Theory and Jobs

An important requirement for successfully completing a PhD study is that the topic is new to the world in some respect. The aspiring scientist seeks to turn a belief or a suspicion into knowledge.

He selects an hypothesis – a bunch of cohering statements – to explain a phenomenon he fancies and then tests it to generate explanations or predictions. What is the same but using different data. This is different from application, which is intentionally, utile and not necessarily true regarding the nature of the topic. The generated explanations are then compared to what is observed in reality and their closeness is assessed. If repeatedly proven to be close then the hypothesis is promoted to a theory.

The scientist-to-be shows how what was not known to be true or untrue before can be known with some certainty, namely approximately and temporarily. What was uncharted territory to the human observer is now charted, minding the caveats.

If there is no such testable hypothesis to predict the phenomenon of his liking he may decide to develop it himself. He observes any number of seemingly related phenomena for which there seems to be no acceptable explanation. He asserts coherent statements, together a hypothesis, that explain the phenomena and their relations. Utilising induction (focus on structure in data) or abduction (focus on explanation), the scientist generates arguments such that the statements he makes are internally consistent (between them), and that their relation to what is already known (theories) is explained.

According to Bertrand Russell philosophy is defined as what is between science and theology. Science is the part that is known beyond suspicion, but how do we attribute meaning to the remaining unknown. He suggests to use the patterns of thought proposed by religion, or developing other patterns making use of philosophy. Philosophy means to speculate in a formal way about unknown phenomena and patterns of thought. Philosophers too aim to chart territory and to add structure where there was none.

My wish was (and is) to inquire into the nature of the firm. That means to investigate what is invariable in the phenomenon. Peeling off everything that is not invariably present in a firm only people, or in fact their behavior, remain. Even individuals come and go, so in fact not they determine the nature of the firm, but really the behavior of people in general. And assuming that that is guided by ideas, then they are the primitive, people acting on their behalf.

Starting from that premises, the topic of my thesis is the firm as an emergent phenomenon. I see the firm as an evolutionary developing self-referencing cultural system. It is constituted of a bunch of ideas in the sense of answers that guide people’s thoughts and their behavior. I hypothesise that those ideas constituting it are widespread and do not mention the firm.

Nothing new at first sight: ideas in this regard have been developed from different scientific disciplines. But all sorts of additional questions arise, e.g. how do ideas that do not have senses cohere into complexes, how is the complex of ideas of, say a multinational firm that is too big to fit into one mind consistently distributed over many people, how are parts of the complex coherently recorded on people’s minds, and how can a firm as such be self-referencing if the argument is not accepted that it is cognitive and autonomous.

The statements in the previous sections are non-anthropocentric, subjective, processual, and they admit the laws of physics, because they are not restricted to the organic. But they are not sufficiently coherent to explain the nature of the firm. I need additional statements from the literature for that, and where unavailable I must develop them. This implies that the nature of this study is in part scientific and in part philosophical. It is also hypothetical, because the desired outcome is an internally consistent framework of new, invented and reinterpreted concepts with well-explained relations to what there is. In other words this is a hypothesis, not a theory. The project serves to develop and compile coherent statements, not to test them to reality.

After some (I thought) well-deserved relaxation I thought it a great idea to develop this hypothesis to a theory by testing it, and then to make use of it professionally. I presented it to business schools and a couple of strategy departments in firms. They thought it too theoretical to include in their curriculum and to their practices. What I believe they meant was that it is formulated in abstract terms. From the start my purpose was for it to keep it general (applicable to every conceivable firm) and not enter an empirical rabbit hole of small n. This is however the more common practice and my approach does not help me to find a job.

Another comment was that it is not sufficiently applicable. This is not the same as to say it is not a tested theory: if it works it works. They argued it does not enable business managers to make practical predictions about their particular businesses and they have a point there. It was never intended to be applicable in that sense. It is made up of statements about the nature of the firm, not a management tool catering for generating a change of behavior of the firm (aka increase its performance). That is a derivative model of this one.

From the beginning I wish to share these ideas with an audience wider than the scientific community, it is in fact how the whole adventure started. That implies that people including customers, shareholders, and management will want to know what to do to anticipate their (professional) futures. In order to be useful in this sense the hypothesis needs to be tested against business reality, and then tools for thought must be derived from it that guide people to think about firms and how to deal with them.

Coordination of Economic Decisions

Douma, S. and Schreuder, H. . Economic Approaches to Organizations . United Kingdodom : Pearson . 20013 . ISBN 978-0-273-73529-8

The subject of this book is the  coordination of economic decisions. The (categories of) mechanisms for that job are markets and organizations. A special class of organizations is of course the firm. And so this summary of the above book is included as a connection of a new theory of the firm under construction with existing economic theories.

Chapter 1: Markets and Organizations

Economic systems can be segmented by their property rights regime for the means of production and by their dominant resource allocation mechanism1. The coordination problem is the question how information is obtained and used in economic decision-making, namely decisions where demand and supply meet. The book contributes to the answering of the coordination problem in economics: why are economic decisions coordinated by markets and by organizations and why do these systems for that job co-exist?

An economic problem is any situation where needs are not met as a result of scarcity of resources. Knowing this, then what is the optimal allocation of the available resources over the alternative uses? If resources are allocated optimally, they are used efficiently (with efficiency).

Economic approaches to organisations can be fruitful if the allocation of scarce resources are taken into account. To this end consider this conceptual framework (figure 1.1): division of labour (1) >> specialization (2) >> coordination (3) >> markets (4) AND organization (5) << information (6) << pressure from environment and selection (7)

1) division of labour as per Adam Smith: splitting of composite tasks into their components leads to increased productivity (this is taken as a fact of life in our kind of (western) society), because:

2) specialisation (Adam Smith: greater dexterity, saving of time to switch between jobs, tools) enables to do the same work with less labour: economies of specialisation. This higher performace comes at a cost to get acquainted with a new task. Higher performance but less choice: trade-off between satisfaction of higher performance and lower satisfaction because of limited choice and boredom

3) coordination: hardly anyone is self-reliant and exchange must take place between specialists to get the products needed and not self-made. The right to use them is transferred: a transaction takes place. This need to be reciprocal. Specialisation leads to a need for coordination, namely the allocation of scarce resources. There are 2 types of coordination: transactions across markets or within organizations.

4) and 5) markets and organizations: for example the stock market: no individual finds another to discuss allocation, but the price system is the coordinating device taking care of allocation. The price is a sufficient statistic (Hayek 1945) for the transaction. Optimal allocation occurs when prices meet at their equilibrium without parties needing to meet or to exchange more information than the price alone. Why is not all exchange via markets? Because if a workperson goes from dept x to dept y then the reason is not a change of relative prices but because he is told to do it (Coase 1937). A firm is essentially a device for creating long term contracts when short term contracts are too bothersome. They do not continue to grow forever, because as they grow, firms tend to accumulate their transaction cost as well; and so over time the tyransactio cost of the firm will offset those of the market. Transactions will shift between markets and organizations as a function of the transaction cost involved in either choice of alternative. Williamson (1975) has expounded this element to be adressed in Ch8 to include the marginal cost of either alternative. The balance between markets and hierarchies is constantly ‘sought after’ and when it is struck then the entrepreneur may decide to change its transaction cost by forming firms or increasing their size up to the point that its transaction cost becomes too high. Ideal markets are characterized by ’their’ prices being sufficient statistics for individual economic decision making. Ideal organizations are characterized if their transactions are not based on prices to communicate informatiion between parties. Many transactions in reality are governed by hybrid forms of coordination.

6) Information: the eminent form of coordination is a result of the information requirements in that specific sitution. And so information is the crucial element in the model, producing the coordination mechanism. There are many situations where the price alone cannot provide sufficient information to effect a transaction – up to the point where price alone is entirely incapable of the transaction. Organization thus arises as a solution to information problems.

7) the environment and institutions are the environment in which the trade-offs between market and organization take place and they are economic, political, social cultural, institutional, etc in nature. The environment provides the conditions for the creation of both, shapes both and selects both. Institutions are the rules that shape human interaction in a society (a subset of MEMES with a regulatory character or just the entirety of the memes or the memes that are motivators); they are an important element in the environment of organizations and markets. Douglass North (1990, 2005b?). ‘In the absence of the essential safeguards, impersonal exchange does not exist, except in cases where strong ethnic or religious ties make reputation a viable underpinning‘ [Douglass North 2005b p. 27 in Schreuder and Douma p. 18]. Not agreed: evolution of morale.

If the institutions are the rules of the game imposed by the environment, ’the way the game is played’ is shaped by the countries’ institutional framework – all institutions composing the environment of organizations and markets. These factors detemine which organizations and markets are allowed and if they do then they shape the way they function. These factors are dynamic.

This approach is fairly new because economists viewed coordination by the market between organizations and organizational scientists viewed coordination inside organizations.

Chapter 2 Markets

Standard micro-economic theory focuses on how economic decisions are coordinated by the market mechanism. Consumers decide on how much to consume, producers decide on how much to produce, they meet on the market and there quantity and price are coordinated.

Law of demand: the lower the price the higher the demand. Law of supply: the lower the price the lower the supply. Market equilibrium occurs where demand and supply intersect.

Theory of demand: goods are combined in baskets, each person can rank the goods in a basket for preference, the preferences are assumed to be transitive, each person prefers to have more of a certain good than less of it. Indifference curves represent the preferences of the person. If two baskets are on different locations on the same indifference curve (he is indifferent), then the utility of the two baskets is said to be the same (because the person’s satisfaction is the same for either). It iss assumed that the consumer knows which basket she prefers, but not by how much. The budget line indicates the person’s budget: if this line is combined with the indifference curve, the maximum utility is located on the tangential of the indifference curve with the budget line (there can be only one).

Theory of supply: how a supplier decides on how much to produce. The firm is an objective function describing the goals of the firm (profit, share value). The objective function must be maximized given the constraints of the firm’s production function. The production function describes the relation of the inputs of a firm and the maximum outputs given those inputs. Q=Q(K, L, M) is the maximum ouput at some given input. If K and M are given at some time then the output increases if L increases. L cannot be increased indefinitely and either K or M will constrain a further increase of L and thus of Q. To increase K takes most time and can only be executed in the long run only: in the short run (and so at any time) M can be changed, in the medium and the long term term L can be changed. L = variable short and long run, K = variable long run only. The production function represents all the combinations of K (LT; Capital) and L (short term; labour) isoquants that the firm can choose from if it wants to produce quantity Qx.

