Nathan Rosenberg (1927-2015)

| Dick Langlois |

I just learned that Nathan Rosenberg has passed away at 87. Nate was unarguably one of the most important economic historians and students of technological change of our era. He was also a one of the most important influences on my work.

I still regret that, out of ignorance, I didn’t take full advantage of all the resources available to me when I was a graduate student at Stanford. But Nate was a partial exception. I sat in on his course on history of economic thought; and when it came time to choose a thesis committee, he was kind enough to agree to be a member. I remember having a number of long conversations with him in his office in Encina Hall, although his greatest influence on me was through his writings. Nate had an eye for looking into — and theorizing about in a non-formal way — the micro structure of technology and innovation. I have always thought that his early work with Ed Ames is wonderful and greatly underappreciated. His work on the machine-tool industry in the United States is a progenitor of the economics of general-purpose technologies and one of the beginnings of what I like to think of as the Stanford School of technology-focused economic history.

I think Nate’s influence shows through on the range of my own work, including that with Paul Robertson. (It turns out that Nate was an associate advisor on Paul’s dissertation committee at Wisconsin before he was a member of mine at Stanford.) I was also fortunate to become part of the invisible college of technology economics of which Nate (along with Dick Nelson and others) was a dean, and I was fortunate to collaborate with other fellow Rosenberg students like David Mowery and Ed Steinmueller on policy-focused industry histories, another Rosenberg specialty.

25 August 2015 at 8:28 am 1 comment

Woodward on Alchian

| Peter Klein |

Alchian and me, circa 2000.

Alchian and me, circa 2000.

Armen Alchian’s friend and colleague Susan Woodward has a nice piece in a forthcoming Journal of Corporate Finance special issue on Alchian. Here are a few passages that may be of special interest to O&Mers:

Orley Ashenfelter asked Armen to write a book review of Oliver Williamson’s The Economic Institutions of Capitalism (such a brilliant title!). I got enlisted for that project too (Alchian and Woodward (1988)). Armen began writing, but I went back to reread Institutions of Capitalism. Armen gave me what he had written, and I was baffled. “Armen, this stuff isn’t in Williamson.” He asked, “Well, did he get it wrong?” I said, “No, it’s not that he got it wrong. These issues just aren’t there at all. You attribute these ideas to him, but they really come from our other paper.” And he said “Oh, well, don’t worry about that. Some historian will sort it out later. It’s a good place to promote these ideas, and they’ll get the right story eventually.” So, dear reader, now you know.

This from someone who spent his life discussing the efficiencies of private property and property rights—to basically give ideas away in order to promote them? It was a good lesson.

Of course, the book review also had a brilliant title: “The Firm is Dead: Long Live the Firm!” It also introduced the term “plasticity” as a not-quite-substitute for asset specificity. (I still prefer the more precise term relationship-specific investment.) And this:

Armen had no use for formal models that did not teach us to look somewhere new in the known world, nor had he any patience for findings that relied on fancy econometrics. What was Armen’s idea of econometrics? Merton Miller told me. We were chatting about limited liability. Merton asked about evidence. Well, all public firms with transferable shares now have limited liability. But in private, closely-held firms, loans nearly always explicitly specify which of the owner’s personal assets are pledged against bank loans. “How do you know?” “From conversations with bankers.” Merton said said, “Ah, this sounds like UCLA econometrics! You go to Armen Alchian and you ask, ‘Armen, is this number about right?’ And Armen says, ‘Yeah, that sounds right.’ So you use that number.”

24 August 2015 at 8:03 am Leave a comment

Foss Wins Best Article Award

| Peter Klein |

Nicolai is far too modest to mention it (and no, he did not make me do this), but he has won Sloan Management Review’s best article prize:

The editors of MIT Sloan Management Review are pleased to announce the winners of this year’s Richard Beckhard Memorial Prize, awarded to the authors of the most outstanding MIT SMR article on planned change and organizational development published between fall 2013 and summer 2014.

This year’s Richard Beckhard Memorial Prize goes to the spring 2014 MIT SMR article by Julian Birkinshaw, Nicolai J. Foss, and Siegwart Lindenberg, entitled “Combining Purpose With Profits.”

In this article, the authors examine a familiar and important question for managers: How can the tension between purpose and profits be best managed? The authors explore the kinds of structures companies need to put in place to provide clarity and direction for employees while also serving to both motivate individuals and draw people together in a common pursuit.

As the judges for the prize pointed out, the tension between purpose and profit is well-known, and many companies claiming to have “pro-social goals” have difficulty backing up their claims. However, the judges were impressed with the examples the authors presented of companies that have actually been able to balance purpose and profit. Some were familiar (such as Whole Foods Market and Tata Group), but others were less so (such as the Swedish bank Svenska Handelsbanken and HCL Technologies, an India-based IT-services company).

The pro-social goals the companies emphasize — for example, putting employees first or investing in local communities — are hardly elaborate or surprising. What is important is that companies put systems in place to meet these goals. For instance, at Tata, where the pro-social goal is “to improve the quality of life in the communities we serve,” the supporting systems include charitable trusts that own the majority of the equity capital of the Tata Sons holding company. Pro-social goals require what the authors call a “counterweight,” such as an employee council or a measuring system, to ensure that the pro-social goals continue to have influence.

