Shrinking Hierarchy

towards an agoric future

My own preference is for the sort of economic institutions which have been named, I think by Robert LeFevre, agoric. Under agoric institutions almost everyone is self-employed. Instead of corporations there are large groups of entrepreneurs related by trade rather than authority. Each sells not his time but what his time produces. As a freelance writer (one of my professions), I am part of an agoric economic order. (The Machinery of Freedom, first edition, 1972)

When I wrote that I had not yet read Ronald Coase’s classic article on the tradeoffs between production coordinated through the market and production coordinated within a firm.¹ Having read it I am less confident now than I was fifty-three years ago of the advantage of the former arrangement; there are good reasons why firms exist. But I still find the agoric pattern an attractive one, am intrigued by ways in which current technological developments have made production by a single individual more practical than in the past.

There have always been some things that only require one person to produce, such as poems or drawings. A novel can be, usually is, written by one person. Until recently getting it into people’s hands required persuading a publisher to publish it and stores to carry it but that is no longer the case, thanks to the rise of self-publishing and the existence of the Amazon marketplace. You can even do it without Amazon by putting your novel up on the web as a serial, as some authors do, paid for by donations. An illustrated novel used to require the cooperation of an illustrator but may no longer, thanks to the development of AI art. I have not tried doing it but my guess, from the AI art I have seen, is that a novelist with no artistic ability could now, with patience and ingenuity, produce adequate illustrations. A newspaper columnist could be, often was, a freelance, but he had to persuade newspapers to carry him. Substack will take anyone.

Humans like building machines, constructions that do something. Most of the work of building a physical machine is dealing with the material it is made of, only a little with the idea it embodies. For anything beyond the simplest, that the designer cannot build it himself, must be embedded in a team. Building an automobile, even a lawn mower, in your home workshop, starting with the raw material, is not a practical option.

Building a computer program, a simple game or, in my case, educational software, in your office is. The machinery is already on your desk, the software tools inexpensive or free. Most of what you are doing is embodying a logical structure of your own invention in code. Getting the code right, debugging it, takes some work, but much less than shaping pieces of metal to fit together. Programs, useful programs, can be produced by a single programmer. Tetris was written by Alexey Pajitnoone. The first graphic interface tax program, MacInTax, which I used to do my taxes on, was written by Michael Morgan. A famous example in the programming world is Richard Stallman, author of multiple programs associated with GNU-Linux.

Making a movie requires screenwriters, actors, cameramen. The version without actors, a cartoon, requires artists. That might be changing.

As I discovered when I put the search string [AI video] into Google:

Create videos in minutes using AI to bring your script to life. With AI Studios, you can transform your script into pro-quality videos without needing cameras, actors, microphones, or video editing tools. (AIStudios)

So it is already possible to make at least a short video single-handed. I don’t know if one could produce a full length feature film competitive on the marketplace yet, probably not, but AI is getting better, computers are getting more powerful. Within my lifetime, producing a film may be a one person job, as producing a novel is now.

The AI Firm?

A firm has employees. Some are answering phones. Many of those can be, are being, replaced by software. Dealing with a program instead of a person over the phone or in a chat window can be frustrating but so can dealing with an employee working from a script — and the software will probably get better over time.

A publisher has copyeditors. Copyeditors can be, now or soon, replaced by AI programs.

As AI gets better, more and more of a firm’s workers can be automated. Eventually there might be only one.

Reducing Transaction Costs

The more layers between the president of a firm and the factory floor, the harder and more expensive it is for the president to make sure the workers are doing what he wants them to do; the costs of coordinating hierarchical production increase with the size of a firm. As Coase pointed out, there are costs to market coordination as well, costs of finding a trading partner, negotiating terms. A firm expands to the point where the increased coordination cost of taking further activities in house is greater than the transaction cost of getting them on the market. It follows that anything that reduces transaction costs reduces the optimal size of firms, in the limiting case to a single individual.

A firm that produces something has to sell it. Thirty years ago that required a sales department, perhaps a storefront. Now, for the things sold by many small firms, there are Etsy and EBay. A firm that needs inputs has to find people selling them. The more costly that process, the greater the incentive to produce inputs in-house. Google and the internet make finding sellers faster and cheaper.

The argument is a general one. Improved communications, improved search technologies, reduce the transaction cost of coordination through the market, shifting the balance between market and hierarchy.

The Bottom Line

There will still be firms in the future, some employing thousands of people; I do not expect technological changes to produce a economy where everyone is self-employed.

But that is the direction we are moving.

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1. A good source on the issue, with a discussion of problems faced by agoric institutions in the past, is Markets and Hierarchies by Oliver Williamson.