started then hi everybody my name is christy baer i'm the assistant director of the center on finance lawn policy thank you for spending the end of the year with us on our last blue bag lunch talk of the semester i know this is a really busy time of year um and so that's why we brought in one of the heavy hitters this time to make sure that it was a time well spent so the blue bag lunch talks exist as an opportunity to take advantage of the expertise that exists in many u of m schools and the interdisciplinary strength that is the university of michigan these are friendly talks they are as you can see virtual and opened to those outside of the university they are intended to make you think and to stump stump the chump with some new thoughts so you will be encouraged throughout this to raise your hand to ask questions do you want people to interrupt you or forget to ask it might make sense to do like if it's sort of a clarification question we can throw it in now but i think the suggestion was like toss the questions into the chat and then it's a little bit easier to be thematic and maybe call people based on that yep i usually it's a little tricky when you're managing the slides to take questions in the meantime so we'll go ahead and do that all right um so our speaker today is jerry davis he is the gilbert and ruth whitaker professor of business administration at the ross school of business he is also a professor of sociology with lsa u of m his research is broadly concerned with the corporation as a social and economic vehicle and so some of his recent work has focused on why corporations have so little insight into their global supply chains and some of the moral dilemmas that this poses or what organizational alternatives exist to the shareholder owned corporation um income inequality how national institutions shape corporate structures and these many many topics at the raw school if you are a student you can get on the wait list now because quick quick it's full professor davis is co-teaching this winter an award-winning class for grad students that's called it's the impact studio class and the focus this year is going to be on designing equitable enterprises as all of you know there are lots of industries that have gone through dramatic shifts particularly during covid and so they'll be looking at restaurants and trying to at the end the students will have a chance to prototype different types of enterprises chicago did i screw something up already no before jerry gets to turn things on its head i was just going to complain about maurice being on his head it's a little distracting so i thought it was pretty cool actually oh thanks thanks hilarious you'll have to tell us at the end how you did that um in addition to teaching i have had a chance to work closely with jerry through the detroit neighborhood entrepreneurs project he was the key architect and driving force behind having us start to offer one-on-one free financial financial help and accounting help to small businesses in detroit and he has a long history of doing good in a community engaged mutually beneficial and respectful way he has a new book that's coming out that's not available yet for pre-order right uh soon soon soon soon called taming corporate power in the 21st century and so in some ways this talk is a sneak preview of that so again um thanks for joining and at this point i will turn it over to jerry well thanks very much christie i really appreciate the introduction and appreciate the chance to uh to talk to this august group and uh thank you for mentioning it's friendly uh we're gonna do our best to be friendly here um this is uh this is a talk last year i discovered antitrust while spending a sabbatical in california uh and it's become this really exciting time in america because everybody thinks we need to uh take down big tech and that industries have become too concentrated and we need to revive antitrust uh to take on sort of these corporate behemoths and uh sort of beat them into shape and that's become kind of a consensus view you know something is up when uh josh hawley and amy klobuchar are in solid agreement about anything and so it's a weird time uh that we have so much political consensus on this idea that we need to reinvoke antitrust revive the spirit of brandeis and sort of break up big corporations i'm an organization theorist i'm a sort of amateur sociologist i guess and um for me what seems most shocking is the extent to which traditional uh traditional listed corporations are disappearing and that the forms that we're seeing don't fit into the categories that we're used to and i think that provides a bit of a challenge to this whole effort to use antitrust as the right vehicle so by the way this this opening painting is called uh girl with flower that's by fernand leger you can go visit it at the detroit institute of arts i highly recommend that you do that it's a lovely painting and it's a metaphor so let it sear into your memory here and then somewhere in the middle we will bring this metaphor back to see uh what what what that was all about and when you get bored and want to question some of my claims i'm pasting a bunch of links to articles some of the things that you'll immediately find contentious uh here's some articles that i've written that try to take those things on okay so away we go i'm using robinhood on my android to trade dogecoin which is a meme based sarcastic cryptocurrency uh i can attest to you that this is an actual meaningful sentence in the english language this actually does mean something it's not just a bunch of made-up words thrown together so imagine explaining this sentence uh to someone in 1990 before the web took off internet memes smartphones apps and cryptocurrencies uh that would be tricky now imagine explaining it to the 1890 u.s congress that passed the sherman act i feel this is the situation that we're in now that trying to revive antique antitrust might not be the best way to address the problems that we are currently facing so uh my last book because i'm going to advertise two books over the course of this talk nothing's free my last book raised the puzzling question why are public corporations in the u.s vanishing and it's puzzling because not that many people out of outside of finance have actually noticed that listed corporations are disappearing but they are the number of listed corporations today is about half what it was in 1997 and it's not just com it's not just 2008 it's sort of asymptotically approaching this pretty small number of listed corporations even as the economy is growing india has more listed corporations in the us now uh china if it doesn't will will vary