by Venkat
On 8 June, a Scottish banker named Alexander Fordyce shorted the collapsing Company’s shares in the London markets. But a momentary bounce-back in the stock ruined his plans, and he skipped town leaving £550,000 in debt. Much of this was owed to the Ayr Bank, which imploded. In less than three weeks, another 30 banks collapsed across Europe, bringing trade to a standstill. On July 15, the directors of the Company applied to the Bank of England for a £400,000 loan. Two weeks later, they wanted another £300,000. By August, the directors wanted a £1 million bailout. The news began leaking out and seemingly contrite executives, running from angry shareholders, faced furious Parliament members. By January, the terms of a comprehensive bailout were worked out, and the British government inserted its czars into the Company’s management to ensure compliance with its terms.
If this sounds eerily familiar, it shouldn’t. 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.
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.
So it is a sort of grim privilege for the generations living today to watch the slow demise of such a spectacularly effective intellectual construct. 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.
It is not yet time for the obituary (and that time may never come), but the sun is certainly setting on the Golden Age of corporations. It is time to review the memoirs of the corporation as an idea, and contemplate a post-corporate future framed by its gradual withdrawal from the center stage of the world’s economic affairs.
Framing Modernity and Globalization
For quite a while now, I have been looking for the right set of frames to get me started on understanding geopolitics and globalization. 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. On the face of it, this seems reasonable. Nominally, nation-states subsume economic activity, with even the most powerful multi-national corporations being merely secondary organizing schemes for the world.
But the more I’ve thought about it, the more I’ve been pulled towards a business-first perspective on modernity and globalization. As a result, 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, but I won’t be reviewing them. So if you want to follow the arguments more closely, you may want to read some or all of these. The investment is definitely worthwhile.
The Corporation that Changed the World by Nick Robins, a history of the East India Company, a rather unique original prototype of the idea
Monsoon by Robert Kaplan, an examination of the re-emergence of the Indian Ocean as the primary theater of global geopolitics in the 21st century
The Influence of Sea Power Upon History: 1660-1783 by Alfred Thayer Mahan, a classic examination of how naval power is the most critical link between political, cultural, military and business forces.
The Post-American World by Fareed Zakaria, an examination of the structure of the world being created, not by the decline of America, but by the “rise of the rest.”
The Lever of Riches by Joel Mokyr, probably the most compelling model and account of how technological change drives the evolution of civilizations, through monotonic, path-dependent accumulation of changes
I didn’t settle on these five lightly. I must have browsed or partly-read-and-abandoned dozens of books about modernity and globalization before settling on these as the ones that collectively provided the best framing of the themes that intrigued me. If I were to teach a 101 course on the subject, I’d start with these as required reading in the first 8 weeks.
The human world, like physics, can be reduced to four fundamental forces: culture, politics, war and business. That is also roughly the order of decreasing strength, increasing legibility and partial subsumption of the four forces. Here is a visualization of my mental model:
Culture is the most mysterious, illegible and powerful force. It includes such tricky things as race, language and religion. Business, like gravity in physics, is the weakest and most legible: it can be reduced to a few basic rules and principles (comprehensible to high-school students) that govern the structure of the corporate form, and descriptive artifacts like macroeconomic indicators, microeconomic balance sheets, annual reports and stock market numbers.
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.
On the scale of days or weeks, culture, politics and war matter a lot more in shaping our daily lives. But those forces fundamentally cancel out over longer periods. They are mostly noise, historically speaking. They don’t cause creative-destructive, unidirectional change (whether or not you think of that change as “progress” is a different matter).
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.
Of course, there is arguably some progress on all four fronts. You could say that Shakespeare represents progress with respect to Aeschylus, and Tom Stoppard with respect to Shakespeare. You could say Obama understands politics in ways that say, Hammurabi did not. You could say that General Petraeus thinks of the problems of military strategy in ways that Genghis Khan did not. But all these are decidedly weak claims.
On the other hand the proposition that Facebook (the corporation) is in some ways a beast entirely beyond the comprehension of an ancient Silk Road trader seems vastly more solid. And this is entirely a function of the intimate relationship between business and technology. Culture is suspicious of technology. Politics is mostly indifferent to and above it. War-making uses it, but maintains an arms-length separation. 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.
Arthur C. Clarke once said that any sufficiently advanced technology is indistinguishable from magic, but technology (and science) aren’t what create the visible magic. Most of the magic never leaves journal papers or discarded engineering prototypes. 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.
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.
The Corporate View of history: 1600 – 2100
We are not used to viewing world history through the perspective of the corporation for the very good reason that corporations are a recent invention, and instances that had the ability to transform the world in magical ways did not really exist till the EIC was born. Businesses of course, have been around for a while. The oldest continuously surviving business, until recently, was Kongo Gumi, a Japanese temple construction business founded in 584 AD that finally closed its doors in 2009. Guilds and banks have existed since the 16th century. Trading merchants, who raised capital to fund individual ships or voyages, often with some royal patronage, were also not a new phenomenon. 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 (even in its earliest days, when corporations were formed for defined periods of time by royal charter).
This idea morphed a lot as it evolved (most significantly in the aftermath of the East India Bubble), but it retained a recognizable DNA throughout. Many authors such as Gary Hamel (The Future of Management), Tom Malone (The Future of Work) and Don Tapscott (Wikinomics) have talked about how the traditional corporate form is getting obsolete. But in digging around, I found to my surprise that nobody has actually attempted to meaningfully represent the birth-to-obsoloscence evolution of the idea of the corporation.
