WI: Modern corporations never evolve

Less of everything. Less of technological development, Less of cheaper stuff, Less of imports export trade, etc
Modern corporation strong point is allowing capital owner to throw his money around without personal risk, without its existence capital owner would be more cautious and hoarded more of their wealth.
 

Skallagrim

Banned
How about extremely sophisticated Guilds?

The point is that they either become corporations-except-in-name, or you still have a big problem compared to OTL.


The central issue is that corporations are legal entities that can enter into various ties of obligation. This allows investors, stockholders etc. to put capital into a venture without being totally exposed to personal financial ruination if some fuck-up occurs beyond their control. More importantly: it allows corporate executives to act on behalf of the corporation, without demanding the consent of every investor for every action. (A guild, as historically understood, is more like an association that acts on behalf of its members and ties the members to rules. It's more like a labour union equivalent for independent craftsmen than like a corporation. Both the purpose and the structure is fundamentally different.)

If corporations don't come into being, investing into any venture must instead by done by individual investors, or groups thereof. Large operations with lots of backers would be prohibitively difficult, since nothing could be done without gaining the consent of every investor. Also, those investors would be exposed financially for the group's liabilities-- which most investors would balk at. Thus, only small 'joint invesments', of groups who trust each other, would be possible.

You've just killed the modern economy. In fact, you've killed the Roman economy, too. They already had this. The "modern corporation" is merely a re-discovery and re-working of older legal structures. In any event, without those structures, funding an industrial revolution becomes a pipe-dream. Even funding colonial ventures on the scale was saw in OTL becomes impossible. (Even many Roman colonial ventures were funded by using these structures.) The whole part of history where Europe ascends meteorically? Can't happen here. And if we somehow prevent corporations from being invented at all, it can't happen anywhere. A world without corporations will have great, immense trouble ever moving past the level we associate with 1500 or so in Europe. Socially, technologically, and even politically.

Fortunately, "no corporations" is a nonsense POD. You can't keep an idea that good out the door forever. No way. Someone will just arrive at it from another angle. Maybe guilds, like Anawrahta suggested. Maybe some other form of association. Think of OTL non-profits. They have lots of "investors" (donors) who give money to a legal entity, which is controlled by an executive body that can make decisions without requiring the consent of the donors. The donors aren't liable for what the organisation does (except if the organisation is marked as criminal beforehand, of course). Now just change that a bit. Make it for-profit. Instead of "the society to combat AIDS", set up "the society to fund the construction and oversee the exploutation of skyscrapers in NYC". Those who back it, instead of merely being donors, will receive money derived from the eventual exploitation. And instead of having no say, they can remove the executives of the society by majority vote. Presumably, because they have a more active say in the society's operation, they'll be correspondingly more liable to prosecution if the society commits any crimes.

Hey... that sounds exactly like a corporation!
 
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Less of everything. Less of technological development, Less of cheaper stuff, Less of imports export trade, etc
Modern corporation strong point is allowing capital owner to throw his money around without personal risk, without its existence capital owner would be more cautious and hoarded more of their wealth.


What about cooperatives ? Like workers', producers', and consumers' cooperatives ?
 

Skallagrim

Banned
What about cooperatives ? Like workers', producers', and consumers' cooperatives ?

Same issue as with guilds or 'societies' of any kind. They either evolve to act as corporations (just without the name) or they lack some key advantages. By which I don't mean to imply that corporations are universally superior to such alternatives-- just that there are things corporations can do that the alternatives can't.
 
Same issue as with guilds or 'societies' of any kind. They either evolve to act as corporations (just without the name) or they lack some key advantages. By which I don't mean to imply that corporations are universally superior to such alternatives-- just that there are things corporations can do that the alternatives can't.

What are the advantages that corporations over cooperatives ?
 

Skallagrim

Banned
What are the advantages that corporations over cooperatives ?

Co-ops generally function far more like a guild (in the sense that they associate people of a certain professional group and allow them to act in co-ordination to their shared benefit) and like a private/communal social reserve (in that they pool resources to ameliorate sudden setbacks that can hit all or some of their members; in that sense essentially being a communal insurance structure). They tend to do this very well; better than corporate and governmental alternatives, in my estimation.

What corporations do is invest relatively large amounts of capital in for-profit ventures with the aim of making meaningful profit. (Relatively large amounts of capital, I note, because smaller amounts can typically be obtained by a single investor, who can then opt to use other structures than a corporation, which may well allow him greater and more direct control.)