shortly that seems like a bit of a puzzle and your go-to might be yeah that's because big companies are buying their competitors up in industries and that's not it one of the one of the links that i pasted there is a study i did looking at every company that entered and exited a u.s stock market from 2000 onward and it really does not it is not just that robert bork ruined everything and every and big companies bought up their competitors one way to get at that is to look at who are the dow jones companies at the end of the reagan administration and here they are uh if you're under 40 you have never heard of at least half of these companies i love showing this list because the young people say woolworth is that clothing like sweaters or westinghouse that's a fun name they have no idea what this list of companies is well this is when i was in graduate school these were this is the vanguard of american capitalism these were the pillars that had really held up the american economy since uh you know since 1930.
Fast forward to today and the red ones are the only ones left in the index not all of them are deceased but they might be splitting themselves up or changing into something different i think westinghouse is now called cbs and woolworth's foot locker but uh but but the intriguing thing is that it's not just that they bought all of their competitors that's not what became of the dow jones index and you look at this list now and it's kind of like going to your 30-year high school reunion and seeing what happened to the football team like in 1988 they were all ballers they were the rock stars of the school and now you sort of look around and say wow are these all like they're dead or got into some trouble with asbestos or you know ge used to be the quarterback but now it's living in a halfway house and you know who knows what's to become of it so it's it's weird to see what became of the big firms i don't think that you know that the burke was a gift to big business as as one sometimes reads and if you're a big fan of schumpeter you say yay creative destruction the big companies are going away and being replaced by exciting new startups and that's mostly not true this was a big year for ipos in the us a much bigger year for spax but but a somewhat big year for ipos but it's really never matched what we had in the 1990s so like furbys or parachute pants or clinton administrations uh ipos are like a 90s fad that's really not going to come back in in quite the same way so a reasonable question to ask is well why do we have public corporations in the first place if they're disappearing why did we ever have public corporations uh and my go-to for this uh is ronald coast as you know a lot of people's go-to for this would be ronald kos explaining it in terms of transaction costs uh and it is wonderful 1937 article uh koh said um why is it profitable to establish a firm the basic answer is that using free markets is not itself free there's a cost of using the market you have to go shopping you have to hire lawyers to negotiate contracts you have to monitor their execution so just markets alone don't solve things there are transaction costs for engaging in markets as he said here the most obvious cost of organizing production through the price mechanism is that of discovering what the relevant prices are because if there's 20 potential suppliers out there and all around the world it can take some real effort to figure out what the price should be so great insight it explains why we had businesses like ford motor company this is a famous rouge plant uh around the time this picture was taken both my grandfathers were welders working at the ford rouge plant one of them stayed there for 50 years which seems like a very long time they made their own steel on site their own glass their own cement highly vertically integrated all the way into like the rubber plantations in brazil that that ford owned so vertical integration makes sense when the transaction costs of using the markets can be high but what if everybody carried with them and this is by the way a thought experiment for you what if everybody carried with them a tiny super computer communicator that allowed them to look up the prices for everything in the world all day every day and they could create contracts for inputs with random strangers and track their performance in real time so just imagine this bizarre black mirror-like thought experiment where everybody can communicate with everyone all the time forever and look up the answers to every question like what's the formula for kurtosis so we're kind of living through that thought experiment right now what happens when the transaction costs start to approach zero for using markets and if you're coast you know what comes next you will get the pervasive outsourcing of the production of goods and services you will see the opposite of vertical integration you will see vertical disintegration so i call this nikification after nike if you haven't seen them they're this sneaker company that's kind of hit it big uh since they're beginning they have never done their own manufacturing in any large scale their thing was always we design we market we do the intellectual work and we contract out for the lower value-added tasks of production and that was kind of their model and it was common in the the garment industry but starting around say 1990 this has spread really widely throughout the american economy so there's i mean to put it to to overstate it but not by very much almost nothing you buy in the united states was actually manufactured by the company whose name is on the label so the best-selling brand of tv in the us in 2010 was vizio they they out-competed sony by far and nearly drove them out of the television business with 196 employees in irvine california and a supply chain that they've snapped together like a set of legos mobile phone phones obviously they're not manufactured by uh apple they're they're assembled at least by uh by foxconn in china uh pet food mostly made by a canadian company called menu foods it's made from all the same horse parts but they put different labels on it i want to chose up there it might not be horse parts but tomato sauce shockingly dozens of brands are all made made by ledestri in rochester new york so christy if you happen to have your grandma's delicious authentic sicilian recipe for tomato sauce you can send them the recipe and the design for a label and somebody in the control room will switch up the recipe on their uh on the control panel and they'll start squirting different tomato juice into tomato sauce into jars and putting your own label on it and they'll even get it to the store