Rethinking analysis of the corporation in the new decade

October 16, 2020

by Christopher May

There can be little doubt that the organisation of economic activity into various forms of business enterprise dominates contemporary global capitalism. Of course, we all know independent traders (and indeed the gig economy has encouraged an expanding niche of this highly individualised form of economic organisation) but the vast majority our engagement with market activity revolves around firms, enterprises and corporations. However, outside the discipline of business history too often the political economy of business organisation relies on stylised facts about ‘typical’ firms or enterprises. Some large/global corporations have been subjected to critical and/or hagiographic accounts, but generally business enterprises are analysed as groups, classes or broad categories with little attention paid to variances within the chosen groupings. This does neither businesses supporters nor critics any real (analytical) favours.

Rather, if we are to understand the role of organised economic activity (or at least activity organised in the private sector through various enterprise models), then we really need to adopt a much more differentiated and nuanced view of the varieties of business organisation. Of course, we will want to establish, or maintain a taxonomy of business organisational types, but without a linked, subject-centred focus on particular enterprises, any account will remain partial and unable to appreciate fully any potentiality for reform.

To be clear, I worked in the private sector for 15 years before becoming an academic, nine years of which I spent working for my family’s small business, which I also ran for the final three years I was there. So, I do not regard myself as against capitalism, but rather see myself as a critical friend. I believe strongly there are many ways of ‘doing’ capitalism, and while some corporations and enterprises do a good job of fulfilling the cartoon model of a rapacious contemporary capitalism there are alternatives. The varieties of capitalism model captures some of this variation, but at a relatively high level of spatially defined abstraction. Rather, in the 2020s we need to look at real firms and their actual material practices, if we are to establish and/or support an agenda for worthwhile business reform, or dismiss such calls as impossible to fulfil.

On one level, this involves developing a much clearer idea about the history of the different ways of doing business. Accounts may nod to the great trading companies of the imperial age, and perhaps note the organisational innovations of Robert Owen or the Quaker confectionary businesses of the Nineteenth century, but we need to cast our (historical) net wider. What does the history of the cooperative movement tells us about business organisation (from Mondragon in Spain to the long history of the Co-Op in the UK)? How might the Yugoslavian experiments with worker led enterprises during the 1960s inform how work is organised in the future? Indeed, when we think about the moral universe that business enterprises occupy we might even want to look back to the origins of incorporation in the recognition of monasteries as viable independent corporate organisations to see how a particular and common ethical position can (re)shape an organisation. This is to say, the variance that we might usefully identify in the organisation of business activity is both spatial and historically evident.

Once we have established a clear(er) appreciation of the variety of the business enterprise we need also to consider the key advantage that business organisation offers those who seek to profit from economic activity; the control of such activity, such as to allow a surplus to be generated. For Transaction Cost Economics this is rooted in the central decision of whether to make or buy-in the components and/or services necessary for producing the good or service that generates profit. Crucially, given the wide range of issues beyond monetary costs that can influence and structure such decisions it helps considerably to see corporations and business not merely as managing economic factors, but rather as exercising a form of private authority; a governance function over their sphere of activity.

This governance function is perhaps best seen across corporations’ supply chains, the networks of suppliers utilised to assemble goods (and provide services) once the enterprise has stopped doing those things in-house. Nowadays, a highly developed division of labour means there are few enterprises that do not have some form of supply chain, and so most firms are exercising some form or governance function to keep such networks working. Lead firms in networks seek to establish (political) authority over decisions so that the (necessarily) incomplete contracts at the heart of the legal organisation of networks remain flexible enough for agile and continuing change. Indeed, much of the discussion of corporate social responsibility now takes this governance function for granted, seeking to encourage corporations to maintain specified (normative) standards across a range of issues (from labour rights to environmental impact) through their ability to shape network norms.

What this also reveals is the central role that the law plays in the organisation of business enterprises. From contract and property law, to incorporation, partnership laws and corporate governance requirements, the corporation (and business enterprises more widely) are not naturally existing pre-social organisms but rather are creatures of socio-legal process. The legal framing of economic affairs, the various ways legal instruments both limit but also facilitate opportunities for reform is too often downplayed. That said, the legal environment of business activity also returns us to more general levels of analysis, but in a different way to those who want to analyse corporations as only responding to unalloyed economic incentives.

Therefore to understand the prospects for business in the next decade, we need to be attentive both to the structural issues (from regulation to market incentives), and how really existing enterprises respond to the constraints they encounter, identifying those that offer new models for reformed corporate practice. When we look at John Lewis Partners, Richer Sounds or Timpson, we can see the fault in assuming the worst practices of the private sector reflect a necessary set of responses to the economic challenges all businesses confront. Rather there are enterprises that are seeking to find a way of doing capitalism that can be inclusive and socially constructive and this needs to be a key element of any analysis of business enterprises today, even for analysis that seek to reject such practices as potential models for reform.