Although there are many type of businesses, including partnerships, cooperatives, and sole proprietors, most large businesses today are corporations. However this hasn't always been so, Prior to the 1800s most businesses were sole proprietors and many operated as cogs in community commons businesses that resembled what is very similar to what we know as cooperatives today.
Since then, the world has enjoyed an explosion of wealth and this has been largely driven by the rise of corporations who can better scale than the preceding predominant business models. The corporation’s fractional ownership model allows capital to be raised for large scale projects that governments, sole proprietors and commons business model cannot afford and this scaling better enables the development of specialized skills and provides economic efficiencies. Complex projects, high skills and cheaper products are significant factors in our societies wealth.
Along with an inability to scale and thus a comparative lack of production of these factors, collectively both informal and formal commons business models such as co-operatives have struggled to produce the same levels of global and participant wealth as corporations due to the usual situation where individuals acting independently and according to their own short term self-interest behave contrary to the common good of all users including their own. Hardin termed this phenomenon “the tragedy of the commons” ("The Tragedy of the Commons", 1968).
Despite some clear social and economic benefits of commons businesses, including shared risks, reduced operating expenses, and more engaged stakeholders (Leathers, 2006), conventional wisdom says that avoiding the tragedy of the commons and achieving economies of scale is best achieved through corporations that hold private property rights.
In our next blog we will look at some ideas that challenge this conventional wisdom.