Alfred Chandler and Amazon

What parallels can be drawn between contemporary transformations in the Internet and the corporate reconstruction of capitalism (to use Martin Sklar’s phrase) in the past?

Says Xavier Rizos

The internet took off there nearly 20 years ago with the wide dissemination of Netscape, the first web browser. Among the founding myths of this new economy was the belief that it would do away with intermediaries placing buyers and sellers face to face. Far from disappearing, new overpowerful intermediaries have actually emerged…far from having materialised the ideal of a pure market allowing perfect competition – as its pioneers believed – the internet has instead given birth to a juxtaposition of giant monopolies in separate market segments, which are often not in competition or only indirectly.. If the digital world tolerates so little of the competition, it is because of a specific law of its own: the network effect. The value of a good or service increases with the number of its users, even at the expense of short-term profitability: the product is adopted by a critical mass of users, allowing a company to acquire a dominant position on a given market. This delivers a “winner takes all” outcome


The rise of the Internet giants represents a shift in property relations. Yet capitalism has been through this in the past.  The rise of corporate capitalism in the fin-de-siècle United States represented a shift in property relations comparable in magnitude to that of the abolition of slavery. Large oligopolistic enterprises emerged and survived in sectors where the concentration of production reduced cost and where distribution involved high-volume flows. Amazon & its colleagues exemplify this pattern. It was the American historian Alfred Chandler who first described this process. In his words:


Modern business management became a viable institution only after the visible hand of management of management proved to be more efficient than the invisible hand of market forces in coordinating the flow of materials through the economy.


In the early 20th century Marxists observed these transformations in capitalism but struggled to explain them. They tended to assume the existence of  universal managerial economies of scale in all industries, not just the high-volume, large-batch. Thus the predictions  by Bukharin of the eventual unification of all economic activities in a single giant state capitalist trust. State socialist economic practice was deeply informed by this vision.  Enterprises were much larger than in capitalist economies and the retail and distribution sectors were under resourced. Chandler’s earlier work had actually shown that even in giant enterprises long-run viability was dependent on decentralization to profit centers within the firm. I discuss some of the political implications of this finding in my paper on American liberalism and capitalism.  The rise of Internet commerce has recreated aspects of capitalism over a century ago.

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