jerry davis used to hate transaction cost economics, but now he kind of likes it
Last week, the amazing Jerry Davis gave a talk at IU’s Kelley School of Business. Jerry’s talk addresses a very important corporate process – the move from organizations that employ lots of people to organizations that employ few people. For example, Facebook, one of the biggest wealth creators on earth right now, employs a paltry 12,000 people.
Jerry noted that this shrinking of the organization has even influenced politics. Social movements, for example, used to rely on vast organizations to contact and mobilize people. Now, you can stage a major protest with an announcement on social media.
Theoretically, what Jerry talked about was a profound shift in transaction cost economics (a field he said he used to hate, but didn’t say why). Advances in shipping and communication allow a lot of people to be shifted outside firm boundaries. He had a great example. Giant firms like Sony used to assemble TVs in house, but now Vizio outsources all assembly and design. They simple manage and coordinate the design, assembly, and shipping process.
One comment: I think Jerry over estimates the need to dispose of organizations among activists. As long societies rely on mass voting, there will be a need for large organizations to recruit and mobilize voters. So, yes, we can see the occasional protest movement wildly succeed using only twitter. But routine politics still belongs to the old clunky political organizations.