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Why do corporations exist? These hierarchical, self-contained assemblies of labour, capital and know-how have been with us for so long that by now they seem almost ‘natural’. But apart from what they make or do or sell, the very structure of the company has a history.

The clearest rationale for corporations comes from the Nobel prizewinning economist Ronald Coase and his 1937 theory of the firm. Imagine you want to make money by selling widgets. What’s the best strategy: sign up talent individually and on a needs-only basis, or hire staff to do the various jobs in-house? Coase showed that it made more economic sense to incorporate as a company, because it allowed you to minimise three very important costs. The first reduction would come from resourcing: it’s less expensive to find and recruit people with the right skills and knowledge from inside the company than to look for them externally every time you want something done. The second line-item is transacting, or managing processes and resources: it’s less of an administrative burden to have teams in-house than to keep an eye on multiple external contractors. And finally there’s contracting: every time work takes place within a company, the rules and conditions are implied in the employment contract, not negotiated afresh each time. By reducing these three costs, Coase claimed, corporations are the optimal structures for increasing economic activity.

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Going down? A businessman in the City financial district of London, UK Photo by Chris Ratcliffe/Bloomberrg/Getty

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Click link below for article:

https://aeon.co/essays/workers-of-the-world-unite-on-distributed-digital-platforms

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