Read more:
On 8 June, a Scottish banker named Alexander Fordyce shorted the collapsing Company’s shares in the London markets. But a momentary bounce-back in the stock ruined his plans, and he skipped town leaving £550,000 in debt. Much of this was owed to the Ayr Bank, which imploded. In less than three weeks, another 30 banks collapsed across Europe, bringing trade to a standstill. On July 15, the directors of the Company applied to the Bank of England for a £400,000 loan. Two weeks later, they wanted another £300,000. By August, the directors wanted a £1 million bailout. The news began leaking out and seemingly contrite executives, running from angry shareholders, faced furious Parliament members. By January, the terms of a comprehensive bailout were worked out, and the British government inserted its czars into the Company’s management to ensure compliance with its terms.
If this sounds eerily familiar, it shouldn’t. 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.
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.
So it is a sort of grim privilege for the generations living today to watch the slow demise of such a spectacularly effective intellectual construct. 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.
It is not yet time for the obituary (and that time may never come), but the sun is certainly setting on the Golden Age of corporations. It is time to review the memoirs of the corporation as an idea, and contemplate a post-corporate future framed by its gradual withdrawal from the center stage of the world’s economic affairs.
Framing Modernity and Globalization
For quite a while now, I have been looking for the right set of frames to get me started on understanding geopolitics and globalization. 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. On the face of it, this seems reasonable. Nominally, nation-states subsume economic activity, with even the most powerful multi-national corporations being merely secondary organizing schemes for the world.
But the more I’ve thought about it, the more I’ve been pulled towards a business-first perspective on modernity and globalization. As a result, 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, but I won’t be reviewing them. So if you want to follow the arguments more closely, you may want to read some or all of these. The investment is definitely worthwhile.
The Corporation that Changed the World by Nick Robins, a history of the East India Company, a rather unique original prototype of the idea
Monsoon by Robert Kaplan, an examination of the re-emergence of the Indian Ocean as the primary theater of global geopolitics in the 21st century
The Influence of Sea Power Upon History: 1660-1783 by Alfred Thayer Mahan, a classic examination of how naval power is the most critical link between political, cultural, military and business forces.
The Post-American World by Fareed Zakaria, an examination of the structure of the world being created, not by the decline of America, but by the “rise of the rest.”
The Lever of Riches by Joel Mokyr, probably the most compelling model and account of how technological change drives the evolution of civilizations, through monotonic, path-dependent accumulation of changes
I didn’t settle on these five lightly. I must have browsed or partly-read-and-abandoned dozens of books about modernity and globalization before settling on these as the ones that collectively provided the best framing of the themes that intrigued me. If I were to teach a 101 course on the subject, I’d start with these as required reading in the first 8 weeks.
The human world, like physics, can be reduced to four fundamental forces: culture, politics, war and business. That is also roughly the order of decreasing strength, increasing legibility and partial subsumption of the four forces. Here is a visualization of my mental model:
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.
On the scale of days or weeks, culture, politics and war matter a lot more in shaping our daily lives. But those forces fundamentally cancel out over longer periods. They are mostly noise, historically speaking. They don’t cause creative-destructive, unidirectional change (whether or not you think of that change as “progress” is a different matter).
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.
Of course, there is arguably some progress on all four fronts. You could say that Shakespeare represents progress with respect to Aeschylus, and Tom Stoppard with respect to Shakespeare. You could say Obama understands politics in ways that say, Hammurabi did not. You could say that General Petraeus thinks of the problems of military strategy in ways that Genghis Khan did not. But all these are decidedly weak claims.
On the other hand the proposition that Facebook (the corporation) is in some ways a beast entirely beyond the comprehension of an ancient Silk Road trader seems vastly more solid. And this is entirely a function of the intimate relationship between business and technology. Culture is suspicious of technology. Politics is mostly indifferent to and above it. War-making uses it, but maintains an arms-length separation. 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.
Arthur C. Clarke once said that any sufficiently advanced technology is indistinguishable from magic, but technology (and science) aren’t what create the visible magic. Most of the magic never leaves journal papers or discarded engineering prototypes. 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.
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.
The Corporate View of history: 1600 – 2100
We are not used to viewing world history through the perspective of the corporation for the very good reason that corporations are a recent invention, and instances that had the ability to transform the world in magical ways did not really exist till the EIC was born. Businesses of course, have been around for a while. The oldest continuously surviving business, until recently, was Kongo Gumi, a Japanese temple construction business founded in 584 AD that finally closed its doors in 2009. Guilds and banks have existed since the 16th century. Trading merchants, who raised capital to fund individual ships or voyages, often with some royal patronage, were also not a new phenomenon. 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 (even in its earliest days, when corporations were formed for defined periods of time by royal charter).
This idea morphed a lot as it evolved (most significantly in the aftermath of the East India Bubble), but it retained a recognizable DNA throughout. Many authors such as Gary Hamel (The Future of Management), Tom Malone (The Future of Work) and Don Tapscott (Wikinomics) have talked about how the traditional corporate form is getting obsolete. But in digging around, I found to my surprise that nobody has actually attempted to meaningfully represent the birth-to-obsoloscence evolution of the idea of the corporation.
Read more:
