A Brief History of the Corporation: 1600 to 2100 - 1 views
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In its 400+ year history, the corporation has achieved extraordinary things, cutting around-the-world travel time from years to less than a day, putting a computer on every desk, a toilet in every home (nearly) and a cellphone within reach of every human. It even put a man on the Moon and kinda-sorta cured AIDS.
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The Age of Corporations is coming to an end. The traditional corporation won’t vanish, but it will cease to be the center of gravity of economic life in another generation or two. They will live on as religious institutions do today, as weakened ghosts of more vital institutions from centuries ago.
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this post is mostly woven around ideas drawn from five books that provide appropriate fuel for this business-first frame. I will be citing, quoting and otherwise indirectly using these books over several future posts
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For a long time, I was misled by the fact that 90% of the available books frame globalization and the emergence of modernity in terms of the nation-state as the fundamental unit of analysis, with politics as the fundamental area of human activity that shapes things.
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But the more I’ve thought about it, the more I’ve been pulled towards a business-first perspective on modernity and globalization.
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The human world, like physics, can be reduced to four fundamental forces: culture, politics, war and business.
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Culture is the most mysterious, illegible and powerful force.
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But one quality makes gravity dominate at large space-time scales: gravity affects all masses and is always attractive, never repulsive. So despite its weakness, it dominates things at sufficiently large scales. I don’t want to stretch the metaphor too far, but something similar holds true of business.
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On the scale of days or weeks, culture, politics and war matter a lot more in shaping our daily lives.
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Business though, as an expression of the force of unidirectional technological evolution, has a destabilizing unidirectional effect. It is technology, acting through business and Schumpeterian creative-destruction, that drives monotonic, historicist change, for good or bad. Business is the locus where the non-human force of technological change sneaks into the human sphere.
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Culture is suspicious of technology. Politics is mostly indifferent to and above it. War-making uses it, but maintains an arms-length separation.
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Business? It gets into bed with it. It is sort of vaguely plausible that you could switch artists, politicians and generals around with their peers from another age and still expect them to function. But there is no meaningful way for a businessman from (say) 2000 BC to comprehend what Mark Zuckerberg does, let alone take over for him. Too much magical technological water has flowed under the bridge.
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It is business that creates the world of magic, not technology itself. And the story of business in the last 400 years is the story of the corporate form.
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There are some who treat corporate forms as yet another technology (in this case a technology of people-management), but despite the trappings of scientific foundations (usually in psychology) and engineering synthesis (we speak of organizational “design”), the corporate form is not a technology. It is the consequence of a social contract like the one that anchors nationhood. It is a codified bundle of quasi-religious beliefs externalized into an animate form that seeks to preserve itself like any other living creature.
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What was new was the idea of a publicly traded joint-stock corporation, an entity with rights similar to those of states and individuals, with limited liability and significant autonomy
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two important points about this evolution of corporations.
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The first point is that the corporate form was born in the era of Mercantilism, the economic ideology that (zero-sum) control of land is the foundation of all economic power.
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In politics, Mercantilism led to balance-of-power models.
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In business, once the Age of Exploration (the 16th century) opened up the world, it led to mercantilist corporations focused on trade
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The forces of radical technological change — the Industrial Revolution — did not seriously kick until after nearly 200 years of corporate evolution (1600-1800) in a mercantilist mold.
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Smith was both the prophet of doom for the Mercantilist corporation, and the herald of what came to replace it: the Scumpeterian corporation.
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The corporate form therefore spent almost 200 years — nearly half of its life to date — being shaped by Mercantilist thinking, a fundamentally zero-sum way of viewing the world.
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It was not until after the American Civil War and the Gilded Age that businesses fundamentally reorganized around (as we will see) time instead of space, which led, as we will see, to a central role for ideas and therefore the innovation function.
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The Black Hills Gold Rush of the 1870s, the focus of the Deadwood saga, was in a way the last hurrah of Mercantilist thinking. William Randolph Hearst, the son of gold mining mogul George Hearst who took over Deadwood in the 1870s, made his name with newspapers. The baton had formally been passed from mercantilists to schumpeterians.
