Alfred Chandler: Big Business' Big Loss

The renowned business historian and author brought unprecedented rigor and sophistication to the study of the rise of the modern corporation

by Chris Farrell

Every once in a great while, a scholar changes how we look at the world. Over the past half-century that has been the case of business historian Alfred D. Chandler Jr. From his perch at the Massachusetts Institute of Technology, Johns Hopkins University and, from 1971 on at Harvard Business School, Chandler brought unprecedented rigor and sophistication to the historical study of Big Business and the rise of the modern corporation. He passed away May 9, at age 88.

Chandler is best known for three magisterial books: Structure and Strategy, The Visible Hand, and Scale and Scope. All three chronicle the emergence of large, complex industrial corporations, such as General Motors (GM), DuPont (DD), and Standard Oil. Companies like these in the 19th and early 20th century created dynamic global enterprises in such major industries as railroads, automobiles, telecommunications, and pharmaceuticals. His corporate and industry histories were rich and detailed; encyclopedic excavations into the forces that led to the development of the modern corporation. "I would like to suggest that the major innovation in the American economy between the 1880s and the turn of the century was the creation of the great corporations in American industry," he wrote in a 1959 Business History Review article.

The Managerial Revolution

When Chandler started examining Big Business, historians of 19th-century enterprise largely focused on whether Rockefeller, Gould, Duke, Carnegie, and other business titans were robber barons (bad) or industrial entrepreneurs (good). It's a question that didn't interest him. And he wasn't persuaded by economic theories that abstracted out people, power, and organizations; institutions like the modern corporation.

Technology was critical to his story, from mass-production techniques to electric power. So was the growth of urban, national, and international markets. His crowning scholarly achievement was in persuasively identifying the managerial revolution behind the rise of Big Business in America. To paraphrase Marx, managers were in the vanguard of the Second Industrial Revolution. And the large institutions they built and ran transformed the economy into the world's wealthiest.

Professional managers were a new breed of economic man in the 19th century. Their growing knowledge and investment into mass-production techniques, mass marketing, and mass distribution—as well as the nurturing of management talent—revolutionized business and the economy. "The visible hand of management replaced the invisible hand of market forces where and when new technology and expanded markets permitted a historically unprecedented high volume and speed of materials through the processes of production and distribution," he wrote in the introduction to The Visible Hand. "Modern business enterprise was thus the institutional response to the rapid pace of technological innovation and increasing consumer demand in the United States in the second half of the 19th century."

Ownership vs. Control

I first encountered Chandler in the latter part of the 1980s when I read The Visible Hand, his Pulitzer Prize-winning book published in 1977. The history is fascinating. But I read it to understand better the major debates swirling around Corporate America during deal mania, including those over shareholder value, mergers and acquisitions, and global competitiveness.

At the time I read the book, economists and abstract market theories ruled the discussion. Yet Chandler's detailed history and sociological insights challenged some common economic notions. For example, many economists argued that what ails U.S. companies was that the managers running them weren't owners. (Sound familiar?) Yet Chandler showed that America's industrial triumph from the 1880s to the 1940s depended on the separation of ownership and control.