Archive for March, 2012

CFP: Bricolage in Art and Entrepreneurship

| Peter Klein |

Bricolage — doing the best you can with the materials on hand, rather than choosing and end and getting the resources you need — is an important concept in the contemporary entrepreneurship literature. Garud and Karnøe’s influential 2003 paper on the Danish wind power industry helped bring bricolage into the mainstream, and it has important parallels with effectuation and other approaches to entrepreneurship that emphasize experimentation and incremental learning.

The University of Missouri’s Department of Romance Languages and Literatures is hosting an interdisciplinary conference, 12-13 November 2012, on bricolage in art and entrepreneurship, focusing on the work of Ediciones Vigía, a unique artists’ collective that produces limited edition handmade books by Cuban and international authors and musicians. Participants will come not only from the humanities, education, and journalism, but also economics, management, and entrepreneurship. Among the featured speakers are Ivo Zander, who recently co-edited a book on Art Entrepeneurship, and Sharon Alvarez.

O&M readers interested in the relationship between business and the arts, the parallels between artistic creativity and entrepreneurial creativity, the economic organization of artist networks, and related issues should check it out. The full call for papers, along with related information, is below the fold.

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28 March 2012 at 4:15 pm 3 comments

The Socialist Car

| Peter Klein |

I blogged previously about Lewis Siegelbaum’s 2008 book Cars for Comrades: The Life of the Soviet Automobile (or, more precisely, Perry Patterson’s EH.Net review). So I need to say something about the follow up, The Socialist Car: Automobility in the Eastern Bloc (Cornell University Press, 2011), an essay collection edited by Siegelbaum. Once again, here’s Patterson:

As was true for Cars for Comrades, this book takes the modern upper-middle-class Western reader far from the contemporary world where drivers need not know what’s “under the hood,” where synthetic oil might not need attention for 15,000 miles or more, and where long-standing institutions for finance, distribution and service of vehicles are seemingly ubiquitous.  Rather, this is a world where two-stroke engines are designed for easy (and frequent) self-service, new car owners are required to install windshield wipers, and new automobiles are provided with extensive repair kits and instructions for disassembly.  This world is also one where private automobiles – and even socially-owned trucks – represent potential threats to the Soviet-style socialist undertaking by providing opportunities for generating illegal incomes and diverting resources toward consumption.  At the core of the rich set of stories contained here are the compromises that everyday citizens, urban planners, and Party officials routinely made as the powerful forces associated with the automobile became more and more apparent throughout the socialist bloc.  In addition, the examples presented in this eleven-chapter volume say much about the increasingly complex information flows required and implied by automobiles that became more and more technically complex over time.

Speaking of EH.net, the performativity crowd may get a kick out of another recent review, Bruce Carruthers’s discussion of Carl Wennerlind, Casualties of Credit: The English Financial Revolution, 1620-1720 (Harvard University Press, 2011). Notes Carruthers: “It was not simply that early modern capital markets evolved, that financial systems developed, or that English economic institutions changed. These critical transformations were accompanied and even shaped by the analyses offered by people who witnessed the events of the time.”

23 March 2012 at 9:32 am 2 comments

Capabilities and Organizational Economics Once More

| Nicolai Foss |

As readers of this blog will know, the dialogue between the firm capabilities literature and organizational economics has a long history in management research and economics. Co-blogger Dick Langlois has been an important contributor in this space. The forty years long discussion (dating it from George B. Richardson’s 1972 hint that his newly coined notion of capability is complementary to Coasian transaction cost analysis) has proceeded through several stages. Thus, the initial wave of capabilities theory (i.e., beginning to mid-1990s) was strongly critical of organizational economic. This gave way to a recognition that perhaps the two perspectives were complementary in a more additive manner. Thus, whereas capabilities theory provided insight in which assets firms need to access to compete successfully, organizational economics provide insight into how such access is contractually organized. However, increasingly work has stressed deeper relations of complementarity: Capabilities mechanisms are intertwined with the explanatory mechanisms identified by organizational economists.

