we were all told, back when the Soviet Union collapsed, that hierarchical organizations simply did not work as modes of organizing economic life—that you needed a market in order to achieve anything better than low-productivity, bureaucracy-ridden economic stagnation. What, then, are all these large corporations—ATT and IBM, General Motors and Toyota, Microsoft and USX—doing? What methods of corporate control have saved them from turning into smaller versions of the unproductive Soviet economy?
<blockquote>Only nineteen nations in the world today have an gross domestic product larger than GM's total sales. Considered as an economic unit, the piece of the world's economy strucured and coordinated by General Motors is roughly one-third the size of Canada.</blockquote>How are we intended to interpret this statement? Does it say that the annual sales of GM are about one third of the GDP of Canada? They are not; they are about one tenth. Does it say that the workforce of GM is about one third of the work force of Canada? It is not; it is about one twentieth. Does it say that the recorded net value of its plant and equipment is about one third of the physical assets of Canada? That seems absurd. Does it say that the annual profit of GM is about one third of ... the annual profit? ... of Canada? I don't know what that would mean. I am not trying to snark, but none of the antecedents in the paragraph is relevant, and I am at a loss to guess in what sense the economy of GM is one third the size of the economy of Canada.
When I think about why corporations make sense, it helps to consider another evolutionary metaphor, different from the one examined by Coase: the selfish gene.
Per the argument of Dawkins, the core unit of evolutionary competition is the gene, with each gene trying (blindly) to propagate and increase in numbers. However, it can't do that by itself; it must work through an expressed phenotype (like, say, a wolf). And obviously a single gene can't create a wolf; it takes tens of thousands of genes to do so. That is, for selfish genes to flourish, they must work cooperatively with thousands of other genes to produce a product, i.e., a wolf. The wolf, the expression of those thousands of genes, is the corporation, a quasi-hierarchical set of actors ("employees," if you will) that together produce an entity that will allow each of them to survive, flourish and increase in numbers. While the wolf is a self-contained entity, its success is dependent on the market: the capability of other wolves, its relationship with the wolves in its pack, the availability and capabilities of prey, the structure of the environment (e.g., weather, etc.) There is "leadership" directing actions of the phenotype (i.e., the brain) but its actions are highly constrained by the overall construction of the wolf and the nature of the environment.
Now the gene only cares about its success, and not at all about its partner genes except insofar as they affect its success. But it can be vulnerable to other "employees." Say its function is to produce teeth or legs. But new "employees" may come along that are better at creating sharper teeth or stronger legs; then the first "employee" gene is fired, and only those wolf corporations that hire the new employees survive in the competitive environment.
Now some wolf corporations are not able to prove their worth in the competitive environment of the wild. They live in a Soviet-style environment -- that is, a zoo. Their needs are taken care of, their competitive ability is never tested. And in many cases, like with Soviet organizations, they fail to reproduce because wolf corporations are not built to exist in that type of environment.
<blockquote>Only nineteen nations in the world today have an gross domestic product larger than GM's total sales. Considered as an economic unit, the piece of the world's economy strucured and coordinated by General Motors is roughly one-third the size of Canada.</blockquote>How are we intended to interpret this statement? Does it say that the annual sales of GM are about one third of the GDP of Canada? They are not; they are about one tenth. Does it say that the workforce of GM is about one third of the work force of Canada? It is not; it is about one twentieth. Does it say that the recorded net value of its plant and equipment is about one third of the physical assets of Canada? That seems absurd. Does it say that the annual profit of GM is about one third of ... the annual profit? ... of Canada? I don't know what that would mean. I am not trying to snark, but none of the antecedents in the paragraph is relevant, and I am at a loss to guess in what sense the economy of GM is one third the size of the economy of Canada.
When I think about why corporations make sense, it helps to consider another evolutionary metaphor, different from the one examined by Coase: the selfish gene.
Per the argument of Dawkins, the core unit of evolutionary competition is the gene, with each gene trying (blindly) to propagate and increase in numbers. However, it can't do that by itself; it must work through an expressed phenotype (like, say, a wolf). And obviously a single gene can't create a wolf; it takes tens of thousands of genes to do so. That is, for selfish genes to flourish, they must work cooperatively with thousands of other genes to produce a product, i.e., a wolf. The wolf, the expression of those thousands of genes, is the corporation, a quasi-hierarchical set of actors ("employees," if you will) that together produce an entity that will allow each of them to survive, flourish and increase in numbers. While the wolf is a self-contained entity, its success is dependent on the market: the capability of other wolves, its relationship with the wolves in its pack, the availability and capabilities of prey, the structure of the environment (e.g., weather, etc.) There is "leadership" directing actions of the phenotype (i.e., the brain) but its actions are highly constrained by the overall construction of the wolf and the nature of the environment.
Now the gene only cares about its success, and not at all about its partner genes except insofar as they affect its success. But it can be vulnerable to other "employees." Say its function is to produce teeth or legs. But new "employees" may come along that are better at creating sharper teeth or stronger legs; then the first "employee" gene is fired, and only those wolf corporations that hire the new employees survive in the competitive environment.
Now some wolf corporations are not able to prove their worth in the competitive environment of the wild. They live in a Soviet-style environment -- that is, a zoo. Their needs are taken care of, their competitive ability is never tested. And in many cases, like with Soviet organizations, they fail to reproduce because wolf corporations are not built to exist in that type of environment.
Vox?
https://www.vox.com/2020/4/10/21214980/coronavirus-economy-jobs-ppe?fbclid=IwAR1K5aUYUWxqfl3UqaRbLnSHLxALvPKpa-113pwFPzOHtQM7AjlDXbSW_28
"better have ordered twenty steering wheels"
A misprint worth correcting.