shelf so you don't really have to you don't have to leave your couch to be an entrepreneur in a sense heparin cia assassinations mostly done by businesses run by betsy devos's brother um you can find vendors for everything today and that's kind of become a truism you can you can find vendors for everything that seems real obvious for suppliers what about labor there is something really special about labor labor seems more likely to have sort of firm specific investments seems a bit harder to contract out but the short answer is uh uberization there's an article in the wall street journal from six years ago but it's still great still still sort of nails things i got a made masseuse dr chef vale personal shopper florist and bartender each has his own app and can arrive at my door in as little as 10 minutes so it is a cliche that any any action that one human being can take on behalf of another there's an app for that in the bay area like on street valet parking apps there's all kinds of crazy stuff people focus on the ride hailing business uh uber and lyft because that's the most accessible but i want to expand that definition a bit uh uberization to me is the creation of spot labor markets enabled by smartphones in which buyers and sellers can contract for the performance of specific tasks that sounds a little pedantic but what i'm trying to say here is the important thing about uber is not the ride to the airport it's the notion of a platform that allows buyers and sellers of labor to match by the task that's the thing that is potentially revolutionary if you've ever been to a home depot parking lot you know that there's a spot labor market every morning where you can hire people uh pay them cash for the day and say i need a i need a carpenter i need an electrician i need somebody to lay cement and if someone there has those skills they'll jump in your truck and you can go off to the job site so spot markets have existed forever but spot markets enabled by smartphones that's different that's i think a qualitative shift in the nature of labor markets uberization is turning the world into a spot labor market a kind of home depot parking lot around the world and it's not just low skilled tasks or giving people a ride this is happening at all levels of skills as oliver williamson might have predicted it's not the level of skill it's the asset specificity of the skill that determines is it going to be uberized or not so if you wake up at six o'clock and have a uti and need a prescription before you can get to work you can find a doctor online who has a license in michigan to write you a prescription at walgreen and they'll do a house call on your phone so doctoring has already been uberized to some extent lawyering has been uberized so for all the law people cover your ears it's already a horrible job but it's actually getting worse because the contract lawyers that used to show up in secure offices and have somebody wandering around and make sure you won't taking pictures of the documents you're redacting now you do it from home but they have a camera on you an ai that is watching your facial expressions and your movements to see whether or not you are misbehaving when you're doing redactions uh on a peace rate so doctors lawyers professors i think we're next for uberization i actually have this thought experiment uh that is a dystopian or magical depending on your perspective but you can see where this is going to go in the world of retail walmart has 2.3 million employers employees it's the world's largest employer suppose they wanted to go lean and turn into uber how might they do that so their associates which is what they call labor could transition to self-employed micro entrepreneurs and each one of them would spend the 50 bucks to create an llc to receive their compensation so it's all sort of fair and square their training would be self-funded provided by community colleges or third party vendors so you don't have to worry about training your employees or them leaving they're going to have to train themselves and they'll get a badge or a certification that says that they are suited for particular roles the evaluations be automated uh you'd combine speed which is measured by software and smartphone based customer ratings and the great part is that qualified associates if you're above a 4.5 rating on the app you'd be able to use the user app to bid for shifts within commutable distance as you know minimum wage does not apply to contractors and so if they're bidding for shifts they can underbid in principle the minimum wage the lawyers can tell me that i'm wrong about this but but i think i'm right about this you might get surge pricing on friday night but you might get below minimum wage on monday and the the wages would change according to market condition day to day maybe hour to hour you know you would actually be paid according to market conditions and we do away with those nasty internal labor markets and you know this will be greeted with joy all over the labor market like after prop 22 in california people will be their own boss and choose their own hours and be codependent no more i described this to a set of canadian executives in the lovely banff hotel that you've seen before and they said that's ridiculous that will never happen society would not put up with it literally within two weeks walmart rolled out their my walmart schedule app which you can go find on on android or ios and they already have an app that allows employees to swap shifts with each other if they're qualified they're not bidding in an auction yet but but it's certainly not impossible to happen okay so that works for suppliers laborers what about distribution this one's a bit easier the short answer is amazon fulfillment by amazon is the universal distribution channel if you've got anything amazon can get it to customers and charge them and drop it into your account this has created a super interesting business model this is a lovely piece by farhad manju new york times brilliant columnist who's you should read every word he writes because it's always super smart i'm a big i'm a boy i have to admit uh in his article he sort of was digging into how is it possible that i bought this webcam for 20 bucks i mean the name brand is 200 bucks this seems crazy to me and he dug into it and discovered that there's a business model in silicon valley primarily where people find things on amazon where the margin seems too high basically come up with a sketch find designers on upwork to refine the design go to alibaba to find a vendor to manufacture it and then send it to fulfillment by amazon so they've got this complete circuit the business model is