Author Archive

World Interdisciplinary Network for Institutional Research

| Dick Langlois |

I have recently become involved with a new organization that many readers may be interested in. It’s called the World Interdisciplinary Network for Institutional Research (WINIR). From the website:

WINIR is a specialist but global network. It is set up to complement rather than rival other organisations that have the study of institutions on their agenda. Unconfined to any single academic discipline, it accepts contributions from any approach that can help us understand the nature and role of institutions. While other organisations are intended to act as broad forums for all kinds of research in the social sciences, WINIR aims to build an adaptable and interdisciplinary theoretical consensus concerning core issues, which can be a basis for cumulative learning and scientific progress in the exciting and rapidly-expanding area of institutional research.

You can learn more and sign up here. If you join now, you will be considered a founding member. WINIR is tentatively planning a conference for next year near London and one the year after that in Rio.

8 October 2013 at 1:24 pm Leave a comment

The Return of Max Planck

| Dick Langlois |

How failure to proofread can improve the quality of your coauthors. Note the use of “we” in the abstract. I suppose that Penrose’s idea that resources come in discrete bundles is a kind of quantum mechanics of the firm.

26 September 2013 at 10:50 am 2 comments

David Landes

| Dick Langlois |

As some readers may already have heard, David Landes passed away on August 17. The New York Times has not seen fit to publish an obituary, but here is one by Landes’s son Richard.

I only met Landes once, at the International Economic History Association meeting in Milan in 1994. I attended a session he chaired on the Industrial Revolution. Rondo Cameron, a real character, sat himself down in the front row near the podium. Cameron was one of the most vocal proponents of the idea that there was actually no such thing as the Industrial Revolution, based largely on the argument that income per capita did not rise dramatically during the late eighteenth and early nineteenth century (even though both the numerator and denominator were rising dramatically). Landes opened the session, and some hapless economic historian began presenting a paper on something or other during the Industrial Revolution. Cameron immediately put up his hand and announced that the presenter’s premise was mistaken – because there had been no Industrial Revolution! Landes then sprang back to the podium and delivered a wonderful extemporaneous speech on why it was indeed appropriate to talk about an Industrial Revolution, including an analysis of the word “revolution” and its first use in French. This session also sticks in memory because half-way through an audience member suffered and epileptic fit and had to be carted out to an ambulance.

I must say that, in the great debates in which Landes engaged, I most often found myself coming down on his side.

Addendum September 8, 2103: The New York Times now has an obituary here.

8 September 2013 at 7:23 am 1 comment

David Landes

| Dick Langlois |

As some readers may already have heard, David Landes passed away on August 17. The New York Times has not seen fit to publish an obituary, but here is one by Landes’s son Richard.

I only met Landes once, at the International Economic History Association meeting in Milan in 1994. I attended a session he chaired on the Industrial Revolution. Rondo Cameron, a real character, sat himself down in the front row near the podium. Cameron was one of the most vocal proponents of the idea that there was actually no such thing as the Industrial Revolution, based largely on the argument that income per capita did not rise dramatically during the late eighteenth and early nineteenth century (even though both the numerator and denominator were rising dramatically). Landes opened the session, and some hapless economic historian began presenting a paper on something or other during the Industrial Revolution. Cameron immediately put up his hand and announced that the presenter’s premise was mistaken – because there had been no Industrial Revolution! Landes then sprang back to the podium and delivered a wonderful extemporaneous speech on why it was indeed appropriate to talk about an Industrial Revolution, including an analysis of the word “revolution” and its first use in French. This session also sticks in memory because half-way through an audience member suffered and epileptic fit and had to be carted out to an ambulance.

I must say that, in the great debates in which Landes engaged, I most often found myself coming down on his side.

29 August 2013 at 11:30 am Leave a comment

The Coase Theorem in under 140 Characters

| Dick Langlois |

From the Stanford alumni newsletter:

Goodbye @SUAthletics, Hello @gostanford

Stanford athletics knows how to drive a hard bargain. The department recently traded its longtime Twitter handle, @SUAthletics, to Syracuse University in exchange for a yet-to-be determined order of local goods, including one case of oranges. The fruit will be used to refill Stanford’s 2011 Orange Bowl trophy. Athletics will now tweet as @GoStanford, which had emerged as a more popular choice.

