II. The Firms and the Market and the School of New Institutional Economics and the Hong Kong Link
The Firm/Market “Pandora box*” opened by Ronald H. Coase has led to the creation of the “New Institutional Economics” which the University of Hong Kong has been an important component
“Why and under what conditions should we expect Firms to emerge?* “
– The Nature of the Firm, 1937, Ronald H. Coase*
* Ronald H. Coase was the 1991 Laureaute of the Nobel Prize in Economics. Coase has arguably opened up a “Pandora Box” in Economics in that he has asked two very profound questions : i) what is the Nature of the Firms and ii) what is the role of property right s and transaction cost in the free market process. It is, however, “pandora box” in quote because the things that are coming out of the box is not entirely evils but also hopes about a much better and sophisticated understanding of how to get the free market to work most effectively. Incidentally, according to the Greek mythology, other than evils, there was also hope inside the original Pandora Box.
The Subtle and symbiotic relation between the Market and the Firm and its relation to ideas from the University of Hong Kong.
“..the most important question, perhaps, is not so much whether the Firm is superceding the Market; or the Market is superceding the Firm. Rather, it is probably more about whether the society can foster and facilitate the establishment of a Virtuous Cycle between the Market and its Firms…….”
– HKH Research House
* We think one major implication of the insights of Adam Smith and the “New Institutional Economics” School is that there is significant scope for value creation if we can kick start a virtuous cycle between the market and the firm ; and that this might well be the only way to bring out the full benefits and power of a free market commercial society or the state of Natural Liberty as visioned by Adam Smith. And such subtle and symbiotic relation between the Market and the Firm is inspired by the Seminal Paper “The Contractual Nature of the Firm” by Steven NS Cheung of the University of Hong Kong.
Such Firm/ Market paradigm has illuminated on Keynes’ insights..
“ ..It is enterprises which build and improve upon the world’s possessions.. If Enterprise is afoot, Wealth accumulates, whatever may be happening to Thrift and if Enterprise is asleep, Wealth decays, whatever Thrift may be doing.. .”
– John M. Keynes*
* We take the view that the modern economies are Future –led in many ways and that the Firms have played a very important part in linking the present with the Future. As such, the market must be able to find the ways to work with its Firms to bring out its full power and capabilities.
The University of Hong Kong has been an important component of School of “New Institutional Economics”
“ We think the essence of the School of New Institutional Economics is really about Economics going back to its roots of the Adam Smith days….”
-HKH Research House
We think it is arguable that one main legacy of the Renaissance to Humanities is the Scottish Enlightenment and one feature of the Scottish Enlightenment is the idea of a Science of Man made possible by meticulous facts-finding observations and audacious theorisation across all social science disciplines as epitomized by Adam Smith’s two masterpieces; and it is aimed at Creating lasting Wealth and Happiness to humanities with Happiness being conceived in the Smithian sense of “Material Provision”; “Social Engagement”; and the “Tranquility that comes from acting Virtuously”.
We also think that the development of Economics as an Intellectual discipline has sadly departed from the path as laid down by its Founding Father and we see the School of New Institutional Economics as really about bringing Economics back to its roots of the Adam Smith days. Such school of thought is associated with individuals from Hong Kong and the University of Hong Kong.