find something that seems to cost too much under price it with an off brand and then eventually drive the price down to you know what i think normal economists would say it should be so in one sense great we're going to see better products from ludicrously low prices the sony's of the world will fall and the nert pals and vizios will rise we'll see if that actually turns out as magical as that but that's that's kind of the direction that we're heading um is a much more competitive marketplace uh the summarizing all of this is that the the four core markets to create an enterprise have been uh the transaction costs relying on markets rather than vertical immigration have been radically declining and this takes the form in serial of financialization which is the increasing centrality and accessibility of financial markets as opposed to say banks nikification amazonification i guess and uberization spot markets for labor the core component markets for firms using a market has gotten a lot cheaper and as a result of this the components to create an enterprise look a lot like a pile of legos waiting to be assembled you could sit on your couch on your laptop if you've got a credit card you can snap a firm together essentially and this is how we end up with products like instant pot the greatest advance in human civilization over the last 20 years i think anyone that that has an instant pot would agree we have lots of instant pots they're fantastic designer of this thing funded it himself for 350 000 bucks they sell 300 000 units on prime day alone it's like this worldwide phenomenon with this one guy and his 50 employees in ottawa i'm relying on the market that i the model that i just described so that's a weird world what a frictionless markets like this mean for employment so this is a list of america's 10 largest corporate employers today um and one of the things that you'll immediately notice is they're mostly in retail retail and warehousing but really retail and logistics of consumer goods that's the first thing you notice the second thing you notice on the far right is the median annual compensation for employees and what you may notice there is wait is is a number missing here no that actually is what the median employee at walmart and home depot and kroger and target and lowe's make the compensation in retail is not great the career ladders look more like step stools so when you think modal job don't think gm and a t think walmart that is the modal job is a retail job that doesn't necessarily pay the the amount that you might anticipate also to put this in a bit of perspective this report just came out earlier in november the kaiser family foundation does an annual survey of how much does it cost employers to provide health care annual premiums for employee sponsored family health care so head of household is 22 000 a year so providing a head of household health insurance is more than the median pay at walmart that feels like very fraught situation if you're spending more on health care than your wages as many of the firms on this uh uh on this list are that feels a little bit complicated to say the least in contrast if you thought that people worked at general motors i'm here to tell you they don't what used to be our giant local employer they have about as many employees globally today as they did in 1925 which is wild but it's kind of it's apocalyptic in terms of well-paid career ladder type jobs uh and that's kind of where we are today so the shape of things to come so i want to bring this up to where i am in in the book and thinking about how firms and business have changed particularly during covet so the pandemic really accelerated people's reliance on apps to see what the outside world looked like so this is my metaphor about a screen standing between us and the outside world so more and more people relied on the internet to know what was going on in the outside world because you couldn't always get out there this is great news for google apple facebook uh amazon and microsoft they now last time i checked made up almost a quarter of the value of the s p 500 so great news for giant platform firms they've really made out during covid uh possibly less good news for the rest of us because all those black mirror episodes it seemed dystopian now seem to be coming true so i spent last year uh at stanford living in lovely menlo park california four blocks from cheryl sandberg i'll say hi to her next time i see her and the first sunday we were in town this is what my iphone told me 104 degrees and unhealthy air quality because of wildfires in the california area the smoke just sort of spreads out like peanut butter and then hangs overhead for a surprisingly long time so august so if you're thinking of taking a job in the bay area turn back now you will not be happy it looks great on postcards but august through october is a new season in california called wildfire season and you don't need to be next door uh the air gets so sick that you can't actually breathe it you have to check before you even leave the house that's what san francisco looked like the following wednesday the birds didn't come out that day because there was so much smoke in the air that the sky turned orange and this really was what it looked like it was kind of crazy this turns out to be bad news for restaurants covid plus lockdown means restaurants are in some real trouble a hundred thousand restaurants closed uh in the first six months of the pandemic 100 000 is a very big number in some sense this is like the meteor that hit the earth and killed off the dinosaurs and then something new is going to sort of pop up in their place you know maybe mammals to give you a feel for what this looked like on the labor market this is my one crazy looking this is so that was april of uh 2020.