Profit maximization in competitive markets: assume that a firm wants to maximise profits. Then Profit = Q.p – c.K – w.L. Constraint of the production function Q = Q(K, L). Decide How Much to produce implies to choose Q. Deciding How To produce means choosing K and L. K and L are free, Q is their function. Short run: K is fixed so only L is free to choose. Profit = p.Q(KL)-c.K-w.L; its maximum is dProfit / dL = p.dQ / dL – w = 0 or dQ / dL = w / p. If dQ / dL is the marginal productivity of labour it decreases with increasing use of Labour (yet another unit of labour will decrease the marginal productivity of Labour, dQ / dL is a decreasing function.). The firm can choose how much to produce, not how to produce. Long run: dQ / dK = p. dQ / dK – c = 0. From which follows that dQ / dK = c / p, while (see above) dQ / dL = w / p. Solving both gives optimal values foor L and K and from that follows Q. The firm chooses K so that the marginal productivity of K is c / p while choosing L so that the marginal productivity of L is w / p. The firm can choose how to produce and how much.

Market coordination. Producers maximize profit: via the amount she calculates L in the short term and K and L in the long term. This results in a supply curve for all firms and an industry supply curve. Consumers maximize utility and for any given price he decides the amount he is going to buy, resulting in a demand curve for all consumers. Supply and demand meet at one point only, the intersection of their curves, and the resulting price is a given for consumers and producers. Now every consumer knows how much he will buy and every producer how much she will produce.

The paradox of profits. Normal profit equals the opportunity cost of the equity capital. Economic profit is any profit in excess of normal profit. If profit falls below the normal profits, then the shareholders will invest their capital elsewhere. In a competitive market a firm cannot make an economic profit in the long run, because profit attracts new incumbants, supply increases, prices go down and economic profits vanish. Hence the paradox: each firm tries to make a profit, but no firm can in the long run.

Comments: 1) if competition was perfect then resource allocation was efficient and the world would be pareto optimal. This does not imply that everyone’s wants are satisfied, however, it just means that, given some configuration, an initial distribution of wealth and talents, nobody can be made better off whithout someone else being worse off. 2) assumptions underpinning the assumption of perfect markets are: 2a) large number of small firms, 2b) free entry and exit of firms, 2c) standardization of products. 3) it is assumed that firms are holistic entities in the sense that its decisions are homogeneous, taken as if by one person with profit maximization in mind, given their utility function. 4) firms are assumed to have only one objective such as profit or shareholder value. If there are other then they must be combined into one as a trade-off. 5) it is assumed that there is perfect information: everyone knows everything relevant to their decisions. In reality information is biased: the insured knows more about his risks than the insurance company, the sales person knows more about his activities when travelling then his boss. This is not a sustainable market. 6) consumers and producers are assumed to maximize their profit and utility and so it is assumed that they must be rational decision makers. The decisions may be less solid and more costly the longer the prediction horizon is. 7) markets are assumed to function in isolation, but it is clear that the environment influences the market.

Chapter 3 Organizations

Are ubiquitous. It is impossible for markets alone to coordinate people’s actions. Paradox at the heart of modern economies: it is possible to an increasing extent to work individually doing specialized work but thhis is only possible because of some form of organization and interdependency. While people appear to have more agency, they are more dependent on others’ performance. The central question the is how organizational coordination – as opposed to market coordination – is achieved.

.. the operation of a market costs something and by forming an organization and allowing some of authority (‘an entrepreneur’) to direct the resources, certain marketing costs are saved‘ [Coase 1937 in Schreuder Douma 2013 p 48].

.. the problem of what is the best way of utilizing knowledge initially dispersed among all the people is at least one of the main problems of economic policy – or of designing an efficient economic system. The answer to this question is closely connected with that other question which arises here, that of who is to do the planning. .. whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals‘ [Hayek 1945 in Schreuder and Douma 2013 pp. 48-49].

The best use of dispersed information is indeed one of the main problems in economic coordination.

Mintzberg identified these ways in which work is coordinated in organizations: mutual adjustment, direct supervision, standardization of work process, standardization of output, standardization of skills, standardization of norms. ‘These are thus also the ways in which people in organizations can communicate knowledge and expectations. Conversely, they are the ways in which people in the organization may learn from other what they need to know to carry out their tasks as well as what is expected from them‘ [Schreuder and Douma 2013 p. 51]. In large organizations is it no longer possible to coordinate via the authority mechanism and so combinations of the other mechanisms are used.

Real organizations are hybrids of the above coorinating mechanisms. Some prototypical organizations are dominated by a specific coordinating mechanism: 1) Entrepreneurial Organization – Direct Supervision, 2) Machine O – Stand. of Work Processes, 3) Professional O – Stand. of Skills, 4) Diversified O – Stand. of Outputs, 5) Innovative O – Mutual Adjustment, 6) Missionary O – Stand. of Norms. When markets are replaced by organizations then the market (price) mechanism is replaced by other coordinating mechanisms. Organizations can take many forms depending on the circumstances: it can handle different types of transactions [p 58].

Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, mysellf included, are in a state of shocked disbelief‘ [Alan Greenspan former chairman of the Federal Reserve about the lack of regulation in the financial markets to the House Committee on Oversight and Govenment Reform during a congressional hearing in 2008].

Chapter 4: Information

The information requirements in any situation determine the kind of coordination mechanisms or mix of them. If agents cannot influence the price then the market is perfect and the agents are price-takers; in that case the prices are sufficient statistics conveying all the necessary information to the market parties. Under conditions of perfect markets (namely perfect competition) agents can only decide on the quantity at some price for some homogeneous good (namely no difficulties with the specifications, quality differences). The price mechanism is a sufficient coordination mechanism where the economic entities have a limited need for information. If all the required information can be absorbed in the price can we rely on the market (price) mechanism as the sole coordinating device.

If the specifications vary then more informtion than the price only is necessary. Sugar: commodity product, price suffices. Fruit: some changes with the season, some more info is needed by selecting the individual pieces. Soup: more info is needed, tasting not practical, brand name as a label to inform client of the specifications to expect. A brand name is a solution to an information problem. Uncertainties exist for instance the quality of next year’s fruit: retailers and suppliers may agree on a contingent claims contract (prices depends on the actual quality at that time). In practical terms it is difficult to cover all contingencies.

If client and supplier have different information then information asymmetry exists. Disclosing all information to a client needed to fully understand some solution or product enables the construction of the object by the client himself and destroys its value. This situation can invite opportunistic (or strategic) behavior in agents.

Hidden information means the existing skewness of availability information between the parties, leading the one to take advantage of the other. Hidden action means introduced skewness between the availability of information between parties. Hidden information and hidden action both come from unobservability, they both imply a skewness of information and both occur in both market and organizational environments. Hidden information is an ex-ante problem, while hidden action is an ex-post problem.

If everybody knew everything then all information would be of equal value.

Chapter 5: Game Theory

Coordination game: two or more players coordinate their decisions so as to reach an outcome that is best for all. Example new technology. If both choose the same platform then the customer is not forced to choose between tech AND brands, but brands only. This is an advantage for both. If the choice is to be made simultaneously then the outcome is unpredictable, if the decisions are seqeuential then one player will follow the other player’s choice of tech. As soon as a first player chooses then the choice must be comunicated to the other so as to reap the benefits and not allow the other to deviate.

The entry (monopolist versus incumbant) game: moving from one stage to two stages. This can be solved by looking ahead and reasoning backwards in a decision tree. Commitment in this sense means that a participant altes the pay-offs irreversibly by committing to some course of action so that it it becomes in its own interest to execute a threat. Example: investing in extending a mobile network prior to a new incumbant entering allows the monopolist to execute its threat to lower prices – thereby increasing its number of customers.

Situations involving more than two players in a single stage game: auctions. In both open auctions and closed bid auctions, the observability of information plays a crucial role. At an increasing bid auction the price may not be perfect for the seller as the one-but-the-last potential buyer may drop out at a price far below the cut-off of the last potential buyer. To prevent that, the dutch auction can be used: a decreasing price auction. In this way the seller reclaims some of the difference between the highest and the one-but-the-highest bid. A problem for the seller is that there is no minimum price. To establish a minimum a seller can revert to a two-stage auction: first the increasing price competition where the winner takes some premium, followed by a dutch auction. If the second stage does not result in a price then the winner of the first stage buys the lot. In this game, only the winner’s private information remains private, the others’ are known after the intial round. During the second round the bidder with the highest private valuation is induced to reveal it and the seller is willing to pay a premium to get this information. The premium is hopefully loer than the difference between the highest and the one-but-the highest bid.

Sealed-bid auction: best performance+synergies considering first bid competitor’s prize.

The observability of auctions pertains to the differences in availability of the private information of each of the participants in the auction. The winner’s curse is the question whether the winner was lucky to win or overly optimistic in her predictions. Competitors can collude to keep the price low.

Single stage PD, Iterated PD for many players. IPD with players’ mistakes: show generosity by retaliating to a lesser extent than the defection and show contrition by not re-retaliating if the other retaliates after a mistaken defection. However, too much forgiveness invites exploitation.

In evolutionary game theory strategies evolve over time: variation, selection and retention. In a fixed environment (fixed proportions of strategies) it pays to learn which competitors are exploitable: maximize cooperation with the cooperating strategies and exploit the exploitables. In a dynamic environment the fitter strategies increase their proportions in the population. If more can evolve then they co-evolve.

Chapter 6: Behavioural theory of the firm

In micro-economics the firm is viewed holistically (as a dot with agency), in behavioral theory it is seen as the locus of the coalition of the (groups of) participants of the firm. The starting point is not full but bounded rationality: cognitive and informational limits to rationality exist. Decision processes in the firm are described as step: 1) defining the goals of it2 2) how it forms expectations on which the decision processes are based 3) describe the process of organizational choice.

Each participant receives inducements and makes contributions to the organization. These can have a wide defintion: they are a vector of inducements and contributions. What sets behavioral economics apart from standard micro-economics is that participants are not fully capable to know every alternative; it is in the information they have. For some of the elements of the vector of for instance employees these are even harder to know than regarding the pay; and so on for all participants of the coalition. In standard micro-economics the management is hired by the shareholder and works for them alone. In behavioral economics, management represents the interests of all stakeholders. The competitive environment as per micro-economics is a given, behavioral economics focuses on the decision making processes in the firm.

Step 1 organizational goals: in standard micro economics (SME) one goal is assumed of profit maximization. In behavioral economics it is assumed that every participant has her goals, that between them do not necessarily coincide. The composition and the overall goals of the coalition (the firrm) are arrived at via bargaining: the more unique the expected contribution the better her bargaining position. Each participant demands that the goals reach some individual level of aspiration; if that hurdle is not reached she will leave the coalition. Theoretically in the long term there would be no difference between the levels of achievement in the firm, the levels of achievement of other firms and the level of aspiration of the participants in these respects. The difference between total resources and total payments required to preserve the coalition is the ‘organizational slack’. So in the long run there would be no organizational slack. However, the markets for the various contributions are not perfect because information about it is difficult to obtain and the levels of aspiration change only slowly. In behavioral theory it is assumed that operational subgoals are specified per managerial area; it is however often impossible to define operational goals per area. And so aspirational levels are identified taking into account the effects of the conflicts between areas and so the conlict is quasi-solved instead of completely.

