 started then. Hi, everybody. My name is Christy Bear. I'm the assistant director of the Center on Finance Law and Policy. Thank you for spending the end of the year with us on our last Blue Bag lunch talk of the semester. I know this is a really busy time of year. And so that's why we brought in one of the heavy hitters this time to make sure that it was time well spent. So the Blue Bag lunch talks exist as an opportunity to take advantage of the expertise that exists in many U of M schools and the interdisciplinary strength that is the University of Michigan. These are friendly talks. They are as you can see virtual and opened to those outside of the University. They are intended to make you think and to stomp, stomp the chomp with some new thoughts. So you will be encouraged throughout this to raise your hand to ask questions. Do you want people to interrupt you or forget to ask? It might make sense to do like if it's sort of a clarification question, we can throw it in now. But I think the suggestion was like toss the questions into the chat. And then it's a little bit easier to be thematic and maybe call people based on that. Yeah, usually it's a little tricky when you're managing the slides to take questions in the meantime. So we'll go ahead and do that. Alright. So our speaker today is Jerry Davis. He is the Gilbert and Ruth Whitaker Professor of Business Administration at the Ross School of Business. He is also a professor of sociology with LSA U of M. His research is broadly concerned with the corporation as a social and economic vehicle. And so some of his recent work has focused on why corporations have so little insight into their global supply chains and some of the moral dilemmas that this poses or what organizational alternatives exist to the shareholder owned corporation income inequality, how national institutions shape corporate structures and these many, many topics at the Ross School. If you are a student, you can get on the waitlist now because quick, quick, it's full. Professor Davis is co teaching this winter an award winning class for grad students that's called it's the impact studio class. And the focus this year is going to be on designing equitable enterprises. As all of you know, there are lots of industries that have gone through dramatic shifts, particularly during COVID. And so they'll be looking at restaurants and trying to at the end, the students will have a chance to prototype different types of enterprises. Chicago, did I screw something up already? Before Jerry gets to turn things on its head, I was just going to complain about Maurice being on his head. It's a little distracting. So I thought it was pretty cool. Thanks. Larry, I just left to tell us at the end how you did that. In addition to teaching, I have had a chance to work closely with Jerry through the Detroit neighborhood entrepreneurs project. He was the key architect and driving force behind having us start to offer one on one free financial financial help and accounting help to small businesses in Detroit. And he has a long history of doing good in a community engaged, mutually beneficial and respectful way. He has a new book that's coming out. That's not available yet for preorder, right? Soon. Soon, soon, soon. Called Taming Corporate Power in the 21st century. And so in some ways this talk is a sneak preview of that. So again, thanks for joining. And at this point, I will turn it over to Jerry. Thanks very much, Christie. I really appreciate the introduction and appreciate the chance to talk to this August group. And thank you for mentioning it's friendly. We're going to do our best to be friendly here. This is this is a talk last year I discovered antitrust while spending a sabbatical in California. And it's become this really exciting time in America because everybody thinks we need to take down big tech and that industries have become too concentrated. And we need to revive antitrust to take on sort of these corporate BMs and sort of beat them into shape. And that's become kind of a consensus view. You know, something is up when Matt, Josh, Holly and Amy Klobuchar are in solid agreement about anything. And so it's a weird time that we have so much political consensus on this idea that we need to reinvoke antitrust, revive the spirit of Brandeis and sort of break up big corporations. I'm an organization theorist. I'm a sort of amateur sociologist, I guess. And for me, what seems most shocking is the extent to which traditional traditional listed corporations are disappearing and that the forms that we're seeing don't fit into the categories that we're used to. And I think that provides a bit of a challenge to this whole effort to use antitrust as the right vehicle. So by the way, this this opening painting is called Girl with Flower. It's by Fernand Leger. You can go visit it at the Detroit Institute of Arts. I highly recommend that you do that. So lovely painting. And it's a metaphor. So let it sear into your memory here. And then somewhere in the middle, we will bring this metaphor back to see what what what that was all about. And when you get bored and want to question some of my claims, I'm pasting a bunch of links to articles, some of the things you'll immediately find contentious. Here's some articles that I've written that that try to take those things on. Okay, so away we go. I'm using Robin Hood on my Android to trade Dogecoin, which is a meme based sarcastic crypto currency. I can attest to you that this is an actual meaningful sentence in the English language. This actually does mean something. It's not just a bunch of made up words thrown together. So imagine explaining this sentence to someone in 1990, before the web took off internet memes, smart phones, apps and crypto currencies. That would be tricky. Now imagine explaining it to the 1890 US Congress that passed the Sherman Act. I feel this is the situation that we're in now that trying to revive antique antitrust might not be the best way to address the problems that we are currently facing. So my last book, because I'm going to advertise two books over the course of this talk, Nothing's Free. My last book raised the puzzling question, why are public corporations in the US vanishing? And it's puzzling because not that many people out of outside of finance have actually noticed that listed corporations are disappearing. But they are the number of listed corporations today is about half what it was in 1997. And it's not just .com. It's not just 2008. It's sort of asymptotically approaching this pretty small number of listed corporations, even as the economy is growing, India has more listed corporations in the US now, China, if it