Institutions-Intensive Economy

My latest essay:

Over the course of Coase’s lifetime, the locus of economic activity has been shifting, from the farm to the factory floor to the office and even to “the cloud.” With each step, the concept of property has become more difficult to define, the economic entities have become more difficult to locate in time and place, the proportion of wealth that is intangible has risen, and earnings have become increasingly contingent on social constructs rather than on individual attributes.

Some of the themes circle back to the book that Nick Schulz and I wrote.

2 thoughts on “Institutions-Intensive Economy

  1. I guess I see what you’re getting at, that the economy is not made up of a bunch of atomic employees but greatly swayed by institutions, ie processes that the employees interact with and improve to really create value. But hasn’t that been the case for centuries? When was value more contingent on “individual attributes” than “social constructs?” Hasn’t it always been a complex interplay of the two?

    You say that tech companies are creating new marketplaces today, but didn’t Ford and GM once have to create dealer networks to get their cars out into the market, increasingly financing the cars also? Seems to me the “tech” companies of the past were doing the same thing. While I think your argument is undoubtedly true, I wonder if you really think it’s new. Seems to me a focus on “models in which earnings accrue in a deterministic fashion to human capital and physical capital” has always been impoverished, not just lately.

  2. As a multiple business owner, I’ve been quite taken with your emphasis on organizational capital, though it’s darn hard to figure out how to work it into a larger model of economic theory, much less empirical statements, measurement, etc. (Especially since your cites consist mainly of one tweet.)

    Lev and Radhakrishnan make the very interesting point that organizational capital, which is often, even inevitably, firm-specific (in your construct, dependent on and consisting of a unique complex of institutions and practices), is much less commodity-like than other factors of production like labor and raw inputs.

    http://www.nber.org/chapters/c10619.pdf

    It’s really, really hard to sell part of your firm’s organizational capital. It’s all or nothing. Either it’s a going concern/organism, or like a shark it stops swimming and it’s a valueless, rotting carcass.

    That certainly describes the businesses I’ve run, where fixed assets consisted of a bunch of rapidly depreciating computers and a phone system, not much else. Organization and processes (and people who had learned how to create, manage, and implement ours) were everything. Those assets were worth millions.

Comments are closed.