Step 2 organisational expectations: SME assumes information symmetry; in behavioral firm theory this is not the case. The production manager needs the sales manager to makes a forecast. Expectations means to infer a prediction from available information. Members have different information and different inference rules.

Step 3: organizational choice: SME assumes that behavior of firms is adequately described as maximizing behavior: all alternatives are known and they can be compared so as to maximize the objective. Behavioral theory rejects these assumptions: decisions have to be made under limitations. They make decisions on a proposal, without knowing what alternatives turn up the next day. SME assumes that firms search until the marginal cost of additional searching equals the marginal revenue of additional searching. Other firms would take advantage of this because they decide quicker. In reality this is impractical. In behavioral theory alternatives are roughly evaluated based on available information one at a time instead of maximizing their (assumed) objective function and weighted against some aspired level. This process is better described (then maximizing) as satisficing: to search for alternatives that satisfy levels of aspiration and is threfore acceptable. This process is closer to reality because alternatives often present themselves one at a time (is that so?). Also it is quite implausible that the consequences of each alternative can be calculated because people cannot handle all the relevant information: their rationality is bounded. They intend to be rational but only manage to a limited extent. The final argument why firms are rather satisficing than maximizing is that each stakeholder has her objectives and if a firm has no single objective functon, how can it maximze? Alternatives are evaluated against an aspiration level of each stakeholder and if they meet those they are then accepted.

Even the inteded rationality is rather generous when it concerns people. Kahneman and Tversky concluded that people are biased and use simple rules of thumb to decide.

Chapter 7: Agency Theory

This theory stems from the separation of ownership and control and discusses the relation between the entities the principal and the agent, who makes decisions on behalf of (or that affect) the principle (e.g. manager – shareholder). Dialects of the theory are: the positive agency theory (the firm is a nexus of contracts), that attempts to explain why organizations are as they are, and the principal and agent theory (how does the principle design the agent’s reward structure).

There is a stock market for corporate shares and a market for corporate control, entire companies. Here competition between management teams increases the pressure on management performance. Also there is a market for managerial labour: management of a large firm is typically more prestigious than a smaller one. Also there is a market for the firms products: the more competition in those marjets, the less opportunity for the manager to wing it. Lastly the pay package of the manager usually includes a profit or stock related bonus that brings the manager’s interests more in line with the shareholder’s.

Managerial behavior and ownership structure.

Monitoring and bonding.

Entrepreneurial firms (owned and managed by the same person) and team production. The entrepreneur monitors and controls the work of others and gets paid after all the contracts have been fulfilled. If a freelancer puts in n extra effort she enjoys m extra utility working alone. If in a team putting in extra n she enjoys only 1/m additional utility. This results in shirking: when in a team people tend to put in much less effort then when they work alone. Everyone is willing to put in more effort if the others do also. If this can be monitored by the other members of the team then a solution can be for all to agree not to shirk and to punish someone who does. Else it is unobservable , an informational problem. [Minkler 2004]. If shirking can be detected by an independent monitor (and not or with difficulty by the other team members) then if the monitor is paid a fixed pay then the monitor is incentivized to shirk also. If the monitor has a right to the residuals after the contracted cost are fulfilled, then she will have no incentive to shirk. If the monitor is to be effective then she must be able to make changes to the team (revise contracts, hire and fire, change individual payments) without consent of all the other members and sell her right to be the monitor (to justify actions the effect of which is delayed in time). The monitor in this sense is the entrepreneur, the firm is an entrepreneurial firm. This theory assumes the existence of team production and that monitoring reduces the amount of shirking. The latter implies that this is useful if it is more cumbersome for the members to monitor themselves and each other then for an outsider to do it; only in that case is this model viable.

In these two ways 1) consumption on the job and 2) shirking are restricted by managers.

The firm as a nexus for contracts: if 1) and 2) then how to explain the existence of large corporations not (or to a limited extent) owned by their managers. Shareholders in this sense merely have contracted to receive the residual funds: they are security owners. Shareholders are just one party bound by a contract to the firm like many others with their specific individual contracts.

[Fama and Jensen 1983 a, b] explain entrepreneurial and corporations with this ‘nexus of contracts’ model. ‘They see the organization as a nexus of contracts, written and unwritten, between owners of factors of production and customers‘ [Schreuder and Douma 2013 p151].

The residual payment is the difference between the stochastic cash inflow and the contracted cash outflow, usually fixed amounts. The residual risk is the risk of this diffrence, borne by the residual claimants or risk bearers. The most important contracts determine the nature of the residual payments and the sttructuring of the steps in the decision process of the agents: initiation (decision management), ratification (decision control), implementation (decision management), monitoring (decision control) of proposals. Fama and Jensen distinguish between non-complex and complex organizations: non-complex are the organizations where decisions are concentrated in one or a few agents, complex ini more than a few (small and large organizations respectively). If a small firm is acquired by a larger one, then the decision control transfers from the management of the smaller to the larger while decision management stays with the management of the smaller firm. As the management of the smaller firm is no longer the ultimate risk bearer nor the receiver of the residual payments, this confirms the theory.

Theory of principal and agent

In this theory risk and private information are introduced in the relation between agent and principal. Conditions concerning these issues in the previous versions of the agency theory are relaxed here. If the performance of the firm depends on the weather (random) and the performance of the agent, then: situation 1) the principal has information about the agent’s performance, 2) the agent has no information about the agent, 3) the agent has no direct information about the agent’s performance but has other signals.

These models are single-period and single-relation and therefore not realistic, because agents are usually employed for more than one period. Also if more than agent is employed often in circumstances that are not exactly the same and therefore the relation is different. Monitoring is costly and so the question remains how and how much to monitor. The model is based on monetary criteria only and that is not reality.

Chapter 8: Transaction Cost Economics

The fundamental unit of analysis is a transaction. Whether a transaction is allocated to a market or a firm is a cost minimization issue. Schreuder and Douma argue that to assume tht cost in a firm are lower than cost outside of it is a tautology, becaue: ‘If there is a firm then, apparently, the costs of internal coordination are lower than the cost of market transactions‘ [Douma and Schreuder 2013 p167]. But boundaries can emerge for other reasons than costs alone and, contary to what they claim, this can be empirically tested in a ‘make or buy comparison’. Transaction cost economics as per Williamson is based on bounded rationality and on opportunism. Bounded rationality means that the capacity of humans to formulate and solve problems is limited: it is ‘intendedly rational but only limitedly so‘ [Simon, H.A. . Administrative Behavior (2nd edition) . New York . MacMillan . 1961 and Organizations and Markets . Journal of Economic Perspectives / vol. 5 (2) pp 25-44 . 1991]. Bounded rationality will pose problems when the environment is uncertain or complex. Opportunism is defined as ‘self-interest seeking with a guile’ and as making ‘self-disbelieved statements’. Opportunistic means to try to exploit a situation to your own advantage in some cases by some people. It is difficult and costly to ex-ante find out who will do this and in which cases. Opportunistic behavior can occur ex-ante (not telling the buyer of a defect prior to the transactio) and ex-post (backing out of a purchase). This problem can occur when trading numbers are small and if the numbers are large but reputations are unimportant or information about reputations is unavailable.

Whether a transaction is governed by the market or by an organization (the mode) is governed by the sum of the production cost and the transaction cost and by the atmosphere. The atmosphere is the local environment where the transaction takes place itself giving satisfaction (for example to work as a freelancer or be an employee of some organization). This acknowledges the fact that economic exchange is embedded in an environmental and institutional context with formal and informal ‘rules of the game’ (as per chapter 1); ‘the informal rules of the game are norms of behaviour, conventions and internally imposed rules of conduct, such as those of a company culture. this can be related to the informal organization. ., he acknowledges the importance of such informal rules, but admits that both the concepts of informal organization and the economics of atmosphere remain relatively underdeveloped’ [Williamson 1998, 2007 in Douma and Schreuder 2013 p. 174].

The fundamental transformation means that lock-in occurs after a supplier has fulfilled a contract during some time and has learned how to manufacture efficiently. This lock-in is effectively a monopoly in a many supplier situation.

Critical dimension of a transactions: 1) Asset specificity (asset required for one transaction only) resulting in the availability of quasi-rent (everything above the variable cost) that the buyer will want to appropriate. Solution: merger or long-term contract includes inspection of the buyer’s business by the seller. 2) Uncertainty / complexity 3) Frequency. If 1), 2) and 3) are high then the transaction is likely to be executed within an organization in the long run. If the cost of transacting under the different modes differ then the more efficient mode will prevail. This leads to competition between organizational forrms and the one that turns out to be most efficient prevails in the long term.

A peer group is a group of people together without hierarchy. The coordinating mechanism is mutual adjustment. Advantages are: 1) economies of scale regarding specific assets 2) risk-bearing advantages 3) associational gains (atmospherical elements like higher effort, inspiration, quality). Disadvantages are shirking and so even in peer groups some form of hierarchy emerges (senior partners).

A simple hierarchy is a group of workers with a boss. The advantages are: 1) team production (monitoring according to Alchian and Demsetz (1972), separation of technical areas according to Williamson (1975), this is rare). 2) Economies of communciation and of decision making (in a simple hierchy the connections are n-1, in a peer group the number of connections is 1/2n(n-1): the cost of communicating is much higher in a peer group),re decision making takes less effort and less cost also as a consequence). 3) Monitoring (to prevent shirking in a peer group).

Multistage hierarchies: U form enterprises are functional hierarchies. They suffer from cumulative control loss and corruption of the strategic decisionmaking process. M-form enterprises are a solution for those problems: divided at top level into several semi-autonomous operating divisions along product lines. Top management is assisted by a general office (corporate staff). Advantages: 1) responsibility is assigned to division management cum staff 2) the corporate staff have auditing and advisory role so as to increase control 3) the gereal office is concerned with stratefgic decision including staffing 4) separation of general office from operations allows their executives to not absorb themselves to operational detail. A third is the H-form, a holding with divisions, the general office is reduced to the shareholder representative.

Concerning coordination mechanisms other than markets and organisations: markets coordinate via price mechanisms, organizations via the 6 mechanisms defined earlier. Namely: mutual adjustment, direct supervision, standardization of work process, standardization of output, standardization of skills, standardization of norms. Often the organizational form is a hybrid of some of the ‘pure’ configurations. In addition the markets are usually to some extent organized and organizations can have markets of all kinds inside of them.

