Corporations, Bureaucracy and Labor Policy

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Corporation is a form of business organization that is chartered by a state and given legal rights as an entity separate from its owners (Edelman 532) This form of business entity is characterized by the limited liability of its owners and the issuance of shares of easily transferable stock. “The process of becoming a corporation gives the company separate legal standing from its owners and protects those owners from being personally liable in the event that the company is sued (a condition known as limited liability) in that incorporation also provides companies with a more flexible way to manage their ownership structure and become efficient and reliable so as to increase their competitiveness” (Edelman 531). In the analysis of the relationship between Corporations, Bureaucracy and Labor Policy, a synthesis of Bureaucratic Performance and the Modern Corporation, a focus on bureaucracy and the role of labor policy would effectively contribute to an understanding on the contribution of corporations in economic development.

Bureaucratic Performance and the Modern Corporation

The role of the state in shaping economic performance of a nation and its relation to modern corporation and bureaucracy has been controversial for decades. Property right theory highlights the role of the state in establishing property rights and offering incentives for entrepreneurs to invest in innovation and productive activity (North 1981).available literature on the role of the state in directing positive economic growth indicates an involvement of the aspect of bureaucratic intervention. Furthermore, these literature points towards discord in the levels of state involvements and specific actions state may undertake towards economic development. In their influential study of the emergence of modern corporations, Berle and Means (127) show, “that the ability to raise equity capital from external sources enabled the modern corporation to achieve unprecedented productivity through massive collectivization in production and intensification of technological innovation”.

The development of multidivisional structures in the 1920s, which Berle and Means (145) describes as “the most significant organizational innovation of the twentieth century,” consolidated the position of the corporation as an organizational form. By the 1960s, the modern diversified corporation emerged as the dominant form of wealth creation in the global economy (Oliver 678). Modern Corporations remain way ahead of other forms of businesses in competitiveness due to their ability to secure large external funding for their operations.

The institutional arrangements that are put in place by the state to secure the rights of property in separating the ownership and control of corporations from shareholder remains the fundamental reason behind strength and rise of corporations. The risk that managers may pursue their own interests at the expense of shareholders and creditors could not be resolved through corporate governance structures internal to the firm (Hart 679).

While literature documented on corporations have illustrated the fact that there is always management problems between the investors and managers in a corporation and thus the resulting to demand for a legal protection of both parties, their have been efforts to create balance between this two parties.

As Berle and Means (278) observed:

Corporations are essentially political constructs… [They] derive their profits partly indeed from their own operations, but partly also from their market position and increasingly from techniques resulting from state expenditures of taxpayers’ money…..without its activity, the enterprise, if it could exist at all, would be or would have been compelled to spend money and effort to create position, maintain access to market, and build technical development it currently takes for granted

This point to the fact that the overall performances of corporations are determined by the state and all its forms of bureaucracies.

Focus on bureaucracy

The existing legal framework lays a lot of emphasis on shareholder protection and rights as the central determinants of the financial market legal. The state thus applies the right and relevant statutes to secure the property and protect the rights of the shareholders. The sociological literature has emphasized that modern bureaucracy’s characteristic form in competitive capitalist economies is “that it is rationalized on the basis of rigorous calculation, directed with foresight and caution toward the economic success which is sought” (Weber 47). In this regard, the development of a form of bureaucracy that had the aspects of both rational and legal considerations was a precipitating factor for the enabling and motivation of rationalization in the achievement of best form of management systems in corporation.

The shift from the traditional forms of bureaucratic rule to the adoption of the rational-legal form of bureaucracy provided the best approach to administration over people. Driving the diffusion of rational-legal bureaucracy in capitalist economies created economic competition among states, competition among firms and involvement of leaders in rationalizing public administration (Weber 59).

Recent studies on the role of bureaucracy in shaping the modes of corporations have shifted from Weber’s assertion on the subsequent role of economic competition as the driving force behind the diminishing focus towards rational-legal bureaucracy to more emphasis on legitimacy search by the corporate actors.

Within the concerted efforts to shift away from rational-legal bureaucracy, DiMaggio and Powell (148) positively identified three fundamental reasons why firms that exist within the structure of capitalist economies embrace the idea of homogeneous approaches to their modes of operations and practices. According to DiMaggio and Powell (151), these three mechanisms include:

  1. The coercive authority of state power pressuring organizations to adopt and conform to rules and practices institutionalized and legitimated by and within the state;
  2. Mimetic isomorphism stemming from organizational response to uncertainty
  3. The normative influence of professionalism and professional associations”.

