THE ENTERPRISE AS AN ELEMENT OF EUROPEAN IDENTITY
The European enterprise has been an object of study and research since when, with the creation of the Common Market, Europe started to be perceived as a unitary subject. The first research started in the 60s when a Harvard Business School team applied the Chandlerian “Strategy and Structure” approach to test for convergence between Europe (UK, Germany, France and Italy) and the United States as related to the form of enterprise.
More or less, the test was successful but it’s important to remember the qualifying phrase: more or less. Often, the same words did not correspond to the same reality. Words like headquarters, CEO, and middle management sometimes had different connotations.
This preliminary research ended in the early 1970s. About three decades later, Richard Whittington and Michael Mayer picked up where the HBS scholars had left off. Whittington and Mayer chose to study the first one hundred companies in the UK, Germany, and France. Their work had a precise focus: the relationship between ownership, governance and performance.
For Youssef Cassis, instead, the focus was primarily on “performance”, starting with the publication of a book on big business in the UK, France, and Germany. Cassis’ research went on with the formation of an international team of researchers whose activity, alas, was discontinuous.
In 2005, Harm Schroeter, one of the researchers of Cassis’ group, started an inquiry to investigate if it was possible to talk about a “European enterprise”. But his effort ended up a failure since the collective book that he edited considered single cases of enterprises that were European just on the basis of their geographical location.
European enterprise defines its characters or features in relation to the American model that is the benchmark of the 20th century. The great divergence started with the Depression of the 1880s-1890s. The new technologies of the Second Industrial Revolution brought about a dramatic fall in prices. The reaction was the same on both sides of the Ocean: the creation of agreements between companies to control the market (quotas and prices). But rather quickly the Americans diverged from the Europeans. The former could grasp the opportunity of a growing and dynamic domestic market. Between the 1880s and the onset of World War I, the population and GNP per capita in the US almost tripled. In addition, with the 1890 Sherman Antitrust Act a severe fight against collusion among firms started, culminating in the creation of the FTC (Federal Trade Commission), an agency focused on stopping collusion, and with the Clayton Antitrust Act in 1912.
Behind these actions there were values and interests. The consequence was that companies tried their best to singularly conquer the biggest share of the market, using the tools of functional and strategic competition. It is very important to observe that mergers were not loose alliances but new entities that underwent a serious process of transformation (often painful), eventually making it possible to obtain larger shares of the market with lower costs per unit. In the end, American firms faced no limits to growth. The outcome was concentration, oligopolistic concentration, and firm governance that could not be controlled (with exceptions, of course) by individuals or by families but needed the involvement of salaried managers who did not risk their own money. This phenomenon started to be visible in the years immediately preceding World War I, but it was diffused and consolidated in the Thirties (see Berle and Means).
In Europe– where an environment of scarcity had brought about a long tradition of cooperation (see the splendid pages of David Landes’ “The Unbound Prometheus” in the first part of the chapter on Continental emulation)– the way of contractual cooperation was a permanent attitude. It materialized in different forms, cartels, interessengemeinschaft, holdings where the companies exchanged with other companies their shares. The tools might have been different but the result was the same and unmistakable: the actors could remain of relatively limited size. Giants like US Steel or Standard Oil did not materialize in Europe. Contractual cooperation was protected by law (like in Germany) or it was tolerated (as happened in the UK). In any case, in no European country was it prohibited.
There was a clear consequence of contractual cooperation in Europe: as we mentioned, companies remained of relatively limited dimensions (like in the case of Krupp or Dunlop, Renault, Fiat, Pirelli). All could be controlled and managed by individuals or families. “Firms are like family: you don’t shut down your family” wrote an American scholar about Italy. And in 1945 the British glass manufacturer, Pilkington, agreed to hire Alistair Pilkington who, years later, would rescue the company thanks to his technical abilities. They did it because he was a well-to-do young man. He had a good degree but, more importantly, he was related to the Pilkington family 14 generations ago. These are just picturesque snapshots but we all know the good points (tradition, technical know-how, etc.) and the weak points (loyalty over competence, control vs. growth) of family firms.
Since the beginning of the 20th century it was clear that Europe had lost its hegemony and—because the Continent intended to remain in the world “playing field”– it needed the Gerschenkronian substitutive factors (the Universal Bank and, especially, the State). In this respect, World War I marked an important watershed as even in the most “liberal” nation–the UK– authoritative voices spoke in favor of State intervention. Dudley Docker, leader of the British association of industrialists, was particularly active in this respect, saying that State intervention was absolutely indispensable to fill the gap with the US and Germany. Docker perceived the moment to be the last occasion. De facto, in England the State founded an important oil company, Anglo-Persian (which later was renamed British Petroleum), turning over leadership of the concern to a very good entrepreneur-manager, Charles Greenway. Greenway was in this case “the right set of hands” who managed the company as if it was a private one.
Again on impulse of the government, in 1926 a merger (a real one) of four organic chemical firms was implemented, giving birth to Imperial Chemical Industries (ICI) thanks to which the UK was back in such a crucial sector. It is well known that the great season of State intervention in Europe was the post World War II period. The general philosophy was that State owned companies should be led by the “right set of hands”: entrepreneurs, managers, and civil servants. Inevitably they had to keep in mind extra-company goals. In the long run this led to the end of the State as Entrepreneur– but we know quite well that the economic role of the State was there to stay, assuming different (perhaps more permanent) characteristics as related to other areas.