doesn't will will vary shortly. That seems like a bit of a puzzle. And your go to might be yeah, that's because big companies are buying their competitors up in industries. And that's not it. One of the one of the links that I pasted there is a study I did looking at every company that entered and exited a US stock market from 2000 onward. And it really does not. It is not just that Robert Bork ruined everything and every big companies bought up their competitors. One way to get at that is to look at who are the Dow Jones companies at the end of the Reagan administration. And here they are. If you're under 40, you have never heard of at least half of these companies. I love showing this list because the young people say Woolworth is at clothing, like sweaters at Westinghouse. That's a fun name. They have no idea what this list of companies is. This is when I was in graduate school. These were this is the vanguard of American capitalism. These were the pillars that had really held up the American economy since, you know, since 1930. Fast forward to today. And the red ones are the only ones left in the index. Not all of them are deceased, but they might be splitting themselves up or changing into something different. I think Westinghouse is now called CBS and Woolworth is Footlocker. But, but, but the intriguing thing is that it's not just that they bought all of their competitors. That's not what became of the Dow Jones index. And you look at this list now and it's kind of like going to your 30 year high school reunion and seeing what happened to the football team. Like in 1988, they were all ballers. They were the rock stars of this school. And now you sort of look around and say, wow, are these all like they're dead or got into some trouble with asbestos or, you know, GE used to be the quarterback, but now it's living in a halfway house. And you know, who knows what's to become of it. So it's weird to see what became of the big firms. I don't think that, you know, the Bork was a gift to big business as when sometimes reads. And if you're a big fan of Schumpeter, you say, Yay, creative destruction. The big companies are going away and being replaced by exciting new startups. And that's mostly not true. This was a big year for IPOs in the US, a much bigger year for SPACs. But, but a somewhat big year for IPOs. But it's really never matched what we had in the 1990s. So like Furby's or parachute pants or Clinton administration's IPOs are like a 90s fad that's really not going to come back in quite the same way. So a reasonable question to ask is, well, why do we have public corporations in the first place? If they're disappearing, why did we ever have public corporations? And my go to for this is Ronald Coase. As a lot of people's go to for this would be Ronald Coase explaining it in terms of transaction costs. And in his wonderful 1937 article, Coase said, why is it profitable to establish a firm? The basic answer is that using free markets is not itself free. There is a cost of using the market. You have to go shopping. You have to hire lawyers to negotiate contracts. You have to monitor their execution. So just markets alone don't solve things. There are transaction costs for engaging in markets. As he said here, the most obvious cost of organizing production through the price mechanism is that of discovering what the relevant prices are. Because if there's 20 potential suppliers out there and all around the world, it can take some real effort to figure out what the price should be. So great insight. It explains why we had businesses like Ford Motor Company. This is a famous Rouge plant. Around the time this picture was taken, both my grandfathers were welders were to get the Ford Rouge plant, one of them stayed there for 50 years, which seems like a very long time. They made their own steel on site, their own glass, their own cement, highly vertically integrated all the way into like the rubber plantations in Brazil that Ford owned. So vertical integration makes sense when the transaction costs of using the markets can be high. But what if everybody carried with them, and this is by the way a thought experiment for you, what if everybody carried with them a tiny supercomputer communicator that allowed them to look up the prices for everything in the world all day, every day, and they could create contracts for inputs with random strangers and track their performance in real time. So just imagine this bizarre black mirror like thought experiment where everybody can communicate with everyone all the time forever and look up the answers to every question like, what's the formula for kurtosis? So we're kind of living through that thought experiment right now. What happens when the transaction costs start to approach zero for using markets? And if you're close, you know what comes next, you will get the pervasive outsourcing of the production of goods and services. You will see the opposite of vertical integration, you will see vertical disintegration. So I call this nikefication after Nike, if you haven't seen them they're this sneaker company that's kind of hit it big. Since they're beginning, they have never done their own manufacturing in any large scale. Their thing was always we design, we market, we do the intellectual work and we contract out for the lower value added tasks of production. And that was kind of their model. And it was common in the garment industry. But starting around say 1990, this has spread really widely throughout the American economy. So there's I mean, to put it to overstate it but not by very much almost nothing you buy in the United States was actually manufactured by the company whose name is on the label. So the best selling brand of TV in the US in 2010 was Vizio. They they out competed Sony by far and nearly drove them out of the television business with 196 employees in Irvine, California and a supply chain that they've snapped together like a set of Legos mobile phones. Obviously they're not manufactured by Apple. They're they're assembled at least by by Foxconn in China. Pet food mostly made by a Canadian company called menu foods. It's made from all the same horse parts, but they put different labels on it when it shows up or it might not be horse parts. But tomato sauce shockingly dozens of brands are all made made by Liddestri in Rochester, New York. So Christie, if you happen to have your grandma's delicious authentic Sicilian recipe for tomato sauce, you can send them the recipe and the design for a label and somebody in the control room will switch up the recipe on their on the control panel and they'll start squirting different tomato juice into tomato sauce into