The Rise of Modern Capitalism

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The Rise of Modern Capitalism

• IPE II
• Origins, Evolution and Contemporary Issues

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KEYWORDS

• pecuniary interest, the corporation, property,
  brands, industry, business, sabotage, corporeal,
  efficiency, value, incorporeal, intangible,
  institutions, habit, absentee ownership,
  engrossment, futurity, oligopoly, monopoly,
  competition, goodwill.

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Quantitative Dimensions of Corporate POwer

• Of the 100 largest economies in the world, 51 are
  corporations only 49 are countries
• The Top 200 corporations' sales are growing at a
  faster rate than overall global economic activity
  and the Top 200 corporations' combined sales are
  bigger than the combined economies of all
  countries minus the biggest 10.
• The Top 200s' combined sales are 18 times the
  size of the combined annual income of the 1.2
  billion people living in "severe" poverty.
• U.S. corporations dominate the Top 200, with 82
  slots (41 percent of the total). Of the U.S.
  corporations on the list, 44 did not pay the full
  standard 35 percent federal corporate tax rate
  during the period 1996-1998. Seven of the firms
  actually paid less than zero in federal income
  taxes in 1998 (because of rebates). These
  include Texaco, Chevron, PepsiCo, Enron,
  Worldcom, McKesson and the world's biggest
  corporation General Mortors

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New Instititutionalism

• Coase, R. H. (1937) The Nature of the Firm,
  Economica, 4(4), November, pp. 386-405.
• Coase, R. H. (1960) The Problem of Social Cost,
  Journal of Law and Economics, 3, pp. 1-44.
• North, Douglas C. (1990) Institutions,
  Institutional Change and Economic Performance,
  (Cambridge Cambridge University Press)
• Williamson, O. E. (1975) Markets and Hierarchies
  Analysis and Anti-Trust Implications A Study in
  the Economics of Internal Organization (New York
  Free Press).
• Williamson, O. E. (1985) The Economic
  Institutions of Capitalism Firms, Markets,
  Relational Contracting (London Macmillan).

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Old Evolutionary Institutionalism

• Commons, J. R. (1924) Legal Foundations of
  Capitalism (New York Macmillan).
• Commons, J. R. (1934) Institutional Economics -
  Its Place in Political Economy (New York
  Macmillan).
• Veblen, T. B. (1899) The Theory of the Leisure
  Class An Economic Study of Institutions (New
  York Macmillan).
• Veblen, Thorstein (1908) On the Nature of
  Capital Investment, Intangible Assets, and the
  Pecuniary Magnate, The Quarterly Journal of
  Economics, Vol. 23, No. 1, pp. 104-136.
• Veblen, Thorstein (1924) Absentee Ownership and
  Business Enterrprise in Recent Times, (London
  George Allen Unwin).

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New Institutionalism

• Adds an institutional dimension to economic
  analysis
• Incorporating externalities into economics
• Institutions as rules of behaviour, constraining
  individual action
• Starting point is the rational maximising
  individual

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Old Evolutionary Institutionalism

• Thorstein Veblen institutions are 'settled
  habits of thought common to the generality of
  man'
• John R. Commons institutions are collective
  action in control of individual action.
• Economics is institutional nobody is an island
• Begin from the collective rather than individual
  behaviour
• Behaviour is rule bound
• Commons Institutions set up working rules in
  society. These serve not only as a set of
  constraints but define four verbs simultaneously
  must, may, can, expect.

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Property and Power

• Corporeal (physical),
• Incorporeal (debt)
• and INTANGIBLE property (power)
• B/ Futurity value in strategic control over the
  future

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Intangible Assets

• The property which every man has in his own
  labour, as it is the original foundation of all
  other property, so it is the most sacred and
  inviolable. (Smith 1999 1776 225) A
  Development of Lockes conception.
• Veblen asserts that the 'requisite knowledge and
  proficiency of ways and means is a product,
  perhaps a by-product, of the life of the
  community at large and it can also be maintained
  and retained only by the community at large
  (Veblen 1961 327).
• 'Without access to such a common stock of
  immaterial equipment no individual and no
  fraction of the community can make a living, much
  less make an advance' (1961 326).

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Futurity

• The concept of futurity, indicates
  anticipation, or, literally, the act of seizing
  beforehand the limiting or strategic factors upon
  whose present control it is expected the outcome
  of the future may also be more or less
  controlled, provided there is security of
  expectations it may properly be said that man
  lives in the future but acts in the present.
  (Commons 1934 58)

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Absentee Ownership

• In the business world the price of things is
  more substantial fact than the things
  themselves. (Veblen 1923 88-9)
• the visible relation between the owner and the
  works shifted from a personal footing of
  workmanship to an impersonal footing of absentee
  ownership resting on the investment of funds
  (Veblen 1923 59)
• There is no place in Big Business for
  considerations of a more material sort or of a
  more sentimental sort than net gain within the
  law. It moves on that plane of make-believe on
  which the net gain is a more convincing reality
  than productive work or human livelihood.
  (Veblen 1923 217)

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Industry Vs Business

• Sabotage
• NAIRU The Non Inflationary Rate of Unemployment
  or NRU the Natural Rate of Unemployment.
• Monsantos GM seeds
• Mergers and Acquisitions

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Goodwill Hunting (James Perry)

• Historic cost Accounting to Fair Value Accounting
• We argue that it is in the accounting for
  intangibles that the present accounting system
  fails most seriously to reflect enterprise value
  and performance
• Brookings Institution Report (2003)
• Intangible assets are defined as
• non-material factors that contribute to
  enterprise performance in the production of goods
  or the provision of services, or that are
  expected to generate future economic benefits to
  the entities or individuals that control their
  deployment