When the young Ronald Coase wrote "The Nature of the Firm" at the London School of Economics in 1937, I guess he was thinking about how powerful the functions of administrative coordination were.
That's not surprising, because Coase is full of curiosity and yearning for Lenin's revolution and the Soviet system, and that it is a new organizational capability and power. So, although Coase's article starts with the market, it ends with the company.
Coase himself should be very clear that the theory he developed is easy to promote from the enterprise to the whole country. Yes, I am talking about Lenin’s national trust.
Coase’s 1937 problem can of course be reversed: Why do you need a market if you have a business? Today's China is in turn asking such a question is particularly meaningful.
But the answer to this question is actually given in 1776 by Adam Smith in the great book The Wealth of Nations. There, in order to demonstrate how labor productivity can be improved, Smith gave a plan to break down the production chain. Smith said that the division of labor is limited by the market. The implication of this sentence is that the expansion of the market will lead to more detailed division of labor and more professional production, while more professional production is more efficient.
This theory is called "Smith's theorem" by later generations. If “enterprise†is to integrate the production chain into an organization, then specialization is a reverse operation that disassembles the enterprise into a single professional producer or supplier. In order to respond, it is called "reverse integration". Don't forget, this is what we mean by "marketization" today.
Marketization should have meant this. The market-oriented reforms that China opened 35 years ago, isn’t it that more companies are undergoing dismantling or “reverse integration� Under the “great unity†system of state-owned enterprises, enterprises that produce machine tools must simultaneously produce intermediate products and parts for the production of machine tools, because in the absence of a market environment (in terms of Coase, it can be understood as transaction costs). Infinitely large, companies have a strong tendency to integrate the industrial chain.
This is the explanation of Coase. Market-oriented reforms have made these machine tool companies increasingly dependent on buying intermediates and parts from other companies because they are more efficient and profitable. In this way, the entire manufacturing industry is constantly achieving division of labor and specialization.
Not only that, but the division of labor also promotes the expansion of the market, and the expansion of the market - according to Smith's theorem - will make the division of labor more detailed. In this way, the market-oriented reform completed the first decomposition of the “Coase Enterprise†under the planning system, which created the ability to quickly integrate China into the global production chain.
After 35 years, the Chinese economy is facing tremendous pressure from industrial upgrading. However, we are faced with the choice: Does the industrial upgrading depend on government power or market power? If relying on government forces to promote industrial upgrading, its approach must be to take the "Coase's road", integrate resources, internalize, and continuously "integrate" the industrial chain into those large enterprises. We have been doing this for years.
Today, in the financial industry, the media industry, strategic industries and advanced manufacturing industries, the practice of strategic restructuring and resource integration can be seen everywhere. The question is, through resource integration and integration, reducing the number of large state-owned enterprises and expanding their scale will certainly increase productivity and competitiveness?
What if you want to ask about the productivity of large companies that rely on administrative promotion and resource integration? How competitive is it? I don't think anyone dares to give a positive answer. With the integration of resources, the number of enterprises has decreased, the scale of enterprises has become larger, but the market has become smaller, there is no competition, and where does efficiency come from?
Another power of industrial upgrading comes from the deepening of the market. Give an example. In Shenzhen, due to the development of industrial clusters for many years, the upgrade of the mobile terminal industry in the value chain has been quite successful. Today, the mobile terminal products provided by Shenzhen have occupied nearly 70% of the global market, forming a complete industrial chain.
Among them, the emergence and outsourcing mechanisms of professional providers of supply chain management have contributed. All of this depends on the power of the market. It is not the integration of resources and the high integration of the industrial chain. On the contrary, it relies on the division of labor and specialization of continuous production chain decomposition and outsourcing. Great driving force. In this industry, it is world class and of course world class competitive.
This is the power of the market. Strange to say, the theory of Coase 77 years ago has become outdated today, but the thoughts of Smith 238 years ago are still new. (The author of this article: Professor of Economics at Fudan University, Director of Fudan China Economic Research Center.)
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