The judges thought the article was well aligned with the beliefs of Richard Beckhard, who insisted that what truly motivates employees is the sense that what they do matters and serves a purpose that goes beyond organizational profitability or personal gain. As the judges observed, “What engages people is the broader, value-centered question of why we do what we do — precisely what the three authors of this year’s winning article make evident.”

This year’s panel of judges consisted of distinguished members of the MIT Sloan School faculty: Schussel Family Professor and chairman of the MIT Sloan Management Review managing board Erik Brynjolfsson, retired senior lecturer Cyrus Gibson, and Erwin H. Schell Professor of Management John Van Maanen.

Nicolai, you can do great things, when you pick the right coauthors….

20 August 2015 at 3:42 pm 2 comments

M is for Multidivisional Structure

| Dick Langlois |

As a student of Alfred Chandler, I was excited to see Google’s conversion into Alphabet – which is essentially a multidivisional conglomerate. Chandler chronicled the development of the M-Form structure in the days of the Second Industrial Revolution, beginning with DuPont, and it remains an interesting question whether the same pattern will eventually take shape among the dominant firms of the Third Industrial Revolution.

Generally speaking, a move to the M-Form reflects a maturing of a technology and an industry, when information flows and incentives within a specialized unit – a module, if you wish – become more important than widespread and more flexible information flows within a functional organization. The more radically innovative the company, the more important these widespread information flows. Apple is organized in a functional form, and Microsoft famously returned to a functional form after a few years as an M-Form precisely in order to become more radically innovative in the face of declining revenues from Windows. Of course, Google remains as a functional entity within the Alphabet conglomerate, and the technologies in Alphabet’s other divisions are arguably less related to one another than in, say, the divisions into which Microsoft was once divided. Moreover, Alphabet will keep the two-tiered structure of stockholding that gives considerable power to the three founders, which makes Alphabet less like a vanilla conglomerate and more like the kind of widely diversified pyramidal holding company common around the world but essentially illegal in the United States.

17 August 2015 at 8:38 am Leave a comment

The Myth of the Patent Anti-Commmons

| Dick Langlois |

Just ran across the abstract of a fascinating paper called “The Anti-Commons Revisited” by Jonathan Barnett at USC, which is forthcoming in the Harvard Journal of Law and Technology. Here’s the abstract.

Intellectual property scholars and policymakers often assert that technology and creative markets suffer from “anti-commons” (“AC”) effects that restrain innovation within a web of conflicting intellectual property claims. A minority view asserts that market players have incentives and capacities to correct for AC effects through transactional solutions. To assess the relative merits of each side of this debate, I review a large and diverse body of empirical evidence relating to AC effects in contemporary and historical markets. I independently replicate the most controversial empirical findings, supplement additional research on selected markets, and provide a survey of all documented IP-pooling arrangements in U.S. markets since 1900. The weight of the evidence strongly favors the minority view. Evidence for AC effects is scarce while evidence that markets correct for AC effects is abundant. AC effects are typically preempted or mitigated through cooperative arrangements among small numbers of IP holders or transactional solutions devised by entrepreneurial intermediaries for large numbers of IP holders. This pattern recurs over a diverse array of markets and periods, including automobiles, petroleum refining, aircraft, and radio communications in the early to mid-20th century, and information and communications technology markets from the late 20th century through the present. Contrary to standard assumptions, there is little evidence that these markets experienced reduced or delayed innovation or output despite intensive levels of patent issuance and litigation.

3 August 2015 at 1:40 pm 3 comments

Cecil

| Peter Klein |

rs_300x300-150728134433-600.Cecil-The-Lion.jl.072815No doubt you’ve heard about Walter Palmer, the American dentist who shot the lion, “Cecil,” in Zimbabwe, pushing aside Sir Tim Hunt as the Internet’s Most Hated Person. (Aside from calling Palmer cruel and depraved — even wishing his death by bow and arrow — some are labeling him a sociopath, which makes me wonder, are lions now considered members of society? Orgheads?)

I don’t hunt and have no particular emotional attachment to lions, so I find the outrage level bewildering. However, I think this can be a teachable moment. Specifically, there are lessons here about trophy hunting and endangered species. Not surprisingly to anyone who has studied property-rights economics, there is evidence that allowing trophy hunting is a good means of protecting endangered species. This is a version of the general argument that defining and enforcing property rights in scarce resources, including wildlife, provides incentives for individuals to protect and maintain those resources. (You’ve probably heard the quip that the world isn’t running out of chickens and dairy cattle.) Groups like PERC have produce dozens of studies on endangered species and private conservation more generally and there are plenty of nerdier papers too. If Cecil’s unfortunate end helps stimulate thoughtful discussion on how to avoid the tragedy of the commons, then he will not have died in vain.

29 July 2015 at 6:01 pm 9 comments

Masahiko Aoki

| Dick Langlois |

I was saddened to learn that Masa Aoki passed away on July 15. He was only 77. Masa was a towering figure in the economics of institutions and organizations, and a true gentleman.

22 July 2015 at 9:36 am 1 comment

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

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