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(1883-1950)
Joseph Allois Schumpeter
 
: Journal of Socio-Economics, 2000, Vol. 29 Issue 4, p. 375, 14p
Raines, J. Patrick; Leathers, Charles G.
BEHAVIORAL INFLUENCES OF BUREAUCRATIC ORGANIZATIONS AND THE SCHUMPETERIAN CONTROVERSY
Abstract
The behavioral influences of large bureaucratic organizations that were noted by Schumpeter would seem to weigh heavily against the plausibility of the Schumpeterian hypothesis that large corporations are more powerful engines of technological innovations than small competitive firms. But those influences also offer clues about how cultural differences between the United States and Japan resulted in large Japanese corporations in the later post-WWII era conforming closely to the Schumpeterian hypothesis. (C) 2000 Elsevier Science Inc. All rights reserved.
1. Introduction
Several recent articles have established the relevance of Joseph A. Schumpeter's theory of entrepreneurial activities and the processes of technological innovation to socio-economics. Swedberg (1995) noted that Schumpeter experimented with two versions of socio-economics over his lifetime. The earlier and less successful version in The Theory of Economic Development was an ambitious form of economic imperialism in the realm of social sciences. The mature view in History of Economic Analysis, which advocated a collaboration between economics, sociology, history, and statistics, represented "a reasonable and intelligent approach to the study of economic phenomena" (Swedberg, 1995, p. 540). But the key principle emphasized in the earlier view was left out, namely that "Innovation, economic change, and economic dynamics all represent key problems in modern economics" (Ibid.). Swedberg stressed the importance of that principle, stating that: "Socioeconomic is particularly well equipped to study problems of this type, and they therefore should constitute its main focus" (ibid.).
Daneke (1998) presented important new insights into the potential contribution of the Schumpeterian principle. To the extent that a national innovation system exists, it is in a stage of dramatic transformation. Alternate analytical perspectives are needed to understand this evolving system, and these start with Schumpeter's recognition of technological innovation as the core of economic growth. Daneke explained why and how the emerging science of nonlinear or advanced systems (modern chaos and complexity theories) can provide analytical insights that expand our understanding of Schumpeter's theory of entrepreneurship and technological innovation as a discontinuous process.
In this paper we deal with a closely related topic. In The Theory of Economic Development, the processes of innovation were discontinuous as innovations generated by individual entrepreneurs in a system of competitive capitalism tended to appear in clusters. But in Capitalism, Socialism, and Democracy, large corporations were depicted as having succeeded in internalizing and making routine the innovation process. The controversial conjecture that large-scale corporations had become more powerful engines of technological innovations than competitive firms is known in the economic literature as the Schumpeterian hypothesis. Our purpose is to examine Schumpeter's commentaries on the behavioral influences of large bureaucratic organizations in relation to the controversy over that hypothesis. In section 2, we review the nature of the controversy, noting that empirical research has failed to confirm the Schumpeterian hypothesis on a general basis but has revealed that innovational processes of large Japanese corporations in the later post-WWII era seemed to comply with it. In section 3, we examine Schumpeter's commentaries on the behavioral influences of bureaucratic organizations in Capitalism, Socialism, and Democracy and in his earlier essay on social classes. In section 4, we consider the implications of those behavioral influences for the Schumpeterian hypothesis. On net, they would appear to weigh against large corporations being more powerful generators of technological innovations than individual entrepreneurs as proprietors of competitive firms. But they also offer clues about how differences in corporate cultures between the United States and Japan may have been responsible for large Japanese corporations conforming more closely to the Schumpeterian hypothesis.
2. The Schumpeterian hypothesis: relevant and controversial
Over a period that spanned four decades, Schumpeter stressed the importance of understanding the nature of capitalist evolution and integrating that knowledge in economic theory. As he observed the path that capitalist evolution was taking in the 20th century, his views on the entrepreneurial function and the processes of technological innovation were also evolving.
