Economy of the organizations

The economy of the organizations is a branch of the economy which studies the whole of institutional arrangements allowing the implementation of the Production and goods and of services exchanges it. In a more restricted direction, the economy of the organizations consists in the study of the Organization like specific economic entity, the Entreprise being the analyzed organization in a privileged way. The economy of the organizations is also integrated in the broader corpus of the Théorie of the organizations .

The neo-classic theory and the “firm not”

The company, and in a more general way the organizations, for a long time were ignored by the neo-classic economic theory. Indeed, the latter summarizes the company through a Fonction of production determining the behavior of the Entrepreneur, presumedly rational. This last is guided by a single objective of maximization of the Profit starting from the use of two Factors of production (the Capital and the work). Accordingly, the company is a “Block box” insofar as the economy is not worried phenomena occurring in its center. The company is a point and an automat. The economic theory then explains the existence of the company by the technological factor: the company is the place making it possible to transform some inputs (work, Fixed asset, Capital working, Human capital) into outputs (goods and services marketed on the Marché).
The famous article of Ronald Coase, “The Natural off the Firm”, published in 1937, mark rupture with the standard neo-classic approach of the organization. As from the years 1940, it develops indeed a whole of alternative approaches ambitionnant to answer various questions:

Pourquoi do there exist companies and various other forms of organizations? does
Comment behave the organizations, as distinct economic entities? does
Comment organize the production within the companies? How do the organizations function?
How to explain the various trajectories followed by the organizations? Which are the determinants of their evolution? How do they make vis-a-vis the recent transformations of their environment?

It is possible, schematically, to gather the various economic theories of the organization in three categories: approaches “contractualists”, approaches “cognitivists” and approaches “political”.

The approaches contractualists: theory of the costs of transaction and theory of the agency

The approaches contractualists of the organization return to the neo-classic branch of the Nouvelle institutional economy (one will speak about “wide standard theory”): the company is designed there as a “node of contracts” from which the production is organized.

The theory of the costs of transaction

The article of 1937 of Coase marks the birth of the concept of Coût of transaction, concept in the center of the approaches contractualists of the organizations. In this article, Coase tries to determine the reasons for which there exists, beside the market, of the alternative modes of coordination of the activities of the economic agents such as the organizations and more specifically the entreprise.
For Coase the explanation comes from what the recourse to commercial coordination, i.e. by the system of price, involves costs of three kinds: “costs of research and information” (for example, associated costs at discovered adequate prices), “costs of negotiation and decision” (for example, costs of negotiation and contract signature), “costs of monitoring and execution” (for example, costs related to the monitoring of the people receiving benefits). This unit is gathered under the generic term of costs of transaction. Coase affirms whereas the agents will prefer to resort to a mode of coordination alternate, founded on the hierarchy and not on the system of price, as from the moment when the costs of transaction related to commercial coordination will exceed those related to hierarchical coordination (this relation is known under the name of “Théorème of Coase”). The opposite relation is obviously also valid. With Coase, Gone and Hiérarchie are thus conceived like the two alternative forms of coordination.

