Corporations in Contrast to Small Businesses

As long ago as 1937 Ronald Coase in his book “The Nature of the Firm” pointed out that market forces, like pricing, competitive bidding do not operate within a corporation of any size. One department typically does not bid for business from another. Instead internal pricing of products and services is done by administrative decision making. He assumed this reflected the large transaction costs that would arise if corporations or firms were to create internal markets and use internal competition to drive efficiency. And given almost no corporations use this internal market structure it must presumably be inefficient or uncompetitive to use it or competition in the external market would drive its use. I think Coase’s insight has major political implications.

Much conservative commentary on the free market seems to assume that large corporations operate in some sort of free market context. Now of course, many conservatives recognize that many large corporations are monopolies or partial monopolies aka oligopolies with significant market power which reflects the limits to free competition. This may reflect control of key patents, the advantage of an early leader in a new sector, the barriers to entry to a market including high cost of capital equipment and so on. But very little conservative commentary recognizes the reality that market forces are not used much within the boundaries of large corporations. Clearly there are constraints on the latter as they cannot simply make up prices. But it is interesting to see how closely large corporations resembly government bureaucracies. Having worked for one of the world’s largest corporations, and with the US Department of Defense there is much less difference than you might expect between these two forms of organization. Certainly far less than conservative ideology suggests. And they are both radically different from small businesses operating in competitive markets.

So I suggest that conservatives maybe consider how far from reality their characterization of large corporations as operating in competitive somewhat free markets is. And recognize just how driven they are to create monopolies and to use government to shore up their manipulative market power. And don’t expect this to change any time soon. Wal-Mart is not some inflated Mom and Pop store; it is a different beast entirely and commentary on the role of government, of large corporations and of small businesses should be grounded in reality. Interestingly, almost all the small business owners round here (and I probably know a biased sample) are liberal Democrats with no time for the Republican Party or the Democratic Party embrace of either Wall Street or large corporations. The main thing that makes these small business owners Democrats is their appreciation of science and the importance of technology and these days Republicans are seen as deeply anti-scientific, but that is a whole other story….They are also strongly environmentally focused, another field where the GOP doesn’t even compete.

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About creativeconflictwisdom

I spent 32 years in a Fortune Five company working on conflict: organizational, labor relations and senior management. I have consulted in a dozen different business sectors and the US Military. I work with a local environmental non profit. I have written a book on the neuroscience of conflict, and its implications for conflict handling called Creative Conflict Wisdom (forthcoming).
This entry was posted in Conflict Book Reviews, Conflict Processes, Economic Conflict, US Political Conflict and tagged , , , . Bookmark the permalink.

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