Steven Cheung (1983) tells of prerevolutionary Chinese coolies pulling barges along canal towpaths. The problems of shirking evidently plagued the Chinese workers; each person was aware that as long as everyone else was presumed to be shirking, he should shirk as well. But the group as a whole could not produce as much or get paid as much as it could if all worked with a will. The coolies' response was to create the role of supervisor. The job of the supervisor, who was selected from among the coolies themselves, was to punish shirkers and “whip” the workers into greater effort.

The image of the man with the whip brings into sharp focus the issue of the Leviathan as the solution to market failure. In the preceding chapter, it was argued that hierarchy is a mechanism for imposing solutions on actors when self-interested behavior and bargaining both lead to inefficiency. But once hierarchical political authority is created, the constitutional question remains – who shall make authoritative decisions for the firm?

Indeed, it is possible to imagine that political authority in the firm could be wielded through democratic means.