Sociology 224: Organizational Analysis (Christopher Marquis)

Session 2 - The Rise of Large Corporations (2 February 2010)

Reading Summary prepared By R. Cadigan

Socializing Capital: The Rise of the Large Industrial Corporation in America

by William Roy (1997), Chapters 1 and 9

The central theme of this work is that, according to Roy, the corporate revolution was
determined less by economic efficiency or managerial rationality than by the political dynamics
of power.

Efficiency

Roy rejects efficiency theory (selection process that ensures that more efficient economic forms
will prevail over less efficient economic forms) as the prevalent reason for the rise of the large
industrial corporation in America, citing what he believes to be four flaws of economic logic:

1. Efficiency theory assumes a single decision-making entity, when in reality multiple

actors are required to take advantage of economies of scale.
2. Efficiency theory may explain the motivation for the rise of the large industrial
corporation in America, but not how this was able to occur. (According to Roy, it was
power that influenced the distribution of resources to industries in which corporations
were formed)
3. Change is not merely a function of rationality (maximizing utility), but is also dependent
upon the resources available to allow the pursuit of certain options.
4. Efficiency cannot be both the consequence and the cause of the rise of the large industrial
corporation in America.

(Note: Members of the class took issue with the validity of several of these points, particularly
#4)

Roy advocates that the economic logic employed by his predecessors by augmented with social
logic, based on institutional arrangements.

Deviating from past emphasis (i.e., Chandler, Fligstein) on managerial hierarchies, technological
developments, mergers, growth, internal control, and conflict between classes as explanations for
the rise of large corporations, Roy focuses on corporations as a form of property set within a
broader institutional structure shaped by the dynamics of power at least as much as by efficiency.

In other words, Roy is concerned with the meaning of property, power, and institutions, each
described in further detail below.
Property

Roy notes the uniqueness of socialized property – the idea that instead of each firm being owned
by one or several individuals, ownership spans many individuals, and individuals may own
pieces of many firms.

This raises several issues, including the notion that while individual’s right to property
ownership is automatically recognized by the state, corporations are different in that they only
exist when chartered by the state. Moreover, corporations are considered by courts and
legislatures to be legally distinct from the individuals who own them.

As a result of the socialization of property, the relationships among the owners, workers,
managers, suppliers, and customers have vastly changed as large industrial corporations have
emerged.

Power

Roy borrows from Weber’s classic definition of power (the ability of one action to impose
his/her will on another despite resistance), but broadens this to: “the extent to which the behavior
of one person is explained in terms of the behavior of another.”)

By broadening the definition, Roy then considers two dimensions of power, behavioral power
(“the visible overt behavior of the power wielder in the form of a command, request, or
suggestion”) and structural power (“the ability to determine the context within which decisions
are made by affecting the consequences of one alternative over another”).

Institutions

Roy notes that understanding how a corporation operates requires knowledge of the
organizational field and the commonly observed modes of relationships among organizations.
Roy notes three analytically distinct aspects of understanding the social institution:

1. Institutions use a set of categories and practices that are understood to be the “way things
are done.” This includes division of authority among hierarchy of owners and managers,
accounting practices to measure performance, bureaucratic structures to codify
procedures, etc.
2. Institutions include a matrix of organizations (i.e., organizational field) that in the
aggregate constitutes a recognized area of institutional life (e.g., factories, railroads,
investment banks).
3. Institutions describe cultural categories, a sense of reality, a “thing”.
According to Roy, property, power, and institutions are interwoven, with three key relationships
noted in Chapter 1:

• Power institutionalizes property

• Property institutionalizes power
• Power and property shape institutions

According to Roy, efficiency theory can be reconceptualized within a framework of power. The
key points of this argument (which Roy breaks down into categories of social institutions,
history, and the state):

• Institutions are made up of complex and extensive interactions of many parties with a
many different motivations and resources. Roy challenges Chandler’s acknowledgment
of the “salaried manager” as the main actor responsible for the success of the firm,
recognizing instead the relationships among many actors with many motivations.
• In light of the range motivations and resources among actors, the terms by which
interactions takes place are uneven, “and this unevenness is intimately connected to the
way people are tied into the social structure.”
• Technological and organizational innovations benefit different parties to differing
degrees.
• The institutional structure provides the context within which actions are set and decisions
are made. The institutional structure shapes the consequences of actions, which in turn
shape the institutional structure.
• “The large corporation did not dissolve the dynamics of property; it socialized property.”
• Institutions change the context of action, such that the first appearance of a phenomenon
may differ sharply from later appearances.
• A long-term trajectory of explanation is necessary to reveal underlying power
relationships.
• Property underlies all social and economic relationships and is defined and enforced by
the state.
• “In addition to the content of law, the scale and scope of the state apparatus influences
the scale and scope of such organizational offshoots as large corporations.”