The Past Speaks

The ABS 4* venue Journal of Management Studies has just published a new paper by Dan Wadhwani that is based on his PhD thesis research. Poverty’s Monument: Social Problems and Organizational Field Emergence in Historical Perspective offers a new perspective on the history of US savings banks that also helps us to think more clearly about the general phenomenon of how organizational fields emerge which is a . The savings banks discussed by Dan emerged in the early twentieth century to allow people at the bottom of society to have a safe means of saving for a rainy day. Social reformers created a new category of financial institution. Dan’s paper shows how these banks, which originally had a social-enterprise type of function evolved into quite large and sophisticated financial institutions. (I suppose that people who have read John Wilson et al.’s excellent history of the Cooperative Group may say “that’s a movie I’ve seen before’”). In fact, the “field drift” discussed by Dan is even more extreme—while the Cooperative Society and the Cooperative Bank still regard themselves as distinct from, and morally superior to ordinary for-profit supermarkets and banks, the savings banks discussed by Dan had, by 1900, evolved into pretty standard, profit-seeking banks.

One of the really neat empirical findings in Dan’s paper is these banks that were set up to serve the poor developed innovative techniques that were later adopted by financial institutions that serve the non-poor. Perhaps the most important of these innovations was the counter that separates customers from staff in most retail banks today. We now take this spatial arrangement for granted but it was actually pioneered by the savings banks as the struggled to cope with growing numbers of customers. Older banks, which had fewer but richer customers had no need for such counters.

Abstract

This article draws on historical institutionalism as an approach to studying the relationship between business institutions and major social problems. Using the historical case of the emergence of savings banking as an organizational response to poverty in the nineteenth-century United States, I develop three conceptual claims about how social problems shape the processes of institutional and organizational change. First, I show how the “historical framing” of social problems shapes the processes of problematization, design, and legitimation related to institutional change. Second, I demonstrate how the dynamics of cooperation, competition, and alignment between an emerging organizational field and other fields shape the evolution of institutional responses to social problems. And finally, I illustrate how historical revisionism as a methodological approach can help management scholars re-consider settled empirical and theoretical claims in a way that takes social problems into account.

Dan presents some interesting insights into organizational field emergence. The savings banks are a particularly interesting case because the straddle the category of “profit-making financial institution” and “philanthropic organization.” Indeed, they are similar in that respect to the hybridized organizational forms discussed in a new(ish) paper by Janette Rutterford and Josephine Maltby. Nineteenth-century Britain saw the growth of charitable provision by limited-liability companies that are similar to today’s “social enterprises”. The social enterprise movement that emerged in the 1990s and which still won’t stop talking about its own novelty is actually really just a re-invention of some of the nineteenth-century organizations discussed by Wadhwani, Rutterford, and Maltby. (Actually, Rutterford and Maltby weren’t the first to point out the similarity between modern social entrepreneurs as their nineteenth-century precursors such as Octavia Hill–during David Cameron’s premiership, the memory of Octavia Hill was invoked by some of the proponents of the Big Society concept).

Although they may not be terribly interested in his important (to me) theoretical contribution, financial and banking historians such John Turner, etc should certainly take a look at Dan’s important paper.

Dan has chosen to interpret his sources in light of a set of theories drawn from organization studies. It occurs to me that one could also re-interpret his material in light of the late C. K. Prahalad’s concept of the Bottom of the Pyramid strategy. Prahalad looked at the seven billion people on the planet and realised that the people at the bottom of the pyramid (the two billion or so people living on less than 2 dollars a day) should be regarded by firms not charity cases but an important untapped market. His concept, which attracted the attention of both practitioners and academics, has helped to generate interest in this end of the market. I think that one could look at the US savings banks of the 19^th century as having pursued a BoP strategy. Seeing these firms in this light actually makes some sense, since the US in the 19^th century was, most metrics, much like today’s developing countries—GDP per capita in 1820 was $1,257 in 1990 dollars and many regions of the US had somewhat inclusive institutions, to use Acemoglu-Robinson terminology.