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The debates about the significance of the corporation in contemporary societies have often taken place without sufficient reference to historical and comparative studies of the emergence and development of the corporation. In part, this is a result of the view that the modern corporation is merely a contemporary manifestation of bureaucratic tendencies. Weber (1991, p. 204) saw the ‘large modern capitalist enterprise’ as simply a purer form of the bureaucratic ideal type found at various times and places in history since ancient Egypt. Galbraith (1987, p. 42) has portrayed organisations such as the British East India Company, which lasted from 1600 to 1874, as antecedents of the modern multinational corporation. Business historians, notably Chandler and Daems, have dismissed much of the literature on the modern corporation, typified by Galbraith’s The New Industrial State, as ‘factless theorizing’ (1980). Chandler (1962, 1977, 1990), along with other business historians such as his colleague, Lazonick (1992), have produced detailed histories dealing with the rise of the modern corporation. Their studies draw upon both survey and case study research based on internal company documents.

There are longstanding debates in both sociology and economics about the significance of the modern corporation. Many social scientists contend that since the economy has become increasingly dominated by large corporations there has been a fundamental transformation of society. These commentators believe that contemporary society bears very little resemblance to the models of capitalism developed by classical, neoclassical and Marxist economics. This is because those models emerged during the nineteenth and early twentieth centuries, before the ascendancy of the modern corporation had become apparent. According to this view, established economic theories need to be modified or rejected, not so much because they are internally inconsistent, but because they have been rendered redundant by changing circumstances.

Organisational economics has been developed by economists who realise that for the most part economics has ‘neglected to develop theories of organizations’, thus leaving the study of organisations to psychology and sociology (Olson, 1971, p. 1, nt. 1). It may seem strange that economists have ignored issues of organisation, given that microeconomic analysis in neoclassical economics is virtually synonymous with the theory of the firm. It turns out that most economic theories of the firm are not theories of organisation at all. They are models that purport to explain the relationship between demand, costs and output. Economic theories of organisation have developed from two directions. First, the economists’ realisation that they could apply economic modelling techniques to the general problem of organisation, and second, their awareness that the orthodox theory of the firm is inadequate as a theory of organisation. The mathematical modelling technique that is most commonly applied to issues of organisation is game theory, which is more than just a theory of the firm: it is an attempt to provide a universal theory of human groups and organisations. As for the critique of the neoclassical theory of the firm, two major theoretical challenges, the managerial and behavioural theories of the firm, can be considered as precursors of organisational economics.

According to Maxine Berg, author of The Age of Manufactures (1994), a major reconsideration of the Industrial Revolution in Britain, it is largely due to the influence of Marglin and Braverman that, ‘economists and economic and social historians can no longer write of industry and labour without consideration of the labour process’ (1984, p. 165). However, their influence has been felt in the debates concerning two fairly separate historical transformations in work organisation. Marglin’s account of the origins of capitalist hierarchy refers to the emergence of the ‘factory system’ during the period in British history from 1760 to 1830 commonly known as the ‘Industrial Revolution’ (Ashton, 1968). This is the period analysed by Marx (1976), following Engels’ classic study, The Condition of the Working Class in England (1969a).

Economists have increasingly become interested in some of the same issues as organisation theorists. Since economic theories of organisation have not been integrated into organisation theory, it is convenient to distinguish between organisation theory, which is informed by sociology, and organisational economics. Probably the single most important influence on organisational economics is Ronald Coase’s seminal article, ‘The Nature of the Firm’ (1990 [1937]). Coase asks ‘Why is there any organisation?’ This is the first of series of rhetorical questions that have structured discussion in organisational economics. Other such questions are: ‘Does organisation matter?’ (Milgrom and Roberts, 1992, ch. 1); ‘What is a firm?’ (Chandler, 1992); ‘Why not organise everything in one large firm?’ (Williamson, 1985, p. 131); and ‘Why are there bosses?’ (Hess, 1983, ch. 7). These questions are concerned with the legitimacy of capitalist corporations. By and large, organisational economists are keen to endorse that legitimacy, but posing these rhetorical questions opens up the possibilities for wider debate. There is potential for dialogue concerning the legitimacy of the capitalist corporation, not only between mainstream organisational economics and organisation theory, but also radical organisation theory and Marxian political economy, all of which are given serious attention in this book.

There has been a revival of interest in the organisation of work across the social sciences. This has come about more or less independently within organisational economics, radical and Marxian political economy, industrial sociology, and economic history, so the potential for interdisciplinary debate has yet to be realised. If it is remembered that work organisation was central to the classical political economy of Adam Smith, and Karl Marx and Friedrich Engels, then a contemporary discussion of divisions of labour and hierarchy in work organisations needs to start with an explanation for the demise of earlier interest.

Organisation theorists tend to see the division between economic and sociological approaches to organisation as a manifestation of wider differences between economics and sociology. Sociologists have attempted to set out the differences between the two disciplines (Hirsch et al., 1990; Swedberg, 1991). Economics is dominated by neoclassical economics, so much so that ‘economics’ is virtually synonymous with neoclassical economics (Bartlett, 1989, p. 18). Sociologists have concentrated on developing a critique of a narrowly defined version of neoclassical microeconomic theory (Swedberg et al., 1990, p. 59), especially the ‘unrealistic and bizarre policy recommendations’ it comes up with (Hirsch et al., 1990, p. 42). Neoclassical economics is a refinement of the classical tradition of economics that developed in Britain during the nineteenth century based on the ideas of Adam Smith, Thomas Robert Malthus and David Ricardo (Galbraith, 1987). The major difference between classical political economy and neoclassical economics is the abandonment of any theory of value and the development of marginalism.

Organisation theorists and organisational economists tend to see each other as belonging to more unified camps than they really do. To be blunt, some organisation theorists try to lump all organisational economists together so that they can all be dismissed out of hand. On the other hand, organisational economists will often take one or two leading organisation theorists as representative, so that they can say they have taken organisation theory into account. Oliver Williamson (1990, p. 5) is a good example of a prominent organisational economist who tends to see organisation theory as more unified than it is. He seems to believe that organisation theory is derived from a few classic texts starting with Chester Barnard’s The Functions of the Executive (1964 [1938]), followed by Herbert Simon’s Administrative Behavior (1976 [1945]) and Philip Selznick’s Leadership in Administration (1957). This clearly reflects an American bias. More importantly, it obscures the diversity within organisation theory.