"Market, Hierarchy, and Trust: The Knowledge Economy and the
Future of Capitalism"
BY: PAUL S. ADLER
Marshall School of Business, University of Southern
California
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=186930
Contact: PAUL S. ADLER
Email: Mailto:padler at usc.edu
Postal: Marshall School of Business, University of Southern
California
Los Angeles, CA 90089-1421 USA
Phone: (213)740-0728
Fax: (213)740-3582
ABSTRACT:
Recent conceptualizations of trends in the structure of U.S.
industry have focused on the relative importance of markets,
hierarchies, and hybrid intermediate forms. This paper seeks to
advance the discussion by distinguishing three ideal-typical
forms of organization and their corresponding key coordination
mechanism: market/price, hierarchy/authority, and
community/trust. Different institutions combine the three
forms/mechanisms in different proportions. Economic and
organizational theory have shown that compared to trust, price
and authority are relatively ineffective mechanisms for dealing
with assets that are based on knowledge. As knowledge becomes
increasingly important in our economy, we should therefore
expect high-trust institutional forms to proliferate.
A review of trends in employment relations, interdivisional
relations, and inter-firm relations finds evidence suggesting
that the effect of growing knowledge-intensity may indeed be
such a trend towards greater reliance on trust. There is also
reason to believe that the form of trust most effective in this
context is of a distinctively modern kind - "reflective trust" -
as opposed to a traditionalistic, blind trust. Such a trend to
reflective trust appears to threaten the privileges of currently
dominant social actors, and these actors' resistance, in
combination with the complex interdependencies between price,
authority, and trust mechanisms, imparts a halting character to
the trend. But the momentum of this trend nevertheless appears
to be self-reinforcing, which suggests that it may ultimately
come to challenge the foundations of our capitalist form of
society while simultaneously creating the foundations of a new,
post-capitalist form.
JEL Classification: A12,B24,B25,D80,H10,J20,L10,L22,M10,O10,O30