Natural and Artificial States, and Firms
| Peter Klein |
Among the last published papers of the libertarian polymath Murray N. Rothbard — one of my intellectual heroes — is his 1994 article “Nations by Consent: Decomposing the Nation-State.” Here Rothbard distinguishes sharply between the state, as a political entity, and the nation, a “complex and varying constellation of different forms of communities, languages, ethnic groups, or religions.” He goes on to develop a theory of appropriate national boundaries, based on the principle of volunary association and the empirical claim that people tend to associate with particular familial, linguistic, cultural, and religious groups. “One goal for libertarians should be to transform existing nation-states into national entities whose boundaries could be called just, in the same sense that private property boundaries are just; that is, to decompose existing coercive nation-states into genuine nations, or nations by consent.”
A March 2006 working paper by Alberto Alesina, William Easterly, and Janina Matuszeski, “Artificial States,” proposes several measures of the degree to which state boundaries are “natural” — corresponding roughly to Rothbard’s nations — or “artificial.” One measure identifies state borders that split ethnic groups into separate states, while another uses fractal geometry to characterize borders as straight or squiggly, assuming that straight borders are more likely to be articifially drawn and not corresponding to natural geographic or ethnic boundaries. The authors show that their measures are closely correlated with the usual measures of national economic performance (the more natural, the better).
What does all this have to do with organizations? The capabilities literature distinguishes between firm boundaries that are “natural,” or organic, and those that are artificially constructed. Natural boundaries would tend to exclude unrelated activities, would tend to change gradually, and so on. Natural firms presumably perform better than artificial ones. Indeed, one way to interpret the capabilities approach to diversification is that a conglomerate is like an artificial state (e.g., Sudan, to use an example in the Alesina et al. paper), while a related diversifier is a more natural form of organization (e.g., France).
The Alesina et al. paper uses an index of ethno-linguistic fractionalization to identify state borders that cut across “natural” groups. I don’t know the details of how this measure is constructed, but it would certainly be interesting to have analogous measures for organizations. While capabilities — that rather amorphous, latent construct already the subject of controversy on this this blog — are of course not measurable directly, it is at least conceivable that some observable employee characteristics might correspond to some kinds of capabilities. It would also be interesting to construct spatial measures of a firm’s activities analogous to the straight-versus-squiggly distinction proposed by Alesina et al.