Why do Organizations Exist?
Background: Cooperation, by Karl Marx
Karl Marx’s Das Kapital: Volume 1, remains to be his greatest achievement and contribution to socio-economic study. First published in 1867, the works critically analyzes the political economy of the nineteenth century. In studying the Marxian view of ‘Co-operation’ we are able to gain insight into why organizations exist. Marx proposes that “the end aim of capitalist production, is to extract the greatest possible amount of surplus value, and consequently to exploit labor-power to the greatest possible extent” (Marx, 227). Marx explains that surplus value is extracted through the cooperation of labor-power, when “a greater number of laborers work together, at the same time, in one place, in order to produce the same sort of commodity under the mastership of one capitalist” (223). Only when full cooperation is achieved, will we see “the creation of a new power, namely, the collective power of masses” (225). Those who have studied Marx will recall that this power of the masses is whom Marx strongly advocates for.
Proposal: Why do modern organizations exist?
It is evident that Marx’s works and theories have largely shaped the structure and economy of our modern world. However, his assumptions were formed in the agriculturally based 1860’s, and thus needs to be adjusted for the technological advancements in today’s economy. Progression in technology has changed our modes of production (from labor intensive, to automated), and brought rise to a new type of firm whose goods are intangible or idea based. This paper addresses the validity of Marx’s theory of ‘why organizations exist’ in the modern context. In doing so, it was found that while it is impressive that some Marxian assumptions hold, a few have become outdated.
Marx argues that firms exist to generate surplus value through physical cooperation. We see that as ‘production’ becomes increasingly intangible and technology based, this idea of mechanical labor-power is losing its significance. The value of modern firms lay in their intellectual property, technology and ability to continually innovate to generate future profits. Thus as a general theme, we see that modern firms exist to generate, capture and capitalize on their intellectual property with the goal of increasing future value.
THE MODERN ECONOMY
Marx vs. Real World Phenomena:
In supporting our thesis, it is essential to evaluate Marx’s key assumptions against current real world phenomena. We propose that the modern firm exists to increase and capitalize on its intellectual property. This is quite noticeable when we look at the evolution of production in modern firms. While a firm in Marx’s era produced simple tangible goods, such as harvesting crop, the modern firms manufactures goods that are dependent on high technology and intellectual property. This shift in technology is what brings shift in the role of the firm. One of Marx’s most basic assumptions is that firms exist because “it costs less labor to build one workshop for twenty persons than to build ten to accommodate two weavers” (224). Thus, surplus value is created simply because of the costs saved when workers are under one roof. However, how do we explain the rise of modern firms who hold no physical location at all? With the rise of E-Commerce, many firms find their competitive advantage, or their ‘surplus value’ by saving rent through holding virtual storefronts. For instance, in 2011 the Alibaba Group began the Chinese company Taobao Mall, or “Tmall.com”, a B2C platform for E-stores. On November 11, 2012, the total sales volume of Taobao reached 19.1 billion Yuan, which amounted to twenty times the daily volume of retail sales of Hong Kong. Furthermore 2000 companies on Tmall passed annual sales exceeding 10 million Yuan (CIW Team Staff, 2013).
With this advancement in technology in mind, we take a look at another assumption. Marx...
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