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(Trigger warnings: another AI post; Jean-Jacques Rousseau)
I want to talk about the economy in the face of the AI revolution, but let's go back to the basics first.
What is the purpose of a company? Not the stated one, the original one.
To provide value to its shareholders? Of course not, that's a very narrow view! It's like saying armies exist to kill people.
Do companies and markets provide a decentralized way to coordinate the efforts of large groups of people (choreography vs orchestration)? Yes, but what for?
Do companies and markets exist to maximize the economic output? Many would say yes, but the idea is wrong and will become more obviously wrong the more AI we inject into the economy.
Companies and markets exist to maximize the consumption! They exist so that more people consume more goods and services! The fact that these companies have to pay their workers is not an unwanted side effect, it's a feature! Companies exist to create and distribute goods and services to humans, and markets exist to ensure that each human gets a share that is sufficiently fair.
Both the industrial revolution and the transition to a service-based economy created millions, if not billions of new jobs, but is this an inevitable consequence of free markets? Will AI-fication of the modern economy do the same?
The correct answer is not "yes" or "no". It's "mu". If the economy reinvents itself again and people of the Global North find themselves new jobs, that's fine.
But if we suddenly start running out of jobs, accepting it as the inevitability of the market forces is the wrong way out. The right way out is retiring the market forces, not submitting to them. Creating shareholder value has always been the real side effect.
I have a slightly different answer from what seems to have been offered so far. Companies, as a legal form, are a carrot-and-stick deal offered to the individual by society in order to channel his ambition into pro-social or at least less harmful ends.
The carrot are tax advantages, paperwork benefits, legal perks such as being able to claim unique use of a recognisable artificial trademark, and some degree of shielding of the individual behind the enterprise from repercussions (such as debts far in excess of what the enterprise could be expected to make up for, or legal responsibility for side effects and damages caused by it), as long as he plays by the rules.
The stick is, often, outright lawfare against individuals who pursue their ambitions without signing up to the form (in Germany for example you can not even, as a private person, make and sell software to the public without registering a company).
The means by which the goal (of channeling individual ambition to pro-social ends) is pursued are legal requirements to make the activities of the company legible in particular ways (bookkeeping, charters, records) and adhere to all sorts of restrictions on shape, purpose and behaviour. If there is an obligation to "maximise shareholder value", on the flip side this means that a company can not actually have the terminal value to "maximise paperclips", and there may be legal ways to mobilise society against if it appears to do the latter over the former. Also, the things that a company can command its employees to do are a subset of the things an individual can force another individual to do with a legal contract, which are a subset of the things an individual can force another individual to do with legally unregulated compulsion such as individual or communal violence.
The alternative to companies, the thing that there would be more of if someone erased the concept of companies from reality with a memetic Death Note, does not look like people no longer getting together to achieve things, or less consumption. It looks like more instances of things like the Mafia, cults and Genghis Khan's hordes. If you only erased companies narrowly writ, you might also (at least) get medieval guilds, which are really an older, rougher attempt at the same thing.
As far as I'm aware, there are few countries where this is actually true. Yes, it's the default but if the charter of the company says otherwise, the obligation can be something else (as long as it's legal).
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Well, a banker just got himself into hot water for using terms I've seen thrown around freely here and elsewhere regarding high and low value human capital. Mask off moment where AI adoption en masse is going to rip back the curtain as to how our owners really feel about the mass of us peons?
I think AI is going to make things very interesting, because it'll be the lower echelons (at first) of those who like to think of themselves as 'high value' human capital getting replaced. But I think there's no reason - at least in the medium term - why the CEO or group chief executive (as in this case) could find themselves replaced by AI (it can do all the analysis and forecasting and reporting to the board and as for leadership, there are only a few upper managers remaining since the lower levels were all automated out) but the guy doing electrical maintenance at the headquarters keeps his job because he's not currently replaceable by a computer or robot.
