The field studying this is "organizational cybernetics". Fallen out of fashion recently, but still important.
As to why a company is a single large integrated organization rather than a cloud of independent organizations or individuals bound by contracts: see Coase Theory Of The Firm. It's to do with information flow.
The critical difference between corporate central planning and Communist central planning is that corporate still has prices, mostly from outside the organization, which also represent a flow of information. But that 30% of intra-corporate trade often does not have anything close to a real price on it, instead it will have a number chosen for tax optimization purposes. See Apple Ireland, for example.
> In 2014, BP had around 85,000 employees across 1180 companies. If you showed a person in 16th century England those numbers, they’d think you were referring to an entire economy.
This is ahistorical. I present to you the Dutch East India Company [1]:
> The Dutch government formed the VOC in 1602. At its peak, the Company had 57,000 employees, 150 merchant ships, and a private military force with 40 warships and 10,000 soldiers
Standard Oil also springs to mind as being absolutely massive, particularly in terms of percent of GDP.
That being said, I agree with the general point that the idea of "free markets" in a noeliberal dystopia are kind of ridiculous. But the alternative doesn't necessitate central planning either.
The US in particular is a country of contradictions. Capitalism is popular although most people can't define it. Socialism is rejected although almost nobody can define it. The US Military is venerated despite being one of the most socialist institutions in the country.
Think about it. In the military all your basic needs are met. Housing, food, medicare care, education. You pick a job you're qualified for (based on the ASVAB and line scores). The military trains you do that job. You get paid while doing all this. Then you do that job.
Yet Americans, despite lauding the military, will soundly reject every American having their needs met in the same basic way that the military does.
> This is ahistorical. I present to you the Dutch East India Company [1]:
VOC was literally an entire economy. They had exclusive ownership and control over all Dutch colonies in "the east" and represented the entire economy of the former "Dutch East Indies" (largely Indonesia and Malaysia today).
The military thing comes with responsibilities though, they don't just give people all those things for free. Desertion is strictly not allowed. Human rights prevent this arrangement in the private sector.
> The US Military is venerated despite being one of the most socialist institutions in the country.
That is because even many libertarians (i.e. not just capitalists, socialists, communists) understand that national defense, internal security, justice, and diplomacy are functions that the state should take care of.
There are very few who believe we should live in total anarchy.
Now unlike most other political currents, some believe that the aforementioned roles are the only role a government should serve (in french those roles are called the "Fonctions regaliennes de l'etat", literally "Roles kingly of the state").
It's really strange to use the army as an example of "socialism" when it's one of the really rare thing nearly everybody agree is a role belonging the state.
They're not making the point about the military being state owned. They're making the point that the military is run almost identically to how a socialist state would be run.
It's absolutely not the only way that a military could be run, and many haven't, but is, presumably, the way that the military organisers consider it to be most effective.
Military equipment, in contrast, is not generally run in quite such a socialistic fashion though it's a long way from a capitalistic free market.
> From c100 BCE, Roman legions were reorganised into 10 cohorts of 400–500 heavy infantry, each with six centuries of about 80 men. These continued to provide their own weapons and armour until the first permanent and entirely professional Roman army with a central command and logistics structure was formed in 31 BCE.
In fact, one's position in the Roman army was largely determined by what one was wealthy enough to provide. Consider the cavalry (equites) [2]:
> From the beginning of the 4th century bc, non-senators were enlisted in the cavalry; they provided their own horses (equites equo privato). By the 1st century bc, foreign cavalry tended to replace them in the field and thus to restrict the equestrian order to posts as officers or members of the general’s staff
A military doesn't have to provide equipment. It doesn't have to fulfil basic needs. It doesn't even have to be voluntary. Or paid. But modern militaries in developed countries do basically all of those things.
The loose analogy I use is Democracy is to Feudalism as Socialism is to Capitalism.
In a feudal government, the laws are created by the wealthy landowners with complete control over how the people should live. The peasants have little say in how things should be run, and few options to leave.
In a capitalist society, corporations are owned and operated by the wealthy, and they have complete control over the people at their jobs (and often outside it, too). The workers have little say in how things should be run, and cannot leave without fear of losing necessities like healthcare.
