The Tech That Will Kill The Firm

Image Credit: Flickr User upside of inertia, via CC

I want to put my thoughts to paper on the subject of the future of the firm as the quintessential unit of analysis for production in markets; there seems to be a litany of new technologies around that each purports to be the catalyst for inevitable change in the way we think about firms.

I am not immune to the enthusiasm; I find myself persuaded by the next hot technological breakthrough as being the salvo that will finally sound the death-knell for the traditional firm — as we know it and as it was conceived since before Industrial Revolution. Then, after a thoughtful glass of bourbon or two, I find myself slapping my forehead and calling myself gullible.

There are a number of technologies that have done this to me: blockchain, cloud computing, IoT, AI, among others. Each were like shiny new torpedoes that I fired in my mind’s image of the traditional firm. Each made me more convinced than ever that the day was finally done for the stereotypical “firm”; incumbent firms would fall like dominos and be replaced by shifting associations of individuals working on whatever they chose, and whenever they chose to do so. Much like the Singularity that Kurzweil talks about, I felt that, when this doomsday for the firm finally came, humanity would be fundamentally transformed.

In retrospect, none of these new technologies were the first to inspire me to indulge in my nihilistic fantasies about the firm. That dubious honor goes to The Internet almost two decades ago now.

As an undergrad student in economics, I felt convinced that the rationales for firms were all sure to erode, and that it would be the internet that would do it. By democratizing scale — hitherto the priviledge of the owners of capital and political power — the internet, I felt strongly, would obliterate the role of traditional economic structures. Individuals would be increasingly empowered to replace functions that were squarely and exclusively within the domain of firms alone. That did occur in several places, but not nearly as broadly as I had imagined. The traditional firm, by and large, evolved around the edges and has come through just fine.

Chewing on these spectacular failures of foresight, I have come to the conclusion that I have been thinking about it all wrong.

I had not really been able to pin down the idea that was pin-balling inside my brain. It is this: the only way a technology can bring down the traditional firm is by simultaneously enabling individuals to become producers while also making profitable for firms to alter their extant modes of production.

These are, I am happy to admit, a couple of very simple ideas, really.

First, any technology that reduces the transactions costs for individuals sufficiently to make it feasible for them to supplant centrally coordinated team production by producers is likely to be a kick in the nuts for a firm. Such a foundational technology, amenable to all products a consumer desires, would be my idea of a true utopia because it would be a world of perfectly customizable products. That this is transformation is now becoming increasingly commonplace is, as a matter of fact, arguable.

Second, any technology that makes it more profitable for a firm to enable consumers to build their own stuff would make them feel perfectly happy to shoot themselves in the foot. They’d happily take the back seat and let consumers get on with the job themselves, provided, that is, that they get some slice of the pie for a goodish while. Then, like some faux pas in fashion, they’d sort of just die off and be forgotten or alter their modes of production to something else entirely.

So, what would such a technology look like. I really do think that we are close; I also really think that no such technology exists at present. The pessimism is on account of the fact that no technology we currently possess makes it ridiculous for a firm to stick an “enterprise-” qualifier before it and make it their own. (All such firms, by the way, seem like heroes supporting a bold new cause, but are really only paying lip service.)

The optimism is on the basis of a wicked-cool soup of technologies that we can now, albeit only theoretically, cook up and that could perhaps give rise to the meta-technology that can do the trick.

I am not sure what to call that overarching technology, but it would do a few things.

  1. It would supplant the roles of accountability and coordination that the traditional firm (is supposed to, anyway) provides (which is to say, it would enable organic, spontaneous organization);
  2. It would enable anyone, anywhere to access any set of information that firms or individuals possess in order to produce a desired good (which is to say, it would make decentralized information more efficient than centralized repositories);
  3. It would make it possible for anyone to create an ad hoc consumer task-driven firm that learns his or her preferences, and make it costless to pop into and out of existence (which is to say that it would enhance the ease of organization and of the disbandment of value-producing enterprises);
  4. It would make regulating negative externalities unecessary (since they would either be automatically excluded or flagged by default), and, finally
  5. It would be resistant to sabotage or usurpation.

As I wrote each of those five features for the ideal killer-combo technology, I was thinking of one or more existing technologies that could, mixed just right, fit the bill exactly. Which technology goes where on my list, is an exercise I leave aside for now. The perfect combo, however, requires them all. That mix would be a potent one indeed.

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Prateek Goorha

Prateek Goorha

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Social scientist interested in the economics of innovation. Part-time author. Full-time blockchain explorer.