Indice
Macroeconomics studies aggregate demand and aggregate supply and their interaction. Aggregate demand represents the demand for goods and services in the economy – determined by the general price level – by households, businesses and government. Aggregate supply, on the other hand, expresses the quantity of total products that entrepreneurs decide to produce in relation to the general price level.
Economic studies identify the entrepreneur by the production function that expresses the quantity of obtainable products (Y) – always in aggregate terms – given a certain use of production factors, i.e. capital (K) and labour (L), plus technology. According to this approach – which is simplistic but sufficient for the purposes of this initial analysis – entrepreneurs aim to produce a quantity of goods and services that allows them to obtain the maximum profit, given by the difference between costs and revenues. The costs representing the remuneration of the production factors, the surplus, negative (loss) or positive (profit), expresses the opportunity cost for the entrepreneur. It goes without saying that its receipt is contingent upon the fulfilment of at least two conditions: the performance of a productive activity and the ability to generate revenues that exceed costs. This is the only economic entity by which values on the production side (Y) are determined in any macroeconomic model. It follows that the fundamentals of economics and studies of the interplay between aggregate demand and aggregate supply – of goods and services and of money – are validly applied in a market in which the manufacturers-entrepreneurs are precisely identified by the production function.
Does the ‘economic’ firm coincide with ‘legal’ firm?
In Italy, Article 2555 of the Italian Civil Code defines the firm as the body of assets organised by the entrepreneur in order to run the business. The notion of firm therefore evokes that of entrepreneur enshrined in Article 2082 of the same Italian Civil Code from which, by derivation, one obtains that of legal firm, whose fundamental principle is the activity supported by the concept of organisation. Studies in this field have highlighted as
‘the essential nature of the organisational phenomenon is to be found precisely in its dynamic aspect, namely in the organisational process, rather than in the organised structure: this is because the latter is, of course, inextricably linked to the (organising) activity that is at its origin and that continually transforms it, adapting it to the needs for which the organisation was set up; and above all because the structure produced is merely the effective aspect, the embodiment of the process of organisational development’[i].
The distinction between entrepreneurial and non-entrepreneurial activities lies in the organisational activity, to which Article 2082 attributes, by means of the expression ‘organised activity’, the status of a regulatory element that is essential in order to classify the activity as a firm. The organisational activity must be actually carried out by the entrepreneur and expressed through the choice of the functional and systematic use of the assets characterising the business, and through the creation of structures and the imposition of rules governing its operation.
What does this mean? Exactly what the economists mean, namely, that production is nothing more than the result of the exercise of the power of governance over the (organisational) activity that rests with a particular economic entity, the entrepreneur. In more economic terms, the transformation of individual components into a finished product (Y), which takes place through a precise combination of factors of production (function of K, L, i.e. capital and labour), is the embodiment of a firm structure which takes its form through the coordination of means and persons as intended by the person who runs it (namely, the entrepreneur). For example, the entrepreneur must decide whether to employ 100 workers and invest in 20 ‘state-of-the-art’ machines or to hire 50 more workers and retain the less effective lower-technology machinery; or even to make changes to the finished product to make it more attractive rather than attempting to maintain market shares by maintaining its pre-existing characteristics. In other words, the right choice is his business, and it is taken for granted that he will do everything in order to achieve the best possible result.
The reason for this is quite intuitive; in fact, in addition to organisational power, the other essential characteristic in order to legally identify the entrepreneur is the assumption of enterprise risk, which is understood as the allocation of risk based on the result of the use of labour and the use of tangible and intangible means used in the running of the firm. Here, too, there is perfect alignment with the economic analysis, which considers profit as the positive balance of the difference between revenues and production costs (payment of wages, purchase of machinery, etc.). There is, in fact, a strict ‘legal’ link between the concept of risk and the concept of profit, the latter is considered as ‘the remuneration, not of management or coordination, but of the risk and responsibility that the entrepreneur […] has assumed’[ii]. If profit represents the remuneration of the risk and responsibility that the entrepreneur has assumed, and if the imputation of liability and risk depends on the actual management of the firm, it follows that the profit (or loss) generated by a company that carries out an entrepreneurial activity must be considered as the result of such activity. Thus, the financial aspect can exist only if it is instrumental to the creation of real value for the firm, and not vice versa.
Extremely interesting from this point of view is the summary proposed by Giorgio Oppo[iii], a well-known Italian jurist, according to whom there is a fundamental link between government and the imposition (of liability) of the entrepreneurial case.
In EU law, the concept of a firm is an important benchmark for the applicability of competition and antitrust law[iv]. The fundamental treaties of the EU do not provide for a definition, therefore its conceptualisation has come about through the case law of the European Court of Justice – and also through the decisions adopted by the Commission – , which specifies that the firm ‘encompasses every entity engaged in an economic activity, regardless of its status and the way in which it is financed […]’[v]
Economic activity is defined as ‘any activity consisting in offering goods and services on a given market’[vi]. The enterprise risk is also expressly mentioned as a qualifying element of the firm[vii].
The theoretical definition of ‘enterprise’ used in the United States does not differ in conceptual terms from the Italian and European definition: Enterprise is ‘a unit of economic organisation or activity, especially a business organisation’.
Therefore, at an initial analysis of the law, there can be no conflict between the notion, albeit secondary, of a legal firm and the notion of an economic firm, which could lead to market distortions.
[i] See A. Nigro, Imprese commerciali e imprese soggette a registrazione [Commercial firms and firms subject to registration], in P. Rescigno (edited by) Trattato di diritto privato, I: Impresa e lavoro [Treatise on Private Law, I: Business and Labour] , UTET, Turin, 2001, p. 650, footnote 236.
[ii] See G. Alpa, M. Bessone and V. Zeno-Zencovich, I criteri d’imputazione: colpa, dolo, rischio [The criteria of imputation: fault, intent, risk], in Rescigno (edited by), Trattato di diritto privato, VI: Obbligazioni e contratti [Treatise on Private Law, VI: Obligations and Contracts], cit., 1995, p. 103.
[iii] See G. Oppo, L’impresa come fattispecie [The firm as a case in point] , in Dir. imp., Scritti giuridici [Business Law Review, Legal essays] , I, Padua, 1992, in particular 244-246-255.
[iv] For further information, see Giandonato Caggiano, Il concetto di impresa [The concept of a firm], in Dizionario sistematico del diritto della concorrenza [Systematic Dictionary of Competition Law], edited by Lorenzo F. Pace, Cedam, Padua, 2013, pp. 47 ff.
[v] Case C-55/96, Job Centre coop. Arl.
[vi] Court of Justice of the European Union, judgment 18 June 1998, case C-35/96.
[vii] Communication from the Commission — Criteria for the analysis of the compatibility with the internal market of State aid to promote the execution of important projects of common European interest, 2014/C 188/02.