This book should be as instructive to economists as it is to students of business.
Formal economics has, for a long time, seen the company as a sort of black box which sits uneasily within a neo-classical framework of equations. The joint stock corporation exists much to the frustration of those mathematical modellers who would preferably wish it away.
Some progress to it's understanding has been achieved through developments in behaviourable and institutional economics as well as through the work of Ronald Coase but to may the company remains somewhat of an enigma.
The imperative behind this work is to examine why some firms exist for longer than others and the author draws on work in Royal Dutch Shell and other business stuies to develop an almost biological theory. Much of the argument is intuitively attractive and matches our day to day experience. We see how the shorter lived companies are closer to an economic portrayal where short-term profits are the top priority and where these are effectively syphoned off rather than invested back in the enterprise. In contrast the longer lasting corporation has almost entrepreneurial attributes where profit maximisation takes second place to profitability over a medium to longer term approach.
What I find particularly interesting about this case study, as I perceive it, is the relevance of the notion of catallaxy. "Friedrich Hayek used the term Catallaxy to describe as "the order brought about by the mutual adjustment of many individual economies in a market". (wikipedia) From this perspective, the market is an exchange process which is a much broader conception than the limited notion of economy. From this understanding, any exchange between individuals is part of a market order so that a firm can be properly understood as a network of exchge relations which is in itself involved in a bigger set of market relations.
Re-examining the two examples yields, firstly, the profit maximising economic firm where the network is a short-term association of individuals each affected by short-term considerations which result in low wages but low or poor levels of productivity. This type will be a relatively brief participant in an economic cycle prone to changes in developments in technology or to changes in fashion where any innovative ideas will be absorbed through takeover. The factors of production involved will be relatively mobile but cheap in price as they will not have achieved any great learning or embodied knowledge.
In contast the long-term enterprise will have relatively high factor values, engage in research and development and will persist in time.
What this book illustrates very well, aside from the total failure of the economics establishment to provide a fim analytical framework of the existance of such bodies, is theneed for a broader conception of the reality of the world. This indicates a need for a reappraisal of the view of economics as a hard science to one drawing more from the biological sides and to look beyond the notion that markets are all about a particular limited set of prices.
This is an excellent book which is suitable for everyone who has an interest in the world around us.
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Living Company-Für angehende Manager ein Muss
Reviewed in Germany on June 2, 2013