Williamson’s transaction cost economics is also called the markets and hierarchies paradigm: markets are replaced with organizations when the price coordination breaks down3. Comments on the paradignm are that: 1) people are not that opportunistic: they can and do trust each other, 2) markets and organizations are not mutually exclusive coordination mechanisms but they should be viewed as a continuum.

Ouchi introduced clans as an intermediate form between markets and organizations as markets, bureaucracies (later hierarchies) and clans [Ouchi 1980, Ouchi and Williamson 1981]. Clans are a third way of coordinating economic transactions. The replacement of bureaucracies for hierarchies was standard form in organizational sociology [Max Weber 1925, translation by A.M. Henderson and T. Parsons . The Theory of Social and Economic Organization . New York: Free Press . 1947]: personal authority is replaced with organizational authority. Modern organizations now had the legitimacy to substitute personal rules for organizational rules, described by Weber as bureaucracies. Ouchi argues that in those bureaucracies prices are replaced with rules. And the rules contain the information required for coordination. The essence therefore of this type of coordination is not its hierarchic but its bureaucratic nature.

The third way of coordinating transactions is a clan. The clan relies on the socialization of individuals ensuring they have common values and beliefs: individuals who have been socialized in the same way have common norms for behavior. The norms can also contain the information necessary for transactions. This is clarified by an axamples of Japanese firms, where workers are socialized so as t adopt the company goals as their own and compensating them for non-performance criteria such as length of service. Their natural inclination as a result of socialization is to do what is best for the firm. Douma and Schreuder argue that Ouchi’s emphasis on rules does not cover the entire richness of observed organizations and it is subsumed by Mintzberg’s typology in 6.

The role of trust: the position of Williamson is that you cannot know ex ante whom to trust because some people cheat some of the time. If you like your business partner and you know that she trusts you, you are less likely to cheat on her, even if that would result in some gain: trust is an important issue. If the trust is mutual you can develop a long-term business relationship. Trust is important between and within organizations. If, in general, people are treated in good faith then they are more likely to act in good faith also. But as Williamson argues, you cannot always ex-ante be sure about the stranger and you might be needing to prepare for an interaction.

Chapter 9: Economic Contributions to Business/Competitive Stategy

Economic contributions to strategy planning and management are mainly related to content, not process: the focus is on the information that firms need to make their choices.

Move and counter-move: In 5.3 commitment was introduced as a way to change the pay-off in a game setting. The example concerned the investment in a network by National, the existing cellphone provider. ‘Commitments are essential to management. They are the means by which a company secures the resourcces necessary for its survival. Investors, customers and employees would likely shun any company the management of which refused to commit publicly to a strategy and back its intentions with investment. Commitments are more than just necessities, however. Used wisely (?), they can be powerful tools that help a company to beat the competition. Pre-emptive investments in production capacity or brand recognition can deter potential rivals from entering a market, while heavy investments in durable, specialized and illiquid resources can be difficult for other companies to replicate quickly. Sometimes, just the signal sent by a major commitment can freeze copetitors in their tracks. When Microsoft announces a coming product launch, for instance, would-be rivals rethink their plans‘ [Sull, D.N. . Managing by Commitments . Harvard Business Review, June 2003 pp. 82-91 in Douma and Schreuder 2013 pp. 223-4].

Memeplex > Belief + Environment > Predicting* / Planning* > Committing* > Execution = Acting as Planned, * means anticipating the future. Compare to: ‘Each single business firm and each business unit in a multibusiness firm needs to have a competitive strategy that specifies how that business intends to compete in its given industry‘ [Douma and Schreuder 2013 p. 228].

Chapter 10: Economic Contributions to Corporate Strategy

In a multibusiness firm some transactions are taken out of the market and internalized within the firm: capital market, management market, market for advise. Also some transactions between the individual businesses are taken out of the market and internalized, such as components, know-how. The question is whether this approach is more efficient than the pure market approach, namely is value created or destroyed. Parenting advantages poses 2 alternative questions: 1) decide whether corporate HQ adds value. Yes if it is cheaper than the market. 2) Can another HQ add more value to one of the business units. Yes if another parent cannot add more value to the BU. This is related to the market of corporate control earlier discussed.

Value adding activities of HQ are: 1) Attract capital and allocate to business units 2) appoint, evaluate abd reward business unit managers 3) offer advice 4) provide functions and services 5) portfolio management by making adjustments to the business units.

In a mature market economy it is harder for an organization to surpass the coordinating capacity of the market. In a less developed economy this threshold is easier to meet and organizatrional coordination is more favourable than market coordination. Organizational relatedness of business units A and B sharing the same HQ can take different shapes: 1) vertical integration (A supplying B) 2) horizontally related (A and B are in the same industry) 3) related diversification (A and B share same technology or same type of customer) 4) unrelated diversification (A and B share nothing). Portofolio management means management of the business units.

Chapter 11: Evolutionary Approaches to Organizations

The perspective is on the development of organizational forms over time: from static to dynamic. The anaysis is about populations of organizational forms, not the individual organization but the ‘species’. Organizations are human constructs: ‘.. organizations can lead a life of their own, to continue the biological analogy – but the element of purposive human behaviour and rational construction is always there‘ [Scott, W.R. . Organizations: Rational, Natural and Open Systems (5th edition) . Englewood Cliffs . NJ: Prentice Hall . 2003]. Thus the creationist view is likely to have more implications for the organizational view than for the biological view. The meaning of the term construct goes beyond the design of something, and includes a product of human mental activity. It might be said that organizations are more constructionist / constructional than giraffes. ‘Organizations are much less ‘out there’: we have first to construct them in our minds before we find them. This delicate philosophical point has important consequences. One of those consequences is that it is harder to agree on the delineation of organizations than of biological species. Another consequence is that it is much less clear what exactly is being ‘selected’, reproduced’ in the next generations and so on‘ [Schreuder and Douma 2013 p 261].

Similarities between the organizational and the biological view evolve from the assumptions that 1) organizations have environments and 2) environments play a role in the explanation of the development of organizational forms. As a result the development of organizational forms instead of individual forms can be studied and additionally the concept of environment is broadened to anything that allows for selective processes. As a reminder: selection on certain forms of organization is now replacing adaptation of individual firms to their environment. ‘So, there is no question that selection, birth and death, replacement and other such phenomena are important objects of orgnizational study as well‘ [Douma and Schreuder 2013 p. 262].

Ecologists study the behavior of populations of beings: what is the defintiion of a population in organizational science and what is the procedure for the distinction of one population of organizational forms from another. Organizational ecology distinguishes three levels of complexity: 1) demography of organizations (changes in populations of organizations such as mortality) 2) population ecology (concerning the links between vital rates between populations of organizations) 3) community ecology of organizations (how the links within and between populations affect the chances of persistence of the community (=population of firms or society?) as a whole). 1) has received the most attention, 2) and 3) not so much.

The definition of a species is interbreeding: its genotype, the genepool. According to Douma and Schreuder there is no equivalent for organizations. This can be solved using the concept of memes identifying the general rules that are adopted by participants in this kind of organization, DPB.

An organizational form is defined as the core properties that make a set of organizations ecologically similar. An organizational population is a set of organizations with some specific organizational form. [Caroll and Hannan in 1995 in Douma and Schreuder 2013 p264]. An assumption is the relative inertia of organizations: they are slow to respond to changes in their environment and they are hard-pressed to implement radical change should this be required. As a consequence organizations are inert relative to their environments. This sets the ecological view apart from many others as the latter focus on adaptability. In other approaches efficiency selects the most efficient organizations. The Carroll and Hannan approach of ecological organizations is that these have other competences: 1) reliability (compared to ad-hoc groups) 2) routines can be maintained in organizations but not in ad-hoc groups 3) organizations can be held accountable more easily 4) the organizational structures are reproducible (procedures must stay in place). Selection pressures will favor those criteria in organizations and so they will remain relatively inert: inertia is a result of selection, not a precondition.

What is the size of a population, namely how many organizations with some typology do wee expect to find in a population: 1) what is its niche 2) what is the carrying capacity. Whether an actual organization survives is detemined by 1) competition with other organizations in their niche, 2) legitimation is defined as the extent to which an organization form is accepted socially (D & S are confusing the organizational form and the actual organization here). As they perform consistently and satisfactorily then they survive.

[Nelson, R. and Winter, S. . An Evolutionary theory of economic change . 1982] Their view is routine behavior of firms and developments of economic systems. Firms are better at self-maintenenance than at change if the environment is constant and if change is required than they are better at ‘more of the same’ than at other kinds of change. They denote the functioning of organizations with: 1) routines that are learned by doing 2) the routines are largely tacit knowledge (Viz Polyani 1962). Organizational routines are equivalent to personal skills: they are automatic behavior programmes. ‘In executing those automatic behavior programmes, choice is suppressed‘ [Douma and Schreuder 2013 p272]. Routines are 1) ubiquitous in organizations, they are the 2) organizational memories and they serve as an organizational truce meaning that satisficing takes the place of maximizing in the classical sense. ‘The result may be that the routines of the organization as a whole are confined to extermely narrow channels by the dikes of vested interest … fear of breaking the truce is, in general, a powerful force tending to hold organizations on the path of relatively inflexible routine‘ [Nelson and Winter 1982 pp 111-2 in Douma and Schreuder p. 272].

Thre classes of routines: 1) operating characteristics, given its short term production factors 2) patterns in the period-by-period changes in production factors 3) routines that modify over time the firm’s operating characteristics. And so routine changing processes are themselves guided by routines. And so just as in the biological sphere, the routine make-up of firms determines the outcomes of their organizational search. (The pivot of this categorization is the presence of production factors in the firm and how that changes over time; my starting point, via Rodin, was the presence of ideas that might or might not lead to the buying or making of production factors or any other method, contract, agreement, innovation or mores DPB). Whatever change happens it is expected to remain as close as possible to the existing situation minimizing damage to the organizational truce.

‘He (Nelson) went on to point out that there are three different if strongly related features of a firm..: its strategy, its structure, and its core capabilities’. .. Some of the strategy may be formalizedand writtten down, but some may also reside in the organizational culture and the management repertoire. .. Structure involves the aay a firm is organizaed and governed and the way decisions are actually made and carried out. Thus, the organization’s structure largely detemines what it does, given the broad strategy. Strategy and structure call forth and mould organizational capabilities, but what an organization can do well also has something of a life of its own (its core capabilities DPB).

