The Modern Corporation Statement on Economics

8 Pages Posted: 5 Nov 2016

See all articles by William Lazonick

William Lazonick

University of Massachusetts Lowell; The Academic-Industry Research Network; Instiitute for New Economic Thinking

Stephanie Blankenburg

SOAS, University of London

Julie Froud

University of Manchester - Division of Accounting and Finance

Mary A. O’Sullivan

University of Geneva

Catherine Sauviat

affiliation not provided to SSRN

Antoine Reberioux

Université Paris VII Denis Diderot; University Antilles Guyane - Faculty of Law and Economics

Ha-Joon Chang

University of Cambridge - Faculty of Economics and Politics

Mariana Mazzucato

University of York - Social Policy Research Unit (SPRU); University of Sussex

Grahame F. Thompson

The Open University - Department of Political Economics

Steve Keen

Kingston University, London

Paolo Quattrone

University of Edinburgh

Christopher May

Lancaster University - Politics, Philosophy & Religion

Neil Lancastle

De Montfort University - Faculty of Business and Law

Barbara Czarniawska

University of Gothenburg

David Knights

Lancaster University

Laura Horn

Roskilde University

Ilan Talmud

University of Haifa

Oleg Komlik

Ben-Gurion University of the Negev

Henning Schwardt

University of Bremen

Keith Robson

HEC Paris

Tony Hines

Manchester Metropolitan University

Robert E. Wright

Augustana College - Division of Social Sciences

Muir Houston

University of Glasgow

Mehmet Ali Dikerdem

Middlesex University

Maureen Boland

Curtin University

Marie-Laure Djelic

ESSEC Business School

Brendan K O'Rourke

Dublin Institute of Technology

Nitasha Kaul

University of the West of England

John Holmwood

Princeton University

Timothy Kuhn

University of Colorado at Boulder

Patrick Ainley

University of Greenwich

Dawa Sherpa

Jawaharlal Nehru University

Philip Welch

University of Bristol

Keith Reader

University of London Institute in Paris

Jan Culik

University of Glasgow

Kevin McSorley

University of Portsmouth

Nadia Edmond

University of Brighton

Steve Fleetwood

University of the West of England (UWE)

Andrew M. Fischer

Erasmus University Rotterdam (EUR) - Institute of Social Studies (ISS)

Guillaume Delalieux

affiliation not provided to SSRN

Helena Syna Desivilya

Max Stern Academic College of Emek Yezreel - Sociology and Anthropology

Dennis Leech

University of Warwick - Department of Economics

Michael Loughlin

Manchester Metropolitan University - Cheshire

Willy Maley

University of Glasgow

David Wield

Open University

Machiko Nissanke

University of London, School of Oriental and African Studies (SOAS) - Economics

Roger Brown

Liverpool Hope University

Mark Addis

Birmingham City University

Stuart Sean Farquhar

University of Wolverhampton

David J. Cooper

University of Alberta - Department of Accounting, Operations & Information Systems

Chris Carter

University of Edinburgh

Meera Sabaratnam

SOAS, University of London

Maria Aluchna

Warsaw School of Economics (SGH)

Roger Gill

Durham Business School

Alice Bryer

IE Business School

Peter Beusch

Göteborg University - School of Business, Economics and Law

Nabil Harfoush

Ontario College of Art & Design University

Hein Vrolijk

Independent

Bill Cooke

University of York

Michael Pirson

Fordham University - Graduate School of Business Administration; Harvard University; Humanistic Management Network

