The New Bashing of Economics: The Case of Management Theory

8 May 2006 at 10:02 am 11 comments

| Nicolai Foss |

Where is the place to go for real, hardcore economics-bashing? Anthropology? Sociology? Hardly. At least for the outside observer (i.e., this blogger), these disciplines seem to have become so absorbed in terminological nitty-gritty, paradigm proliferation, and pomo excesses that they seem to have lost much interest in neighbouring disciplines. No, the answer is, management theory.

Cases in point? Check out any of these rather recent papers by management heavyweights:

  • Adler, P. S. 2002. Corporate scandals: It’s time for reflection in business schools. Academy of Management Executive, 16: 148-149.
  • Ferraro, F., Pfeffer, J, & Sutton, R.I. 2005. Economics language and assumptions: How theories can become self-fulfilling.  Academy of Management Review, 30: 8-24.
  • Ghoshal, S., & Moran, P. M. 1996. Bad for practice: A critique of the transaction cost theory. Academy of Management Review, 21: 13–47.
  • Ghoshal, S.  2003.  Business schools share the blame for Enron.  Financial Times, July 17.
  • Ghoshal, S.  2005.  Bad management theories are destroying good management practices.  Academy of Management Learning & Education, 4: 75-91.
  • Mintzberg, H. 2002. Beyond Selfishness. (with Robert Simons and Kunal Basu) Sloan Management Review (Fall, 2002).

The summary of Mintzberg’s paper provides a nice guide to this cottage industry:

In an article written well before Enron became a euphemism for corporate irresponsibility, the authors make the case that such misdeeds, so prevalent in recent months, are symptoms of a syndrome of selfishness that has taken hold of our business institutions, our societies and our minds. Drawing on history, literature, philosophy and management thinking, they argue that the syndrome is built on a series of half-truths — or fabrications — each of which has driven a debilitating wedge into society.Our narrow view of ourselves as "economic man" has driven a wedge of distrust between our individual wants and our social needs. A distorted view of shareholder value has driven a wedge of disengagement between those who create economic performance and those who harvest it. Our obsession with heroic leadership has created a wedge of disconnection between leaders and everyone else. The glorification of the "lean and mean" organization has driven a wedge of discontinuity between short-term and long-term goals. And the convenient, widely held notion that "a rising tide lifts all boats" has ratified a wedge of disparity between the prime beneficiaries of stock-price increases and the large numbers of people disadvantaged by the corresponding actions.

The authors challenge and deconstruct each of these flawed premises and offer an alternative. Real prosperity, they say, combines economic development with social generosity — and that requires a new philosophy of social and managerial engagement.

Ferraro, Pfeffer, and Sutton (2005) provide the underlying logic for these kind of assertions. They  argue that the language and assumptions of social science theories not only influence but in fact determine much of what individuals do, experience, and think. They further claim that a self-fulfilling prophecy is created through negative theoretical assumptions about human motives and behavior being reinforced and diffused through the mechanisms of language, social norms, and institutional design, which in turn determine individual behaviour and reality. Ferraro, Pfeffer and Sutton highlight economics, specifically the assumption of self-interest, as a case in point.

However, these writers treat “economics” as a monolithic entity, roughly equivalent to Chicago economics appr. 1971.  They have apparently no knowledge of the recent fashionable attempts to incorporate, for example, other-regarding behaviour in game theory models. They observe, and complain, that economics is “dominant,” and ascribe this to sinister plots without considering the obvious alternative that economics is useful because it captures real underlying mechanisms. The  underlying social ontology apparently is that anything can be constructed by a theory, whether true or false.  Extreme “reflexivity” and “social constructivism” rule the roost. There are no stable fundamentals in social life (e.g., efficiency).  The social world is a bootstrap phenomenon.

Teppo Felin and I are working on a paper that takes issue with the whole recent econ-bashing industry in management.  It will later be posted on this blog.

(Apologies to Israel Kirzner for stealing part of the title of his “Self-interest and the New Bashing of Economics” (originally published in Critical Review 1990; reprinted in his The Meaning of the Market Process, Routledge, 1996).)

Entry filed under: - Foss -, Management Theory, Methods/Methodology/Theory of Science, Recommended Reading, Teaching, Theory of the Firm. Tags: .

