Table Of ContentTHE EMERGENT FIRM
Also by Neil M. Kay
THE INNOVATING FIRM: a Behavioural Theory of Corporate
R&D
THE EVOLVING FIRM: Strategy and Structure in Industrial
Organisation
THE EMERGENT FIRM
Knowledge, Ignorance and
Surprise in Economic
Organisation
Neil M. Kay
M
MACMILLAN
©Neil M. Kay 1984
All rights reserved. No part of this publication may be reproduced or
transmitted, in any form or by any means, without permission
First published 1984 by
THE MACMILLAN PRESS LTD
London and Basingstoke
Companies and representatives
throughout the world
Typeset by
Wessex Typesetters Ltd
Frome, Somerset
British Library Cataloguing in Publication Data
Kay, Neil M.
The emergent firm.
1. Corporate planning
I. Title
658.4'012 HD30.28
ISBN 978-0-333-36362-1 ISBN 978-1-349-17517-8 (eBook)
DOI 10.1007/978-1-349-17517-8
FOR COLETIE
Alice laughed 'there's no use trying' she said, 'one can't believe
impossible things'.
'I daresay you haven't had much practice' said the queen.
Lewis Carroll, Through the Looking-Glass
'Economics, the science of the quantification of the unquantifiable
and the aggregation of the incompatible.'
G.L.S. Shackle, Epistemics & Economics
Contents
Preface IX
1 Introduction 1
2 The Problem 9
3 Entrepreneurial Salome 32
4 More Salome 43
5 Risk, Uncertainty and Chance 56
6 Industrial Organisation and Bounded Rationality 84
7 Multinational Enterprise 111
8 Public Policy and Bounded Rationality 128
9 Synthesis and Antithesis 144
10 Ingredients and Recipes 160
Notes 190
References 209
Index 221
VII
Preface
I have a genuine affection for prefaces. In many cases they are the most
interesting part of a book, often cloaking miniature dramas of
frustration, tedium and disappointment. After months or years of toil
the writer has to set the context to his or her work in a tone which
custom dictates must be, at worst, one of graciousness and humility
and, at best, one of such gratuitous servility as would shame Uriah
Heep. The preface world is an idyll peopled by super-intelligent
conscientious colleagues, sweet-natured understanding families, and
hyper-efficient telepathic typists.* They all have a sense of humour
which is 'unfailing' in the case of secretaries, and only the author ever
makes mistakes.
It is curious that the standards of verisimilitude expected of scholarly
analysis in general can be suspended by tacit agreement in the case of
the preface. In fact, the convention defends both public and writer; raw
honesty in prefaces could shatter reputations and careers, unleash a
storm of literary litigation and divorce petitions, and drag academics
up into the same insurance risk bracket as North Sea oil divers.
Coyness and restraint in prefaces is a professional defence mechanism
whose advantageous natural selection properties have helped species
academia go forth and procreate throughout the known world.
At their best, prefaces are constructively disingenuous providing
harmless entertainment that may be spiced by personal knowledge of
authors and their true circumstances. The problem with economics is
that creating unreal worlds can be infectious and economists have been
notoriously reluctant to stop at the preface, frequently pursuing the
theme into the body of the text. However, in this context, unreality has
the air of tragicomedy. Humour may be found in a situation in which
phalanges of economists have spent man-years running into man
millenia building economic worlds which do not, will not, and cannot
exist. The tragedy is that much of this is bad science; technique has
overrun the discipline and become an end in itself rather than a simple
* Heriot-Watt University and the University of California are the only
institutions known to employ telepathic secretaries.
IX
X Preface
means. Conventional neoclassical economics is a self-sealing closed
system which has successfully insulated itself from empirical reality.
Such criticism has been made before, and from a number of quarters
both inside and outside the profession. Some would allege that the
straw man of neoclassical theory has been put to the torch so often that
further disinterment and incediarism would be an unnecessary embar
rassment. It can also be argued that many objections to neoclassical
theory go only halfway in this respect; they criticise and identify
failings, but do not provide an alternative approach.
This book was written with both objections in mind. It is essential to
conduct a critical audit of neoclassical theory, because in the reasons
for its failure are to be found the clues necessary for any useful
reconstruction of theory. As far as the second objection is concerned, it
is true that the performance of a theory must be judged on empirical
grounds. Consequently, empirical explanation is the major objective
of this work just as with its two predecessors, The Innovating Firm and
The Evolving Firm.
Most of the book was written in the course of a two year leave of
absence as visiting faculty in the University of California, Irvine. My
thanks to Charles Lave, head of the economics department for
bringing me over for the first year and Lyman Porter, dean of the
Graduate School of Management (GSM) for keeping me on for the
second. My extended stay was also partly due to Susan Sills, GSM
administrator, who thought the MBA students deserved the aural
challenge of a Celtic accent, and to Craig Galbraith in GSM with whom
I started working during my first year. Part of our joint work is
reflected in Chapter 7 which is co-authored with Craig, and I owe Craig
and the Galbraith family - Jean, Devon and godson Scott - for
contributing so much to my stay.
I also took the opportunity to try out extracts from earlier drafts of
the book on economics undergraduates and MBA postgraduates. I
thoroughly enjoyed the teaching and the text has benefited from the
exposure.
The reader is entitled to some warning as to what is to follow. It is
curious that academics typically find schools of thought easy to assign
in the third person, but too narrow a measure to define the richness and
variety of their own thinking. It would be presumptuous to break with
tradition, but some hints might be given. The basic position taken here
is that all non-trivial problems in economics arise from knowledge
imperfections and the form such imperfection takes is the fundamental
determinant of economic behaviour. It is the antithesis of the position