In The Theory of Economic Development, published in the German in 1911 and translated into the English in 1934, innovational successes were attributed to the special vision and organizational efforts of individual entrepreneurs. As Raines and Jung (1992) explained, those entrepreneurs possessed "supernormal qualities of intellect and will" and "superrational characteristics" that enabled them to break down social resistance to change and extend the economic and technological frontiers (p. 113). But that was during what Schumpeter defined in his 1928 Economic Journal article on the instability of capitalism as the historical era of "competitive" capitalism in the 19th century. A second historical era was unfolding as the 20th century was becoming the era of "trustified" capitalism (1928, p. 362). In the 1928 article, Schumpeter briefly described innovation in the big firms ("trusts") as becoming an impersonal "automized" process, carried out as a matter of course on the advice of specialists (1928, pp. 384-385).
Schumpeter's point in that brief discussion was that "trustified" capitalism reduced the instability of the capitalist system. But his evolving views on entrepreneurship and innovational processes in large corporations were presented more fully in his 1942 book, Capitalism, Socialism, and Democracy (our references will be to the 1950 third edition). His hypothesis that large corporations are more powerful engines of technological innovation and economic progress than competitive firms rested on claims that large-scale "monopolist" firms have both demand-side and supply-side advantages (Fisher and Temin, 1973). Their demand for innovations is greater because their market power increases their ability to profit from successful innovations. At the same time, they will generate a larger supply of innovations because of "superior methods" available only to monopolists, namely, the ability to attract "better brains" and secure financial standing (Schumpeter, 1950, p. 101).
In his JEL survey article on Schumpeter's "plausible capitalism," Scherer (1992) observed that "Half a century after publication of Capitalism, Socialism, and Democracy, Schumpeter's vision of the industrial structure most conducive to technological progress and hence to economic growth remains both relevant and controversial" (p. 1430). The continuing relevance is shown by the mega-mergers in the 1990s that have been defended in part on grounds that larger scale operations facilitate innovational developments. The continuing controversy over the plausibility of the Schumpeterian hypothesis has important implications for economic policies relating to those mergers. While the weight of statistical evidence goes against Schumpeter's hypothesis that large corporations are more powerful engines of technological innovation, European and American industrial policies have been based on presumptions that technological progress had become advantageously "mechanized" within large corporations (Scherer, 1992, p. 1423). U.S. policy on mergers continues to rest on the early Reagan administration's argument that American "enterprises are too small to maintain technological leadership in an increasingly global marketplace, and that antitrust policies aimed at maintaining competitive domestic market structures discourage innovation" (Ibid., p. 1425).
2.1. The exceptional case of large Japanese corporations But the controversy has more complex dimensions. While the empirical research generally supports the anti-Schumpeterian hypothesis argument, one exceptional case was revealed. During the post-WWII era, large Japanese corporations successfully made "the transition to becoming innovators of the sort idealized by Schumpeter in Capitalism, Socialism, and Democracy" (Scherer, 1992, p. 1426-1427). In the early part of the postwar period, Japanese entrepreneurship did appear to conform more closely to the individual entrepreneurs/small firm model in The Theory of Economic Development. But the subsequent successes in "frontier-extending innovations" came from large-scale corporations rather than new start-up firms (Ibid. p. 1426).
Differences in the kinds of innovations successfully generated by large American and Japanese corporations were also revealed. American corporations were very effective in generating new innovative products, but failed to capitalize on those innovations through "sustaining patient, continuing process development work aimed at reducing costs to minimum feasible levels while retaining high quality" (Scherer 1992, p. 1429). In contrast, Japanese corporations were less effective in the doing the former and very effective in doing the latter.
2.2. The role of cultural influences
Scherer (1992) postulated that the differences between the innovative processes of American and Japanese corporations may reflect cultural influences on the relationship between market structure and innovation. In some manner, unique aspects of the Japanese organizational culture resulted in the "Schumpeterian large firm-innovator paradigm" applying with greater force (Scherer, 1992, p. 1429). Accordingly, investigations into cultural influences on the innovation processes of large corporations were included in Scherer's priority list for a Schumpeterian research program (Ibid. p. 1431).
3. Schumpeterian behavioral influences of bureaucratic organizations
Such a program should include an investigation of Schumpeter's own views on the behavioral influences of large bureaucratic organizations. While Schumpeter's commentaries on the behavioral influences of large bureaucratic organizations appear in fragmentary form in Capitalism, Socialism, and Democracy (1942) and the earlier essay on social classes, several important themes clearly emerge when those comments are examined in the aggregate.
