Last week.

Joshua Gans’s Forbes piece on Stanford’s online game theory course brought up a larger point about higher education. I’ve been involved in various online, distance, web-based educational activities for many years. When designing an online course, the typical professor imagines each element of a traditional course, then creates a virtual equivalent. I.e., paper syllabus = html syllabus; books, articles, handouts = pdf files; classroom lecture = webcast lecture; office hours = chat session; pen-and-paper exams = online exams; and so on. The elements are exactly the same as before; only the method of delivery has changed.

This is almost certainly the wrong way to leverage the information technology revolution. The pedagogy is exactly the same. But isn’t this just what we would expect of entrenched incumbents? The record companies didn’t create iTunes. The online New York Times is pretty much like the paper New York Times; it took Google and Flipboard and other innovators to revolutionize the newsreading business. As we’ve noted before, isomorphism and stasis is exactly what we would expect from a protected cartel — disruptive innovation, in the Christensen sense, will almost certainly come from outside. (Hopefully after Yours Truly is comfortably retired.)

Two years ago I was in D.C. on Hayek-Klein day and found myself on an elevator with Ben Bernanke, upon which I persuaded him to sing me a few bars of Happy Birthday. True story. This year I was in D.C. again, this time to give an organizational economist’s perspective on the Federal Reserve System to the House Financial Services Committee’s Subcommittee on Domestic Monetary Policy and Technology. You can read my written testimony here and see the oral remarks at C-SPAN which has archived the event.

That’s Jeff Herbener to my right and John Taylor to my left, with Jamie Galbraith by Taylor. The one on the end is not Yoda, but Alice Rivlin.

Because the hearing was televised, I can truthfully say, “I’m not a macroeconomist, but I play one on TV.”

The Darden Entrepreneurship and Innovation Research Conference is now underway in Charlottesville, Virginia. Keynote and roundtable sessions will be streamed on the conference website.

It’s called “fractional scholarship.”

American universities produce far more Ph.D’s than there are faculty positions for them to fill, say the report’s authors, Samuel Arbesman, senior scholar at the Kauffman Foundation, and Jon Wilkins, founder of the Ronin Institute. Thus, the traditional academic path may not be an option for newly minted Ph.D.s. Other post-graduate scientists may eschew academia for careers in positions that don’t take direct advantage of the skills they acquired in graduate school.

Consequently, “America has a glut of talented, highly educated, underemployed individuals who wish to and are quite capable of effectively pursuing scholarship, but are unable to do so,” said Arbesman. “Ideally, groups of these individuals would come together to identify, define and tackle the questions that offer the greatest potential for important scientific results and economic growth.”

Given the level of relationship-specific investment many research projects require, this isn’t likely to work without some kinds of long-term commitments. But the model may be effective for other projects. And it beats the alternative.

Here is another of those head-scratchers, this one from Amartya Sen, about how neoclassical economics is partly responsible for the financial crisis because neoclassical economists believe that markets work “perfectly”:

Since the crisis broke out the economics profession in general and mainstream economics in particular have been severely criticised. Do you think this is justified?

The criticism of mainstream economics is justified to a limited extent. It is certainly true that the focus of attention in mainstream economics has tended to be on assuming the market to be working perfectly and there being no need for regulation. However, while this view has been a very dominant part of mainstream economics, you have to bear in mind that mainstream economics is not all centered around one unified theme. I don’t think all of mainstream economics should be held responsible.

Do you think that neoclassical macro economists should bear the brunt of the blame?

This would be an oversimplification. Neoclassical economics has many different paths. There are mainstream neoclassical economists who have been very critical of the complete reliance on the markets.

I’ve been around neoclassical economists since my undergraduate days and I can’t think of a single neoclassical economist who says that markets work “perfectly” and favoring “complete reliance on the markets.” David Friedman comes to mind, but even his arguments for anarchism are not based on the belief that markets are somehow “perfect,” but that they are less imperfect than regulation. The truth, of course, is that virtually all neoclassical economists favor a substantial amount of economic regulation — government production of law and order, government control of the monetary system, competition policy, and other government actions to combat purported market failures.

Statements like Sen’s make sense only as a rhetorical ploy to fool the reader. If the mainstream thinks, say, that government should control 25% of the economy, and you think government should control 75%, you describe the mainstream as “extremists” who believe in “no government,” thus making your position seem like a reasonable middle ground.  Krugman of course employs the same rhetorical strategy. Sen is obviously too intelligent to mean what he says literally, so I can only assume mendacity. Am I missing something?

