Home > Uncategorized > The growth of hierarchically ordered non-market economic organisations (i.e. corporations)

The growth of hierarchically ordered non-market economic organisations (i.e. corporations)

from Terry Hathaway

Contemporary political and economic discourse sees capitalist systems characterised as market economies, and references to both The Market and markets are ubiquitous; markets are seemingly everywhere. This situation is distinctly odd, as while economic relations have been more and more characterised as “markets”, many economies have seen both the withering away of traditional marketplaces and the concurrent growth of hierarchically ordered non-market economic organisations (i.e. corporations).

The reason that markets can be both seen everywhere and exist practically nowhere is due to two points. First, “markets” have been defined according to abstract principles – often product similarity or price uniformity – that do not include place. While abstraction is not an issue per se, abstraction that cuts away from a central defining feature – in this case, the place of marketplace – is unhelpful. Second, the dominant definition of the market, stemming from neoclassical economics, has chosen exchange as the principle by which a market is defined; whenever there is exchange there is a market. Rendering “the market” as a synonym for “exchange” means that “the market” can be seen in all economic systems throughout the entirety of human existence and paints capitalist relations of transactionary exchange as universal, natural and inevitable; “in the beginning there were markets” as Williamson (1975: 21) writes.

The consequence of these two points is that we are left with an idea of the market that is non-instituted and non-socialised. Moreover, the latter definition of “the market” captures everything and so defines nothing. It is, however, possible to rescue a definition of “the market” by including a requirement of place alongside exchange, multiple sellers, and similar goods. Applying such a definition, however, renders markets a relatively marginal part of contemporary capitalism.

While this argument may appear to rest on pedantry, the consequences of labelling economic exchange as a market are huge due to the centrality of the market to economic discourse and imagination. Using the term “market” brings up the image of the bustling marketplace, bazaar, or souk where prices are subject to bargaining between buyer and seller, and sharp competition occurs between the many stall-holders. Calling exchange “the market” thus implicitly characterises the exchange as taking place in a competitive environment, with broad equality of bargaining power, and with prices dynamically responding to the laws of supply and demand. In this manner, the market-as-exchange definition smuggles in a whole range of other ideas; the definition is central to a wider, and politically hegemonic, market discourse.  Read more: http://www.paecon.net/PAEReview/issue97/Hathaway97.pdf

  1. Ken Zimmerman
    October 26, 2021 at 10:02 am

    Sociologists have been studying and writing about firms for over 100 years. One of the senior members in this work is Arthur L. Stinchcombe. This is from his paper The Sociology of Organization and the Theory of the Firm. 1960.

     

    The argument of this paper is that the theory of the firm in economic analysis rests on postulates about organizations rather than on postulates about people’s motives. Consequently, the “non-economic” variables that have to be taken into account by the theory of the firm are variables of organizational constitutions, rather than variations of individual motives.

    By an “organizational constitution” I mean a stable and legitimate distribution of powers and responsibilities of people and of subunits in the determination of organizational policy. Within an organization this constitution, like the constitution of a state, determines the form of political life-who is asked to accept a policy decision without further debate, who can veto a decision, who are the “ins” and who are the “outs” in the allocation of jobs, who is protected against arbitrary exercise of the powers of someone else, and so on. The most significant aspect of the organizational constitution is the decision-rule it institutionalizes. An organizational decision-rule creates a firm utility function partly independent of the utility functions of members of the organization. For with a political decision-making process, the evaluation of alternatives de- pends both on what people feel and think and on the political process by which a collective decision is reached.

    One main task of the sociology of organizations is to describe and explain the variations in the institutionalization of the decision-rules. We are interested in how policies get built into the very structure of an organization so that a change of certain central policies entails not only an administrative decision, but also a redistribution of internal political power, a replacement of cadres who were committed to the old policy, or a change in institutional self-definition.1 The study of organizational constitutions as a support for economic theory may be contrasted with the study of the “real motives” of entrepreneurs. A typical criticism of economists is that the abstraction of the “profit motive” is too gross and approximate to be useful in “really under- standing” the behavior of the entrepreneur. The econ-omists’ ordinary defense is that even though entrepreneurs have other motives, profit motives are the most salient in business activity.

    The real issue is not whether or not people have other motives, but whether these motives lead to different organizational decision-rules. If the constitution of the firm (or of the surrounding society) is such that the greater glory of God is a monotonic increasing function of net money return, and also such that salary is such an increasing function, then religious and careerist motives will yield the same organizational decision.

    One of Max Weber’s main theses in The Protestant Ethic and the Spirit of Capitalism2 is that partially secularized Calvinism makes the greater glory of God an increasing function of profits. Other world religions, he argues, have a constitution which makes religious virtuosity an in- verse function of rational mastery of this world. The sociological problem is not so much to explain why some people want to be religious virtuosi rather than to make more money, but why, in some cases, these motives lead to the same organizational consequences. Before a critic of economics can justify complicating the economic model, he has to show that his representation of the motives of participants in a firm lead the firm to have a different utility function, a different organizational decision-rule.

    I argue, then, that economics is interested in the first instance in organizational constitutions, and that the motives of individuals are only interesting at second remove. Only if personal motives lead to misfunctioning of the institutions that are supposed to determine firm policy do personal motives become relevant to the theory of the firm. And even in this case, they are only relevant if the policy making bodies cannot develop mechanisms to deal with the deviant motives.

    In order to make this point clearer, we may compare two treatments of the same set of firms. One of these treatments focuses primarily on personal motives; the other on institutional decision-mechanisms. I think it will be clear that the focus on institutions rather than on personal motives serves to predict firm behavior more adequately.

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