END CORPORATIONS IN SERVICE INDUSTRIES

[Mrdthree]

SUMMARY: The notion of "Economies of scale" is used to justify the consolidation of industry into a few large corporations. The efficiency gains theorized to result from economies of scale are used to justify the trend of the destruction of small business by chain restaurants and shops. However the fact is that as organizations grow, they become more complex to manage and more risky for an owner. Owners have used grants of limited liability from the government to shield their wealth from this increasing risk the net result has been the consolidation of industry into fewer hands. The consequence of eliminating corporations in the service industries will be greater equity and overall wealth.

 

 

Economies of scale are constrained by risks of managing complexity

Any coder knows the principle that as the number of lines code grows in a program, debugging time grows exponentially. This problem in managing complexity occurs because the moving parts of code on average interact with all the other moving parts in a code. However this is a general problem when an organization increases in size-- moving parts or people potentially interact with all other moving parts or people inside and outside the organization. For example, when a company increases the number of truck drivers, it increases the risk the company will be sued as each accident makes both the business and the driver defendants. In service industries, hiring more staff will exponentially increases the number of interactions between staff. If there is a fixed risk of business or personal injury with every transaction, then that risk will scale exponentially with organization size. Businesses petition the government for grants of limited liability to shield their wealth from this risk.

 

Corporations are the remnant of feudal power and are not UPB rights

Limited liability corporations are not based in individual rights, they are government grants of rights beyond ordinary private property rights. An individual has the power to make contracts with customers. These agreements can limit liability (e,g. a software agreement) and be an important strategy for protecting an individual's wealth. However an individual can never be protected from the injury he causes to people with whom they have made no contract; this is known as third party liability. However, the government will grant individuals this power of immunity from accidental damage to third parties in return for annual fees of around $1000-$5000. However this is not a right that is universalizable; what would happen in a society if no one was liable for accidental damage to third parties? you could outsource your risk onto other people with no fear of penalty. The corporation was born in feudal times and was given a grant of continuity into the age of capitalism and individual rights so that the aristocracy could protect wealth from risky behavior (trusts, corporations, etc).

Corporations and trusts are state grants of power, repackaged holdovers of feudalism, that allow business owners to shield their wealth from the risk inherent in larger businesses.

 

Service industry scales risk faster

The more humans you add to an organizations, the number of human to human interactions will increase exponentially and the opportunities for business and personal injury likewise increase. In recognition of this risk, corporations use franchises and other limited liability structures. Some of these maybe viable UBP contractual structures, but is a franchise inherently more risky than an independent business? Yes: franchises are often vertical monopolies and only legal fictions insulate the overall organization from the damage it might cause to third parties (in road accidents, pollution, property manangement). This legal fiction prevents a lawsuit from seeing all the assets of the organization which the owners claim to hold. Whereas independent businesses are rarely vertical monopolies of this sort and risk is distributed among different owners.

 

As a first step to restoring individual property rights and ending the feudalistic protection of old wealth, the ability of service industries to form corporations should be halted followed by legal fictions such as trusts. It is needed now because automation risks greater consolidation of wealth than ever before with no commensurate increase in risk.