On October 7, 1893, W. S. Gilbert and Arthur Sullivan, the creators of popular operettas such as HMS Pinafore, unveiled a new work in London’s West End. Gilbert and Sullivan’s Utopia, Limited featured one of the most improbable choruses ever set to music:

All hail, astonishing fact
All hail, invention new
The Joint Stock Company
The Act of Sixty-Two

The work had an equally improbable plot. An English company promoter named Mr. Goldbury arrives in the exotic South Sea island of Utopia and sets about turning the inhabitants into companies. Even babies arrive complete with company prospectuses.

Such was the state of thrall engendered by public, or joint-stock, companies in their early days. Since the mid-19th century, they have lived up to their promise, turbocharging capitalism though the efficient production of wealth.

Today, however, technology is radically shifting the balance of advantage away from the mighty corporation and toward markets and individuals. The plummeting cost of discovering information and coordinating interactions with customers means that tiny organizations can do the sorts of things once the preserve of mighty organizations—look at the way lone bloggers, working in their pajamas, have repeatedly outsmarted large news organizations.

We are also seeing new corporate forms proliferate. Chinese joint-stock companies are peculiar hybrids—controlled partly by the state and partly by private entrepreneurs, financed partly by government outlays and partly by shareholders. These companies depend as much on political favor as on the logic of the market. There are a growing number of private partnerships—companies that offer their partners the benefits of limited liability. Also, more and more private companies are financed by hedge funds. Why endure the regulatory burdens of going public when you can get all the money you need from private capital markets?

Are we seeing the public corporation’s eclipse? Despite all the innovative new models, this seems unlikely to me: the “company is cooked” argument overstates the threats to these remarkable organizations and understates their strengths. There are still good reasons for thinking that the 21st century, no less than the 20th, will belong to the institutions that Gilbert and Sullivan hymned in Utopia, Limited.

Take the threat to them from the financial markets. Private equity has always had problems at least as weighty as the so-called agency problem in public corporations (the separation of ownership from control). Private companies tend to lack public ones’ elaborate systems for corporate governance, financial reporting, and obligatory disclosure. They are also more vulnerable to market manipulation and quick profit taking. The market meltdown of autumn 2008 has probably diminished the attractiveness of private companies, for a while if not longer; leveraged-buyout activity, particularly for large targets, has already shrunk dramatically as liquidity dries up and investors retreat from risk. We may well be seeing the end of the overleveraged private company—exactly the opposite of what economist Michael Jensen predicted.

Or take the threat to corporations from public opinion and politicians. Most mainstream ones continue to see these organizations as agents of economic growth. The likes of US President Barack Obama and UK Prime Minister Gordon Brown worry about fixing the capitalist economy rather than reinventing Fabian socialism. The World Bank’s annual global business reports show that governments are competing to make it easier to create companies. Sarbanes–Oxley might have gone too far, but it was an honest attempt to deal with real problems. Forcing auditors and outside directors to represent shareholders was not a challenge to the public company but a reaffirmation of its basic principles, a backlash not against business but against bad business practice.

The argument that technology is diminishing the rationale of companies—minimizing the transaction costs of complex economic activity—is also overdone. Companies are more than just nexuses of contracts, which can be conveniently unbundled and handed over to the market. They also have certain “core competences,” usually cultural and often created over many years, that cannot easily be purchased on the market. If companies are artificial persons, they are also, at their best, artificial persons with very distinctive identities.

What’s more, the argument against public corporations underestimates their flexibility. They have gone through all sorts of transformations in their brief history. In the 19th century, they changed from tools of government into private businesses. In the first half of the 20th century, they changed from fiefs of robber barons into redoubts of the corporate personality. In the second half of the 20th century, they changed once again into much more flexible and entrepreneurial structures. They can surely go through more transformations in the future.

There is little doubt that these organizations will continue to go global wherever they can. They may not adopt the classic multinational form, with a headquarters and subsidiaries, but ever more companies will treat the world as their oyster. The lowering of trade barriers, the spread of deregulation, the plummeting cost of transportation and communication: all these make it possible for companies of all sizes, small as well as large, to reach global markets. The organization that Gilbert and Sullivan celebrated in Utopia, Limited —the publicly held and globally inclined joint-stock company—has much life in it yet.

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