Archive for June, 2006

African Entrepreneurship Blog

| Peter Klein |

From the PSD Blog I learn of Timbuktu Chronicles, a blog written by Emeka Okafor (him, not him) dealing with African entrepreneurship, innovation, and technology. Looks like an interesting read.

30 June 2006 at 12:33 pm 1 comment

Intelligent Design and the Sociology of Science

| Peter Klein |

Don’t worry, we’re not getting all weird on you and entering the fray on creationism and evolution. Today’s topic is the theory and practice of science. Specifically, consider the controversy over intelligent design (ID), the idea that purely natural forces — i.e., random mutation and natural selection — cannot explain the origin and diversity of life. What are the most common arguments against including ID in the science curriculum?

1. ID is wrong because it contradicts the scientific evidence.

2. ID is wrong because it isn’t science (e.g., it does not offer testable predictions). Leave it in the philosophy or theology classrooms.

3. ID is wrong because “serious scientists” all think it’s nonsense.

The second and third arguments seem to pop up the most in conversations I’ve seen and heard. They are taken by their proponents as self-evident. But #2 obviously presupposes a particular philosophy of science, and #3 a particular sociology of science. One rarely sees these philosophies articulated and defended. Is prediction the hallmark of science? Does neo-Darwinian theory make falsifiable predictions? How does scientific consensus emerge? On what grounds to scientists accept or reject theories? (Argument #3, in particular, seems to presuppose a charmingly pre-Kuhnian worldview.)

As an aside, I know several “heterodox” economists who reject ID primarily on ground #3, which I find highly ironic. They see themselves as (unjustifabily) outside the mainstream of their own discipline, but assume that in natural science the consensus is always right.

30 June 2006 at 11:53 am 6 comments

Uncle Milton Nostalgia

| Nicolai Foss |

Here is what Andrew Sullivan calls “intellectual porn for classical liberals and conservatives of doubt” — a 30 mins. interview with Milton Friedman.  Delightful. And in black&white.

HT to Peter Kurrild-Klitgaard at Punditokraterne.

30 June 2006 at 8:11 am 1 comment

A Doctoral Defence in Sweden

| Nicolai Foss | 

I have a hard time keeping up with my co-blogger’s blogging frenzy.  Of course, he is much smarter and more energetic than I am and that partly accounts for the increasing discrepancy between our respective blogging frequencies. However, the reason I didn’t blog yesterday on O&M was that I served as an external examiner on a doctoral thesis at the Jönköping International Business School in Sweden. Situated virtually at the brinks of the enormous lake Vättern, JIBS is a newly established and highly entrepreneurial place that aims at pushing its research to a serious international level.

The specific thesis I was asked to discuss was Carlo Salvato’s Micro-foundations for Organizational Capabilities. Salvato is an Associate Professor at Bocconi University and already has an Italian PhD degree, which is based on a thesis utilizing Swedish data. His Swedish thesis, on the other hand, is based on Italian data!

More specifically, its empirical setting is product development projects in Alessi. On the basis of a painstakingly detailed identification, analysis and classification of events in 90 product development projects in Alessi, Salvato applies optimal matching analysis to detect patterns in the projects that may be interpreted as routines and capabilities.  He also strongly adds to the notion of capabilities by decomposing that construct in a constituent elements (hence, the title of the thesis), although he does not go sufficiently micro for my taste (in this connection, Carlo claimed that his attempt to build micro foundations for capabilities was seen as heresy by one of the high priests of the evolutionary church, ehhh, approach in management).  Although I am no sucker for the capabilities view in management, this thesis impressed me greatly.  I am sure we will hear much more of Carlo Salvato in the future.

A peculiarity of the Swedish thesis defence procedure: The external examiner has to summarize the thesis, before he discusses it. After which the candidate has to tell the audience whether he can accept the summary. Odd.  And the newly minted Doctor receives an absolutely ridiculous black hat.

30 June 2006 at 6:01 am 6 comments

Copying the Physicists

| Peter Klein |

It’s no secret that mainstream economists hold up physics as the model science. (Critics say that economists never got much beyond nineteenth-century classical mechanics, but never mind.) So why should we be surprised that economists also copy the physicists’ style and manners? From T. A. Abinandanan of the Nanopolitan blog we learn that physicists are widely regarded, by their natural-science brethren, as bullies who wander into other fields without much knowledge of or appreciation for the work of specialists.

