Over the weekend I had an interesting debate with some friends that played out over Twitter, regarding a provocation I threw out there (with this goal in mind!)
It’s true: we will probably look back on ‘the firm’ as a weird artifact of the 20th C.; a temporary result of the 2nd Industrial Revolution.
— Kanyi Maqubela (@km)
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The conversation this spurred was fascinating. In my view, hat tip R.H. Coase*, the firm was the most effective way to run the economic machine in the 20th century (and late 19th) because the steam engine, rise of the railroad, and invention of the manufacturing line allowed for mass production, where mass distribution was financed through a cooperative of workers operating with shared infrastructure. A number of incredible corporations were created through this period, and as they got better at manufacturing and distribution, their productive capacity diversified and their brand engines were tuned (read: General Mills, Unilever, P&G, Merck, General Electric, etc), and public companies grew as the S&P, NASDAQ, and other exchanges steadily marched forward over the years. While the indexes continue to grow, however, the number of public companies has decreased to its lowest number in 25 years. The creative destruction in the Fortune 500 is at its highest level ever.
Meanwhile, 1 in 3 Americans today is a freelancer, and some speculate that the freelancer will represent half the working population in the United States by 2020. The ability to create products has hugely benefited the information era, and you don’t need a manufacturing line to code. And, related, on the internet, distribution is suddenly so much easier. Marketing costs are collapsing (as the advertising industry increasingly moves to the web), and the infrastructure for shipping and distribution is seeing extraordinary innovation these days. It seems the era of mass-production might be ending. Does that mean, then, that the firm is ending, too?
Here is part of the conversation that followed (follow the whole thing, and add your two cents here):
So the question that Zach’s very smart response left me with was:
Is the firm collapsing because of the inflection point of the transition to the information age, or is a collapsed firm a feature of the information age, in and of itself?
Put another way, Carlota Perez (and others) point out that when there is a technological revolution, the old regulatory infrastructure and modes of production are no longer relevant, there is a period of deep uncertainty, and a fair amount of friction and collateral damage in the process. Perhaps the public company uncertainty, high joblessness around the world, and startling signs of inequality are actually short-term symptoms of the transition to a fully-fledged information economy. But on the other hand, maybe the peer-powered future is here to stay, and the original provocation is true. If it’s the latter, then what happens next? If the means that we have all come to rely on for economic production are no longer the most efficient, what are the implications?
One answer that many have posed is that peer networks (and the platforms that enable them) will inexorably rise, be abstracted from religion, geography, and other old scaffolding, and will exert influence, be sources of production, pathways for distribution, and will represent a model of free agency that looks in some ways similar to the artisanal, apprentice-based models that pre-date the firm.
Another answer suggests that ownership itself (and the types of commerce associated with it) is a function of us not yet knowing how to efficiently allocate resources, and that the sharing economy’s final end is one whereby we access all relevant resources efficiently from each other, with vastly less new production as a result.
But yes, maybe the firm isn’t going anywhere, and just those firms that represented the 20th century are going away, and the new ones simply haven’t arrived yet.
*And Albert.
Musings 