"Like 'de-industrialization,' the rapid rise in business services and self-employment over the past several years has set alarm bells ringing in enlightened centers of thought. 'In the future,' one displaced executive told Time magazine, 'we are going to be moving from job to job in the same way that migrant workers move from crop to crop.' Perhaps. But unlike the migrant worker, today's corporate refugee, equipped with a personal computer, printer, copier and fax machine -- all purchased for about $7,000 -- can earn a good living toiling in the comfort of his, or her, home. That is so because the information revolution has greatly reduced transaction costs -- for big firms and small contractors alike."
Ronald Coase's thoughts on American economic organization, blessedly theory-free because they were based on studies of how American businesses actually make decisions, were almost as influential as his 1960 essay on "The Problem of Social Cost," which has been called the most cited law-review article in history. It's an incisive look at how inefficient government regulation, taxation, subsidization and litigation can be when compared to negotiation between competing interests.
His now well-known example: The case of the farmer whose land is being damaged by emissions from passing trains. Coase's solution: not a penalty or fine or still another lawsuit or 10,000-word bill in Congress, but a simple deal, one that benefits all concerned. Let the farmer agree not to cultivate that vulnerable part of his land in return for a payment from the railroad to cover whatever profit the farmer would forgo by letting it lie fallow. Talk about reducing transaction costs -- for the farmer, the railroad, and the tax-paying public. A good deal all around except maybe for the lawyers, who are definitely a surplus crop these days.
Naturally enough, ideas like Ronald Coase's -- great ideas simply explained -- deeply offended his colleagues in academe. He was denied promotion at the University of Virginia till he left for a school that could appreciate him and great ideas in general. (The University of Chicago, of course.) At least since Jonathan Swift's time, it's been easy enough to spot a scholar with talent or imagination, or just a capacity for original thought: "When a true genius appears, you can know him by this sign: that all the dunces are in a confederacy against him."
Ronald Coase understood the beauty of simplicity, which seems to elude the kind of "planners" who strew obstacles here, there and everywhere. Like all the stumbling blocks they've put in the way of charter schools, the most promising innovation in public education in years. Or consider Obamacare, which is anything but simple. One more part of that gigantic mechanism seems to crash, stall or somehow fail every day.
When a mathematician cuts through all the complexities in an equation, his solution may be described as elegant. In that sense, Ronald Coase was an elegant thinker.
According to the citation when he was awarded his Nobel in 1991, "Coase may be said to have identified a new set of 'elementary particles' in the economic system." He himself would only smile at such a claim. "I've never done anything that wasn't obvious," he once said. Maybe so -- but it wasn't obvious until he pointed it out.
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