jars and putting your own label on it and they'll even get it to the store shelf. So you don't really have to you don't have to leave your couch to be an entrepreneur in a sense. Pepper in CIA assassinations, mostly done by businesses run by Betsy DeVos's brother. You can find vendors for everything today. And that's kind of become a truism. You can you can find vendors for everything. That seems real obvious for suppliers. What about labor? There is something really special about labor. Labor seems more likely to have sort of firm specific investments. Seems a bit harder to contract out. But the short answer is uberization. This is an article in the Wall Street Journal from six years ago, but it's still great. Still still sort of nailings. I got a made masseuse Dr. Chef Valley personal shopper florist and bartender. Each has his own app and can arrive at my door in as little as 10 minutes. So it is a cliche that any any action that one human being can take on behalf of another. There's an app for that in the Bay Area, like on Street Valley parking apps. There's all kinds of crazy stuff. People focus on the ride hailing business uber and lift because that's the most accessible. But I want to expand that definition a bit. Uberization to me is the creation of spot labor markets enabled by smartphones in which buyers and sellers can contract for the performance of specific tasks. That sounds a little pedantic, but what I'm trying to say here is the important thing about uber is not the ride to the airport. It's the notion of a platform that allows buyers and sellers of labor to match by the task. That's the thing that is potentially revolutionary. If you've ever been to a Home Depot parking lot, you know that there's a spot labor market every morning where you can hire people pay him cash for the day and say, I need a I need a carpenter. I need an electrician. I need somebody to lay cement. And if someone there has those skills, they'll jump in your truck and you can go off to the job site. So spot markets have existed forever, but spot markets enabled by smartphones, that's different. That's I think a qualitative shift in the nature of labor markets. Uberization is turning the world into a spot labor market, a kind of Home Depot parking lot around the world. And it's not just low skilled tasks or giving people a ride. This is happening at all levels of skills as Oliver Williamson might have predicted. It's not the level of skill. It's the asset specificity of the skill that determines is it going to be uberized or not. So if you wake up at six o'clock and have a UTI and need a prescription before you can get to work, you can find a doctor online who has a license in Michigan to write you a prescription at Walgreen and they'll do a house call on your phone. So doctoring has already been uberized to some extent. Lawyering has been uberized. So for all the law people cover your ears. It's already a horrible job, but it's actually getting worse because the contract lawyers that used to show up in secure offices and have somebody wandering around and make sure you weren't taking pictures of the documents you're redacting. Now you do it from home, but they have a camera on you and AI that is watching your facial expressions and your movements to see whether or not you are misbehaving when you're doing redactions on a peace rate. So doctors, lawyers, professors, I think we're next for uberization. I might actually have this thought experiment that is a dystopian or magical depending on your perspective. But you can see where this is going to go in the world of retail. Walmart has 2.3 million employees. It's the world's largest employer. Suppose they wanted to go lean and turn into uber. How might they do that? So they're associates, which is what they call labor, could transition to self-employed micro entrepreneurs and each one of them would spend the 50 bucks to create an LLC to receive their compensation. So it's all sort of fair and square. Their training to be self funded, provided by community colleges or third party vendors. So you don't have to worry about training your employees or them leaving. They're going to have to train themselves and they'll get a badge or a certification that says that they are suited for particular roles. The evaluations be automated. You'd combine speed, which is measured by software and smartphone based customer ratings. And the great part is that qualified associates, if you're above a 4.5 rating on the app, you'd be able to use the you serve app to bid for shifts within commutable distance. As you know, minimum wage does not apply to contractors. And so if they're bidding for shifts, they can underbid in principle, the minimum wage. The lawyers can tell me that I'm wrong about this. But I think I'm right about this. You might get surge pricing on Friday night, but you might get below minimum wage on Monday. And the wages would change according to market condition day to day, maybe hour to hour, you know, you would actually be paid according to market conditions. And we do await those nasty internal labor markets. And you know, this will be greeted with joy all over the labor market, like after prop 22 in California, people will be their own boss and choose their own hours and be co dependent no more. I described this to a set of Canadian executives in the lovely Banff Hotel that you've seen before. And they said that's ridiculous. That will never happen. Society would not put up with it literally within two weeks. Walmart rolled out their My Walmart schedule app, which you can go find on on Android or iOS. And they already have an app that allows employees to swap shifts with each other if they're qualified. They're not bidding in an auction yet, but but it's certainly not impossible to happen. OK, so that works for suppliers and labors. What about distribution? This one's a bit easier. The short answer is Amazon fulfillment by Amazon is the universal distribution channel. If you've got anything, Amazon can get it to customers and charge them and drop it into your account. This has created a super interesting business model. This is a lovely piece by Farhad Manjoo, New York Times, brilliant columnist who is you should read every word he writes because it's always super smart. I'm a big I'm a fanboy. I have to admit. And this article he sort of was digging into how is it possible that I bought this webcam for 20 bucks? I mean, the name brand is 200 bucks. This seems crazy to me. We dug into it and discovered that there's a business model in Silicon Valley primarily, where people find things on Amazon, where the margin seems too high. Basically come up with a sketch, find