Market, Hierarchy, and Trust: The Knowledge Economy and the Future of Capitalism

55 Pages Posted: 25 Oct 1999  

Paul S. Adler

University of Southern California - Management and Organization Department

Abstract

Recent conceptualizations of trends in the structure of U.S. industry have focused on the relative importance of markets, hierarchies, and hybrid intermediate forms. This paper seeks to advance the discussion by distinguishing three ideal-typical forms of organization and their corresponding key coordination mechanism: market/price, hierarchy/authority, and community/trust. Different institutions combine the three forms/mechanisms in different proportions. Economic and organizational theory have shown that compared to trust, price and authority are relatively ineffective mechanisms for dealing with assets that are based on knowledge. As knowledge becomes increasingly important in our economy, we should therefore expect high-trust institutional forms to proliferate.

A review of trends in employment relations, interdivisional relations, and inter-firm relations finds evidence suggesting that the effect of growing knowledge-intensity may indeed be such a trend towards greater reliance on trust. There is also reason to believe that the form of trust most effective in this context is of a distinctively modern kind - "reflective trust" - as opposed to a traditionalistic, blind trust. Such a trend to reflective trust appears to threaten the privileges of currently dominant social actors, and these actors' resistance, in combination with the complex interdependencies between price, authority, and trust mechanisms, imparts a halting character to the trend. But the momentum of this trend nevertheless appears to be self-reinforcing, which suggests that it may ultimately come to challenge the foundations of our capitalist form of society while simultaneously creating the foundations of a new, post-capitalist form.

JEL Classification: A12,B24,B25,D80,H10,J20,L10,L22,M10,O10,O30

Suggested Citation

Adler, Paul S., Market, Hierarchy, and Trust: The Knowledge Economy and the Future of Capitalism. Available at SSRN: https://ssrn.com/abstract=186930 or http://dx.doi.org/10.2139/ssrn.186930

Paul S. Adler (Contact Author)

University of Southern California - Management and Organization Department ( email )

Los Angeles, CA 90089
United States
213-740-0728 (Phone)
213-740-3582 (Fax)

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