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So, Mercantilism was about colonizing space. Corporatism is about colonizing time. This is a pretty useful (though arguably too-reductionist) way to latch on to the underpinning of later thoughts.
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This divide between the two models can be placed at around 1800, the nominal start date of the Industrial Revolution, as the ideas of Renaissance Science met the energy of coal to create a cocktail that would allow corporations to colonize time.
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The second thing to understand about the evolution of the corporation is that the apogee of power did not coincide with the apogee of reach.
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for America, corporations employed less than 20% of the population in 1780, and over 80% in 1980, and have been declining since
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Certainly corporations today seem far more powerful than those of the 1700s, but the point is that the form is much weaker today, even though it has organized more of our lives. This is roughly the same as the distinction between fertility of women and population growth: the peak in fertility (a per-capita number) and peak in population growth rates (an aggregate) behave differently.
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a useful 3-phase model of the history of the corporation: the Mercantilist/Smithian era from 1600-1800, the Industrial/Schumpeterian era from 1800 – 2000 and finally, the era we are entering, which I will dub the Information/Coasean era
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I think it would be useful to map these eras against the backdrop of my previously established Generational timeline (as well as the StratFor 50-year cycle breakdown) in order to see if there are any self-supporting model elements.
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By a happy accident, there is a major economist whose ideas help fingerprint the economic contours of our world: Ronald Coase.
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To a large extent, the history of the first 200 years of corporate evolution is the history of the East India Company. And despite its name and nation of origin, to think of it as a corporation that helped Britain rule India is to entirely misunderstand the nature of the beast.
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Two images hint at its actual globe-straddling, 10x-Walmart influence: the image of the Boston Tea Partiers dumping crates of tea into the sea during the American struggle for independence, and the image of smoky opium dens in China. One image symbolizes the rise of a new empire. The other marks the decline of an old one.
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At a broader level, the EIC managed to balance an unbalanced trade equation between Europe and Asia whose solution had eluded even the Roman empire.
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For this scheme to work, three foreground things and one background thing had to happen: the corporation had to effectively take over Bengal (and eventually all of India), Hong Kong (and eventually, all of China, indirectly) and England.
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The background development was simpler. England had to take over the oceans and ensure the safe operations of the EIC.
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eventually, as the threat from the Dutch was tamed, it became clear that the company actually had more firepower at its disposal than most of the nation-states it was dealing with. The realization led to the first big domino falling, in the corporate colonization of India, at the battle of Plassey.
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The EIC was the original too-big-to-fail corporation. The EIC was the beneficiary of the original Big Bailout. Before there was TARP, there was the Tea Act of 1773 and the Pitt India Act of 1783. The former was a failed attempt to rein in the EIC, which cost Britain the American Colonies. The latter created the British Raj as Britain doubled down in the east to recover from its losses in the west. An invisible thread connects the histories of India and America at this point. Lord Cornwallis, the loser at the Siege of Yorktown in 1781 during the revolutionary war, became the second Governor General of India in 1786.
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But these events were set in motion over 30 years earlier, in the 1750s. There was no need for backroom subterfuge. It was all out in the open because the corporation was such a new beast, nobody really understood the dangers it represented.
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there was nothing preventing its officers like Clive from simultaneously holding political appointments that legitimized conflicts of interest. If you thought it was bad enough that Dick Cheney used to work for Halliburton before he took office, imagine if he’d worked there while in office, with legitimate authority to use his government power to favor his corporate employer and make as much money on the side as he wanted, and call in the Army and Navy to enforce his will. That picture gives you an idea of the position Robert Clive found himself in, in 1757.
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The East India bubble was a turning point.
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Over the next 70 years, political, military and economic power were gradually separated and modern checks and balances against corporate excess came into being.
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It is not too much of a stretch to say that for at least a century and a half, England’s foreign policy was a dance in Europe in service of the EIC’s needs on the oceans.
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Mahan’s book is the essential lens you need to understand the peculiar military conditions in the 17th and 18th centuries that made the birth of the corporation possible.)
