Organizational Innovations and Economic Growth

Organizational Innovations and Economic

Growth

To my parents

and

to Xenophon

Organizational

Innovations and

Economic Growth

Organosis and Growth of Firms, Sectors and

Countries

Elias Sanidas

University of Wollongong, Australia

Edward Elgar

Cheltenham, UK • Northampton, MA, USA

© Elias Sanidas, 2005

All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system or transmitted in any form or by any means, electronic, mechanical

or photocopying, recording, or otherwise without the prior permission of the

publisher.

Published by

Edward Elgar Publishing Limited

Glensanda House

Montpellier Parade

Cheltenham

Glos GL50 1UA

UK

Edward Elgar Publishing, Inc.

136 West Street

Suite 202

Northampton

Massachusetts 01060

USA

A catalogue record for ths book

is available from the British Library

Library of Congress Cataloguing in Publication Data

Sanidas, Elias.

Organizational innovations and economic growth: organosis and

growth of firms, sectors and countries/Elias Sanidas.

p. cm.

Includes bibliographical references and index.

1. Technological innovations—Economic aspects. 2. Technology

transfer—Economic aspects. 3. Organizational change. 4. Corporations—

Growth. 5. Economic development. 6. Technological innovations—Economic

aspects—United States. 7. Technological innovations—Economic aspects—

Japan. I. Title.

HD45.S273 2005

338’.064—dc22

2004057462

ISBN 1 84376 721 X

Typeset by Manton Typesetters, Louth, Lincolnshire, UK.

Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall.