So the number of jobs lost in the restaurant industry was five million which is roughly the population of denmark five million jobs lower a month later uh social scientifically speaking um that's a lot they bounced back uh restaurants pivoted they started doing more takeout and other things but that was a pretty big shock to the system to have that many people uh lose their work uh in a pretty quick uh pretty quick uh clip restaurants are arguably the oldest kind of firm we've got there have been restaurants forever there's a picture of a restaurant in pompeii that has recently been dug up what few people realize is it it was an olive garden so those recipes go back a good long while i don't know if they really had the endless salad bowl but um when i lived in new york city we had a uh the norm was that all your food was take out like everybody delivered in the neighborhood in the village and so we were all used to this idea and now all of the rest of civilization has caught up with us so your kids can also ask you every day around six o'clock uh daddy what's the food guy bringing today because that's where they think food comes from is somebody shows up at the front door um turns out that this opens up some really interesting possibilities if there's a black box between you finding a menu online and the food showing up at your front porch it enables sketchy looking business models like chuck e cheese advertising pasquale's pizza as if it were some local pizza restaurant and so instead of going to visit an oversized rodent for a kid's birthday party they're actually delivering pizzas to people under a different brand name because people don't know any better and that idea actually spread pretty broadly the idea of ghost kitchens where well if you've already invested the capital equipment you've got a functioning kitchen that's been vetted by the health department why not cook for two restaurants or three or five and it's you can do it at a small scale in any given restaurant you can do it at a large scale if you create a custom built commissary kitchen and this was the bounce back business of travis kalanick the guy that the erstwhile founder of uber his new business is cloud kitchens where you can rent space rent kitchen space from them and launch without having to do all of the investment and bedding and health department and all of that they'll do the back office you just show up with with the menu and some labor doordash has gone one better they have vertically integrated into kitchens super interesting they own the kitchen they hire people they manage suppliers you send them the recipes and the brand name and they do the rest this is super intriguing so christy if you did if you're not content with uh selling tomato sauce you can now start a restaurant if you've got a recipe book or what they would call a portfolio of algorithms for food preparation you can get doordash to market your food and get it off to people's doors this is super interesting what can we expect in a world of commissary kitchens you're going to see one facility with a whole lot of different restaurants that are basically brand names kind of like the phones or other electronic goods made at foxconn uh you will see ikea-like instructions on uh screens uh for the assembly of the menu items this already happens in many restaurants there's a screen that will show you how to put together a club sandwich and a little animated thing showing how to pull that off competitive advantage goes to menu designers able to create readily assembled items a cheesecake factory atul gawanda has a lovely article about the cheesecake factory and how they're able to roll out complicated recipes you're going to see the increasing standardization of jobs to make it easier to match people to strip out the asset specificity and have a small number of standardized job descriptions and a much more reliance on temps rather than full-time labor this is already happening there's an app called paired p-a-r-e-d where you can sign up to work by the shift and if you feel like working five days in a row you can sign up and they will tell you what to wear and what the cuisine is and whether you're qualified and what the pay is and then you show up it's not quite um they tell you what the pay is going to be so it's not that you're bidding for it but it is sort of labor by the shift um i want to say something that's going to sound uh like i'm making a value judgment uh but but i'm not i am this is a scrupulously neutral social science judgment uh that the employment relation in the u.s is on the verge of a vast transformation that is going to be a disaster for labor and disaster i don't mean that as a positive or a negative thing i'm just saying it's going to be a complete disaster for labor um in california while i lived there it wasn't my fault the voters in their infinite wisdom passed prop 22 that certified that drivers for uber lift door dash are contractors and not employees uh before the ink was dry on this bill or however one calibrates these things these days the grocery stores across california fired all of their delivery drivers and switched to doordash so this is the shape of things to come i think um it turns out that wall street has rendered a judgment on this kind of model yum china holdings which in spite of its name is headquartered in dallas and listed on the new york stock exchange it's mostly u.s investors although it is mostly kfc's in in china um they're actually a pretty profitable company with regular revenues and a market cap of 23 billion this is a tired model doordash they recently went public last october i think they had a market cap of 84 billion dollars even though they have not seen a profit and will not for many years to come this model is wired it's pretty clear where the future lies in the views of investors it's the doordash model not the brick and mortar restaurant model so the crazy thing is if you have set foot in a restaurant in the last few months that model of ordering things on your phone has now migrated to the restaurant itself so most sit-down restaurants in the u.s uh have shifted to using or allow or require the use of a qr code so when i go to jolly pumpkin in detroit there used to be actual human beings that i would talk to and then wonder about things now you just sit down at a table scan a qr code use apple pay and then someone runs out with food and then runs back the advantages of this model from the perspective of the restaurant owners is you could save a lot on labor if you get rid of all of the skilled people who say hi my name's lauren i'm going to be taking care of you for this evening food runners don't even have to speak uh your language eventually they'll be replaced by robots of course but for now uh one food runner can cover an entire floor and if you're not collecting the fees or or making chit chat it can be a lot more efficient but there were 12 million people working in the restaurant industry and this is sort of a structural shift in what is going on uh broadly in the restaurant industry which is why i find it interesting so it's not just going to stay in restaurants but that would take another talk so how do we rein in our new corporate overlords before this platformization destroys every stable job we might not want to we might want to get rid of all the stable jobs but imagine we wanted things to go differently what could we do one thing i discovered last year is everyone in the world has written a book on antitrust there are so many books on antitrust out there you know including