The natives of the other disciplines, of course, would grumble because they felt that many of these wandering physicists were promiscuous (with no long term commitment to their field) and, more importantly, arrogant. . . . Among the natives, the joke is that these promiscuous physicists were just looking for interesting problems, because there weren’t any in physics.

Just what we’ve been discussing here and here. Incidentally, on “econophysics,” profiled last year in the New York Times, Abinandanan wisely adds that “[g]iven the reputation of physics and economics in their respective domains (natural and social sciences), econophysics sounds like a marriage between two domineering individuals.”

29 June 2006 at 8:23 am 1 comment

Overview of Behavioral Economics

| Peter Klein |

Behavioral economics is profiled in “The Marketplace of Perceptions,” from the March-April 2006 Harvard Magazine. Not a puff piece, exactly, but certainly a very friendly account. Excerpt:

As recently as 15 years ago, the sub-discipline called behavioral economics — the study of how real people actually make choices, which draws on insights from both psychology and economics — was a marginal, exotic endeavor. Today, behavioral economics is a young, robust, burgeoning sector in mainstream economics, and can claim a Nobel Prize, a critical mass of empirical research, and a history of upending the neoclassical theories that dominated the discipline for so long.

(HT: Greg Mankiw)

29 June 2006 at 8:08 am 5 comments

Crowdsourcing and Switching Costs

| Peter Klein |

I blogged a while back about crowdsourcing, in which individuals, typically amateurs, complete to supply inputs to large producers or distributors via the web. Crowdsourcing is often likened to distributed computing, an age-old (in computer terms, anyway) method of sharing computationally intensive tasks over many CPUs.

The best-known example of distributed computing is SETI@home, in which individuals donate their spare processing power to the search for extraterrestrial life. There’s a problem, however, as Lee Gomes tells us in today’s Wall Street Journal ($): high switching costs. SETI@home users get points for donating computer time and, like frequent flyers who stick to one airline to rack up miles, many refuse to switch to other, equally worthy distributed computing projects (the search for an Alzheimer’s cure, a difficult problem in theoretical physics, etc.). As a result, says Gomes, SETI@home “is to distributed computing what AARP is to social-security reform.”

Moral of the story: If crowdsourcing projects attract mainly hobbyists, participating for fun or to impress their (virtual) friends, expect lock-in and substantial first-mover advantages. If participants do it for the money, however, the crowdsourcing landscape may be much more competitive.

28 June 2006 at 7:00 pm 4 comments

Glenn Hubbard Defends Business Schools

| Peter Klein |

Columbia’s Glenn Hubbard responds to critics who say that contemporary business education, particularly as taught in US-style MBA programs, is outmoded, irrelevant, and even dangerous. (We’ve been discussing this here, here, and here.) Says Hubbard:

Why, then, is the US adding productivity growth when so many other big economies see negative growth in productivity? Those who say the answer is technology have spent too little time in Tokyo, Seoul and Berlin. The fact is, technology is better in many other countries. So US companies did not become more productive by simply buying faster computers. They became more productive by having managers and entrepreneurs who knew how to integrate these investments with new business models to raise productivity. These abilities to think strategically are teachable; and the central classroom for teaching leaders to “pick these locks” is the business school.

(HT: Mark Thoma)

Update: Here’s Dartmouth’s Paul Danos, responding to “The Management Myth.”

28 June 2006 at 4:00 pm Leave a comment

What’s In a Name?

| Peter Klein |

Speaking of Levitt, another of his characteristically quirky studies is this one on baby names (nontechnical summary here), showing that “distinctively black” names are indicators, not determinants, of socioeconomic status. Baron and Kreps summarize the literature on job titles and conclude, similarly, that titles are primarily signals, not drivers of job characteristics or performance (though titles can be important motivators).

I was thinking about names when watching a little Wimbledon this morning. (I grew up in the era of Connors, Borg, McEnroe, Lendl, Wilander, Edberg, etc., and remain a huge Wimbledon fan.) Former champion Maria Sharapova won her first-round match easily, dispatching clay-court specialist Anna Smashnova in straight sets. Smashnova — what a great name for a tennis player! (I’m considering changing my legal name to Publishnova.)

