Why Coase’s Penguin didn’t fly

Not at first sight an obvious entry for inclusion here, but indirectly very relevant to thinking about the impact of change on large organisations. The size and complexity of organisations, it is argued, is a function of the relative costs of internal control and market transactions – whether it’s cheaper to make or to buy. That is in turn in part a function of the cost and availability of information. And so the conclusion is reached that digitally-based organisations will be smaller and fleeter of foot than their predecessors and that large ungainly organisations of the pre-internet era are doomed to extinction, with government in their current form being among those whose demise is inevitable.

In some circles, that conclusion is seen as an obvious one. Farrell’s argument is that something critical is missing from the analysis, the self-interest of individuals, and that when that is factored in, the picture looks very different. That matters not to justify slow change in large organisations, but to explain that power relations are a critical part of understanding the overall situation. And as long as they remain unequal, the pop up employer is likely to remain intriguing at the margins, rather than central to how stuff gets done.

Henry Farrell – Crooked Timber

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