designers on upward to refine the design, go to Alibaba to find a vendor to manufacture it and then send it to fulfillment by Amazon. So they've got this complete circuit. The business model is find something that seems to cost too much underpriced with an off brand. And then eventually drive the price down to what I think normal economists would say it should be. So in one sense, great, we're going to see better products for ludicrously low prices. The sonys of the world will fall and the nerd pals and vizio's will rise. We'll see if that actually turns out as magical as that. But that's kind of the direction that we're heading is a much more competitive marketplace. The summarizing all of this is that the four core markets to create an enterprise have been the transaction costs for relying on markets rather than vertical immigration have been radically declining. And this takes the form in serial of financialization, which is increasing centrality and accessibility of financial markets, as opposed to say banks, micrification, Amazon modification, I guess, and uberization spot markets for labor. The core component markets for firms using a market has gotten a lot cheaper. And as a result of this, the components to create an enterprise look a lot like a pile of Legos waiting to be assembled. You could sit on your couch on your laptop. If you've got a credit card, you can snap a firm together essentially. And this is how we end up with products like Instant Pop, the greatest advance in human civilization over the last 20 years. I think anyone that that has an instant pot would agree we have lots of instant pops. They're fantastic. Designer of this thing funded it himself for $350,000. They sell 300,000 units on prime day alone. It's like this worldwide phenomenon with this one guy and his 50 employees in Ottawa, relying on the market that I the model that I just described. So that's a weird world. What a frictionless markets like this mean for employment? So this is a list of America's 10 largest corporate employers today. And one of the things that you'll immediately notice is they're mostly in retail, retail and warehousing, but really retail and logistics of consumer goods. That's the first thing you notice. The second thing you notice on the far right is the median annual compensation for employees. And what you may notice there is wait, is a number missing here? No, that actually is what the median employee at Walmart and Home Depot and Kroger and Target and Lowe's make. The compensation in retail is not great. The career ladders look more like step stools. So when you think modal job, don't think GM and AT&T think Walmart, that is the modal job is a retail job that doesn't necessarily pay the amount that you might anticipate. Also to put this in a bit of perspective, this report just came out earlier in November, the Kaiser Family Foundation does an annual survey of how much does it cost employers to provide health care, annual premiums for employee sponsored family health care. So head of household is $22,000 a year. So providing a head of household health insurance is more than the median pay at Walmart. That feels like very fraught situation. If you're spending more on health care than your wages as many of the firms on this on this list are, that feels a little bit complicated to say the least. In contrast, if you thought that people worked at General Motors, I'm here to tell you they don't. What used to be our giant local employer, they have about as many employees globally today as they did in 1925, which is wild. But it's kind of it's apocalyptic in terms of well paid career ladder type jobs. And that's kind of where we are today. So the shape of things to come. So I want to bring this up to you where I am in the book and thinking about how firms and business have changed particularly during COVID. So the pandemic really accelerated people's reliance on apps to see what the outside world looked like. So this is my metaphor about a screen standing between us and the outside world. So more and more people relied on the internet to know what was going on in the outside world because you couldn't always get out there. This is great news for Google, Apple, Facebook, Amazon and Microsoft. They now last time I checked made up almost a quarter of the value of the S&P 500. So great news for giant platform firms. They've really made out during COVID, possibly less good news for the rest of us because all those black mirror episodes, it seemed dystopian now seemed to be coming true. So I spent last year at Stanford living in lovely Menlo Park, California, four blocks from Sheryl Sandberg. I'll say hi to her next time I see her in the first Sunday we were in town. This is what my iPhone told me, 104 degrees and unhealthy air quality because of wildfires in the California area. The smoke just sort of spreads out like peanut butter and then hangs overhead for surprisingly long time. So if you're thinking of taking a job in the Bay Area, turn back now you will not be happy. It looks great on postcards, but August through October is a new season in California called wildfire season. And you don't need to be next door. The air gets so sick that you can't actually breathe it. You have to check before you even leave the house. This is what San Francisco looked like the following Wednesday. The birds didn't come out that day because there was so much smoke in the air that the sky turned orange. And this really was what it looked like was kind of crazy. This turns out to be bad news for restaurants. COVID plus lockdown means restaurants are in some real trouble. 100,000 restaurants closed in the first six months of the pandemic. 100,000 is a very big number. In some sense, this is like the meteor that hit the earth and killed off the dinosaurs and then something new is going to sort of pop up in their place, you know, maybe mammals to give you a feel for what this looked like on the labor market. This is my one crazy looking. This is so that was April of 2020. So the number of jobs lost in the restaurant industry was 5 million, which is roughly the population of Denmark. 