Organizational diversity in a capitalist society

There’s more than just one way to make markets work.

Chris MacDonald 0

(Photo: Matthias Tunger/Getty)

Today is the 2nd day of a 2-day workshop I’m attending on Regulatory Design, hosted by Duke University’s Kenan Institute for Ethics. I posted yesterday about the difficulty of developing and implementing effective regulations.

Day 2 of the workshop begain with a discussion of a stimulating paper by sociologist Marc Schneiberg, called “Toward an Organizationally Diverse American Capitalism? Cooperative, Mutual, and Local, State-Owned Enterprise”. Marc’s paper is about alternatives to the shareholder-driven corporation that currently dominates industrialized economies. He basically argues that, in the wake of economic crisis, we should at least have a renewed discussion of alternative models of economic organization. To be clear, Marc isn’t suggesting alternatives to capitalism, but rather promoting the idea of experimenting (further) with different ways of organizing business within a capitalist framework. In most jurisdictions, business law makes available plenty of non-corporate options for organizing business. But shareholder-driven firms dominate. So there are interesting empirical and normative questions about the balance between various forms.

Here are some interesting questions to ponder, with regard to this issue in general:

  • Why do cooperatives of various kinds, and other non-shareholder-driven businesses, seem to thrive in some industries but not in others?
  • If in fact shareholder-driven corporations are particularly conducive to instability and crisis, how common do alternative forms need to be in order to have an appreciable effect on the stability of the economy as a whole?
  • From a public-policy point of view, what can (or should) governments do to encourage alternative business forms? (Note that in some places, alternative forms already receive, for example, favourable tax treatment.)
  • Which particular problems (of governance or of ethics) are solved by non-corporate ways of organizing business?
  • What are the costs (socially and individually) of various forms of organization?
  • The profit motive (taken as driving shareholder-controlled corporations) is often singled out for criticism. But all organizations are, by definition, driven by some combination of motives. To what extent, and under what circumstances, are those motives more, or less, likely to encourage anti-social behaviour?

Essential reading for those interested in the empirical side of this topic is a book I’ve recommended here before, and which Marc cites in his paper, namely The Ownership of Enterprise by Henry Hansmann. It’s a dense scholarly book, written by a prominent scholar of corporate law. But for anyone with a serious interest in these topics, it’s well worth the effort. Hansmann’s basic argument (derived from an examination of various case-studies as well as international patterns) is that ownership patterns are best explained by things like a) homogeneity of interests among a group of stakeholders (whether they be shareholders or customers or employees or whatever) and b) the extent to which that group of stakeholders find it reasonably easy to monitor the behaviour of the organization’s managers. In other words, for any organization, some stakeholders want (and are willing to bargain for) control, whereas other stakeholders merely want (and are only willing to “pay” for) a thinner kind of interaction with the organization. The implication is that, if Hansmann is right, any thought that there could be a “better” or even “best” mix of organizational structures, from a social point of view, is going to run up against the fact that the actual mixture is being driven by the desires and capacities of millions of individual market participants, and changing the mix will require changing some of those desires, some of those capacities, or both.

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