I both challenge and reify this:

Contributing to a Foucauldian perspective on ‘discursive resistance’, this paper theorizes how part-time workers struggle to construct a valid position in the rhetorical interplay between norm-strengthening arguments and norm-contesting counter-arguments. It is thereby suggested that both the reproductive and the subversive forces of resistance may very well coexist within the everyday manoeuvres of world-making. The analysis of these rhetorical interplays in 21 interviews shows how arguments and counter-arguments produce full-time work as the dominant discourse versus part-time work as a legitimate alternative to it. Analysing in detail the effects of four rhetorical interplays, this study shows that, while two of them leave unchallenged the basic assumptions of the dominant full-time discourse and hence tend instead to reify the dominant discourse, two other interplays succeed in contesting the dominant discourse and establishing part-time work as a valid alternative. The authors argue that the two competing dynamics of challenging and reifying the dominant are not mutually exclusive, but do in fact coexist.

Nentwich, J. and Hoyer, P. (2012), “Part-time Work as Practising Resistance: The Power of Counter-arguments.” British Journal of Management, forthcoming.

I’ve always liked the actor John Lithgow, not only because of his smarmy yet likeable weirdness (keep your comments to yourselves, please), but also because he’s married to an economist, the UCLA economic historian Mary Yeager. (The late Fred Bateman told me that when he and Yeager were just starting out, no one in their professional circles could understand why she was hanging out with this struggling actor who was obviously never going to make it big.)

So I was amused by a profile in Thursday’s WSJ about Lithgow’s role in an upcoming Broadway play about cold-war journalist Joseph Alsop. Reporter: “You portray Joe Alsop as an explosive man. Did you model him on someone from your own life?” Lithgow: “I’ve known mercurial people who emotionally completely turn on a dime, and they’re very exciting people. My wife is a little like that.”

OK, most economists are not exciting, but I’ve known plenty of mercurial and explosive ones.

Wernerfelt, a key originator of the resource-based view of strategy (here) who has made numerous important contributions to the economics of organization, marketing, and other fields, received the degree at a ceremony at the Copenhagen Business School yesterday (another recipient of the honorary doctoral degree was Deirdre McCloskey). I motivated the degree with the following remarks:

Ladies and Gentlemen, Mr. President, Professor Wernerfelt ….

The Copenhagen Business School has a long-standing tradition of conferring honorary doctorates to scholars who have made essential contributions to our understanding of the business firm — of its rationales, functioning and consequences.

This, of course, is hardly surprising: Whether it is micro or macro-oriented, management research, and the teaching of management principles, inherently revolves around the business firm, or, more broadly, the organization.

So, to reflect this centrality of the business firm as a unit of analysis, in the past CBS has conferred honorary doctorates on the two Olivers of the economics of the firm, Hart and Williamson. Obviously, we have also honored scholars who have been pre-occupied with the business firm in different ways than Hart and Williamson, such as Jay Barney.

Today we are honoring a scholar — namely the J C Penney Professor of Management of the MIT Sloan School of Management, Birger Wernerfelt — who has also placed the business firm at the center stage of his work, and who has addressed questions very similar to those addressed by Hart, Williamson and Barney.

From a research point of view, we can ask numerous questions regarding the firm — what makes them behave in certain ways, what explains their size, why they contract in certain ways with suppliers and so on and so forth.

It seems clear that some questions are more fundamental than other questions.

The question of why firms are different (and how this matters for their performance) is one such question. It is fundamental to a number of macro-management fields, notably strategic management, organizational studies and international business.

The question of why firms exist—that is, the questions of why we have firms (and therefore managers) and what determines their scope, originally posed by Ronald Coase, almost  eighty years ago—is another such fundamental question.

Both questions sound simple; they are not.  I once gave the elevator pitch on my own thinking on the issue of why firms exist to a practitioner—who stared back at me in disbelief and declared that “of course firms exist; otherwise we couldn’t earn a buck.” The practitioner had a point, of course, but it is more complicated than the “need to earn to buck”.

In fact, it is fair to say that, after almost eighty years of research on the issue, we still are some way from having a watertight, generally accepted theory of why firms exist and what explains their scope. These are some of the most consistently challenging questions in economics and management research, and it is interesting to note that we still don’t have a fully satisfactory theory of the central object of inquiry in management research. (We can discuss whether this is necessarily a huge problem—something similar may be said of our knowledge in physics of the fundamental building blocks of the universe and the forces that keep regulate their behavior).

