The Corporation is in Serious Trouble

[The Terrible Sweal]

... About 200 banks participate in the market and they have their own methods of ensuring compliance without reference to any "State" law. In effect, it is self-enforcing.

...

Look, I would not go as far as agreeing with Hugo that the State could whither away. But I am willing to entertain the question of what tasks the State need do. Enforcing contracts is simply not one of those tasks. And as a practical matter, it enforces far less than you imply and I suspect badly at that.

...Now we're back into the realm of market failure because of "unenforceable" contracts. Or in effect, no mechanism to get you to reveal your true valuation.

Will the State have any better luck at enforcing the contract than private individuals would? I'd be more inclined to look at clearly defining property rights - I suspect the State might succeed there - and then letting the market decide.

1. When you are talking about banks and other financial institutions you are already subsuming a vast state and inter-state aparatus underlying them.

2. What the state should properly do and how is certainly the question. As you know, I suggest that where the state can improve market efficiency by reducing transaction costs, it is reasonable to consider attempting it.

3. If persons breaching contracts can distribute the cost to other market participants, there is incentive to breach. If contract enforcement prevent breachors from distributing the costs, it is capable of improving market efficiency, and hence welfare. Inasmuch as we see states enforcing contracts in experience, this may explain why.

[Hugo]

Have you ever worked for a corporation Hugo? IMO, they are Soviet command environments - desperately trying to cooperate by market means.

August,

I have an answer to your question. The megacorporation concept is outdated, it is mostly a 1980s phenomenon. The latest trend, and probably one that will accelerate, is the microcorporation. Through outsourcing and subcontracting it is entirely possible for a multinational corporation generating billions of dollars in annual revenue to employ a mere handful of people, perhaps a hundred at most.

For instance, Nike can subcontract its manufacturing to various independent factories. It can subcontract its advertising and marketing to a PR/advertising agency. It can subcontract its retail and sales operations to individual stores. It can subcontract shipping to a trucking or courier company. It could even subcontract design and R&D to independent designers. In the end, with the assistance of modern IT, Nike itself could be reduced to a couple dozen employees in a single office that serves to co-ordinate scores of subcontractors and to lend the Nike brand to the whole.

In this way it restores the market from what you describe as the command-economy monolith of the megacorporation, because the various departments are outsourced, subcontractors have to compete for these outsourcing contracts, market rationality is assured and paramount efficiency is attained (or as close to it as is humanly possible).

[JWayne625]

They have become crime-infested, unethical parasites on our society?

What are you talking about, becoming (unethical parasites on our society), they always have been both, you just wern't paying attention. The only things these multinational corporations care about is how much money they can get from the the various governments of the world so they don't have to spend their own money, cheap labour, and maximizing their profits, and they could care less who they have to exploit to get there. Why do you think they have been lobbying for free trade? These agreements are there to protect corporate profits, by allowing them to move their manufacturing operations to third world countries where they can take advantage of disadvantaged cheap labour, export those products back into Canada, and the USA duty free, and sell those products for the same selling prices as if they were manufactured in North America, where livable wages are required to be paid. Our stupidity is that we still continue to purchase these products, at highly inflated prices, and these corporations laugh all the way to their nearest tax-free haven where they don't have to pay taxes on the money.

The only remedy against these parasites is to start paying attention to labels, and once determining that the product is made in some third world country simply leave it on the shelf, and purchase only article made in North America, or Canada if you like. I went shopping today for a fleece lined sweater and happened to window shop at Old Navy. One type of sweater was labelled as made in Sri Lanka, the other in Bangladesh, I left without buying either. I think I will just make my old sweater do for at least another year. If people would just stop buying these products, these manufacturer's will have no choice but to either move their factories back to North America or go bankrupt. Their bankruptsy certainly won't hurt somebody like me, but it will hurt those who have mega dollars invested in those companies. These people understand only one thing, loss of profits. Once they start hurting in the old pocketbook, they wiill pay attention. Let's face it people in Bangladesh, and Sri Lanka are not the people who are buying these products, we are, and if we stop buying they may just wake up and smarten up. Here's to waking them up!

[August1991]

The megacorporation concept is outdated, it is mostly a 1980s phenomenon. The latest trend, and probably one that will accelerate, is the microcorporation.

The claims of death are vastly exaggerated (but I agree with you in principle).

The Internet has altered transaction costs. In addition, I think there are more mechanisms available now to establish trust.

Markets, when they work, are the best way for people to co-operate. Transactions internal to a firm are at best a poor substitute.

Holding companies used to be common. Now shareholders diversify themselves. This perhaps reflects the lower transaction costs of share trading and the rise of large pension portfolios. IOW, it is easier to raise funds in a market rather than internally.

Your Nike example is good but I think a better example is the following: firms have both in-house counsel and hire outside law firms. This example illustrates the nature of the problem.

The only remedy against these parasites is to start paying attention to labels, and once determining that the product is made in some third world country simply leave it on the shelf, and purchase only article made in North America, or Canada if you like.

If I continue your logic, you should make the sweater yourself. Why don't you?

[Hugo]

One type of sweater was labelled as made in Sri Lanka, the other in Bangladesh, I left without buying either.

Wayne hates Sri Lankans and Bangladeshis. He doesn't like the fact that somebody gave them a job with a steady income, that is independent of crop failures, droughts, famines, natural disasters and so on. His proposal is to drive the factories that employ them out of business and, in the process, kick them all back to the fields and the rice paddies where they used to eke out a miserable existence, living hand-to-mouth and risking starvation on an annual basis.

Here's to waking them up!

Great idea, but you don't want to, you want to starve them to death, or permanently enslave them to your charity.