Taylorism and Fordism
From coal to oil and nuclear energy
1. Middle Ages and Early
Modern Period
2. First Industrial Revolution
3. Second Industrial Revolution
4. Third Industrial Revolution
Guilds
Steam Engine
Double-entry bookkeeping system
Big business and managerial revolution
New actors: Japan, China, India…
Mercantilism
Family business
New actors: US and Germany
Home manufacturing and putting-out system
From U-Form to M-Form
Toyotism
First wave of globalization
1
Some milestones (non-exhaustive list…)

Middle Ages and Early Modern Period:

1. Double-entry bookkeeping system
2. Bills of exchange
3. Guilds
4. Home manufacturing and putting-out system
5. Few examples of large companies:
• Centralized manufactures (Arsenale di Venezia, manufactures royales…) and

commercial companies (East India Company)

2
1. Double-entry system:

• The double-entry method of bookkeeping began with the development of the commercial republics of Italy
• Summa de arithmetica, geometria, proportioni e proportionalità (Luca Pacioli, 1494)
• In the late 18th and early 19th centuries, the Industrial Revolution provided an important stimulus to
accounting and bookkeeping. 

2. Guilds:

• Urban craftsmanship was traditionally concentrated in the production of high value-added items
• Guilds organized specialized activities of the same type (eg goldsmiths)
• Regulation of the quantity, quality and price of the goods produced
• Resolution of disputes between members
• Control of the training process of future members (apprenticeship)

3
3. Home manufacturing and putting-out system:

• Pre-Industrial Europe:
primary sector 80-90% GDP, 70% working population.
• Some phases of manufacturing transfered in the countryside, under the control
of the ‘merchant-entrepreneur’.
Advantages:
• Low cost of rural labor
• High production flexibility

4
3. Few examples of large companies:

• The great pre-industrial factories, often protected by the state through privileges and
monopolies, were the exception.
• Often they combined centralized manufacturing and home-making: only a part of the
workers were employed in centralized establishments, while the remaining part worked
at home.
• The available technology did not allow to achieve significant economies of scale.
• Centralized factories:
• Arsenale di Venezia: it was created around the early 12th century due to the need to
give more development to shipbuilding, a strategic activity for Venice. The number of
workers reached the average daily quota of 1500-2000 units
• Manufactures royales: eg. Manufacture Royale de glaces de miroirs (1665)  Saint-
Gobain
• Commercial companies (East India Company, 1600)

5
First Industrial Revolution:
1. Technological revolution (steam engine)
• 1698: Thomas Savory’s Patent for steam-engine (pump)
• 1712: Thomas Newcomen steam-engine (two pistons)
• 1765: James Watt’s condenser 

2. Establishment of the factory system (18° century)

3. Family business:
• The factories were of limited size
• Ownership structures and internal organization were similar to those of the pre-
industrial period


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• The diffusion of transport and communication networks:
• Telegraph, telephone
• Railways and steam navigation
• Railway companies become big companies

1870
Second Industrial Revolution:

1. Technological innovation
2. Scientific labour organization: Taylorism and Fordism
3. Big business and managerial revolution: ownership vs control
4. Organizational changes: from U-Form to M-Form
5. First wave of globalization and multinationals
6. New actors: US and Germany
7. Competition controls vs cartels
8. State and banks


8
SECOND INDUSTRIAL REVOLUTION:

• Compared to the first revolution, it involves much higher production volumes

and a much faster pace of change.

• Role of TECHNOLOGY: determines a dualism between the sectors dominated

by the large enterprise and the others.

• A consequence of the increased investments and the spread of big business

was the affirmation of the SCIENTIFIC ORGANIZATION OF LABOR (F.W. Taylor).
FORDISM.

• NATIONAL CASES: US and Germany. Large corporations.

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Share of world 1830 1860 1880 1900
manufacturing
production (%)
UK 9.5 19.9 22.9 18.5
France 5.2 7.9 7.8 6.8
Germany 3.5 4.9 8.5 13.2
Italy 2.3 2.5 2.5 2.5
Russia 5.6 7 7.6 8.8
USA 2.4 7.2 14.7 23.6
Japan 2.8 2.6 2.4 2.4
China 29.8 19.7 12.5 6.2
India/Pakistan 17.6 8.6 2.8 1.7

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•U-FORM:

• highly centralized management

of the company. This structure
has the disadvantage of being
not very flexible since all the
decisions are taken by a single
directional center.

