Posts filed under ‘Recommended Reading’
Axel Leijonhufvud and a Bit of Autobiography
| Nicolai Foss |
As blogging is an inherently narcissistic undertaking, I hope I will be excused for the following piece of autobiographical indulgence.
I began studying economics at the University of Copenhagen in 1983. The three first years essentially followed a micro and macro division (with a strong dominance of macro stuff). The macro part, particularly in my second year, was positively awful. The intention clearly was that macro should lead directly to econometrics, so all teaching and reading material centered on analyzing the causal structure of one silly Keynesian model after another.
The indoctrination with Tinbergen-style Keynesianism was rather massive, but there was one paper in the syllabus that dealt with monetarist and new classical critiques of Keynesianism. Naturally, this paper (though dismissive of the critics of Keynesianism) triggered my interest in those writers who were somehow in opposition to the tedious Keynesianism that we were taught. Hunting expeditions to the library ensued.
In this way, I discovered a book by a Henry Hazlitt, called The Failure of the New Economics, which was virulently anti-Keynes, and somewhat primitive in its reasoning. Some further search uncovered a book in distinguished blue binding, and an intriguing title in golden letters, On Keynesian Economics and the Economics of Keynes: A Study in Monetary Theory by an author with a familiar Scandinavian name, Axel Leijonhufvud. I was completely captivated by this book, and it became my economics bible until I graduated from the University of Copenhagen. (more…)
Should the Term “Neoclassical” Die?
| Nicolai Foss |
In a characteristically well written paper, "The Death of Neoclassical Economics," David Colander claims that the "neoclassical classification should die." Others, notably Mark Blaug, have also argued that the term is rather meaningless.
Colander's argument begins with a list of necessary criteria of what it means for a theory to be "neoclassical." He then argues that most modern economics do not conform to these criteria. The relevant criteria are: 1) focus on atemporal resource allocation, 2) acceptance of some kind of utilitarianism, 3) focus on marginal tradeoffs, 4) assumption of farsighted rationality, 5) methodological individualism, 6) general equilibrium.
For each one of these points, Colander exemplifies how various modern economics contributions make a break with them. For example, with respect to point 2), he says that "few modern economists today accept utilitarianism" (p.135) and with respect to 5) he invokes new institutitonal economists as engaged in work that is explicitly at variance with methodological individualism. This exercise results in the Solowian conclusion that the only thing that really unites modern economists is the modeling approach to social explanation.
While it is indeed hard to precisely define "neoclassical" economics, I think Colander (and Solow) goes much too far. (more…)
Austrian Economists and the Wealth of Nations
| Peter Klein |
David Warsh's Knowledge and the Wealth of Nations is eliciting praise from many quarters (Tyler Cowen; Paul Krugman; The Economist; Brayden King). Peter Gordon likes it too, but notes that "the book and its story are poignant for Austrian economists, whose contributions are hardly acknowledged. The question that goes unasked is: What has the neo-classicists' journey of discovery, as sketched by Warsh, contributed that is worthy beyond the Austrians' long-held focus on entrepreneurial discovery?"
Natural and Artificial States, and Firms
| Peter Klein |
Among the last published papers of the libertarian polymath Murray N. Rothbard — one of my intellectual heroes — is his 1994 article “Nations by Consent: Decomposing the Nation-State.” Here Rothbard distinguishes sharply between the state, as a political entity, and the nation, a “complex and varying constellation of different forms of communities, languages, ethnic groups, or religions.” He goes on to develop a theory of appropriate national boundaries, based on the principle of volunary association and the empirical claim that people tend to associate with particular familial, linguistic, cultural, and religious groups. “One goal for libertarians should be to transform existing nation-states into national entities whose boundaries could be called just, in the same sense that private property boundaries are just; that is, to decompose existing coercive nation-states into genuine nations, or nations by consent.”
A March 2006 working paper by Alberto Alesina, William Easterly, and Janina Matuszeski, “Artificial States,” proposes several measures of the degree to which state boundaries are “natural” — corresponding roughly to Rothbard’s nations — or “artificial.” One measure identifies state borders that split ethnic groups into separate states, while another uses fractal geometry to characterize borders as straight or squiggly, assuming that straight borders are more likely to be articifially drawn and not corresponding to natural geographic or ethnic boundaries. The authors show that their measures are closely correlated with the usual measures of national economic performance (the more natural, the better).