28 June 2006 at 1:09 pm Leave a comment

More on Economics and the Contiguous Disciplines

| Peter Klein |

Monday’s post on the accusation that contemporary economists focus too heavily on “puzzles,” rather than real problems, elicited a number of interesting responses. Tom Schenk alludes to Coase’s suggestion that economists are shying away from their traditional areas of interest because they can’t solve the standard problems. Coase is worth quoting in full:

Economists are extending the range of their studies to include all of the social sciences. . . . What is the reason why this is happening? One completely satisfying explanation . . . would be that economists have by now solved all of the major problems posed by the economic system, and, therefore, rather than become unemployed or be forced to deal with the trivial problems which remain to be solved, have decided to employ their obviously considerable talents in achieving a similar success in the other social sciences. However, it is not possible to examine any area of economics with which I have familiarity without finding major puzzles for which we have no agreed solutions, or, indeed, questions to which we have no answers at all. The reason for this movement of economists into neighbouring fields is certainly not that we have solved the problems of the economic system; it would perhaps be more plausible to argue that economists are looking for fields in which they can have some success.

Steve Sailer, who has gained a reputation as Steve Levitt’s most vocal critic (1, 2), suggests that the problem is not the application of economic analysis to neighboring disciplines per se, but rather economists’ tendency to apply their tools to subjects in which they lack the necessary background knowledge and expertise. “My objection to Levitt’s work is not that he’s wasting his vast analytical powers on trivial subjects, but that his analytical powers have too often been found inadequate for the magnitude of his subjects.” (more…)

28 June 2006 at 12:01 pm 1 comment

A Brief History of Time (in Management)

| Peter Klein |

My colleague Allen Bluedorn, Professor of Management at the University of Missouri, recently published an interesting book, The Human Organization of Time: Temporal Realities and Experience (Stanford University Press, 2002). The book explores a number of philosophical, sociological, and cultural issues related to time and our perception of time and develops applications for business administration. Of course, attention to time, process, and history is a hallmark of the Austrian, evolutionary, and dynamic capabilities approaches to economics and management featured frequently on this blog.

For a short introduction to these issues check out the June 2006 issue of the Academy of Management Learning and Education, which features “Time and the Temporal Imagination” by Bluedorn and Rhetta Standifer. Here is the abstract:

Time has been one of the most challenging and elusive concepts in human thought, and it is only now beginning to receive the attention it deserves in organizational scholarship. To this growing scholarly attention we present the case for including material about this most universal of phenomena in our teaching, just as we are beginning to do in our theoretical and empirical investigations. We argue for developing a temporal imagination, a concept we proposed recently, and then describe reasons for teaching about time as well as present first principles that provide a foundation for the teaching of time and temporal phenomena. These reasons and principles are then illustrated in a discussion of temporal depth (time horizons) and how it might be taught.

27 June 2006 at 3:34 pm 1 comment

Elgar Companion to Transaction Cost Economics

| Peter Klein |

I’m pleased to announce that I am editing, along with my colleague Michael E. Sykuta, a new entry in the Elgar Companion series: The Elgar Companion to Transaction Cost Economics. The volume will contain several dozen encyclopedia-style entries on the TCE’s foundations and basic principles, precursors and influences, modeling approaches, empirical research, applications, and critiques. Look for publication in late 2007 or early 2008.

27 June 2006 at 2:07 pm Leave a comment

New Paper by Kirzner and Sautet

| Nicolai Foss |

Israel Kirzner is surely one of the more neglected of economists.  Now that entrepreneurship has become almost a mainstream theme in economics, Kirzner certainly deserves more recognition and credit for his four decades long insistence on the importance of the entrepreneur as the prime mover of the market process. (Here is a great Israel Kirzner site.)

What appears to be Kirzner’s latest paper is “The Nature and Role of Entrepreneurship in Markets: Implications for Policy,” written with Frederic Sautet and published by the Mercatus Center at George Mason University.

The paper is particularly interesting as it is taken up with a theme that has often been claimed to be absent from Kirzner’s work, namely that of institutions and how institutions can be designed (or influenced) to impact entrepreneurship. The new stuff arrives at about p. 14. In addition to discussing how the institutional matrix impacts entrepreneurship, there is so much emphasis on creativity as an aspect of entrepreneurship that the paper sounds Schumpeterian in places. There is also much emphasis on entrepreneurship being embedded in a cultural context.

So, has Israel Kirzner gone applied? Well, not exactly, as the discussion still moves on a fairly abstract level (for an applied exercise that is rather related to Kirzner and Sautet’s, see this excellent paper), but certainly is more “applied” than the Kirzner of, say, Competition and Entrepreneurship.