The brilliant intuition of Coase will remain more or less been unaware of during more than forty years. It is necessary to await work of Oliver Williamson in the Seventies and Eighties so that the intuitions coasiennes are formalized, through the Théorie of the costs of transaction. In addition to Coase, Williamson bases its approach on the contributions of a series of authors: J.R.Commons, Herbert Simon, Kenneth Arrow or the historian Alfred Chandler. Williamson starts by giving microeconomic bases to its approach starting from two postulates on the behavior of the economic agents: on the one hand, in line of Simon, Williamson postulates that those are equipped only with a limited Rationalité, which indicates that if the agents are rational (i.e they have Préférence S and objectives which they seek to reach), they nevertheless are limited on the cognitive level so that they cannot calculate all the possible states of nature before acting. In addition, these same agents are supposed to be opportunist, i.e. they can resort to the trick or the cheating to arrive to their ends.
The economic agents conclude between them from the transactions. Three factors come to differentiate these last: the specificity of the exchanged credits, uncertainty and the frequency. A credit (material, human etc) is known as specific when a transaction requires a durable investment and that this one is little, even at all redéployable on another transaction. In this case, the agent which engages the credit in a transaction is found in a situation of dependence with respect to the other part. This bond of durable dependence which is created makes the transaction commercial typical unsuited because a series of problems arises (control of the respect of engagements, definition of the rules of division of the results of co-operation etc). The uncertainty, combined with the limited rationality of the agents and their opportunism, induced the more or less important probability of supervening of risks related to the transactions. The more important uncertainty is, the more the institutional structure underlying the exchange must be able to answer these risks effectively. Lastly, the frequency of a transaction is increasing function of the specificity of the committed credits: the more specific one credit is, the more the committed parts are likely to have to act conjointement.
With these data in hand, it is then possible to state the central idea of the theory of the costs of transaction: selected institutional arrangement (undertaken, gone or any form of “hybrid” organization concession, alliance, networks etc) will be that which will minimize the costs of transaction plus the production costs.
One can then outline a typology of the various forms of possible institutional arrangements according to the degree of specificity of the credits, the uncertainty and the frequency of the transactions. On level of uncertainty given, Williamson shows thus that more specificity and the frequency is important, plus adopted institutional arrangement will tend towards a vertical integration of the activities and thus towards an administrative mode of coordination. Williamson indicates that vertical integration and the extension of hierarchical coordination are limited because of the problems of incentive and bureaucracy. Integration involves distortions and costs which are specific for him. Two additional points are to be noted: on the one hand, Williamson is pressed on this grid of reading to explain the appearance of the new forms of organization and in particular the development of the divisionnelle structure during the 20th century, setting ahead in addition by Chandler. Starting from a deductive reasoning, Williamson tries to show that this form of organization was essential because it minimizes the costs of transaction while revealing an internal market with the company. In addition, Williamson moves away to some extent of the original analyzes of Coase by minimizing the opposition between commercial and hierarchical coordinations. In particular in its most recent work, Williamson indeed tends to approach the companies like a node of contracts where employed and employers are apprehended like suppliers and customers.

Theories of the agency and the property rights

The theories of the agency (Michael C. Jensen and William H. Meckling, 1976) and of the property rights (Armen Alchian and Harold Demsetz, 1972) constitute direct applications of the neo-classic analytical framework to the situations where appears asymmetries of information between the agents. The latter are supposed to be rational and maximisateurs but the abandonment of the assumption of perfect information is at the origin of the emergence of problems of coordination and incentive. The company then seems an institutional arrangement likely to answer it.

The theory of the property rights leaves the postulate which any exchange between agents corresponds in fact to an exchange of property rights (in a direction broader than the legal direction) on objects. The function of the property rights is of internaliser the externalities and to thus provide to the individuals incentives to create and develop credits. The definition of the property rights must make it possible to arrive to a situation of optimal allowance of the resources (see Théorème of Coase). The organization, and more specifically the capitalist company (or firm), are then seen like a specific structure of property rights having to allow the implementation of incentives and effective and efficient audit processes. The majority of work lying within this scope of analysis lead to the conclusion that the capitalist firm, and more specifically the joint stock company, emerged because of superiority of the system of property rights deprived on all the other forms of organization of the production, to start with the state enterprise.

The approaches cognitivists: theories of competences and approaches evolutionary

One can gather under the term “cognitivist” the theory of competences developed in particular by Edith E.T. Penrose and George B. Richardson (although she knew a greater audience in the Sciences of management) and the evolutionary approaches.

The theory of competences

The theory of competences emerged with the work of Edith Penrose, published in 1959, The Theory off the Growth off the Firm . Penrose starts from an interrogation on the growth of the companies: why the firm grow does, in which direction, which are the factors which limit its growth rate? It defines the firm as a whole of productive resources organized within a managed framework. The function of the firm is to acquire and organize, by the means of plan, its resources (material, immaterial, human) with an aim of selling with profit, on the market, of the goods and the services. Accordingly, the firm will have to combine various manners the unit of its resources. However, because of the indivisible character of certain resources, the company generally will have an excess of resources. With this excess, the fact is added that the firm accumulates experience gradually and improves its productive process. These are the two factors (excess of resources and accumulation of experiment) which make it possible the company to grow. The latter will make use of the excess resources to carry out a coherent diversification. This use is function of three elements:

external opportunities which emanate from the environment;
the image that the managerial teams forges themselves of her external environment;
of the internal resources of the company.

Richardson (see in particular “The organization off Industry”, The Economic Newspaper , vol. 82,1972) comes to look further into the analyzes of Penrose. He starts by distinguishing the activities from competences. The economic activities correspond each one to a stage of the manufacturing process of a good or a service. They form a unit characterizing various industries. These activities are implemented within organizations which are based on suitable competences. In addition, two types of activity are distinguished: the similar activities which claim similar competences; the complementary activities which take part in the same production process without to mobilize same competences. Consequently, Richardson postulates that the diversification of a company will not be function of the potential profit which it will be able to draw, but of competences to be mobilized. A typology of the various forms of diversification can then be established:

vertical integration: complementary and similar activities
division of the labor: complementary but nonsimilar activities
coherent diversification: noncomplementary but similar activities

Richardson also looks further into the analysis of Penrose by studying the cases of co-operation between the firms like alternative to the market. Thus, it establishes that the companies will cooperate when the needs for coordination are narrow, the narrowness being strong when these needs are qualitative, not anticipables and that the innovations made by the companies are systemic.