What does all this have to do with organizations? The capabilities literature distinguishes between firm boundaries that are “natural,” or organic, and those that are artificially constructed. (more…)
Happy Hierarchies
| Peter Klein |
Nicolai and I have tended to be skeptical about the new wave of happiness research, particularly as applied to intrinsic motivation, empowerment, and other trendy organizational issues. Economists Tyler Cowen and Arnold Kling agree. Corporate law professor Stephen Bainbridge, in his latest column, attacks the idea that participatory management increases worker happiness (and, presumably, productivity). On the contrary, says Bainbridge, workers often prefer hierarchy, for a variety of reasons (risk aversion, resistance to change, preference for standardized rules and procedures, and so on). “Whether the taste for participation or for hierarchy is more common is hard to say from the evidence to date, but at the very least the history of participatory management has taught us that not everyone wants more autonomy, challenge, and responsibility.”
Further details are provided in Bainbridge’s Williamsonian paper “Privately Ordered Participatory Management: An Organizational Failures Analysis.”
The SWOT Model May Be Wrong
| Nicolai Foss |
One of the basic, indeed foundational, frameworks of strategic management, the SWOT model, may be fundamentally flawed. The “model” advises managers to align their Strengths of their company to the Opportunities of the environment, while simultaneously safeguarding the company’s Weaknesses from the Threats of the environment.
This very basic idea — it is only in B Schools that it is called a “model” — is no doubt the most universally used planning tool in companies and is often used in the public sector. Students (and, one suspects, managers) love it on account of its extreme simplicity. Many textbooks are written on a SWOT formula: The first part deals with the external environment — i.e., industry analysis — and the second part then deals with the firm level, i.e., competitive advantage. I myself have always used the SWOT framework intensively in my strategic management teaching, and I have endorsed countless student papers and theses that argued that resource-based and industry analysis approaches are, after all, consistent because they can be aligned under the SWOT umbrella.
A recent paper by Richard Makadok of Emory University, “The Competence/ Collusion Puzzle and the Four Theories of Profit: Why Good Resources Go to Bad Industries,” suggests that the SWOT framework (at least in its usual interpretation) gets it wrong. How can something so simple, even trivial, as the SWOT framework be wrong? (more…)
The Nature of the (Family) Firm
| Peter Klein |
Brayden King at orgtheory.net has a nice post today about family-owned firms. He summarizes a recent sociology paper on the transformation of the Scottish [hooray!] shipbuilding industry from one of mostly family firms to one dominated by corporate firms. Writes Brayden: “Family businesses and corporations are clearly different creatures, but we [organizational scholars] usually just take the word of legal scholars in this matter. . . . My take-away is that, besides temporal continuity established through lines of heredity, the distinguishing feature of family firms is that affective relationships serves as the glue holding together various components of the business. This affect, which translates into close identification with the organization, is a distinctive competency of the family firm.”
I have a footnote. One industry, unlike virtually every other mature industry in the developed world, continues to be populated by small, family-owned firms: agriculture. Why? Public policy is surely part of the explanation, but not all. The best analysis of the puzzle, in my view, is the pioneering work by Doug Allen and Dean Lueck, appropriately (and wittily) titled “The Nature of the Farm” (article version here, book version here). They argue that family ownership results from agriculture’s unique combination of seasonality and random variation, which makes it difficult to design and enforce effective incentive contracts that mitigate moral hazard. Instead, sole proprietorships, with the farmer or farm family as residual claimant, outperform joint ownership arrangements, such as corporations.
I provide some further information on organizational characteristics of agriculture here.
Scots, Wha Hae
| Peter Klein |
Today's Wall Street Journal features a front-page profile of a Carnegie-Mellon student majoring in bagpipes, thought to be the only such student in the US. This prompts a confession I've long wanted to make: I'm half Scottish. My mother was born and raised in Freuchie, a tiny village of just north of Edinburgh. While Scottish eccentricities are ripe for satire (ask Monty Python or Mike Myers), we also deserve credit for the steam engine, penicillin, pneumatic tires, the telephone, and the Scottish Enlightenment.
Speaking of the latter, though no one doubts the importance of Smith, Hume, Hutcheson, Ferguson, Steuart, Kames, and the rest, the Scots have been getting a bad rap lately. Murray Rothbard famously and controversially called Adam Smith overrated, describing the late Spanish Scholastics, Cantillon, Turgot, and the Physiocrats as better economists. Gertrude Himmelfarb's recent book The Roads to Modernity distinguishes sharply between Scottish and British achievements. (Hat tip to Nicolai.) Even Hayek, whose interpretation of Scottish thought is extremely influential, takes a drubbing in a recent paper arguing that Polanyi had the better grasp of "spontaneous order." (This paper disagrees.)
Do Austrian Economists Get Sufficient Credit?
| Nicolai Foss |
Apart from the occasional ritualistic mention of Hayek's work in the context of information economics or Mises and Hayek's work in business cycle theory, Austrians as a rule get very little credit from their mainstream colleagues. It is arguable that they get too little credit.
Here is a case in point. In "Information Structures with Unawareness," Jing Li points out that the standard approach to modeling information — the state space approach — cannot accomodate unawareness (the paper is one example of a small literature on how to model unawareness in game theory terms). An agent is "unaware" (a nicer word for "ignorant") of something when he does not know it and does not know that he does not know it.
