Archive for June, 2008
Stop Using Management Buzzwords
| Peter Klein |
That’s the command to town and village officials from Britain’s Local Government Association, which urges its members to dump trite words and phrases like core values, evidence base, facilitate, fast-track, holistic, level playing field, process driven, quick hit, and my personal favorite, predictors of beaconicity (no idea what it means). Here’s the list, and here’s the CNN story (via Josh). From CNN:
The list includes the popular but vague term “empowerment;” “coterminosity,” a situation in which two organizations oversee the same geographical area; and “synergies,” combinations in which the whole is greater than the sum of its parts.
Officials were told to ditch the term “revenue stream” for income, as well as the imprecise “sustainable communities.” The association also said councils should stop referring to local residents as “customers” or “stakeholders.”
The association’s chairman, Simon Milton, said officials should not “hide behind impenetrable jargon and phrases.”
Business-school educators, please take note!
V for von Mises
| Dick Langlois |
My Father’s Day present this year was something unusual: issue number 11 (Winter 1998) of something called The Batman Chronicles. (My sons are both into comics and graphic novels, though it was apparently my wife who stumbled onto this on the web.) The issue is a slim comic book featuring “The Berlin Batman,” wherein the story of Batman is reimagined as having taken place in pre-war Nazi Germany. The hero is Baruch Wane, wealthy Jewish socialite and decadent cubist painter, who becomes Batman by night after his parents are killed not by a robber but by anti-Semitic violence. His mission, of course, is to fight the tyranny of Nazism, which in this issue involves — and here’s the punch line — trying (in the end without success) to save the papers of Ludwig von Mises, which have been confiscated by the Nazis. The episode goes into great detail about why the work of von Mises was a threat to the Nazis and to authoritarians of all stripe.
This comic may be old news to many readers, but I found it amusing. The author, Paul Pope, is apparently well respected in comics/graphic novel circles for, among other things, a more elaborate reimagining of Batman in a totalitarian future.
Creative Capitalism Blog
| Peter Klein |
Via Mankiw, here is Michael Kinsley and Conor Clarke’s Creative Capitalism Blog. Check out the list of contributors. Wow. I haven’t seen a team that impressive since these guys. OK, Creative Capitalism isn’t a traditional blog (there’s an oxymoron for you) but, as Kinsley and Clarke explain,
a web experiment designed to produce a book — a collection of essays and commentary on capitalism, philanthropy and global development — to be edited by us and published by Simon and Schuster in the fall of 2008. The book takes as its starting point a speech Bill Gates delivered this January at the World Economic Forum in Davos. In it, he said that many of the world’s problems are too big for philanthropy — even on the scale of the Gates Foundation. And he said that the free-market capitalist system itself would have to solve them.
This is the public blog of a private website where a group of invited economists have spent the past couple of weeks criticizing and debating those claims.
Vertical Is the New Horizontal
| Lasse Lien |
Unrelated horizontal diversification is widely seen as smoking-gun evidence of agency problems, and heavily sanctioned by capital markets, boards, media, etc. Consequently, we don’t see much blatant conglomeration anymore. But if you are a manger with a strong desire to build an empire, or more generally grow at “all costs,” what do you do?
My conjecture is that unjustified vertical integration is increasingly taking the place of unjustified horizontal diversification as an expression of such tendencies. Why? Simply because the penalties (i.e. the costs) of growing via the latter have increased, which presumably creates a tendency to substitute towards the former.
Admittedly, I don’t have much data to support this, but I do seem to recall that Fan & Lang (2000) found a strong positive link between verticality and the diversification discount. Less scientifically, I have tourist sampled the link between vertical integration and government ownership in my home country (Norway). There seems to be a strong positive correlation between public ownership and vertical integration, but no obvious correlation with horizontal diversification.
Gore Vidal on Academic Biographers
| Peter Klein |
Gore Vidal, writing in 1981 in the New York Review of Books:
Lately, American biography has fallen more and more into the hands not of writers but of academics. That some academics write very well indeed is, of course, perfectly true and, of course, perfectly rare. When it comes to any one of the glorious founders of our imperial republic, the ten-volume hagiography is now the rule. Under the direction of a tenured Capo, squads of graduate students spend years assembling every known fact, legend, statistic. The Capo then factors everything into the text, like sand into a cement mixer. The result is, literally, monumental, and unreadable.
Thanks to LRC for the tip. The context is Gore’s praise for David McCullough’s short biography of Teddy Roosevelt (who Vidal calls a “sissy”), Mornings on Horseback.
Of course there are some terrific academic biographers writing today such as Thomas McCraw and Guido Hülsmann. But they are probably the exceptions that prove the rule.
