WI: Modern corporations never evolve

. . . 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. . .
I wonder if we make the case that a Japanese corporation is different enough from the American corporation to be a difference in kind, not merely in degree.

For decades, the typical Japanese corporation had a much lower ratio of highest pay to lowest pay, and that makes a big difference. And maybe still till today, although the Japanese economy has been somewhat stagnant since the mid-‘90s.
 
@Skallagrim: I expected you would bring up colonial wealth triggering the Industrial Revolution :) Personally, I think that the role of this wealth in setting off the Industrial Revolution is often overstated; for one thing, there was a rather lengthy delay between when this wealth started flowing into Europe in a series way (~1500) and when the Industrial Revolution actually started (~1750), and for another a lot of that wealth flowed directly into China instead of sticking around in Europe. I won't deny that colonialism might have helped spur growth to some extent, but I also look at the pre-colonial period and see considerable innovation and development in not just Europe but also China, the Muslim world, India, and so on that makes me skeptical that not having this particular legal structure would have stopped anything. I would accept an argument that it might slow development, yes, but I stand by my position that it would not have acted as a permanent bar to the development of industrial technologies, much less pre-modern non-industrial technologies and developments.

By the way, could you point me to your sources on these pre-modern corporate equivalents? I was reading a book by an academic on the history of debt lately that made the claim that there wasn't anything quite like a joint-stock corporation before the VoC and BEIC, so you'll forgive me for being a little skeptical and wanting more than your word...

Incidentally, one interesting possibility for the marshaling of large amounts of capital where truly necessary would have been for governments to provide the main investments in new fields. Although to us this smacks of Communism, it's worth pointing out that this was one of the principal methods of supplying capital for, yes, trading in the Bronze Age--either the government would directly organize trade expeditions (usually under the guise of a "gift exchange"), as Egypt did, or it would make loans to merchants who would then pay them back, as the Sumerians did--and neither the Ancient Egyptians nor the Sumerians could very well have been considered Communists in general. So I could very well see this idea being reinvented in the absence of the idea of the corporation.
 

Skallagrim

Banned
@Skallagrim: I expected you would bring up colonial wealth triggering the Industrial Revolution :)

I expected you to expect it! ;)


Personally, I think that the role of this wealth in setting off the Industrial Revolution is often overstated; for one thing, there was a rather lengthy delay between when this wealth started flowing into Europe in a series way (~1500) and when the Industrial Revolution actually started (~1750), and for another a lot of that wealth flowed directly into China instead of sticking around in Europe. I won't deny that colonialism might have helped spur growth to some extent, but I also look at the pre-colonial period and see considerable innovation and development in not just Europe but also China, the Muslim world, India, and so on that makes me skeptical that not having this particular legal structure would have stopped anything. I would accept an argument that it might slow development, yes, but I stand by my position that it would not have acted as a permanent bar to the development of industrial technologies, much less pre-modern non-industrial technologies and developments.

This is ultimately a case of "which arguments do you find convincing". Attempts to somehow calculate the wealth derived from colonialism have used wildly different methods (in this case, it's particularly relevant to what extent later wealth is built upon -- and conditional upon -- the initial wealth gained from colonial ventures). I don't think the wealth that would not have been built up without colonialism is understated. In fact, I think it's often understated. The relevant factor is that not all of it is directly derived from the colonies. Directlt gains made further investments possible, etc. etc. -- But the amounts of wealth gained from colonialism directly is still staggeringly huge. So huge that to limit it severely would cripple the OTL course of wealth development in Europe. And my argument is that without corporations, the economic successes of colonialism in general would indeed be severely limited.

There is an irony in that I am now defending the economic importance of colonialism, because in most debates regarding the importance of colonialism on European success, I hold the opposite position (which seems to be rather akin to your own): that we see considerable innovation in pre-colonial times. In fact, I have often argued that European colonialism was so successful because of pre-existing European conditions and attitudes, instead of the other way around. But this does not imply that certain subsequent developments in OTL don't require a vast amount of capital, which I frankly don't see being accrued without something OTL-level colonialism.

The argument that there was considerable time bwetween the start of colonialism and the beginning of any real industrialisation efforts is, in my opinion, ultimately a bit of a false lead. Consider that the first major colonising power was Spain, which literally hit the jackpot. They literally ran right into a bunch of conquests so unusually easy and so absurdly lucrative that everything they cared to do financed itself. There was so much wealth that (economic) risk became almost irrelevant. Which is why the Spanish didn't care very much to set up any innovative structures, and their super-rich (who were only becoming more and more super-rich) just personally financed anything they wanted to. That came back to bite them later, of course. Which is telling in itself.