Democracy gives the people a say in how their government should be run. Socialism gives the workers a say in how their company should be run. We've managed to no longer be exploited by our government (but not completely), but we still have to live with being exploited by the wealthy.
Feudalism was an economic system borne from the Divine Right of Kings [1]. But this was really just an excuse, much like every religious war isn't really about relilgion. Religion is just an excuse to seize land.
Anyway, under feudalism, a King controlled some portion of land. That King would typically have vassals who control part of it. Depending on the size, those vassals may themselves have vassals.
At the bottom of this totem pole was the serf. A noble would control all the land but would grant a serf the ability to use the land to grow a harvest and feed his family. Often the serf would live on that land. In exchange for this the serf would give a portion of his harvest to his lord. The serf may also owe the lord military service in times of war.
By late feudalism, instead of giving crops, the serf would sell their harvest at markets and pay the lord money. This led to the rise of the merchant class and ultimately paved the way for capitalism.
So what's going on here? In feudalism, the lord owns the means of production (being the land). The serf, through his labor, creates value by sowing and harvesting a crop. There is no value to the land without labor. So one can say the the lord is extracting the surplus value of the serf's labor. This framing and understanding was really formalized by Karl Marx later but the origin of the Labor Theory of Value [2] goes back to Ancient Greece and probably beyond.
So what is capitalism? Capitalism simply replaces the noble lord with a capital owner. That's literally it.
As the world industrialized the means of production expanded beyond farms and mines to factories. But everything else applies. A factory extracts the surplus value of the workers' labor to enrichen the factory's owner.
Instead of kings, we have Elon Musk, Jeff Bezos and the like.
So what Marx talked about was the workers' relationship to the means of production. Socialism in this context simply means the workers own the means of production.
So if you look at your local town or city, Walmart represents capitalism. The value of that labor and from that community is extracted to distant owners. If your town has a local family-owned restaurant, well that's socialism. The restaurant is the means of production here. The family who works there owns it.
A Monsanto-owned agribusiness? Capitalism. Family-owned farm? Socialism.
The crazy thing is that people like boutique hotels, farmers markets, family-owned farms, locally-grown produce and so on.
Some theory wonks migh tyell at me about syndaclism, Marxism, Marxist-Leninism or Mao third-worldism. Don't get lost in the weeds however.
The key part of this is that capitalism has almost nothing to do with markets (let alone "free markets", which is an oxymoron). Markets existed for thousands of years before capitalism did. Markets exist in non-capitalist countries.
A major difference here though is that in feudalism, you have one king with associated subordinates per physical area.
In Capitalism, anyone(*) with sufficient capital can become a king in a specific fief, and there are often many overlapping ‘kings’ in a given fief, competing.
Even labor.
It happens all the time, albeit is not ‘that easy’, either.
Socialism (depending on brand), means of production are usually controlled by the state, and that type of ‘inversion of control’ is rarely allowed. In most implementations, most of the economy is in those state owned/controlled entities.
Benefits (and costs) to the population then flow down from there.
* barring monopolies, which is why it’s so popular to stomp on them.
> ... you have one king with associated subordinates per physical area
Yes and no. Land changed hands. As recently as the 19th century, a distant relative of mine fled Eastern Europe from an area where he could be conscripted by either the Prussians or the Russians.
> In Capitalism, anyone(*) with sufficient capital can become a king in a specific fief
We're talking about social mobility here, basically. This existed in feudal times too. A Viking called Rollo became the first ruler of Normandy and didn't seem to come from noble beginnings. A direct descendant of his became the King of England by conquest. In fact every European monarch today is a descedant of Rollo.
The land here is simply the means of production, just like Amazon is. Amazon has many owners but is it that different really?
Social mobility in modern times is more limited than you might expect. ZIP codes tend to be strong predictors of your economic outcomes. This is exacerbated by our existence being laden with debt. Student, medical, housing, etc. It's why a lot of people use terms like "neofeudalism" as all this debt makes is increasingly indistinguishable from brick kiln workers in Bangladesh, Pakistan and India. This is by design because a debt-laden worker is a compliant worker.
> Socialism (depending on brand), means of production are usually controlled by the state
That's more communism. Even so, the state is comprised of and answerable to the workers. Even then I'd rather have the state capture "profit" to build roads and schools rather than some guy buying another mega-yacht.
A lot of people, myself included, focus on the workers owning the means of production because this can be done incrementally and we'd all be substantially better off if our megacorps were instead collectives.
"Incrementally owning the means of production" can look like a lot of things.
Contributing to a 401k that's invested in an index fund. Employers granting shares to employees. Unions owning shares in the company. I'm sure there are others that have not occurred to me.
Do you have a preferred approach, or is the big thing just getting workers to own at least part of the means of production?
Just because democracy and capitalism were invented, didn’t change what humans knew worked beforehand.
The innovation is that you aren’t born into a given regime and you can switch regimes.
This made the system capable of any number of regimes from the freelancer to coops to communes to partnerships to private corporations to public corporations to crown corporations to charities to not-for-profit trade associations to your kids lemonade stand to nonincorporated affiliated entities to manage the local block yard sale to Uber to open source projects to family trusts to whatever and so on.
However to manage a market function to extract petroleum cost effectively, it seems a corporation at the scale of BP, as a hierarchical corporation is the system so far shown to be most efficient? I presume anyway.
I assume you mean financial efficient. I personally suspect that getting resources out of the ground and to consumers would be a different usage of the word efficient.
Financial efficiency isn’t the same as being efficient in resource utilisation.
The capitalistic systems produces much waste in terms of resources and little or no waste in terms of capital.
Financially efficient is resource plus labor efficiency. Money represents resources and labor. Financially efficient cant be anything other than labor and resource efficient.
Otherwise the market is just a heuristic for obtaining one type of workable solution and then refining it into a local optimum.
Business thought heartily embraces this when talking about how to make a profit - profit itself is an indicator of non-optimality, and nowhere near a small epsilon for most businesses. But then when criticizing instances where the heuristic has failed and created solutions/structures that look quite non-optimal, so many people want to brush this aside this reality and invoke the efficient market fallacy.
No I'm saying that if you have found the cheapest way to do something with money (all inclusive, not local) then you have found the fewest resources plus labor as well.
Would that not imply eating the cheapest food available would also be the healthiest?
Buying the cheapest car would be the most resource efficient and most reliable car?
The implication being that cheap is best, which it most certainly isn’t. In your case cheap = fewest resources used.
But cheap could also be achieved by tax breaks, financial trickery (shifting debt around shell companies), producing products in cheap labour countries and then shipping it around the world as opposed to producing locally with less resources required for transportation.
On one side of the coin, we have Daniel 5:5 inspiring "the invisible hand"
> In the same hour came forth fingers of a man's hand, and wrote over ... upon the plaister of the wall...
On the other side, we have Baum Ch.XV inspiring "pay no attention to that man behind the curtain"
> ...they saw, standing in just the spot the screen had hidden, a little old man, with a bald head and a wrinkled face, who seemed to be as much surprised as they were.
I was guessing that 082349872349872 was trying to motivate a historical understanding of the slicing of pies ;)
No, seriously: Hopefully, I’m not replying to an credentialed expert here, but empirico-historical (=archaelogical?)methods seem underrated for advancing institutional (meso-)economics. Don’t know if this is as recognized a subfield as “organizational cybernetics” yet — I’m thinking of figures like Veblen and Lord Skidelsky, but how about more quantitative folks I have no idea of?
Anyways, would you argue with me, the question is how to use price-setting mechanisms to allocate resources/experts at the inter/intra-organizational level. You don’t want openAI to concentrate all the world’s RLHF researchers, but you also don’t want to spread the experts out so thin that they can’t run into each other outside of Silicon Valley.
