Organizational capital, human capital and the humane firm: Opportunities and obstacles to wellbeing

One of John Tomer’s most significant scholarly contributions is his concept of organizational capital, which gradually linked to the notion of the human firm and, more precisely, to more humane ways of organizing the firm. This, in turn, he linked to increasing the extent of economic efficiency (x-efficiency) and the wellbeing of society. I place Tomer’s contribution in the modelling context of an extended x-efficiency theory of the firm. I examine the conditions under which the human firm is economically sustainable and the conditions most conducive to its adoption by firm decision-makers so as to develop a less hierarchical firm. I argue that it critically important to recognize the costs of making the firm more humane as well as modelling how and why the human firm is relatively more productive. But both the human and hierarchical firm are economically sustainable. Which one dominates depends on the preferences of firm decision-makers, the power relationship across firm members, and government policy. One can be stuck in a sub-optimal equilibrium where the lower productivity-x-inefficient firms dominates unless there are appropriate intervening factors.