Archive for May, 2006

Those Right-Wing Economists

| Peter Klein |

Several posts below allude to arguments by Jeffrey Pfeffer, Sumantra Ghoshal, and others that economic models and concepts (agency problems, transaction costs, opportunism, and the like) are taking management theory in the wrong direction and are harmful to management practice. A subtext of these arguments is that economists are ideologically biased toward the free market, against community and informal social ties, and toward cynical, atomistic, and even “reactionary” views of human nature. (Even if we’re not actually dismal.)

Surveys of economists’ political preferences reveal a more complex picture, however. A forthcoming article in Public Choice by Daniel Klein and Charlotta Stern analyzes a 2003 American Economic Association member survey:

The responses show that most economists are supporters of safety regulations, gun control, redistribution, public schooling, and anti-discrimination laws. They are evenly mixed on personal choice issues, military action, and the minimum wage. Most economists oppose tighter immigration controls, government ownership of enterprise and tariffs. In voting, the Democratic:Republican ratio is 2.5:1.

A Democratic-to-Republican ratio of only 2.5 to 1 may seem shockingly low to our colleagues in sociology or cultural studies, but hardly seems to indicate pervasive “right-wing” bias.

17 May 2006 at 9:34 am 16 comments

Myths and Fallacies in Strategic Management – Part II

| Nicolai Foss |

Why has the notion of firm-level “capabilities” become so incredibly popular in strategic management research during the last 10-15 years?

This is a puzzle because — as Teppo Felin and I have argued in a series of recent papers (most of which can be accessed from — firm-level capabilities is a highly problematic concept. Thus, there are no theories of the emergence or origin of capabilities and the connection between the level of capabilities and the level of individual agents is at best unclear and perhaps more realistically non-existent. Partly because of these difficulties, there simply aren’t any clean definitions of capabilities around. (more…)

17 May 2006 at 8:01 am 17 comments

Happy Hierarchies

| Peter Klein |

Nicolai and I have tended to be skeptical about the new wave of happiness research, particularly as applied to intrinsic motivation, empowerment, and other trendy organizational issues. Economists Tyler Cowen and Arnold Kling agree. Corporate law professor Stephen Bainbridge, in his latest column, attacks the idea that participatory management increases worker happiness (and, presumably, productivity). On the contrary, says Bainbridge, workers often prefer hierarchy, for a variety of reasons (risk aversion, resistance to change, preference for standardized rules and procedures, and so on). “Whether the taste for participation or for hierarchy is more common is hard to say from the evidence to date, but at the very least the history of participatory management has taught us that not everyone wants more autonomy, challenge, and responsibility.”

Further details are provided in Bainbridge’s Williamsonian paper “Privately Ordered Participatory Management: An Organizational Failures Analysis.”

16 May 2006 at 2:04 pm 5 comments

How Bad Is Academic Writing, Really?

| Peter Klein |

Few social scientists are known for their lucid and elegant prose. Frank Knight or Joseph Schumpeter, perhaps. Most academic writing, however, is just plain awful: dull, pedantic, full of jargon and unnecessarily complex words and phrases, generally painful to read. Most manuscripts in organizational economics and strategy should come with a warning: “Do not operate heavy machinery after reading.”

How bad is it, exactly? Can bad writing be quantified? Yes, according to a new (to me, anyway) feature from For some books — those for which Amazon offers the “Search Inside” feature — Amazon now provides several objective measures of readability. (more…)

15 May 2006 at 5:31 pm 4 comments

Myths and Fallacies in Strategic Management — Part I

| Nicolai Foss |

Here is the beginning of what may become a regularly occurring post on An identification of common myths, mistakes, fallacies, non sequiturs, etc. in the strategic management field (I am sure my co-blogger will be happy to participate). Most of them have been picked up from conversations with colleagues, from listening to presentations in seminars and at the Strategic Management Society Meeting, and so on. Most relate to the resource-based view (i.e., Wernerfelt, Barney, Rumelt, Peteraf, etc.). OK, here goes: (more…)

15 May 2006 at 1:48 pm 17 comments

Great Euro PhD Initiative — But Application Deadline Is Today

| Nicolai Foss |

The EU-supported research network, “Dynamics of Institutions and Markets in Europe” (DIME) is arranging a “PhD day” in collaboration with the Danish Research Unit of Industrial Dynamics (DRUID) in Copenhagen on Saturday 17 June, just prior to the annual DRUID conference.

At this event, PhD students present their research and receive guidance and commentary from faculty associated with DIME and DRUID plus invited members from the international DRUID Advisory Board . Faculty and student interests typically centre on questions of organization and economic theory, technology management and firm strategy, learning and innovation systems and the co-evolution of industrial structure, organizational structure, and innovation.