3.1. Social-psychological "reconditioning" The more familiar aspects of Schumpeter's views on the behavioral influence of large corporate organizations are found in Part II of Capitalism, Socialism and Democracy, entitled "Can Capitalism Survive?" There Schumpeter discussed the rationalizing influence of capitalism on the bourgeois mind (see Raines and Jung, 1992) and the erosive effects of certain modern trends on the socio-psychological "superstructure" of the capitalist economy (1950, p. 121). One of those trends was the influence of large bureaucratic corporations on the behavioral tendencies of stockholders and managers. [For a discussion of the other trends, see Caeldries, 1993.] This involved a specific case example of a general process of sociopsychological reconditioning that Schumpeter described in his discussion of the transition from capitalism to socialism.
First, a given set of propensities to feel and to act may be altered by changes in the social environment while the fundamental pattern underlying it ("human nature") remains what it is. We will call this Change by Reconditioning. Second, still within that fundamental pattern, reconditioning may impinge on propensities to feel and to act which, though ultimately amenable to change by environmental alterations--particularly if these alterations are carried out rationally--yet resist for a time and create trouble as long as they do. This fact we may associate with the term Habits (1950, pp. 202-203).
In the specific case of capitalist evolution, Schumpeter argued that an unplanned "reconditioning" of "propensities to feel and to act" was in progress as the economic motivations of property owners and businessmen were being altered by the influence of modern large-scale industrial corporations. Because bourgeois society was "cast in a purely economic mold" (1950, p. 73), it responded so readily to a system of pecuniary rewards and penalties that success became identified with business success. Resting on a "schema of motives that is unsurpassed in simplicity and force" (1950, p. 74), that system's major achievement was in attracting "the majority of supernormal brains" (ibid.). Schumpeter asserted that the conditioning and selection processes of capitalist society assured "maximum performance of an optimally selected group" (Ibid.).
But all that was changing because the large bureaucratic corporation "socializes the bourgeois mind" and "relentlessly narrows the scope of capitalist motivation" (1950, p. 156). The separation of management and ownership in large corporate enterprise leads to an "evaporation of the material substance of property" (1950, p. 156). In place of the proprietor and the proprietary interest are stockholders and salaried executives, managers, and submanagers. Large stockholders are "at one remove both from the functions and attitudes of an owner" (1950, p. 141). By substituting "a mere parcel of shares" for the "walls and the machines in a factory," the corporation removes "life" from the "idea of property" (Ibid.). Small stockholders not only cease to think as property owners, but often develop attitudes of hostility toward their corporations and big business in general (Ibid.).
Dematerialized, defunctionalized and absentee ownership does not impress and call forth moral allegiance as the vital form of property did. Eventually there will be nobody left who really cares to stand for it--nobody within and nobody without the precincts of the big concerns (1950, p. 142).
Of direct relevance to the Schumpterian hypothesis is the "reconditioning" process occurring internally in large corporate enterprises. Business executives, managers, and submanagers acquire the psychology of the salaried employee working in a bureaucratic organization, and rarely identify with the interests of the stockholders (1950, p. 141). Their system of values and conception of duty undergo a profound change for two reasons. One is the effect of large corporations on the innovational process, which is to routinize the entrepreneurial function. The other is the process of conditioning people for performance within the corporate bureaucracy and selecting individuals for success within the corporate hierarchy (1950, p. 156).
3.2. Routinizing the entrepreneurial process
The individual entrepreneur who was the dynamic force in proprietary capitalism is rendered obsolete in corporate capitalism. In Schumpeter's words "the perfectly bureaucratized giant industrial unit" ultimately "ousts the entrepreneur" (1950, p. 134). Within the large corporation the function of individual leadership and creativity was being eliminated because:
... innovation itself is being reduced to a routine. Technological progress is increasingly becoming the business of teams of trained specialists who turn out what is required and make it work in predictable ways (1950, p. 132).
Bureau and committee work tends to replace individual action. ... Rationalized and specialized office work will eventually blot out personality, the calculable result, the "vision." The leading man no longer has the opportunity to fling himself into the fray. He is becoming just another office worker--and one who is not always difficult to replace (1950, p. 133).