18 July 2013 at 8:41 am Leave a comment

Bowling for Fascism

| Dick Langlois |

Speaking of Robert Putnam: Although I think the idea of social capital has its uses, Putnam’s claim that civic engagement in the US has been declining was long ago demolished by my late UConn colleague Everett Ladd. But I have also thought that social capital – and the Romantic “communitarian” movement in general – has been blind to the authoritarian side of community. The always-interesting Hans-Joachim Voth and his co-authors have illustrated this in a dramatic way in a new working paper. Here is the abtract.

Social capital – a dense network of associations facilitating cooperation within a community – typically leads to positive political and economic outcomes, as demonstrated by a large literature following Putnam. A growing literature emphasizes the potentially “dark side” of social capital. This paper examines the role of social capital in the downfall of democracy in interwar Germany by analyzing Nazi party entry rates in a cross-section of towns and cities. Before the Nazi Party’s triumphs at the ballot box, it built an extensive organizational structure, becoming a mass movement with nearly a million members by early 1933. We show that dense networks of civic associations such as bowling clubs, animal breeder associations, or choirs facilitated the rise of the Nazi Party. The effects are large: Towns with one standard deviation higher association density saw at least one-third faster growth in the strength of the Nazi Party. IV results based on 19th century measures of social capital reinforce our conclusions. In addition, all types of associations – veteran associations and non-military clubs, “bridging” and “bonding” associations – positively predict NS party entry. These results suggest that social capital in Weimar Germany aided the rise of the Nazi movement that ultimately destroyed Germany’s first democracy.

12 July 2013 at 1:53 am 2 comments

Do Prices Determine Vertical Integration?

| Dick Langlois |

The title of this paper, by Laura Alfaro, Paola Conconi, Harald Fadinger, and Andrew F. Newman, caught my eye. Then the abstract really caught my attention.

What is the relationship between product prices and vertical integration? While the literature has focused on how integration affects prices, this paper shows that prices can affect integration. Many theories in organizational economics and industrial organization posit that integration, while costly, increases productivity. If true, it follows from firms’ maximizing behavior that higher prices cause firms to choose more integration. The reason is that at low prices, increases in revenue resulting from enhanced productivity are too small to justify the cost, whereas at higher prices, the revenue benefit exceeds the cost. Trade policy provides a source of exogenous price variation to assess the validity of this prediction: higher tariffs should lead to higher prices and therefore to more integration. We construct firm-level indices of vertical integration for a large set of countries and industries and exploit cross-section and time-series variation in import tariffs to examine their impact on firm boundaries. Our empirical results provide strong support for the view that output prices are a key determinant of vertical integration.

The surprising part is not the empirical result, which is interesting. The surprising part is that the underlying theory of vertical integration in the paper is no more sophisticated than what’s in the abstract: vertical integration is always more efficient than using the market, because a lot of people like Williamson and Hart and Moore have said so. Since integration implies fixed costs, firms (in perfect competition) won’t engage in this wonderful and indisputably efficient practice unless prices are high enough to cover the fixed costs. Readers of this blog will not need me to tell them what’s wrong with this. But I like the empirical result, which is consistent with my own suspicion that tariffs provide cover for firms to engage in inefficient vertical integration. The right spin on this result may well be the Michael Jensen story: lack of competitive pressure from the product market enables managers to retain earnings, which they spend on buying divisions or integrating into things they could buy more cheaply on the market.

7 June 2013 at 2:47 pm Leave a comment

Steven Klepper

| Dick Langlois |

I just learned (via Rajshree Agarwal) of the passing, at a young age, of Steven Klepper. Steven was an acquaintance of many years, a stand-up guy as well as a great researcher. His work on the lifecycle of firms and the role of spinoffs is a model for how to do good empirical work in organization and technology. By coincidence, this new paper (with Russell Golman) crossed my screen only a few minutes after I learned the news.

Spinoffs and Clustering

Geographic clustering of industries is typically attributed to localized, pecuniary or non-pecuniary externalities. Recent studies across innovative industries suggest that explosive cluster growth is associated with the entry and success of spinoff firms. We develop a model to explain the patterns regarding cluster growth and spinoff formation and performance, without relying on agglomeration externalities. Clustering naturally follows from spinoffs locating near their parents. In our model, firms grow and spinoffs form through the discovery of new submarkets based on innovation. Rapid and successful innovation creates more opportunities for spinoff entry and drives a region’s growth.