Who set up the corporative structures? Primarily the Anglos and the Dutchies. The French dabbled in it, too, but their attitude to colonialism was always markedly less driven (the underlying reasons for that can be discussed, but probably not here). The Anglo-Dutch rivalry was a thing of legend for a while, there. Note that the active colonialism of these countries started up later than 1500 (by about a century), and that we see the first of the Anglo-Dutch Wars, for instance, in 1652. These nations are the ones that set up the major corporate structures for colonisation and exploitation, and they fought because they knew one of them was going to corner the market and win big. We know which one it was, in the end. Quarter of the world, by the end. It's not a co-incidence that the Industrial Revolution started in Great Britain.

That it took a good while for the accumulation of wealth to actually lead to industrialisation indicates several things, to me. One: it may be the case that simply the wealth directly derived from colonialism, though immense, was still not enough to get the ball rolling. That wealth needed to be re-invested, thus creating even more wealth, and only then was there the staggering amount of capital needed to finance something like an Industrial Revolution. Two: alternatively (or additionally), wealth not being the only precondition for industrialisation, it may just have taken time before the other conditions were also met. Three: wealth alone isn't enough (see Spain), and the pre-existence of corporations (so useful for effective colonial exploitation) was also very handy when it came to financing all sorts of capitalist ventures later on.


I conclude that if Great Britain had acted like Spain, then things would have been different. But Britain had that mercenary attitude, that corporate approach-- and that did make the big difference. That's why the Industrial Revolution started in Britain, and why corporations were quite essential to that development. Logically, we can say that in an ATL where Britain acts like Spain, the Dutch rule the waves... and industry, too. But in a world where everybody approaches colonialism like Spain, most are far worse off than Spain. Because not everybody gets that absurdly lucky. So everybody ends up like Spain, or worse. Imagine that ATl Europe. Do you see that producing industrialisation? I don't.


By the way, could you point me to your sources on these pre-modern corporate equivalents? I was reading a book by an academic on the history of debt lately that made the claim that there wasn't anything quite like a joint-stock corporation before the VoC and BEIC, so you'll forgive me for being a little skeptical and wanting more than your word...

Sources, crap. I can repeat what I know, but I can't easily refer you to a book about ancient Roman legal entities in a commercial context. The main thing to understand is that the Romans had a bunch of legal structures that could be used in a variety of ways. The same structure could be used to found a social club, a trade league, a political party, the governing body of a religious cult, a joint stock trade company, or even a type of local government. You had the the universitas, the societas, the corpus and the collegium. These differ in exactly how they functioned and what rights, obligations etc. they created. What unites them is that they all had legal personality, and had the right to own property, make contracts, request or extend credit, to hold accounts, to stand in legal cases and to perform sundry legal acts via representatives. Key factor here is that because they had their own legal standing, and appointed representatives acting on its behalf, the backers of such a body could not simply be held accountable for its acts or its debts etc.

The Romans used this in various ways, but in the context of commerce, all the above structures were used exactly as what we would call "corporations". For-proft structures into which investors poor money, and for which they appoint representatives to carry out its designated goals and to thereafter render unto the investors their share of the expected profits.

Now that's Rome. India had the same thing in Antiquity, and for that I can name the source: Vikramaditya Khanna's The Economic History of the Corporate Form in Ancient India. The title gives it away, doesn't it? Khanna extensively backs up how the Maurya rulers encouraged legal structures much akin to those I described being used in Rome, and for much the same purposes. In particular, the Mauryas seem to have been more interested in commercial use than the Romans. (That might be biased, though: Chandragupta and Ahsoka were empire-builders, interesting in wealth and economic expansion. Augustus was much the same, and similarly encouraged corporate colonialism. This particular interest may be a characteristic of empire-builders, and so comparing quintessential empire-builders Chandragupta and Ahsoka to all of Roman history may yield a skewed picture. Augustus was no less enthousiastic about corporate ventures than they were, certainly.)

Khanna also goes into the corporate structures of the Southern Indian polities, and their use for trade-colonial ventures.

Then there's China. Again, we see the basic structure of the corporation being discovered and re-discovered. Each time for the same, by now familiar purpose. (The latest incarnation -- before China simply adopted Western corporate models -- was, of course, the Kongsi. This is merely the last in a long line of re-discoveries of the same handy structure whenever China became interested in overseas trade and emporium-building again.)