The need to grab resources that were more scarce than in the US brought along a different kind of workers’ movement. In the US, in a certain sense workers were “bribed”. Think of the $5 per day and the 40 hours per week that Henry Ford gave his workers. This made it possible for a worker to buy a Model T with 25% of his annual salary.
American unions sought to obtain more money and better work conditions. It is noticeable to observe that in 1972 the Democratic Party nominated as its presidential candidate, George McGovern, the most leftist candidate since the end of WWII. Of course McGovern hoped to secure the votes of the unions so he went to the leader of the AFL-CIO (George Meany) who answered back “we are sorry, Senator, but 80% of the time you voted against the interests of our unions”. This was unconceivable in Sweden, in the UK, and in Italy because, for the European workers’ movement, what was crucial was the dimension of POWER inside the factory and in society. The movement among workers had always a political orientation that could assume the “reformistic” format of the German mitbestimmung or the more conflictual attitude that we notice in France and Italy. But, I reiterate, the issue of power was always central.
To sum up, contractual cooperation, family leadership, state intervention, the centrality of power for the workers seem to be the genetic components of European enterprise.
These characteristics do not remain pure. Over time they were submerged by three big waves: a) the Americanization of the postwar years, b) European integration itself, and c) the globalization.
(a) Americanization appears to be a blend of the ideas of Ford and of Keynes. Fordism was the consequence of the Marshall Plan which supplied European firms with expensive but highly innovative equipment like single use tools for the auto industry or continuous rolling mills for the production of steel. Keynes could be identified with the institution of the European Common Market in 1957 which implied a decisive push to demand. The result of all this was the idea (much more American than European) that wealth was not a given, that the cake could grow in size, and that economies of scale and scope could be fully exploited. Almost all European countries were producing an enormous amount of goods that could be considered new or improved. In the meantime, cartels did not disappear, family business prevailed over managerial capitalism, the State was more active than ever, and workers did not accept company unions but continued to pursue political power, being influenced also by the presence of a strong Soviet bloc. In this way, we had a sort of hybridization where the old European way of business did not disappear but, at the same time, new attitudes and values were active.
(b) the second wave was provoked by European integration itself. Notwithstanding much resistance– especially by industrialists– Europe was created to be a unified wide market with common rules and an economy based on competition. These were the deep values that Americans wanted to instill in Europe after the war and they were seen as the only means to roll back communism. The architects of European integration could not deny their orientation. Already the Treaty of Rome in 1957 introduced two articles created to guarantee competition and tutelage of the domestic (European) market. These articles were transformed into numbers 81 and 82 of the 1986 “Single European Act”. The Single European Act also contains articles 87 through 89 that prohibit State support that might distort competition, favoring some companies over others. It is true that this legislation has been balanced with several modifications (especially to favor backward areas), but now in Europe thanks to these laws antitrust policy is consistent as in the US. Cartels, with motivated exceptions, are strongly prohibited as is the abuse of dominant positions. Having said that, we cannot think that the national State suddenly disappeared (also because, behind the State, there is a well-defined social and political establishment). It’s enough to remember that when, in 1990, Pirelli wanted to take over Continental, the national establishment in Germany (politicians, banks, unions, and suppliers) strongly reacted against the foreign “invaders”. The market is, for sure, more open but the national vetoes make us understand that hybridization also in this case is effective.
(c) of the three, the third has revealed itself to be a real “tsunami”, deeply challenging all the actors and the equilibriums of the old continent. It is the globalization of the past 25 years that has as its symbol the fall of the Wall and the rise of Internet. All the actors of the European scene were affected. Contractual cooperation became impossible when facing Chinese prices and, for the same reason, workers have had to abandon certainties and protections (welfare, decent salaries, and work conditions). All this seemed impossible to attack thanks to their glorious fights. But this is an era where everything has become liquid and flexible. The state cannot govern anymore when any individual with a PC can move billions of dollars. In addition to that, across Europe the State has shown itself to be a very bad owner, charging its companies with extra-economic goals so much so as to make necessary a substantial “downsizing” (i.e., privatizations). According to the so-called Washington consensus, in the end politics is shrinking while the economy, market economy, is enlarging.
This was the scenario, at least up to the crisis of 2008 when we realized that certain values of the European model were still very much alive. Take, for instance, the role of the State, considered an obstacle to economic growth and now again deemed strategic in contemporary capitalism. We do not want to evoke the rhetoric of European capitalism as one with a human face. Certainly, for good or for worse, its genetic traits seem to be well alive.
Our study of the European enterprise to search for an element of identity for the Old Continent may sound tautological, a prophecy that comes true. We accept this risk as we’ll spend one year in a pre-research phase that will consider always the sharp focus of the identity. We will consult as much as we can of secondary sources plus a small sample of big industrial companies belonging to six countries (Germany, UK, France, Italy, Spain and Sweden). We will examine this sample more in depth up to archival sources, considering four benchmark years: 1913, 1939, 1973, and 2000. It’s possible that at the end of our work we will write an essay confessing that the European enterprise doesn’t exist after all. But we are confident that our research hypothesis is right and that the firm is a powerful element of European identity. We accept this risk.