The mask has been transparent since the change from "Personnel" to "Human Resources".
Before that it was “Manpower” which really doesn’t seem too different to “Human Resources”.
tbh manpower is at least honest.
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We can just as soon as redistribute the consumer tokens as we can ban the AI. Which is why I've been banging on about Universal Income with like a consumption tax this whole time. Banning AI won't work for many reasons, not least of which because other markets won't ban it.
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A sort of tangential comment, but when reading that in one month we have Amazon and retailer price-fixing, 90% of poultry suppliers price-fixing, most of the world’s shipping container manufacturers price-fixing, and a new investigation into beef price-fixing, I’m thinking the model of consumer capitalism is simply wrong today. It’s easy and desirable for wealthy owners to coordinate together to maximize profits by agreeing on prices in unison and only changing this formula to prevent a competitor from gaining a foothold in the industry with the deployment of predatory pricing. You can’t do anything about this, and if they’re clever, they realize that it is in their collective interest to never lower prices and instead make more money through coordination without actually putting anything in writing. The system actually just sucks!
But all the capitalists say farmer brown will simply spin up a multi-billion dollar beef industry; using the power of his mind and his bootstraps to roll back climate change 15 years and materialise another Idaho's worth of grazing land from the ether!
But they don't say that, as you know.
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If you mean company in the sense of "for-profit corporation," then I think the answer is pretty straightforward: Companies exist to (1) encourage people to invest in business ventures by offering them limited liability; and (2) offer people a convenient, off-the-rack method of organizing a partnership.
If you mean company in the sense of "firm," I think it's also pretty straightforward: Companies exist because there are synergies in having a bunch of people working together on some joint project.
I'm not sure why you switched from just "companies" to "companies and markets," so I will focus on companies. Ok, suppose a company is faced with a choice between (1) maximizing shareholder value; and (2) maximizing consumption. For example, perhaps the company produces some luxury good or service and there is a clear choice between (1) selling limited amounts at a fat markup; and (2) selling large amounts with paper thin margins. Assuming the math clearly shows that choice (1) is far more profitable, I would expect the company to take that choice. (Obviously, things are rarely so clear-cut in the real world, but in a situation which really was that clear, a company CEO who chose (2) could expect to be sued by the investors.)
Of course, in theory society could step in and more or less redefine the purpose of companies. Seize the means of production, if you will. I think that's what you are basically arguing here, and I don't necessarily disagree with you. Logically it makes sense that once mankind's final invention takes place, there's no more need to encourage private capital investment. Perhaps This Time it's Different.
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The original reason for companies is really simple to derive. People engage in mutual trade in order to improve their life. Guy A has two cows and no chickens, guy B has no cows but four chickens, they trade and now they both have a cow + two chickens, or whatever. Or you exchange labor, you'll mow their lawn (something they hate to do) and they'll do your dishes (something you hate to do). Or anything else like that. You trade for your own benefit and both sides (in free trade without coercion) gain overall utility.
There is no greater overall thought to your choice to trade a surplus pencil for a desired pen. You just would prefer the pen over a pencil and they prefer a pencil over the pen.
But uh oh, some tasks or goods that people want for trade are complex and require the coordination and labor of multiple people in order to provide. But the benefits of this trade will be so good that it's worth it, so someone who is smart and enterprising makes a group to do that and make/do something in order to trade it for their own profit.
There you go, that's the purpose of a company. It is to enrich the owner through engaging in trade just like everyone else engaging in trade is doing.
The pencil company doesn't make pencils "for the jobs" (in fact they want low labor costs) or for "the greater good", they do it to sell the pencils and make money. And people buy the pencils not for the jobs it creates, or for the greater good, but because they want a pencil.
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This seems exactly the wrong way round to me. You were closest with choreography - corporations exist as a handy package to allow groups of people to coordinate to do whatever they want to do.
Or are you asking, “why does the government permit corporations to exist”? Beyond freedom etc.
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