If we want to explore the question do we need corporations, we need to at the very least look at the origin. Why did the need for corporations arise in the first place? Corporations are a fairly recent invention. Most economic interactions in the past featured individuals and not corporations. Even the oldest of these creatures are at most a few centuries old.
The need for corporations arose due to a combination of increasing costs, risk and complexity. The combination of these factors meant that it started to become too risky for any individual to engage in transactions particularly foreign ones. The answer was to find some mechanism with which to share the risks with others. This also meant that the rewards associated with the successful completion of the project needed to be shared as well and a mechanism for that also had to be developed. This was the beginnings of corporations.
The start of industrialization provided a big boost to corporations. Industrialization enabled new, mechanized, faster processes. At the same time, it increased the rewards of meeting a market need by steadily and drastically lowering local and international transportation and communication costs. This meant that increasingly people needed to work together in larger groups to accomplish a common purpose. This provided a major impetus to formalize this arrangement; in other words, the modern corporation was born.
The new entity adopted a command and control mechanism because at that time, this was the most efficient way of lowering transactional costs. The problems of managing a large group of people focused on a common goal had first been encountered by the development of professional armed forces and the solutions these had come up with were adapted in a civilian setting. The structure thus formed has proven to be remarkably durable. It has been adopted and adapted worldwide and still continues to thrive despite major recent technological, political and social developments. The question thus arises: has this structure become anachronistic or is it still relevant to the needs of the future?
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