Forget Mega-Corporations, Here’s The Mega-Network

We live in the age of cryptocurrency heists, Chinese moon landings, eco-disasters and electronic cigarettes. Sounds like something out of a cyberpunk novel.

Well, a cyberpunk novel without the brain implants, but don’t worry, those are coming, too. But one big cyberpunk theme that hasn’t come to pass is the rise of mega-corporations — those huge multinational conglomerates, like Robocop‘s OCP, that owned everything from baby food companies to police departments.

Corporations are arguably more powerful today than ever before. But the economy isn’t dominated by a handful of megalithic conglomerates. it consists of hundreds or thousands of smaller, more specialized firms. Our cyberpunk future-present is dominated instead by a new power structure: the mega-network.

The Incredible Shrinking Firm

Science fiction is more about the present than the future, as the saying goes. And in the late 1970s and early 1980s — when the original cyberpunk stories were written — Wall Street was in love with conglomerates. But the love affair was over by 1990, according to a 1994 paper published in the American Sociological Review aptly titled “The Decline and Fall of the Conglomerate Firm in the 1980s.”

These diversified firms performed poorly on the stock market, and relaxed antitrust regulations meant that growing vertically was a safer legal bet than it was in the 1960s and 1970s, when conglomerates first took off. Many companies sold off their assets, becoming leaner and more focused on core competencies. Conglomorates are still popular in Asia and other parts of the world, but the U.S. business community generally agreed that conglomerates were a big mistake.

The fall of the conglomerate corresponded with white-collar downsizing, the rise of “permatemping,” and a general tendency towards smaller firms. But before we can answer why companies trended smaller, we should answer a more basic question: why do companies exist at all?

In 1937 Ronald Coase wrote a groundbreaking essay titled “The Nature of the Firm.” He set out to answer a question that vexed economists of his time: If markets were efficient, why was there a need for firm as all? Why didn’t all economic activity take place at the level of the individual, with everyone contracting everyone else? Coase concluded that there were transactional costs associated with doing business, such as negotiating contracts and protecting trade secrets. But a company could minimize those transaction costs by making it possible to avoid negotiating a contract for every single transaction, for example.

But technologies from shipping containers to software to web-based marketplaces are starting to smooth out those transaction costs, said Chris DeVore of Founders Co-Op in a talk at the Defrag conference last year.

“WordPerfect and VisiCalc transformed highly proprietary, document-based knowledge work into standardized digital files that could be copied, shared and modified by workers inside or outside the company,” he said. “This reduced friction in the transmission and reuse of information and further reduced the ‘hidden costs’ of distributing knowledge work among trading partners. As a result, more and more previously ‘core’ departmental functions — finance, accounting, marketing, sales — could now be farmed out to outside partners without a loss of fidelity.”

What’s arisen instead — and this was recognized as far back as the late 1980s — are virtual corporations: temporary alliances of businesses pursuing common goals. In other words, networks.

The Network

Take Y Combinator. “It gives the benefit of being part of a large company without being part of a big company,” Founder Paul Graham told Fast Company in 2012. “The problem with doing a startup — even though it’s better in almost every other respect — is that you don’t have the resources of a big company to draw on. It’s very lonely; you have no one to give you advice or help you out. In a big company, you might be horribly constrained, but there are like 1,000 other people you can go to to deal with any number of problems. Now

View the Original article