David Gindis

An Interview with Oliver Williamson

OW: I regard the economics of organizations as a pluralist enterprise: there are lots of different ways of approaching this subject and we are a long way from of having an adequate understanding of complex economic organization. I think it useful to have many candidate approaches and see what headway these can make, individually and collectively, to move beyond the older view of the firm as a production function or black box. We need to open the box and examine the mechanisms inside to get a better understanding of what is going on and why. Among other things, better theories will lead to better informed public policy. My Ph.D. training at the Graduate School of Industrial Administration at Carnegie Tech had a huge influence on me in this respect. It was a very interdisciplinary place, especially as it combined economics and organization theory. Also instructive was the year that I spent with the Antitrust Division of the US Department of Justice in Washington DC in 1966–67. Rather than be assigned to the economics division, which was mainly thought of as a litigation support group, my assignment was to fill a new position as Special Economic Assistant to the Head of Division. Rather than provide litigation support for ongoing cases, I focused instead on the analysis of prospective cases. Also, I felt less constrained to view the neoclassical theory of the firm as an all-purpose construction. Too often, a black box theory of the firm made a tenuous and, sometimes, convoluted connection with key issues. Vertical integration issues came up in this connection, including the design of the vertical integration guidelines. I was privileged to be a

Ernst Freund as Precursor of the Rational Study of Corporate Law

The rise of large business corporations in the late nineteenth century compelled many American observers to admit that the nature of the corporation had yet to be understood. Published in this context, Ernst Freund’s (1897) little-known The Legal Nature of Corporations was an original attempt to come to terms a new legal and economic reality. But it can also be described, to paraphrase Oliver Wendell Holmes, as the earliest example of the rational study of corporate law. The paper shows that Freund had the intuitions of an institutional economist, and engaged in what today would be called comparative institutional analysis. Remarkably, his argument that the corporate form secures property against insider defection and against outsiders anticipated recent work on entity shielding and capital lock-in, and can be read as an early contribution to what today would be called the theory of the firm.

Overcoming the Impasse in Modern Economics

In the wake of the global financial crisis of 2008, the greatest economic disaster since the Great Depression, the cover story of the July 18th 2009 issue of The Economist, entitled “What went wrong with economics,” opened with an unequivocally incriminating statement: “Of all the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself.” In the months surrounding this indictment, many influential economists, including several Nobel laureates, were drawn to the same embarrassing conclusion. Despite the existence of a handful of Cassandras, economists, as a group, had failed to foresee the crash. This short essay reviews the criticisms addressed to modern economic theory in the immediate aftermath of the crash. Overall, the main issues raised by critics were that (a) economists versed in the dominant models in macroeconomics and finance have been blinded to the possibility that we live in an uncertain and complex world; and (b) that the content of current economics education has sidelined many of the relevant insights to be found in the history of the discipline. This has led the critics to call for changes in the institutional structure of discipline, with a particular emphasis on the promotion of interdisciplinarity, and theoretical and methodological pluralism.