Nelson and Winter classify themselves as Lamarckian, while Hannan and Freeman classify themselves as Darwinian [Douma and Schreuder 2013 p 275]. In my opinion this classification is trivial as memetic information can recombine so as to introduce new ‘designs’ in a darwinian sense or starting from the environment, new requirements can be introduced that the organization must deal with to in the end internalize them in the rules, DPB.

Hannan and Freeman conclude that organizational change is random, because 1) organizations cannot predict the future very well 2) the effects of the orrganizational change are uncertain. Nelson and Winter conclude that some elbow room (namely learning imitation and conscious adaptation) exists, but that changes are constrained by the routines that exist at some point. From a practical point of view organizations are less adaptable than might be expected.

Differences between ecological and evolutionary approach: 1) in the ecological approach the organizational form is selected, in the volutionary approach the routines are selected 2) the ecological approach observes the organization as an empty box in an environment, whereas the evolutionary approach introduces behavioral elements and so the inside of the firmm is adressed as well.

Chapter 12: All in the Family

The model encompasses a family of economic approaches. The chapter is about their similarities and differences.

Information is pivotal in the model detemining which coordination mechanism prevails. Environmental and selection pressures on both markets and organizations. In this context the pressure on organizations results in the population power law and the pressure on the stock exchange results in the power law (or exponential ?) for the distribution of the listed firms on the grid.

Commonalities in the family of models: 1) comparison between markets and organizations 2) efficiency guides towards an optimal allocation of scarce resources and therefore in the selection of either markets or organizations as coordinating mechanism 3) information is stored in the routines, the rules, arrangements.

Process and / or content traditional dichotomy: differences in the family of models: content theories dealing with the content of strategies or process theories enabling strategies to come into being. Similarly approaches to organizations can be distinguished as process (what are the processes regardless the outcomes) and content (what is the outcome regardless the process leading up to it). From process to ascending content: behavioral theory – organizational ecology – evolutionary theory – dynamic capabilities – RBV – strategy – transaction cost economics – positive agency theory – principal agent theory.

Evolutionary theory is classified as a process based theory with increasingly more capabilities to generate outcomes.

Static and dynamic approaches: itt turns out that on a content-process and statis-dynamic grid, the middle sections are empty: there is no theory that addresses both dynamicism and content generation simultaneously. View picture 12.3 p. 302.

Level of analysis ascending from micro to macro: dyad of individual persons – small group with common interest or purpose – intergroup of groups with different interests or purposes – organization as a nexus of contracts, a coalition, administratieve unit – organizational dyad as a pair of interacting organizations – population of organizations as all organizations of a specific type – system as the entire set of all organizational populations. View picture 12.4 on p. 304.

The extension of the evolutionary theory with dynamic capabilities has provided a bridge to Resource Based View strategy theories and it implies that evolutionary theories can now allow for more purposeful adaptation than before. In addition the managerial task is recognized in the sense of build, maintain and modify the resource and capability base of organizations.

Lastly: 1) at all levels of analysis (dyads to systems) economic aspects are involved 2) the approaches address different problems because they view a different level and because of different time frames 3) even at the same level of analysis different theories see different problems (differrent lenses etc).

Paragraph about complex adaptive systems.

Chapter 13: Mergers and Acquisitions

The significance of m&a: 1) globalization 2) strong cask-flow after the 2001-2003 slump 3) cheap financing facilitates PE 4) shareholder activism and hedge funds. Success and failure: target firms’ shareholder gain 20+% while bidding firms’ shareholders break even. If this is due to more efficient management of the bidder then the market for corporate control is indeed efficient, else: the market can be elated when the deal is announced but disappointed after the deal is closed. Using event analysis (change in stock price around take over) The net overall gain seems to be positive: M&A apparently in that view is a worthwhile activity as it is creating value for the shareholder. Using outcome studies (comparison of performance of merged of taken-over firms against competitors) shows that associated firms compared to a non-merging control group in 11% of the transactions come out stronger after the event and weaker in 58%. This is consistent with event studies in the long term. Details: 1) combined sales equal or lower in spite of consumer prices tendency to rise 2) investments equal 3) combined R&D lowered 4) assets restructured 5) lay-off unclear 6) management turnover in about half the cases. Serial acquirers seem to be more successful than occasional acquirers.

Focus-increasing acquisitions tend to show the best results. Diversifying acquisitions the worst. The best approximation of the success and failutre rate of any acquisition in general is about 50/50. Target shareholders do best, buyers shareholder break-even. Management encounters changes.

Strategy, acquisitions and hidden information: buyers and sellers suffer from hidden information (risk of buying a lemon).

Auctions: the vast majority of M&A take place via an auction. Description of the process.

The winner’s curse and hubris: a majority of the M&A’s destroy shareholder wealth.

Adverse selection. Moral hazard.

Chapter 14: Hybrid forms

This is a form of coordination in between market and organization. Examples: franchise, joint venture, purchase organization, long-term buyer-supplier relation, business groups (some tie of ownership, management, financing etc), informal networks.

The basic thought was that if asset specificity rises then transaction cost rises more rapidly in a market configuration than in an organization: and in a hybrid form this is in between. As an illustration: if asset specificity is very low then the market can coordinate this, if it is medium specific then a hybrid can coordinate it, else it has to an organization to coordinate it.

Tunnelling is the transfer of value through artificial invoicing. Propping is to prop up underperforming or struggling firms to the benefit of the controlling owners.

Chapter 15: Corporate Governance

This is the system by which the business firms are directed and controlled via rules, responsibilities for decisions and their procedures. It also involves the way the company objectives are set, the means of attaining them and the monitorig of them. The focus here is on the relation between the shareholders and the management. Problems can arise for a lack of alignment and because of information asymmetry between them. This may arise because sharwholders expect the management to maximize their shareholder value, while the management expects to maximize her utility function. Porblems: 1) free cash flow issue in mature markets and hubris 2) difference in attitude towards risk: shareholders invest some portion in each firm to spread risk, a CEO invests all her time in the firm: the shareholder expects that risk be taken, the CEO tends to more risk averse 3) different time horizons: shareholder are entitled forever, CEO’s are contracted for a limite period only 4) the issue of on-the-job consumption by management. Any program in this area should focus on reducing the information gap and the existing interests: the size of the agency problem can be reduced by organizational solutions and market solutions.

[Paul Frentrop 2003] shows that the main reason for improvement of the corporate governance regulations was stock market crashes and scandals such as the South Sea Bubble in the UK 1720 and the 1873 Panic in the USA.

The evolution of different corporate governance systems in the world: 1) social and cultural values: in Anglosaxon countries in the social and political realm individual interests prevail over collective interests and this may explain why markets play a relatively large role 2) is the concept of a corporation viewed from a shareholder perspective or from a stakeholder perspective 3) the existence of large blockholdings in companies by institutional investors (yes in Germany and Japan, no in the US) implies a difference of the corporate governance 4) the institutional arrangementss have been developed over time and they incorporate the lessons of the past; in that sense the countries’ policies are path-dependent. Do these diffferences between countries’ corporate governance regulations increase over time or do they converge? This may be the case because: 1) cross-border mergers, 2) international standardization of discosure requirements 3) harmonization of securities regulations and merger of stock exchanges 4) development of corporate govenernance codes (best practices) incorporating those of other countries.

1If private ownership is combined with market allocation the system is called “market capitalism”, and economies that combine private ownership with economic planning are labelled “command capitalism” or dirigisme. Systems that mix public or cooperative ownership of the means of production with economic planning are called “socialist planned economies”, and systems that combine public or cooperative ownership with markets are called “market socialism.

2In Schreuder and Douma ‘it’ is replaced with the organization.

3In this sense Williamson’s ideas are descendant of Coase’s, who argued that organizations are primarily characterized by authority (here: direct supervision).

Mafia Culture

Blok, A. . The Mafia of a Sicilian Village, 1860-1960 – A study of violent peasant entrepreneurs . . 1974 . Waveland Press, Inc. . Prospect Heights Illinois . 1988 . ISBN 0-88133-325-5

The idea is that memes are the ideas that replicate: they are the basis for selective pressures. And so once a meme is interesting enough it gets replicated by its host. In this way it is successful and fit. It can’t be said to be useful for the person replicating it or for society in general or for some group in particular. It just happens to be accepted or believed, communicated and replicated and it survives. However the case may be: the memes we encounter today are the products of many years of ‘experience’ and in that sense they already have been selected by the evolutionary forces. Their ancestors have been around in some shape or form, initially basic but ever more sophisticated and competing for human attention, they have been around ever since human beings communicate. In theory those would be the ones providing some evolutionay advantage to their hosts, but there is no need for that. The prevailing memes can be about anything: if they are damaging to their host, they should not be too quick about it. Some examples were given of memes concerning the economic lives of people at this point. They can all be said to be useful for the host up to some point and so to identify their workings, an inventory was made of the memes that must be in play in a traditional sicilian village in the period 1860-1960.

A pivotal characteristic of mafia is the private use of unlicenced violence as a means of control in the public sphere. Many people are involved in it or with it and it is still widespread, but it is not a centralized or single organisation. However the case may be: mafiosi exist and the sum of their actions associated with the use of violence is known as the mafia: mafia exists but The Mafia doesn’t. Mafioso or ‘ntisu (he who is listened to).

The reason why Sicily is ungovernable is that the unhabitants have long ago learned to distrust and neutralize all written laws (alien laws in particular) and to govern themselves in their own rough homemade fashion, as if official institutions did not exist. This arrangement is highly unsatisfactory (the inhabitants themselves endlessly lament their fate) because it cures no ills, in fact makes them worse, promotes injustice and tyranny, leaves crimes unpunished, does not make use of Sicilians’ best qualities, and has kept the country stagnant and backwards in almost every way. It consists of a technique, or art, which is second nature to all Sicilians, both the decent hard-working, honorable Sicilians, and the criminal minority, which includes the Mafia, that of building up one’s personal power, and of acquiring enough power to intimidate or frighten one’s competitors, rivals, or enemies, in order to defend one’s honor and welfare at all times [Barzini 1972: 75-6 in Blok 1988 foreword p xiv].

M1: Distrust the law and any alien forces. Govern thyself.

M2: Defend your honor and welfare. Expand your power to intimidate your competitors and rivals.

The existence of the mafia hinges on a set of economic and political arrangements and so to discover the drivers of its mechanisms is about the locating of the connections between those two elements and the prevalence of private violence.

