Our understanding of industrial organisation cannot be reduced to technology, class exploitation or cultural meanings and values. We shall suggest that the integration of the division of labour is pivotal problem in political economy, and that there exists a very wide range of modes of integration.

We shall discuss the problem of organisations as the problem of production and the division of labour. We shall examine the range of organisational forms well beyond the conventional dualism of markets and firms to include the many varieties of workplaces and inter-firm networks and the realm of territories and states.

Traditionally, industrial organisation theory begins with neoclassical economic presumptions: the fundamental problem of economic life is the allocation of scarce resources, exchange is the basis of action, businesses are rational actors seeking efficient solutions, and the essence of production is cost minimisation.

However, a business must first produce in order to have something to exchange, and it must meet certain standards of competition and the law of value in order to remain viable in the market. Crucially, it must generate a surplus and continually seek competitive advantage in order to keep its place in the market to accumulate capital – the real goal of the capitalist economy.

Accordingly, the organisational problem in the industrial economy begins with production rather than exchange. Bringing together labour, machinery and materials poses an elemental organisational problem – integrating the social labour, the complex divisions of labour. While there are good technical and economic reasons why some connections matter more than others, the social organisation of production has to be incorporated.

Production integration may be achieved with the help of such devices as authority, coercion, persuasion, moral stricture, reciprocity, planning, religious conviction, common language, national solidarity and representative democracy. The efficacy of such systems of integration depends on how well they control individuals and groups or workers, and this rests heavily on qualitative aspects of social relations. Feelings of participation, respect and moral rectitude may matter as much as or more than quantitative payment and penalty schemes. A measure of trust and cooperation between workers and management has been found to be essential to successful production. However, relations of competition and adversity also work quite effectively to knit people.

A dialectic of motivation also exists among capitalists, who not only compete with each other, but cooperate selectivity to further their joint interests.

The varieties of social linkages and coordination, direction and regulation, stabilisation and mobilisation are difficult to formalise. Nevertheless, this challenges the Anglo-Saxon business practices, managerial methods, possessive and resolute individualism, ruthless calculation and furious profit-making.

Industrial integration is achieved with specific institutions, called modes of organisation (or integration). The basic modes are the workplace, firm and market. A mode of production is the institutional framework within which capitalists, managers and ordinary workers carry out the work of integration. These institutional envelopes limit and guide social action; they are structured social systems made up of formal rules and informal relations, habitual routines and creative initiatives. Every mode of organisation has its characteristic principal of integration – legal ownership (firm), physical enclosure (workplace) and equal exchange (market). But there can be a great variety of forms and continual innovation around each principal.

The workplace: its basic organising principle is containment within a limited area. The factory is the term most commonly used for large workplaces in manufacturing. Workplace also includes department stores, large office and homes. Direct connection and immediate are its chief integrative effects: the workplace brings people into close proximity and facilitates social cooperation. The workplace is also a place of confinement, a symbolic and social world in which the capitalist rules.

The firm: its central principle is impersonal ownership: it evolved as a legal shell under which assets could be assembled, contracts drawn up, workers employed and capital accumulated. The firm is a legal entity, a container of capital, an employer, an administrative structure, and a central actor in the competitive battle.

The size of the firm has less to do with productive capability than financial power. Large firms can amass and allocate capital in a various ways. They are better able to raise capital, borrow at lower rates, ride out bad times, stabilise profits by diversifying, and move capital rapidly to new areas. Big firms can move into new areas of high profit by buying smaller successful firms. They can also remain ahead of the competitive game by accumulating other capitals.

Despite its achievements, however, the large firm is continually beset by difficulties of integrating its internal of labour. One consequence of the limits of the modern industrial enterprise is that small firms have survived.

Markets: its principle integration is exchange of equivalent values, as measured in money. The exchange of commodities (and property rights) takes place within an institutional framework that requires a measure of equality among parties, consensus, routinised behaviour, information sharing, policing and protection. As institutions, markets have authority structures (i.e. the formal institution of the legal system and the informal institution of personal relations of trust) that put constraints on free action.

Markets are distinguished by relatively individualised, voluntaristic, formally equal and temporally limited transactions among many parties. They allow for remarkable flexibility through a changing mix of participants and commodities, and for intense mobilisation of personal energies via competition and the pursuit of self-interest.