me sorry about that but this is a second and final commercial break during this talk um i'm gonna save you a whole lot of time and effort and tell you that the two sentences on this slide summarize pretty much all of those books put together concentrations of corporate power now the norm in the united states a 2018 study found that concentration has increased in three quarters of domestic industries in recent decades giving companies greater power to raise prices squeeze suppliers and suppress wages and to exert outside outsize influence on regulators and politicians so the the folklore the the the anti-monopoly narrative that is universally shared on almost everybody's books with a couple of exceptions is industries have gotten concentrated now we've got these big firms that that have oversized market shares and they underpay and overcharge and uh and beat up their suppliers and um and have too much political power so that is pretty much what all those books are going to tell you you are welcome i've saved you many hours of reading all those damned anti-monopoly books or that 450 page report that the subcommittee put out um so uh but it turns out that over the course of the 20th century we came up with ways uh legal ways to rein in monopoly power like we had a set of tools that developed over the century to make big companies behave themselves during the progressive era on the turn of the 20th century when sort of the corporatization of the economy first happened we had the regulation of product markets and the sherman act uh added supplier markets in the clayton act uh from from my perspective in the new deal uh regulations of capital markets and the 33 and 34 acts and labor markets and what i insist on calling the wagner act to be more pretentious uh the fair labor standards act that covered most but not all occupations so we had a set of tools that regulated corporations largely by regulating their component markets by regulating how you could compete in a product market how you could take on how you could address your suppliers how you could raise capital so we kind of we we hand in corporations in a sense uh by by regulating their component markets there's other things too but i think this is a nice reader's digest version of things here's where things get complicated for us mark andreessen wrote this lovely op-ed almost exactly 10 years ago in the wall street journal called why software is heating the world and he goes through why it is its software and the next 10 years is going to transform every industry i'm here to tell you he's right he was right he he got that one right software has transformed everything and for dessert it's dining on our essential understanding of how the economy is organized the basic categories that we use to make sense of and regulate the economy have been undermined in some complicated ways and that's what i spend a bunch of time in that little book on so back to the metaphor this is fernando and i said halfway point it's actually the 90 mark christy in case you're getting anxious um so fernando here is a metaphor i think that you've got this really complicated outline of a woman's face and she's got this uh she's got a necklace and she's got a shawl over her shoulder and this interesting collar and this weird looking plant thing there and they're all really complicated and full of curvy lines and then you've got these super simple color blocks in yellow orange green blue red that don't map onto it and for me this is a metaphor for the categories that we use and the economy that we encounter and that i think there's a misfit between our simple categories like firm and employee and industry and big and nationality and what we actually encounter in the world today and that's why an 1890 act might not be sufficient to take on some of the weird complications we have today what is a firm anyway i'm a cheapskates i use the online core economics textbook which i like very much it's an economic organization in which private owners of capital goods and direct labor uh private owners of capital goods hire and direct labor to produce goods and services for sale on markets to make a profit well if christie starts an online only restaurant with a recipe book and she contracts with doordash to do the production and distribution and doordash uses contractors does like using a recipe count as directing labor like who owns the capital goods in this situation the simple definition of firm turns out to be complicated in a world where you've got free-floating free-floating brands and intellectual property that don't map onto the form of collective action it's easy to track public corporations because they file 10ks every year and we can run regressions on them it's kind of like the nba you've got very good records we're now moving into a world that looks more like pickup basketball we know it's happening but we don't really have good data we don't really have the the the tools or the categories to pick up the information instant pot is like this 50 people in ottawa and this giant firm with no employees and no assets and no advertising and so that's that that feels complicated um what does an employee look like i love this article i pasted it into the chat it's kind of a hair raising article about delivery riders in new york city it claims that there's 65 000 delivery riders that work for the various apps in new york and you'd think well there's a job that anyone could get turns out you would be wrong you can't do it on a regular bicycle anymore the expectations of speedy delivery mean that the costs of entry to become a delivery rider is a two thousand dollar electric bike so if you want to deliver in new york you need a two thousand dollar bike because you might be sent to brooklyn or bronx with somebody's donuts uh and it turns out that thieves love two thousand dollar bikes there's now an entire industry of armed thieves that harass and steal bicycles from delivery people who are often they're not economically like two thousand dollars is serious money for delivery riders and this is a really kind of terrible situation also restaurants won't let you use the bathroom and customers don't tip it's a really bad job but it does feel like a preview of what we're likely to see in the future in the probably college professor what is industry the nikes code you know we think of industry as normal human beings think of industry as what do they make what service am i getting from them maybe that's market maybe that's industry but they make cars or they refine oil uh the nikes codes uh that you're all familiar with are based on activities not what you sell but the activities in an establishment the software