5 million jobs lower a month later. Social scientifically speaking, that's a lot. They bounced back. Restaurants pivoted. They started doing more takeout and other things. But that was a pretty big shock to the system to have that many people lose their work in a pretty quick, pretty quick clip. Restaurants are arguably the oldest kind of firm we've got. There have been restaurants forever. There's a picture of a restaurant in Pompeii that has recently been dug up. What few people realized is it was an olive garden. So those recipes go back a good long way. I don't know if they really had the endless salad bowl. But when I lived in New York City, we had a the norm was that all your food was takeout like that everybody delivered in the neighborhood in the village. And so we were all used to this idea. And now all of the rest of civilization is caught up with us. So your kids can also ask you every day around six o'clock, Daddy, what's the food guy bringing today? Because that's where they think food comes from as somebody shows up at the front door. Turns out that this opens up some really interesting possibilities. If there's a black box between you finding a menu online in the food showing up at your front porch, it enables sketchy looking business models like Chuck E cheese advertising Pasquale's pizza as if it were some local pizza restaurant. And so instead of going to visit an oversized rodent for a kid's birthday party, they're actually delivering pizzas to people under a different brand name because people don't know any better. And that idea actually spread pretty broadly, the idea of ghost kitchens where well, if you've already invested the capital equipment, you've got a function in kitchen that's been vetted by the health department. Why not cook for two restaurants or three or five? And it's you can do it at a small scale in any given restaurant. You can do it at a large scale if you create a custom built commissary kitchen. And this was the bounce back business of Travis Kalanick, the guy that the erstwhile founder of Uber, his new business is cloud kitchens where you can rent space rent kitchen space from them and launch without having to do all of the investment and vetting and health department and all of that, they'll do the back office you just show up with with the menu and some labor. Door dash has gone one better. They have vertically integrated into kitchens. Super interesting. They own the kitchen, they hire people they manage suppliers, you send them the recipes and the brand name, and they do the rest. This is super intriguing. So Christie, if you didn't, if you're not content with selling tomato sauce, you can now start a restaurant. If you've got a recipe book, or what they would call a portfolio of algorithms for food preparation, you can get door dash to market your food and get it off the people's doors. This is super interesting. What can we expect in a world of commissary kitchens? You're going to see one facility with a whole lot of different restaurants that are basically brand names, kind of like the phones or other electronic goods made at Foxconn. You will see IKEA like instructions on screens for the assembly of the menu items. This already happens in many restaurants. There's a screen that will show you how to put together a club sandwich and a little animated thing showing how to pull that off. Competitive advantage goes to menu designers able to create readily assembled items. The Cheesecake Factory, a tool Goanda has a lovely article about the Cheesecake Factory and how they're able to roll out complicated recipes. You're going to see the increasing standardization of jobs to make it easier to match people to strip out the asset specificity and have a small number of standardized job descriptions and a much more reliance on temps rather than full time labor. This is already happening. There's an app called Paird P-A-R-E-D where you can sign up to work by the shift. And if you feel like working five days in a row, you can sign up and they will tell you what to wear and what the cuisine is and whether you're qualified and what the pay is. And then you show up. It's not quite they tell you what the pay is going to be. So it's not that you're bidding for it, but it is sort of labor by the shift. I want to say something that's going to sound like I'm making a value judgment, but but I'm not. And this is a scrupulously neutral social science judgment that the employment relation in the U.S. is on the verge of a vast transformation that is going to be a disaster for labor and disaster. I don't mean that as a positive or negative thing. I'm just saying it's going to be a complete disaster for labor in California. While I live there, it wasn't my fault that the voters in their infinite wisdom passed Prop 22 that certified that drivers for Uber, Lyft, DoorDash are contractors and not employees. Before the ink was dry on this bill or however, when calibrate ceasing these days, the grocery stores across California fired all of their delivery drivers and switched to DoorDash. So this is the shape of things to come, I think. It turns out that Wall Street has rendered a judgment on this kind of model. Yum China Holdings, which in spite of its name is a headquartered in Dallas and listed on the New York Stock Exchange. It's mostly U.S. investors, although it is mostly KFCs in China. They're actually a pretty profitable company with regular revenues and a market cap of 23 billion. This is a tired model. DoorDash, they recently went public last October, I think they had a market cap of 84 billion dollars, even though they have not seen a profit and will not for many years to come. This model is wired. It's pretty clear where the future lies in the views of investors. It's the DoorDash model, not the brick and mortar restaurant model. So the crazy thing is, if you have set foot in a restaurant in the last few months, that model of ordering things on your phone has now migrated to the restaurant itself. So most sit-down restaurants in the U.S. have shifted to using or allow or require the use of a QR code. So when I go to Jolly Pumpkin in Detroit, there used to be actual human beings that I would talk to and then wonder about things. Now you just sit down at a table, scan a QR code, use Apple Pay, and then someone runs out with food and then runs back. The advantages of this model from the perspective of the restaurant owners is you could save a lot on labor if you get rid of all of the skilled people who say, hi, my name's Lorne. I'm going to be taking care of you for this evening. Food runners don't even have to speak your language. Eventually they'll be replaced by robots, of course. But for now, one food runner can cover an entire floor. And if you're not collecting the fees or making chit chat, it can be a lot more efficient. But there were 12 million people working in the restaurant industry. And this is sort of a structural shift in what is going on broadly in the restaurant industry, which is why I find it interesting. So I was not just going to stay in restaurants, but that would take another talk. So how do we rein in our new corporate overlords before this platformization destroys every stable job? We might not want