The Economist Celebrates Ronald Coase's 100th Birthday

Why do firms exist?
Schumpeter
The Economist
December 16, 2010

For philosophers the great existential question is: “Why is there something rather than nothing?” For management theorists the more mundane equivalent is: “Why do firms exist? Why isn’t everything done by the market?”

Today most people live in a market economy, and central planning is remembered as the greatest economic disaster of the 20th century. Yet most people also spend their working lives in centrally planned bureaucracies called firms. They stick with the same employer for years, rather than regularly returning to the jobs market. They labour to fulfil the “strategic plans” of their corporate commissars. John Jacob Astor’s American Fur Company made him the richest man in America in the 1840s. But it never consisted of more than a handful of people. Today Astor’s company would not register as a blip on the corporate horizon. Firms routinely employ thousands of workers and move billions of dollars-worth of goods and services within their borders.

Why have these “islands of conscious power” survived in the surrounding “ocean of unconscious co-operation”, to borrow a phra