industry their activity is staring at a screen and typing on a keyboard they're all in the same industry the university of michigan is in the staring at a screen and typing on a keyboard industry just like all the software companies so this is a set of eight companies that recently went public within the last year other than uber last year and a half anyway and they're all classif they all classified themselves as 73 72 uh pre-packaged software and one's kind of competes with hotels and one competes with universities offering courses olo is restaurant logistics they're the people with the qr codes palantir is nefarious spying uh asana is enabling people to work and group c3ai is ai snowflake is some cloud thing i mean in what sense are they in the same industry are they competitors how do we think about industry in a world where software has spread like pfas into the water so industry is a complicated category and you can do the holberg and phillips thing and that turns out not to work as well either but we'd have to get to that in the questions uh second to last thing is what do we mean by size so is zoom a giant corporation they single-handedly enabled work from home for white-collar workers last year 500 million downloads in 2020 300 million daily years users currently last i checked their market cap is about 80 billion which is not nothing but they claimed on their annual report their 10k for this year after the pandemic they have 4 422 employees globally which is less than one percent of home depot's employment and they rent server space from amazon and oracle so no employees no assets great brand name and pervasive are they a giant corporation what does big mean in a world like this if assets employment market cap revenues are really different looking things is big even a useful metaphor anymore um uh what is nationality so there have been tax dodgers forever like accenture and medtronic and microsoft so that's kind of common coinbase takes it to a new level so what industry is coinbase in they are a they are a cryptocurrency exchange and they list themselves in 73.89 business services not elsewhere classified which is an extremely unhelpful category they're not a securities broker no no no or you know they're not a bank there's some other thing uh where does it live this is hilarious if you go to the so it says address not applicable and in the footnote it says in may 2020 we became a remote first company accordingly we do not maintain a headquarters so they have no physical locations for their business it's a bunch of nerds that work from home and i've learned from one of my former students in silicon valley that people of businesses like this say can you list my citizenship as liechtenstein and claim that i'm working from liechtenstein because i don't want to pay taxes so now normal human beings can do the tricks that corporations do and claim costa rican residency or something to avoid uh paying taxes so like what is how do you measure businesses at the establishment level if they literally don't have a physical location where they actually do business it gets complicated it's not not a trivial problem um i'd like to spend the next 16 hours on this slide but i'm not let me just tell you everybody's got a solution to this break them up uh ban acquisitions by big firms declare blah blah blah you can just look at this and this is a whole lot of fun uh proposals that people have suggested uh i would say traditional anti-trust is gonna be tricky here you know i wish lena kahn all the best in this but i think it's going to be pretty tough there's a reason why the ftc's initial uh suit against facebook got dismissed quickly because like yeah you know just because everybody says or a monopolist doesn't make him a monopolist you got to identify a market and it's got to be legally cognizable and you know try and work on that so there's a lot of tools out there there's dozens of tools out there all this is weird that we've gone from senators asking how does facebook make its revenues to a world where everybody's got some sharp new proposal to take on big tech uh i don't i don't have time or interest in weighing in on all these but just let me tell you there's a lot out there every senator has their own bill to make facebook behave themselves um what i would like us to do is back up a bit and say we've got really different tools for a really different kind of architecture this is like 1900 where suddenly you had elevators and electricity and structural concrete and plate glass you could make really different looking buildings than you did in in 1850 how do we use the tools we have now that i've described to create equitable enterprises that are more democratic humane and responsive to their communities we don't have to go down the path of doordash we can go in a pretty different direction maybe that is the right path but i think it's worthless stepping back and not saying coming up with entirely new categories of law for three corporations in silicon valley in seattle rather than building all of our sort of putting all of our work into just three or four big tech firms we should be asking how do we create the guard rails that enable new kinds of enterprises that do what society wants them to do they probably won't be publicly traded they will probably look different from what we've seen before but how do we create structures that that make more human enterprises from that and that is where i will quit wow that was a lot can we all have a moment to acknowledge professor davis and then we'll start with questions thank you i know it was a lot sorry about that got into some weeds there but thanks for staying awake um who wants to lead off with questions we got one in the chat oh wow oh okay no okay allegra was that a question about um the people in liechtenstein to avoid taxes isn't that fun i i had never heard of that but it was somebody that worked in hr at a company you've all heard of and um and she said yeah people are saying like working from home yeah i'm working from uh mexico city so put that into my hr records yeah all right jerry do you think does it i get the sense um from your talk that you see this is kind of like inevitable it almost seems like you think it's inevitable that it's going in this direction and so but so let me just ask do you think this is inevitable or and you're yes or no and um i guess what are you are you seeing the more being more private corporations or is the corporation not even right i guess um it looked like a train headed in a scary direction from my perspective and so i'm like is there an another track available yeah it's uh it is not inevitable and in fact it is not even likely to