Enacting Privatization

3 March 2007 at 7:12 am Nicolai Foss 2 comments

| Nicolai Foss |

Here at O&M we have often criticized and poked fun at ideas on social construction and their derived notions in management, such as Weickian “enactment.” Still, it is a fundamental tenet of classical liberalism that ideas matter and matter crucially (although some classical liberals, notably George Stigler, have argued that ideas matter much less than economists would like to think). One crucial area where ideas would seem to have mattered a great deal is privatization (a term that seems to have been invented by Peter Drucker).

In a paper, “Palace Wars and Privatization: Did Chicago Beat Cambridge in Influencing Economic Policies,” just published in the European Management Review, J. Muir McPherson adds to his earlier work with Bruce Kogut (this paper; for a related idea diffusion paper, see this), and examines the influence of “the epistemic community of American-trained economists” (based on the number of non-US, US and Chicago PhD degrees in a given country) on privatization policies. The dataset encompasses self-collected data on 13,422 economists. The statistical methodology is a hazard model. The results indicate a clear impact of the frequency of US-trained economists on the probability of privatization, but it is also noteworthy that among theUS economists, “As Chicago ideas won out . . . the difference between Chicago economics PhDs and graduates from other schools could no longer be detected from the general influence of US-trained economists on the decision to privatize.”

Entry filed under: - Foss -, Classical Liberalism, Papers, Recommended Reading.

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2 Comments Add your own

1. Peter Klein | 3 March 2007 at 11:25 am

Very interesting. I don’t know the time period under study, but the failure to detect a difference between Chicago- and non-Chicago-trained US economists may reflect not that Chicago “won,” but that there is no longer any difference between Chicago and MIT, Harvard, Stanford, Berkeley, etc. Virtually all mainstream US economists support privatization of one form or another, on purely technical (rather than libertarian) grounds.

More generally, there’s an interesting story, yet to be told, about how the supposedly great chasm between Chicago and Cambridge, Mass. came to be closed. The days of Friedman versus Samuleson are long over — the average economist at Chicago (and what used to be called the Chicago outposts — UCLA, Washington, Texas A&M) is no different, and no more or less market-oriented, than his or her counterparts at MIT or Harvard. (This is a point seemingly lost on Pfeffer, Sutton, and other critics of mainstream economics, who seem to think that Chicago price theory a la 1970 constitutes the mainstream of contemporary economic opinion.)
2. spostrel | 5 March 2007 at 7:47 pm

When Chicago started hiring and tenuring MIT graduates in the mid-1980s it was clear that the sharp distinctions were fading.