These fuctions have different needs. A co-op that starts investing to gain sizable profits in a relatively short period will be taking risks with its members' funds. Risks that can't easily be justified. An insurance-like "calamity and fund", conversely, can be grown far more slowly and steadily, based on very conservative investments-- and on an array of diversified, smaller investments. Corporations are reltively high-risk ventures (a sizable fraction goes belly-up within a year of being founded), which in case of failure are liquidated. This costs the investors their investment, but doesn't leave them exposed to further personal claims. what they put in is at risk, but no more than that. This works, because those investors know that, and tend to put in something they are willing to risk in order to get a shot at the prospective profits.

Obviously, if you run a co-op that way, the "investors" are the members, and their "investment" is the fund that -- for instance -- allows them to keep their farms running if crops fail that year. If you piss that away, you haven't cost an investor something he can lose. You've lost your members something they can't afford to lose. Keep in mind: co-ops generally have relatively many members, who pay the same and are basically equals in this partnership. Corporations generally have relatively few (meaningful) partners, whose power is decided by the weight of their investment. This tells us that OTL co-ops, as we know them, can't just replace corporations, same as a butcher can't just replace a baker. They are both useful, but they are fundamentally different.

Now, typical investors aren't in the same position as typical co-op members. Couldn't investors set up a co-op instead of a corporation? One tailored to their different needs? One where they all pay into a common fund, but which they use for investment purposes instead of as a reserve? And where they get weighted votes based on the size of their respective investments? Sure they could, but that's already starting to look a lot more like a corporation, isn't it? But yes, it could be done.

Would that be enough? No. Because there's also the fact that investment in projects (instead of building up a reserve fund) can leave the co-op with major debts if the project fails. And the co-op consists of its members-- who will then be liable for that debt. Investment goes wrong? Sorry, co-op members, the creditors are now coming for your bank accounts and/or possessions. Whoops. Not a risk investors like, so therefore, a lot of investments will simply not take place under this set-up.

Obviously, there's a simple solution. Just put some executive body in charge of the common fund, and give that body legal status separate from the investors, so that if things go belly-up, only the common fund is exposed, and not the private possessions of the investors. Say, that's brilliant! That fixes everything. But that's a very different, new sort of co-op. What shall we call this innovation?

That's right. A corporation.
 
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Less of everything. Less of technological development, Less of cheaper stuff, Less of imports export trade, etc . . .
. . . The central issue is that corporations are legal entities that can enter into various ties of obligation. This allows investors, stockholders etc. to put capital into a venture without being totally exposed to personal financial ruination if some fuck-up occurs beyond their control. . .
I’m amazed at how much we defend the dominant metaphor!

I mean, we can certainly envision a system in which stockholders were, say, potentially liable for 3 times their initial investment. And this hardly ever happens, but it does tend to rein in the worse conduct, and plus shareholders are a little more assertive and quick to fire the incompetent ass of bad executives.

I agree that corporations are risky enterprises.

But with a boom and bust economy, the Panic of 1873 was damn serious not to mention the Great Depression, we may have overshoot the mark in this regard! :openedeyewink:
 

Skallagrim

Banned
I’m amazed at how much we defend the dominant metaphor!

I mean, we can certainly envision a system in which stockholders were, say, potentially liable for 3 times their initial investment. And this hardly ever happens, but it does tend to rein in the worse conduct, and plus shareholders are a little more assertive and quick to fire the incompetent ass of bad executives.

I agree that corporations are risky enterprises.

But with a boom and bust economy, the Panic of 1873 was damn serious not to mention the Great Depression, we may have overshoot the mark in this regard! :openedeyewink:

That's another debate. Pointing to certain rather glaring faults in existing legislation doesn't negate the fact that corporations an sich are a vitally important structure for the financing of many of the economic ventures upon which modern society has been built. Like I said: no corporations, no industrial revolution. Not ever. Not anywhere.
 
. . no corporations, no industrial revolution. .
But please notice our title says "Modern corporations," so I think we can dance a different and much better behaved corporation!

I'm not sure whether you drew the compare and contrast between the risk-taking corporation and the more cautious union-driven or workers' coop, but I think that would be the case. In fact, I think the current workers would push for under-staffing, because that's what would benefit current workers, even if each is trying to get in friends and family! Isn't that ironic? Because people are people afterall, and whoever said the human race was logical!!

Likely we'd have another path to the 40-hour work week and similar reforms.
 
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Neither capitalism nor socialism. I think the East Asian Miracle of the 20th and 21st centuries is an example of a third economic system.

https://www.stlouisfed.org/on-the-economy/2017/may/tigers-tiger-cubs-economic-growth

It's an engaged government which learns and gets better over time.