occur in this way anywhere on earth but the united states so i have this obnoxious phrase institutional terroir that i'm trying to trademark and get out there but you know cacao is delicious uh but it doesn't grow in canada like this system that i'm describing is a very american way to do things like if you look at uber or uber-like entities using a smartphone to match riders and drivers for rides like uh that we imagine that the american version of that is a way that it always has to be and that it was foreordained by the technology but if you go to sweden or nigeria or indonesia or china or india it looks completely different so there's so it's not like the the the technology forces you to follow any particular way of doing things this so this is a very american specific way of things playing out it turns out that we have like all the money in the world and we have a very well developed venture capital system that gives i was thinking this morning like the idea that an ipo is called an exit kind of tells you all you need to know like from the people that are putting their own money in they're exiting and the suckers are buying it i'm not going to name any venture capital firms but there's a whole lot of them that if you track those things from when they went public to three years later you know the not to mention any alumni names so um the the zoo lilies of the world or the zyngas or the the groupons or whatever like oh that didn't pat out so well they got paid and then they exited and then it sort of lived on the public market so i don't think that can last forever in in the form that it is there's so many more interesting alternative ways to intermediate capital um that are popping up and some will turn out to be scams and some will turn out to be our future but but i think we're at this moment where a lot is up for grabs there's so much conversation about how we regulate these things that um i think we all need to be paying real close attention uh and and hope that senators actually read their briefings before voting on josh hawley's bill which i got to say if you don't know what an api is you probably should not be coming up with regulations for the tech sector but anyway pointlessly snarky but i really hate josh hawley looks like steven naked has his hand up professor davis uh stephen makin with the gartner research board i would say first of all um i really enjoy the talk so thank you um but second i wonder it seems like um uh ip protection is sort of at the center of a lot of this so going back to your concept of nikkification from years ago i wonder if ip reform could actually end this or or dens this process of of spitting out every element of the company except you know the the patents owned by the company um and therefore office and protections ultimately do exploited labor yeah um that's a great question so can you say how would how would you and karen ben tell us a great question to here too and and she raised that and maybe if you'd like to join us on the conversation like can i pee or other forms of uh uh of law be used in ways that that offer labor protection from all that i've seen that it always goes in the opposite direction but uh but as a non-lawyer who doesn't know what probative means uh i'm probably not the most qualified to come up with a good policy recommend you know somebody smart people on this call that probably have a better answer but thus far as it's enforced in the u.s i'm i'm not sure if that'll provide the kind of protection that um that we're hoping for um karen did you want to dive in i wasn't prepared to come on screen but i'll do that i i find myself wondering about um professionals who might have better opportunities say let's let's suppose somebody who's a design engineer for example who might be able to pick and choose employment opportunities and seamlessly move from employee employer to employer and be able to market themselves and have access in a way that they wouldn't have had otherwise yeah hundo p as the kids say it means a hundred percent apparently so this buddy i have this buddy that lives in an island nation in the north atlantic uh moved there with his family uh during covid um and he's already got his own startup and he does talks and writes books he's kind of he's a kind of a prominent person and he was offered the job to be the cfo of a startup on a quarter time basis from iceland oh i told you right now but it's like wait what and they said yeah you don't need to show up you know what the job is you've done it before and we don't need a whole we don't need 40 hours of a person a week we we need someone for you know someone with your skills for 10 hours a week and it doesn't have to be here uh you know we'll give you a hundred thousand a year and also some options on this thing it's like this is fascinating for someone like that with those levels of skill this is gold he could literally be on a beach or be in iceland and you know on the fjord or whatever they have on the volcanoes uh doing cfo stuff and and collecting uh you know big glop and so for him it's great but if you don't have rare valuable hard to imitate skills then you're probably boned and i kind of feel like college professors uh many of us are a lot closer to that you know there's a lot of people who can explain mitosis better than i can so it's not too hard to imagine all right we're doing a bidding war who can explain uh eigenvector centrality for an hour today we got an opening in sociology and we're all placing bets and i would much i'd rather have john chamberlain give this he could talk about the chamberlain quran algorithm one of my favorite things and you could hear it from him instead of me doing a lame imitation like why not get the real thing so it's not hard to visualize that under the guise of lowering the cost of education when making it more accessible for the masses now that they're already learning things on um uh on zoom anyway like why not have the world's best rather than me so luckily i'm headed to retirement and i'm not at all worried about those five tech companies making up one quarter of the value of the s p 500 i'm sure it'll work out well no matter what happens with these whole antitrust things conflict of interest uh anthony we have not heard from you oh and christy you could tell us to quit soon or we could also just say everybody that needs to bounce we can turn off the taping and then get to the really spicy stuff but should we should we do anthony first or bounce um so we're at time so why don't we stop recording and um let me just do a quick plug please come back next year um our for our speaker on january 13th will be professor nadia malenko from the ross school