to. We might want to get rid of all the stable jobs. But imagine we wanted things to go differently. What could we do? One thing I discovered last year is everyone in the world has written a book on antitrust. There are so many books on antitrust out there, you know, including me. Sorry about that. But this is a second and final commercial break during this talk. I'm going to save you a whole lot of time and effort and tell you that the two sentences on this slide summarize pretty much all of those books put together. Concentrations of corporate power now the norm in the United States. A 2018 study found that concentration has increased in three quarters of domestic industries in recent decades, giving companies greater power to raise prices, squeeze suppliers, and suppress wages and to exert outside outside influence on regulators and politicians. So the folklore, the anti-monopoly narrative that is universally shared on almost everybody's books with a couple of exceptions is industries have gotten concentrated. Now we've got these big firms that have oversized market shares and they underpay and overcharge and beat up their suppliers and have too much political power. So that is pretty much what all those books are going to tell you, you are welcome. I've saved you many hours of reading all those damn anti-monopoly books, that 450 page report that the subcommittee put out. So it turns out that over the course of the 20th century, we came up with ways, legal ways to reign in monopoly power. Like we had a set of tools that developed over the century to make big companies behave themselves. During the progressive era on the turn of the 20th century when sort of the corporatization of the economy first happened, we had the regulation of product markets and the Sherman Act added supplier markets and the Clayton Act from my perspective in the New Deal regulations of capital markets and the 33 and 34 acts and labor markets and what I insist on calling the Wagner Act to be more pretentious and the Fair Labor Standards Act that covered most but not all occupations. So we had a set of tools that regulated corporations largely by regulating their component markets by regulating how you can compete in a product market, how you could take on, how you could address your suppliers, how you could raise capital. So we kind of, we hemmed in corporations in a sense by regulating their component markets. There's other things too, but I think this is a nice reader's digest version of things. Here's where things get complicated for us. Mark Andreessen wrote this lovely op-ed almost exactly 10 years ago in the Wall Street Journal called Why Software is Eating the World? And he goes through why it is it software and the next 10 years is going to transform every industry. I'm here to tell you he's right. He was right. He got that one right. Software has transformed everything and for dessert, it's dining on our essential understanding of how the economy is organized. The basic categories that we use to make sense of and regulate the economy have been undermined in some complicated ways. And that's what I spend a bunch of time in that little book on. So back to the metaphor. This is Fernand Leger and I said halfway point. It's actually the 90% mark, Christy, in case you're getting anxious. So Fernand Leger here's a metaphor, I think that you've got this really complicated outline of a woman's face and she's got this. She's got a necklace and she's got a shall over her shoulder and this interesting color and this weird looking plant thing there. And they're all really complicated and full of curvy lines. And then you've got these super simple color blocks in yellow, orange, green, blue, red that don't map on to it. And for me, this is a metaphor for the categories that we use and the economy that we encounter and that I think there's a misfit between our simple categories like firm and employee and industry and big and nationality and what we actually encounter in the world today. And that's why an 1890 Act might not be sufficient to take on some of the weird complications we have today. What is a firm anyway? I'm a cheapskates. I use the online core economics textbook which I like very much. It's an economic organization in which private owners of capital goods and direct labor, private owners of capital goods hire and direct labor to produce goods and services for sale on markets to make a profit. Well, if Christie starts an online only restaurant with a recipe book and she contracts with DoorDash to do the production and distribution and DoorDash uses contractors. Does like using a recipe count as directing labor? Like who owns the capital goods in this situation? The simple definition of firm turns out to be complicated in a world where you've got free floating free floating brands and intellectual property that don't map onto the form of collective action. It's easy to track public corporations because they file 10Ks every year and we can run regressions on them. It's kind of like the NBA. You've got very good records. We're now moving into a world that looks more like pickup basketball. We know it's happening but we don't really have good data. We don't really have the tools or the categories to pick up the information. Instant pot is like this. 50 people in Ottawa and this giant firm with no employees and no assets and no advertising. So that feels complicated. What does an employee look like? I love this article. I pasted it into the chat. It's kind of a hair-raising article about delivery riders in New York City. It claims that there are 65,000 delivery riders that work for the various apps in New York and you'd think, well, there's a job that anyone could get. Turns out you would be wrong. You can't do it on a regular bicycle anymore. The expectations of speedy delivery mean that the costs of entry to become a delivery rider is a $2,000 electric bike. So if you want to deliver in New York you need a $2,000 bike because you might be sent to Brooklyn or Bronx with somebody's donuts. And it turns out that thieves love $2,000 bikes. There's now an entire industry of armed thieves that harass and steal bicycles from delivery people who are often, they're not economically like $2,000 is serious money for delivery riders. And this is a really kind of terrible situation. Also restaurants won't let you use the bathroom and customers don't tip. It's a really bad job but it does feel like a preview of what we're likely to see in the future in the probably college professor. What is industry? The Nike's code, you know, we think of industry as a normal human being think of industry as what do they make? What service am I getting from