72 R.R. Nelson I want to put forth the argument that it is to differences in basic interests-the student of organizational differences, especially differences firm management concerned with the fate of in abilities to generate and gain from innovation, individual firms, and the economist interested in rather than differences in command over particu- general economic performance of an industry or lar technologies, that are the source of durable, nation, But I have argued that the lack of interest not easily imitable, differences among firms. by economists in discretionary firm differences Particular technologies are much easier to under- stems as well from a particular theoretical view stand, and imitate, than broader firm dynamic of economic activity and the role and behavior capabilities of fi From one point of view it is technological If one takes an evolutionary rather than dvance that has been the key force that has neoclassical view of what economic activity is driven economic growth over the past two about, then firm differences matter importantly centuries, with organizational change a hand- regarding issues that traditionally have been the maiden, But from another perspective, we would central concern of economists. Competition can not have got that technological advance without be seen as not merely about incentives and development of new ways of organization that pressures to keep prices in line with minimal can guide and support R&D and enable firms to feasible costs, and to keep firms operating at low profit from these investments costs, but, much more important, about exploring I have been concentrating on firm organization. new potentially better ways of doing things However, it is clear that the organizational Long ago Schumpeter remarked that the former changes that have enabled nations to support the function was trivial compared with the latter, if modern R&d system and the technological the measure was contribution to the economic advance it generates go far beyond those of firm well-being of humankind organization. Universities had to change. Ney From the perspective of evolutionary theory scientific disciplines and societies had to come firm diversity is an essential aspect of the into being. In many cases new bodies of law processes that create economic progress. Mo were needed. Some technologies required major nopoly, or tight oligopoly with strong barriers to new public infrastructure for their effective entry, can be seen as a serious economic problem development not so much because such structures permit The coevolution of technology and institutions large gap between price and cost, but because a fascinating subject. Chandler, and a few they are unlikely to generate the variety of new other scholars such as Hughes (1983)and routines, and the attendant shifts in resource Freeman(1989), have begun to address it. There allocation on which economic progress depends clearly have been major national differences in One is suspicious of arguments to rationalize' how the institutions needed to support particular production and innovation for the same reasons evolving technologies themselves evolved. Per- particularly when the winds of change are blowing haps in the study of the coevolution of technology from uncertain angles and institutions we will begin to develop a serious Thus, the 'dynamic capabilities view of firms theory of how national comparative advantage being developed by scholars in the strategy field comes into being, or is lost. But I now am far can be seen to be important not only as a guide eyond the scope of this paper to management but also as the basis for a serious theory of the firm in economics. It, when embedded in an evolutionary theory of economic REPRISE change, instructs us regarding Why do Firms Differ. and How Does it Matter? Students of firm management, in particular those working in the strategy field, treat discretionary firm differences as their bread and butter. ACKNOWLEDGEMENTS Economists have tended to play down the differences, or to argue that they are the result The author is indebted to the Sloan Foundation not the cause of general economic differences. through its funding of the Consortium on In good part the difference in viewpoints is due Competitiveness and Cooperation, and to the