Entrepreneurship and the Firm

Entrepreneurship and the Firm

Austrian Perspectives on Economic Organization

Edited by Nicolai J. Foss and Peter G. Klein

While characteristically ‘Austrian’ themes such as entrepreneurship, economic calculation, tacit knowledge and the temporal structure of capital are clearly relevant to the business firm, Austrian economists have said relatively little about management, organization, and strategy. This innovative book features 12 chapters that all seek to advance the understanding of these issues by drawing on Austrian ideas.

Chapter 3: Economic Organization in the Knowledge Economy: An Austrian Perspective

Nicolai J. Foss

Subjects: business and management, entrepreneurship, economics and finance, economics of entrepreneurship, industrial organisation


Nicolai J. Foss To Austrian economists, much recent debate in business administration must seem like reinventing, or recycling, basic Austrian insights and perspectives, usually without giving much or any credit to their Austrian progenitors.1 This is also the case of much recent work on economic organization, particularly as this relates to organizing in the so-called ‘knowledge economy’. Whatever we may think of this journalistic concept (cf. Leadbetter, 1999), it arguably does capture real tendencies and complementary changes. These include, on the organization side, a shrinking of corporate boundaries and new ways of structuring these, falling firm sizes and a flattening of internal organization (for example, Mendelsson and Pillai, 1999; Helper, MacDuffie and Sabel, 2000); increased differentiation of tastes on the demand side (for example, Milgrom and Roberts, 1990); acceleration of innovation and technological development on the supply side (D’Aveni, 1994); and changes in the composition of labour on the input side (Tomlinson, 1999). A number of those who have addressed economic organization in the knowledge economy have drawn upon Austrian - more precisely, Hayekian ideas on the need for decentralization fostered by the presence of dispersed knowledge (Ellig, 1993, 1997; Ellig and Gable, 1993; Cowen and Parker, 1997; N.J. Foss, 1999, 2000; Jensen and Meckling, 1992; Jensen and Wruck, 1994; Ghoshal, Moran and Almeida-Costa, 1995; Hodgson, 1998). Briefly, the overall conclusions that emerge from a number of these studies are that hierarchy and planning methods are as problematic inside firms as they have proved to be outside firms, that firms...

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