Why Do Firms Differ? 63 regarding labor skills. American firms are less diagnosis of lagging American productivity growth willing to cooperate with each other on matters rates, and the convergence of productivity and where cooperation would yield pay-off, partly living standards among the major industrial because of the attitudes of managers, but also nations. The focus of Productivity and American rtly because government looks on cooperation Leadership: The Long View(1989) is usually at with suspicion or hostility. More generally, the level of the national economy, and sometimes business and government seldom work together at the level of the sector or industry. The and often are at odd variables considered are national savings and Others might summarize the central arguments investment rates, investments in education, pro omewhat differently, but I believe the above cesses through which technology flows from oes represent fairly the kinds of propositions creators to followers, and the like. There is about firm differences made in the report. The scarcely a word about discretionary behavior at arguments are plausible and provocative, and the level of firms may provide important guidance to American It is strongly tempting, and I think right management, and for public policy headed, to propose that each of the studies has However, there are two important issues one described part of the elephant. The argument in can raise about the conclusions of the study. the MIT study, that many of the difficulties First, one can question the confidence one should American firms are having are self inflicted, is place in the causal connections asserted in studies quite persuasive. At the same time the econom like Made in America. Second, one also can ist,s proposition, that to a considerable extent question whether the variables treated there as firms are molded by the broader economic basic really are so, as contrasted with themselves conditions surrounding them, is compelling. What being determined by broader forces seems sorely needed is an analysis that sees both At this stage I want only to flag the former of these matters, in a coherent way ssue. However, there really is a big question While the authors of Made in America never about just what Japanese firms in the automobile quite got into serious analyses of environmental dustry, or the semiconductor industry, are variables, it does not seem difficult to augment doing that lies behind their evident stronger an analysis that starts at the firm level to consider performance, in various dimensions, than Amer- the environments that firms are in. Two new ican or European firms. Late this essay I books are exemplary in that they do shall focus on this uncertainty, and some of its this. Both recognize explicitly that national or implications environmental variables strongly influence firm For the present I want to focus on the latter strategy and structure, and that firms have question, because it gets sharply into view the considerable range of choice about these vari ontrast between analyses like Made in America, ables. Chandler's Scale and Scope (1990)describes and the standard views of economists about the in considerable depth how the different economi determinants of 'competitiveness'. There is some conditions, institutions, and cultures of the U. S discussion in Made in America of macro or Great Britain, and Germany, molded the nature national level variables, like the exchange rate, of the modern manufacturing firms that grew up the cost of capital, or more generally the system in these different countries in the first decade of corporate finance, the effectiveness of the of the twentieth century, and influenced the public education system, government policies, industries in which the nations developed special etc. However, this is not where the focus is. It strength. However, there is nothing deterministic is firm level variables that receive the top billing, about Chandler's description of how the environ and it is presumed that these are discretionary ment shapes firms and influences their perform to a considerable degree. In contrast, the ance inclination of economists is to focus on macro, Porter's The Competitive Advantage of Nations or environmental level variables, and to play (1990)presents a similar perspective in which down or ignore the role of firm discretion environmental influences matter greatly, but the The same year that Made in America was firms have a considerable range of freedom published, three economists, Baumol, Blackman, regarding whether, or just how, they will take and Wolff, published their interpretation and advantage of the opportunities the environment