In a paper, “The Organizational Economics of Organizational Capability and Heterogeneity: A Research Agenda,” that is forthcoming as the Introduction to a special issue of Organization Science on the the relation between capabilities and organizational economics ideas, Nick Argyres, Teppo Felin, Todd Zenger and I argue, however,  that  the discussion has been lopsided—hardly qualifying as a real debate—and that a reorientation is necessary.Specifically, the terms of the discussion have largely been defined by capabilities theorists. Part of the explanation for this dominance is that capability theorists have had a rhetorical advantage, because everyone seems to have accepted that organizational economics has very little to say about organizational heterogeneity. We argue that this rests on a misreading of organizational economics: while it is true that organizational economics was not (directly) designed to address and explain organizational heterogeneity, this does not imply that the theory is and must remain silent about such heterogeneity. In fact, we discuss a number of ways in which organizational economics is quite centrally focused on explaining organizational heterogeneity. Specifically, we argue that organizational economics provides guidance around how organizational design and boundaries facilitate the formation of knowledge, insight, and learning that are central to the heterogeneity of firms.  We also demonstrate how efficient governance can itself be a source of competitive heterogeneity. We thus call on organizational economists to actively and vigorously enter the discussion, turning something closer to a monologue into real dialogue. (more…)

18 March 2012 at 9:54 am Leave a comment

Economists, (Hard) Data, and (Soft) Data

| Nicolai Foss |

Economists have typically been suspicious of data generated by (mail, telephone) surveys and interviews, and have idolized register data. The former are soft and mushy data, the latter are hard and serious ones. I have always been a bit sceptical regarding whether the traditional economist’s suspicion of soft data is really that well-founded; after all, the statistical agencies of the world and other government institutions that are in the business of data collection are populated by fallible individuals and respondents are the same ones that respond to, say, a mail survey conducted by Prof. N. J. Foss, PhD. (Having recently conducted a major data collection effort with a public statistical agency, my skepticism has dramatically increased!)

The argument is sometimes made that there may be a legal duty to respond to the queries of a government agency and this means a high response rate and accurate reporting. However, it appears that we know rather little about the accuracy of data generated in this way, and it is quite conceivable that measurement error is high, exactly because the provision of data is “forced” (those anarcho-capitalist types out there may delight in providing errorneous data!). The serious content of the traditional economist’s prejudice is rather, I think, that surveys often have respondents reacting to subjective scales rather than providing absolute numbers. This is a warranted concern, but not a critique of surveys and interviews per se, because these methods do not imply commitment to subjective scales per se.

As a rule register data are not available that can be used to address numerous interesting issues in organizational economics, labor economics, productivity research and so on. Scholars working on these issues have to resort to those softy surveys and interviews that have been the workhorses of business school faculty for decades. This is a new recognition in economics. Case in point: A recent paper by Nicholas Bloom and John Van Reenen, “New approaches to surveying organizations.”  There is absolutely nothing, I submit, in this short, well-written paper that would surprise virtually any empirically oriented business school professor (i.e., virtually all bschool professors) to whom this would not be anything “new” at all, but rather old hat.

This is not a critique of Profs. Bloom and Van Reenen at all (on the contrary, it is excellent that they educate their economist colleagues in this way). It is just striking and a little bit amusing, however, that we have had to wait until 2010 until empirical approaches that have been mainstream in management research for decades reach the pages of the American Economic Review.

17 March 2012 at 10:51 am 6 comments

Lazear and Spletzer on Creative Destruction

| Peter Klein |

What labor economists call “churn” is an important part of creative destruction, the combining and recombining of productive resources as business entities appear and disappear. New paper:

Hiring, Churn and the Business Cycle
Edward P. Lazear, James R. Spletzer
NBER Working Paper No. 17910
Issued in March 2012

Churn, defined as replacing departing workers with new ones as workers move to more productive uses, is an important feature of labor dynamics. The majority of hiring and separation reflects churn rather than hiring for expansion or separation for contraction. Using the JOLTS data, we show that churn decreased significantly during the most recent recession with almost four-fifths of the decline in hiring reflecting decreases in churn. Reductions in churn have costs because they reflect a reduction in labor movement to higher valued uses. We estimate the cost of reduced churn to be $208 billion. On an annual basis, this amounts to about .4% of GDP for a period of 3 1/2 years.

