Max Sawicky writes: >> Coase is unradical in the sense of recognizing hierarchy >> but not power. There is an efficiency rationale for >> the size or scope of a firm -- economizing on a bundle >> of transactions -- but this does not answer the question, >> who gets to be 'coordinator'? Coase takes expertise >> out of it, debunking Frank Knight's dichotomy between >> the employer, who is inclined to take risk and knows >> howw to handle it, and workers who are the opposite. >> Coase says the firm can always hire an advisor to >> foresee the uncertain. All that's left is the >> coordinating function. (Financial risk is a >> different matter not treated in this lit.) >> >> Power explains who is assigned (or self-assigned) >> the task of coordinator. Power derives from ownership >> of capital. >> >> Capital permits the owner, perhaps thru an agent, >> to engage workers without capital into implicit >> contracts reflecting the bargaining power of the >> owner. Workers might do better with individual, >> specific contracts (lacking a union mechanism) than >> with the employee relationship, but lacking capital >> obliges them to work for someone else. >> >> The firm needs a coordinator, but Coase fails to >> explain why (s)he isn't hired by the workers.
A couple of thoughts/questions: 1. You state that the employee must work for someone else because of the lack of capital, but Coase suggests (demonstrates?) that the firm (employer-employee relationship) exists because of transaction costs. Therefore, even if every worker starts with his own capital and is not compelled to be an employee, firms would still be formed because they would be more profitable (including for the salaried worker). 2. You state that the firm needs a coordinator, but Coase fails to explain why the coordinator is not hired by the workers. Isn't that because the firm, by definition, always precedes the workers? For instance, every corporation is created by a person that incorporates the corporation, initially finances the corporation and establish its purposes. Once the purpose of the firm is established, then that person determines what labor is required to achieve the purpose, taking into consideration the firm's resources and other factors. Comparatively, is it possible to imagine certain workers combining themselves without any specific purpose, and then hiring a coordinator to provide them with purpose? How would that work? I think this points to the necessary role of the entrepeneur in the equation. David Shemano