27 June 2006 at 9:24 am 3 comments

We Need Some Economics of Pomo

| Nicolai Foss | 

I am re-reading Tyler Cowen’s excellent What Price Fame? for the second time.  I continue to be amazed by the number of bright ideas that this slim volume is packed with.  Among the many observations of the ways that celebrities and critics can game their mutual relations is this one:

Some performers manipulate the style of their product to shift the incentives of critics to pay attention … Unclear authors, at least if they have substance and depth, receive more attention from critics and require more textual exegesis. Individual critics can establish their own reputations by studying such a writer and by promoting one interpretation of that writer’s work over another. These same critics will support the inclusion of the writer in the canon to promote the importance of their own criticism … In the economics literature, enormous attention is devoted to the vagaries of John Maynard Keynes’ General Theory. The monetary writings of Milton Friedman or Irving Fisher, far clearer and not inferior as practical guides to monetary policy, do not receive equal attention from historians of thought (p.34-5).

Perhaps this observation may help us to account for the increasing prominence of pomo ideas in management (economics seems so far to have stayed almost immune to this disease). (more…)

27 June 2006 at 8:44 am 1 comment

More on Family Firms

| Peter Klein |

Recent posts here at O&M and at have discussed the nature and consequences of family ownership. Today’s Wall Street Journal ($) profiles Fiat’s John Elkann, great-great-grandson of founder Giovanni Agnelli and next in line for the top spot, and discusses the challenges of family capitalism more generally. Excerpts:

[A]s Mr. Elkann is poised to move into the driver’s seat at the 107-year-old icon, the European model of family capitalism espoused by his clan is struggling to endure. Financial markets have become impatient with family-dominated companies, which sometimes put dynastic interests first and occasionally have murky corporate-governance practices. There is also increased skepticism that companies controlled by Europe’s grand families can produce top-flight managers. . . .

Some argue that the model has served Europe poorly. “The sooner we get rid of family capitalism the better off we all are,” says Umberto Mosetti, a corporate-governance expert at the University of Siena and president of shareholder adviser Deminor.

When markets were regional, says Mr. Mosetti, families could finance their businesses through cash flow and loans from friendly local banks. As markets went global, large companies needed to go to capital markets to fuel expansion. Family-controlled firms were often ill-prepared. Something similar happened at Fiat. When competitors from Asia entered the European market, Fiat was caught flat-footed and lost market share; it has been trying to recover ever since.

26 June 2006 at 8:56 pm Leave a comment

Economics: Puzzles or Problems?

| Peter Klein |

I’ve enjoyed reading Wittgenstein’s Poker: The Story of a Ten-Minute Argument Between Two Great Philosophers, an engaging account of the famous “poker incident” at which Ludwig Wittgenstein may or may not have threatened a visiting Karl Popper with a fireplace poker during a 1946 meeting of Cambridge’s Moral Sciences Club. David Edmonds and John Eidinow perform a forensic reconstruction and conclude that Popper probably exaggerated what happened but that Wittgenstein did act like a boor. More important, Edmonds and Eidinow explore the background and aftermath and use the incident to anchor an elegant survey of twentieth-century philosophy putting Popper’s and Wittgenstein’s contributions in context.

(Incidentally, neither philosopher comes across as the sort of guy you’d want to spend an evening with. Popper appears petty and insecure, almost paranoid. As for Wittgenstein . . . I’m no philosopher, but I know what I like, and Wittgenstein — in his later incarnation, anyway — isn’t it. He’s revealed here as a spoiled brat, petulant and overbearing, and his linguistic approach to philosophy strikes me as little more than clever nonsense. In the spirit of full disclosure, I should mention that I first heard about the poker incident from Popper’s student W. W. Bartley, III, who was far from impartial. See The Fortunes of Liberalism, p. 179, footnote 5.)

At issue between Popper and Wittgenstein that night was the status of philosophy itself. Are there real philosophical problems, as Popper maintained, or merely “puzzles,” as Wittgenstein and his disciples insisted? Contemporary analytic philosophy has tended to gravitate toward the latter view, that philosophy is little more than word-play, a fun and interesting exercise but one with little bearing on the “big questions” of life.

What about economics? Over the last couple of decades economists have paid less attention to the “big questions” of unemployment, inflation, capitalism versus socialism, the quality of life, and so on, focusing instead on finding clever solutions to small, empirical puzzles — call it the “Freakonomics approach.” There are exceptions to this trend — the literature on institutions and economic growth, for example — but on the whole economists seem more interested in puzzles than problems. (more…)

26 June 2006 at 8:15 am 15 comments

Does Creativity Harm Innovation?

| Peter Klein |

The always-interesting Robin Hansen argues in Business Week that creativity may harm, not help, innovation.