them? Maybe that's market, maybe that's industry but they make cars or they refine oil. The Nike's codes that you're all familiar with are based on activities, not what you sell but the activities in an establishment. The software industry, their activity is staring at a screen and typing on a keyboard. They're all in the same industry. The University of Michigan is in the staring at a screen and typing on a keyboard industry just like all the software companies. So this is a set of eight companies that recently went public within the last year other than Uber, last year and a half anyway. And they're all classified themselves as 73, 72 pre-packaged software. And one's kind of competes with hotels and one competes with universities offering courses. Olo is restaurant logistics. They're the people with the QR codes. Palantir is nefarious spying. Asana is enabling people to work in groups. C3AI is AI, Snowflake is some cloud thing. I mean, in what sense are they in the same industry? Are they competitors? How do we think about industry in a world where software has spread like PFAS into the water? So industry is a complicated category. And you can do the Holberg and Phillips thing. And that turns out not to work as well either but we'd have to get to that in the questions. Second to last thing is what do we mean by size? So is Zoom a giant corporation? They single-handedly enabled work from home for white collar workers last year, 500 million downloads in 2020, 300 million daily users currently. Last I checked their market cap is about 80 billion which is not nothing. But they claimed on their annual report, they're 10K for this year after the pandemic. They have 4,422 employees globally which is less than 1% of Home Depot's employment. And they rent server space from Amazon and Oracle. So no employees, no assets, great brand name and pervasive. Are they a giant corporation? What does big mean in a world like this? If assets, employment, market cap revenues are really different looking things is big even a useful metaphor anymore. What is nationality? So there've been tax dodgers forever like Accenture and Medtronic and Microsoft. So that's kind of common. Coinbase takes it to a new level. So what industry is Coinbase in? They are a cryptocurrency exchange and they list themselves in 73,89, business services, not elsewhere classified which is an extremely unhelpful category. They're not a securities broker, no, no, no, or they're not a bank, there's some other thing. Where does it live? This is hilarious. If you go to the, so it says address not applicable. And in the footnote it says, in May 2020 we became a remote first company. Accordingly, we do not maintain a headquarters. So they have no physical locations for their business. It's a bunch of nerds that work from home and I've learned from one of my former students in Silicon Valley that people with businesses like this say, can you list my citizenship as Lichtenstein and claim that I'm working from Lichtenstein because I don't want to pay taxes. So now normal human beings can do the tricks that corporations do and claim Costa Rican residency or something to avoid paying taxes. So like what is, how do you measure businesses at the establishment level if they literally don't have a physical location where they actually do business? It gets complicated. It's not a trivial problem. I'd like to spend the next 16 hours on this slide, but I'm not, let me just tell you everybody's got a solution to this, break them up, ban acquisitions by big firms, declare blah, blah, blah. You can just look at this and this is a whole lot of fun proposals that people have suggested. I would say traditional antitrust is gonna be tricky here. I wish Lena Khan all the best in this, but I think it's gonna be pretty tough. There's a reason why the FTC's initial suit against Facebook got dismissed quickly because like, yeah, just because everybody says they're a monopolist doesn't make them a monopolist. You gotta identify a market and it's gotta be legally cognizable and try and work on that. So there's a lot of tools out there. There's dozens of tools out there. This is weird that we've gone from senators asking how does Facebook make its revenues to a world where everybody's got some sharp new proposal to take on big tech? I don't have time or interest in weighing in on all these, but just let me tell you, there's a lot out there. Every senator has their own bill to make Facebook behave themselves. What I would like us to do is back up a bit and say, we've got really different tools for really different kind of architecture. This is like 1900 where suddenly you had elevators and electricity and structural concrete and plate glass. You could make really different looking buildings than you did in 1850. How do we use the tools we have now that I've described to create equitable enterprises that are more democratic, humane and responsive to their communities? We don't have to go down the path of DoorDash. We can go in a pretty different direction. Maybe that is the right path, but I think it's worth us stepping back and not saying coming up with entirely new categories of law for three corporations in Silicon Valley and Seattle, rather than putting all of our work into just three or four big tech firms, we should be asking, how do we create the guardrails that enable new kinds of enterprises that do what society wants them to do? They probably won't be publicly traded. They will probably look different from what we've seen before, but how do we create structures that make more human enterprises from that? And that is where I will quit. Wow. That was a lot. Can we all have a moment to acknowledge Professor Davis and then we'll start with questions? Thank you. I know it was a lot. Sorry about that. Got into some weeds there, but thanks for staying awake. Who wants to lead off with questions? We got one in the chat. Oh. Wow. Oh, okay. No, okay. Allegra, was that a question? No, it was a comment about the people in Liechtenstein to avoid taxes. Isn't that fun? I had never heard of that, but it was somebody that worked in HR at a company you've all heard of. And she said, yeah, people are saying, like working from home, yeah, I'm working from Mexico City. So put that into my HR records. Yeah. All right, Jerry, do you think, I get the sense from your talk that you've seen this as kind of like inevitable. It almost seems like you think it's inevitable that it's going in this direction. And so let me just ask, do you think this is inevitable? And you're yes or no? And I guess, what are you, are you seeing the more being more private corporations or is the corporation not even, I guess