There is a question that economists have dealt with for years which is "if we have markets, why do we need the corporation"? I'm pretty sure this isn't a thought that crosses most peoples minds on a day to day basis but it is something that I have thought about from time to time. So how do we find the answer? Let's first look at the question another way, "What is the best way to properly allocate capital and organize labor"? From that question, we can say say that the best method has been the corporation. So why is that? And is the corporation the best way to go about it?

Economist Ronald Coase was able to analyze and answer this question with his seminal essay The Nature of the Firm. Due to a set of issues related to discovery costs, transactional costs, and obscured reputation, it is simply too expensive to keep making and doing certain processes over and over again. So the solution has been to start a corporation and create and sell a product or service to the public that way. It works pretty simple. People are hired into a corporation to work on a specialty and they focus primarily on that output. Each employees input (whether that is an expertise in marketing, finance, sales, or product creation), contributes to a much larger output (a finished physical good or service) that the corporation then sells to its customers. For example, Ford's assembly lines in the early 20th century are an amazing example of inputs coming together for a bigger output. In fact, Ford's process was so great that it revolutionized the way that factories were run, and help put in place more specialty focus for each employee. This process caught on to many other companies in other industries and suddenly more products could be made much quicker and gotten out to more people in less time. For the majority of the 20th century, The U.S. was the biggest exporter of manufactured goods.

Skip ahead to the 21st century and things are not what they used to be. China is the number one exporter of manufactured goods and the U.S. has slowly turned itself into a service driven economy. Because of this, I think that we will start to really see some major changes with manufacturing. In the past, and thanks to the assemly line revolution, large quantities of the same product could be made quickly and shipped to its destination in a short frame of time. Furthermore, with Deming's statistical research and systems put into place (think lean manufacturing and six sigma), manufacturers could suddenly make their products faster with little defects. Japans rise to dominance in the 1980's is a prime example of what could happen when manufacturing is done correctly. (I will skip over their economic fall from grace in the early 1990's to the present). 

But times change and broadly speaking, more people want products or services that are individually made for them. This isn't something that is easy to do when your entire line of products has little variation and your company must sell a large quantity just to break even. The fashion industry is catching on pretty quickly thanks to the Spanish behemoth Zara. Although they don't manufacture clothing for each individual person who wants it, their supply chain is so streamlined that they can sell out of a popular product, have more quickly made, and shipped back to the store in a heartbeat. Their process is unreal and a testament to how effective a well run supply chain can be for a company. There are only three other companies that I can think of with such an effective supply chain and that is Apple, Amazon, and Wal-Mart.

So what about hardware products, or smaller products that don't need huge assembly lines to create? Will it be easy to manufacture these products that are tailor made for each person in the future? Part of that answer could be 3-D printing, which has the ability to really throw the manufacturing world on it's head. 3-D printing is still in the early adoption phase, but once more people start to see how it can be used, and the price of printers comes down to the point that most anybody can easily buy one for a cheap price, we will probably start to quickly see some changes with the manufacturing process. It has even been stated that 3-D printing could bring about the second manufacturing revolution here in the U.S. I don't know if it's true but I'm pretty sure we will find out quickly enough. With this type of technology, more and more people will be able to print and manufacture their own products right at their own kitchen-tables (or garages if they need more space). But this technology is still in the early adoption phase and unless there a few companies that are able to cross the chasm soon, then this will remain a niche technology for those who understand it.

The other part of the answer are the newer types of marketplaces that give smaller creators access to more people. Etsy is the most prominent example I can think of at the moment and it has done wonders to create a whole new market for people to sell their creative wares to other people. These micro niches give people access to (mostly) hand-made products that will work out perfectly. And I wouldn't be surprised if customers contact these smaller one-stop shops to request a product made specifically for them. 

So what does all this have to do with my original question, "if we have markets, why do we need the corporation"? Because we are starting to move into a place where more people will start making their own products and services to sell to other people on an individual basis. And by that I mean more products will be tailor made for people instead of the one size fits all approach. These people are creating new marketplaces at their kitchen table with technology leading the way. And some of these people will have products that sell more than others and it will require them to better organize their labor and allocate the capital working for them. And the best way to do that will be through a corporation. Love them or hate them, the basic idea of the corporation is the best we have come up with yet to do all of this.