Market-Based Management Happy Hayek-Klein day

11 Comments Add your own

  • 1. brayden  |  8 May 2006 at 4:07 pm

    these disciplines seem to have become so absorbed in terminological nitty-gritty, paradigm proliferation, and pomo excesses that they seem to have lost much interest in neighbouring disciplines.

    I’m not sure what sociology you’ve been reading lately – apparently not much in ASR or AJS. Sociology, rather than becoming less concerned with economics, has become more focused on its successful disciplinary neighbor. If we’re not bashing them, we’re becoming more appreciative of their contributions and offer a complementary perspective.

  • [...] Two blog posts caught my attention today. Both deal with how economics is treated by its disciplinary neighbors. In the first post, Nicolai Foss comments that management theory has become obsessed with economics bashing. Foss points to a spate of recent articles in the management literature suggesting that economics as a theoretical guide influences behavior directly through language, norms, and institutional designs. This is an obliteration, he argues, of the real intent of economic theorizing, which is to explain and predict. (I could ask, can't it be both? but I'll save that for a later post.) [...]

  • 3. Organizations and Markets » Non-Market Motivators  |  24 May 2006 at 12:01 pm

    [...] Some theorists and consultants say that incentive plans are harmful, that managers should rather try to instill employees with a sense of duty, collective identity, and overall communitarian spirit. If so, why not dump those dreadful motivational posters and decorate the office with these Soviet propaganda posters instead? (HT: Jeff Tucker) [...]

  • [...] I wonder how much of the current contretemps over economic methods in organization and management is simply a re-hash of controversies already covered by Wicksteed, Clark (1, 2), Robbins, etc. [...]

  • [...] As regular readers of O&M will know, we are highly critical of the bashing of economics that is represented by recent work by  Pfeffer, Ghoshal, Mintzberg and others (e.g., this post [...]

  • [...] Addendum: Another article in the same issue of the Chronicle asks — as we've discussed here, here, and here– if economics (agency theory, in particular) is responsible for Enron. Rakesh Khurana, Herbert Gintis, and Lynn Stout, while not exactly saying Yes, seem sympathetic to the idea. Michael Jensen, not surprisingly, demurs. [...]

  • [...] Now, for something completely different: Peter Klein at the Organizations and Markets blog has linked to a forthcoming paper I have on economic sociology. It’s a review/theory piece that takes a critical look at recent trends in economic sociology & organization theory.  Here’s what Klein says about the essay: A review and critique of contemporary economic sociology, the paper points out that “research findings and theoretical developments [in economic sociology] are rarely reconciled or integrated with economic research.” Moreover, the critics tend to deal with a stylized, and rather stale, caricature of neoclassical economics, rather than the best work in modern organizational economics, Austrian or evolutionary economics, or the newer strand of behavioral research (a point made repeatedly on these pages). A good read. [...]

  • [...] des économistes qui publient dans des revues de gestion, et donc plutôt bien placés (voir ici, ici ou encore [...]

  • 9. David Arthur  |  1 April 2009 at 5:50 am

    From the perspective of April 2009, you clowns sound like you still believe the nonsense of all those arrogant Harvard MBAs .. your own beloved GW Bush is one of them.. Check out http://www.abc.net.au/rn/backgroundbriefing/stories/2009/2526727.htm#transcript for a reasoned critique of the arrogance of those self-styled “masters of the universe”, and ask yourselves by what ethical code do they justify the ludicrous pay they award for shoving piles of paper (debt, not money) around.

  • 10. nicolai foss  |  1 April 2009 at 7:11 am

    Ha ha, David — That’s a nice April Fools message (particularly the GW Bush one).

  • 11. David Hoopes  |  5 April 2009 at 11:28 pm

    Thanks for the link David. I like that. Good think we have Mintzberg to tell us the crisis with Fannie Mae, Freddie Mac, AIG and government fiscal and monetary policy are all Harvard’s Business School’s fault. I think more specifically, we could point to Jan Rivkin, Mary Tripsas, and Denny Yao as prime examples of people promoting selfish, short-sighted, and generally boorish behavior. I’m so glad we have Henry Minzberg to protect us from the beastly Harvard sorts. And lets not even start on about Wharton!

    Wish I could have posted this on the first.

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