According to the organizers, (more…)

15 May 2006 at 4:23 am Leave a comment

The SWOT Model May Be Wrong

| Nicolai Foss |

One of the basic, indeed foundational, frameworks of strategic management, the SWOT model, may be fundamentally flawed. The “model” advises managers to align their Strengths of their company to the Opportunities of the environment, while simultaneously safeguarding the company’s Weaknesses from the Threats of the environment.

This very basic idea — it is only in B Schools that it is called a “model” — is no doubt the most universally used planning tool in companies and is often used in the public sector. Students (and, one suspects, managers) love it on account of its extreme simplicity. Many textbooks are written on a SWOT formula: The first part deals with the external environment — i.e., industry analysis — and the second part then deals with the firm level, i.e., competitive advantage. I myself have always used the SWOT framework intensively in my strategic management teaching, and I have endorsed countless student papers and theses that argued that resource-based and industry analysis approaches are, after all, consistent because they can be aligned under the SWOT umbrella.

A recent paper by Richard Makadok of Emory University, “The Competence/ Collusion Puzzle and the Four Theories of Profit: Why Good Resources Go to Bad Industries,” suggests that the SWOT framework (at least in its usual interpretation) gets it wrong. How can something so simple, even trivial, as the SWOT framework be wrong? (more…)

13 May 2006 at 9:20 am 23 comments

The Nature of the (Family) Firm

| Peter Klein |

Brayden King at has a nice post today about family-owned firms. He summarizes a recent sociology paper on the transformation of the Scottish [hooray!] shipbuilding industry from one of mostly family firms to one dominated by corporate firms. Writes Brayden: “Family businesses and corporations are clearly different creatures, but we [organizational scholars] usually just take the word of legal scholars in this matter. . . . My take-away is that, besides temporal continuity established through lines of heredity, the distinguishing feature of family firms is that affective relationships serves as the glue holding together various components of the business. This affect, which translates into close identification with the organization, is a distinctive competency of the family firm.”

I have a footnote. One industry, unlike virtually every other mature industry in the developed world, continues to be populated by small, family-owned firms: agriculture. Why? Public policy is surely part of the explanation, but not all. The best analysis of the puzzle, in my view, is the pioneering work by Doug Allen and Dean Lueck, appropriately (and wittily) titled “The Nature of the Farm” (article version here, book version here). They argue that family ownership results from agriculture’s unique combination of seasonality and random variation, which makes it difficult to design and enforce effective incentive contracts that mitigate moral hazard. Instead, sole proprietorships, with the farmer or farm family as residual claimant, outperform joint ownership arrangements, such as corporations.

I provide some further information on organizational characteristics of agriculture here.

12 May 2006 at 12:28 pm 2 comments

Higher Education in France

| Peter Klein |

Having been in Paris during the recent mini-uprising over the CPE (a proposed change in French labor law making it easier for firms to fire, and thus presumably more attractive to hire, younger workers), I’m particularly interested in the French higher-education system. Today’s New York Times (simple registration required) has an illuminating piece on this. In higher education, as in so many areas, the Gauls buck modern trends:

There are 32,000 students at the Nanterre campus of the University of Paris, but no student center, no bookstore, no student-run newspaper, no freshman orientation, no corporate recruiting system.

The 480,000-volume central library is open only 10 hours a day, closed on Sundays and holidays. Only 30 of the library’s 100 computers have Internet access.

The campus cafeterias close after lunch. Professors often do not have office hours; many have no office. Some classrooms are so overcrowded that at exam time many students have to find seats elsewhere. By late afternoon every day the campus is largely empty.

Sandwiched between a prison and an unemployment office just outside Paris, the university here is neither the best nor the worst place to study in this fairly wealthy country. Rather, it reflects the crisis of France’s archaic state-owned university system: overcrowded, underfinanced, disorganized and resistant to the changes demanded by the outside world.

12 May 2006 at 7:55 am 6 comments

Scots, Wha Hae

| Peter Klein |

Today's Wall Street Journal features a front-page profile of a Carnegie-Mellon student majoring in bagpipes, thought to be the only such student in the US. This prompts a confession I've long wanted to make: I'm half Scottish. My mother was born and raised in Freuchie, a tiny village of just north of Edinburgh. While Scottish eccentricities are ripe for satire (ask Monty Python or Mike Myers), we also deserve credit for the steam engine, penicillin, pneumatic tires, the telephone, and the Scottish Enlightenment.

