Monday, 2 May 2011

The Church and the firm

From the JEL article mentioned in a previous posting comes the following comment:
Firms are an essential part of the economy. However, as Daniel Spulber points out [...] the modern firm is a relatively recent phenomenon. From the earliest times to the eighteenth century, business was carried out by farmer, artisans, and merchants (Spulber, p. 103). According to Alfred D. Chandler, merchants still ruled the (American) economy in 1790. The family remained the basic business unit. The general merchant bought and sold all types of products and carried out all the basic commercial functions. By the 1840s, such tasks were being carried out by different types of specialized enterprises. However, it was still true that these enterprises were personally managed by their owners or by managers who worked closely with the owners. It was only in the second half of the nineteenth century that the world saw the emergence of the modern corporation, a multiunit enterprise operated by teams of salaried managers who had little or no equity in the firm (Chandler 1977, p. 17; Chandler 1990, pp. 1, 14).
But I can't help thinking that the multiunit enterprise is older than this would comment would suggest. In fact what is, I'm guessing, the oldest multinational company still operating in world today would tell us that the large corporation is older than many would think.

The Roman Catholic Church has been in operation for hundreds of years, in multiple countries. From the start it has been a large, sophisticated, multinational company with the Pope acting as the CEO, the College of Cardinals as the board of directors and the bishoprics and monasteries as its franchises. It is an early antecedent to the General Motors, BPs and Microsofts of today. The Church is basically what Oliver Williamson calls a M-form corporation. The Church assigned operating decisions to self-contained operating divisions consisting of monastic orders, dioceses and other sub-entities. The general office maintains the papal bureaucracy (the Curia) that acts as an advisor to the Pope in his role of CEO. It also monitors the behaviour of the clergy (rather poorly in come obvious cases) who are in the operating divisions, in much the same was as franchises are controlled. Strategic policy for the Church is made by the general office, the Vatican in this case. The Vatican also allocates resources among the competing divisions-the monasteries, national churches etc.

The Roman Catholic Church has been, among many other things, a large economic player in many regions of the world for a lot longer than most people realise and thus the "modern" firm isn't as modern as you may think.


bk drinkwater said...

Interesting. I'm trying to think how many centuries back this logic could be pushed: probably ten (before that, cardinals were much less powerful and board-like, and their evolution in that direction took a long time), but your mileage may vary.

Tim Worstall said...

One of the mooted suggestions for celibacy in the Catholic Church (11 th century I think it was imposed?) was precisely to stop the corporation, over the generations, falling apart into family managed units.

Paul Walker said...

bk: the formal character of the church emerged as a result of the Edict of Milan in A.D. 313. The independence of the church from secular rules occurred in 12th century when Pope Gregory VII got authority to appoint bishops.The Concordat of Worms in 1122 granted the pope vast new organisational powers. At this point the pope basically had power over the church.

Tim: a common, and logical argument.