Institutions of capitalism

In the past few days I’ve been pondering ‘institutions’ in the sense in which economists mean them – the entire range of non-market, social norm based arrangements for the collective allocation of resources. In other words, this includes both the WTO and standards for containerisation, contract law, unions, government agencies, multinationals and so on. As Oliver Williamson puts it in his classic book The Economic Institutions of Capitalism, the insight is that:

“[E]conomic organization has the purpose of promoting the continuity of relationships by devising specialized governance structures, rather than by permitting relationships to fracture under the hammer of unassisted market contracting.”

His work brought transactions costs to centre stage as an explanation for institutional forms and economic relationships – Williamson and Elinor Ostrom of course won the Nobel memorial prize for their work – in very different domains – on understanding institutions and their effectiveness.

Williamson’s book was published in 1985, so although it has a chapter on ‘the modern corporation’, this predates the dramatic – and distinct – effects information technologies and communications technologies have had on corporate structures. It has but a few pages on multinationals. Richard Baldwin, among others, has recently published fascinating papers on the changing structures of trade resulting from the new modern (post modern?) corporation, looking at supply chains and so-called ‘trade in tasks’.

It’s an area of great interest to me. One thing I’m currently working through, in preparation for a seminar at COMPAS next month, is how companies factor their labour market choices into their decisions – for they’re optimising across tasks, locations and production technologies, where the latter includes labour intensity and skill level. Thoughts gratefully received.

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