•M-FORM:

• decentralization of the
company's management
structure through the
establishment of divisions or
company internal groups each of
which is responsible for a single
sector (which generally differs
from the other depending on the
market segment or the type of
product).

11
Third Industrial Revolution:

1. Energy: from coal to oil and nuclear energy

2. New actors: Japan, China, India…
3. From Fordism to Toyotism
4. Automation
5. Outsourcing and downsizing
6. Business conglomerate (decline since the 1980s): it differs from the
multidivisional enterprise in that it operated in non-related sectors
7. ICT and digital innovation
8. Industrial relations (trade unions)
9. Second wave of globalization

12
 1 2 3 4

Middle Ages and Early Modern First industrial revolution Second industrial revolution •Third industrial revolution
Period (mid 18° c.-mid 19° c.) (mid 19° c.-WWII) •(WWII-…)
(…-mid 18° c.) •Technological revolution (steam •Technological innovation •From coal to oil and nuclear
• Double-entry bookkeeping engine) • Taylorism and Fordism energy
system •Establishment of the factory •Big business and managerial •New actors: Japan, China, India…
• Bills of exchange system revolution •From Fordism to Toyotism
•Guilds •Family business •From U-Form to M-Form •Automation
• Home manufacturing and putting- •First wave of globalization and •Outsourcing and downsizing
out system multinationals •Industrial relations (trade unions)
•Few examples of large companies • New actors: US and Germany •Second wave of globalization
•Competition controls vs cartels •ICT and digital innovation
• State and banks

13
 Threshold: middle ages, early modern ages
• 12 c.: Bill of exchange
• 13 c.: Venice Arsenale
• 15 c.: Double-entry Bookkeeping
• 17 c.:
• Bill of Rights
• Commercial companies (joint-stock companies)
• Putting-out system

14
 Threshold: industrial revolution -> today
• 18 c.:
• Steam Engine
• Factory system
• 19 c.:
• U-Form
• American System of Manufacturing
• Taylorism
• 20 c.:
• M-Form
• Fordism
• Toyotism

15
16
 The imperfect convergence:
differences between US and Europe
goods are no longer
just objects, they
become part of the What better
human life than Depero’s
futurist
motorcyclist to
argue that
man and
industrial good
were becoming
a unique thing

F. Depero, The biker, 1923

 INDUSTRIAL WORK IN
SOVIET UNION

Alexander Deineka, Textile Workers, 1927

4
 BRITISH SMALL AND CRAFT
ENTERPRISES

  Stanley Spencer, The Garage, 1929

4
 AMERICAN CASPITALISM
AND THE IDEA OF
PROGRESS

T. Benton, Instruments of Power, America Today,

1930-1931

4
 Precisionism and managerial
capitalism in America
obsessive attention to
Silos,
detail
factories,
chimneys,
machines,
skyscrapers,
bridges …

individuals
disappeared from the
painting

R. Crawford, Buffalo Grain Elevator, 1937

4
The Roaring Twenties

• GOLD reserves had risen, the USA emerged as the

world’s biggest creditor nation
• American investment started flowing into Europe and
Germany in particular in the form of foreign
investments in German industry
• Finacing to German and Austrian banks , Germany
and central Europe could undertake recovery.
• USA became the financial pillar upon which the
whole world depended.
• USA : technological advance = emergence and spread of
assembly line system, emergence of scale and scope firms
= led to an increase of production and later of

