Today, the economies of the United States and other Western countries are dominated by public corporations.
But tomorrow’s business landscape may feature more voluntary collaborations and platforms, businesses that create value by supporting exchanges between different groups.
Those new enterprises offer both promise and risk.
In a recent article, Jerry Davis, professor at University of Michigan, identifies what’s driving change and how to adapt.
How Our Economy Changes
Products and services —like a shirt, or a TV program, or a financial instrument — can be produced by different types of enterprises: e.g. a public corporation, or family firm, or a worker-owned cooperative.
Different kinds of enterprises thrive depending on how a country’s society and economy are set up. Factors like financing options, educational standards, and the social safety net all affect what kind of business boom or bust.
Technology also has an impact, and that’s what’s driving change today.
In the United States, public corporations thrived in the 20th century, when economies of scale meant that low-cost production required big factories. Big companies, supported by shareholders, could get the capital and manage the systems required.
Technology and What It Means
Two technologies are changing today’s economy:
- Information and Communications Technologies (ICTs), such as the smart phone. “Most of us now carry with us a tiny wireless supercomputer/videocamera/GPS/communicator,” Davis writes. That technology makes it cheaper to organize business in small, temporary ways, rather than in long-term institutions like corporations.
- New production technology for small-scale manufacturing, such as 3-D printers. These technologies are getting more powerful, cheaper, and smaller. “Computer numerical control (CNC)… machines allow those with minimal skills to produce goods at low cost. As an example, the ShopBot Router… could produce much of the IKEA catalog.”
These changes mean that “the economies of scale that made corporations so dominant in the twentieth century are flipping into diseconomies in many cases, while locavore alternatives are increasingly cost-effective.”
Two different kinds of enterprises will emerge as a result:
1) Commons-based peer production, or voluntary collaborations. Here, many people come together, usually over the Internet, to work on a project that will be freely available to consumers. Typically, individuals donate their labor, and there is no formal hierarchy. Examples include open source software (e.g., Linux, Apache) and Wikipedia. These voluntary collaborations show that non-corporate, non-hierarchical organizing works online, and could in principle work offline as well.
2) Platforms, or the sharing economy. These are systems that connect buyers and sellers or sharers. Platforms address transportation (Uber) personal services (Task Rabbit), relationships (Tinder), and sales (eBay).
These two new formats for collaboration and contracting in turn allow other kinds of enterprise. Most critically, they allow the creation of relatively short-term or pop-up enterprises that are cheaper and nimbler than more permanent forms, such as the traditional corporation.
Our Economic Future
Are these changes — these new enterprises — positive? Consumers benefit from convenient low-cost services like Uber. Entrepreneurs with clever ideas face lower barriers to entry in many industries, and some lucky investors manage to gain rapid riches. But what about workers?
It’s clear that public corporations no longer provide the kinds of stable employment and upward career paths that they did in the past. Since the 1980s, public corporations have increasingly focused on shareholder value, which often comes at the expense of employees. The stock market rewards “the most profits for the least assets.” So companies try to outsource production and distribution and offshore taxes. There’s no market benefit to creating jobs or raising wages, Davis says.
What will voluntary cooperatives or platforms mean for workers? Platforms in particular are still evolving. Currently, they can lead to temporary, low income labor. But they could also be “more democratic and locally oriented,” Davis writes. Researcher Juliet Schor (Boston University) writes that platforms could become “user-governed or cooperative ownership…. Users create so much of the value [that they should be] able to capture it.”
Davis imagines how technology could enable local entrepreneurs: for example, if towns had publicly available production facilities with 3-D printers and other tools. “Every town could be equipped with such a facility for under $1,000,000. Starting a small manufacturing business would not be much more costly than starting a home cleaning business.”
Ultimately, says Davis: “New technology will not choose the path ahead for us, but it is up for us to determine which way our technology develops.”
How to Adapt
In a recent video, Davis offers tips on how workers and companies can make the most of these changes. He has four suggestions:
- Be adaptable. Have a broad base of knowledge, and engage in continuing learning and education.
- Learn to code. “Code is like the plumbing of the new economy.” You don’t need to be an expert, but have some familiarity with Python or SQL.
- Think like a social scientist. Keep an eye open for new trends, and try to understand how they will affect people. Social scientists ask “how do people act differently given these trends, and what can I do about it”? The answers can direct your company or career decisions.
- Move to the city. Rapid innovation is the new currency. Cities are good places for innovation: ideas collide and there’s a tolerance for new ways of thinking.
These actions can lead to stable success in a time of change.
Davis, G.F. 2016. Can an economy survive without corporations? Technology and robust organizational alternatives. Academy of Management Perspectives, 30(2), 129-140.
Video: The Ross School of Business - University of Michigan. 2016. How to thrive in the gig economy.
Thought piece: Davis, G.F. 2012. Buying furniture on iTunes: Creative destruction in a world of “locavore” production. Network for Business Sustainability.