Notes on ‘Can an economy survive without corporations? Technological and robust organizational alternatives ‘— 2016 — Davis
Notes on article By Gerald F. Davis
Corporations are declining as transaction costs of organisations disfavours traditional corporations. Corporations that remain engage in continuous restructuring.
Emergence of low-cost, small-scale, production technologies creating producer and consumer cooperatives and platforms. Economies of scale is flipping to diseconomies of scale.
Pathologies of shareholder capitalism have undermined some of the benefits of the corporate form.
Initial public offering (IPO) described as the desired entrepreneurship strategy but most world economies do not have a stock market.
Transaction Cost Economics
Transaction cost economics focuses on the boundaries of the firm. Form of enterprises changes with transaction costs.
Production costs and transaction cost both contribute to the overall costs.
Firms seek to protect the transaction by bringing it into the boundary of the firm.
Contemporary theories of the firm
Law and other institutions shape the financing of firms, from boards of directors and accounting firms to corporate law and the market for corporate control.
When the means of financing business changes, the dominant form of enterprise is likely to change as well e.g. if a country opens a stock exchange and enacts legal protection for shareholders.
Varieties of Capitalism
Economy-level institutions shape the organisation of the firm.
Different ways of organising labour markets, regulation of product market competition, channelling of finance, education of the workforce and social safety-net.
Germany’s large banks, vocational education system, export-orientated product market regulation and labour participation support family-owned manufacturing businesses.
America’s vast capital markets, strong research universities and modest labour protections favour technology entrepreneurship.
The pathologies of shareholder capitalism
Corporations exist to create shareholder value. However, post war consensus that corporations were social institutions with broad obligations to society. Should value be extracted to shareholders or to workers in the form of higher wages?
Increasing power of institutional investors over corporate decision-making leads to compensation of stock options.
Financial markets signal their approval or disapproval by their confidence in companies. Favour companies with more profits with little assets e.g. Nike outsource production and distribution. Markets do not reward moves to create jobs or decent wages.
Market-approved tactics of offshore tax entities.
Are corporations inevitable?
In 20th century, capitalism is synonymous with corporations. Large scale required for economies of scale required large capital.
Flaws — limited control by dispersed share ownership and the high overhead with managerial hierarchies. Germany large national banks replace public corporations.
Corporations are diverse. Adam Smith — ‘not a single best path of opulence.’
Ubiquitous smartphones have enabled the creation of new industries virtually overnight.
Peer mutualism — free and open source software — large scale voluntarist cooperative alternatives — Linux, Apache, R and Wikipedia. Large-scale non-corporate forms of collaboration are possible. Also, small-scale production — microbrewing.
Laser cutters, 3D printers and other high-tech production equipment reducing barriers to entry.
Non cooperative alternatives thrive in ecosystems that are mutually supportive with symbiotic relationships.
Cooperatives — Pool resources and share capital equipment — worker-owned agricultural and manufacturing cooperatives. Inefficiencies with numerous meetings however lower transaction costs of exercising voice.
Mutuals — consumers are effective owners e.g. credit unions where residual profits are used for member benefits.
Municipal business — Local government that provides services for benefit to the local community — water and energy.
Commons-based peer production — Internet — thousands of people collaborate for production. Technically proficient gain authority but within limits of the community.
Platform capitalism — sharing economy. Greatly reduced costs for connecting transactors (eBay, Airbnb, Uber, TaskRabbit etc). Controversy — low-income labour, profiting at the expense of established vendors. However, any kind of software platform that can be created easily is difficult to be a durable commercial monopoly. Technology is destiny.
Performance should not be defined in profit but alternative measures — jobs and stability of wages.