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A paper by PhilAgre which is an antidote to AlternativesToCompanies.

Agre argues that RonaldCoase's theory that companies exist because internal transaction costs are lower than market transaction costs must be taken in it's entirity. And this means that simply pointing to information technology lowering market transaction costs does not necessarily imply the break up and ending of companies unless the market transaction costs are getting lower relative to internal organizing costs.

If, on the other hand, market transaction costs are reducing, but internal transaction costs are reducing faster, then we'd expect companies to strengthen and consolidate more effectively. We'd expect an increase in size and power of corporations.

Depending on whether internal or external transaction costs are reducing faster will determine the direction of company evolution. (And maybe different markets / activities will support different granularities of optimum size. (See also SituatedSoftware and Oli's comments on ScaleAndStructureOfSocialGroups)

This is also a good explanation for when HierarchiesBeatNetworks

I also used this in a response to a draft from the forthcoming ExtremeDemocracy : http://www.ratcliffeblog.com/archives/000120.html

I think there's something missing from the beginning of this piece :

" For millennia it has proceeded toward a more scalable and widely distributed form of social control, toward egalitarian politics and markets, toward democracy. "

What you don't talk about is how we got to those central hierarchies in the first place. When we presumably started with a fairly distributed system of highly democratic bands of hunter-gatherers.

The tone of the piece is basically that improvements in communication technology are taking us on an inevitable journey to decentralization. It might be worth comparing Phil Agre's use Ronald Coase's theory here : http://polaris.gseis.ucla.edu/pagre/hamburg.html

''Things are only pushed in the decentralized / market direction when technology helps reduce market transaction costs faster than internal transaction costs. If the technology helps the transaction costs within hierarchies more, then we expect to see hierarchy strengthened. (As happened with the rise of empires like the Romans and Incas, based on the improved communication technology of their road systems.)

Compare : SocialPrise
See also : TheArchitectureOfComplexity, JustInTime, EconomiesOfScale, IncaRoadNetworks, BetterInformationSqueezesProfits

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Last edited March 20, 2008 1:21 pm by PhilJones (diff)