Monday, December 18, 2017

"Debunking the Theory of the Firm"

From Elaine's Idle Mind:
Until recently, US tech companies were pretty good about taking care of employees from new hire to retirement. Many Fortune 500 companies had explicit no-layoff policies: Hewlett Packard, Motorola, General Motors, McDonnell Douglas, Lincoln Electric, American Airlines, Delta. IBM never laid off a single worker until 1993.
This tie clip is a tiny slide rule that IBM gave to retiring employees. Do they still give these out? Do employees even make it to retirement age anymore?
At some point, the employer-employee relationship fell off a cliff. Corporations used to value the loyalty they gained by promising lifelong job security. Now they don’t even want real employees: Nearly all of the 10 million jobs created since 2005 are temp positions.

Does this disprove the Theory of the Firm? According to Ronald Coase, organizations form long-term relationships with employees to eliminate the transaction costs of constant market exchange. Sourcing candidates, negotiation, hiring with incomplete information, making sure contractors don’t run off with a USB stick full of trade secrets – that’s all really expensive!

The Sovereign Individual predicted that technology would eventually automate the firm away. Information systems and AI could seamlessly coordinate a two-sided marketplace. Offices equipped with surveillance devices would measure workers’ output, obviating the need for employee trust. Isn’t that basically Uber? With the help of services like LinkedIn and Gigster and Foundry and Fiverr, we can already reduce transaction and coordination costs to the point where full-time employment makes no sense at all.

Why stop at ruining jobs?...
....MORE