The nature of the firm
"R.H. Coase in his 1991 Nobel Prize Lecture--included in this paperback edition--held that the importance of his 1937 article, "The Nature of the Firm," was "the explicit introduction of transaction costs into economic analysis," and described the future challenge to social scientists as the relentless "study of the world of positive transaction costs." This book develops that central emphasis and unifying theme from the Coasian research agenda. Book jacket."--BOOK JACKET.
Stats for nerds
26recommend
85mentions
70people
2007–2026years
33% recommend66% neutral1% critical
Mentions per year
What Hacker News says
- >absent any government regulation like anti-trust, there really isn't.
Yes, there is. Read Coase's seminal paper, The Nature of the Firm. Companies function by replacing market mechanisms with bureaucratic administration. That finds its end when internal coordination or misallocation of resources incurs more cost than it saves in transaction costs.
Conglomerates therefore have a ceiling in size, and it's the reason why unwinding them generally increases market value for the sum of its individual companies (in finance parlance: "conglomerate discount"). It's also why the Soviet Union didn't run very well, and very large conglomerates are usually the consequence of political/economic arrangements.
- Don't miss Coase (https://en.m.wikipedia.org/wiki/The_Nature_of_the_Firm) while you're at it. Read between the lines.
- Sadly, and fortunately, there is no such thing as "avoiding centralization", the evidence is overwhelming:
== Politics & Sociology (power concentrates in organizations)
- Robert Michels, Political Parties (1911) origin of the "iron law of oligarchy": even democratic groups tend to end up run by a few: https://en.wikipedia.org/wiki/Iron_law_of_oligarchy
- Jo Freeman, "The Tyranny of Structurelessness" (1970/72): leaderless groups develop informal, unaccountable elites unless they make structure explicit: https://en.wikipedia.org/wiki/The_Tyranny_of_Structurelessne...
- Max Weber, bureaucracy & rational-legal authority: why modern societies gravitate to rule-bound, hierarchical administration: https://en.wikipedia.org/wiki/Rational-legal_authority
- James G. March & Herbert A. Simon, Organizations (1958): classics on bounded rationality and why attention/decision bottlenecks yield hierarchy: https://www.amazon.se/-/en/James-G-March/dp/0471567930
== Economics & Political Economy (why markets/platforms centralize)
- Ronald Coase, "The Nature of the Firm" (1937): firms exist (and grow) when internal coordination is cheaper than market exchange: https://onlinelibrary.wiley.com/doi/10.1111/j.1468-0335.1937...
- Oliver Williamson, Markets and Hierarchies (1975): transaction-cost economics: asset specificity & opportunism push activity into hierarchies: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1496220
- W. Brian Arthur, "Increasing Returns and Lock-In" (1989): small early advantages + network effects => path-dependent monopolies: https://www.jstor.org/stable/2234208
- Katz & Shapiro, network effects (1985/1994): compatibility and standards help explain winner-take-most dynamics: https://faculty.haas.berkeley.edu/shapiro/systems.pdf
- Thomas Piketty, Capital in the Twenty-First Century (2014): when r > g, wealth concentrates; proposes progressive wealth taxation https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...
== Networks, Complexity & Information (why hubs and hierarchies emerge)
Albert-László Barabási, Linked (2002): preferential attachment makes networks develop hubs (central nodes) http://networksciencebook.com/chapter/5
Herbert A. Simon, "The Architecture of Complexity" (1962): complex systems often become hierarchical because modular hierarchies are easier to evolve and manage https://faculty.sites.iastate.edu/tesfatsi/archive/tesfatsi/...
W. Ross Ashby, "Law of Requisite Variety" (1956): controllers need at least as much "variety" as the environment and it often pushes toward central coordinating mechanisms (or many distributed ones with enough capacity) http://pcp.vub.ac.be/books/AshbyReqVar.pdf
Gilbert & Lynch, proof of the CAP theorem (2002): in distributed computing you can’t have perfect consistency + availability under network partitions and real systems centralize/compromise to cope: https://groups.csail.mit.edu/tds/papers/Gilbert/Brewer2.pdf
Robert K. Merton, "The Matthew Effect" (1968): cumulative advantage: success attracts more success, reinforcing centralization of recognition/resources https://garfield.library.upenn.edu/merton/matthew1.pdf
== State power, legibility & infrastructure (why governments centralize)
James C. Scott, Seeing Like a State (1998): states seek legibility and large projects favor central plans and standardized populations/landscapes https://en.wikipedia.org/wiki/Seeing_Like_a_State (literally anything by Jim Scott -RIP- will be useful)
Tim Wu, The Master Switch (2010): communications industries cycle from openness to centralized "information empires" https://www.amazon.com/Master-Switch-Rise-Information-Empire...
== Technology & platforms (contemporary centralization)
Nick Srnicek, Platform Capitalism (2017): explains how platform business models + data/network effects produce concentration https://www.wiley.com/en-us/Platform+Capitalism-p-9781509504...
== When decentralization can work
Elinor Ostrom, Governing the Commons (1990): shows conditions (clear rules, monitoring, graduated sanctions, polycentric governance) under which decentralized, federated management of shared resources succeed https://www.cambridge.org/core/books/governing-the-commons/A...
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the literature making a counterpoint is abundant / overwhelming but that feels bleak considering when reading these works, systems thinking )the basis for "la technique") favors centralization
- You might want to read "The Nature of the Firm", which discusses this.
- That’s actually a really good question. I would direct you to Ronald Coase and other writing on the theory of the firm.
- At the end, the author gets slightly political, when talking about the size of human institutions.
People interested in that kind of speculation might like https://en.wikipedia.org/wiki/The_Nature_of_the_Firm
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