Penrose Edith Tilton - The theory of the growth of the firm the legacy of Edith Penrose

THE THEORY OF THE GROWTH OF THE FIRM

Edith outside her house in Baltimore around 1956 (photo: Perran Penrose).

With a New Introduction by
Christos N. Pitelis

Edith Penrose

FOURTH EDITION

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The Estate of Edith Penrose 2009

Introduction Christos Pitelis 2009

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First published 1959

Revised edition published 2009

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By Christos N. Pitelis

I. Introduction

THE year 2009 marks the 50th anniversary of Edith Penroses The Theory of the Growth of the Firm (hereafter TGF). In a review of the book in the Economic Journal, Robin Marris (1961) predicted that TGF would prove one of the most influential of the decade. In his 1987 entry to the New Palgrave he added that this proved an understatement (p. 831). Marriss statements were referring mainly to the economic theory of the firm, especially the literature on managerial theories, which were popular in the 1960s and to which he himself was a major contributor (Marris 1964). Neither Marris nor Penrose herself could foresee what appears to be the case 50 years on; a situation where the influence of TGF in mainstream economics has been rather limited (see also Marris 1987 and below). The managerial theories of the firm turned out to be little more than a footnote in the history of the neoclassical theory of firm, with TGF receiving no mention in leading neoclassical microeconomics, Industrial Organisation (IO), and economics of regulation textbooks (for example Kreps 1990, Tirole 1988, and Viscusi et al. 2001 respectively) and even in leading Economics, Organization, and Management textbooks, such as Milgrom and Roberts (1992).

The books reception in economics was anticipated by the reputable Oxford economist P. W. S. Andrews. In his 1961 review of TGF Andrews noted that A theory of the growth of firms surely should involve generalizations about their economic environment, or, in other words, just those questions about the (equilibrium) structures of industries which the author rules out of court at the start (p. 114).

Andrewss criticisms and predictions proved to be in line with economists continued focus upon a market-based analysis of the equilibrium structure of industries. Early inroads from economics to management by Porter (1980, 1985) retained this focus. TGF helped change this spectacularly, albeit so far mainly outside mainstream economics. Whether the apparent failure of TGF to make significant inroads in neoclassical economics says something about the quality of the book, or instead about the state of economics, however, only history will tell. This introduction reveals, at least, where the present author stands on this.

TGFs influence outside mainstream economics, gradually exceeded by far Marriss apparently optimistic assessment. Over the past 25 years or so, TGF has become a canonical reference to the currently dominant resource-, knowledge-, and (dynamic) capabilities-based approaches to business strategy, and to a lesser extent to the theory of the multinational enterprise (MNE) and International Business (IB) scholarship. TGF is also seen as seminal in (strategic) human resource management (SHRM). Of late, the book has been used as the basis of integrating and extending the now flourishing literature on strategic entrepreneurship. TGF is also employed in order to explain the nature of the firm and its ability to create and capture value, which are at the heart of the theory of the firm, business strategy, and organization scholarship. It is virtually impossible to predict where else and how much further the books ideas will branch out. Today TGF is one of the leading books on the theory of the firm with more than 7,800 citations in Google Scholar. This compares with, for example, around 1,600 for Chandlers (1962) Strategy and Structure and 7,500 for Cyert and Marchs (1963) A Behavioral Theory of the Firm.

Although we will attempt some speculative predictions towards the end of this introduction, our main focus will be to present TGFs ideas and assess them critically. In so doing, we will aim to understand the books phenomenal success that motivated the present fourth edition on the occasion of its 50th anniversary, while celebrating the books and Penroses lasting influence. In particular, the aim of this introduction to the fourth edition is to briefly discuss Penroses life and the background to the writing of the book; the early contributions of the book to economics; subsequent ideas in economics which are related to, but do not appear to have drawn on, the book; the books contribution to organizational economics, (international) business strategy, SHRM, strategic entrepreneurship, and recent debates on value creation and capture. We will also touch upon Penroses epistemology. Following on from the above, we will outline possible ways in which TGF can be generalized, critiqued, and integrated with other theories, extant and emergent.

Clearly the above is a rather tall order, both imperfect by its nature and reliant on earlier work by the present author, including joint work with colleagues. These are all recognized in the text. However, special mention is due here to Perran Penrose, Ediths son, who has authored the biography, printed below with little input from the present author.

II. Edith Penroses Life

Edith Elura Tilton was born on 29 November 1914 on Sunset Boulevard in Los Angeles. Her father, George Tilton, was a road engineer for the Department of Public Works, and was descended from early immigrants to the United States. Edith had two brothers, Harvey and Jack. It was a close and supportive family, living in a small-town community. For much of the time, the family followed George as he surveyed the new Californian road network (he headed the party that surveyed Highway 1 along the Pacific coast). As a child Edith spent much of her time in road camps, packing along narrow trails, receiving a basic education in small shacks that served as classrooms. For a child the life was exciting and not without danger: she was about to engage in a close dialogue with a rattlesnake when her mother shot the snake through the head.