How Incomplete is the Theory of the Firm? Q&A with Daniel Carpenter

ProMarket interviews Daniel Carpenter "ahead of the upcoming conference on the theory of the firm, in which he will be taking part, Carpenter shared some of thoughts on the role of corporations and government interference in the market:

How Incomplete is the Theory of the Firm? Q&A with Daniel Carpenter: ...Q: The neoclassical theory of the firm does not consider political engagement by corporations. How big an omission do you think this is?

I think it’s an immense omission. For one, we can’t even talk about the historical origins of many firms without talking about corporate charters, limited liability arrangements, zoning, public contracts and grants, and so on. To view these processes as legal and not political is a significant mistake. I’m currently writing a lot on the history of petitioning in Europe and North America, and in areas ranging from railroads, to technology-heavy industries, to extractive industries, to banking, firms (or their investors) had to bring a case before the legislature, or an agency of government, or both. They usually used petitions to do so. 

Beyond the past and into the present, there are a range of firm activities that we can’t understand without looking at politics. ...

And in the future, the profitability and survival prospects of many firms in the coming years will depend heavily, in a polarized environment, on the political skills of managers. ...

Q: Some people describe Donald Trump’s economic policies as “corporatism.” Are you more worried by Trump’s interference in the market economy or by companies’ ability to subvert markets’ rules?

I don’t see those as binary opposites but as complements. If regulation is constitutive of marketplaces (fraud standards, disclosure and labeling requirements, evidentiary requirements), then companies’ ability to subvert market rules will in fact interfere in the proper functioning of a market economy.

I think we’re likely to see both Trumpian interference and company subversion, in other words.

That said, I am concerned about Trump’s interference in markets, for example his bullying of companies and the idea of imposing border taxes. In the U.S. and elsewhere, we are going to see the need for legislative and judicial constraints upon this kind of executive action.