28 May 2013 at 3:31 pm 4 comments

Institutions and Economic Change

| Dick Langlois |

In September I will be part of a symposium on “Institutions and Economic Change,” organized by Geoff Hodgson’s Group for Research in Organisational Evolution. The workshop will be held on 20-21 September 2013 at Hitchin Priory, Hitchin, Hertfordshire, England. Here is the program and call for participation:

Speakers:

Masahiko Aoki (Stanford University, USA)
“Between the Economy and the Polity: Causation or Correlation. Theory and a Historical Case from China”

Francesca Gagliardi (University of Hertfordshire, UK)
“A Bibliometric Analysis of the Literature on Institutional Complementarities”

Geoffrey Hodgson (University of Hertfordshire, UK)
“A Manifesto for Legal Institutionalism”

Jack Knight (Duke University, USA)
“Courts and Institutional Change”

Suzanne Konzelmann (Birkbeck College, University of London, UK)
“‘Picking winners’ in a Liberal Market Economy: Modern Day Heresy – or Essential Strategy for Competitive Success?”

Richard Langlois (University of Connecticut, USA)
“The Institutional Revolution: A Review Essay”

Ugo Pagano (University of Siena, Italy)
“Synergy, Conflict and Institutional Complementarities”

Abstracts are available on this GROE webpage: uhbs-groe.org/workshops.htm

This workshop is designed to provide in-depth discussion of cutting-edge issues, in a forum that permits the attention to detail and definition that is often lacking in larger, conference-style events. The expected maximum number of participants is 50. Our past Workshops have filled up rapidly, so please book early to avoid disappointment. The workshop will include a poster session where participants may present their research, as long as it is related to the workshop theme. To apply to be included in the poster session send an abstract of your paper to Francesca Gagliardi (f.gagliardi@herts.ac.uk). To reserve a place on the workshop please visit store.herts.ac.uk/groeworkshop

13 May 2013 at 10:28 am Leave a comment

Cognition and Capabilities

| Dick Langlois |

The title of this paper caught my attention.

“Cognition & Capabilities: A Multi-Level Perspective”
J. P. Eggers and Sarah Kaplan
Academy of Management Annals 7(1): 293-338

Research on managerial cognition and on organizational capabilities has essentially developed in two parallel tracks. We know much from the resource-based view about the relationship between capabilities and organizational performance. Separately, managerial cognition scholars have shown how interpretations of the environment shape organizational responses. Only recently have scholars begun to link the two sets of insights. These new links suggest that routines and capabilities are based in particular understandings about how things should be done, that the value of these capabilities is subject to interpretation, and that even the presence of capabilities may be useless without managerial interpretations of their match to the environment. This review organizes these emerging insights in a multi-level cognitive model of capability development and deployment. The model focuses on the recursive processes of constructing routines (capability building blocks), assembling routines into capabilities, and matching capabilities to perceived opportunities. To date, scholars have focused most attention on the organizational-level process of matching. Emerging research on the microfoundations of routines contributes to the micro-level of analysis. The lack of research on capability assembly leaves the field without a bridge connecting the macro and micro levels. The model offers suggestions for research directions to address these challenges.

The reason it caught my eye is that some 16 years ago I published a paper with exactly the same title (albeit with a different subtitle). Of course, I didn’t approach the issue in exactly the way these authors do, which is obviously close to Nicolai’s work on microfoundations. But I did arguably try to “link the two sets of insights,” and I did not do so “only recently.”

9 May 2013 at 12:35 pm 2 comments

Henderson on Business Ethics

| Dick Langlois |

Rebecca Henderson, one of my favorite management scholars, has a new paper (with Karthik Ramanna) on – Milton Friedman and business ethics. Here’s the abstract.

