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

The University of Manchester - Division of Accounting and Finance

Mary A. O’Sullivan

University of Geneva

Catherine Sauviat

Catholic University of Louvain (UCL) - School of Economic and Social Research (IRES)

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 College London - Institute for Innovation and Public Purpose

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; De Montfort University - Department of Accounting and Finance

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

American Institute for Economic Research

Muir Houston

University of Glasgow

Mehmet Ali Dikerdem

Middlesex University

Maureen Boland

Curtin University

Marie-Laure Djelic

ESSEC Business School

Brendan K O'Rourke

Technological University Dublin

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 - Centre for Economic Studies and Planning (CESP)

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

Sciences Po Lille

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

University of Gothenburg - 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 - Gabelli School of Business; Humanistic Management Network; Harvard University

David Carroll Jacobs

Morgan State University

Alessia Contu

Independent

Nihel Chabrak

College of Business, United Arab Emirates University

Paddy Ireland

University of Bristol

Julie Matthaei

Wellesley College - Department of Economics

Vincenzo Bavoso

The University of Manchester - School of Law

Tanweer Ali

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

Lorenzo Massa

World Economic Forum; Business School Aalborg University; Business Design Lab

David Gindis

University of Warwick - Warwick Law School

Michael Smith

Alfaisal University - College of Science and General Studies

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

Cardiff Business School; City University London - The Business School

Jeroen Veldman

Nyenrode Business university

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 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 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 )

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Lowell, MA 01854
United States

The Academic-Industry Research Network ( email )

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

Instiitute for New Economic Thinking ( email )

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Stephanie Blankenburg

SOAS, University of London ( email )

10 Thornhaugh Street
Russell Square
London, WC1H 0XG
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Julie Froud

The 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

Catholic University of Louvain (UCL) - School of Economic and Social Research (IRES) ( email )

3, Place Montesquieu
1348 Louvain-la-Neuve
Belgium

Antoine Reberioux

Université Paris VII Denis Diderot

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Paris, 75005
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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 )

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Cambridge, CB3 9DD
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Mariana Mazzucato

University College London - Institute for Innovation and Public Purpose ( email )

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Montague Street
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Grahame F. Thompson

The Open University - Department of Political Economics ( email )

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Steve Keen

Kingston University, London ( email )

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Kingston Upon Thames
London, KT1 2EE
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Paolo Quattrone

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
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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/

De Montfort University - Department of Accounting and Finance ( email )

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Barbara Czarniawska

University of Gothenburg ( email )

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Sweden

David Knights

Lancaster University ( email )

Lancaster LA1 4YX
United Kingdom

Laura Horn

Roskilde University ( email )

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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
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Israel

Henning Schwardt

University of Bremen ( email )

D-28359 Bremen
Germany

Keith Robson

HEC Paris ( email )

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Tony Hines

Manchester Metropolitan University ( email )

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Robert Eric Wright

American Institute for Economic Research ( email )

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Muir Houston

University of Glasgow ( email )

Adam Smith Business School
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Middlesex University ( email )

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United Kingdom

Maureen Boland

Curtin University ( email )

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Australia

Marie-Laure Djelic

ESSEC Business School ( email )

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Brendan K O'Rourke

Technological University Dublin ( email )

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Nitasha Kaul

University of the West of England

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John Holmwood

Princeton University ( email )

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Timothy Kuhn

University of Colorado at Boulder ( email )

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Patrick Ainley

University of Greenwich ( email )

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Greenwich
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Dawa Sherpa

Jawaharlal Nehru University - Centre for Economic Studies and Planning (CESP) ( email )

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Philip Welch

University of Bristol ( email )

University of Bristol,
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Keith Reader

University of London Institute in Paris ( email )

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University of Glasgow ( email )

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University of Portsmouth ( email )

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University of Brighton ( email )

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Steve Fleetwood

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

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Andrew M. Fischer

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

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Sciences Po Lille ( email )

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

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Dennis Leech

University of Warwick - Department of Economics ( email )

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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 )

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Machiko Nissanke

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

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Roger Brown

Liverpool Hope University

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Birmingham City University ( email )

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University of Wolverhampton ( email )

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University of Edinburgh ( email )

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Meera Sabaratnam

SOAS, University of London ( email )

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Maria Aluchna

Warsaw School of Economics (SGH) ( email )

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Roger Gill

Durham Business School ( email )

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IE Business School ( email )

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Peter Beusch

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Nabil Harfoush

Ontario College of Art & Design University ( email )

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Hein Vrolijk

Independent ( email )

Bill Cooke

University of York ( email )

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Michael Pirson

Fordham University - Gabelli School of Business ( email )

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Humanistic Management Network ( email )

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Harvard University

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Morgan State University ( email )

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College of Business, United Arab Emirates University ( email )

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Wellesley College - Department of Economics ( email )

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The University of Manchester - School of Law ( email )

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

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World Economic Forum

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Business School Aalborg University

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Business Design Lab

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Michael Smith

Alfaisal University - College of Science and General Studies

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Jean-Pierre Chanteau

Université Grenoble Alpes ( email )

France

Robert F Coles

University of Leicester - School of Management ( email )

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Marcello Palazzi

Rotterdam School of Management, Erasmus University ( email )

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Roger L. Martin

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

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City University London - The Business School ( email )

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Jeroen Veldman (Contact Author)

Nyenrode Business university ( email )

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