The ability to routinize the innovational processes becomes possible in part because dynamic economic progress under capitalism has conditioned people to expect change rather than to resist it. One function of the traditional heroic individual entrepreneur was to breakdown that resistance. That special social function is no longer needed.
3.3. Conditioning people for performance and bureaucratic success
Schumpeter discussed the process by which people are conditioned for performance within the corporate bureaucracy and individuals are selected for success within the corporate hierarchy in Capitalism, Socialism, and Democracy, and in his earlier essay on social classes. In his analysis of proprietary capitalism and the bourgeois class, the family was the primary unit. The fundamental motive that drove entrepreneurs was the dynastic aim of placing their families solidly (and hopefully securely) within the bourgeois class. That goal could be achieved by acquisition of wealth from monopoly profits from successful innovations. Moreover, in family-owned firms, success for the individual proprietor-manager coincided with the success of the family and the business firm. Individuals rising into and subsequently rising within the "business class" are usually able businessmen. They will rise as far as their abilities allow "because in that schema rising to a position and doing well in it is or was one and the same thing" (1950, p. 74, emphasis added).
The past-tense qualification was because of the emergence of bureaucratic corporations. This was briefly mentioned in the 1928 Economic Journal article on the instability of capitalism, but was explained most fully in the essay on social classes. Schumpeter commented that an analysis of the process by which individuals and families are selected for entering into and rising within the bourgeois class is "manifestly complicated" by the formation and concentration of corporations (1951, p. 154). Large corporations had the effects of separating the individual and the family and of substantially unlinking the success of the individual and that of the business firm. The types that rise in the corporate hierarchy are different from those that find success in family enterprises; the standard type of corporate "manager" and "president" is quite different from the proprietary entrepreneur. Qualities that enable an individual to reach a position within the corporation are different from those needed to hold that position. The personal success of the corporate executive and the success of the firm are not as closely linked as in the case of the proprietary firm.
In the 1928 Economic Journal article, Schumpeter described the principles of appointment and selection under the new system of "trustified" capitalism as resembling political processes in which aptitudes in candidacy for office are unrelated to aptitudes for filling the position (1928, p. 363). An episode of cultural incidence was suggested in his comment that in "trustified society" the changes taking place within the large corporations were "spreading rapidly to motives, stimuli, and styles of life (ibid). A reverse process was also indicated in terms of motives and tactics of the political sector spreading to the bureaucratic corporations. In the essay on social classes, Schumpeter emphasized the importance of political skills to individuals who achieve success within bureaucratic hierarchies. Elections and appointments are essential elements in individuals' careers. The art of "advancement" is critical; political connections are of utmost importance. Support must be solicited by negotiating with people who must be handled with "consummate skill" (1951, pp. 160-161).
Within corporate hierarchies, shifts in relative positions are always explained by "behavior" and "aptitude" rather than by the business skills that were required for success in the case of proprietary firms. Corporate bureaucracies tend to negatively evaluate any orientation of leading figures toward personal aggrandizement to the extent of placing obstacles in its way. The motive of personal profit becomes replaced by other motives of a purely personal character, such as prestige in expert circles, interest in "problems," and the urge for action and achievement (1951, pp. 159-162).
3.4. Effects of bureaucracies on the "human element"
Additional insights into the reconditioning influence of corporate bureaucracies on the mental habits of individuals may be inferred from Schumpeter's discussions of the "human element" in democratic political decision-making in Capitalism, Socialism and Democracy. In the chapter on the classical theory of democracy, Schumpeter included a section entitled "Human Nature in Politics," a subject belonging to "a chapter of social psychology" (1950, p. 256). While Schumpeter stressed the rational mindset of capitalism as a system (see Raines and Jung 1992), he viewed the rationality of individuals as consumers and in political activities as being quite limited. Pointing to the "many sources of evidence that accumulated against the hypothesis of rationality," he flatly rejected the "idea of the human personality that is a homogeneous unit and the idea of the definite will that is the prime mover of action" (1950, p. 256). He described consumers as being "so amenable to the influence of advertising and other methods of persuasion that producers often seem to dictate to them instead of being directed by them" (1950, p. 257).
Rather than being the ever-rational economic person of traditional theory, each individual has a "little field" which his mind "encompasses with a full sense of its reality" (1950, p. 257).
... There is for everyone, within a much wider horizon, a narrower field--widely differing in extent as between different groups and individuals and bound by a broad zone rather than a sharp line--which is distinguished by a sense of reality or familiarity or responsibility. And this field harbors relatively definite individual volitions (1950, p. 259).
An individual's "little field" for the most part includes only things that are closest to and directly concern him, for example, his family, business, community, or social organizations. Since he is able to personally observe these things, he can form his own conclusions independently of what he may be told by the media, Because these are things the individual is able to directly manage or influence to some extent, he feels a sense of responsibility induced by a direct relation to favorable or unfavorable effects of particular courses of action (1950, pp. 258-259). But as his association with things becomes more distant, the individual experiences "a reduced power of discerning facts, a reduced preparedness to act upon them, a reduced sense of responsibility" (1950, p. 260). That "reduced sense of reality" involves both a reduced sense of responsibility and an absence of effective volition, even though "information is plentiful and readily available" (Ibid.)
As a result, individuals typically behave less rationally in the political sector. Schumpeter asserted that:
... the typical citizen drops down to a lower level of mental performance as soon as he enters the political field. He argues and analyzes in a way which he would readily recognize as infantile within the sphere of his real interests. He becomes a primitive again. His thinking becomes associative and affective (1950, p. 262).
Thus, in political matters individuals yield easily to "extra rational or irrational prejudice and impulse" (1950, p. 262) and to manipulation by politicians and special interest groups (1950, p. 263). The individual's sense of participation in the national political process is essentially as a "member of an unworkable committee" (1950, p. 261).
Schumpeter's views on behavior with respect to political issues would seem to apply to some degree to behavior within large bureaucratic corporations, expanding his depiction of entering into and rising within the corporate hierarchy as similar to political behavior. In such organizational environments, individuals are highly likely experience the stone reduced sense of reality, responsibility, and volition as they do in the political arena. As the bureaucratic management structure becomes larger and more complex, each individual working in that environment may increasingly feel that he is a member of an "unworkable committee" over which he has no influence.
In view of the bureaucratic nature of the modern corporation, Schumpeter's ambivalent views on bureaucracies merit some attention. He did hold a more positive view of bureaucracies in both the corporate and public sectors than perhaps most economists, urging his readers in a footnote comment to not "allow themselves to be unduly influenced by the association the term carries in popular parlance" (1950, p. 293). Bureaucracy was described as "an inevitable complement to modern economic development" (1950, p. 206). A condition for democratic government in modern industrial society was "the services of a well-trained bureaucracy of good standing and tradition, endowed with a strong sense of duty and a no less strong esprit de corps" (Ibid. p. 293). But at the same time, Schumpeter definitely recognized the negative side of life within a bureaucratic organization, as the following passage indicates.
The bureaucratic method of transacting business and the moral atmosphere it spreads doubtless often exert a depressing influence on the most active minds. Mainly, this is due to the difficulty, inherent in the bureaucratic machine, of reconciling individual initiative with the mechanics of its working. Often the machine gives little scope for initiative and much scope for vicious attempts at smothering it. From this a sense of frustration and futility may result which in turn induces a habit of mind that revels in blighting criticism of the efforts of others. This need not be so; many bureaucracies gain on closer acquaintance with their work. But it is difficult to avoid and there is no simple recipe for doing so (1950, p. 207).
Schumpeter's ambivalent view of bureaucracies is also indicated in his argument that efficient and strong bureaucratic management require that appointments, tenure and promotion within the bureaucratic organization must depend largely on the "corporate opinion" of the bureaucracy (1950, p. 293). This would seem to give rise to the stifling effects at the same time as assuring efficient management. Schumpeter's ambivalence toward bureaucratic management is further reflected in his endorsement of corporatism as an alternative to centralized socialism, which an absence of bureaucracy (see Raines and Leathers, 1992 and Cramer and Leathers, 1981 for further discussion).
4. Implications for the Schumpeterian hypothesis
Critics of the Schumpeterian hypothesis could easily argue that its conceptual basis is seriously challenged by the probable impacts of the Schumpeterian behavioral influences of large bureaucratic organizations on the innovation processes of large corporations. The essential argument against the Schumpeterian hypothesis that bureaucratic decision-making tends to stultify technological dynamism (Scherer, 1984, p. 222) is clearly supported by the expectation that both the motivation and the ability to effectively organize and guide innovational programs will be diminished within large corporations. A substantial amount of empirical research has produced evidence supporting that premise. Kamien and Schwartz (1982), for example, cited research that indicated superior efficiency of smaller firms in research and development programs. One explanatory factor that they cited was that "larger firms seem to become enmeshed in bureaucracy and red tape, resulting in a less hospitable atmosphere for creative contributions by operating personnel" (1982, p. 68).
But the implications are not all one-sided. Those who think the Schumpeterian hypothesis is plausible can also draw some support from the Schumpeterian behavioral influences of large bureaucratic organizations. For example, Tabb (1995) stated that Schumpeter accepted that the entrepreneurial function "may be and often is filled cooperatively" and thought that large corporations have the ability to create a corporate personality that combines aptitudes that no single individual can possess (1995, p. 49). In that regard, Cramer and Leathers (1988) have observed that "technostructure" in Galbraith's The New Industrial State explains how informal collectives of specialized talents within a large corporate organization can function effectively to produce technological innovations in a fairly routine fashion.
4.1. Implications for cultural differences
The more complex questions are how cultural differences may explain why Japanese corporations conformed more closely to the Schumpeterian hypothesis and why American corporations were relatively more successful in generating new innovative products but less successful in exploiting the long-run potential of those innovations through continuing process development. That cultural factors have some influence is perfectly consistent with Schumpeter's theory of capitalist evolution. As Raines and Jung (1992) explained, a general theme in Schumpeter's theory of capitalist evolution was the importance of cultural conditioning of the rational mentality of capitalism. With respect to the special cultural influences of the Japanese system, several investigators have commented on the Schumpeterian character of Japanese innovational processes.
In his study of the cultural economy and economic transformation of postwar Japan, Tabb (1995) concluded that innovation by firms does rely on "appropriate corporate cultures" (p. 287). The direct relevance to the Schumpeterian hypothesis was revealed in his observation that:
Interestingly, both Deming and Joseph Schumpeter had argued far earlier that major breakthroughs do not come from small competitive firms; rather, they come from large monopolistic ones. Their view remains unpopular in America, but it is conventional wisdom in Japan (Tabb 1995, p. 98).
In Schumpeterian terms, Tabb described Japanese entrepreneurship as having taken the form of "institutional entrepreneurship" that involves both "creative responses" and "adaptive efficiency" that creates new patterns (1995, p. 50).
Entrepreneurship in the Japanese system ... tends to be a collective force, a complex social construction that institutionalizes the entrepreneurial role in a group process of constant product and process innovations that have helped the Japanese forge ahead. The nature of this process relies less on a once-and-for-all perfection of the particular product and more on stress on continuous process innovation" (ibid. p. 49).
In contrast to the individual entrepreneur in the historical era of competitive capitalism who was a "creative destroyer," Japanese innovators discover and exploit "unexplored potential linkages" (Ibid. p. 50). Tabb cited the automobile industry as a Japanese example of "institutional entrepreneurship" that demonstrated the type of "creative response" defined by Schumpeter (Ibid. p. 114).
Several economists have observed Schumpeterian aspects in the relationship between government agencies (e.g., MITI) and private industries in Japan. Dosi et al. (1989) argued that Japan's development strategy of targeting industries based on potential for economic growth and technological change was motivated "by a Schumpeterian perspective, the notion that competition in the form of new products and processes is the real engine of growth over time" (p. 4). According to Huber (1994), Japan's strategic economy that blends laissez-faire and interventionist elements represents a form of a theoretical system that was described by Schumpeter in his discussion of how socialism could work in Capitalism, Socialism, and Democracy. Huber described the Japanese system as a "policy-market economy, meaning that public policy provided the ends and that markets provided the means," with economic progress mechanized and reduced to a routine (p. 147). This suggests that a degree of policy coordination can be imposed on markets without disrupting their Schumpeterian efficiency (ibid).
