INTRODUCTION TECTONIC SHIFTS AND THE NEW ECONOMIC LANDSCAPE

IN AN ERA of Citizens United and eight-figure paychecks for CEOs, it is easy to imagine that corporations have never been more powerful. Yet public corporations—companies that sell shares to the public, rather than being privately owned—are in retreat in the United States. The number of American companies listed on the stock market has dropped by more than half in the past 15 years, as departures outnumber initial public offerings (IPOs) almost every year. Some of this is due to economic crises and industry consolidation, but most of it is caused by the increasing obsolescence of the corporate form.

For many traditionally “corporate” activities, organizing as a corporation and listing shares on a stock market is no longer the most cost-effective way to do business. Tiny Vizio can sell televisions much more cheaply than giant Sony. The maker of Flip, with 100 employees, sold more portable video cameras than century-old Eastman Kodak, before both became obsolete. Uber has more “driver-partners” in the US than General Motors has employees. Outside of a few industries with very large capital requirements, the sustainability of the traditional corporate form is increasingly in question.

The claim that corporations are in decline is surprising, to say the least. Who can doubt the majestic power of Walmart or Goldman Sachs or Google or McDonalds? Corporations have been dominant economic institutions for over a century, providing products and services as well as jobs for workers and profits for investors. Yet in industry after industry, noncorporate forms are thriving, and corporations are struggling, as the economies of scale that sustained corporations erode. In 1950 it might have made economic sense to assemble cars in giant vertically integrated factories in Detroit and ship them from there to the rest of the world. Today, the parts of a business are like interlocking plastic bricks that can be snapped together temporarily and snapped apart when they are no longer needed. Information and communication technologies (ICTs) make starting an enterprise trivially easy, from creating a legal structure to hiring temporary employees to contracting out for production and distribution. Coordinating activities used to be the corporation’s strong suit. Now the corporation is increasingly out-maneuvered by alternative forms of enterprise that are more flexible and less costly. The barriers to entry are falling across a wide swathe of industries.

In his famous 1937 article “The Nature of the Firm,” Nobel Prizewinning economist Ronald Coase explained, “The main reason why it is profitable to establish a firm would seem to be that there is a cost of using the price system. The most obvious cost of ‘organising’ production through the price mechanism is that of discovering what the relevant prices are.” But what if discovering the relevant prices becomes trivial? What if the inputs of a firm, including labor, can be priced and ordered as they are needed? What if, in place of long-term employees, firms were able to contract for workers if and when they were needed for specific tasks—the way that customers can use the Uber app to order a ride? This is the world that is emerging now. And while the result may be a delight for consumers, who benefit from low prices and new conveniences, it will become a disaster for labor.

After World War II, Americans relied on corporate employers for their incomes, retirement security, and health insurance for their families. Corporations not only created products and services, but pathways to move up in the world. Whatever their faults, corporations were a source of economic opportunity and stability for workers. Today, the compact between corporations and employees is increasingly under siege by low-cost alternatives that make the traditional corporation unsustainable.

This does not mean that business will disappear, but that its organizational shape will change. Indeed, companies continue to list shares on the market and to attract the attention of investors, albeit at a far lower rate than in prior decades. But they are very different from those that came before. Companies going public around the turn of the 20th century included General Electric, Westinghouse, US Steel, and Eastman Kodak, which grew to be pillars of the 20th-century economy. IPO companies in more recent years occasionally create shareholder value, but they rarely create jobs in large numbers. At this writing, the combined global workforces of Facebook, Yelp, Zynga, LinkedIn, Zillow, Tableau, Zulily, and Box are smaller than the number of people who lost their jobs when Circuit City was liquidated in 2009. Throw in Google and it’s still less than the number who worked at Blockbuster in 2005. There is little reason to expect these new technology firms to grow into century-spanning institutions like Kodak or Westinghouse.

Corporations will survive in some sectors, just as there are still royal families in Denmark, Spain, and the United Kingdom. But they will be vestigial rather than central pillars of the economy, and they will not provide stable employment on a large scale. Exxon, one of the world’s most long-lasting and financially successful corporations, had 150,000 employees in 1962 (when it was still Standard Oil of New Jersey). Fifty years later, after merging with its giant rival Mobil, it had half as many.

The decline of the corporation is most evident in the US, but the underlying factors behind it are visible around the world. Information technologies are drastically lowering the costs of using the price system. Capital equipment gets radically cheaper and more powerful every year; the Web and mobile phones greatly lower the costs of coordination and collaboration. Corporations are thus no longer the inevitable way to organize an advanced economy. The US became the most corporatized economy early in the 20th century, creating a path that many other economies ultimately followed. Today, the US is the furthest advanced in de-corporatizing. This is, perhaps, the canary in the coal mine. American multinationals have a habit of spreading best (or non-best) practices to their operations around the world, and it is possible that the decline of corporations will spread as well.

The consequences of corporate decline in the US are stark: increased inequality, decreased mobility, and a frayed social safety net. It is hard to fathom where power resides in our economy today, and harder still to know how to navigate it. The generation of those under 30 faces crushing college debt and a rocky economic landscape governed by inscrutable rules. The generation about to retire faces insecurity about financing for their health care and pensions.

The Vanishing American Corporation provides a systematic account of the disappearance of the corporation in the US and its implications. Most of us still understand our economy using an outdated map that sees corporations as the dominant feature of the economic landscape. My hope is to provide a map that renders our current situation more legible, for citizens, businesspeople, and policymakers. Unless we understand the tectonic shifts underway, we will not be able to address them and build an economy that works for all.