Speaking of the latter, though no one doubts the importance of Smith, Hume, Hutcheson, Ferguson, Steuart, Kames, and the rest, the Scots have been getting a bad rap lately. Murray Rothbard famously and controversially called Adam Smith overrated, describing the late Spanish Scholastics, Cantillon, Turgot, and the Physiocrats as better economists. Gertrude Himmelfarb's recent book The Roads to Modernity distinguishes sharply between Scottish and British achievements. (Hat tip to Nicolai.) Even Hayek, whose interpretation of Scottish thought is extremely influential, takes a drubbing in a recent paper arguing that Polanyi had the better grasp of "spontaneous order." (This paper disagrees.)

11 May 2006 at 1:36 pm 3 comments

Heavily Cited, But Wrong

| Nicolai Foss |

Here is an example of the apparent irrationality of citation practices. The example concerns the paper “Production, Information Costs, and Economic Organization,” by Armen A. Alchian and Harold Demsetz (American Economic Review 62, 1972, 772-95). This is the famous “team-production” paper, one of the first to try to revitalize the Coasian agenda of explaining the “nature” of the firm (why firms exist, what explains their scope and internal organization). It is also one of the first agency theory papers (in what is sometimes misleadingly called “positive agency theory”).

However, the analysis in the paper is flatly errorneous. Here are some points where the paper gets it wrong: (more…)

11 May 2006 at 12:30 pm 4 comments

Citations and Critical Commentary

| Peter Klein |

Yet more on citations. The May 2006 issue of the always-interesting EconJournalWatch — the economics profession’s own watchdog organization — considers the decline of critical commentary in economics journals. Beginning in the 1970s, most top-tier economics journals stopped publishing comments and replies. Robert Whaples blames the Social Sciences Citation Index: regular articles tend to get more citations per page than comments and replies, so journal editors, wishing to maximize their citation counts and impact factors, prefer regular articles to critical commentary and discussion. (I think the same would apply, a fortiori, to book reviews, though they aren’t mentioned here.) Philip Coelho and James McClure add that journal editors care about not only citations to the journal, but also citations to the journal’s own “insiders” (e.g., editors and editorial board members). They provide empirical evidence that comments and replies rarely cite insiders.

Bottom line: academia’s increasing reliance on bibliometric measures of quality and performance has real effects on the kind of research we do, how we package and promote our research, the demographic characteristics of the research community, and so on. Good or bad? Comments are open.

10 May 2006 at 6:08 pm 3 comments

J. Bruce Bullock (1940-2006)

| Peter Klein |

My friend, colleague, and current department head J. Bruce Bullock collapsed at his home this morning, was taken to a hospital, and died a short time later. Bruce received a PhD in agricultural economics at the University of California at Berkeley in the 1960s but was a Chicago price theorist at heart. Much of his work attempted to debunk standard notions of “market failure” (he despised the term) and inefficiency. He taught for many years at N.C. State University, where he was influenced by the semi-Austrian economist E. C. Pasour, Jr., with whom he coauthored one of his most interesting papers, a critique of neoclassical welfare economics. More recently, Bruce had become interested in entrepreneurship, particularly the teaching of entrepreneurship. (He and I coauthored a short paper on entrepreneurship in the undergraduate curriculum, immodestly titled “Can Entrepreneurship Be Taught?”) Bruce’s most recent position was McQuinn Professor of Entrepreneurial Leadership at the University of Missouri. He will be missed.

10 May 2006 at 1:10 pm 1 comment

Do Austrian Economists Get Sufficient Credit?

| Nicolai Foss |

Apart from the occasional ritualistic mention of Hayek's work in the context of information economics or Mises and Hayek's work in business cycle theory, Austrians as a rule get very little credit from their mainstream colleagues. It is arguable that they get too little credit.

Here is a case in point. In "Information Structures with Unawareness," Jing Li points out that the standard approach to modeling information — the state space approach — cannot accomodate unawareness (the paper is one example of a small literature on how to model unawareness in game theory terms). An agent is "unaware" (a nicer word for "ignorant") of something when he does not know it and does not know that he does not know it.

Li says that there is "little research on these obviously important issues" and goes on to treat unawareness in terms of modeling information as a pair, consisting of factual information and "awareness information."

It is, of course, true that unawareness/ignorance is under-researched relative to its importance. But why then not mention the literature that does deal with it? Such as Austrian economics, in particular Israel Kirzner's work. For example, in his 1997 paper in the Journal of Economic Literature, "Entrepreneurial Discovery and the Competitive Market Process," Kirzner explains in great detail why unawareness/ignorance is not compatible with the standard paradigm.