OVERPRODUCTION
• The emergence of LARGE CORPORATIONS= characteristics:
•
• they operated in the new and highly technological sectors :
chemestry, electricity, petroleum, or those engaged in mass
production like food, tobacco, cosmetics
• they integrated PRODUCTION + DISTRIBUTION activity
(downstream + upstream)
• USA: The country was scarcely populated
• Had abundant natural resources
• Disponibility of capital (accumulated during the
colonialism)
• Necessity of creating labour saving technologies
• This explains the early push to mechanization
• Spread of standardization , based on the interchangeable
parts in a large range of sectors: American Manufacturing
System (AMS)
• Taylorism (Scientific Oragnisation of Labour) = Fordism
(assembly line production system) = Mass production
• 1913: Henry Ford = T-Model car , produced for the first
time in Detroit
• Firms promised high dividends = firms became
object of speculation
• Americans wanted to participate to such a
prosperity, bought stocks
• With low credit margin (10%) an investor could buy
a dollar’s worth of stock
• also people from the middle calss and with modest
incomes purchased stocks
• As the demand for stock increased, stock prices rose
and then rocketed
the stock market turned into a BUBBLE

BOOM OF THE STOCK EXCHANGE MARKET

• In summer 1928 American banks and investors
stopped investing in German and other foreign
bonds in order to invest their funds through the
New York stock market, which started a spectacular
rise
• Individuals with modest incomes were tempted to
purchase stock on credit
• The US gross national product peaked in the last
quarter of 1929, the gradually declines
The decline in industrial production 5 months before the stock
market crash, as a consequence of the decline of the demand
the market wasn’t able to absorb the production =
overproduction)

Profits started diminishing

1929: The industrial production index fell fell from
127 (June)
117 (October)
99 (December)
The automobile production declined from
666,000 units (March)
319,000 (October)
92,500 (December)
1929: the Wall Street Crash
• Crowd outside Wall Street
• 24 October 1929 = Black Thursday =
• wave of panic selling on the stock exchange caused stock
prices to plummet
• 29 October 1929 = Black Tuesday =

• the index of stock prices peaked 381 (september), then fell

to 198 (november) and kept falling

• Americans who had invested in Europe ceased to

make new investments and sold existing assets
there to repatriate the funds
• Hunger, mortality , apathy, disperation (these
conditions will foster political radicalism)
 distrust in economy and finance
• increasing unemployed people and at the same
time = industrial plants went to ruin for lack of jobs
• 1930 = withdrawal of capital from Europe = strain
on the entire financial system
Rush to the banks to have money back

Credit crunch = Federal Reserve (FED) (=Central

Banking System of the USA) stopped to issue credit
to firms and banks = Loans to finance imports
declined sharply
From Crisis to Depression The dogma of
classic CAPITALISM failed
• 1931 = total foreign trade had fallen to less than 2/3
of its value
• 1931 Austrian Creditanstalt (one of the largest and
most important banks in central Europe) suspended
payments.
• The panic spread to other countries (Hungary,
Czechoslovakia, Romania, Poland and especially
• Germany, where a large-scale withdraw of funds took
place = bank failures
• Britain, governments authorized the Bank of England
to suspend payments
• 1931-32: Argentina Australia Chile and other
24 countries officially departed from the Gold
Standard and suspended payments
• Foreign trade fell drastically between 1929-32

• Falls in manufacturing production,

employment and per capita income

• Decisions to suspend the GS without

nternational consultation or agreement
• Change in the attitude toward economic policy (The Keynesian
revolution)
• The depression contributed to the rise of extremist political
movements of both the left and the right = Germany

• In March 1933 =
Franklin Delano Roosvelt

(President USA)

• America = 15 million unemployed (1/2 of the industrial force)

• Industry sector collapsed
• Agriculture in severe crisis
 Causes of the Depression:

1. Money sector: Decline in the quantity of money in the

major industrial economies (esp. USA)
2. Real sector: autonomous fall in consumption and
investment expenditure
3. Prior depression in agriculture

