Managerial Capitalism: Statism and Giantism

Edith Penrose in A Theory of the Growth of the Firm, argues that a firm, like all formal organizations, seeks to grow to make full use of its resources. A firm consists of a collection of resources, financial, technological, and human, with the most determining resource being human, the resource on which most management focuses. Managers exist in two forms, administrative managers who look to the routine operation of the organization and entrepreneurial managers who look to expand the boundaries of the organization. This distinction is similar to that of Sidney Sherwood in 1917 that there are two types of undertakers: those responsible for the mercantile function who take initiatives to stimulate demand and to guide product development to meet the new forms of demand, in contrast with those responsible for the organizing function who take initiatives to discover the “right technical combination of productive resources to procure the needed supply” of products to meet the demand generated by the mercantile function. Penrose’s entrepreneurial managers work to generate ever new demand and expanding sales growth in order to occupy the administrative managers in their work to produce products and to add more administrative managers to address the new demand. The entrepreneurial managers are the engine of growth, and the growth of interest is the growth of the organization not necessarily the increased size and prosperity of the economy and society.