Business monoculture

My post yesterday on the lack of interest in Lincoln Electric’s combination of profit with an employment guarantee has prompted some debate. The story is told by Frank Koller in his book

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Henry Stewart (@happyhenry) of Happy Computers pointed to more evidence on the commercial benefits of good employment practice (in his comment). On Twitter, Stephen King of HSBC (@KingEconomist) said Lincoln’s practice sounded like the Japanese system of a lifetime employment guarantee, which was now discredited. I think it’s actually a bit different: a promise by specific firms not to lay workers off rather than an expectation that many or most people in society will stay in one firm for their whole career. After all, Lincoln operates in the context of the fluid US labour market.

However, Stephen and I agreed that there is every reason to prefer a plurality of corporate models, and what a shame it is that there are not more alternatives to the conventional joint stock model. Monocultures are rarely healthy.

The model chosen by a specific business should depend on the transactions costs and information asymmetries that we know are important in determining the shape of any business. A commitment by employers to keep workers in a job as long as they want will make a lot of sense in an industry where craft skill and tacit knowledge is vital, for the reasons explained by the signalling literature; less so where the tasks involved in the job are easily codified.

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