Firms, Markets and Economic Change

The authors argue that innovation is a complex process that defies neat categorization and government policy should be to facilitate change rather than to direct it.
Managing to innovate successfully is one of the key challenges facing modern managers, firms, and governments. The rise to prominence of Japanese "keiretsu" in recent years has brought into question the effectiveness of traditional Western forms of corporate organization. Will the future favour networks of small innovative firms as in California's Silicon Valley, or will giant integrated firms dominate? Should governments play a role in directing the innovation process or should decisions be left to private enterprise?;This work draws on industrial economics, business strategy, and economic history to illuminate these topics. The authors first develop an evolutionary model to show when innovation is best undertaken within firms and when markets are the most efficient way of dealing with change. This is then illustrated by detailed discussion of the effect of innovation on the organization of the American automobile industry in the early years of the 20th century. The chapters which follow outline the effect of innovation on the organization in the early years of the 20th century.