Li says that there is "little research on these obviously important issues" and goes on to treat unawareness in terms of modeling information as a pair, consisting of factual information and "awareness information."
It is, of course, true that unawareness/ignorance is under-researched relative to its importance. But why then not mention the literature that does deal with it? Such as Austrian economics, in particular Israel Kirzner's work. For example, in his 1997 paper in the Journal of Economic Literature, "Entrepreneurial Discovery and the Competitive Market Process," Kirzner explains in great detail why unawareness/ignorance is not compatible with the standard paradigm.
Emergence of Modern Business Enterprise in France
| Peter Klein |
My co-blogger has a reputation for poking fun at French intellectuals, so in this blog's spirit of international brotherhood I direct you to an interesting review of Michael Stephen Smith, The Emergence of Modern Business Enterprise in France, 1800-1930 (Harvard University Press, 2005). The review, by Pierre-Cyrille Hautcoeur, appears in the excellent book review series at Eh.Net. The book "'argues that the same forces that were giving rise to a new kind of very large, very complex business organization in the United States, Germany, and Great Britain between 1880 and 1930 were also at work in France,' contrary to the idea of a special or a backward path for French economic development."
Citation Impact of Entrepreneurship Research
| Peter Klein |
For you citation junkies out there ("bibliometricians"? "citophiles"?), the May 2006 issue of Entrepreneurship: Theory and Practice features a symposium on the nature and impact of entrepreneurship research, as measured by citation impact. (The formal title is "Special Issue on Understanding Entrepreneurship Scholarship from a Bibliometric Perspective.") According to the editors, bibliometric analysis suggests that entrepreneurship research contains "multiple but disconnected themes; dominant themes that reflect the disciplinary training and lens of their authors; and considerable dynamism and change in key research themes over time." More, in other words, than a disconnected "potpourri" or "hodgepodge." A fair point, but my sense is that the entreprreneurship literature still has a long way to go before constituting a coherent "field" with a distinct vision, research approach, "paradigm problems," and so on.
The New Bashing of Economics: The Case of Management Theory
| Nicolai Foss |
Where is the place to go for real, hardcore economics-bashing? Anthropology? Sociology? Hardly. At least for the outside observer (i.e., this blogger), these disciplines seem to have become so absorbed in terminological nitty-gritty, paradigm proliferation, and pomo excesses that they seem to have lost much interest in neighbouring disciplines. No, the answer is, management theory.
Cases in point? Check out any of these rather recent papers by management heavyweights: (more…)
Jane Jacobs and Economies of Diversity
| Peter Klein |
American-born Canadian writer and activist Jane Jacobs, author of The Death and Life of Great American Cities (1961), Cities and the Wealth of Nations (1984), and other important works on urban issues, died last week at age 89. (Jacobs never held a university post, and the obituary writers weren't sure what to call her; the Toronto Star chose "urban philosopher," suggesting to younger readers a hip-hop artist or tagger.) Lynne Kiesling at Knowledge Problem summarizes some of the Jacobs commentary around the web. (See also this from Gene Callahan and Sandy Ikeda and this from Leonard Gilroy.)
My interest in Jacobs's work stems, in part, from a current project on the economics of clustering in agro-biotechnology. My reading of the economic geography literature suggests that it tends to overstate the advantages of localization (proximity to key suppliers or buyers, access to specialized, tacit knowledge from similar firms, etc.) while downplaying the importance of economies of urbanization or diversity, an equally important kind of agglomeration. Readers, please correct me if this impression is wrong.
Besides classic works on economies of urbanization by Jacobs, Rosenberg (1963), and Henderson (1988), I like this paper by Pierre Desrochers, and this one by Desrochers and Frederic Sautet.
orgtheory.net
| Peter Klein |
Our initial post below noted the dearth of good management blogs. A happy exception is orgtheory.net, written by Brayden King and Teppo Felin, both of Brigham Young University. (King teaches sociology, while Felin teaches organizational leadership and strategy at the Marriott School.) Their masthead promises coverage of "all things organizational," and they deliver so far, writing on organization theory, strategy, human resource management, scientific method, and more. We look forward to learning from them as we populate the blogosphere together.
Journal of Institutional Economics
| Peter Klein |
Geoff Hogdson's Journal of Institutional Economics has released its second issue (April 2006). Articles that look particularly interesting include "The turn in economics: neoclassical dominance to mainstream pluralism?" by John B. Davis and "The rhetoric of Oliver Williamson's transaction cost economics" by Huascar F. Pessali. The issue also includes a 1929 essay by Werner Sombart. (I realize publication lags in economics are getting longer and longer, but this is ridiculous!)
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