Influence of the Managing Agency System on the Structure of Industrial Organization

Modem industry has known a variety of types of industrial organization and combination, brought about by methods of development on horizontal and vertical lines. Partly under the influence of a desire to secure increased economies in production and distribution, but mainly dominated by the motive to eliminate wasteful competition, industry has organized itself into associations of varying degrees of unification. Two broad lines of development, often overlapping and cutting across one another may be distinguished, the vertical and horizontal forms of expansion and combination. Although the motives, objects, and even the conditions of success are different in each case, they both aim at some reduction in cost and some elimination of competition with a view to increasing profits. Speaking generally, while the aim of horizontal combination is to achieve the economies of rationalization in the true sense of the term, the aim of vertical organization is to attain in some degree a position of self-sufficiency and to avoid being dependent on the vicissitudes of the market as regards raw materials or semi-finished goods. Thus a combination of firms in the same stage of production, as for example, the recently formed Lancashire Cotton Corporation, would aim at the elimination of all waste and the increase of economic power by such methods “as systematic works specialization, the elimination of inefficient and surplus plant, and in general the full realization of the advantages of concentrated management and large-scale production.” 1 On the other hand, in the case of a vertical combination, we have a combination of firms in successive stages of the same industry; a steel-making plant for example, may combine with a coal-mining company or with a shipbuilding firm to secure its supplies of raw material or find a market for its products. But whatever the actual method of expansion and combination, the result is always some kind of association, either loose or well integrated, and involves on the part of the units that combine some surrender of their independence. We have thus various forms of organization, cartels, syndicates, combines, trusts, holding companies and so on.