Here, we reject the classical dichotomy in economics and sociology between market and firm goes back at least to Marx, who contrasts the anarchy of the market with the despotism that obtains inside the capitalist’s gates, and the irrationality of the former with the rationalisation of the labour process in the latter. Instead, we recognise as well as other tiers of modes of organisation.

Inter-firm relations: this refers to ongoing relations of exchange, interaction and mutual development between two or more firms, These relations violate the tidy boundaries between firms by giving one party access to the secrets and activities of another, and they intrude on market exchange by building bridges between firms. Inter-alliances and networks (or relational contracts) are to be distinguished from arms-length type of market relations.

Examples include marketing and technology-sharing agreements between firms, and two-firm alliance for manufacturing and research purposes.

Ownership and management ties: this centres not on commodity relations but on relations of ownership, investment and control. In a system of impersonalised possession and constrained management, the most important question may not be who controls business but how business is organised through financial, property and management ties that extend beyond the boundaries of the single firm.

Examples include parent-subsidiary relations, joint ventures, interlocking directorates, bank ties, and institutional investors.

Independent associations: networks of firms can also be coordinated by third-party associations, established independently of any one company, with powers to aid, guide and influence participating businesses. Examples include trade associations, employers’ associations, think-tanks and advisory councils.

After having played an important role in the rise of capitalism, families continue to play a role through family stockholdings, directorship and management.

In addition, workers’ associations press for standardised wages and working conditions, and encourage intra-industry unity and rationalisation.

In brief, the advantages of inter-firm relations and collaborative strategies are that they let companies disperse financial responsibility and risk, react more quickly to market and competitive conditions, and launch products or enter new markets without jeopardising established business. Perhaps more important, they decrease costly layers of management by taking advantage of horizontal relations, encourage autonomy and creativity among a large domain of managers and workers, broaden access to technologies and skills, and help suffuse learning through the production system.

Their disadvantages are that alliances may not work out as planned, can raise difficult management issues of their own, and can lead to conflict over distribution of gains and losses. Networking does not automatically imply equality; hierarchies among firms are pervasive.

Cities and regions: they allow many and varied production activities to be assembled within reach of each other. The territorial complex is an extensive work site that brings disparate production activities into advantageous relation with each other, at a different scale and scope than the workplace or the firm. Spatial proximity increases accessibility and makes comparison easier, facilitates workers interaction and managerial oversight, evaluation and feedback across related activities in different factories and firms. Cities heighten competitive emulation in business, and provide a pool of knowledgeable workers and diverse and creative suppliers. They also attract immigrants, highly exploitable resource for capitalists and small businesses. In addition, cities have well-defined institutions of order and control, such as local governments, property markets and special authorities.

It is worth noting that the spatial organisation of capitalism consists of an uneven but highly interconnected web of places, rather than a set of discrete regions.

States: they have enormous powers to effect industrial integration within their boundaries. States implement national commercial policies (e.g., labour laws, trade policy, monetary and fiscal policies, and so on), national cultures (e.g., school education), and national industrial planning (e.g., privatisation and regulatory policies). Increasingly international cooperation among states (e.g., European Union and G-8) plays an important integrating role in global economic development.

To sum up, economic organisation is not a matter of choice so much as a matter of politics.

As the problem of integration has grown more complex and challenging, the competitive advantages that accrue to capitalists (and capitalist nations) who can innovate organisationally has become greater. As a consequence of improvements in integrative capability, capitalist production has steadily expanded around the globe. Too often globalisation is attributed to improvements in transport and communication alone. Rather, industrialists have increased their power to integrate and organise increasingly far-flung and complex labour systems, and consequently intensify international competition.

Capital is not bound to any one form of organisation, certainly to the firm (or US multinational corporation or ‘Fordist’ production and management style). Yet alternative organisational fabric of capitalism (such as small firms, flexible networks, democratic workplaces and egalitarian social relations, or ‘flexible specialisation’) does not eliminate the imperatives of capital accumulation nor solve the problem of democratic rules versus class rights in the workplace, the firm, the city or the nation-state.