Managers and Market Capitalism

In a capitalist system based on free markets, do managers have responsibilities to the system itself, and, in particular, should these responsibilities shape their behavior when they are attempting to structure those institutions of capitalism that are determined through a political process? A prevailing view — perhaps most eloquently argued by Milton Friedman — is that managers should act to maximize shareholder value, and thus that they should take every opportunity (within the bounds of the law) to structure market institutions so as to increase profitability. We maintain here that if the political process is sufficiently ‘thick,’ in that diverse views are well-represented and if politicians and regulators cannot be easily captured, then this shareholder-return view of political engagement is unlikely to reduce social welfare in the aggregate and thus damage the legitimacy of market capitalism. However, we contend that sometimes the political process of determining institutions of capitalism is ‘thin,’ in that managers find themselves with specialized technical knowledge unavailable to outsiders and with little political opposition — such as in the case of determining certain corporate accounting standards that define corporate profitability. In these circumstances, we argue that managers have a responsibility to structure market institutions so as to preserve the legitimacy of market capitalism, even if doing so is at the expense of corporate profits. We make this argument on grounds that it is both in managers’ self-interest and, expanding on Friedman, managers’ ethical duty. We provide a framework for future research to explore and develop these arguments.

On the one hand, we might quibble about whether they get Friedman right. Friedman meant in the first instance that managers should pursue their self-interest within the framework of “good” institutions, not in the (Public Choice) context of changing the institutional framework itself. I haven’t actually gone back to see what Friedman says about this, but here is how Henderson and Ramanna interpret the Chicago tradition: “Friedman and his colleagues were keenly aware that capitalism can only fulfill its normative promise when markets are free and unconstrained, and that managers (and others) have strong incentives to violate the conditions that support such markets (e.g., Stigler, 1971). But they argued both that dynamic markets tend to be self-healing in that the dynamics of competition itself generates the institutions and actions that maintain competition and that government could be relied on to maintain those institutions—such as the legal system—that are more effectively provided by the state (on this latter point, see, in particular, Hayek, 1951).” There is a sense in which Chicago saw (and economic liberals in general see) the system as self-healing in the longest of runs: every inefficiency is ultimately a profit opportunity for someone who can transmute deadweight loss into producer’s surplus; and economic growth cures a lot of ills. But one can hardly accuse Chicago of being insensitive to those bad incentives for rent-seeking in the short and medium term.

On the other hand, Henderson and Ramanna make a valuable point when they draw our attention to the gray area in which market-supporting institutions (the same term I tend to use) are often forged through private action or through public action in which the private actors possess the necessary local knowledge. There is a scattered literature on this – the setting of technical standards, for example – but it is not a major focus of Public Choice or political economy. Perhaps it is naïve to say that managers in this gray area have an ethical duty to support institutions that make the pie bigger rather than institutions that transfer income to them. But what else can we say? It’s a lot better than blathering on about “public-private partnerships,” which are frequently cover for rent-seeking behavior. One (possibly embarrassing) implication of this stance is that it makes a hero of the much-reviled Charles Koch, who funds opposition to many of the rent-seeking institutions from which his own company benefits.

At one point Henderson and Ramanna mention the Great Depression as a “market failure” that incubated anti-capitalist sentiment. The second part of that assertion is certainly true, but the Depression was not a market failure but a spectacular failure of government. (Read Friedman (!), whose once-controversial view about this is now widely accepted by economic historians and monetary economists, including Ben Bernanke.) The Depression is actually an interesting case study in the gray area of institutions. Before the Fed, private financiers acted collectively to provide the public good of stopping bank panics. Now that role has fallen to the state, with private interests – and their asymmetrical local knowledge – influencing the bailout process. Which system was less corrupt? A more general question: are there any examples of fully private creation of institutions in which the self-interest of the participants led to inefficient rent-seeking?

27 March 2013 at 2:33 pm 2 comments

Rational Inattention

| Dick Langlois |

The idea of attention as a scarce resource goes back at least to Herbert Simon and Nelson and Winter. I hadn’t seen much application of this idea in a while until I ran across this interesting paper called “Rational Inattention and Organizational Focus” by Wouter Dessein, Andrea Galeotti, and Tano Santos. Here’s the abstract:

We examine the allocation of scarce attention in team production. Each team member is in charge of a specialized task, which must be adapted to a privately observed shock and coordinated with other tasks. Coordination requires that agents pay attention to each other, but attention is in limited supply. We show how organizational focus and leadership naturally arise as the result of a fundamental complementarity between the attention devoted to an agent and the amount of initiative taken by that agent. At the optimum, all attention is evenly allocated to a select number of “leaders”. The organization then excels in a small number of focal tasks at the expense of all others. Our results shed light on the importance of leadership, strategy and “core competences” in team production, as well as new trends in organization design. We also derive implications for the optimal size or “scope” of organizations: a more variable environment results in smaller organizations with more leaders. Surprisingly, improvements in communication technology may also result in smaller but more balanced and adaptive organizations.

