William Roy And Contemporary Corporation Essay, Research Paper

William Roy’s conception of the contemporary corporation focuses on the merger wave of the 1890’s during which which many large firms turned to public capital markets to facilitate mergers. The change that occurred in corporations was when they went from a public sphere to a private sphere. Two sectors, manufacturing and financial, came together at this time. In this book Roy criticizes the efficiency theory and relies heavily on the power theory. He felt that with the efficiency theory, anything that was done was done to maximize profits at that given time in history. The power theory looks back on history and relies heavily upon it. The main transformation that has occurred in corporate America has been the transformation of the ownership. Now corporations are owned by many people, (socialized capital) instead of an individual. “Corporations were developed to undertake jobs that were not rational or not appropriate from the perspective of the individual businessman.” (Roy, 41) This is where the transformation of public too private took place.

The corporation that exists today has been contingent and developed from pre-existing forms. It evolved from the public corporation. The emergence of the railroad, the power of anti-monopoly, anti-state method of Jacksonian anti-corporation privatized and democratized the corporation. Although the corporate retained many of its privileges, it also made these privileges available to the general public through incorporation laws. Thus, the corporation lost its hold on its public accountability.

The boundaries that were developed between the public and private could have been drawn quite differently. For instance, the manufacturing field could have maintained its power in firms that were not corporations. In addition, the corporate setting could have retained its public accountability. The state could have maintained more control over railroads and banks the way it controls highways today. Those who received the right of incorporation should have had to fulfill a public responsibility. States have performed private tasks in producing “consumer goods, trading commodities, speculating in land, and investing in enterprise.” (Roy, 44) The financial market also developed together with the federal treasury. Securities were sold through private brokers, while the state could have sold these securities directly. The boundaries are very shaky and not carefully explained.

William Roy presents a theoretical approach that argues that the concept of power provides a more sound and “more accurate foundation for understanding such economic processes as the rise of the large corporation.” (Roy, 6) He explained that only when managers of firms made decisions that were comparatively advantageous, did they survive. He thinks that efficiency theorists are functionalists. Power has influenced those who survived the competitive process, and determined the rules of the competitive process. This helps to explain why firms that survive the competitive process are not necessarily the most efficient. “American businessmen have always been aware that they share common interests at least as much as they compete over conflicting interests.” (Roy, 177) Businessmen have cooperated and there does exist a market.

The efficiency theory “is a selection process that ensures that more efficient economic forms will prevail over less efficient forms.” (Roy, 7) Under this theory, the “invisible hand” has replaced the “visible hand.” This reduced the costs of production and increased output per worker. The efficiency theory states that when people produce and distribute goods and services compete for scarce resources and only the truly efficient survive. According to the efficiency theory if something new is introduced to the marketplace it must be more efficient than its alternatives. An example of this is railroads. Railroads were developed because they were a more efficient way of traveling.

The power theory rejects some of the ideas the efficiency theory proposes. The efficiency theory attempts to explain why groups of individuals were motivated to form new corporations and not why they were able to. When corporations were formed, large amounts of resources were distributed unevenly. The efficiency theory treats uneven distribution as a flaw. The power theory treats the distribution of resources as important to the development of corporations. Also, if an industrialist is faced with the grim possibility of bankruptcy or a hope to merger, then they will most likely merger. The events that led to this decision involve power. People choose their own actions and make others act in a similar way with regards to their actions. Roy believes that size matters when controlling for other things. Labor productivity is lower in incorporated industries, so it must not be that incorporation makes firms more efficient. He believes that power is best explained in which the behavior of one person is explained in terms of the behavior of another. He believes that structural power gives an employer “that hires sociology majors rather than economics majors structures the consequences of choosing a major and is exercising power over students deciding on a major.” (Roy, 14) This idea of power, supercedes the efficiency theory.

Roy examines socialized capital in three states, New Jersey, Pennsylvania, and Ohio. In this section of the book, he examines the evolution of the corporation from a tool used by states to encourage economic development and raise revenues to its emergence as a private agent. This makes the corporation available to all through general incorporation statutes with no public responsibility or accountability. New Jersey had the most limited experience with public corporations. It was an investor to Camden and Amboy, and was able to keep its taxes low. However, the state was controlled by the railroad when it should have been reversed. Pennsylvania had both mixed corporations in which it invested and public corporations. Ohio had the most activist policy. The Ohio canal system developed the region and integrated it into the national economy. Ohio experienced failure in logrolling and almost bankrupted the whole state. Roy examined three different experiences of corporate law in his study. These areas included, permissibility of corporations owning other corporations, the powers of boards of directors and the extent of limited liability. The experience of mixed and public corporations has helped shape the attitudes of the three states. New Jersey’s corporate law was the most privatized which allowed corporations broad flexibility in owning other corporations, giving power t corporate boards, and extending unlimited liability through both a general incorporation statute and special charters. Ohio was on the opposite end of the spectrum. They were suspicious of the corporate from and many limitations followed. Thus, business in Ohio was less likely to be organized within a corporation. Roy insists that economic activity need not have taken place within the socialized corporation, or atleast not within a corporation with no social responsibility. He feels that there is nothing natural or inevitable about the present configuration of rights and responsibilities that constitute the corporation. This again explains why power is better than efficiency. ” Actions are explained in terms of their relationships with other social actors. The various alternatives they have to choose from and the costs and benefits resulting from the alternatives are determined by some social actors much more than others.” (Roy, 76)

The histories of particular industries, arguing that their use of the corporate form cannot be explained by changes in their technology. The desire for monopoly control and the expectation of financers that the corporate form would be used, led firms to incorporate. If one chooses to operate outside of the corporate sphere today, the chances for success are much more risky. This has happened because of the prior history and had changed investors’ ideas about how business had to be organized. The comparison of the three states is intended to suggest that there were various paths that the development of the corporation could have taken. These three states also have similar economic development, industrialization, and integration into the national economy. The existence of the market changes how rational people behave. Competitive pressure forces rational people to think more carefully. It also increases the importance of money in these calculations. His is quite relative to the real concerns for the community and the quality of human interactions.