And one important aspect is that these governments don't let the stock market tail wag the overall economy dog.
 
What about cooperatives ? Like workers', producers', and consumers' cooperatives ?
Skallagrim answer it far better than me. Note that even Mondragon or Israeli Kibbutzim had ordinary employee (in some article 30% worker in Mondragon is owner-worker, while 70% is ordinary paid worker); So it look like separation to investor, manager, and worker is inevitable part of growing; And failure to utilize capital from outside source (the rich) would still hinder some growth.

Neither capitalism nor socialism. I think the East Asian Miracle of the 20th and 21st centuries is an example of a third economic system. It's an engaged government which learns and gets better over time. And one important aspect is that these governments don't let the stock market tail wag the overall economy dog.
East Asian Tigers economy is dominated by modern corporation, yes the government had some role, but corporation is very important part of economy. Korean chaebol, Japanese keiretsu, and thousands of other corporations is generator of most economy activity. Even most family business which less than dozen employees is organized as corporation, ability to separate capital and risk is too useful to be abandoned.
 
Like I said: no corporations, no industrial revolution. Not ever. Not anywhere.
This is going much too far. There were plenty of investors that made big, risky bets in the eras before the corporation, legal liability or no; long-distance trade in particular was rather risky for both merchant and investor (if they happened to differ), yet people engaged in it pretty continuously for centuries, even millennia with no real equivalent to the corporation (it is suggestive that many of the first business corporations, and for a long time the main or even only examples, were precisely trading companies). This would certainly continue for new inventions and innovations even if corporations never came to exist; in fact, I know it would, because many of the inventions of the First Industrial Revolution were not invented and manufactured by corporations. Boulton and Watt, for instance, was a general partnership; evidently, Boulton simply didn't feel it necessary to have the legal protections of a corporation. Many of the other firms responsible for early developments were also partnerships or even sole proprietorships and so completely lacked limited liability protections. Apparently, the use of the corporate structure for manufacturing enterprises was still novel as late as 1814, when the Boston Manufacturing Company--apparently the first corporation to run an industrial enterprise, or at least among the first--was founded to build and run the Lowell mills.

Where corporations became important was in the Second Industrial Revolution; here, the amount of capital needed really did grow to gargantuan scales, as business moved on from Boulton and Watt or Nasmyth, Gaskell, and Company towards firms like Union Pacific, Krupp, or Ford that were doing massive amounts of business. Still, I don't think you can necessarily say that not having the limited-liability corporation would have prevented many of the developments of the time from taking place, but rather slowed them and changed much of the texture of the landscape. Many of the inventions being developed were within the competency of a single entrepreneur or a small partnership to bring into being--as is often the case with new technological fields, after all, because nothing has been invented yet. Perhaps you wouldn't see a Ford with globe-spanning business, for example, but a single automobile factory is something that would be within the capability of a local grandee or a group of his associates, at least for wealthier areas, and at least some would take that bet, just like they took the bet on cotton spinning or steam engines or many other early inventions.

In fact, it rather sounds to me like your idea of a world divided into tiny micro-states, only this is a world divided into tiny micro-companies. The inability to marshal very large amounts of capital without the limited liability structure would prevent the formation of the very large firms that were created IOTL, but at the same time this would preserve the ability of smaller companies to operate without having to worry about competitors that can mobilize the capital of more than a few wealthy associates, so it might see much more competition in many fields. Only in extremely capital-heavy areas like railroads would I think that this would clearly drastically slow development and progress; but in many fields limited liability served, I suspect, more to allow bigness than to ensure invention.
 
Whilst I agree with @Workable Goblin, I do feel the need to add that it would probably also lead to a more oligarchic world where wealth is concentrated in fewer hands. As all industry being held private means that instead of being divided between many shareholders they are divided between few private owners, also that would make it impossible for any Warren Buffet types to reach the top using smart investments and thus the world loses another instrument of social mobility.
 
What are the advantages that corporations over cooperatives ?

The biggest advantage is the way they handle capital.

Let's say I'm a shoemaker who joins together with some of my neighbours to set a Co-op to gain some economies of scale in shoe production. Now it's a successful Co-op and we buy some equipment and set up a small factory and everything is great, but eventually and I want to retire, so what happens to my share of the enterprise? My son is a baker so he can't take my place in the Co-op. I might find some aspiring shoemaker who wants to be part of the Co-op who can buy my share off me, unfortunately there isn't one available. So what happens to my share. Do my partners damage the business by selling some of the tools to give me a pay out? Or do they let me keep my stake in the factory and simply give me a some of the profits, lower than theirs to represent the fact that I'm not working anymore but still a return on my capital that is tied up in the business. We might call my stake a Share and the money I get a Dividend. Oh bugger we've just turned our Co-op into a Corporation.
 