[M]uch of the hoopla over creativity is a crock. Why? Because we are already up to our eyeballs in it. Make no mistake: Innovation matters. Nothing is more essential for long-term economic growth. But to get more innovation we may want less, not more, creativity.

The sobering truth is that the dramatic artistic creations or intellectual insights we most admire for their striking "creativity" matter little for economic growth. . . . Instead, the innovations that matter most are the millions of small changes we constantly make to our billions of daily procedures and arrangements. Such changes do not require free-spirited self-expression. Instead, people quite naturally think of changes as they go about their routine business and social lives. . . .

HT: Marginal Revolution

25 June 2006 at 1:36 am 1 comment

Are Routines Necessary for an Evolutionary Theory of the Firm?

| Nicolai Foss |

The seminal and in many ways founding contribution to the evolutionary theory of the firm, and its numerous relatives in management, such as the knowledge-based , the competence , the capabilities, etc. views, is without much doubt Sidney Winter and Richard Nelson's An Evolutionary Theory of Economic Change from 1982.

The book is very heavily cited in management (e.g., it is among the top 10 cites in Strategic Management Journal), but has made less of an impact in economics (it was originally intended as an economics contribution rather than a contribution to management).  The reason can be found in chapters 4 and 5 that develop notions of routines and organizational capabilities, and try to do so from the notion of individual skill. Since Nelson and Winter (1982) organizational routines have become a primitive in the definition of "higher-level" constructs, such as capabilities or "dynamic" capabilities.

In a number of recent papers (beginning with this paper, but mainly with Teppo Felin), I have identified and discussed various problems with the notion of routines.  Very briefly, there are still no clean definitions of routines (which evidently makes it somewhat problematic to define capabilities etc. in terms of routines), the routines construct often implies a denial of methodological individualism, the empirical basis for asserting that routines are so strongly prevalent in real world firms that it is meaningful to think of firms in terms of routines is questionable, routines draw attention away from conscious, rational choice, etc. etc.


24 June 2006 at 9:53 am 5 comments

New Issue of Industry and Innovation

| Nicolai Foss |

Now in its 13 year of publication, Industry and Innovation is a journal dedicated to "scholarship on the dynamics of industries and innovation". (It was originally launched as the Journal of Industry Studies).

Its closest competitors are arguably journals such as Industrial and Corporate Change and Research Policy. In terms of intellectual affiliation, I&I serves the communities that are organized in the Schumpeter Society, attend the DRUID conferences, and the like. In other words, I&I is taken up with research in evolutionary economics, dynamic capabilities stuff, parts of economic geography, technology studies and so on. Its editorial board includes Anita McGahan, Richard Nelson, and yours truly. The editor is my CBS colleague, Mark Lorenzen (check his photo!).

Usually, there may not be much of interest for the readers of O&M in I&I. However, the latest issue — guest edited by my former PhD student, Volker Mahnke (CBS, Informatics Dept.) and Serden Ozcan (CBS, Dept of Industrial Economics and Strategy)– features a set of papers that are clearly relevant to those with an interest in organization and organizational strategy.


24 June 2006 at 3:45 am Leave a comment

Entrepreneurship and Business Education

| Peter Klein |

Kauffman Foundation president Carl Schramm joins a rising chorus of protest against contemporary business education with an op-ed, "The Broken MBA," in the Chronicle of Higher Education. US business schools, says Schramm, have missed the transition from "bureaucratic capitalism" to "entrepreneurial capitalism."

Although most major schools now have formal programs in entrepreneurship, the programs typically exist in isolation. Their precepts have had little impact on the core curriculum. It is hard to find serious research on entrepreneurial processes, and not much attention is paid to the importance of technology in entrepreneurial growth — even in large companies.

Instead, business schools have chosen to emphasize ethics and social responsibility, a move Schramm blasts as "ineffective, irrelevant, or even counterproductive." On ethics: "Presumably the goal is to prevent future Enron-like scandals, but how likely is it that human behavior can be changed for the better by tacking on a course on ethics?" On social responsibility, which he calls a "nebulous area": "The implicit message of those courses is often that business goals should be subordinate to political goals. Business serves society by creating wealth — that is its true social responsibility. Business schools do their students and society a disservice by teaching that corporations should pledge primary allegiance to political ends, which could harm their ability to create the wealth upon which civil society depends." (more…)

23 June 2006 at 1:07 am 9 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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