v

Contents

List of figures vii

List of tables ix

Acknowledgements x

List of abbreviations xi

1 Introduction 1

1.1 Background 1

1.2 Main points 6

1.3 Organization of the book 8

2 Organizational innovations from the 1860s in the USA and Japan 12

2.1 Introduction 12

2.2 OIs in the USA up to World War II 12

2.3 OIs in Japan up to World War II 18

2.4 OIs in the USA after World War II 22

2.5 Japanese OIs after World War II 25

2.6 Japanese and American evolutions of firms and OIs: a brief

comparison 30

2.7 Conclusions 31

3 The role of OIs in the theory of economic growth 33

3.1 Introduction 33

3.2 Literature review about OIs 34

3.3 OIs and TIs 46

3.4 Inclusion of OIs in the production function 57

3.5 Conclusions 62

4 Contribution of specific OIs to economic growth and the three

axes of OIs 66

4.1 Introduction 66

4.2 American firm organization and economic growth 67

4.3 Japanese firm organization and industrial growth 80

4.4 The three axes of OIs 101

4.5 Conclusions 108

5 The process of firm operations: core of the atomic/systemic model

of economic growth 111

5.1 Introduction 111

5.2 The system of four bio-socio-economic processes 112

5.3 Leading firms and sectors, and diffusion of OIs 131

5.4 An atomic/systemic model of economic growth 141

5.5 Conclusions 147

6 OIs and manufacturing sectors’ growth in the USA and Japan 152

6.1 Introduction 152

6.2 The period from the end of the 19th century to World War II 153

6.3 The period from the 1960s to the end of the 20th century 166

6.4 Conclusions 198

Appendix 6.1: Indices of real output in three-digit SIC sectors in

the USA, 1963 to 1998 200

Appendix 6.2: List of manufacturing sectors on a three-digit basis

with their code numbers 207

7 Empirical evidence on the links between industrial sectoral growth

and the lean production system (JIT/QC) in the USA 210

7.1 Introduction 210

7.2 Implementation of the JIT and QC systems in the two

countries 212

7.3 Quantitative evidence 218

7.4 Conclusions 252

Appendix 7.1: Transformation of the 459-sector data to 85-sector

and 28-sector data 257

Appendix 7.2: Basic data for the 28 ISIC sectors in the USA,

expressed as percentage 258

Appendix 7.3: The 85-sector database, USA, from 1987 to 1996

annual average growth rate, as percentage 260

Appendix 7.4: Stationary long-term coefficients and vectors V 263

8 Conclusions, limitations, implications 270

8.1 Introduction 270

8.2 Synthesis of the major conclusions 271

8.3 Limitations, omissions and future research 277

8.4 Implications and recommendations 284

8.5 Epilogue 286

References 289

Index 317

vi Contents

vii

Figures

1.1 The circular flow of the main points for each chapter 10

3.1 OIs and economic growth 40

3.2 The OIs input as a multiplicative vector to the inputs of K and L 61

3.3 The OIs input as a distinct factor of production 61

4.1 Taylorist-Fordism system and the production possibility

frontier 77

4.2 The three integrated axes 107

4.3 The relationship between the three axes 108

5.1 Firms, networks, industries and markets 138

5.2 The process of economic growth: an atomic/systemic

proposition 142

5.3 The complete atomic/systemic model 144

6.1 USA, TFP of manufacturing sectors, average annual

percentage growth, 1899–1937 159

6.2 USA, manufacturing sectors, real output, average annual

percentage growth, 1899–1937 160

6.3 Japan, real output indexes for eight industries 162

6.4 Japan, manufacturing sectors, five-year moving average of

growth rates 163

6.5 Japan, manufacturing sectors, five-year moving average of

growth rates 164

6.6 Japan, eight industries, 1874–1940, two cointegrating vectors 165

6.7 Industrial chemicals, real output index 167

6.8 Electrical machinery, real output index 168

6.9 Real output, annual percentage growth rates, for the USA and

Japan, 1964–98 169

6.10a Non-ferrous metals, indices of industrial production, 1963–98 171

6.10b Non-ferrous metals, first and second differences, 1963–98 172

6.11 Japan, real output, annual percentage growth rates, for three

sub-periods 174

6.12 USA, real output, annual percentage growth rates, for three

sub-periods 175

6.13a Real output, annual percentage growth rates for the USA and

Japan, 1964–76 176

6.13b Real output, annual percentage growth rates for the USA and

Japan, 1977–86 177

6.13c Real output, annual percentage growth rates for the USA and

Japan, 1987–98 178

6.14 TFP annual percentage changes 1960–80 for the USA and

Japan 180

6.15 TFP annual percentage changes, two-digit sectors, 1960–70

and 1960–85, for the USA and Japan 182

6.16 Real output and TFP annual percentage changes, 1960–85,

USA and Japan 183

6.17 TFP annual percentage changes, 1987–98, in Japan and the

USA 185

6.18 Real output, annual percentage changes, 1987–98, for Japan

and the USA 186

7.1 Chronology of implementation of JIT in the USA and Japan 214

7.2 From JIT/QC to industrial growth 218

7.3 USA, inventories to shipments ratio, 28 ISIC sectors 226

7.4a USA, sector 382, inventories to shipments ratio 227

7.4b USA, manufacturing total, inventories to shipments ratio,

1929–97 228

