Ronald Coase is one of those great thinkers whose ideas have influenced the business world, even though most people have never heard their name.
The blog only heard of him in the early 1990s, and was astounded when it read his work. The book had the rather dry title of “The firm, the market and the law”, but it provides wonderful insight as soon as one opens its pages.
The reason is that although Coase won the Nobel Prize for Economics, he was never a technician, concerned to develop and justify a particular model of the economy. Instead, he was a philosopher, concerned to understand ‘why’ things happened, and to propose practical ways of dealing with them.
Thus his most famous work, ‘The nature of the firm’, written in 1937, identified for the first time why firms existed. His key insight was that firms were necessary because of the need to deal with the costs of transactions. Thus in his view, the boundaries of the modern company were determined by the relative costs of producing goods or services, and of then selling these in the market.
Most companies today operate on the basis of Coase’s analysis, even though they may not recognise his contribution:
- Every discussion about a firm’s ‘core competences’ and its fundamental positioning in the market is influenced by his arguments
- Today’s major debates about the benefits or otherwise of outsourcing/offshoring, or around the management of supply chains, all reflect his concepts
On a personal level, Coase seems to have been an attractive figure. The son of two London postal workers, he wore leg irons as a boy, but overcame this disability to build a successful career in both Britain and the US. He also illustrates the benefits of today’s increased longevity, finally receiving his Nobel Prize at the age of 81 in 1991.
He died this week aged 102, having published his latest book only last year.