Unfortunate concatenation of events and

circumstances , both monetary and non-monetary,
occured to produce the depression
 New Deal = Planned economy
• Economic recovery and social reform in the areas of BANKING, INDUSTRIAL
AGRICULTURAL, MONETARY, INFRASTRUCTURE (public works)
• 1) BANKING =
• Banking holidays = For an entire week all banking transactions were
suspended in an effort to stem bank failures and ultimately restore
confidence in the financial system.
• Glass-Steagall Act (1933) it separated commercial banking from
investment banking)
• 2) NRA (National Industrial Recovery Act)
• private economic planning with government supervision to protect the
public interest and guarantee the right of labour to organize
• 3) AAA (Agricultural Adjustment Act)
• It reduced agricultural production, by paying farmers (subsidies)and obliged
them not to plant on part of their land + kill off excess livestock = Its purpose
was to reduce crop surplus and therefore effectively raised the value of
crops.
• Control of most of the 6 millon American farms
Italy
1922: Benito Mussolini came to power = introduction of FASCISM
Fascism celebrated the use of force, elevated war as the noblest human
activity , condemned liberalism , democracy, individualism, socialism.
The state was considered the supreme embodiment of the human spirit
All industries were organized as trade associations (rather than business
corporations)
Workers, proprietors, state were reprsented , with party functionaries
Labour unions were suppressed
Prices, wages, working conditions, social insurance were controlled by
the state
The Fascist government sought to counter the economic depression of
the 1930s by creating large state-supported enterprises in key sectors
of the economy = more concerned with maintaining high employment
rather than increasing efficiency
Germany
Hitler: introduction of Nazism
• First major industrial nation to achieve complete recovery
• 1933= 6 million unemployment (=1/4 of the labour force)
• 1939 = it had more jobs than workers
• Large-scale public works program that melded gradually into a
rearmament program
• Creation of autobahnen (highways)
• Expansion of industries
• Suppression of voluntary trade unions
• Introduction of compulsory memebership in the National
Labour Front
• Industrialists were persuaded to cooperate with the new
industrial regime
• One of the main principle of the economic
objectives of the Nazis was to make Germany
economy self-sufficient in the event of war

AUTARKIE
• They directed their scientists to develop new
synthetic commodities (consumer goods and
military supplies)
Spain
1936 = General Francisco Franco came to power

began a bloody civil war that ended in the

overthrow of the Republic in 1939 and the
institution of an autarkic regime similar to those
of Fascist in Italy and Nazi in Germany, but
without the advance technology of the latter.
World War II
1939-45
• The most massive and destructive of all wars
• War of movement = aerial warfare
• Science-based technology accounted for many of
the special new weapons (radar, atomic bombs…)
• Enormous productive capacity of the American
economy
• Allies: Great Britain, France, URSS (since 1941),
USA (since 1941)
• Asse: Germany, Italy, Japan, later Finland, Hungary,
Romania, Bulgaria
• A GLOBAL WAR = It was the most destructive and massive of all wars

• WAR OF MOVEMENT: air, sea, on land

• Aerial warfare = critical element

• Science based technology accounted for many of the special new

weapons = radar, jet-propelled aircraft, atomic bomb…
• Costs = 1 trillion dollars (1012)

• Human losses:
• Europe =15 million (including 4/6 million Jews murdered by the Nazi
in the Holocaust)

• Russia = 15 million
• China = 2 million
• Japan =100,000 = atomic bomb dropped on Hiroshima and Nagasaki
 Post WWII:
Rebuilding the World
• General paralysis

• Before the war Europe had imported more than it exported

(especially foodstuff and raw material)
• It was able to pay for the difference with the earnings of its foreign
investments, shipping and financial services
• After the war with merchant marines destroyed, foreign investments
liquidated, financial markets in disarray Europe faced a bleak prospect
• Urgent need = for emergency relief and reconstruction
• Relief came through 2 channels, most of it originating in America

• 1) as the Allied armies advanced across western Europe (1944-45) they

distributed emergency ratios and medical supplies to the injured
population

• 2) the United Nations Relief and Rehabitation Administration (UNRRA)

• 1 billion dollars + 20 million tons of food, clothing, blankets,
medical supplies (USA = bore 2/3 of the costs)

• the USA made available $4 billion to Europe; $3 billion to the rest

of the world
• In contrast to Europe, USA emerged form the war stronger than
ever (to a lesser extent Canada, other Commonwealth nations
and countries of Latin America; their industries and agriculture
benefited from high demand in wartime, which allowed
technological modernization and expansion)

• USA = feared a severe depression after the war

• 1948 = inflation = +2 prices
• The most urgent tasks= to restore normal law and order
• In all countries there was a widespread public demand for
political, social and economic reforms
• The response to these demands in the economic sphere was

• Nationalization of key sectors

•
transportation, power production, part of the banking system,
extension of social security and social services….