12 March 2012 at 11:25 am Leave a comment

First Copies of the New Book

| Peter Klein |

Nicolai was in town yesterday to deliver the 2012 Sherlock Hibbs Distinguished Lecture in Economics and Business, and he gave a terrific talk about “open entrepreneurship,” the application of concepts and principles from the open innovation literature to the discovery, evaluation, and exploitation of entrepreneurial opportunities. Upon returning to my office after the lecture, I found a surprise waiting for me: the first hardcopies of our new book, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012). As both authors happened to be together, we preserved the moment for posterity.

You can order today on Amazon’s UK site (or pre-order on the US site, which shows a publication date of 30 April). You can order directly from Cambridge (UK or US).

A brief description and some endorsements are below the fold.

NB: Tomorrow Nicolai is giving the Hayek Lecture at the Austrian Scholars Conference, which you can watch live online.

Update: O&M readers can order directly from Cambridge and receive a 20% discount! Use this link.

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7 March 2012 at 5:48 pm 15 comments

Hayek on Schumpeter on Methodological Individualism

| Peter Klein |

Our QOTD comes from the 2002 version of Hayek’s “Competition as a Discovery Procedure.” (Thanks to REW for the inspiration.) Hayek delivered two versions of the lecture, both in 1968, one in English and one in German. The former appeared in Hayek’s 1978 collection New Studies in Philosophy, Politics, Economics, and the History of Ideas, and is the version most familiar to English-speaking scholars. In 2002 the QJAE published a new English translation of the German version which includes two sections (II and VII) omitted from the earlier English version. In this passage from section II  Hayek distinguishes macroeconomics (“macrotheory”) from microeconomics (“microtheory”):

About many important conditions we have only statistical information rather than data regarding changes in the fine structure. Macrotheory then often affords approximate values or, probably, predictions that we are unable to obtain in any other way. It might often be worthwhile, for example, to base our reasoning on the assumption that an increase of aggregate demand will in general lead to a greater increase in investment, although we know that under certain circumstances the opposite will be the case. These theorems of macrotheory are certainly valuable as rules of thumb for generating predictions in the presence of insufficient information. But they are not only not more scientific than is microtheory; in a strict sense they do not have the character of scientific theories at all.

In this regard I must confess that I still sympathize more with the views of the young Schumpeter than with those of the elder, the latter being responsible to so great an extent for the rise of macrotheory. Exactly 60 years ago, in his brilliant first publication, a few pages after having introduced the concept of “methodological individualism” to designate the method of economic theory, he wrote:

If one erects the edifice of our theory uninfluenced by prejudices and outside demands, one does not encounter these concepts [namely “national income,” “national wealth,” “social capital”] at all. Thus we will not be further concerned with them. If we wanted to do so, however, we would see how greatly they are afflicted with obscurities and difficulties, and how closely they are associated with numerous false notions, without yielding a single truly valuable theorem.

The reference is to Schumpeter’s 1908 book, Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie which, to my knowledge, has never been translated (though an excerpt, and some commentary, are here). For more on the different versions of Hayek’s essay see here and here.

NB: Krugman blogged over the weekend about microfoundations, offering a remarkably (sic) shallow and misguided critique based on what Hayek would call the scientistic fallacy. E.g.: “meteorologists were using concepts like cold and warm fronts long before they had computational weather models, because those concepts seemed to make sense and to work. Why, then, do some economists think that concepts like the IS curve or the multiplier are illegitimate because they aren’t necessarily grounded in optimization from the ground up?” Ugh.

6 March 2012 at 12:32 am 18 comments

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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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