Book Review: The Corporation & The Corporation in the 21st Century
Grietje Baars and Andre Spencer. 2017. The Corporation: A Critical, Multi-Disciplinary Handbook. Cambridge University Press. & John Kay. 2024. The Corporation in the 21st Century: Why (Almost) Everything We are Told about Business is Wrong. Profile Books.
Annavajhula J C Bose, PhD
Department of Economics (Retd.), SRCC, DU
Both the books are pathbreakingly useful to the students of economics and business. They are large volumes, though. It is rather odious that the author of the second book does not acknowledge the existence of the first book and its authors!
The first book is unconventional in highlighting the following points.
First, according to the business schools, if we really want to understand the contemporary economy, the right place to start is the corporation which the management scholars define as a way of directing and controlling production. But they avoid the uncomfortable problematic of clearly defining what exactly a corporation is. For, “the corporation is best seen as a hydra—a being with many faces. It is a many-headed amorphous beast. It means very different things in different disciplinary areas. For lawyers, it is a legal person—or a nexus of contracts; for economists, it is a hierarchical mechanism which is used to coordinate production and exchange; for anthropologists, it is a community of people which gradually becomes a non-human actor; for geographers, it is a mechanism for spatializing flows of capital, expertise and goods; for political scientists, it is a mechanism for distributing power; for sociologists, it is an institution which coordinates social relations; for accountants, it is a production of various recording technologies; and so on and so forth. There are hundreds of different definitions”.
Second, students are not told that the corporations are not the dominant economic form. The fact is that many more people in the world are employed by cooperatives than are employed by corporations. There is indeed a variety of organisational forms which people use to engage in economic activity. Employee-owned organisations are one eminent example, and they do present a viable alternative to the corporate form, but they are not discussed and upheld in the classrooms.
Third, there are many problems due to corporations which the business schools condone or do not honestly deal with. The listing is as follows. Corporate power is problematic for democracy within and outside of workplaces. Corporation’s power allows it to continue “to produce the negative externalities of widespread environmental and social harm.” The corporation is irresponsible by being a psychopath. “Corporations have a callous disregard for others and are motivated by pure self-interest” which is glorified by mainstream economics. Individuals “at work within the corporation set aside their own moral convictions when taking decisions in the name, and for the benefit, of the corporation.” There are indeed increasingly disastrous economic, social and environmental consequences caused by large corporations. “Gains are often privatized while various costs are socialised, which become the responsibility of nation-states, communities, and individuals. For example, when a large firm downsizes, it reaps a significant gain in its share price—resulting in private gain for investors. But this decision also creates significant external social costs such as unemployment. These costs are picked up by families, local communities, local governments, and the nation-state…
What is particularly insidious about the corporation is its limited liability structure, which allows individual shareholders to avoid taking responsibility for corporate wrongdoing. Corporations are simultaneously all-powerful and evanescent. They are a separate legal entity from their owners. The ‘corporate shield’ created through its separate legal personality protects individuals within the corporation. For example, when large corporations have been found responsible for death or damage to health, key decision makers like senior executives are often able to avoid prosecution through pushing responsibility onto the company. The company, in turn, shifts the costs of fines onto workers and consumers”! This is not all. Corporations are criminals as they are implicated in the death of thousands of people each year. Internal dynamics within corporations often mean that speaking up about crimes committed within the firms is difficult. They have “no soul to damn and no body to be kicked,” so to say.
There is really the difficulty of finding a body which can be held guilty. Corporations also propagate ideology of the legitimacy of the corporation itself and the Corporate Social Responsibility ideology as well, which often involves “false truth telling”—that is, the telling of a partial truth. Corporations do ‘game’ law to their advantage. By subjecting itself to state-made criminal law, the corporation puts itself on an equal footing with individual citizens. This legitimises the corporation while at the same time enabling it to wield its power to avoid ever actually being prosecuted. The central point is that because the business schools ignore the diversity in defining corporation as mentioned above, they fail to undertake interdisciplinary study of corporations which might “inspire more creative and effective solutions to the problems” they have created as pointed above. Besides, they wilfully entrench non-critical thinking among the students as future managers.
There is a saying that those who know how to do business, do business; and those who do not know, teach how business is done. But what if the teaching is cut off from the unfolding realities in the world? This is the major point of departure for the second book. A central thesis of this book is that business has evolved but that the language that is widely used to describe business has not. This is substantiated as follows:
“The ironworks and the textile mill were representative workplaces of the Industrial Revolution. Then they would be supplemented and superseded by steel mills, automobile assembly lines and meat-packing plants. But these facilities no longer represent the commanding heights of the twenty-first-century economy: Apple and Google, J.P. Morgan and Verizon, Pfizer and PwC now occupy that terrain. The employees of these companies are not the labouring poor or the lumpen-proletariat. They go to offices, not factories. In the 18th century, before the Industrial Revolution, they had mostly worked from home. In the 21st century, many of them want to do so again. The products they produce are smartphones and internet search, bank accounts and connectivity, pills and accounting services. Items that fit in your pocket—or your head.
Materials constitute a negligible proportion of the cost of these products. What you are paying for is the collective intelligence within these companies which is incorporated in the product design, rather than the transformation of raw materials into finished goods. This dematerialization of the value of product is associated with dematerialization of the means of production. 21st century business needs little capital, mostly does not own the capital it uses and is not controlled by the people who provide that capital. A modern firm buys capital services just as it buys water, electricity and transport—and as it purchases the services of workers, accountants, executives and suppliers. In the business environment that followed the Industrial Revolution, production resulted from the combination of physical capital and physical labour. The distribution of income was the outcome of a class struggle between the providers if these two factors of production, between the owners of capital and the suppliers of labour. That description remained true of parts of business through much of the 20th century. But in the 21st century business, labour—often many different kinds of labour in combination—is the key factor of production. Output results from the associated skills of the software engineer and the designer, the accountant and the marketer, the rainmaker and the dealmaker.
The modern business is defined by its combination of capabilities, not its production function. The success of 21st century firms is derived almost entirely from the diverse capabilities of the people who work on them. The workers are the means of production. Is this still capitalism, or has socialism finally arrived? That is a good question for a student essay but is of little relevance to practical business. These terms have ceased to have much explanatory value in the analysis of business organisations or economic systems. It is impossible to construct a theory of the firm without insights from organizational theory, psychology, anthropology and other social sciences. An emphasis on principal-agent models within a nexus of contracts diverts attention from the many issues raised by organizational theory, business history and corporate strategy. The focus on the firm as a collection of capabilities gives a different and more illuminating perspective for understanding the extraordinary diversity of business organisations and of businesspeople over geographies and over time.”
It is rather unfortunate that interesting books like these are not yet part of the mainstream economics and management educational programmes. The Marxists will have or should have goosebumps reading the second book unless they also ignore what is uncomfortable to them.
