The Emergence of Modern Business Enterprise in France, 1800-1930

Published by EH.NET (May 2006)

Michael Stephen Smith, The Emergence of Modern Business Enterprise in France, 1800-1930 . Cambridge, MA: Harvard University Press, 2005. x + 575 pp. $60 (hardcover), ISBN: 0-674-01939-3.

Reviewed for EH.NET by Pierre-Cyrille Hautcoeur, Ecole des Hautes Etudes en Sciences Sociales.

Michael S. Smith, associate professor of history at the University of North Carolina, proposes a synthesis on the emergence of big business in France in the tradition of Alfred Chandler. The book “seeks to explain how and why France acquired the roster of large corporate enterprises that would come to dominate France’s domestic economy and project French economic influence throughout Europe and the world over the course of the twentieth century” (p. 1). It “argues that the same forces that were giving rise to a new kind of very large, very complex business organization in the United States, Germany, and Great Britain between 1880 and 1930 were also at work in France” (p. 2), contrary to the idea of a special or a backward path for French economic development.

The book is well written and structured, revealing an exceptional knowledge of a large historiography and a capacity to organize it in a simple and mostly convincing narrative. It is also well presented, with minor typographical errors (usually in references to French names or publications, e.g. note 6, p. 501). The index includes all personal and firms names mentioned in the main text (not including the notes), as well as some analytical categories.

The book is divided into three parts and sixteen chapters, plus an introduction and a conclusion. Part one deals in less than one hundred pages with commerce, banking and transportation, in three chronological chapters (1800-1840s; 1850s-1870s; 1870s-1900s), with no discussion of the twentieth century.

Part two deals in two hundred pages with “the flowering of industrial capitalism.” It starts with seven chapters on particular industries (textiles, coal, iron and steel, “hardware, machinery and construction,” consumer goods, chemicals, “glass, paper and print”). It ends with a transversal chapter on “the new world of industrial capitalism” that deals with problems common to many industries and not dealt with elsewhere.

Part three analyzes in 160 pages the second industrial revolution and the beginnings of managerial capitalism, from 1880 onward. It includes four “industry based” chapters on the steel, electrical, automobile and “chemicals and materials” industries, and ends with a transversal chapter on “the new world of managerial capitalism.”

In order to make visible the method followed by the author, I will discuss a few chapters in more detail.

After an introduction in which the author presents a well-balanced (although not always up-to-date) synthesis on the “foundations for modern capitalism” before 1800, the first chapter centers on merchant capitalism, which it studies on a local basis and on an individual basis more than in terms of formal organization. It then follows the traditional historiography, sometimes missing the most recent works (even if it would be more consistent with its overall thesis, e.g., J.P. Hirsch, C. Lemercier). The role of the Haute-banque is presented in the conventional way.

Chapter two describes the interrelated revolutions in banking and transportation, which were grounded in Saint-Simonian ideas and networks during the Second Empire. The chapter clearly shows the role of the relationship between the government and these networks in these changes. It does not discuss the conventional wisdom, nor look at the organizational consequences of these relationships (government administrations were structured, not only business ones). The organization of the railroads is not really discussed, except for its “grande politique” dimensions. The internal organization of the banks is not discussed either, and the concept of a financial system is not introduced.

Chapter eight presents the chemical industry. Like most industry-based chapters, it is mostly organized as a succession of firms’ histories in relation with the invention of new products and processes, but says almost nothing of firm or market organization. Technological innovation seems the only important way to success, and its origins are not much discussed.

The transversal chapter 11 discusses three major themes: how industrial enterprises were financed, how they recruited and managed their labor force, and how they managed their external environment, especially the state. Finance and accounting practices are briefly described, but they are not analyzed as strategic choices and/or major explanations with responsibility for the varying success of firms or industries. The main conclusion is “the normality of the French industrial experience — that is, its similarity to the British experience” (p. 303) in finance, accounting and labor relations. As concerns the management of the external environment, the author concentrates on three subjects: tariff policy, competition policy and railroad policy (network subsidies and rate regulation). The precise organization of business and the instruments of its intervention in policymaking or in policy application (industry-level or local-level organizations, such as the chambers of commerce) is not examined (except, briefly, for the iron and steel, chemical and textiles industries, mostly in terms of restriction to competition). In the view of this reviewer, this chapter is too brief and comes too late in comparison with its strategic importance in understanding the rise of big business as a major economic phenomenon.

The third part focuses on those few industries in which French firms underwent a true Chandlerian revolution from the point of view of the author. Chapters on iron and steel, the electrical, automobile and chemical industries show how concentration, both through vertical and horizontal integration, allowed for the creation of important and complex organizations (although the internal organization is always treated only briefly).