David Carroll Jacobs

Morgan State University

Alessia Contu

Independent

Nihel Chabrak

College of Business, United Arab Emirates University

Paddy Ireland

Kent Law School

Julie Matthaei

Wellesley College - Department of Economics

Vincenzo Bavoso

University of Manchester - School of Law

Tanweer Ali

State University of New York (SUNY), Empire State College

Lorenzo Massa

Vienna University of Economics and Business

David Gindis

University of Hertfordshire - Business School

Michael Smith

affiliation not provided to SSRN

Jean-Pierre Chanteau

Université Grenoble Alpes

Robert F Coles

University of Leicester - School of Management

Marcello Palazzi

Rotterdam School of Management, Erasmus University

Roger L. Martin

University of Toronto - Joseph L. Rotman School of Management

Hugh Christopher Willmott

City University London - Sir John Cass Business School; Cardiff Business School

Jeroen Veldman

City University London - Faculty of Management

Date Written: November 4, 2016

Abstract

From the early decades of the twentieth century, a dominant characteristic of the modern “capitalist” corporation, especially in the United States, was the separation of asset ownership in the form of publicly traded shares from allocative control over the corporation’s resources by salaried managers. By the 1950s some depicted managerial-controlled large enterprise as the “soulful” corporation in which the allocation of resources resulted in enhanced social welfare. In the 1960s, however, some conservative academics looked to market forces, dubbed the ‘market for corporate control’, to ensure that managers as employees would give primacy to shareholders in the allocation of corporate resources. This market for corporate control could enable hostile takeovers in which shareholders who accumulated large public equity stakes in a company could discipline managers to allocate resources in ways that “the market” deemed to be efficient. The notion that market allocation could control managerial organization was then developed theoretically based on the conceptualisation that the corporation (and indeed any firm) could be conceptualised as a ‘nexus of contracts’ or a ‘collection of assets’. Rather than view the corporation as a social organization with its unique history and competitive capabilities in which public shareholders had come to play a peripheral role, neoclassical economists conceptualised the corporation as a set of voluntary contracts among owners of resources and as a portfolio of assets with different market-determined rates of returns.

This conceptualisation of the corporation to fit with the dominant neoclassical theory of the market economy had implications. We provide this Summary of certain fundamentals of economics in an effort to help prevent analytical errors which can have severe and damaging effects on corporations.

Keywords: Economics, Corporate, Governance, Shareholder, Value, Executives, Tax, Inequality, Stakeholder

JEL Classification: A1, A11, A2, A20, B2, B26, D2, D20, D21, D6, G3, M1, M10, M2, M20, M21, P1

Suggested Citation

Lazonick, William and Blankenburg, Stephanie and Froud, Julie and O’Sullivan, Mary A. and Sauviat, Catherine and Reberioux, Antoine and Chang, Ha-Joon and Mazzucato, Mariana and Thompson, Grahame F. and Keen, Steve and Quattrone, Paolo and May, Christopher and Lancastle, Neil and Czarniawska, Barbara and Knights, David and Horn, Laura and Talmud, Ilan and Komlik, Oleg and Schwardt, Henning and Robson, Keith and Hines, Tony and Wright, Robert Eric and Houston, Muir and Ali Dikerdem, Mehmet and Boland, Maureen and Djelic, Marie-Laure and O'Rourke, Brendan K and Kaul, Nitasha and Holmwood, John and Kuhn, Timothy and Ainley, Patrick and Sherpa, Dawa and Welch, Philip and Reader, Keith and Culik, Jan and McSorley, Kevin and Edmond, Nadia and Fleetwood, Steve and M. Fischer, Andrew and Delalieux, Guillaume and Syna Desivilya, Helena and Leech, Dennis and Loughlin, Michael and Maley, Willy and Wield, David and Nissanke, Machiko and Brown, Roger and Addis, Mark and Farquhar, Stuart Sean and Cooper, David J. and Carter, Chris and Sabaratnam, Meera and Aluchna, Maria and Gill, Roger and Bryer, Alice and Beusch, Peter and Harfoush, Nabil and Vrolijk, Hein and Cooke, Bill and Pirson, Michael and Jacobs, David Carroll and Contu, Alessia and Chabrak, Nihel and Ireland, Philip and Matthaei, Julie and Bavoso, Vincenzo and Ali, Tanweer and Massa, Lorenzo and Gindis, David and Smith, Michael and Chanteau, Jean-Pierre and F Coles, Robert and Palazzi, Marcello and Martin, Roger L. and Willmott, Hugh Christopher and Veldman, Jeroen, The Modern Corporation Statement on Economics (November 4, 2016). Available at SSRN: https://ssrn.com/abstract=2864246 or http://dx.doi.org/10.2139/ssrn.2864246

William Lazonick

University of Massachusetts Lowell ( email )

1 University Ave
Lowell, MA 01854
United States

The Academic-Industry Research Network ( email )

12 Newport Road
Porter Square
Cambridge, MA 02140
United States

HOME PAGE: http://www.theAIRnet.org

Instiitute for New Economic Thinking ( email )

300 Park Avenue South, 5th Floor
New York, NY 10010
United States

Stephanie Blankenburg

SOAS, University of London ( email )

