Excessive competition

Companies limited by shares can incentivise excessive amounts of competition due to the perpetual need for workers to create their own organisations to be fairly rewarded for their contributions.

Critique

Companies limited by shares can incentivise excessive amounts of competition due to the perpetual need for workers to create their own organisations to be fairly rewarded for their contributions.

Excessive competition

Companies limited by shares create a two class ownership structure that often disconnects contribution with ownership. This structure can incentivise the exploitation of labour as owners can financially benefit from minimising the amount of income that workers receive. It can be common that workers do not receive a proportional reward based on the value and impact they generate with their contributions. Workers that want to be fairly rewarded can solve this problem by creating their own organisation. This incentive to exploit labour leads to a perpetual incentive for workers to create new organisations just to try and receive compensation that reflects their full value. Instead of fixing the incentives within existing organisations, companies limited by shares can encourage excessive competition through the incentive to continuously try and exploit labour.

Wasted labour and resources

Organisations that do not fairly reward peoples contributions can lead to situations where it makes sense for workers to try and start their own organisation. Creating a new organisation can be highly wasteful when compared to the alternative of operating organisations in a manner that rewards all forms of contribution more proportionally based on the value that was provided. Due to the incentives within companies limited by shares, new organisations may need to replicate many of the things that are required to operate the organisation to compete. This could mean new buildings, machinery or tools might be needed. This can be difficult to justify if the demand is not greater than what is being fulfilled by the existing organisation. This creates a risk that these resources are wasted unless this new organisation is able to outcompete the existing organisation. If they do outcompete the existing organisation then there is a subsequent risk that the resources of the existing organisation are then sat idle and wasted. All of the labour involved in setting up and competing with the other organisation could have been used to improve the existing organisation with better aligned incentives internally. The less wasteful and more pragmatic solution would have been to ensure that all contributions are rewarded fairly within the existing organisation. This would then give everyone the incentive to make the existing organisation the best it can possibly be. This is a more desirable outcome than incentivising workers to create new organisations just to correct any issues around unfair compensation, stagnation or failings from the existing organisations.