Whither Chicago Economics?
| Peter Klein |
Steve Levitt, writing on the controversy surrounding the University of Chicago’s proposed Milton Friedman Institute, says this:
The Chicago economics department views the world differently than anyone else, even other economics departments. Having learned my economics at Harvard and M.I.T., I took my first teaching job at Chicago with the very explicit idea that I would spend two or three years in Chicago to get to “know the enemy.” After I figured out how they thought, I would escape back to more comfortable surroundings.
Well two things happened that I didn’t expect. First, it turned out that it wasn’t so easy to learn to think like a Chicago economist. I’ve been trying to learn for more than a decade and I still have learned only the rudiments. Every day my colleagues teach me something I should know, but don’t. Second, I decided that the Chicago approach to economics was the right one for me, even though I am not that good at it.
I wish Levitt would elaborate on the differences between contemporary Chicago economics and the economics of Harvard, MIT, Princeton, and Stanford, because I don’t see any. The Chicago economics of 1970 or even 1980 was distinct from that of its East and West coast rivals. The Journal of Political Economy, and even more so the Journal of Law and Economics, had a unique style and approach. Chicago-influenced economics departments at UCLA, Washington, Texas A&M, Clemson, and elsewhere were disseminating (and deepening) the brand. But that’s all gone. It’s hard to see any unique vision today. Indeed, the diversity among US economics departments seems a thing of the past, as I noted before. They are all mini-MITs. How, exactly, is Chicago economics any different?
The Power of Walt
| Peter Klein |
“If you could be anyone in the world, who would it be?” My usual answer is Walt Mossberg, the legendary WSJ technology reviewer. Imagine having access to nearly every cool gadget in the world, and being paid to play with them. Nerd-topia!
But I underestimated Walt’s power. Two marketing professors have discovered that a positive review by Walt generates a 10-percent increase in the parent firm’s abnormal returns while a negative review causes a 5-percent drop. Those are big numbers in event-study world. (Via Gizmodo.)
Controversy Over JPE Paper on File Sharing
| Peter Klein |
Stan Liebowitz, no stranger to controversy (1, 2), maintains that the Oberholzer-Gee and Strumpf paper on file sharing, published last year in the Journal of Political Economy, is fundamentally flawed. Stan submitted a comment (longer version here) to the JPE which was rejected by editor Steve Levitt. Stan believes that Oberholzer-Gee and Strumpf are guilty not merely of sloppiness, but academic dishonesty, and is upset that they refuse to share their data. The German newspaper Handelsblatt has written an article about the controversy. Handelsblatt focuses on Levitt’s decision to ask Strumpf to write a reply and then to use the reply as an anonymous referee report in rejecting Liebowitz’s comment. That doesn’t trouble me as much as the authors’ unwillingness to share the data (and the JPE’s refusal to insist on it). More generally, notes the newspaper:
The impression that procedural standards of economics journals are not particularly strict is widely shared in the profession. Zurich-based economist Ernst Fehr, an associate editor of the top-five journal “Quarterly Journal of Economics” and of “Science” points to a lack of clear rules as to when an editor should recuse himself because of potential prejudice. Science journals also seem to deal more openly with the competition among scientists. “Authors who submit an article to a science journal can say who they do not want to review their article”, praises Fehr, a choice which is typically not given to economists.
One internationally renowned economist, who did not want to be named, expresses the complaint more bluntly: “Little scandals and big scandals are commonplace: editors who publish articles in their own journals, referees or editors who decide about articles submitted by their own doctoral students.”
The pointer is from Craig Newmark, who writes: “Until important empirical results in economics are, as a matter of routine, carefully scrutinized and until they are provably replicable, economics will never get the respect that physics and biology and chemistry get. And that’s a shame.”
Update: Additional comments from John Lott and John Palmer.
Business History Bleg: British Trading Houses
| Peter Klein |
I’m advising a PhD student in sociology (yes, it’s true) who’s studying the rise of British commercial influence in the Far East. He’s particularly interested in Jardine Matheson & Company, a Hong Kong trading company founded in 1832 that grew quickly into a pre-modern industrial conglomerate. Can anyone recommend references on the organization and strategy of 19th-century trading firms, their political, social, and cultural activities and influence, and their role in trade and economic growth more broadly?
Notes from DRUID
| Dick Langlois |
I am in Copenhagen for the DRUID 25th Celebration Conference, which finished up yesterday. It’s called the 25th Celebration because it’s the 25th DRUID conference -– there have been generally two a year since the organization started in 1995. This conference represents a transition for DRUID, which has grown considerably over the years. One indication of transition is that the old scientific advisory board, of which I had been a member since 1996, has been dissolved and a new one reconstituted. The new board is made up of a number of smart and interesting people, but it tends more toward management and economic geography and away from the theory of the firm and industry as represented by the likes of Bo Carlson, Brian Loasby, and George Richardson (and me). It was perhaps fitting that Brian was asked to press the button that touched off the fireworks over the harbor after last night’s conference dinner.