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The 16th century makes a vague sort of sense as the “Age of Exploration,” but it really makes a lot more sense as the startup/first-mover/early-adopter phase of the corporate mercantilism. The period was dominated by the daring pioneer spirit of Spain and Portugal, which together served as the Silicon Valley of Mercantilism. But the maritime business operations of Spain and Portugal turned out to be the MySpace and Friendster of Mercantilism: pioneers who could not capitalize on their early lead.
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Conventionally, it is understood that the British and the Dutch were the ones who truly took over. But in reality, it was two corporations that took over: the EIC and the VOC (the Dutch East India Company, Vereenigde Oost-Indische Compagnie, founded one year after the EIC) the Facebook and LinkedIn of Mercantile economics respectively. Both were fundamentally more independent of the nation states that had given birth to them than any business entities in history. The EIC more so than the VOC. Both eventually became complex multi-national beasts.
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arguably, the doings of the EIC and VOC on the water were more important than the pageantry on land. Today the invisible web of container shipping serves as the bloodstream of the world. Its foundations were laid by the EIC.
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There was an excellent episode of the original Connections series that pointed this out, specifically focusing on the Dutch boats and the direct line to container ships and 747 cargo planes.
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A new idea began to take its place in the early 19th century: the Schumpeterian corporation that controlled, not trade routes, but time. It added the second of the two essential Druckerian functions to the corporation: innovation.
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I call this the “most misleading table in the world.”
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corporations and nations may have been running on Mercantilist logic, but the undercurrent of Schumpeterian growth was taking off in Europe as early as 1500 in the less organized sectors like agriculture. It was only formally recognized and tamed in the early 1800s, but the technology genie had escaped.
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The action shifted to two huge wildcards in world affairs of the 1800s: the newly-born nation of America and the awakening giant in the east, Russia. Per capita productivity is about efficient use of human time. But time, unlike space, is not a collective and objective dimension of human experience. It is a private and subjective one. Two people cannot own the same piece of land, but they can own the same piece of time. To own space, you control it by force of arms. To own time is to own attention. To own attention, it must first be freed up, one individual stream of consciousness at a time.
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The Schumpeterian corporation was about colonizing individual minds. Ideas powered by essentially limitless fossil-fuel energy allowed it to actually pull it off.
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it is probably reaosonably safe to treat the story of Schumpeterian growth as an essentially American story.
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In many ways the railroads solved a vastly speeded up version of the problem solved by the EIC: complex coordination across a large area. Unlike the EIC though, the railroads were built around the telegraph, rather than postal mail, as the communication system. The difference was like the difference between the nervous systems of invertebrates and vertebrates.
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If the ship sailing the Indian Ocean ferrying tea, textiles, opium and spices was the star of the mercantilist era, the steam engine and steamboat opening up America were the stars of the Schumpeterian era.
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The primary effect of steam was not that it helped colonize a new land, but that it started the colonization of time. First, social time was colonized. The anarchy of time zones across the vast expanse of America was first tamed by the railroads for the narrow purpose of maintaining train schedules, but ultimately, the tools that served to coordinate train schedules: the mechanical clock and time zones, served to colonize human minds. An exhibit I saw recently at the Union Pacific Railroad Museum in Omaha clearly illustrates this crucial fragment of history:
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For all its sophistication, the technology of sail was mostly a very-refined craft, not an engineering discipline based on science.
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Steam power though was a scientific and engineering invention.
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Scientific principles about gases, heat, thermodynamics and energy applied to practical ends, resulting in new artifacts. The disempowerment of craftsmen would continue through the Schumpeterian age, until Fredrick Taylor found ways to completely strip mine all craft out of the minds of craftsmen, and put it into machines and the minds of managers.
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It sounds awful when I put it that way, and it was, in human terms, but there is no denying that the process was mostly inevitable and that the result was vastly better products.
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The Schumpeterian corporation did to business what the doctrine of Blitzkrieg would do to warfare in 1939: move humans at the speed of technology instead of moving technology at the speed of humans.
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Blitzeconomics allowed the global economy to roar ahead at 8% annual growth rates instead of the theoretical 0% average across the world for Mercantilist zero-sum economics. “Progress” had begun.
