To assess the robustness of the scenarios, the Working Group posed several questions. The first was: Are they feasible? A primary determinant of feasibility is the likely economic viability of the organizational forms the scenarios describe.

Questions about the underlying economics of business enterprises touch on a series of profound and complex issues: Why do certain firms grow large or stay small? What are the critical advantages of size? Are these advantages inherent, or are they tied to conditions unique to certain industries or certain stages of economic development? Economists and business historians have long wrestled with these questions. The fundamental insight behind much of their work has been that while the same transaction can either be internalized within a firm or take place through separate entities exchanging in the marketplace, the arrangement which typically emerges under a given set of circumstances is the one which results in the lowest overall costs.[17]

The Small Companies/Large Networks scenario envisions a world in which external transactions will be much cheaper and more efficient than they are today. The result is expected to be an organizational environment rich in external transactions, where the advantages of speed and flexibility so overshadow those of scale that almost no large, permanent organizations exist. The Virtual Countries world, by contrast, is one in which the advantages of scale which have driven the growth of large organizations in the past are assumed to continue, and indeed, to be amplified significantly—so much so that the number of external transactions will be quite limited, with most of the value chain for the production of goods and services retained inside the core firm and the family of suppliers which will together make up the "extended enterprise" of the large conglomerates.

[17]The seminal work on this subject in economics is Coase (1937). Williamson (1975) revisited the questions originally posed by Coase and triggered a wave of work on this set of issues. A good review of economists' work in this area is Holmström and Tirole (1989). Though he approaches the question from a different perspective, the business historian Alfred Chandler attributes the rise of the modern corporation largely to the "internalization"—for the purpose of achieving economies of various sorts—within large firms of functions formerly performed by small firms transacting in arm's-length fashion in the marketplace; see Chandler (1977).


The second major question posed by the Working Group about its scenarios was: Are they desirable? Perspectives on the desirability of one scenario over another are likely to vary significantly by region and culture, and from individual to individual.

Autonomy vs. Community

The Small Companies/Large Networks scenario portrays a world with a myriad of choice. Work for many will be project-based, with free lance independent contractors able to bid for new assignments based on their circumstances and preferences, and flexible schedules and telecommuting the rule.

In the social realm, there would exist a wide range of organizations providing for a variety of needs—casual interaction, education, recreation, professional development, and health care and insurance protection. People would be free to become members of those organizations that best fit their personal requirements, and as a result, many might voluntarily join a variety of groups, none of which would be exclusively tied to their work. In the best case, these organizations might assume some of the characteristics of the voluntary associations described by Alexis de Tocqueville in his description of nineteenth-century American society. Social organizations of this sort have long formed the backbone of what political scientists term "civil society", an entity whose decline has recently been much lamented by students of American politics.[18]

Despite these positive aspects, the Small Companies/Large Networks world would also have its costs. Life spent as independent contractor could be perilous. There would be a continual need to find work, as well as the likelihood of significant down time between assignments. Some members of the MIT Scenario Working Group expressed concern that employees at networked firms and free lancing individuals might be required to invest so much of their effort searching for assignments that they would be able to devote only a fraction of the time a designer or engineer currently employed by a large firm spends working on creating actual products.

The Working Group also expressed concerns about social isolation and the potential lack of a sense of belonging to a larger community. Some members of the group feared that in the absence of mediating social institutions, a networked economy could lead to a Hobbesian future, where life could be solitary, nasty, brutish—and in the U.S., if there were no workable provisions for free lance workers to obtain health coverage—short.

In the end, the desirability of the Small Companies/Large Networks scenario will likely depend on whether existing or new organizations can take on the "life maintenance" role currently played by corporations and governments in providing economic security and fulfilling the function the large firm serves as a nexus for social interaction and professional development.

The future set out in the Virtual Countries scenario, where people's fate is so closely tied to large organizations, is likely to be viewed with dismay by those who place a high value on autonomy and choice. But individual freedom is prized most in the U.S.; in many parts of the world, security and community are valued more. In Asia, for example, where Confucian ethics still have a strong hold and the extended family retains significant influence, many might view the virtual country scenario as an attractive prospect. And one could envision a Virtual Countries future gaining approval from some in Europe as well, if, through a process of privatization, the conglomerates took over many of the major functions of the current welfare state.

If the Tocquevillian description of voluntary associations stands as a historical analogy to the Small Companies/Large Networks scenario, post-independence Singapore may stand as a cognate for the Virtual Countries world. Whether one prefers the rough and tumble of the nineteenth-century American frontier or the tightly planned and controlled prosperity of Singapore stands largely as a matter of cultural and personal preference. And the preference could well change over time— a renewal of the turmoil brought about by massive layoffs and downsizing of the early 1990s could make a more paternalistic scenario appear attractive to Americans.

Haves vs. Have-Nots

Another major concern expressed by members of the Scenario Working Group was the prospect of a sharp division of society into haves and have-nots. In the Small Companies scenario, the have-nots would consist of members of society who lacked the skills to plug into the electronic network or those who preferred secure employment and the prospect of not having to bid continually for work. As part of the scenario, it was posited that jobs might be created, either by government or private firms, in fields like elder care, which would attract people with these preferences. But there remains the strong prospect that many workers with these inclinations would remain well outside the networked mainstream. The Small Companies/Large Networks scenario might also work to exaggerate already existing tendencies toward polarization of income and wealth in society as a whole and winner-take-all outcomes in particular industries and professions.

The Virtual Countries scenario will have its own set of have-nots, but the excluded groups may have a different composition than those which will appear in the Small Companies world. In a Virtual Countries future, those unable to secure employment at one of the core global conglomerates would likely face significant difficulties. The government safety net would in all probability be smaller, or even non-existent, and employees of the big conglomerates would tend to work and socialize almost exclusively together. Life could be harsh and isolating for the unemployed.

And even those working at firms that are part of the conglomerates' extended supply chain may not receive the generous benefits or employment security enjoyed by members of the core firms, because companies on the periphery of the system will be unlikely to have the means to provide such amenities. This distinction between the status of employees at the core firms and those at the peripheral suppliers is already a feature of the Asian keiretsu arrangement.

Finally, another possibility raised by members of the Scenario Working Group was that the global conglomerates would keep a small core staff on a permanent basis and fill any other positions with temporary employees from a large pool of contingent workers. Many large U.S. firms in the 1990s already showed signs of moving toward this sort of hiring strategy.

[18]The work that initiated recent discussion about the decline of civil society was Putnam (1995). For a broad-ranging analysis of the possible causes for the decline, see Putnam (1996). Lemann (1996) presents an opposing point of view.