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The Government in the Post-Corporate Age

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Bill Brantley
March 12. 2018

Most governments deal with the economy either directly or indirectly. The federal government sets regulations on commercial speech, how stocks are traded and enforce equal employment laws among a multitude of other policy actions involving the national economy. State governments oversee the creation of corporations and, through tax incentives, make the local state economies “business-friendly.” Much of the history of American public administration deals with the interplay of business actions and the corresponding government reactions.

As business became big in the United States, the U.S. government became big. From the trust-busting of the Teddy Roosevelt Presidency to the creation of regulatory agencies of the Nixon Administration, government agencies handle the perceived harms and excesses of corporations. Probably the most illustrative example is the rapid growth of the regulatory state during Franklin Roosevelt’s New Deal. During the 2008 Recession, the federal government stepped in to rescue those corporations that were “too big to fail.”

However, what happens to government when the business corporation is no longer the major player in the nation’s economy? According to Gerald F. Davis, big corporations are fast declining in favor of new economic entities composed of small groups (or even individuals) who use the latest Internet technologies to build private companies. With technology platforms, open-source software and rentable factories, entrepreneurs can build economic entities that can compete with the biggest corporations without having a large staff or the need for large capital investments.

The Vanishing American Corporation by Gerald F. Davis

Gerald F. Davis chronicles the rise and fall of the American corporation in his latest book. Davis argues that corporations helped build the middle class by offering lifetime employment, health insurance and retirement plans. Corporations also made it easier for government to regulate the economy by being part of the public stock exchange. Reporting requirements made the internal operations of corporations at least partially transparent to the general public.

It is with the rise of Internet-based companies that corporations began to lose their power over the American economy. Companies like Apple, Google, Facebook and Amazon employ fewer people but have more revenue and market power than established companies such as the auto companies or General Electric. Companies like Uber have transformed the jobs economy into the gig economy made up of independent contractors who perform low-paid tasks with no benefits and possibility of long-term employment.

Capitalism without Capital: The Rise of the Intangible Economy by Jonathan Haskel and Stian Westlake

At the same time that the big corporation is in decline, the intangible economy is rising. Intangible assets are things like design, branding and other intellectual property assets. Companies are not spending as much on tangible assets because, nowadays, the competitive advantage is in the business model, brand or intellectual property possessed by the company. Haskel and Westlake argue that the intangible economy causes economic inequality and stagnating productivity. Economic inequality and declining productivity happens because intangible assets favor highly-educated people who can create the intellectual property assets and companies that can use the intellectual property infrastructure to their advantage.

Governments developed in an economy dominated by the tangible. You can see this in the tax code – especially with the property tax and recording structures of state and local governments. According to Haskel and Westlake’s analysis, intangibles have four characteristics that tangibles do not. First, intangibles are scalable which means that the intangible asset can be copied with perfect fidelity and with little or even no cost. Second, intangible assets are sunk costs and hard to resell. For example, the processes used by Starbucks to operate their stores are unique to Starbucks and could not easily be sold. Third, intangible assets have high spillovers so other companies can take advantage of the intangible assets that other companies create. For example, Netflix takes advantage of the Amazon network structure with many other high-tech companies. Fourth, intangibles create synergies by combining intangible assets to create more value than the simple combination of assets.

As the Economy Shifts, How Will Government Policy Shift?

Government policy usually lags behind changes in the economy. The American economy is rapidly changing from two foundational concepts that shaped much of government regulation and policy – corporations and tangible property. Corporations will still be part of the economy but, as new economic structures arise, corporations will play an even smaller role in the marketplace. Also, government tax policies are built around the characteristics of the tangible property. As intangibles play an even greater role in the formation of the new economic structures, tax policy must grapple with the four characteristics of intangibles.

The question is if government policymakers can successfully forecast the changes wrought by the decline of corporations and the rise of intangibles. Not to stop the inevitability of these two trends but to smooth the transition from our current economy to the new future economy.

Author: Bill Brantley teaches at the University of Maryland (College Park) and the University of Louisville. He also works as a Federal employee for the U.S. Patent and Trademark Office. All opinions are his own and do not reflect the opinions of his employers. You can reach him at http://billbrantley.com.

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