One of Neil Fliegstein’s central concept, in his whole view of markets as fields, is that of conception of control. For Fliegstein, there are four types of rules and understandings necessary for structured exchange (market as field) to emerge: (1) property rights, (2) governance structure, (3) rules of exchange, and (4) conceptions of control. To put it simply, no market without social structuring by governments.
Let me reiterate here Fliegstein’s definition of “conception of control”:
“Conceptions of control reflect market-specific agreements between actors in firms on principles of internal organization (i.e., forms of hierarchy), tactics for competition or cooperation (i.e., strategies), and the hierarchy or status ordering of firms within a given market. A conception of control is a form of ‘local knowledge’ (Geertz 1983). Conceptions of control are historical and cultural products. They are historically specific to a certain industry in a certain society. They are cultural in that they form a set of understandings and practices about how things work in a particular market setting. A stable market is a social field in which a conception of control defines the social relations between incumbent and challenger seller firms such that the incumbent firms reproduce those relations on a period-to-period basis.
The purpose of action in a given market is to create and maintain stable worlds within and across firms that allow dominant seller firms to survive. Conceptions of control are social-organizational vehicles for particular markets that refer to the cognitive understandings that structure perceptions of how a particular market works, as well as a description of the real social relations of domination that exist in a particular market. A conception of control is simultaneously a worldview that allows actors to interpret the actions of others and a reflection of how the market is structured.” (2001, 35)
According to Fliegstein, and as summarized by Hass (2007, 106-7), the US has had five modern conceptions of control (CoCs) over the course of its modern economic history:
1. Cartels: groups of firms agreeing on prices, turf and tactics to minimize competition
2. Manufacturing CoC: mass market production where managers focus on a limited line of goods and security through vertical integration
3. Sales and marketing CoC: diversified output and marketed differentiation. This CoC prevailed from the Great Depression until the 1950s.
“Sales and marketing executives favor policies that boost sales by increasing marketing, differentiating products, and engaging in diversification of product lines.” (Fliegstein 2001, 129 – 30)
4. Financial CoC: by the late 1960s, early 1970, firms are no longer identified with what they make but rather as a set of more or less profitable assets to be deployed or abandoned.
“The finance conception of control originated with executives who were trained in finance methods and were primarily finance officers. Their balance sheet approach implies that the firm is no longer in the business of producing commodities, but instead operates as a set of assets. In such circumstance, divisions in the firm that do not perform up to expectations are sold off and new ones purchased. A central tactic is the use of mergers (and divestitures), often for diversification, to achieve growth.” (Fliegstein 2001, 129)
5. Shareholder value CoC:
“The shareholder value conception of control is also a financial set of strategies, but it had a particular critique of the financial conception of firms. The shareholder value perspective viewed the principal failure of the finance conception of control as the failure to maximize shareholder value by raising share prices.” (Fliegstein 2001, 149)
Or as Hass puts it,
“By the 1980s corporations held assets (e.g. property and land) that gave them a market value higher than their formal share prices indicated. Corporate raiders bought firms’ shares and sold off these assets for enormous profits. To fight raiders, managers improved share value by down-sizing (releasing employees and middle managers) and focusing on short-term profits to improve share value – keeping shareholders happy and proving that managers were doing their jobs (maximizing share value and shareholders’ assets). Now corporations are not products or profit as much as assets; strategies involve maximizing short-term value of these assets for shareholders, not the firm per se.” (Hass 2007, 107)
Now, why am I bringing all this stuff up? Because a couple of items that have made the news more or less recently have me wondering whether we are entering an era with a different conception of control for a specific market. Let me count the ways.
Items number 1: AT&T blames its customers for using too much broadband, which triggers this scathing statement from a satirical blogger pretending to be Steve Jobs:
Read the whole thing as it drips with sarcasm regarding the low quality of a dominant player on the market who chastises its customers for daring to use the product and service they pay for and trying to convince them to not use it as much.
The other item is even more recent and it pertains to Amazon.com removing all MacMillan e-books from its store and therefore from its Kindle stock. Now, issues about e-books have emerged before regarding the fact that the e-book merchant (Amazon.com, for instance) sells access to the e-book,not the e-book itself and therefore one could potentially “lose” the e-books one has purchased, as opposed to having a dead-tree book on your shelves for ever and ever.
So, the Amazon.com – MacMillan controversy is summarized nicely – and equally sarcastically – by John Scalzi:
Can I call this the FU Conception of control?