Scale, Scope and Entrepreneurship

Abstract

To exploit the economies of scale and scope in multi-product technologies, enterprises in advanced capitalist countries grew in the last 150 years in three directions. By substituting in the place of traditional entrepreneurs professional managers, they developed organisational capabilities to coordinate effectively activities that were widely dispersed geographically and functionally. They promoted rapid innovation by resorting to systematic Research and Development efforts. And, finally, they enhanced control over their markets by introducing innovations whose application required large-scale investment. In the course of these transformations the material standards in the respective countries rose to unprecedented levels. But simultaneously they led to losses in market coordination because these transformations increased market imperfections. As a result the economies of scale and scope appear to be negatively related to the ratio of coordination to innovation in the economy. Hence, to the extent that policy makers strive to achieve the priorities of citizens, they are advised to allow for the implications of this relationship to the best of available information.