The part played by the state in the institution of the rules and guidelines of the best modes of management approaches within the corporations cannot only be achieved by law enforcement measures but through “ideologies of rationality” and cultural beliefs about how corporations should respond to the law (Edelman 566). A good example is the fact that while there has been a number of weak enforcement and legislations instituted by the United States government since the civil rights era, almost all the existing American corporations have put in place internal self controls and measures that prohibits both gender and racial discriminations. “In sum, state-crafted formal rules and “ideologies of rationality” within the firm on how to respond to the state, in combination with the state’s credible commitment and capability to enforce the rule of law, help to explain why “corporations are essentially political constructs.”

Every market oriented entities is characterized by two forms of productive organization that include the small and individually owned businesses and the large bureaucratic firms. In the United States, corporations contribute up to over 60 percent of total production. This significantly impacts in the entire economic development in the country and as such forms the backbone of the countries development index..

Giant corporations are characterized by large number of employees. An examination on the United States Department of Defense reveals that it employs over a million civilians, close behind in number are America Telephone and Telegraph, Inc., and General Motors, Inc., each with nearly one million employees. (No government agency besides the Defense Department employ over a half a million people).This indicates the levels of bureaucracy in management and general procurement of goods and services that exist within these corporations (Frank 261). Large Corporation has competitive advantages brought about by the economies of scale. This is due to their abilities to raise large amount of capital for investment. The existence of corporations remains important to the not only to the state but also to the surrounding communities. The investment in road networks, provision of jobs, tax revenues and the provision of leadership to the community are just a few benefits a society benefits from Multi-National Corporations. Consequently, both the community and corporations depend mutually on each other. The economic role of Multinational Corporations in Development is to create and channel financial capital to states with capital shortages and scarce resources. Consequently, wealth is created and new jobs are formed to the population in the states which they operate translating to improved economic lifestyle of the communities..

Foreign direct investment (FDI) is the most lucrative form of capital flow. The MNC in most cases takes a long-term equity position in the domestic country in which they carry out their operations. They peg their operations mostly on mutual benefits which accrue to both the corporation and the domestic country. In this sense, if the investment does well, both the MNC and domestic country both benefit in a number of ways. The MNC in this case gets profits and the domestic country receives jobs for its population, an expanded tax base, and capital formation.

Further exploration of bureaucracy indicates that it has been an important aspect of state modes of governance and operations for decades. Many traditional empires and pre-modern kingdoms developed more or less sophisticated bureaucracies in their operations and kingships. These were later modeled with the advancement of the corporations and legal guidelines that have been adopted to make the contributions of corporations beneficial to the population. Empires were among the most familiar with bureaucratic operation in appointment of officials. “Modernity and it technological development has expanded the function of traditional bureaucracies into formidable dragons” (Weber 57). Modern bureaucracy notably takes similar approaches to the traditional of bureaucracy in that it is a form of hierarchic organization designed to not only dominate subject population but also control them efficiently. According to Weber (63) bureaucracy is a rational, hierarchical organization in which power flows from the top downwards and decisions are purely based on sequential and logical reasoning and data analysis.

Bureaucratic Theory

The modern theory of bureaucracy, majorly derived from Max Weber, is a formal codification of the idea of rationality in the operation of the affair of corporations and bureaucracies. Weber (81) proceed to illustrate that “in the bureaucracies of private firms as well as government, rules, objectives and management strategies are set by rational, systematic, standardized techniques, which not only eliminate the effects of interpersonal relationships but also enhance smooth running of corporation”.

In defining the relationship between bureaucracy and bureaucrats, Frank (101) explains that bureaucracy operates under bureaucrats and therefore the term bureaucracy denotes not only an organizational structure but also a social group. This group of people is found in every large corporation and government, where groups range from individuals roles and responsible for administrative functions at the top management level. These corporations exist in two categories these are private and public bureaucracies. While Private Corporation, such as Microsoft, has one set of leadership, its board of directors, public bureaucracies or public corporations in contrast, does not have one single set of leadership.

Public bureaucracies are created to serve citizens while private bureaucracies normally put into consideration the interest of its stake holders which is profit. Because of lack of lines of authorities, some bureaucracies in United States of America operate with a significant degree of autonomy. In the case of United States of America, the federal nature of government necessitates that the national bureaucracies must regularly provide financial support to the states. There are state machineries and numerous agencies in the federal bureaucracy such as the Environmental Protection Agency and Security and Exchange Commission that keenly monitor and regulate private companies.

In this case, large bureaucratic corporations meet their set objectives through a well designed and an elaborate division of labor. This form of administration creates compartmentalization and diversification of duties, which leads to specialized functions. “This detailed multiplicity of functions vividly requires an establishment of an organized, a co-ordinate structure, and of regulations, administrative procedures and standards that clearly elucidates and define the responsibilities of each position in the corporation” (Edelman 545). In this regard, Edelman (545) continues to demonstrate that “specialization increases the need for centralized coordination and administration, and thus the establishment of a hierarchy that integrates each function in a chain of command”.

