Archive for May, 2006
Market-Based Management
| Peter Klein |
I first heard the term “market-based management” (MBM) in 1994 or 1995, attatched to the now-defunct Program on Social and Organizational Learning at George Mason University. The theory was described in a few papers (one example here) and, as I recall, a monograph. My impression was that the principles of MBM were unobjectionable, but unremarkable: strong mission, values, and culture statements combined with decentralized decision-making and incentive compensation. The main innovation seemed to be the addition of an “Austrian” gloss (e.g., “Taylorism suffers from a fatal conceit….”).
This weekend’s Wall Street Journal profiles Koch Industries’s Charles Koch, who not only practices market-based management but actually trademarked the term. Writer Stephen Moore notes, somewhat delicately: “Some of the ideas that undergird Market Based Management seem fairly commonsensical to me, and I’m not entirely sold on the notion that this program somehow represents a seismic breakaway from what is taught at Harvard Business School.” Indeed, the idea that organizations can sometimes exploit “market-like incentives” would hardly surprise Chester Barnard, Alfred Chandler, or Oliver Williamson, let alone Alfred P. Sloan.
A more fundamental problem is that while decentralization provides benefits (more effective use of specific knowledge, conservation of central managers’ time, and so on) it also brings costs (agency problems, rent-seeking, coordination failure, etc.). To my knowledge the MBM literature has yet to identify or analyze the relevant tradeoffs. Jensen and Meckling’s (underappreciated) 1992 paper represents one attempt to grapple with these problems; this recent Foss-Foss-Klein paper suggests a slightly different approach. In short, all organizations represent a blend of market and hierarchy. The trick is to find the appropriate mix. Simply describing the virtues of “market” doesn’t get us very far.
We Got a Contract, We Got a Contract!!
| Nicolai Foss |
Peter and I have been working for some time on an idea for a book volume, entitled The Theory of the Firm: Emergence, Synthesis, Challenges, and New Directions.
There are several textbooks that present or make extensive use of the theory of the firm (e.g., Paul Milgrom and John Roberts, Economics, Organization, and Management; George Hendrikse, Economics and Management of Organizations; James Brickley, Clifford W. Smith, and William Zimmerman, Managerial Economics and Organizational Architecture; etc.). There are also lots of readers and reference collections (e.g., Louis Putterman, The Economic Nature of the Firm and Jay Barney and William Ouchi, Organizational Economics).
There is no need for yet another textbook or reader/reference collection. What the literature lacks, however, is a critical synthesis of the various streams in the theory of the firm, one that places these streams in a historical and methodological context, discusses the various controversies that have stimulated internal development in the theory of the firm, and assesses the many critiques that have been leveled at the theory by scholars in sociology, psychology and management.
Peter and I think we can write such a book. Luckily, Cambridge University Press agrees with us, and will offer a contract. (more…)
Among the Euro-weenies
| Peter Klein |
Europeans are ignorant and stupid, says Wisconsin Law Professor Gordon Smith. (He's actually making a serious point, at least in one of his posts.) Consistent with this blog's spirit of international cooperation, I hasten to add that I neither approve nor condemn such sentiments.
(Apologies to P.J. O'Rourke for stealing his title.)
Further Thoughts on Economic Calculation
| Peter Klein |
Nicolai asks important questions about the Austrian critique of socialism. I agree that a fresh look at these issues is warranted. My $0.02:
1. Mises's understanding of economic calculation is not exclusively, or even primarily, related to socialism. It is part of Mises's general explanation of how an advanced economy — i.e., an economy with a complex structure of heterogeneous capital goods — allocates resources to their highest-valued uses.
2. Mises's work on socialism flowed from his work on money. (It’s no coincidence that the 1920 article on calculation followed the 1912 book Theory of Money and Credit.) Entrepreneurs need actual numbers, not ratios of marginal utilities, to perform cost accounting. In a non-monetary economy there can be no "calculation," which for Mises means the comparison of anticipated future receipts and present expenditures on factors.
3. The key to all this, for Mises, is his concept of the "plain state of rest" (PSR). (more…)
Ranking Mania
| Nicolai Foss |
I just received a mail from the administrators of SSRN: “SSRN is pleased to announce a new service: Top Business Schools Rankings based on downloads from SSRN's eLibrary. This list will be updated at the beginning of each month and joins the Top Law School Rankings, announced last year.”
