Firm as a Self-reproducing System

Two generally accepted visions of a firm in economics, the classical (a firm as a profit-maximizing technology-bearer) and the neoclassical (a firm as a set of interdependent contracts to allocate resources) can be amended with a third one, brought forward with a system thinking: a firm is a survivor and thus a selfreproducer. Application of von Neumann’s model of universal self-reproducing automate allows to point out that four key elements should exist in a self-reproducing firm: (1) technologies specific to the firm, (2) implementers transforming technologies into actions, (3) tutors, translating technologies to new (and existing) implementers, and (4) a coordinator to ensure consistency and synchronization of these processes. Self-reproduction of firm is one layer between self-reproduction of social individuals and that of a society. An implications of emphasis on firm’s selfreproductive function are that a firm should be an efficient social partner, sometimes even at the expense of its profits. It is argued that historically, a transition towards ‘self-reproductive’ firm is already occurring (as this function is concisely understood), and it appears to be a part of firm natural evolution towards a more complex and more efficient social structure. APPROACHES TO THE NATURE OF A FIRM A firm, as a key and universal element of the business world, attracts attention of economic theorists since the emergence of economic science. Still, debates over its structure and functions continue. This paper is to contribute some ideas in a system thinking research of a firm nature. Two different treatments of a firm should be distinguished: a legal object of property (which can exist virtually as well, e.g. one-day-firms) and a system of human activity, as a way to organize a multiplicity of people. The core interest of this paper is a firm as a ‘real organization’ that accomplishes a specific set of functions in the economy: an entrepreneurial or corporate enterprise for manufacturing or/and commercial activities. What is a firm then? Various suggestions have been made, but they all can be reduced to the following statements: • it is a bearer of technologies that transforms inputs into outputs; • it is a profit-making engine for capital owners; • it is a way of resource allocation and interaction in a capitalist economy; • it is a way of structuring collective cooperative activities of social individuals. Firm as A Self-Reproducing System 2 Evidently, each of these points of view can be produced, depending on the aspect of analysis: 1. a technological aspect is a focus on technology in a chain of suppliers and consumers (and a potential profit-making in a sequence of market interactions); 2. an organizational aspect is an emphasis on social relations and interactions in economic sphere (including legal aspect – a firm as a subject of property rights); 3. a social aspect to represent a firm as an element of self-reproduction and selfmaintenance processes in a social system. The first point of view can be attributed to the classic economists (from Adam Smith to Marshall), and it claims that a firm is a kind of “black box” that turns input resources into output products with its technology [Archibald, 1988]. This vision implies that a black box operates better through manufacturing specialization and (thus) economies of scale, main issue being “optimal allocation” of resources. Such approach has logically led to mass production enterprises and a world view now known as Fordism [Aglietta, 1979]. The second one has, as its particular implementation, a ‘Coasian paradigm’ which says that a firm is a way to distribute limited resources alternatively to the market; thus the black box has internal flows of information and interactions between its elements, which may efficient or inefficient to some criterion (if one compares such interactions to market interactions) (e.g. [Williamson, 1985]). Such vision dominates the business world since early 1970s and it was one of the reasons beyond the restructuring of mass production enterprises (e.g., processes known as outsourcing). This was a significant step in evolution towards ‘network economies’. A third concept, that can be brought forward within system thinking approach, points out that a firm is a part of a larger system: a society. It is an organized group of people that reproduce specific production activities and their main purpose is not production per se, but a collective sustenance in a capitalistic world. A firm is therefore a ‘survivor’ (this idea is not totally new to economic theory see e.g. [Malchup, 1967]); it is placed in a network of internal and external relationships (see e.g. [Luksha, 2000]) and must maintain them in order to perform its key functions.