Scherer (1992) cited several cultural differences that might help explain the differences between the innovational processes of Japanese and U.S. corporations. In particular, a "culture of cooperation" may contribute to innovational successes in large Japanese firms. The cooperation included not only internal information networks within corporations but also "cooperative interfirm R&D efforts" that enhance innovativeness (Scherer 1992, p. 1429). The turnover among R&D staff members in large American corporations tends to be higher than in Japan because of the "accepted U.S. career path norms" (Ibid. p. 1430). Whereas Japanese R&D engineers went through training programs that emphasized on-the-shop-floor production orientation, American R&D staff tended to go directly from universities to "ivory tower R&D labs, remaining aloof from factory operations" (Ibid. p. 1430).
Why were large Japanese firms able to overcome the Schumpeterian behavioral influences of bureaucratic organizations that lead to decreased interest in innovational creativity? An illustrative case in point is the influence of the separation of ownership and management that Schumpeter expected to decrease owners' long-run interest in their property. According to Komiya (1990), Japan is the most advanced of the industrial countries in the separation of ownership and management (p. 162). Yet, the Japanese firms tended to behave in a manner consistent with the perspective of Schumpeterian dynamic efficiency, "pursuing development and growth in an environment characterized by uncertain and rapid changes" (Komiya 1990, p. 204).
This can be explained in terms of cultural differences because the Schumpeterian behavioral influences of large bureaucratic organizations could result in different innovational processes. As we noted, Schumpeter's individualistic entrepreneur in the historical era of competitive capitalism operated with a long-run vision, motivated by the desire to secure a position for his family in the bourgeois class. The bureaucratic nature of large corporations and the separation of ownership and management in the historical era of "trustified" capitalism disconnected family success and individual success and redefined individual success, reducing the individual's interest in the outcome of his actions on the long-run profits of the corporate enterprise. But here cultural differences between the U.S. and Japan may come into play. The individualistic traditions of American culture are very favorable to such an environmental reconditioning of behavior. In contrast, the Japanese culture has emphasized the group over the individual, sustaining a sense of family within business corporations. The concept of lifetime employment and the decentralized decision-making structures within Japanese corporations that were so difficult for Westerners to comprehend are reflections of Japan's familistic tradition. From the perspective of Schumpeter's social psychology, individuals working within Japanese corporations have a higher sense of responsibility and consequently, a greater sense of personal involvement in the long-run results of the corporations' innovational activities.
Studies of Japanese entrepreneurship and corporate management tend to support that interpretation. Ranis (1955) described the prewar Japanese entrepreneurs as "community-centered" in contrast with the "auto-centered" entrepreneurs in Schumpeter's earlier theory. Yoshino (1968) argued that Japanese managerial philosophy in the postwar period exhibited a "close parallel with the tradition of community-centered entrepreneurs of the earlier era" (p. 103). Imai (1990) observed that the postwar Japanese entrepreneurs were oriented toward incremental innovation rather than Schumpeter's model of individual entrepreneurs, "creating discontinuous breakthroughs in the economic society" (p. 198).
How can the Schumpeterian behavioral influences explain why American corporations have tended to be better in launching new innovations but weaker in exploiting the long-run potential through patient and sustained efforts to lower costs without lowering quality? A plausible answer is that lingering habits from the era of the individual entrepreneur and proprietary firm have continued to influence American corporate behavior. Schumpeter stated on several occasions that the break between the patterns of behavior that led to individual success within a bureaucratic corporation and the patterns of behavior that led to both individual and family success in the proprietary firm was far from complete. Indeed, the last paragraph of "Can Capitalism Survive?" included a comment on the incompleteness of change: "Things have gone to different lengths in different countries but in no country far enough to allow us to say with any confidence precisely how far they will go, or to assert that their 'underlying' trend has grown too strong to be subject to anything more serious than temporary reverses" (1950, p. 163). Bourgeois standards and motivations were still alive, and bourgeois leadership was still the prime mover of the economic progress. The middle class was still a political power, industrial integration was far from complete, competition was still a major factor, and the bourgeois family still clung to life. Moreover, the "survival of traditions" continued to make corporate executives behave in the same manner as the old owner-managers (1950, p. 163).
