mastery of international business histories -- oil and  
gas, banking, merchant trading, and cosmetics, to name a few -- is truly  
astounding. You do not find any of that implicit adulation of the  
American model that one finds in older business histories. Jones is  
keenly aware of the variations in business forms and how culture,  
technology, and governmental policies influence the shape of specific  
organizations in specific markets at specific times. The next section  
examines how regulatory conditions can fuel or slow corporation  
globalization. Here again, the instructor will need to supplement the  
theoretical description with the concreteness typical of a regulatory  
economics text. Lastly, Jones describes and evaluates the consequences  
of multinationals on home economies, host economies, and global economic  
growth. Jones does not celebrate multinationals as engines of growth.  
Instead, he provides a scholarly chronicle of the transnational firm and  
a nuanced reading of its long-term impact. 
 
Were multinationals always contested? Are criticisms of the corporate  
form unique to the contemporary economy? Did economic observers in the  
past use the technical language of transfer pricing, price  
discrimination, externalities and economies of scale to formulate  
policies regarding corporations? 
 
I want students to learn that criticisms of the corporate form and  
merchant associations more broadly have deep roots in the history of  
economic ideas. To address these questions and illustrate long-standing  
concerns over big business, I would have students read selections from  
_The Wealth of Nations_ [Cannan edition, 1976]. Many students are  
already aware of the first three chapters of Book 1, with its definition  
of the market and linkages between the division of labor and the extent  
of the market. They will know about Smith’s notions of equilibrium and  
stability from a history of thought course. In my course, I want  
students to learn what the founder of modern economics thought about the  
largest corporations of the day. I have students turn to Book V, Chapter  
I, Part III, Article 1 on the “public works and institutions which are  
necessary for facilitating particular branches of commerce.” 
 
Here we find Smith’s famous discussion of regulated and joint-stock  
companies -- firms founded with state authority and which, in principle,  
are granted exclusive access to their assigned markets. It is  
immediately clear that these “giants of an earlier capitalism,” as Ann  
Carlos and Stephen Nicholas described them, were exceptional, and,  
according to Smith, appropriate only for particular branches of  
commerce. By “particular branches” Smith refers to trade with “barbarous  
nations” and trade with nations requiring ambassadors and forts. 
 
Smith regarded the chartered corporations as necessary evils. “They have  
seldom succeeded without an exclusive privilege; and frequently have not  
succeeded with one. Without an exclusive privilege they have commonly  
mismanaged the trade. With an exclusive privilege they have both  
mismanaged and confined it” [Volume 2, Book 4, p. 265].  Why would the  
founder of modern economics hold the corporation in such contempt? Are  
his justifications reasonable? What evidence would you need to support  
or oppose Smith’s critique of the firm? These are some of the threads  
that I would pursue. 
 
Note: 
1. Cornell College is in Mt. Vernon, IA not Ithaca, NY. Incidentally,  
the college in Iowa was founded first and both institutions honor the  
same family. 
 
 
Santhi Hejeebu is an assistant professor in the Department of Economics  
and Business at Cornell College.  Her publications include, “Specific  
Information and the English Chartered Companies, 1650-1750” (with Ann M.  
Carlos), forthcoming in _Information Flows, 1600-2000_, edited by Jari  
Ojala; and “Contract Enforcement in the English East India Company,”  
_Journal of Economic History_ (2005).