Monday, May 16, 2005

The Corporation

Ultimately, I was disappointed with the movie. Of course, since I'm a researcher of corporations, this is my area of interest, so maybe I'm too demanding. The individual parts of the movie were OK, but the whole didn't get as deep as it needed to be.

First, the movie is far too reliant upon the "corporation as person" analogy. It's true that the Santa Clara case is one keystone (but not the only one) of the modern corporate structure, but the movie relies upon that too much. The movie-makers just don't seem to have very much knowledge about the subject, and this is one topic upon which just aiming a camera at things doesn't eventually work out. They seem to be very much reliant upon the book for all of their knowledge, and the book, while not the worst popularization, isn't that great either.

For example, the only interview with an economist in the movie is with Milton Friedman. To outsiders, that may seem like a reasonable decision, since Friedman is a major economist.....right? Wrong. Friedman has done no substantive work on industrial organizations (which is what the economics sub-field is called). He's mainly a macro-theorist, which is a sub-field very far away from this subject. What he says in the movie is no different than any other Chicago school theorist would say - i.e. Friedman adds no more value than "random economist". The major Chicago school economist on the firm is Ronald Coase, not Milton Friedman. Admittedly, perhaps the film-makers choose Friedman knowingly (Friedman is more famous to the public than Coase) but I doubt that is the only factor, due to their inability to really criticize the neoneoclassical economic viewpoints within the structure of the film.

And that's what I find the big drawback of the film - their inability to confront the corporation even upon it's own terms. They end up criticizing the corporation on other terms (externalities, "bad psychology", etc.) And there are plenty of academics who have been doing mighty work upon the subject - William G. Roy, Bruce Carruthers, Claude Perrow, Joel Podolny, Jeff Pfeffer, Sanford Jacoby and many many others coming out of sociology, history and organizational psychology.

Also, the movie is extremely misleading in parts. Their depiction of the history of the corporation is simply incorrect in many ways. For example, the Santa Clara decision was merely one keystone of the development of the American corporation, but far more important was Julius P Morgan's role as the central figure of the American economy in the late nineteenth century and early twentieth. Essentially, as William G Roy describes the history, JP Morgan reinvented the corporate form as a necessary bridge to transforming the American economy into the structure he envisioned. Crucial to JP Morgan is that he was an investment banker running a small investment bank (the bank controlled a very large amounts of assets for a bank of its size, but it's size was very small - there were only 14 senior partners of JP Morgan & Co.)- as opposed to the government/commercial bank nexus that organized German and Japanese industry at the same period or the government alone that organized French industry at the same period. Thus, JP Morgan needed a tool that could be easily used by a relatively small investment bank (as opposed to the tools that a government ministry or a very large commercial bank could use). That tool was public equity securities initially employed as a vehicle to build up trusts (controlled by Morgan) and which then Morgan could profit from by selling the resulting public equity into a mass market. That means the US corporation looks very different from the German, Japanese or French versions.