Apparently, Dessein has been working on attention models for some time, though I hadn’t noticed. (But, of course, Peter had.) I should also note that this model is similar in spirit to the work of Sharon Gifford, now 20 years old, which Dessein et al. do not cite.

22 March 2013 at 2:49 pm Leave a comment

Trento Summer School on Modularity

| Dick Langlois |

This summer I am directing a two-week summer school on “Modularity and Design for Innovation,” July 1-12. I am working closely with Carliss Baldwin, who will be the featured speaker. Other guest speakers will include Stefano Brusoni, Annabelle Gawer, Luigi Marengo, and Jason Woodard.

The school is intended for Ph.D. students, post-docs, and newly minted researchers in technology and operations management, strategy, finance, and the economics of organizations and institutions. The school provides meals and accommodations at the beautiful Hotel Villa Madruzzo outside Trento. Students have to provide their own travel. More information and application here.

This is the fourteenth in a series of summer schools organized at Trento by Enrico Zaninotto and Axel Leijonhufvud. In 2004, I directed one on institutional economics.

12 March 2013 at 5:28 am 1 comment

Permeable Boundaries

| Dick Langlois |

The new table-of-contents alert from Industrial and Corporate Change carries an interesting new paper by Carliss Baldwin and her coauthors called “The Architecture of Transaction Networks: A Comparative Analysis of Hierarchy in Two Sectors.” Here’s the abstract:

Many products are manufactured in networks of firms linked by transactions, but comparatively little is known about how or why such transaction networks differ. This article investigates the transaction networks of two large sectors in Japan at a single point in time. In characterizing these networks, our primary measure is “hierarchy,” defined as the degree to which transactions flow in one direction, from “upstream” to “downstream.” Our empirical results show that the electronics sector exhibits a much lower degree of hierarchy than the automotive sector because of the presence of numerous inter-firm transaction cycles. These cycles, in turn, reveal that a significant group of firms have two-way “vertically permeable boundaries”: (i) they participate in multiple stages of an industry’s value chain, hence are vertically integrated, but also (ii) they allow both downstream units to purchase intermediate inputs from and upstream units to sell intermediate goods to other sector firms. We demonstrate that the 10 largest electronics firms had two-way vertically permeable boundaries while almost no firms in the automotive sector had adopted that practice.

As I was downloading the article from the ICC website, a link to the Best Twenty ICC Articles from First Twenty Years of Publication (1992-2011) caught my eye. Definitely some interesting and important articles on this list, which was chosen by the editors. But I was struck that there is no overlap at all between this list and the list of 20 most cited articles in ICC. On a quick and sloppy count, there is an overlap of only 3 with the top 50 most cited. (Similar story for most read, where there is one overlap with the top 20.) Given my interest in this odd fact, perhaps you can guess on which lists my own articles lie.

30 November 2012 at 9:59 am 6 comments

Tom McCraw

| Dick Langlois |

I was saddened to hear today of the passing of Tom McCraw at the young age of 72. I didn’t always agree with him: he was a strong admirer of the Progressives, and even tried implausibly to suggest in Prophet of Innovation, his great biography of Schumpeter, that Schumpeter would have agreed with Progressive policies had he been alive today. But McCraw was a gentleman, a fine writer, and an important figure in business history. Prophet of Innovation is a terrific book. I wish I had written it.

7 November 2012 at 10:35 am 2 comments

Coase-Theorem Behavior Actually Does Happen

| Dick Langlois |

I often find it hard to persuade students that the Coase Theorem actually “works” – that one party really will bribe another party to give up a right when transaction costs are low. So I was pleased to find this example on the Atlantic Monthly website. An author called Patrick Wensink ripped off the trademarked Jack Daniel’s label for the cover of a novel called Broken Piano for President, whose principal (perhaps only) interesting characteristic is that it was published by a press called Lazy Fascist. Clearly this is a conflict over the use of a property right, and the author is enjoying uncompensated benefits. One would think that, as Jack Daniel’s clearly owns the property right, the company could force the author to change the cover. Apparently, however, the transaction costs of doing that are high, so the attorney for Jack Daniel’s wrote the author a charming cease-and-desist letter that actually offered to bribe the author to change the cover right away. This is a general point, I suppose, now that I think about it: as the transaction costs rise of using official legal institutions to resolve externality conflicts, the de facto owner of the right can effectively switch, even in a world in which the transaction costs we usually talk about – those of finding and negotiating with the conflicting users of the property – remain small enough to allow Coasean bargaining.