Evolutionary approaches of the firm

Political approaches: theory of the regulation and economy of conventions

The political approaches of the company have as a major characteristic to underline the institutional dimension of the company, more than its organisational aspect. For this reason, the company is initially seen like place of production of rules and standards allowing the regulation of the behaviors. Two French currents hétérodoxes, the school of the regulation and the economy of conventions develop this prospect particularly.

The theory of the regulation and the capitalist company

The school of the regulation is current of thought French appeared in the years 1970. This scientific research program, whose main leaders of file are Michel Aglietta and Robert Boyer, emerged through an attempt to propose an endogenous theoretical explanation to the crisis of the years 1970. During very a long time, the program regulationnist was primarily of order macroeconomic, proposing to analyze the dynamics of the modes of accumulation and the modes of regulation of the economies. Quickly, the company however seemed an essential institution having to be integrated into the analyze.
The company is indeed designed like matérialisation of the compromises and the contracts structuring the process of accumulation. Five features are constitutive of the firm fordist, i.e. the company melting the development of the mode of accumulation fordist, such as it developed after the Second world war (Coriat and Weinstein, 1995, p. 171):

the company fordist is the place of a capital antagonism/work, which appears in particular through the division of the added-value;
the company is the place of implementation of principles allowing of the productivity gains;
the company fordist is a large company, generally integrated vertically, being based on the principle of the economies of scale;
the company fordist is the place of formation of a whole of formal contractual practices;
the company is a place of making of standards and standards.

Compared to the approaches contractualists and cognitivists, one of the originalities of the design regulationnist of the firm is thus to stress the political dimension and conflict of the company. The latter is the theater of a power struggle melting and structuring the macroeconomic regulation of the economies. Especially the approach regulationnist makes it possible to make a bringing together between the transformations which the companies currently know and evolutions affecting the mode of accumulation and the mode of regulation of the economies of the developed countries.

See the site of reference of the theory of the regulation: Association Seeks & Régulation

The company in the economy of conventions

The economy of conventions is current a French hétérodoxe appeared in the years 1980. Contrary to the theory of the regulation, the prospect conventionnalist is of order microeconomic and remains attached to the methodological Individualisme. The analysis conventionnalist of the organizations combines in fact the political approaches and cognitivists. Following the example theory of the regulation, economy of conventions (EC.) share of the premise that the market, far from being universal, is only one institution, i.e. a social construction (a “constitutive convention”) among others. While being based on the model of the economies of the size, EC. locates several logics with work within the company. The concept of convention occupies a central place from this point of view, since it is by the development of convention that the individuals arrive to coordonner.
Among major logics with work in the company, EC. stresses in particular the importance of commercial and industrial logics. These two logics take in particular form through two great types of company:

the commercial company: be based on the commercial logic which makes price the criterion of judgment of quality;
the company fordist: materialize the principles of industrial logic. The company fordist is founded on the standardization of the products and a scientific organization of the production.

Third logical, domestic logic, is another essential order generating a specific form of organization. Thus, the “domestic” company is based on the production of a product of quality traditional, being addressed to customers specialized and carried out starting from a work artisanal.
A fourth and logical last, or convention, occupies an important place: the convention of network. It is on this logic in particular that the toyotism and the productive organization which goes with are supported. These principal principles are the following (François Eymard-Duvernay, 2005): diversification of the products, management as Juste in time, versatility, news forms coordination between company (the network).
One includes/understands thus that the analysis conventionnalist dissociates approaches contractualists. In these last, the adopted organisational form answers a preoccupation with an economic efficiency (for example, to minimize the costs of transaction), this effectiveness being evaluated starting from a single referent (commercial logic). Contrary, according to the economy of conventions, the adopted organisational form is function of a bearing arbitration on the various designs of the community property, i.e. values from which the company wishes to be judged. Lastly, it should be noted that the grid conventionnalist also leads to analyzes raising more of the Sociologie of the organizations: to each logical convention/(commercial, domestic, industrial and of network), corresponds indeed a convention of work from which the workers coordinate each other.

Other approaches

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