Incidentally, one interesting possibility for the marshaling of large amounts of capital where truly necessary would have been for governments to provide the main investments in new fields. Although to us this smacks of Communism, it's worth pointing out that this was one of the principal methods of supplying capital for, yes, trading in the Bronze Age--either the government would directly organize trade expeditions (usually under the guise of a "gift exchange"), as Egypt did, or it would make loans to merchants who would then pay them back, as the Sumerians did--and neither the Ancient Egyptians nor the Sumerians could very well have been considered Communists in general. So I could very well see this idea being reinvented in the absence of the idea of the corporation.

Certainly, this is possible. Experience hath shewn that this tends to be a lot less efficient than "farm this out to those private agents, eh?" -- Which is why the Romans, who didn't even bother really distinguishing between 'public' and 'private' sectors, saw their government simply investing in... yes, corporate structures. See also: those East India Companies, where governments were major players, But they let those corporations do the work, instead of doing it themselves. That's a running theme with these things. And that seems like the logical outcome of what you're proposing. I think that you have to go back to really ancient examples (as you do) to show it being done without corporate structures, and I very much suspect that I know why. I think it's because those societies generally operated on such a local and small-scale level that corporate structures weren't yet required to make matters more economically secure.
 
I think at this point there's nothing more to say to each other on this subject, really; as you note, figuring what the key factors were in sparking the Industrial Revolution is more of a matter of opinion of their relative importance given the shortage of facts and, obviously, the inability to see how important they really were through controlled experimentation. And for me what seems most important was the gradual accumulation of technologies and techniques that eventually allowed people to create industrial enterprises over the sheer accumulation of wealth or the creation of particular organizational structures to manage it. Certainly, I will grant that the accumulation of wealth from colonialism accelerated this process, but I think it would have happened eventually--yes, even in a world full of little Spains--just because of people figuring out little advancements bit by bit until it would be nearly impossible not to start having an Industrial Revolution. The analogy I think of, as a physicist, is a potential barrier between one state or another, with the mass of technologies and capabilities that have been invented over time tending to reduce the barrier very gradually until even a little jolt can push it over and into a new state. I don't deny that the Europe you describe might be much slower to reach the Industrial Revolution, or might end up not being the region to achieve the relevant breakthroughs after all, but I think that eventually it would have been so easy to start an Industrial Revolution that it would have been almost impossible not to start one somewhere.

Leaving that debate aside as being essentially unresolvable, an idea this morning about a possible alternative to the joint-stock corporation that, at least at first glance, seems to offer an interesting combination of characteristics that allow something which is very much like corporations in some key aspects while still being quite unlike it in other ways, and might be a plausible candidate to replace the modern corporation without thereby making the less plausible argument that you could somehow avoid the creation of corporations altogether (which I agree is at the very least rather difficult). Let's call it the joint-credit corporation, because it occurred to me that bonds offer many of the same advantages as the corporate structure per se to the investor, in particular, of course, limited liability. No one is going to come after you for the debts of someone you loaned money to, after all. From what I recall, early joint-stock corporations actually acted something like this in at least some cases, with the "shares" supposedly entitling you to some particular payout, but this never really operated and was soon abandoned even as a guise. I think it's at least somewhat plausible that the issuance of bonds, perhaps in short-term or variable-term issues, could end up substituting for the issuance of stock, making the need for the limited liability structure much less acute (since most investors would have limited liability already, and the ones without limited liability would be so entwined in the operation of their business that not having it might not mean very much).

While you could, of course, say that this is just the same as the joint-stock corporation, just in a different guise, I think there are some rather interesting differences that could make for a very considerably different world, more so than the previous proposals of guilds or co-operatives or similar structures. In particular, bonds have a fixed payout, whereas ownership has an unlimited payout, as you're entitled to a share of the overall profits, however large they might be; and this does not confer limited liability on the beneficial owners, whether that is a single person or a partnership of people, only on bond owners. Additionally, bonds generally have fixed terms, whereas stocks have indefinite terms--that is, in general a company can buy back a share of stock at any time, whereas bonds are generally valid until maturity (for non-callable issues) or until certain contractually specified terms are met (in callable issues). So while a joint-credit corporation would have a similar ability to mobilize capital as a joint-stock corporation (viz., by selling bonds to a large pool of investors versus selling stock to a large pool of investors), the operation of that capital would be rather different; in particular, the fact that the actual owners of the firm are still personally liable for its debts would still act as a limiter on the size and scope of any individual firm, I suspect, whereas the investors would have a bigger interest in conservative, controlled growth versus speculation given that the latter doesn't give them much of an upside. You might end up with a more stable, more competitive economy this way...it's a thought, at least. What do you think?
 
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