Fundamental framework of social life: landless / landpoor laborers, rentiers (owners of land) and managers (running the estates and oversee strongarm men hired to protect the property). The managers maintained the rentiers’ incomes from their property and their local power. In return they received liberty to exploit the local workers for their own ends. The landlords used their own private forces to ward off outside interference from rivals and the state and to protect their managers. The produce is to a large extent exported and some level of large-scale organisation is in place and so to label the sicilian society as backwards doesn’t explain the state of afffairs. Blok calls this system rent-capitalism. An important piece of the puzzle is that the laborer spends a lot of time traveling between his job(s) and between his own scattered plots of land (itinerant lifestyle). As a result of this and the insecurity caused by a lack of state control, protection could be offered to the laborer in exchange for a tribute, added to the burdens of direct exploitation (low wages and high leases and taxes). But the population pressure was high enough to keep the wages low and underemployment prevalent, the communication between villages was limited and so the laborers were not in a position to organize themselves, emigration was difficult and protection by the state was limited.

M3: (peasant). Me and my family must survive. Get work at any price wherever and whenever.

The origins of the emergence of the mafia lies in the liberalisation of the lands as a consequence of the dispossessions of the church, breaking up of common lands, abolition of feudal landownings and so on. This lead to the acquiring of large estates and stretches of land by a few bourgeois joining old aristocrat families, preventing farmers joining in and state intervention regarding genuine land reform. ‘The mafiosi were creatures of the landlords; they began as armed retainers, and ended up as exploiters with considerable autonomy‘ [Blok 1988 p. xviii]. ‘While on one hand, mafiosi heightened class tensions though their control over land, they checked open rebellions and sustained revolts in several ways: by force; by keeping a hold on outside influence; by opening avenues for upwardly mobile peasants; and by turning outlaws and bandits into allies‘ [Blok 1988 p. xviii].

M4: (peasant). The security and welfare (and honor) of a mafioso is safeguearded. Get a job as a mafioso.

M5 (peasant) A mafioso is selected because of his outstanding cruelty. Show exceptional cruelty.

The mafiosi are protected by the landlords mightier then them; they in turn have fabricated some agreement of non-intervention with the regional authorities. This system rests on patronage without complete control: in case the national state collapsed then the non-intervention agreement is rendered useless and space opens for other power structures. If the protectors are replaced by the government than the autonomy of the mafiosi decreases and the effect of that for the populace depends on the concrete relative characteristics of the mafia and the state. The amount of force depends on the amount of autonomy that the parties have managed to ssecure for themselves.

The system producing mafia is both cruel and curious. Like governments, the beneficiaries of the system, directly or indirectly, tax the producers of the wealth – the agricultural workers. Like many governments, the system permits each of the operators to scoop some of the proceeds from the flow towards the top. It depends on government to stand far enough away not to interfere with the flow of proceeds, but close enough to assure that neither rivals nor the people at the bottom will block the flow. Unlike most governments, however, the system has no accountability, no visibility, no means of representation for those under its control. So the mafia system is more curious and more cruel than the government itself.’ ‘The murders, thefts and mutilations its operators use to maintain their control- to ‘make themselves respected’-are only the most lurid manifestations of its evil’ [Blok 1988 p xix-xx].

M6 (mafia): the more invisible the less accountable. Remain as little visible and representing as possible.

In that regard, one might imagine a continuum running from anarchy to banditry to mafia to routine government. The defining feature of that continuum is the extent to which control over the use of force is concentrated in a single organization. That implicit continuum connects Blok’s analysis to phenomena far more general than mafia or Sicilian villages. What he calls state-formation, other people have often tried to deal with as ‘political development‘ [Blok 1988 p. xx-xxi].

State-formation is not immanent, unidirectional or a displacement of the traditional by the modern nor universal (namely not historically specific) but it is international (namely occurring in a network of neighbouring or otherwie dependent states). The processes that Blok identified in Sicily are fairly standard State-formation processes: consolidation of the controol of over the use of force, elimination of rivals, formation of coalitions, extension of protection, routinized extraction of resources. Had one mafia network managed to extend its control over Sicily, then it would have been closer to a public rather than a private authority, a State rather than a movement.

Poised between landowning elite and peasants, between city and countryside, and between central government and the village, they sought to control and monopolize the links between these various groups and segments of society‘ [Blok 1988 p. xxviii].

M7 (mafia): There is a profit to be made by exploiting violence in the vacuum between the peasants and the landowners. ??

Land is the basis for social and political life in Genuardo: the majority of the population did not own or have power over suffficient land to live on. The only way to survive is to come to terms to those who do own it or have access to it. This was increased because in the new structure of landownership, the feudo (classical estate) was replaced with the latifondo: the mechanism of the common grounds were now no longer in place and all land was on lease. These lands were part of the rivalry of the existing landownners and the new incumbants. This further impoverished the peasants, because they were now forced to pay a lease for the formerly free of charge commons. The latifondo were large, but their lands were leased out in smaller strips of land to peasant on short term leases. The estate was itself leased out to a gabelloto (leaseholder) who paid a fixed fee per annum or a amministratori (steward) who represents the owner and has an annual income. They are referred to as peasant entrepreneurs because they were of peasant stock and manipulating people and resources for profit.

Who are the entities engaged in this game and what are their tools for thought?

General (a.p. Barzini quote) held belief:

The reason why Sicily is ungovernable is that the unhabitants have long ago learned to distrust and neutralize all written laws (alien laws in particular) and to goven themselves in their own rough homemade fashion, as if official institutions did not exist… It consists of a technique, or art, which is second nature to all Sicilians, both the decent hard-working, honorable Sicilians, and the criminal minority, which includes the Mafia, that of building up one’s personal power, and of acquiring enough power to intimidate or frighten one’s competitors, rivals, or enemies, in order to defend one’s honor and welfare at all times[Barzini 1972: 75-6 in Blok 1988 foreword p xiv]

This orientation of peasants having a relatively high degree of independent control over their land is completely at variance with the attitudes of the dependent peasantry discussed in this book. For them, manual work was and still is looked dow upon, and those engaged in it – the contadini or vidani – are socially degraded‘ [Blok 1988 p48-9].

M8: manual labor is degraded for contadini or vidani. Advancing in the world (civiltà) means absence of manual work. To get a job that is free from manual work is better than a job involving manual work.

To bridge seasonal shortfalls, the peasants received loans from the gabellotti: they left the feudal system to enter a system of indebtedness.

The sharecropper (bringing own equipment ot the estate) was permanently indebted to the gebellotti because of these fees and tributes: 1) ¾ of the crops, 2) verbal contract 3) net / gross measurements when the gebelloto calculated payables and receivables 4) gifts to the gebelloto as tributes for protection to share out to whomever it may concern 5) high interest rates on loans 6) risks on production were with the sharecropper.

1) Peasants and shepherds as seasonal workers during summer and fall. They travel between estates and their own holdings. They need money to sustain their families and they can emigrate with considerable difficulty only. Some of them are retained by the managers as a mafioso or by other mafiosi as a collegue; thus a way up is offered to peasants skilled in violence and in so doing keeping restive peasants in submission. They have a tendency to dislike the land and the work on the land. Also they are looked down upon and seen as degraded: they are seen to have a lack of civiltà (as uncivilized). They are inclined to patriotism, xenophobia and rejection of any central rule.

M9 (peasant): To become a mafiosi means to have honor, no manual labor, more wellfare. Become a mafioso.

2) Land owners: bourgeois and aristocrats as employers and lessors. They live elsewhere, not on the estate. They want an income and no trouble. They retain a manager to manege the estate for them. They broker some agreement between the mafia and the regional governments. Aristocracy and bourgeois had no interest in farming and a didain for manual work. They were interested, apart from the landed status, in power and presige: noble titles via marriage and purchase and local government.

M10 (landowner): A life away from the state in a city is further removed from the business, concrete work, it has more civiltà and so that is to be preferred over a life on the estate. Life in the city, have a manager manage the estate.

3) Managers of the estates as retainers of strong-arm people. They gain an income from the management of the estate as well as from the coercion of low-level workers to work for them at some wage.

M11 (managers, lessees) get a lease of a part of the land on an estate: make a profit while the peasants will do the physical work. Make profit. Squeeze out the sharecroppers for more profit.

4) Mafia consists of peasants retained to enforce the will of the managers on the laborers regarding the interests of the estate and keep others out of the community as retained for strong-arm work. It is born from the tension between the central government and the land owners and the latter and the peasants. Mafia helped manage these related tensions. They move up in the world from low-wage worker (at the wrong end of the stick) to someone with a higher status and a somewhat higher income and more security (the right end of the stick). In exchange for their services protecting the intrests of the state, they are at liberty to raise tributes from the laborers. They are protected by the land owners from outside influences because of their agreements with regional authorities. They developed as entrepreneurs monopolizing the information channels with the outside world so as to keep the population isolated and uninformed. In case of a conflict the enforcement by campieri (private police) is in favour of the party wielding power and influence and incentivizing the executor and so the mafia follows the vested interests [p61]. They earn respect by their application of violent force that inspires awe and their capability to gain access to resources mainly land to their followers; there is competitive pressure on these powerful (and in an awe inspiring way respectful) jobs. Mafia at a higher level of society lends support ot government that is interested to abstain from too much interference in local communities’ businesses. ‘.. the Mafia demanded cmplete subordination, absolute obedience and ‘rispetto’ (respect). This last was even required in exterior forms and was understood particularly as a concretee recognition of the prerogative of ‘immunity’ belonging to the mafioso, not only in his person, but also in everything he had to do with or that he was pleased to take under his protection. In fine, evildoers had to leave the mafioso severely alone, and all the persons or things to which , explicitly or impicitly, he had given a guarantee of security. That is the meaning of the word ‘rispetto’ in this connection‘ [Mori 1933: 69-70 in Blok 1988 p. 146-7]. Damage to the ‘rispetto’ was seen by the mafia as an act of insubordination, an insult, not of material damage.

The means used by mafiosi is violent force. The violence and homicide in mafia circles however wasn’t a sign of social disorder. ‘The use of violence was encouraged and justified, though people were never aimlessly harmed or killed: violence was prescribed in those situations where people sought to get their claims to honor and power ultimately recognized‘ [Blok 1988 p 174].

M12 (mafiosi) When coercing people to do what they want, they make use of their ‘rispetto’. Act rigourously and violently at any inkling of a damage to the rispetto.

5) Regional and national government kept in the loop by the land owners. Some representatives receive a retainer to stay away from the area.

M13 (government representatives) the mafia enforces the law in some locality too insignificant for us. If we allow them that then they do our work for us. They may also help us to collect votes for our political careers. Get aligned witht hem.

6) The group of the bandits includes people that are not a part of the sysem that encompasses the mafia. They are social and so they are tied to other people. Bandits had to rely on protection from above to survive at all. The protection can be from kinsmen up to politicians and if they were not protected then they were hunted down by landlord’s retainers, the police or the peasants. And the more successful as a bandit, the better his protection is. They are important in this context if they assume a retainership for a landlord. That suppresses the peasants resistance in two ways: the bandit opposes it directly and it shows an avenue upward to power and respectability.