One important question is whether the factors behind the smaller size of French firms had an impact on their efficiency and their ability to develop all the economies of scale and scope favored by Chandlerian business historians. These factors certainly included market sharing (in iron and steel), interlocking directorates and participation, and family firms’ preoccupation with secrecy and family control, all elements mentioned by the author but without providing a satisfactory answer to the above question.

Like chapter 11, chapter 16 has a crucial role and could well have been extended beyond its twenty pages. It discusses the creation of complex organizational structures, the growing role of professional managers and the new challenges in corporate policies that made them necessary. After a rapid presentation of the railroad’s pioneering role in organization, it presents the changes in management in industrial firms. It describes examples of divisional organization as early as the late nineteenth century, and emphasizes rightly the importance of holding structures from the 1920s onwards. It mostly insists on the rise of engineers as the main managers of French industrial firms, but discusses little their education, their efficiency, or the importance for their management style or their links with public administration. Overall, it suggests that new techniques of management or organization (including assembly lines) were already well developed in France prior to World War II.

The conclusion describes briefly the evolution of French big business in the second half of the twentieth century.

As a whole, the book gives a quite complete picture of French big (mostly manufacturing) firms in the nineteenth and early twentieth centuries. It reflects the many and important developments in the recent historiography of French business, and also its shortcomings, which explain most of the quibbles mentioned above.

Nevertheless, the reader (especially if he is an economic and not a business historian) could have expected something more. Although in the prologue, the author presents a short survey of (English-speaking) macroeconomic interpretations of French development, he is not really in a position to discuss the views expressed at the macroeconomic level. Some assertions such as “firm-level research demonstrated that French industry was more expansive and technologically advanced … than once thought” (p. 4), or “by the end of the nineteenth century, the activities [of the big firms] had become the focal point of economic life in France” (p. 324), suffer from a methodological bias, since the overall importance of big business in the economy is neither discussed nor compared to that in other countries. The book focuses on firms, not economic development, with an ambiguity since the only reason to discuss French firms separately is their link with French economic development. Bringing in more data comparing big firms with macroeconomic data (which exist at the industry level at least for the period after 1890) could have helped solve that problem. A short discussion of industries where big firms did not develop — and why — would also have been useful.

A second, related quibble: the international position of French firms is mentioned but little discussed, even though some of them had major international operations. If “it is with an eye to France’s eventual success in the late twentieth century that this book tells the story of the modernization of French business” (p. 5), one cannot but point out to the author that today’s big firms make most of their business abroad (not only by exports, but also by producing abroad), so much so that their impact on the French economy is sometimes questioned.

A third point, related to the two previous ones: the book is not very quantitative. It deals with a great number of firms, but provides little quantified comparisons among them (which could give way to typologies, for example) or between them and the rest of the economy or their foreign equivalents. The few tables (eight for the entire book, no figures) list the biggest firms in a given industry at a particular date; only the last two give some international comparison, and they provide few elements of comparison (total assets in general).

Fourth point: the relationship between French firms and the state is discussed in the very first chapters for the early nineteenth century, and somewhat in chapter 11, but almost never thereafter, although discussions of nationalization are widespread in the interwar period. The relationships between government and big business people or organizational practices are worth more discussion. The role of governments regulations (major in the 1930s), but also of semi-public bodies such as the chambers of commerce (important during the all period), is under-appreciated. (Actually neither the Code de commerce, nor the chambers of commerce, the commercial courts, nor the commerce minister appear in the index, even if some of them occasionally appear in the text.)

In conclusion, the book is a very useful synthesis for American students or scholars (French readers will find it strange that the discussion centers only on English-language historiographical debates, even if they are mostly based on French scholarship), more than an original contribution to our knowledge.

Pierre-Cyrille Hautcoeur is Professor of Economic History, Ecole des Hautes Etudes en Sciences Sociales and Research Fellow, Paris Jourdan Sciences Economiques (PSE) (joint research unit, CNRS-EHESS-ENPC-ENS). He specializes in monetary and financial history. His recent publications include “Efficiency, Competition and the Development of Life Insurance in France (1870-1939); or: Why Some People Don’t Trust Pension Funds,” Explorations in Economic History 41 (2004): 205-32; “Was the Great War a Watershed? The Economics of World War One in France,” in S. Broadberry and M. Harrisson, editors, The Economics of World War One (2005); and “Why Didn’t France Follow the British Stabilization after World War One?” (with M. Bordo), NBER Working Paper 9860, forthcoming in the European Review of Economic History.