Some highlights.
Steven Klepper presented the first keynote, a further development of his long-term research program on industry structure and the birth and death of firms. (I missed the very beginning of the talk because I was having breakfast with Nicolai; fortunately, the paper is available here.) What Klepper does is essentially top-flight quantitative economic history. In this paper he takes on the conventional wisdom (A) that Silicon Valley is unique because of the rate of spinoffs it engendered and (B) that universities are crucial to the spinoff process. It turns out that the early auto industry in Detroit and the early tire industry in Akron had almost identical spinoff patterns, both sans university. (In fact, there were more spinoffs than in Silicon Valley.) In Klepper’s account -– notably different from most accounts –- clusters arise when new profit opportunities get seized by defection of key personnel rather than through internal diversification. In all cases, the cluster tend to consist of successful spinoffs from already successful firms. Genuine new entrants and spinoffs from less-successful firms seldom prosper. Defections have to do in large part with the dysfunctionality of the parent company, involving a problem either with expectations (as when the soon-to-be defectors couldn’t convince management of the value of their ideas) or of incentives (read: inadequate stock options). There is an interesting connection here with the Penrose/Chandler theory of the growth of the firm. Penrose seems to assume, and Chandler more than assumes, that firms always build internal capabilities and then use their excess resources to diversify internally into profitable related areas. Klepper shows that those opportunities often result in the formation of new firms. (more…)
Overheard at the Conference
| Peter Klein |
A prominent economic theorist, introducing a well-known business professor who has published in several fields: “In addition to his important scholarly contributions, he has also written several articles in management journals.”
Searle Center Conference on the Economics and Law of the Entrepreneur
| Peter Klein |
I used to judge an academic conference by the number of big-name scholars in attendance. Now I look for big-name bloggers. What a delight, then, to be at the Searle Center Conference on the Economics and Law of the Entrepreneur with two of my favorite bloggers, Gordon from Conglomerate and Lynne from Knowledge Problem. The conference, organized by Dan Spulber, brings together economists and legal scholars to grapple with the challenges facing entrepreneurship research. Today’s sessions focused on venture finance and law, and tomorrow’s deal with economic growth, innovation, and the social context of entrepreneurship. I’m moderating a session featuring Simon Parker, Mirjam van Praag, Doug Cumming, Robert Miller, and Linda Yueh. The papers are available at the conference site and a selection will appear in a special issue of JEMS.
This the second Searle Center event I’ve attended this year and I’ve been impressed with both. The Center is only a year old but, under Henry Butler’s guidance, has already established itself as a major player in the fields of regulatory and entrepreneurial studies.
Organizational Charts from 1915
| Peter Klein |
These images come from Frank Fetter’s second principles treatise, his Economic Principles (1915), which included chapters on “Enterprise” and “Management.” Note that at the top of the hierarchy sits the “enterpriser,” a term Fetter borrowed from Frederick Hawley), instead of “entrepreneur” or “adventurer,” both of which were then in common use to describe the business person. (Adventurer meant simply “one who undertakes a venture.”) Hawley preferred enterpriser because it suggested not simply management, but “responsibility,” or “the subjection [of one’s actions] to the results of production” (Hawley, 1908, p. 470). This is essentially the concept of entrepreneurship proposed in recent Foss-Klein papers (some of which you can find here), namely judgmental decision-making about the deployment of resources in the face of Knightian uncertainty.
Academic Journal Fakery
| Peter Klein |
As computer programs make images easier than ever to manipulate, editors at a growing number of scientific publications are turning into image detectives, examining figures to test their authenticity.
And the level of tampering they find is alarming. “The magnitude of the fraud is phenomenal,” says Hany Farid, a computer-science professor at Dartmouth College who has been working with journal editors to help them detect image manipulation. Doctored images are troubling because they can mislead scientists and even derail a search for the causes and cures of disease.
Ten to 20 of the articles accepted by The Journal of Clinical Investigation each year show some evidence of tampering, and about five to 10 of those papers warrant a thorough investigation, says Ms. Neill. (The journal publishes about 300 to 350 articles per year.)
This is from the Chronicle. The problem is partly cultural, it appears. “[Y]oung researchers may not even realize that tampering with their images is inappropriate. After all, people now commonly alter digital snapshots to take red out of eyes, so why not clean up a protein image in Photoshop to make it clearer?” Says Farid: “This is one of the dirty little secrets — that everybody massages the data like this.”
I suspect that outright fraud — making up data, changing regression coefficients — is unusual in empirical social-science research research. Sloppiness, ranging from data-entry errors to programming mistakes to misspecified regression models, is common. And social scientists typically “shade” results, e.g., by running fifty regressions and reporting only the one in which the signs and significance levels turn out to the researcher’s liking. (Hence the growing importance of the “robustness checks” section of any empirical paper.)