M14 (bandits) If you are not protected then will not get old. Get protected: the higher up the more protection.

The peasant movement arose because of: 1) socialist influence in intellectual circles in cities, 2) the draft brought people back to their village with new experiences and perspectives, 3) suffrage for those who cold read and write increased as more people had those skills 4) high emigration rates reduced the chances of revolution and helped traditional resignation.

The approach of the mafia: once a cosco (mafia clique) gets a foothold on an estate as a campieri, a leaseholder or supervisor of herds, they start making attempts to increase their wealth with additional activities: apart from revenues and levies they tried to rustle cattle and sheep.

M15 (mafioso) Any foothold is a start of a larger entrepreneurship. Get a foothold somewhere. Then extend the business.

The mafiosi can then ‘protect’ the cattle from being stolen for a payment. This protection is forced on people through force and violence. At some point the mafiosi felt so strong that they imposed a tribute, not only to peasants but also to landowners.

Once they are in as a campieri, they keep out the petty theft and the cattle rustling but too they are a burden to the manager and to the owner of the estate. Over time, the balance of power between the landowners and the mafiosi tipped to the latter.

Friendship in Italy, as in other mediterranean societies is intrumental rather than emotional. Each member of a dyad (combination of two things) is a sponsor for the other and acts as a potenital connecting link to others outside of the dyad. When they exchange favors they call each other ‘friend’ and they rely on the connotations of intimacy, trust and affection to cover the practical usefulness and sometimes exploitative nature of their interactions. However, if the instrumental element takes the upper hand then the relation is in danger of disruption.The term ‘friendship’ can refer to a relation of patronage in a client supplier relationship and this way can cross class lines.

M16 (all) friendship is instrumental. Get friendly, be useful. Use.

The personal armies in feudal times were different from the mafiosi after that. Similar is the reputation of toughness and very personal connections. The main difference is the social context in which the mafiosi operated versus the institutional context of the feudal henchmen.

Their violence wasn’t formal and therefore illegal from the perspective of the formal authorities; they accepted it for practical reasons. The state failed to monopolize the use of violence.

The mafiosi operated as middle men: they assumed positions of management of the estates and in this way controlled the efforts of the peasants, dependent on the land for the livelihood. They bought estates if they came up for sale, sold the land to peasants at a profit, coerced tributes from them after that and forced them to vote for their candidates in elections, thus brokering political influence. The politicians themselves were often owners of the estates that were managed by the mafiosi striving for a regional or national political position; and in this position they could protect the mafiosi from the law. This is a patron-broker-client network. Now they controlled the environment of the village because they had a control of the people in authority. They were poised between the peasants (were they came from, the so called little tradition) and the State (the big tradition). The relations within and in between the cosci were based on kinship, and in its absence, other similar relations developed.

M17 (mafiosi) work the mafia at all sides to expand the business. Have the peasants pay tributes, have the landowners pay tributes, have the politicians pay for votes.

Within the system of the mafia the younger mafiosi strived to achieve a better position in the hierarchy at the expense of higher ranking and older members. The killing of rival was an important ingredient for that, because of the career opportunities as well as the establishment and reinforcement of the reputation of ‘rispetto’.

M18 (mafiosi) gain ‘rispetto’ by eliminating rivals and have access to more work in the process. Eliminate rivals.

At a village level a small number of families monopolized control over the means of violence, the means of production, and the means of orientation, namely religion, knowledge and ideology.

M19 (mafiosi) Have more control to leave less room for deviations. Control all aspects of village life: the means of religion, violence and production.


Important elements of the rise of the mafia are: the gradual and violent rise of a rural middle stratum, the growing proletarianisation of the peasantry, the obsolescence of certain sectors of the landowning aristocracy.

Omertà: recourse to the legal authorities with regards to private matters is seen as a sign of weakness. It is a strong version of the sentiment that personal insult should be settled by duel to recover lost honor. Maffii psychology indicates many offenses in this category and that should be avenged by personal action or that of relatives or friends.

M20 (mafiosi) guard omertà. Deze is al eerder geweest.

The reign ended or lost momentum when empoyment rose via infrastructure projects, the number of laborers decreased because of emigration overseas and migration to the industrial north of Italy, decrease in competition for local resources (land is less important as a source of power, because people are less attached to land as a source of income) requiring cotrol by violence, and so the bargaining power of the peasants strengthened. Also within the mafia the power shifted away from the local strongmen to influence in the political sphere. As a result violence pays less.

The mafia in Sicily is a ‘mental condition’ pervading everything and all sorts of people on every level. The mafia ended up in the blood, in the most hidden structures of society. Above all, it is to be found in the atavistic distrust of the law and, for that reason, in the disregard of the law, which among Sicilians assumesthe characteristics of an epidemic voluptuousness. It is a mentality harboring in proprietors, peasants, magistrates, local authorities, the police, everywehere. It is impossible to identify, to dissect, to separate the collusion with the mafia. Because, as I have said, it enters in all the houses, though the door as well as through the window. Hence, the omertà, which is fortunately suffering its first flaws, the first cracks…. Do you know that the apparatus of the public forces to maintain law and order in Sicily is the most complete and the most extensive in Italy? But for the mafia it is of no use. As I have said before, it is a mental condition that bewitches, enchants, contaminates – you may choose the appropriate term for yourself – it instills everywhere also in those strongholds, like the Magistracy, that should be unassailable and vaccinated against the mafia‘ [Senator Donato Pafundi President of the Anti-Mafia Commission 1966 in Blok 1988 p. 227-8]. One of the major conclusions of the report of the commission issued in 1972 was that: ‘mafia by its very nature defies any remedy‘. All public bodies are rendered ineffective because all of them to some degree are intertwined with the mafia and their protectors.

Corruption and mafia are inherent elements of societies in a relatively early stage of formation of a nation-state.

What changes should take place that enable people to encourage a positive approach in all public servants or to carry though sharp measures against deviations.’ Attitudes towards the government and involvement in tasks in society on the part of the people who form it will only change with the changes in the society at large. .. It (to see corruption as something which is morally bad DPB) suggests that there are evildoers who can be punished.

We must expect, however, that people who act in particularistic and corrupt ways in not making clear a distinction between public and private affairs have few other options. They are part of societies in which the distribution of power is far more uneven than in certain nation-State societies where people can, quite apart from personal merits, afford to be ‘honest [Blok 1988 p. 229].

Involution means the overdriving of an established form in such a way that it becomes rigid through an overelaboration of detail [Geertz 1963:82 in Blok 1988 p. 83]

alle Begriffe, in denen sich ein ganzer Prozeß semiotisch zusammenfaßt, entziehn sich der Definition; definieerbar ist nur das, was keine Geschichte hat‘ [Friedrich Nietzsche. Zut Genealogie der Moral – Werke, Vol. II. Ed. Karl Schlechta. München: Carl Hanser Verlag, 1966 p. 820]

Kapitalisme en Vooruitgang

goudzwaardDeze post is gebaseerd op het boek Kapitalisme en Vooruitgang van Bob Goudzwaard, professor filosofie aan de VU Amsterdam en mede-oprichter van het CDA van het gereformeerde contingent. Ik was benieuwd of economische groei een ‘natuurwet’ is of dat dat iets is dat wij onszelf opleggen. Die vraag is deels beantwoord, namelijk het laatste. Wat er ‘gratis’ bij kwam is een beschrijving van de samenleving die de westerse mens heeft onwikkeld in zijn streven naar vrijheid en beheersing, om zich vervolgens afhankelijk te maken van die maatschappelijke inrichting.

De eerste zin van het boek is: ‘Zoals in de evangeliën wordt vermeld draagt elk geloof, hoe klein het ook is, het vemogen in zich tot het verplaatsen van bergen’. Zonder commentaar parkeer ik hier die zin voor later gebruik.

De Renaissance heeft de betekenis van de kerk voor het dagelijks, inclusief economisch, leven losgemaakt van God. In de plaats van de verticale structuur zoals de gildes van de middeleeuwen ontstond de mogelijkheid van horizontale ontwikkeling, de onderneming wordt zelfstandig. Arbeid, grond en kapitaal worden losgemaakt van de bestaande structuren en dienen rationeel te worden ingezet. Het handelen wordt bepaald door: ‘no moral rule above the letter of law’ (Hobbes).

Niet langer was de voorzienigheid van de middeleeuwen relevant, die het dagelijks leven voorzag in de besturing door God en bovendien het bouwen van de mens op eigen mogelijkheden veroordeelde. Het einde van de Goddelijke lotsbepaling werd tot stand gebracht door deïsme: zelf-vrijspraak en zelf-openbaring. God schept de wereld en alles erop en daarna is zijn rol uitgespeeld. Bovendien levert hetgene dat overblijft van de voorzienigheid alleen maar ‘goede uitkomsten’ op voor degenen die met de voorgeschreven orde willen leven. Naast christendom kwam het humanisme op als levensovertuiging met idealen van het streven naar vrijheid en beheersing.

De mechanistische ‘invisible hand’ van Adam Smith was een deïstische uitdrukking van de voorzienigheid. De ‘invisible hand’ brengt mensen ertoe het algemeen welzijn te dienen, zelfs al denken zij dat ze hun eigen belangen nastreven. Zo draagt een ieder die meedoet bij aan: ’that great purpose of human life which we call bettering our condition’. Door een verregaande arbeidsdeling wordt productie efficiënter ingezet wat een grotere welvaart inclusief ‘wealth of nations’ oplevert.