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Two phrases were invented to name the phenomenon: productivity meant shrinking autonomously-owned time. Increased standard of living through time-saving devices became code for the fact that the “freed up” time through “labor saving” devices was actually the de facto property of corporations. It was a Faustian bargain.
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Many people misunderstood the fundamental nature of Schumpeterian growth as being fueled by ideas rather than time. Ideas fueled by energy can free up time which can then partly be used to create more ideas to free up more time. It is a positive feedback cycle, but with a limit. The fundamental scarce resource is time. There is only one Earth worth of space to colonize. Only one fossil-fuel store of energy to dig out. Only 24 hours per person per day to turn into capitive attention.
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Then the Internet happened, and we discovered the ability to mine time as fast as it could be discovered in hidden pockets of attention. And we discovered limits. And suddenly a new peak started to loom: Peak Attention.
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There is certainly plenty of energy all around (the Sun and the wind, to name two sources), but oil represents a particularly high-value kind. Attention behaves the same way.
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Take an average housewife, the target of much time mining early in the 20th century. It was clear where her attention was directed. Laundry, cooking, walking to the well for water, cleaning, were all obvious attention sinks. Washing machines, kitchen appliances, plumbing and vacuum cleaners helped free up a lot of that attention, which was then immediately directed (as corporate-captive attention) to magazines and television.
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The point isn’t that we are running out of attention. We are running out of the equivalent of oil: high-energy-concentration pockets of easily mined fuel.
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There is a lot more money to be made in replacing hand-washing time with washing-machine plus magazine time, than there is to be found in replacing one hour of TV with a different hour of TV.
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. To get to Clay Shirky’s hypothetical notion of cognitive surplus, we need Alternative Attention sources. To put it in terms of per-capita productivity gains, we hit a plateau.
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When Asia hits Peak Attention (America is already past it, I believe), absolute size, rather than big productivity differentials, will again define the game, and the center of gravity of economic activity will shift to Asia.
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Once again, it is the oceans, rather than land, that will become the theater for the next act of the human drama. While American lifestyle designers are fleeing to Bali, much bigger things are afoot in the region. And when that shift happens, the Schumpeterian corporation, the oil rig of human attention, will start to decline at an accelerating rate. Lifestyle businesses and other oddball contraptions — the solar panels and wind farms of attention economics — will start to take over.
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It will be the dawn of the age of Coasean growth.
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Coasean growth is not measured in terms of national GDP growth. That’s a Smithian/Mercantilist measure of growth. It is also not measured in terms of 8% returns on the global stock market. That is a Schumpeterian growth measure. For that model of growth to continue would be a case of civilizational cancer (“growth for the sake of growth is the ideology of the cancer cell” as Edward Abbey put it).
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Coasean growth is fundamentally not measured in aggregate terms at all. It is measured in individual terms. An individual’s income and productivity may both actually decline, with net growth in a Coasean sense.
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How do we measure Coasean growth? I have no idea. I am open to suggestions. All I know is that the metric will need to be hyper-personalized and relative to individuals rather than countries, corporations or the global economy. There will be a meaningful notion of Venkat’s rate of Coasean growth, but no equivalent for larger entities.
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The fundamental scarce resource that Coasean growth discovers and colonizes is neither space, nor time. It is perspective.
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This is a lay friendly, amateur, mental exploration of the Corporation. It's also utterly absorbing and comes with the usual collection of caveats that we amateurs are accustomed to rattling off when we dunk ourselves into issues much bigger than ourselves. Thanks to BoingBoing, via Futurismic, for the pointer: http://www.boingboing.net/2011/06/23/a-brief-history-of-t.html http://futurismic.com/2011/06/22/a-brief-history-of-the-corporation-1600-to-2100/ "The year was 1772, exactly 239 years ago today, the apogee of power for the corporation as a business construct. The company was the British East India company (EIC). The bubble that burst was the East India Bubble. Between the founding of the EIC in 1600 and the post-subprime world of 2011, the idea of the corporation was born, matured, over-extended, reined-in, refined, patched, updated, over-extended again, propped-up and finally widely declared to be obsolete. Between 2011 and 2100, it will decline - hopefully gracefully - into a well-behaved retiree on the economic scene."