2 August 2012 at 2:21 pm 3 comments

Vertical (Dis)integration and Technological Change

| Dick Langlois |

One of my longest-running interests has been the relationship between economic change, including technological change, and the boundaries of the firm. In broad strokes, my story is this: when markets are thin and market-supporting institutions weak, technological change, especially systemic change, leads to increased vertical integration, since in such an environment centralized ownership and control may reduce “dynamic” transaction costs; but when markets are thick and market-supporting institutions well developed, technological change leads to vertical disintegration, since in that environment the benefits of specialization and the division of labor outweigh the (now relatively smaller) transaction costs of contracting. This latter scenario is what I called the Vanishing Hand. I recently ran across a new working paper by Ann Bartel, Saul Lach, and Nachum Sicherman, called “Technological Change and the Make-or-Buy Decision,” that supports the Vanishing Hand idea empirically. Here is the abstract.

A central decision faced by firms is whether to make intermediate components internally or to buy them from specialized producers. We argue that firms producing products for which rapid technological change is characteristic will benefit from outsourcing to avoid the risk of not recouping their sunk cost investments when new production technologies appear. This risk is exacerbated when firms produce for low volume internal use, and is mitigated for those firms which sell to larger markets. Hence, products characterized by higher rates of technological change will be more likely to be produced by mass specialized firms to which other firms outsource production. Using a 1990-2002 panel dataset on Spanish firms and an exogenous proxy for technological change, we provide causal evidence that technological change increases the likelihood of outsourcing.

The Spanish dataset is based on questionnaires about outsourcing activities in various mechanical industries. The exogenous proxy is number of patents granted in the U. S. in each industry. So, basically, Spanish firms in industries in which there are a lot of American patents tend to outsource more ceteris paribus than Spanish firms in industries with fewer American patents. Although I always like empirical evidence that supports my own arguments, I also like to play the devil’s advocate. The incomplete-contracts literature (which for me is Coase and Knight as much as Hart and Moore) reminds us that it is harder to write contracts when knowledge is tacit and inchoate. Could it thus be that number of patents is a proxy for the importance of explicit versus tacit knowledge in the industry, and it is the prevalence of the explicit, rather than technological change per se, that makes contracting less costly? My money is still on the Vanishing Hand story.

18 May 2012 at 2:40 pm 2 comments

Virtual Ownership and Managerial Distance

| Dick Langlois |

If you’re in New York on February 6, you might want to go hear the always-interesting Henry Hansmann talk about work he is doing with Nicolai’s CBS colleague Steen Thomsen. The talk is at 4:20 in Room 701 Jerome Greene Hall at Columbia. This is part of the Columbia Law and Economics Workshop. (I’m on their mailing list but seldom have the time to make the trip.) Here’s the abstract:

Industrial foundations are nonprofit holding companies that own business firms. These entities are common in Northern Europe, and many successful international companies are owned in thus fashion. Because of their strong economic performance and unusual combination of nonprofit and for-profit entities, they present interesting challenges to theories of the firm. In this paper, we present the first study of the manner in which the foundations govern the companies that they own. We work with a rich data set comprising 121 foundation-owned Danish companies over the period 2003-2008.

We focus in particular on a composite structural factor that we term “managerial distance.” We interpret this as a measure of the clarity and objectivity with which a foundation-owned company’s top managers are induced to focus on the company’s profitability. More particularly, managerial distance seems best interpreted as a factor, or aggregate of component factors, that put the foundation board in the position of “virtual owners,” in the sense that the information and decisions facing the managers are framed for them in roughly the way they would be framed for profit-seeking outside owners of the company. Our empirical analysis shows a positive, significant, and robust association between managerial distance and company economic performance. The findings appear to illuminate not just foundation governance, but corporate governance and fiduciary behavior more generally.