10 Thornhaugh Street
Russell Square
London, WC1H 0XG
United Kingdom

Julie Froud

University of Manchester - Division of Accounting and Finance ( email )

Manchester
United Kingdom

Mary A. O’Sullivan

University of Geneva

102 Bd Carl-Vogt
Genève, CH - 1205
Switzerland

Catherine Sauviat

affiliation not provided to SSRN

Antoine Reberioux

Université Paris VII Denis Diderot

2, place Jussieu
Paris, 75005
France

University Antilles Guyane - Faculty of Law and Economics ( email )

Pointe à Pitre
France

Ha-Joon Chang

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom
+44 1223 335389 (Phone)
+44 1223 335475 (Fax)

Mariana Mazzucato

University of York - Social Policy Research Unit (SPRU) ( email )

United Kingdom

HOME PAGE: http://www.sussex.ac.uk/spru/people/peoplelists/person/111262

University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

Grahame F. Thompson

The Open University - Department of Political Economics ( email )

Walton Hall
Milton Keynes, MK6 7AA
United Kingdom

Steve Keen

Kingston University, London ( email )

Penrhyn Road
Kingston Upon Thames
London, KT1 2EE
United Kingdom

Paolo Quattrone

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

Christopher May

Lancaster University - Politics, Philosophy & Religion ( email )

County South
Lancaster University
Lancaster, LA1 4YL
United Kingdom

Neil Lancastle

De Montfort University - Faculty of Business and Law ( email )

United Kingdom

HOME PAGE: http://neil.lancastle.com/

Barbara Czarniawska

University of Gothenburg ( email )

Övre Fogelbergsgatan 6
Gothenburg, 405 30
Sweden

David Knights

Lancaster University ( email )

Lancaster LA1 4YX
United Kingdom

Laura Horn

Roskilde University ( email )

Universitetsvej 1
P.O. Box 260
Roskilde, DK-4000
Denmark

Ilan Talmud

University of Haifa ( email )

Mount Carmel
Haifa, 31905
Israel

Oleg Komlik

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheba 84105, 84105
Israel

Henning Schwardt

University of Bremen ( email )

D-28359 Bremen
Germany

Keith Robson

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Tony Hines

Manchester Metropolitan University ( email )

All Saints
Manchester, M15 6BH
United Kingdom

Robert Eric Wright

Augustana College - Division of Social Sciences ( email )

2001 Summit Ave.
Sioux Falls, SD 57197
United States
605-274-5312 (Phone)

HOME PAGE: http://faculty.augie.edu/~rwright/

Muir Houston

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Mehmet Ali Dikerdem

Middlesex University ( email )

The Burroughs
London, NW4 4BT
United Kingdom

Maureen Boland

Curtin University ( email )

Kent Street
Bentley
Perth, WA WA 6102
Australia

Marie-Laure Djelic

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX
France

Brendan K O'Rourke

Dublin Institute of Technology ( email )

Aungier Street
Dublin 2
Ireland
+353-1-4027097 (Phone)

HOME PAGE: http://www.dit.ie/marketing/staff/brendanorourke/

Nitasha Kaul

University of the West of England

Blackberry Hill Bristol
Bristol, Avon BS16 1QY
United Kingdom

John Holmwood

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

Timothy Kuhn

University of Colorado at Boulder ( email )

1070 Edinboro Drive
Boulder, CO 80309
United States

Patrick Ainley

University of Greenwich ( email )

30 Park Row
Greenwich
London, SE10 9LS
United Kingdom

Dawa Sherpa

Jawaharlal Nehru University ( email )

Vasant Vihar
New Delhi, DE Delhi 110067
India

HOME PAGE: http://jawaharlalanehrunewdelhiindia.academia.edu/dawaSherpa

Philip Welch

University of Bristol ( email )

University of Bristol,
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Bristol, BS8 ITH
United Kingdom

Keith Reader

University of London Institute in Paris ( email )

11 Rue de Constantine
Paris, 75007
France

Jan Culik

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Kevin McSorley

University of Portsmouth ( email )

University House
Winston Churchhill Avenue
Portsmouth, Hampshire PO1 2UP
United Kingdom

Nadia Edmond

University of Brighton ( email )

Mithras House
Lewes Road
Brighton BN2 4AT
United Kingdom

Steve Fleetwood

University of the West of England (UWE) ( email )

