Tim Sullivan responds to my post at OrgTheory.
The point of the AA story, though, was not that organizations are perfectly efficient but that organizations face tradeoffs, and it can be useful to acknowledge those tradeoffs explicitly and to understand the economic architecture of organizations because it makes the situation of the average employee, manager, executive more comprehensible. In the AA case, they had a terrible website (which reflected plenty of other dysfunction within the company), and yet to do the job that AA aspired to (that is, flying people and stuff all over the world), you have to build a big, complicated organization that does lots of things all at once – managing fuel contracts, negotiating with pilots and flight attendants, setting prices, and so on. And organizing all of this involves a lot of tradeoffs. … Ray and I aren’t suggesting that orgs can’t be full of politics, power plays, bad managers, ridiculous HR departments, and so forth. They clearly are — but you have to accept these realities when you decide that there’s something that you want to do that will be best accomplished as a group of bosses and employees. The trick is not to ignore them or pretend they don’t exist, but to understand how and why they are produced, to recognize that sometimes apparent inefficiencies are the result of being organized, and understand the difference between tradeoffs and the truly ridiculous and pointless aspects of organizational life.
I think that the nub of the disagreement is best summed up in one half-sentence here, where Tim suggests that “you have to accept these realities when you decide that there’s something that you want to do that will be best accomplished as a group of bosses and employees.” The point of the alternative perspective I set out is that there isn’t any moment when a collective ‘you’ of bosses and employees, with a common interest in getting something done, decides this. The actual ‘you’ who makes the decisions is a very specific ‘you’ with a very specific set of interests. It is the ‘you’ who is in charge (or, if you want to get all old-style, the ‘you’ who is a capitalist). There is a literature of course in organizational economics, which talks about ‘team production functions,’ and how teams might rationally, if they wanted to get stuff done and minimize shirking, assign oversight to a hierarchically empowered actor. But in an economy which is not organized around cooperatives, very few private enterprises will originate in this way. Instead, they will originate with decisions by owners of capital, who will empower managers (a group which may, or may not, overlap with the owners of capital) to hire workers. The logic will be different, obviously, in non-profits and the government sector, but less different than you might imagine, as both these sectors become more and more like private enterprise.
The obvious consequence is that the owners of capital will not have an incentive to design organizations to solve problems. Instead, they will have an incentive to maximize the returns to their investment. This will mean that they will, as a general rule, prefer organizational rules that are lousy at problem solving but that increase their profits to organizational rules that are less lucrative and more efficient. Similarly, managers will prefer rules that increase their personal returns and protect their jobs to rules that are better at furthering organizational goals but likely to put their economic benefits at risk. And if the owners of capital, and, to a lesser extent, the managers, are setting the rules, then these aren’t problems that one can design around, or even decide that you reluctantly can accept. The actors doing the designing – the “you” of Tim’s phrase – are the owners or the managers. From their perspective, the problems aren’t actually problems. They are not bugs, they’re features. They are part of what the Org is supposed to do, from the perspective of its most important designers.
This conducts towards an entirely different way of thinking about organizations, one in which many of the unpleasant features of organizations are not quirks of bad managers or the background noise of office politics, but instead are baked into the cake. This perspective understands the organization not as a cooperative venture plagued by pesky inefficiencies, but as a power struggle, a distributional game played by actors with different interests, each of which is striving to maximize its particular benefits, if necessary at the expense of everyone else. When Walmart plays with the tasks allotted to its employees to try to get those with potentially expensive health problems to quit, this is, in a very obvious sense, efficient behavior for Walmart’s owners, even if it isn’t great for the employees, and even if it results in inefficiencies as employees are required to carry out demanding physical tasks that they are obviously unable to perform. The ‘you’ who is deciding here has a set of interests that are clearly at odds with the interests of the employees who are getting decided about. But it would be odd to see this as inefficient, or as impeding the goals of the organization, since the (informal) rules are doing what they are supposed to do.
To put it another way (stealing from Jack Knight’s arguments) – one cannot have both (a) selfishly rational actors, and (b) collectively beneficial institutional outcomes in a world where these actors have clashing interests and different levels of bargaining power. In this kind of world, it may be better to see rules and organizations not as the product of any desire to solve collective problems, but instead as a consequence of power struggles between actors, and hence likely to perpetuate inequality and inefficiency rather than to remedy it. And the Org is just such a world – a world based on hierarchy, in which the most important forms of control lie with the owners of capital and with senior managers, actors who have their own individual sets of interests, which come into play when they set the rules. Jack (like me) is a lefty – but there is a right leaning version of this argument too, in which people like Terry Moe and Stephen Krasner criticize liberals for their emphasis on collective benefits rather than power. This approach cannot explain everything – actors aren’t fully selfish, are sometimes able and willing to coordinate for the common good and so on. There is space too for the kind of liberal account that Tim and Ray Fisman so ably lay out. But I don’t think that the power-and-distribution approach can be easily subsumed into the liberal account, since it suggests that certain ‘inefficient’ aspects of the hierarchical organization are basic to its design, and, properly understood, its purpose.