Published by EH.NET (January 2003)

Alfred D. Chandler, Jr., Inventing the Electronic Century: The Epic Story of the Consumer Electronics and Computer Industries. New York: Free Press, 2001. xiv + 321 pp. ISBN: 0-7432-1567-2.

Reviewed for EH.NET by Kenneth Lipartito, Department of History, Florida International University.

The new economy holds no mysteries to Alfred Chandler. It works largely like the “old” industrial economy. Chandler, the Straus Professor of Business History Emeritus at Harvard Business School, has no peer in his command of the business history of industrial America. In his new work, he tackles an era defined by electrons rather than steam molecules or hydrocarbons. Surveying the development of consumer electronics such as televisions, VCRs and DVDs, as well as the computer from mainframe to laptop, he finds substantial evidence that the electronic century can be understood with a variation of the model he developed for earlier times.

Anyone who has been following Chandler’s work will note that his explanatory apparatus has evolved since his classic study of the modern corporation, The Visible Hand. In that book, he emphasized economies of scale and scope, market expansion and the managerial response to each, as reflected in large-scale corporations using various organizational schemes. In his later comparative work, Scale and Scope, he added discussions of several other business functions (notably corporate research and development), added ideas such as transactions costs and, surveying variations in industrial capitalism across nations, made at least a nod toward the state. Over time, Chandler has backed away from the emphasis on transactions costs, principal-agent conflict and other concepts favored by neo-classical economists. He has reemphasized the creative role of the executive office, and of scale and scope economies in giving big corporations the edge in many sectors. He dismisses as fads, or worse, blunders, strategies such as conglomeration. And he has little to say on recent trends that supposedly have slimmed down firms, flattened hierarchies and given workers and other stakeholders greater say in corporate affairs.

In Chandler’s electronic century, firms with long histories and strong managerial traditions still dominate. He notes that even in 1994, almost half of the Fortune 500 companies were founded in the industrial era, 1880-1920. Even in the computer and consumer electronics industries, the American, European and Japanese firms who dominate these sectors have histories fifty or more years long. Chandler’s evidence may surprise those who believe that the information economy is populated solely by blue-jeaned entrepreneurs, West Coast start-ups, and bold venture capitalists. In 1994, for example, IBM was the US leader (by revenues) in mainframes, minicomputers, peripherals, software and services, and was second in workstations and PCs. Similarly well-established firms, such as Fujitsu, Hitachi, NEC and Matsushita held similar positions in Japanese computer and consumer electronics. The new economy, in short rests strongly on the old, with many start-up firms acting as suppliers or niche competitors in a nexus around the older, larger, central firms.

History to Chandler not only deserves its due, but plays a key role in the evolution of industries and their firms. Adding a new arrow to his conceptual quiver, Chandler stresses the role of learning, or what he calls a “learning base,” in making firms successful competitors. The learning base integrates technical skills and knowledge with functional ones — that is, abilities to manufacture, market and connect research to commercial products. It derives from firms’ past experiences. He has less now to say about strategy and structure, perhaps because firms have moved in so many different directions from the classic patterns of vertical integration, functional centralization and managerial decentralization.

Learning, plus the old stalwarts scale and scope, mean that once new industries are established, only a few firms will be able to compete in them. Barriers to entry are still high in Chandler’s electronic century, and the opportunities for start-ups far more limited than popular accounts would suggest.

With these views at the core of his project, Chandler narrates the history of the electronic century through key players, the winners who have driven the industries for more than half a century. IBM and RCA in America, Phillips in Europe, Fujitsu, NEC, Matsushita and a handful of others in Japan play the largest roles in this book. This is not to say that Chandler ignores change or failure. The wreck of RCA and the decline of Phillips are important too. There are significant sections on the failure of the British and more broadly European computer industry, the conquest of the memory chips market by Japanese firms, the fall and rebound of IBM, the destruction of mainframes by PCs, and the US dominance of microprocessors. On the other hand, given the focus and cutoff date (1996), there is less on the software industry and almost nothing on the internet, beyond a discussion of its early origins. Bill Gates is little more than a lucky young man in this book.

One can quibble with the periodization, scope, and the choice of key players. More significant, though, are questions about the book’s explanatory power. As he has throughout his career, Chandler largely leaves the state out, though he cannot help but acknowledge the role that antitrust played in the 1950s and 60s in unbundling computer technology and loosening the grip of dominant players AT&T (transistors), IBM (mainframes and peripherals) and RCA (tubes) in ways that encouraged new entrants and new products. Chandler treats the prominent role of government actors in fostering the internet and important applications (the World Wide Web; web browsers) as merely givens for firms to exploit. And though Chandler acknowledges the importance of learning and path dependency, the ways in which these may allow fortunately placed firms to gain and exploit market power is of little concern to him.

On the book’s core themes — the role of the learning base and importance of firm competencies — the evidence is sometimes thin or even contradictory. Chandler is convinced that firms which cultivate their historic skills come out on top, compared to those which try to buy their way into industries or engage in thoughtless mergers and acquisitions. Yet in other cases, the evidence seems to point to the opposite. British computer firms failed by trying to achieve dominance through merger, though Japanese firms gained skills and knowledge by merging or forming joint ventures with other firms. French governmental efforts to create a national champion in computers floundered, but MITI’s policies allowed Japanese firms to compete with IBM and take over parts of the chip market. IBM renewed itself by returning to its core competencies, but RCA fell apart because it tried to develop its own video technology and stuck too long to its existing markets. Some outcomes, as the battle between videodisks, Beta and VHS systems in the home video market, turn less on what any firm did and more on contingent outcomes in many areas. It is hard to know what lessons for business strategy to draw in cases like these, where firms may be very successful and enjoy strong entry barriers, but less because of their own virtues than because of circumstances.

Ironic or unintended outcomes, politics and power still hold less fascination for Chandler than the internal operations of well-managed firms.

Kenneth Lipartito is Professor and Chair, Department of History, Florida International University. He writes on the history of the telecommunications industry and has most recently published a study of a financial innovator, Investing for Middle America: John Elliott Tappan and the Origins of American Express Financial Advisors (Palgrave/St. Martins, 2001).