• 1941 = Roosvelt and Churchill signed the Atlantic Charter which

pledged their countries (and the other members of the United
Nations) to undertake restoration of world trading system
Bretton Woods
• 22 July 1944: Bretton Woods Conference
• 730 delegates from all 44 Allied nations (United States, Western
Europe, Canada, Australia, Japan) gathered at the Mount Washington
Hotel in Bretton Woods, New Hampshire (USA) for the United Nations
Monetary and Financial Conference
• It was an initiative by the US to reshape the post-war international
economy
• The Bretton Woods system of monetary
management established the rules for commercial
and financial relations among the 44 allied countries
• fully negotiated monetary order intended to govern
monetary relations among independent states.
• cooperation among other countries ; prevention of
competitive devaluation of the currencies.
•The extremely difficult situation at the end of the WWII
was dealt with a strong intellectual efforts which produced
the Keynes Plan and the White Plan
•Both tried to deal with the main problems of the interwar
period:
•the abandonment of fixed exchange rates,
• hindrances to multilateral trade,
•asymmetry in the adjustment .
Keynes vs White
1. John Maynard Keynes’s innovative proposal was foundend on
the principle of
• BANK CLEARING = world bank, bank in order to overcome
the difficult adjustment of the gold standard;
• the introduction of an international money ( BANCOR)
managed by supranational authorithy. All currencies are
convertible in Bancor. Common fund of reserve. In case the
balance of payments of a country is in deficit , the bank
intervene by supplying money. It is a system of the balance
of currencies ex-ante.
2. Harry White, instead, took a more conservative approach. System of balance
ex-post.
The White’s Plan
Actually a COMPROMISE, giving rise to a hybrid construction.
The system established was based on three elements:
1. - INTERNATIONAL MONETARY FUND (IMF): international
economic cooperation. Aim: monitor of the new system
of fixed exchange rates (Gold Exchange rate); financial
support to those countries in difficulties. The gold reserves
of USA (2/3 of all world gold) declined in the 60s=
abandon of Gold Standard (R. Nixon:1971)
2. INTERNATIONAL BANK FOR RECONSTRUCTION AND
DEVELOPMENT (IBRD) was founded to give loans. For the
transition period of reconstruction following the war,
members countries could borrow long-term from the
Bank. Later: financial help for developing countries.
• It was an initiative by the US to reshape the post-war
international economy

• GOLD EXCHANGE STANDARD

• Only the dollar was convertible into Gold

• 35$ = 1 OUNCE
• The other currencies were convertible into Dollar
• = fixed exchange rates among currencies
• cooperation among other countries ; prevention of competitive
devaluation of the currencies.
• In retrospect, the belief that this system could work was
extraordinarily naive. The modest quotas and drawing rights of
the Articles Agreement were dwarfed by the dollar shortage that
emerged before the IMF opened for business in 1947.
• Postwar Europe had immense unsatisfied demands for foodstuffs,
capital goods, and other merchandise produced in the USA and
only limited capacity to produce goods for exports.

• BW contributed to create the «embedded liberalism» that

characterized the western world in the golden age


• 1948-51: the USA extended some $13 billion in intergovernmental

AID to finance Europe’s deficits (Marshall Plan)
 The Marshall Plan
1947
• Most nations of WE, except Germany, had regained their prewar
levels of industrial production, but they were far from satisfactory

• 1947 = bad harvests due to sever winter and drought in large part of
Europe

• Shortages of all kinds - foodstuff, raw materials… -

• The remedy for the shortages was found overseas
(North and South America) but dollar were required for
the purchase and in Europe = shortage of dollar (‘dollar
gap’)

• 1945 = USA and Canada lent $5billion to Great Britain,

that it used for its own country and other countries too
• 1947 : general George C. Marshall (U.S. secretary of
State) established the Marshall-Plan , assistance to
European nations

• Representatives of 16 nations met in Paris 1947 and

formed the Committee of European Economic
Cooperation = CEEC, then OEEC (Organization for
European Economic Cooperation = responsible for
allocating American aid)
• These included all the democratic nations of WE ,
Sweden Switzerland, Austria ( Soviet Union and Eastern
European countries were not represented, Franco’s
Spain was not invited and Germany still subject to
military occupation, had no government to be
represented)