Skallagrim

Banned
But please notice our title says "Modern corporations," so I think we can dance a different and much better behaved corporation!

I think we can easily have different corporate law in the modern era, and I think certain different approaches would be improvements compared to OTL. My point is more that "no modern corporations" is not something I read as "no modern corporations" but as "no modern corporations" (i.e. no corporations at all in the modern era). I read it that way because "modern" corporations as unique concepts don't really exist. Corporations existed in antiquity, and were re-invented. I see the OP as asking "what if that hadn't happened". If the OP had asked "what if corporations in the modern period had by differently regulated/organised in [x] way", then I'd have surely given a vastly different response! :D


This is going much too far.

I don't think so, and I'll do my best to defend my position. Below I'll quote and reply to some specific points that you raise in your well-argued reaction. I want to stress tht I'm not picking out certain sections to engage in cherry-picking when replying, but to get to the points where I think our insights differ crucially. These crucial differences in insight, I think, lead us to differing conclusions. So it is on these points of difference that I will focus here.


There were plenty of investors that made big, risky bets in the eras before the corporation, legal liability or no; long-distance trade in particular was rather risky for both merchant and investor (if they happened to differ), yet people engaged in it pretty continuously for centuries, even millennia with no real equivalent to the corporation

That last bit is not correct. Equivalents to corporations did exist, and were indeed primarily used for mercantile ventures. Also for colonial ventures, of course, but we must not that in many cases, these were mercantile ventures. Romans had such mercantile ventures (with legal personality). The Chinese used them to set up trade outposts (much like emporia). They were also used in South India, predictably by the polities engaged in the Indian Ocean trade, who again set up emporia-like trade colonies.

It's absolutely true that long-distance trade is risky, and it's also true that ventures in that field were nonetheless undertaken without corporations. But it's telling that whenever a society became seriously involved in long-distance trade, corporations were invented and used. And for what? To make larger-scale ventures possible. In the relatively modern era, we can look at colonialism. Look at colonial charters and the way the ventures to exploit them were funded, and you'll regurly find a corporate structure underpinning them. And then look at the Dutch East India Company, the British East India Company, the South Sea Company, the Hudson's Bay Company...

Highly profitable economic-colonial ventures on an unprecedented scale were made possible by corporate structures. These ventures, in turn, produced considerable wealth-- which could be used by the beneficiaries. How? Well, they could invest it. Which leads us to...

many of the inventions of the First Industrial Revolution were not invented and manufactured by corporations

...wealth that had flowed into Europe, and which was used to finance the First Industrial Revolution. The excess wealth that made this development at all possible was, to a considerable extent, derived from the financial successes of colonialism. And those successes, as I have argued, would not have been possible (to anything like OTL's extent) without the presence of corporate structures.

Therefore, I continue to stand by my original assessment. No corporations, no industrial revolution. In fact, like I said: you don't really move beyond "1500" without corporations. There's a reason they were invented again and again, thoughout history, all over the world. It's just a really good idea. I'm not saying corporations are somehow the only cause of successful colonialism and lucrative invesment capitalism, and the emergency of industrialism -- far from it, there are many more underlying factors -- but I am saying that their existence is a conditio sine qua non for all the aforementioned.


In fact, it rather sounds to me like your idea of a world divided into tiny micro-states, only this is a world divided into tiny micro-companies.

I admit, the idea (predictably) appeals to me, but corporations are fundamentally different from countries. Just as I love many tiny countries but certainly see the need for treaties of peace, amity and commerce between them, I also love the idea of more small companies but still see the need for certain big ones to realize ventures that smaller fish just can't tackle. "No corporations" can certainly give us a world without giant companies, but it will also be a world without some fairly fundamental things that giant companies achieved in OTL. First and foremost, what they do very well is rake in obscene amounts of cash. That's easy to sniff at, but as I've argued: you need obscene amounts of available cash to finance some developments that are essential in the making of the modern world.

Ultimately, if I want a world where the corporate excesses are somewhat tempered and more small fish get a chance to thrive, I'll go with @GeographyDude and aim for a different legal approach to corporations. "No corporations at all" is a different matter, and in my opinion, very much a case of babies and bathwater.
 
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