Here is the list of US school for those who care:
SSRN TOP 20 U.S. BUSINESS SCHOOLS (BETA)
1 Harvard Business School
2 University of Chicago – Graduate School of Business
3 University of Pennsylvania – The Wharton School
4 Yale School of Management
5 New York University – Leonard N. Stern School of Business
6 Massachusetts Institute of Technology (MIT) – Sloan School of Management
7 Stephen M. Ross School of Business at University of Michigan
8 Columbia University – Columbia Business School
9 Dartmouth College – Tuck School of Business
10 William E. Simon Graduate School of Business Administration
11 Duke University – Fuqua School of Business
12 University of Texas at Austin – Red McCombs School of Business
13 Stanford Graduate School of Business
14 University of Southern California – Marshall School of Business
15 Northwestern University – Kellogg School of Management
16 Ohio State University – Fisher College of Business
17 Cornell University – Samuel Curtis Johnson Graduate School of Management
18 Indiana University Bloomington – Kelley School of Business
19 University of California, Berkeley – Haas School of Business
20 University of Illinois at Urbana-Champaign – College of Business
And here is the so-called “international list”: (more…)
What is the Austrian Critique of Socialism, Really?
| Nicolai Foss |
Any self-respecting Austrian or Austrian-influenced blog must have a discussion of the Austrian critique of socialism. So, here goes.
In conversations with Austrians and when reading articles from the Austro-revival of the last three decades, I have always been struck by the prominence that Austrians tend to give to Hayek and Mises’ critiques of socialism. One senses a feeling that this an area where Austrians made an independent, decisive, and lasting contribution, one that even mainstream economists stand ready to acknowledge. Perhaps for this reason there has been quite a lot of internal debate among Austrians about the true meaning of the Austrian critique of socialism (usually under the rubric of “calculation” (i.e., Mises) versus “knowledge” (i.e., Hayek). Most of the debate has concerned whether and to what extent Mises and Hayek’s critiques were different (and perhaps who made the most fundamental argument).
I believe, however, that it is time to change the debate to more fundamental terms and issues, specifically the meaning and validity of the Austrian arguments. (more…)
Mises on econometricians
| Peter Klein |
Nicolai and I share a great admiration for the Austrian economist Ludwig von Mises, whom we consider one of the towering intellects of the twentieth century. A vast collection of Mises’s published and unpublished writings is already available online. The newest addition to this collection is a set of brief notes on research topics suggested by Mises to participants in his graduate seminar at New York University during the 1950s and 1960s. The notes were carefully recorded by his students Percy and Bettina Bien Greaves.
I haven’t had a chance to read through the set carefully, but a few gems stand out, such as this one from 1956: “We need a book to stop the econometricians or we will have more econometricians than those in useful occupations.”
Update: the notes are now available in plain text.
Jane Jacobs and Economies of Diversity
| Peter Klein |
American-born Canadian writer and activist Jane Jacobs, author of The Death and Life of Great American Cities (1961), Cities and the Wealth of Nations (1984), and other important works on urban issues, died last week at age 89. (Jacobs never held a university post, and the obituary writers weren't sure what to call her; the Toronto Star chose "urban philosopher," suggesting to younger readers a hip-hop artist or tagger.) Lynne Kiesling at Knowledge Problem summarizes some of the Jacobs commentary around the web. (See also this from Gene Callahan and Sandy Ikeda and this from Leonard Gilroy.)
My interest in Jacobs's work stems, in part, from a current project on the economics of clustering in agro-biotechnology. My reading of the economic geography literature suggests that it tends to overstate the advantages of localization (proximity to key suppliers or buyers, access to specialized, tacit knowledge from similar firms, etc.) while downplaying the importance of economies of urbanization or diversity, an equally important kind of agglomeration. Readers, please correct me if this impression is wrong.
Besides classic works on economies of urbanization by Jacobs, Rosenberg (1963), and Henderson (1988), I like this paper by Pierre Desrochers, and this one by Desrochers and Frederic Sautet.
New Foss-Foss-Klein working paper
| Peter Klein |
A new item has just been added to our working papers page, “Original and Derived Judgment: An Entrepreneurial Theory of Economic Organization,” by Kirsten Foss, Nicolai J. Foss, and Peter G. Klein. This is an early draft, and comments are most welcome. Here’s the abstract: (more…)
Can Kogut Do It? The New European Management Review
| Nicolai Foss |
The only-two-years-old European Management Review has just changed its editorship. The main change is that Bruce Kogut has taken over as new editor. In his editorial statement he proclaims that "The European Management Review has the ambition of being the journal of first choice for scholars interested in the theory and empirical study of management."
Kogut goes on to mention established top-journals such as Administrative Science Quarterly and Academy of Management Journal — without, however, directly implying that these are the direct competitors. It is clear that Kogut wants to position the EMR as an "ideas journal." How then does it differ from the intended competition? (more…)
Copenhagen Conference on Strategic Management 2006
| Nicolai Foss |
In addition to being a Professor at the Copenhagen Business School, I am also the Director of CBS' Center for Strategic Management and Globalization. The Center arranges the Copenhagen Conference on Strategic Management 2006 on 12-14 December. These dates should be particularly convenient for those who cannot make the Strategic Management Society conference in Vienna about 1½ month earlier, for example because of teaching commitments.
The first CCSM was held last year and was a great success. We want to make the CCSM 2006 into an even bigger success. Among the confirmed speakers are Jay Barney, Rich Makadok, and Rich Bettis.
Here is the conference homepage. Submit a paper!!
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