There’s a tightrope to walk between centralization and decentralization, I like that this blog series is exploring related issues, and I’m thrilled that some of us here are interested in engaging on the topic:
Since nothing is new under the sun, yes, we should study how firms have managed to converge to a rather precise 30-70 split, instead of (only)what Coaseans have been pontificating all along :)
[Market design and transaction-cost reductions seem to be generally more sensible for optimizing information flow than manipulation of legal frameworks around hiring practices (see the eternal fiasco over NDAs/noncompetes)]
The other more peripheral thing related to Minsky is that the study of expertise at the individual level could also be interesting, GP and I have an ongoing discussion about that; i think its relevant but GP seems to differ?*
The concrete question we are thinking of, is how do experts split their attention between central and peripheral issues, hopefully this can be answered more sophisticatedly [i.e. quantitatively] than just handwaving the exploitation-exploration trade-off? Well experiments migggghhht just be possible in this model ;)
Btw another topic GP and I have been wrestling with, is of the clash of values within Chinese-run firms in Sweden. Maybe you can help us locate sources ;)
*Footnote for GP with regards to “his” small-minds/wide-world dichotomy.
Thorstein Veblen's instinct-oriented dichotomy between technology on the one side and the "ceremonial" [including social media — insertion mine] sphere of society on the other.
My thought was that it would be interesting to look at such timeseries data for discontinuities that you could correlate against historical events to get some insight into the impact of policy decisions, and the development of neoliberal capitalism.
The plateau at 30% (assuming it is a plateau) seems reasonable. Unless goods are counted twice, a stable upper limit is clearly 50%, as firms output something eventually, and presumably the value of the goods never decrease in the value chain.
I've always thought that every authoritarian regime is simply a company whose business is to manage and extract value from the country that they own, like any other productive asset.
Some of them are longstanding family businesses (monarchies), perhaps they have delegated or divested some of their ownership to a board or to the public to some degree (spectrum of semi-democratic monarchies).
Some are private companies with a single leading founder (different kinds of revolutionary/military dictatorships). Some act like large enterprises, that may be democratic or meritocratic to some degree internally, but closed to the public (single-party regimes).
It's interesting to think that we spend the majority of our time (work) quite happily within such power structures.
I guess the rather obvious trick is that it works as long as a company does not get a monopoly on violence. That's the difference.
I think your analysis seems roughly reasonable, but I would like to point out that violence is not the only way to abuse your position of power. You can also withhold resources or information, or spin narratives which make you work against your own interest.
I would also like to point out that, although private companies do not have a monopoly on violence, governments in liberal democracy protect the private property of said private companies using their monopoly on violence.
I spent some time in East Germany when the wall was still up and often think that a corporation is run like a communist planned economy. 5 year plans, lots of internal propaganda, rewards for following the plan, no tolerance for dissent, discouraging of innovation, clear split between leadership and the rest. It’s all there
Access to basic goods are locked behind bureaucracy and often in shortage. “It will be 90 days before you can receive your laptop”.
Problems are deflected from one bureaucratic hell to another, with nothing ever getting solved. And the employees are gaslit into thinking everything is very good and normal.
> I've always thought that every authoritarian regime is simply a company whose business is to manage and extract value from the country that they own, like any other productive asset.
Yes, they are predatory organizations by nature - in fact a closer operational model would be mafias. This was developed further by Murray Rothbard in his book "Anatomy of the State": https://cdn.mises.org/anatomy-of-the-state.pdf
Murray Rothbard is a radical anarcho-capitalist of the Austrian school, he doesn't believe that empirical data can falsify a mathematical model of human behavior. In other words, if I can editorialize a little --- he's a nut.
Has theoretical economy ever worked? To me modern complex economics has started to feel like "we're a bunch of people, trying to theoretically represent populations on a whiteboard, but we've no idea what we're doing"
Probably Lego is a good way to represent this joke of a field of study
As to why a company is a single large integrated organization rather than a cloud of independent organizations or individuals bound by contracts: see Coase Theory Of The Firm. It's to do with information flow.
The critical difference between corporate central planning and Communist central planning is that corporate still has prices, mostly from outside the organization, which also represent a flow of information. But that 30% of intra-corporate trade often does not have anything close to a real price on it, instead it will have a number chosen for tax optimization purposes. See Apple Ireland, for example.