Similarly, in the earlier essay on social classes, Schumpeter commented that the "special kind of 'vision' that marks the family entrepreneur also plays an important part in corporations--concentration on business to the exclusion of other interests, cool and hard-headed shrewdness, by no means irreconcilable with passion" (1951, p. 160). If the difference between the personal success of a corporate executive and the success of the corporation "does not make itself more strongly felt, this is owing largely to the persistence in the class of training in the methods of individually owned business, to which even men who have no such family background are assimilated and disciplined" (Ibid. p. 161).
Lingering "habits" in Schumpeter's social psychology analysis can explain, for example, the revival of conservative policies under Thatcher in Britain and Reagan in the U.S. during the 1980s (see Leathers, 1984). With respect to the innovational processes, the lingering habits of individualistic entrepreneurship and proprietary management of businesses in American culture continue to condition personalities that tend to act (up to a point) like traditional Schumpeterian entrepreneurs, that is, interested in creating change for economic gain. But at the same time, the weakening of the family-oriented proprietary interest means that interest in long-run development diminishes. Schumpeter's observation than one of the characteristics of individuals who succeed in corporate bureaucracies is "the urge for action and achievement" (1951, p. 162) may be relevant. Such behavior is compatible with interest in the generation of new innovations but not with the patient sustained development of those innovations to exploit the long-run profit opportunities. Instead, individuals within the corporate bureaucracy tend to pursue self-interests that are not linked in a meaningful way with the maximization of gains over the long run from innovations.
In contrast, the Japanese culture has tended to condition a group-oriented personality, and the large corporations have provided more of a sense of family. Hence, individuals staffing the Japanese corporations are less motivated by the excitement and quick profits of a successful initial innovation (in contrast to Americans), and are more willing to do the patient developmental work to exploit the market opportunity in the long run. As an illustration, Imai (1990) observed that Japanese and American corporations differ in terms of the language used. Japanese use natural or ordinary language, which results in achieving expertise in tangible objects, for example, the production of manufactured products. In contrast, Americans are prone to use technical language, which makes them strong in "areas that have many invisible aspects, such as chemistry, and less tangible areas, such as software" (p. 1993). In Schumpeterian behavioral terms, this suggests that the Japanese are more likely to retain a stronger sense of reality and volition arising from a stronger sense of involvement and responsibility, at least in those activities related to the production of "tangible objects."
In contrast, American corporations have lost the edge in those areas because the use of technical language has left individuals with a reduced sense of reality and volition stemming from a reduced sense of being personally involved and responsible. Thus, Americans may be more prone than the Japanese to feel that working in large manufacturing corporations involves membership in an "unworkable committee."
5. Concluding statement
Schumpeter's emphasis on the evolutionary nature of capitalism has special relevance in this case. Prior to the 1990s, cultural factors and the evolutionary phase of capitalism seem to have coincided to make large Japanese corporations conform closely to the Schumpeterian hypothesis. But a new era appears to be emerging for the Japanese economy. The current recession in Japan suggests that the Japanese innovation processes may no longer be so incremental and superior to those of the western economies as was shown in the empirical literature. A Schumpeterian-type development--the eroding effects of capitalism on cultural structures--may explain why the situation has changed. In the case of Japan, both corporate and governmental responses to the recession suggest that the cultural differences that played important roles during the middle post-WWII years may have been eroded by the exposure of Japanese business to western market methods. As readily visible examples, more Japanese employees of large corporations are now losing their lifetime employment status, and the government is showing new willingness to allow weaker firms to fail.
Since the Schumpeterian behavioral influences of large bureaucratic organizations appear on net to challenge the Schumpeterian hypothesis, the discontinuous nature of innovations may be expected to be the pattern of the future in Japan as well as in the West. Consequently, Daneke's work in applying modern chaos and complexity theories in studies of the innovation processes assumes even greater importance.
* Corresponding author. Tel.: + 1-804-289-8566; fax: + 1-804-740-5755.
E-mail address: praines@richmond.edu (J.P. Raines).
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