30 January 2012 at 9:46 am Leave a comment

Shared Governance and the Coattail Effect

| Dick Langlois |

Speaking of football. I just now received an email newsletter from the American Association of University Professors (AAUP), the union of which I am necessarily a member. The newsletter calls attention to a New York Times op-ed by Michael Bérubé, an AAUP activist who happens to be the Paterno Family Professor of Literature at Penn State. For Bérubé and the AAUP, the Penn State sex-abuse scandal “coincided with the steady erosion of faculty governance.” Peter has written critically about shared governance, which is a central and long-standing platform of the AAUP; and we can argue about whether shared governance is likely to be efficient in general. But it seems to me dubious that faculty oversight of athletics would have meant quicker detection of the offense and the cover-up at Penn State: the problem is less one of incentives than of impacted knowledge in a large bureaucracy. In yesterday’s news came the announcement that a history professor at Utah had been arrested for viewing child pornography on his laptop during a plane flight. How could this be? Isn’t the History Department under faculty governance?

What struck me most about the AAUP newsletter was the extent to which it reflected the academic coattail effect: issues of great popular interest or concern sweeping up in their wake lots of long-existing and dubiously related academic hobby-horses. Global warming is another, more obvious, example. At a university function a while back, I heard a retired faculty member bemoan the inexplicable lack of research and funding into the role of the family in global warming. Needless to say, she was a historian of the family.

29 November 2011 at 4:38 pm Leave a comment

Entrepreneurship in Africa

| Dick Langlois |

Inspired by Peter Lewin’s recent post on the beauty of Africa, I decided to hop on a plane to Peter’s native South Africa. I haven’t been to a wildlife park, though I have found myself twice down in caves, one containing fossils and one a disused gold mine. I also took in the Apartheid Museum, which seemed to me (as an outsider) to be extremely well done. It didn’t pull any punches but always appeared neutral, even analytical. For me, the museum’s story underscored the point that Walter Williams and others always used to argue while apartheid was going on: that the system required, and was implemented through, central planning and massive government intervention in markets. (Apparently they even had a wacky scheme to move people from their distant segregated homes to and from urban work using high-speed bullet trains.) I was struck by how similar the revolution here was to the contemporaneous one in Eastern Europe. It was a revolt by a middle class that was denied human and political rights — and also economic opportunity — by an increasingly inefficient and distortive state apparatus.

A couple of exhibits at the Apartheid Museum asserted that in the heyday of gold mining the British had “fixed the price of gold.” This price fixing forced the mine owners constantly to lower production costs, which they did by deskilling mining operations – using technology to break the process into simpler tasks (Ames and Rosenberg 1965) — in order to hire cheaper labor. By contrast, the mining museum suggested that there was plenty of skill-enhancing innovation as well, like pneumatic drills replacing the hammer and chisel, which reduced from eight hours to five minutes the time it took a worker to carve out a blasting hole.

Oddly, neither museum mentioned that gold was the monetary standard. (You know this already: it’s not that the “price of gold” was fixed; it’s that the value of the currency was defined in terms of units of gold.) This might sound like an economist’s carping. But I mention it because on this trip I also encountered the strange combination of task design and monetary economics in a strikingly different African context. I’m actually in south Africa not primarily for the tourism (at least in principle) but to visit Giampaolo Garzarelli and his Institutions and Political Economy Group at the University of the Witwatersrand and, as Peter Klein mentioned in an earlier post, to attend a conference on “Open Source, Innovation, and New Organizational Forms,” which took place on Monday. Joel West, another of the participants, has already blogged elsewhere about the conference. One paper, by an MA student from Kenya – Joel has already blogged about this as well – discussed an amazing phenomenon I had never heard about before: crowdsourcing in developing countries using mobile phones. A company called txteagle allows customers to outsource cognitive work by breaking tasks into small pieces, which pieces are then sent to participants via text message. (As phones have become cheaper they have become ubiquitous in the developing world.) For example, the participant could be asked to translate a phrase into his or her local language or to transcribe a voice snippet. The txteagle computers then aggregate the output and use redundancy and artificial intelligence to validate the results. The participant is paid for the task, via the same mobile phone, using M-Pesa, a system I first heard about only a couple of weeks ago. Interestingly, M-Pesa is itself a formalization of a spontaneous monetary system – think cigarettes at a prison camp – in which people without access to banks would save and transact in airtime minutes. The amount a participant can earn in this system is quite meaningful in the context of poor countries with high unemployment.

6 August 2011 at 10:01 am 7 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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