10 May 2006 at 5:21 am 4 comments

Emergence of Modern Business Enterprise in France

| Peter Klein |

My co-blogger has a reputation for poking fun at French intellectuals, so in this blog's spirit of international brotherhood I direct you to an interesting review of Michael Stephen Smith, The Emergence of Modern Business Enterprise in France, 1800-1930 (Harvard University Press, 2005). The review, by Pierre-Cyrille Hautcoeur, appears in the excellent book review series at Eh.Net. The book "'argues that the same forces that were giving rise to a new kind of very large, very complex business organization in the United States, Germany, and Great Britain between 1880 and 1930 were also at work in France,' contrary to the idea of a special or a backward path for French economic development."

9 May 2006 at 9:05 pm Leave a comment

Citation Impact of Entrepreneurship Research

| Peter Klein |

For you citation junkies out there ("bibliometricians"? "citophiles"?), the May 2006 issue of Entrepreneurship: Theory and Practice features a symposium on the nature and impact of entrepreneurship research, as measured by citation impact. (The formal title is "Special Issue on Understanding Entrepreneurship Scholarship from a Bibliometric Perspective.") According to the editors, bibliometric analysis suggests that entrepreneurship research contains "multiple but disconnected themes; dominant themes that reflect the disciplinary training and lens of their authors; and considerable dynamism and change in key research themes over time." More, in other words, than a disconnected "potpourri" or "hodgepodge." A fair point, but my sense is that the entreprreneurship literature still has a long way to go before constituting a coherent "field" with a distinct vision, research approach, "paradigm problems," and so on.

9 May 2006 at 12:11 pm 1 comment

Malthus and the “Dismal Science”

| Peter Klein |

I too imagine that Williamson's critics will be delighted by the association with Malthus.

As a footnote, David Levy and Sandra Peart have done interesting revisionist work claiming that Malthus actually wasn't the target of Carlyle's famous quip.

Everyone knows that economics is the dismal science. And almost everyone knows that it was given this description by Thomas Carlyle, who was inspired to coin the phrase by T. R. Malthus's gloomy prediction that population would always grow faster than food, dooming mankind to unending poverty and hardship.

While this story is well-known, it is also wrong, so wrong that it is hard to imagine a story that is farther from the truth. At the most trivial level, Carlyle's target was not Malthus, but economists such as John Stuart Mill, who argued that it was institutions, not race, that explained why some nations were rich and others poor. Carlyle attacked Mill, not for supporting Malthus's predictions about the dire consequences of population growth, but for supporting the emancipation of slaves. It was this fact — that economics assumed that people were basically all the same, and thus all entitled to liberty — that led Carlyle to label economics "the dismal science."

See the full thing here. And take that, economist-bashers!

9 May 2006 at 11:45 am 1 comment

Malthus and the Most Cited Economist in the World

| Nicolai Foss |

Who is the world's most cited economist? I thought Ronald Coase. When I asked some of my economist colleagues they virtually all came up with either Kenneth Arrow or John Maynard Keynes.

No, says Geoff Hodgson, Research Professor at the University of Hertfordshire, UK, and one of today's leading "heterodox" economists. It's Oliver Williamson. Geoff says so announcing the following event:  

Williamson will give the Second Malthus Lecture, organized by Geoff Hodgson, at 6pm on Thursday 19th October at the University of Hertfordshire, in the Fielder Centre in Hatfield, UK. All are welcome. The topic of Williamson's lecture will be: "Corporate Governance and Economic Organization: A Contractual and Organizational Perspective." The First Malthus Lecture — commemorating the Hertfordshire economist Thomas Robert Malthus — was given by Nobel Laureate Douglass North in May 2005.

I am sure the management-gurus-turned-economics-bashers that I critized in my post of yesterday will be delighted by the association between Malthus — who was the reason why economics was christened the "dismal science" — and Williamson!

9 May 2006 at 9:59 am 3 comments

Happy Hayek-Klein day

| Peter Klein |

Today, May 8, is the birthday of two extraordinary brilliant, prolific, and influential social theorists: F. A. Hayek (born 1899) and, um, me (born sometime after that). Enjoy a piece of cake for Fritz and myself.

(Another Hayek-Klein connection: I once owned a car formerly owned by the philosopher W. W. Bartley, III, for whom I had worked as a research assistant. Bartley had purchased the car in Germany, where he was conducting a series of interviews with Hayek for a planned biography, and later had it shipped to him in California. Hayek himself thus spent a good deal of time in the car’s passenger seat. Naturally, when I owned the car, I told my friends that I was the holder of the “Hayek Chair.”)

8 May 2006 at 10:58 am 7 comments

The New Bashing of Economics: The Case of Management Theory

| 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: (more…)

8 May 2006 at 10:02 am 11 comments

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Our Recent Books

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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