Relatedly, our thinking on the other fundamental issue I mentioned, why firms are heterogeneous and how this matter, is basically still in its infancy, although much progress has been made lately in strategic management research on this issue.

Professor Wernerfelt holds the distinction of contributing fundamentally to both the economics of the firm and to strategic management theory—the two fields that are taken up with the core questions I mentioned earlier.

In fact, Professor Wernerfelt’s thinking on firms as bundles of heterogenous resources was instrumental in launching strategy’s now dominant perspective, the resource-based view of the firm.  It is not going too far to say that Wernerfelt is one of the founding fathers of the field of strategic management as we know it today.

Specifically, almost thirty years ago (in 1984), Wernerfelt’s nine pages long paper, “A resource-based theory of the firm,” was published in the Strategic Management Journal. It grew from Wernerfelt’s dissatisfaction with the strategy teaching material that he was told to cover in his teaching at Michigan. It proposed a new way of conceptualizing firms and thinking about competitive advantage and diversification.

To put it in very simple terms, the paper asserts that firms are fundamentally heterogenous in terms of their underlying resources; firms should base its strategy based on its strengths, and tomorrow’s strengths are likely based on today’s strengths. This sounds familiar, doesn’t it? That these insights represent today’s mainstream thinking is very much due to Wernerfelt’s paper.

Wernerfelt’s nine-pages long paper literally brims with insights and ideas. Many have been unfolded in later research, such as in Wernerfelt’s research on diversification with Cynthia Montgomery. Others have been given less attention. For example, the argument in that paper that there is a fundamental duality between a firm’s position in resource space and its position in product space has not yet been fully unfolded.

At any rate, this is one of the most cited papers in management research and in social science in general, and it has spawned an enormous subsequent literature. As Wernerfelt himself noted in 1995, “I put the stone on the ground and left it. When I looked back, others had put stones on top of it and next to it, building part of a wall.” Because the paper is literally foundational, it is impossible today to teach strategy without drawing on the perspective that Wernerfelt launched with this paper.

Wernerfelt has also contributed fundamentally to the other key issue I mentioned, that of why firms exist. Wernerfelt has forcefully argued that extant theory does not explain the nature of the employment relationship. His “adjustment cost theory” is, among other things designed to do that. The theory neatly integrates issues of asset ownership with issues of bargaining costs.

In addition to making fundamental contributions to strategic management theory and the economics of the firm, Professor Wernerfelt has also made important and highly cited contributions to marketing theory (e.g., to umbrella branding and complaint management). Throughout his career, his work has appeared in the major journals in strategy, marketing and economics.

Although Wernerfelt’s body of published work may look somewhat heterogeneous in terms of the questions it deals with, closer inspect reveals many shared themes; for example, it is easy to see how one gets from heterogeneous resources to diversification to umbrella branding. But, first and foremost, Wernerfelt’s work is characterized by a particular style, more characteristic of applied math and economics than of much management research. This is, if you like, the shared, rare resource that has allowed Wernerfelt to diversify across academic fields.

Although Wernerfelt has done his share of empirical work, he is first and foremost a theorist. His approach as a theorist, both in the verbal and in the mathematical mode, is to seek the smallest number assumptions that are needed to generate an interesting conclusion. He looks for the starkest, barest, model that has the desired result, providing the answer to a well-defined, but not necessarily narrow, question — a “stylized fact.” This approach is not one that has been characteristic of management research in general. However, it is clearly increasingly visible in the management journals. So, here, too, Professor Wernerfelt has been a pioneer.

Professor Wernerfelt, CBS salutes your important accomplishment and pioneering contributions! Thank you.

An important selling point for the consulting industry is that consultants can presumably help a firm identify and implement “best practice.” Surely the consulting industry is an important channel for disseminating knowledge of better ways of doing things, but identifying what constitutes best practice for a given firm in a given situation is no trivial task, and even if the best practice could be identified, transferring it will be a significant challenge.

This begs the question of whether there is a best practice for identification and transfer of best practices, and whether the consulting industry has identified and adopted such a practice. According to this paper Benjamin Wellstein and Alfred Kieser, the consulting industry in Germany is nowhere near a best practice for best practice. This goes for for both inter- and intra-industry transfer. I’ll bet my hat that this finding holds everywhere.

Well, I guess as long as the consulting industry keeps finding better practices for transferring better practices, we shouldn’t be too disappointed that there is no best practice for best practice. (HT: E.S. Knudsen)