Ben Klein’s Contributions to Law and Economics
| Peter Klein |
Josh Wright has written a nice piece on Benjamin Klein for Josh’s forthcoming volume with Lloyd Cohen, Pioneers of Law and Economics. Klein’s 1978 paper with Armen Alchian and Robert Crawford and his 1981 paper with Keith Leffler are of course part of the organizational economics canon. His ongoing debate with Ronald Coase on the GM-Fisher Body case has helped clarify important issues on the role of asset specificity in vertical integration.
Trivia: Klein and Walter Block were college roommates at Columbia. Walter tells me they even went together to Ayn Rand’s apartment once during Walter’s Randian phase.
The Power of Ideas
| Peter Klein |
Expressed in sculpture. See the full set, from a 2006 Berlin exhibition, on Wikipedia. (Via politics-live.)
Reliving the 1980s
Peter Klein |
I recently watched the new Rambo film, an entertaining spectacle of blood and gore (for those who enjoy that sort of thing). The last few years have brought back several 1980s-era action heroes after long absences, not only Rambo but also Rocky Balboa, John McClane, the Terminator, and of course Indiana Jones.
We posted a while back on the golden decade of the 1970s, a fantastically productive period for research in organizational economics. How about bringing back the 1980s? Not the mullet, but the great works in organizational economics, strategy, entrepreneurship, and related subjects that appeared in that decade. Here are some of my favorites, listed chronologically. What are yours? (more…)
Bridging O&M and orgtheory.net?
| Nicolai Foss |
The chaps over at orgtheory.net routinely refer to O&M as their “evil twin.” We have so far resisted this characterization (more the “twin” than the “evil” part, to be sure), but perhaps they’ve got a point. After all, O&M is heavily tainted by Austrian economics; orgtheory.net seems to subscribe to important tenets in the emerging “economic sociology”; and, as Gertraude Mikl-Horke points out in a recent paper, “Austrian Economics and Economic Sociology: Past Relations and Future Possibilities for a Socio-Economic Perspective,” AE and econ soc are closely related in a number of respects: there is a strong thematic overlap and the treatment of some key constructs (uncertainty, interpretation, dynamics . . . ) is strikingly similar. OK, admittedly, her key source for AE insights is NYU/George Mason Austrianism (think O’Driscoll and Rizzo) and more Misesian Austrians may balk at the links Mikl-Horke establishs, but at any rate this is an interesting Aufforderung zum Tanz. (more…)
Best Paragraph I Read Today
| Peter Klein |
Money, money prices, market transactions, and economic calculation based upon them are the main targets of criticism. Loquacious sermonizers disparage Western civilization as a mean system of mongering and peddling. Complacency, self-righteousness, and hypocrisy exult in scorning the “dollar-philosophy” of our age. Neurotic reformers, mentally unbalanced literati, and ambitious demagogues take pleasure in indicting “rationality” and in preaching the gospel of the “irrational.” In the eyes of these babblers money and calculation are the source of the most serious evils. However, the fact that men have developed a method of ascertaining as far as possible the expediency of their actions and of removing uneasiness in the most practical and economic way does not prevent anybody from arranging his conduct according to the principle he considers to be right. The “materialism” of the stock exchange and of business accountancy does not hinder anybody from living up to the standards of Thomas a Kempis or from dying for a noble cause. The fact that the masses prefer detective stories to poetry and that it therefore pays better to write the former than the latter, is not caused by the use of money and monetary accounting. It is not the fault of money that there are gangsters, thieves, murderers, prostitutes, corruptible officials and judges. It is not true that honesty does not “pay.” It pays for those who prefer fidelity to what they consider to be right to the advantages which they could derive from a different attitude.
That’s Ludwig von Mises, writing on pp. 215-16 of Human Action (4th edition). Oh, how I love that man. I hereby pledge to use the phrase “mentally unbalanced literati” at least once per year.
Niche Business School Programs
| Peter Klein |
I’m surprised that the niche strategy isn’t used more in academia. Most economics departments at research universities strive to be the “MIT of [fill-in-the-blank].” Business schools tend to value the same set of academic journals, teach from the same set of cases, and hire faculty from the same set of top schools. Not only is this strategy unlikely to work for the typical mid-tier university, it has the undesirable social consequence of creating a bland conformism in which every department in Field X looks pretty much like every other department in Field X. The virtues of experimentation and learning are lost. Herd behavior is the order of the day.
Business Week recently ran an interesting piece about several undergraduate business programs that are trying the niche strategy. The University of Louisville runs a successful equine management program. Belmont University in Nashville offers a specialized music business degree. The University of Houston trains students for the energy industry. And Florida State University has a Professional Golf Management program.
What are your experiences with niche programs, where the niche is defined by applied focus (as in the above examples), by research method or approach, by a particular theoretical focus, or otherwise?
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