7.4c USA, sector 383, TFP, labour productivity, inventories to

shipments ratio and unemployment (total USA), in percentage

changes 229

7.5 USA TFP 28 SIC sectors, 1964–96 231

7.6 USA TFP versus other variables 236

7.7 USA TFP average NBER and UNIDO for 28 ISIC sectors 238

7.8 The links between theoretical concepts and quantitative

analysis 256

viii Figures

ix

Tables

1.1 Organizational entities and innovations historically 2

1.2 Average annual real growth rates of industrial production for

some key periods in the USA and Japan, 1866–1996 4

2.1 Initial steps of quality control in Japan 29

3.1 Concepts related to the impact of OIs on economic growth 45

3.2 Technical innovations 49

3.3 Technological regimes (TIs oriented): links with OIs 54

4.1 Characteristics of the main production systems 81

4.2 Characteristics of focal factories 83

4.3 Comparison between the JIT/QC and non-JIT/QC systems 90

4.4 Comparison of original Fordism and JIT/QC 102

5.1 Examples of major leading firms 133

6.1 Sectoral productivity growth in the USA from 1899 to 1937 154

6.2 Sectoral growth in the USA (1899–1937, based on the sub￾periods of Table 6.1) 156

6.3 Growth rates in real output from 1964 to 1998, industry

differences 170

7.1 The quality paradigms 216

7.2 ASQ’ s membership 217

7.3 Simple cross-sector OLS regression results 233

7.4 Comparison between the three periods, TFP and other variables 235

7.5 Average rates of growth for 85 sectors 237

7.6 Definitions of variables 241

7.7 Results of the simple OLS and 2SLS regressions 246

7.8 The vectors V of selected VAR models 248

7.9 ECMs of the three VAR models 250

x

Acknowledgements

My special appreciation to Professors Paul Robertson, Franco Malerba, Leif

Hommen, and Charles Harvie for their helpful comments on my initial manu￾scripts.

I would also like to thank the following who have kindly given permission

for the use of copyright material:

Elsevier Ltd: for two figures and abstracts reprinted from Elias Sanidas

(2004), ‘Technology, technical and organizational innovations, economic and

societal growth’, Technology in Society, 26 (1), 67–84. Copyright 2004, with

permission from Elsevier.

Serial Publications, New Delhi, for material from: Elias Sanidas (2004),

‘Impact of the lean production system on economic growth: evidence from

US manufacturing industries’, International Journal of Applied Business and

Economic Research, 2 (1), 21–45.

Every effort has been made to trace all the copyright holders but if any have

been inadvertently overlooked the publishers will be pleased to make the

necessary arrangements at the first opportunity.

xi

Abbreviations

ADF augmented Dickey-Fuller

AIC Akaike information criterion

ASI American semiconductor industry

ASQ American Society for Quality

CIs Contract innovations

Dell CC Dell Computers Corporation

DIs Decision innovations

DVD digital versatile disc

ECM error correction model

FDI foreign direct investment

FFS focal factory system

FIML full information maximum likelihood

FMS flexible manufacturing system

GDP gross domestic product

ICs integrated circuits

IMPV International Motor Vehicle Programme

IRY Inventories to shipments ratio

ISIC International Standard Industrial Classification

IT Information technology

JIC just-in-case

JIT just-in-time

JIT/QC just-in-time/quality control

JNR Japanese National Railways

JSI Japanese semi-conductor industry

JUSE Japanese Union of Scientists and Engineers

KCs kinetic costs

LCD liquid crystal display

LEs Large enterprises

LP Linear programming

LPS (or LPs) lean production system

LSI large-scale ICs

NBER National Bureau of Economic Research

OE organizational entity

OIs organizational innovations

OLS ordinary least squares

PC personal computer

POC process of contracts

POM process of movements

POS process of strategies

POW process of wisdom

PPF production possibility frontier

PPP purchasing power parity

PROSIBB process(es) of the system of inputs of the black box

PS Production system

QC quality control

R-A resource-advantage

R&D research and development

ROI Return on investment

SBC Schwartz Bayesian criterion

SCs strategic costs

SEE standard error estimate

SI system of innovations

SIC Standard Industrial Classification

SIS sectoral innovation system

SSIP sectoral system of innovation and production

SM scientific management

SMEs small and medium enterprises

SS sectoral system

SURE seemingly unrelated regressions

TCs transaction costs

TCT transaction costs theory

TFP total factor productivity

TFS Taylor’s cum Ford’s system

TI technical innovation

TIOP tangible inputs of production

TNCs transnational corporations

TQC total quality control

TQM total quality management

TR technological regime

TVAL Toyota Verification of Assembly Line

TVE township and village enterprise

UNCTC United Nations Centre on Transnational Corporations

UNIDO United Nations Industrial Development Organization

VAR vector autoregressive

VECM vector error correction model

VI Vertical integration

xii Abbreviations

Abbreviations xiii

WCs wisdom costs

WIs Wisdom innovations

WIP work-in-process

2SLS two-stage least squares