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This touches on the controversy that sparked Coase's Theory of the Firm. He proposed the idea that firms exist to reduce transaction costs as an explanation for
by stult 5y ago
This touches on the controversy that sparked Coase's Theory of the Firm. He proposed the idea that firms exist to reduce transaction costs as an explanation for why capitalist firms look like mini-soviets internally, with highly centralized control and planning. Which seems like a contradiction to classical economists. If free markets are so effective, why can't you run a company like a free market? eg have workers bid for tasks from managers. Turns out that is wildly inefficient because of the transaction costs involved in coordinating competitively instead of cooperatively (at least in successful companies). I suspect pandemic WFH has revealed there are much more efficient ways to coordinate cooperatively than simple centralized planning, and those methods generally do not require as much managerial facilitation because they rely much more heavily on asynchronous communication.
- lupire 5y agoThe offices solution to Coase's paradox is that central planning doesn't scale well. This is similar to federalism -- central governments don't work very well for everything, but scaler local governments are still effective for local issues.
- vkou 5y agoExcept that the most successful companies work in the opposite manner from what you describe. Your line workers and manager may know how best to solve a problem, but they are almost never empowered to implement that solution, because upper management is not interested in delegating that power to them. Pour one out to anyone who has ever done a sprint retrospective, or a company 360 review, where all the important problems get skipped over because 'there's nothing we can do about this, this, and that.' Line workers and managers are given an incredibly narrow window in which they are permitted to operate. Anything beyond that needs beurocratic approval. Much like in the Soviet Union, sometimes that beurocracy is staffed by intelligent human beings, but usually it is staffed by donkeys. People who care enough about doing their work find ways to work around the latter, or just give up and punch in their 9-5.
- inglor_cz 5y agoIIRC one of the reasons why Tesla/SpaceX are so successful is that they give a lot of voice to the engineers that really work on the products.
- vkou 5y agoWhich would make them the exception that proves the rule. Most of the other Fortune 498 does not.
- nemothekid 5y agoThis contrast is interesting; taking it a bit further is that in free countries the concern with individual participation is that not everyone is sufficiently educated or motivated to actually provide meaningful insight or course correction. Hypothetically, A firm like Tesla or SpaceX maybe be so successful in engineer feedback because they are high demand places to work and they have not exhausted the pool of individuals who can provide great work. However as the company needs to scale, or as the company becomes less glamourous you have people who either (1) just aren't as capable or (2) don't care to expend any creativity on solving the needs of the company (either because there's no reward or they are interested in other areas). Furthermore, a company that is not centrally planned will most likely move slower than a centrally planned one. Just like how China is able to forcibly take your land to build railways; an action like that in a free society has many gatekeepers that would slow down such a process. Any public company, that is measured on a quartely basis would find themselves grappling with showing change to wall street.
- throwawayHN378 5y agoIf this is true it hasn’t really been exposed for my team
- Dracophoenix 5y agoIs that always true? What about in R&D departments or startups? Wouldn't the free market of a firm be guided by personal reputation?
- WJW 5y agoIt seems logical to me that free markets are also not necessarily very efficient at price discovery, there are after all a ton of costs involved in price discovery, information gathering about market counterparts to see if they are trustworthy, drafting and policing contracts, etc etc etc. However, even with these added costs markets are the only thing we've discovered that still works well beyond a certain scale. For R&D departments and startups, plan economies can still work because the complexity is still small enough that humans can comprehend it.