Blackberry Hill Bristol
Bristol, Avon BS16 1QY
United Kingdom

Andrew M. Fischer

Erasmus University Rotterdam (EUR) - Institute of Social Studies (ISS) ( email )

PO Box 29776
Den Haag, 2518 AX
Netherlands

Guillaume Delalieux

affiliation not provided to SSRN

Helena Syna Desivilya

Max Stern Academic College of Emek Yezreel - Sociology and Anthropology ( email )

Yezreel 19300
Israel

Dennis Leech

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

Michael Loughlin

Manchester Metropolitan University - Cheshire ( email )

All Saints
Manchester, M15 6BH
United Kingdom

Willy Maley

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

David Wield

Open University ( email )

Walton Hall
Milton Keynes, Buckinghamshire MK7 6AA
United Kingdom

Machiko Nissanke

University of London, School of Oriental and African Studies (SOAS) - Economics ( email )

Thornhaugh Street
London WC1E 7HU
United Kingdom

Roger Brown

Liverpool Hope University

Taggart Avenue
Liverpool, L16
United Kingdom

Mark Addis

Birmingham City University ( email )

School of Social Sciences
City North Campus
Birmingham, West Midlands B42 2SU
United Kingdom

Stuart Sean Farquhar

University of Wolverhampton ( email )

Wulfruna Street
Wolverhampton, West Midlands WV1 1SB
United States

David J. Cooper

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada

Chris Carter

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

Meera Sabaratnam

SOAS, University of London ( email )

10 Thornhaugh Street
Russell Square
London, WC1H 0XG
United Kingdom

Maria Aluchna

Warsaw School of Economics (SGH) ( email )

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Poland

Roger Gill

Durham Business School ( email )

Millhill Lane
Durham, Durham DH1 3LB
United Kingdom

Alice Bryer

IE Business School ( email )

Calle Maria de Molina 12, Bajo
Madrid, Madrid 28006
Spain

Peter Beusch

Göteborg University - School of Business, Economics and Law ( email )

Vasagatan 1
Goteborg, 40530
Sweden

Nabil Harfoush

Ontario College of Art & Design University ( email )

100 McCaul St
Toronto, Ontario M5T 1W1
Canada

Hein Vrolijk

Independent ( email )

No Address Available

Bill Cooke

University of York ( email )

Heslington
University of York
York, YO10 5DD
United Kingdom

Michael Pirson

Fordham University - Graduate School of Business Administration ( email )

1790 Broadway 1147
New York, NY New York 10019
United States

Harvard University

1875 Cambridge Street
Cambridge, MA 02138
United States

Humanistic Management Network ( email )

St. Gallen
Switzerland

David Carroll Jacobs

Morgan State University ( email )

1700 E. Cold Spring Ln
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United States

Alessia Contu

Independent ( email )

No Address Available

Nihel Chabrak

College of Business, United Arab Emirates University ( email )

P.O. Box 15551
Al-Ain
United Arab Emirates

Philip Ireland

Kent Law School ( email )

Keynes College
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United Kingdom

Julie Matthaei

Wellesley College - Department of Economics ( email )

106 Central Street
Wellesley, MA 02181
United States
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617-283-2177 (Fax)

Vincenzo Bavoso

University of Manchester - School of Law ( email )

Oxford Road
Manchester M13 9PL, M139PL
United Kingdom

Tanweer Ali

State University of New York (SUNY), Empire State College ( email )

2 Union Ave
Saratoga Springs, NY 12866
United States

Lorenzo Massa

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

David Gindis

University of Hertfordshire - Business School ( email )

Hatfield, Herts AL10 9AB
United Kingdom

Michael Smith

affiliation not provided to SSRN

Jean-Pierre Chanteau

Université Grenoble Alpes ( email )

France

Robert F Coles

University of Leicester - School of Management ( email )

Leicester
Leicester, AK LE1 4AY
United Kingdom

Marcello Palazzi

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Roger L. Martin

University of Toronto - Joseph L. Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Hugh Christopher Willmott

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Cardiff Business School ( email )

Cardiff CF10 3EU
United Kingdom

HOME PAGE: http://https://sites.google.com/site/hughwillmottshomepage

Jeroen Veldman (Contact Author)

City University London - Faculty of Management ( email )

London
United Kingdom

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