Boeing is having a great deal of difficulty in constructing its new
airplane. These problems remind me of the work of Ronald Coase.
In 1991, Coase won the misnamed Nobel Prize for economics, largely on
the basis of two articles. In one of these, Coase explored the nature of
the firm, "distinguishing mark" of which is the "the suppression of the
price mechanism."
Coase, Ronald. 1937. "The Nature of the Firm." Economica, 4: 386-405, p.
389.
To some, at first glance, such words might suggest a radical Marxist
ideology -- "suppressing the price system". In fact, Coase saw something
that earlier economists had overlooked. Business transactions between
firms are based on prices, but, within a business orders and procedures
generally determine how things are done, not prices.
At the same time, a business can theoretically contract out virtually
everything it does. A major corporation could consist of a telephone, an
Internet connection, and a bank account. It could rent its office and
make contracts with employees on a daily basis. It could pay other
companies to produce and market its goods.
No major company has ever gone that far because of the difficulty of
specifying everything it needed in contracts. Yet, in the new age of
neoliberal worship of markets some corporations have actually made great
strides toward creating a totally market-driven business. A few
corporations have even taken to using prices within the firm in an
effort to make each division accountable.
More at
http://michaelperelman.wordpress.com/2009/07/09/contracting-out-or-boeing-bites-itself-on-the-butt/
--
Michael Perelman
Economics Department
California State University
Chico, CA
95929
530 898 5321
fax 530 898 5901
http://michaelperelman.wordpress.com
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