• 1948 = European Recovery Program = ERP

• ERP gave $ 13 billion in economic assistance = loans, grants from US
to Europe
• OEEC obtained imports of scarce commodities from the dollar zone :
food, feed, fertlizer, raw materials and fuel to enable European
industries to rebuild and export
• In the meantime disagreement between Russia and the Western Allies
• Germany was divided into 2 states :
• 1) German Federal Republic (West Germany)
• 2) German Democratic Republic (East Germany)
• Berlin = although deep inside the Soviet zone , was divided into 2: East
Berlin the capital of GDR, and West Berlin affiliated with GFR
• The Allies allowed the dismantling of German armaments and other
heavy industries, reparations to the victors and to the victims of Nazi
aggression, limitation on productive capacity, program of
denazification (including the trial of Nazi leaders as war criminals)

• After a brief attempt by Western powers to collect physical reparation

and to break up large industrial groups in their zones, they realized
that the German economy would have to be kept intact not only to
support German people but also to assist in the economy recovery of
WE
• They reversed their policy and instead of limiting German production ,
they endavored to facilitate it

• To ensure the survival of the population in their zones of occupation ,

the American military government financed 2/3 of the essential
imports (mainly food)

• To stimulate economy recovery the Western powers carried out a

reform of the German currency (1948) replacing the debased Nazi
Reichsmarks with Deutschmarks = 1:10
 Wirtschaftswunder

• Stores were restocked , factories restarted, western Germany began its

remarkable economic revival

• The Marshall Plan ended (1947-1952) succeeded beyond the expectations

• EPA = European Payments Union

• One of the major obstacles to increased trade in the immediate postwar

years , was the shortage of foreign exchange especially Dollars
• Necessity of bilateral balancing trade
• 1950 OEEC nations , with the assistance of $ 500 million grant from the USA
• This ‘device’ allowed for free multilateral trade within OEEC
 American Business
Diversification

James Rosenquist, House of Fire, 1989

4
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80
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82
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84
85
86
87
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89
90
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92
Corporation after World War II
Intracompany trade

The post-Second World War period witnessed not merely a rise

in Multinational Corporations’ control of world trade, but also
growth of the trade within related enterprises of a given
corporation: Intracompany Trade.
By the 1960s one third of the world trade was made on intra-
company basis.
Problems of intra-company trade: MNCs’ ability to maximise
profits by avoiding both market mechanisms and national laws
with a mechanism called “transfer pricing”
Transfer Pricing
How do the Multinational Corporation conduct
their Business?
 Corporate
Social
Responsibility
and
Multinational
Corporations
CSR after the Industrial Revolution
Profit Maximizing Management Corporate Period
● Philanthropy
The corporations began to be seen
● Employees welfare
as institutions, like the government,
● Paternalism/
that had social obligations to fulfill
patronizing attitude (Eberstadt, 1973)

1870-1920 1920-1930 1930-today

Trusteeship Management
Corporate managers taking on the
responsibility for both maximizing
stockholder wealth and creating and
maintaining an equitable balance among
other competing claims, such as claims from
customers, employees, and the community
 Corporate Social Responsibility and
Multinational Corporations
The birth of corporations meant the emergence of several social problems
because of the differences with the traditional firms, the main were:
● Huge impact of choices of each company
● The new class of management has responsibility to his employers
satisfaction, not to the social causes
● With the advent of globalization companies start to choose where to
manufacture all over the world, often in countries without laws about
labour exploitations and respect of the environment
Two thoughts in the 70’s
Committee for Economic Milton Friedman
Development (CED) In New York Times, “
“business functions by public consent The Social Responsibility of Business is to
Increase Its Profits
and its basic purpose is to serve
”, September 13th, 1970. 
constructively the needs of society—to
the satisfaction of society”
“Business of business is
business!”
Economic Impact of CSR
Cost containment
● Lower costs linked to protests and
complaints
● Control of business risks
● Reduction of costs for recruiting and
turnover
● Lower costs of control of employees
● Lower interest rate on loans
Increase in Revenues
● Improvement of attractiveness of
human resources
● Higher productivity of employees
● Greater capacity to satisfy customer
needs
● Better relationship with
stakeholders, consequently
collaboration
● Higher reputation