May 15, 2022
Their argument connects this debate to the emerging literature on state capacity.
They write:
“This article argues that the rise of the modern state was a necessary condition for the rise of the business corporation. A typical business corporation pools together a large number of strangers to share ownership of residual claims in a single enterprise with guarantees of asset partitioning. We show that this arrangement requires the support of a powerful state with the geographical reach, coercive force, administrative power, and legal capacity necessary to enforce the law uniformly among the corporation’s various owners. Strangers cannot cooperate on the scale and legal complexity of a typical business corporation without a modern state and the legal apparatus it supplies to enforce the terms of their bargain. Other historical forms of rule enforcement, such as customary law among close-knit communities and commercial networks like the Law Merchant, are theoretically able to support many forms of property rights and contractual relations, but not the business corporation.
We show that this hypothesis is consistent with the experiences of six historical societies: late Imperial China, the 19th century Ottoman Empire, the early United States, early modern England, the late medieval Italian city states, and ancient Rome. We focus especially on the experience of late Imperial China, which adopted a modern corporation statute, but failed to see much growth in the use of the corporate form until the state developed the capacity and institutions necessary to uniformly enforce the new law. Our thesis complicates existing historical accounts of the rise of the corporation, which often emphasize the importance of economic factors over political and legal factors and view the state as a source of expropriation and threat rather than support. Our thesis has extensive implications for the way we understand corporations, private law, states, and the nature of modernity.”
While it's true that the institutional environment is an important influence on organizational form, it remains less clear that the corporate form only emerged / survives as a result of state privileges.
In fact, Dari-Mattiacci et al. (2017) argue contrary to Zhang and Morley. The corporate form first arose where states were most constrained. They write:
“The Dutch East India Company came to dominate South-East Asian trade in the 17th
century due a fundamental legal innovation: the possibility to lock-in capital for the long term. This was possible in the Dutch Republic due to its limited form of government, which reduced the risk that private capital would be expropriated by the political power. While all European countries were enticed by the enormous prospects of the Asian trade, only those with the apt political institutions were able to create large, permanent trading corporations with committed private capital. The English chartered their East India Company ahead of the Dutch but continued to operate on short- and medium-term capital for half a century. Permanent capital was introduced only when, after the Civil War, the dictatorial power of the crown was put under substantial parliamentary control, thereby limiting the risk of expropriation.”
The entanglement between states and corporations is a fundamental Mengerian question that invites much more research.
For a critical look at the trendy notion of state capacity more generally, see this paper by Ennio Piano.