IEEE Technology and Society Magazine - September 2022 - 33

price theory by positing that managers have enough
information to keep profit, price, and wages in equilibrium.
But if they are as " bounded " in rationality as
any other human, they have only their own (necessarily
limited) technical expertise to work with, and
only their (necessarily limited) decision-making. How
would innovation percolate up from the expertise of
employees? The only information managers gather
is about efforts and capital use, so employees would
have to be motivated with all stick and no carrot.
A number of Williamson's colleagues in economics
sought to fill these gaps with friendly revisions that
maintained the ultimate finding of price equilibrium.
Some early critics of TCE argued that a firm had no
power over employees other than what was in their
contracts [6]. If firms had powerful, all-purpose command-and-control
management techniques available
to them, you would see them enter almost any market
and dominate. But they do not; they develop a stable
of subject matter experts and stay fairly close to their
core businesses [20]. In this explanation, profit is the
" residual " earned by the " owner " of all the contracts
by organizing production more efficiently [6, p. 783].
Some expanded on this to argue that the firm is therefore
a bundle of property rights: all employees would
have incentives to satisfy the holder of the bundle of
residuals, innovating upon the production process
for the holder's benefit [7], [33].
But this could not fully explain the modern firm,
which is characterized not by an owner-manager, but
by the " separation of ownership and control " [33, p.
1773]. If the firm is owned by absentee stockholders,
the manager controlling it would serve his own interests,
not theirs. The owner was a " principal " who
would have to pay their managing " agent " in stocks
to align them toward a shared profit motive [8].
But would this work? The early participants in this
debate shot back that distributing some of the " residual "
to anyone other than the owner would simply
disincentivize the owner by reducing his share [6,
p. 786]. Williamson similarly warned that " high-powered
incentives " for employees could backfire,
causing employees to be singularly focused on their
performance goals rather than the overall objectives
of the firm [28, p. 82]. (On this point, applied also to
modern tech firms, see [34].)
Later scholars tried to supplement TCE with better
theories of innovation. Some made the suggestion
that " corporate culture " succeeds where high-powered
incentives do not, binding employees to the
September 2022
firm by way of a " reputation " for commitment to
well-established objectives [9]. Others argued that
firms allow employees to develop their skills using
capital assets-algorithms, programs, mainframes,
and so on-and the employee gets the new firm-specific
skills she has acquired. Thus, although she does
not own more of the firm, or have more property in
it, she is nevertheless in a position to command a
higher wage because she has made herself more
valuable (specific) to the firm [10]. Others added
that fear of losing such an employee would cause
them to supplement explicit agreements with
" implicit contracts, " via which companies establish
norms of respect for employee expertise and professional
discretion [11].
Knowledge-based company:
Value-guided innovation
Are these sorts of norms-established strategically
to give employees extrinsic motivations and
aimed at minimizing transaction costs-enough to
spur innovation? Williamson and the economists
who followed him added countless Ptolemaic epicycles
to price theory, trying to explain the motions of
innovative firms. But today's information and communication
technology (ICT) companies are built
on foundations they failed to foresee: widespread
stock options, " bottom-up " organization of design
teams, widespread information sharing, and so on. It
is true that firms cannot last for long without profits;
so, to maintain the better-than-market efficiency predicted
by TCE, corporate norms must be cheap and
effective (i.e., there is a limited " space for norms, "
as Abraham Singer says [35, p. 835]). Nevertheless,
we need a new model for today's ICT firm, one that
places innovation (rather than profit) at its core.
Though the argument could apply more broadly,
I focus here on ICT companies, for two reasons: first,
because of well-known instances in which they have
tried to duck responsibility; and second, because their
internal workflows pose unique ethical challenges.
First, it could seem that work on ICTs disrupts the
clear lines of responsibility we can often trace from
an engineer to their work product. The forensics on
a collapsed bridge, for instance, might clearly implicate
an engineer's poor design choices. But information
technologies instead seem to be mere platforms,
upon which the users make all the morally relevant
choices (as some said in defense of Instagram when
its research on harm to teen girls leaked [36]). I will
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