it looked like a train headed in a scary direction from my perspective. And so I'm like, is there another track available? Yeah, it is not inevitable. And in fact, it is not even likely to occur in this way anywhere on earth, but the United States. So I have this obnoxious phrase, institutional terroir that I'm trying to trademark and get out there. But, you know, cacao is delicious, but it doesn't grow in Canada. Like this system that I'm describing is a very American way to do things. Like if you look at Uber or Uber-like entities using a smartphone to match riders and drivers for rides, like that, we imagine that the American version of that is a way that it always has to be and that it was foreordained by the technology. But if you go to Sweden or Nigeria or Indonesia or China or India, it looks completely different. So it's not like the technology forces you to follow any particular way of doing things. So this is a very American specific way of things playing out. It turns out that we have like all the money in the world and we have a very well-developed venture capital system that gives, I was thinking this morning, like the idea that an IPO is called an exit kind of tells you all you need to know, like from the people that are putting their own money in, they're exiting and the suckers are buying it. And I'm not gonna name any venture capital firms, but there's a whole lot of them that if you track those things from when they went public to three years later, you know, not to mention any alumni names. So the zoo lilies of the world or the zingas or the group bonds or whatever, like, oh, that didn't pad out so well. They got paid and then they exited and then it sort of lived on the public market. So I don't think that can last forever in the form that it is. There's so many more interesting alternative ways to intermediate capital that are popping up and some will turn out to be scams and some will turn out to be our future. But I think we're at this moment where a lot is up for grabs. There's so much conversation about how we regulate these things that I think we all need to be paying real close attention and hope that senators actually read their briefings before voting on Josh Holly's bill, which I gotta say, if you don't know what an API is, you probably should not be coming up with regulations for the tech sector. But anyway, pointlessly snarky, but I really hate Josh Holly. Looks like Steven Makin has his hand up. Professor Davis, Steven Makin with the Gartner Research Board. I would say, first of all, I really enjoy the talk. So thank you. But second, I wonder, it seems like IP protection is sort of at the center of a lot of this. So going back to your concept of notification from years ago, I wonder if IP reform could actually end this or dent this process of spinning out every element of the company except the patent is done by the company. And therefore opposite protections ultimately do exploitative labor. Yeah, that's a great question. So can you say how would you, and Karen Bantel has a great question here too, and she raised that, and maybe if you'd like to join us on the conversation, like can IP or other forms of law be used in ways that offer labor protection? From all that I've seen that it always goes in the opposite direction, but as a non-lawyer who doesn't know what probative means, I'm probably not the most qualified to come up with a good policy. If somebody's smart people on this call it, they'd probably have a better answer. But thus far, as it's enforced in the US, I'm not sure if that'll provide the kind of protection that we're hoping for. Karen, did you wanna dive in? I wasn't prepared to come on screen, but I'll do that. I find myself wondering about professionals who might have better opportunities, say let's suppose somebody who's a design engineer, for example, who might be able to pick and choose employment opportunities and seamlessly move from employer to employer and be able to market themselves and have access in a way that they wouldn't have had otherwise. Yeah, hundo pi, as the kids say, it means 100% apparently. So I have this buddy that lives in an island nation in the North Atlantic, I moved there with his family during COVID and he's already got his own startup and he does talks and writes books. He's kind of a prominent person and he was offered the job to be the CFO of a startup on a quarter-time basis from Iceland. Oh, I told you already. But it's like, wait, what? And they said, yeah, you don't need to show up, you know what the job is, you've done it before and we don't need a whole, we don't need 40 hours of a person a week, we need someone with your skills for 10 hours a week and it doesn't have to be here. We'll give you 100,000 a year and also some options on this thing. It's like this is fascinating for someone like that with those levels of skill, this is gold, he could literally be on a beach or be in Iceland, you know, on the fjord or whatever they have on the volcanoes doing CFO stuff and collecting, you know, big guap. And so for him, it's great, but if you don't have rare, valuable, hard to imitate skills, then you're probably boned. And I kind of feel like college professors, many of us are a lot closer to that, you know, there's a lot of people who can explain mitosis better than I can. So it's not too hard to imagine, all right, we're doing a bidding war, who can explain eigenvector centrality for an hour today? We got an opening in sociology and we're all placing bets and I would much, I'd rather have John Chamberlain give this, he could talk about the Chamberlain Courant Algorithm, one of my favorite things. And you could hear it from him instead of me doing a lame imitation, like why not get the real thing? So it's not hard to visualize that under the guise of lowering the cost of education, when making it more accessible for the masses, now that they're already learning things on Zoom anyway, like why not have the world's best rather than me? So luckily I'm headed to retirement that I'm not at all worried about those five tech companies making up one quarter of the value of the S&P 500. I'm sure it'll work out well, no matter what happens with these whole antitrust things. Conflict of interest. Anthony, we have not heard from you. Oh, and Christy, you can tell us to quit soon or we could also just say everybody that needs to bounce, we can turn off the taping and then get to the really spicy stuff, but should we do Anthony first or bounce? So we're at time, so why don't we stop recording? And let me just do a quick plug, please come back next year. Our speaker on January 13th will be Professor Nadia Malenko from the Ross School.