The internal operations of bureaucratic corporations and their management styles are always complicated and intertwined with the top management charged with the responsibility of instituting workable policies. According to Edelman (560), “In bureaucracies, authority and tasks are delegated within specific range of competence and is subject to top management that defines the organization’s policies as a whole and monitors, or controls the operation”. This top down kind of leadership structure is more politically inclined. Such kind of an organizational model takes the vertical channels of command as opposed to the horizontal command. This is buttressed by Edelman (561) in succinctly stating that “Within this organizational structure, strong emphasis is laid on vertical channels rather than to horizontal channels”.

Corporation and Labor policy

Recruitment in bureaucratic corporation is conducted according to recognized rules which are not only stipulated in the constitution corporation but also clearly spelt constitution of the country. While positions are routine are occupied by personnel with basic qualifications, the top management are occupied by experts. However, occasionally individuals are employed not for their technical skills but out of political considerations.

The great fight and struggle against employment discrimination has been one of the fundamental tenets of America civil right movement. The rampant discrimination which was characterized by open discrimination of black and women in organizations was due to weak labor laws and therefore, employers took the advantage of the situation. This practice resulted into protests by the black industrial workers to show their better discretion against unfair treatment at work place. However, the report on the fair employment practice committee, establish by the American federal government in 1941,provided a details of work stoppage organized by black steel workers in 1944.This strike took place at the coke plant at Carnegie-Illinois steel Corporation in Clairton, Pennsylvania. According to Osterman (207).

The stoppage in the coke plant which occurred at mid night, February 25, 1944, was the result of long series of incidents dating back as far as 1933.Prior to 1933 the entire coke work was manned by Negros but thereafter management began to introduce white workers who were taught the various processes in the plant by Negroes. As soon as the white workers become proficient in the operational the various machines, the Negroes were transferred to other departments and jobs of lower classifications. Various incidents of this type continue to occur up to December 1943.

The Negro workmen, realizing that they were steadily barred from all higher jobs formerly held by them, decided that the only way to regain what they have lost was to tie up the plant by striking. Negroes workmen on midnight shift at the byproduct refused to work, claiming that they were denied promotions and were actually being passed over by white men with far less seniority.

This bold and well calculated move by the Negroes was the foundation of quest of new labor laws and policies. This saw the elimination of racial discrimination in employment.

The traditional approach to labor evaluation has always been dominated by focus on individual policy instruments and a number of programmes aimed at understanding the contribution of labor to economic development. The impacts of these single purpose programmes have been assessed in top down approach by contrasting explicit programme goals with measurable programme outcomes.

While there has been the need to streamline the labor policies to be in line with then current demands of today’s work force, the labor market still remain in crisis. Thus is because the private sector has recorded a sharp decline of more than 7.5% in the recent past and as such does not play an active role in the restricting of the labor policy. In addition to that, labor laws are broken and as such policies continuously conflict in their objectives. Lastly, there has been a decline in the public trust towards those charged with handling and enforcing the America policies. The conflict between the state corporations and the trade unions has made t a challenging task to balance between the interests of the Multinational Corporation and those of the worker. In understanding the former controls large force and affect then performances of economies, their interested are always advanced. This has kept the trade unions and workers at the peril of the state regulations and laws to effectively advance their interest.

The role of active labor policy in the prevention and alleviation of unemployment has been advocated by a number of stakeholders for a long time. In conclusion, the existing conflict has woken up the interested groups and various state organs to address the labor policy in towards the advancement of the rights of the workers. These efforts include the Employee Free Act Choice and the efforts towards the improvement of the quality of our labor management.

Works Cited

Berle, Adolf A. and Gardiner C. Means. The Modern Corporation & Private Property. News Brunswick and London: Transaction Press. 2005.

DiMaggio, Paul J., and Walter W. Powell. The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields. American Sociological Review 48: 147-60.. 1983.

Edelman, Lauren B. Legal Ambiguity and Symbolic Structures: Organizational Mediation of Civil Rights Laws. American Journal of Sociology 97: 1531-76.1992.

Frank, Thomas. One Market under God: Extreme Capitalism, Market Populism and End of Economic Democracy. Doubleday. 2000.

Hart, Oliver. Corporate Governance: Some Theory and Implications. The Economic Journal 105: 678-689. 1995.

North, Douglass C. Structure and Change in Economic History. Cambridge: Cambridge University Press. 1981.

Osterman, Paul. Securing Prosperity: The American Labor Market: How It Has Changed and What to Do about It. Princeton University. 2000.

Weber, Max. The Protestant Ethic and the Spirit of Capitalism. London: Routledge. 1992

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