Het klassieke economische wereldbeeld

1) Mens versus natuur: het economisch leven wordt getypeerd door een individu door zijn eigen menselijke arbeid in een gegeven natuur tot een zo groot mogelijke welvaart probeert te komen. Daarbij is het voornaamste instrument zijn eigen rationeel inzicht. De betekenis van het leven ligt in de omgang met de dingen van deze wereld, de natuur. De individu maakt zich waar door de dingen die hij zelf denkend en scheppend vormgeeft. De markt is niet een ontmoeting van mensen maar een ontmoeting van ieder individu afzonderlijk met een voor hem gegeven prijs. De markt is een belangeloos mechanisme

2) Dienend natuurrecht: Smith stelt voor opbloei van de welvaart de voorwaarde het respecteren van de natuurlijke orde, namelijk wat het natuurrecht vergt. De prijs die een individu ontvangt voor zijn inzet is een prijs die tot stand komt onder vrije mededinging op de markt en het natuurrecht is het recht op vrije mededinging. Het is aan de onverheid om die rechten te beschermen, zoals eigendom, contractsluiting en vrije vestiging. Het recht is dienend geworden aan de economie

3) Evenwicht als harmonie: het nieuwe voorkomen van de voorzienigheid is een evenwicht op de markt als gevolg van de werking van de ‘invisible hand’. Harmonie ontstaat als er evenwicht op de markten is: daar worden menselijke belangen gewogen. Die harmonie wordt bereikt, ook als een ieder zijn eigenbelang maximaal nastreeft. Dat laatste is dus niet een adagium, maar het draagt ook bij aan de harmonie. Hier is een paradox (Mandeville), namelijk: het gaat niet aan om tegelijkertijd maximalisatie van materiële zaken na te streven en vol te houden dat men de menselijke moraal voor ogen heeft. Uiteindelijk moet er gekozen worden

4) Verband tussen materiële welvaart en moraal: dat is utilitarisme (nuttigheid, Bentham): de mens beslist door een afweging van nut, namelijk consumptiegoederen, en noodzaak, namelijk te verrichten arbeid (samen ‘utilities and disutilities’), om te komen tot een maximalisatie van nut. Bentham stelt dat dat is wat individuen en instituties behoren te doen. Het is de moraal van ’the greatest happiness for the greatest number’. De moraal is aangepast aan de economie


Tijdens de verlichting kwam het inzicht dat men vooruitgaat door doelbewust te handelen en geleid door verstandelijke overwegingen om zich te bevrijden. Het vooruitgangsgeloof hechtte zich in de westerse cultuur. Dat kan, net als voorzienigheid en humaniteit, niet worden bewezen, het is een geloof. Geloof in vooruitgang houdt in het geloof dat de situatie in alle aspecten beter is op een later tijdstip dan op een eerder. Alleen door zich te verbeteren in alle aspecten van de wetenschap kan in dit geloof vooruitgang worden geboekt.

Alleen als de mens zich laat leiden door dit geloof is er zekerheid dat vooruitgang zal worden geboekt. Daarvoor is vervolmaking van de mens zelf nodig. Het proces van vooruitgang gaat niet buiten de individu om, maar speelt zich in de individu a die zelf groeit in zijn strijd met de natuur. Met dat sluitstuk kan het verloren paradijs alsnog bereikt worden en is deze ideologie praktisch geworden: het verbeteren van zichzelf is het programma dat leidt tot vooruitgang.

De verlichting heeft de basis gevormd voor de grote revoluties in Europa. De logica is als volgt: de mens is in principe goed. Het kwaad op deze wereld komt dus niet van binnen maar van die maatschappelijk structuren die de mens dwingen tot onrecht. De conclusie is dat de vijand van de veranderingsgezinde individu degenen zijn die zich met de gevestigde maatschappelijke orde hebben vereenzelvigd. Want daardoor staan zij de benodigde aanpassingen in de weg. En het logische sluitstuk is dan dat hun eliminatie de weg is om het maatschappelijk heil weer beschikbaar te krijgen.

De levensvisie tijdens de industriële revolutie (in Engeland) was een synthese van: individualistisch-puriteinse beroepsethiek, deïstisch-utilitaire maatschappijbeschouwing en een ongecompliceerd vooruitgangsgeloof. In Frankrijk was het eerder een verzet tegen bestaande instituties en het bevorderen vann het heil van de natie. Waar de industriële revolutie scheef liep is in de absolute voorrang in de ontwikkeling van de cultuur voor techniek en industriële productie, terwijl sociaal-ethische en rechtvaardigheidsnormen weinig aandacht kregen. Utilitariteit kreeg a priori het morele primaat: al het andere was dienstbaar gemaakt, waardoor gelijktijdige verwerking van economische en niet-economische normen niet mogelijk was

Programma van verbeteringen

De factoren die economische groei mogelijk maken zijn: menselijke arbeid efficiënter inzetten, gereedschap inschakelen, arbeid afzonderen voor het stelselmatig verbeteren van gereedschap en werkmethoden.

Door het vooruitgangsgeloof worden deze tot het uiterste benut, omdat van hun inzet de komst van het totale menselijk geluk in de samenleving afhangt. Het geloof in vooruitgang is direct gekoppeld aan een praktisch en concreet programma van verbeteringen. Als deze groeifactoren echter geïsoleerd en absoluut worden ingezet, dan heeft de individu initieel wel beheersing over de natuur, maar uiteindelijk wordt het individu afhankelijk van die factoren die hij zelf op de troon heeft gezet.

Na 1850 verandert het vooruitgangsgeloof van een ideologie tot een praktische en meetbare vooruitgang in technisch, economisch en wetenschappelijk opzicht en vooruitgaan wordt een doel op zich, belangrijker dan het einddoel. Duidelijk wordt dat de mens een stap is in de evolutionaire keten van opvolging. Omdat het evolutionaire proces al bestond, is de mens ‘maar’ een schakel en in plaats van het subject van de vooruitgang een object ervan geworden. Een andere invloed uit de evolutieleer is dat de ontwikkelingen tot stand moeten komen door een selectieproces: competitieve strijd en aanpassingen aan de omgeving bieden de beste kansen op de uiteindelijke overwinning.

Ontwikkeling van het kapitalisme na 1850

1) Ondernemingen worden groter, ondernemerschap en eigenaarschap worden gescheiden. De arbeidsverdeling wordt geperfectioneerd. De ondernemingen gaan voor hun zelfstandig voortbestaan leiding en kapitaal opeisen: niet de wil van de ondernemer maar de wet van de maatschappelijke evolutie is maatgevend geworden. De ondernemersfunctie wordt aan het bedrijf gebonden: het bedrijf als systeem heeft continue leiding nodig en de onderneming gaat de ondernemersfunctie als onderdeel van het eigen systeem opnemen: in plaats van dat de ondernemer eigenaar van de onderneming is, lijkt nu de onderneming de eigenaar van de ondernemer te worden. Datzelfde geldt voor technische vernieuwing. Door deze ontwikkelingen is niet langer alleen de kapitaalverschaffer de principaal en verschuift het ondernemingsdoel van rendement naar continuïteit. In de nieuwe omgeving waar economische en sociale vooruitgang een constante zijn geworden, is dit voor de onderneming een aanpassing van de onderneming aan die vooruitgang.

2) Relatie tot concurrenten en consumenten. De positie ten opzicht van concurrenten is steeds meer gericht op mededinging. Via prijsconcurrentie kan door vrije concurrentie de overlevende / winnaar een monopolie toevallen. Concurrentie richt zich in toenemende mate op technologische concurrentie en op beïnvloedingsconcurrentie: door de smaak van de consument te sturen wordt een trouwe klantenbasis opgebouwd, waardoor de continuïteit van de onderneming zeker wordt gesteld. De smaken van de afnemers worden als het ware in de planning van de onderneming opgenomen. De consument verliest zijn souvereiniteit

3) De relatie onderneming tot overheid. Door het uitgangspunt van laissez faire als economische exponent van de vooruitgang met volledige mededinging als ideaal, moest de overheid zich actief bemoeien met de economie. Ook de overheid ontkwam niet aan de consequenties van vooruitgang als systeem. Een ander aspect was bestrijding van de werkloosheid: om de individu in staat te stellen zichzelf te ontplooien, was werkgelegenheid belangrijk en daar was een rol voor de overheid weggelegd.

Dus wordt souvereiniteit opgeofferd aan de vooruitgangsideaal door de onderneming, de ondernemer, de consument, de individu en de overheid. Om de voortdurende vooruitgang in stand te houden is een samenlevingssysteem nodig dat hieraan dienend is. Gedrag van mensen dat gericht is op het voorkomen van een niet-gewenste einduitkomst van het vigerende systeem is een overlevings-ethiek. Dat biedt niets nieuws, omdat dat is afgeleid van datzelfde systeem, zij het dan om een ongewenste uitkomst te voorkomen.

De aangepaste mens

Citaat: ‘In een samenleving, waarin de vooruitgang de toon aangeeft en alle menselijke instituties en relaties daarop steeds meer zijn afgestemd geraakt, is het immers niet meer dan logisch dat ook de leden van die samenleving in hun eigen denken, doen en laten daardoor fundamenteel worden geraakt en beïnvloed. Waarom zouden wel grootheden en instituties zoals de techniek, de overheid, het prijzen- en geldstelsel en de ondernemingsfunctie aan internaliseringskrachten bloot staan en de mens zelf niet? Ook zal hij welhaast onweerstaanbaar worden getrokken binnen het krachtenveld van de vooruitgang.’ Voorbeelden zijn:

  • De ondernemer of manager moet voortdurende denken en handelen in termen van het economische meegroeien en technisch voorblijven. Dit vergt een diepgaande mentale inspanning en een ingreep in de levenshouding
  • Voor de werknemer zijn veel werkzaamheden zeer gefragmenteerd en zodanig ontdaan van hun menselijkheid. Dat is van invloed op hun gedachten en hun omgang met anderen. Als die werkwijze al wordt gewaardeerd dan lijkt dat er eerder het gevolg van te zijn dat de individu zich aan de machine heeft aangepast dan andersom
  • De verhoudingen tussen mensen wijken voor relaties tot dingen. Ook al is dat duidelijk, er is geen verandering in deze benadering, het lijkt alsof de westerse mens verlamd is geraakt in dit maatschappelijk bestel en dat de maker van de vooruitgang machtelozer wordt ten opzichte van die vooruitgang
  • De keuze voor het individu is nu tussen zich revolutionair afwenden van deze maatschappij of zich continu en onbeperkt aan te passen aan alle eisen van het systeem

De zetel van de macht

Er is een sterke binding van de westerse mens aan zijn vooruitgangsgeloof. Dat geloof heeft religieuze aspecten. Een kenmerk van elk geloof en elke vorm van religie is dat het zijn aanhangers nooit onveranderd achterlaat: het drukt een stempel op hen en op hun denken en hun relatie met anderen. Het besef van machteloosheid hangt samen met de geloofsdimensie van het vooruitgangsmotief: de eigen macht is gedelegeerd en het vooruitgangsgeloof lokt juist uit tot die overdracht van macht. De vraag is niet langer: hoe zien wij economie, techniek en wetenschap, maar hoe zien zij ons?

De humanistische beheersings- en de vrijheidsideaal zijn aan elkaar gerelateerd, omdat persoonlijke vrijheid het best tot uiting komt door het beheersen van de wereld. Er is een spanning tussen, want beide eisen de hele mens en de hele wereld op. Je kunt niet alle processen in de wereld willen kennen maar ervan afzien zodra je persoonlijke vrijheid in het gedrang komt of aan de hele wereld je vrije wil opleggen maar ophouden als je ziet dat je beheersing van de wereld daardoor in het gedrang komt. Ook het vooruitgangsgeloof, voortgekomen uit het humanisme, draagt die spanning in zich. Het kan niet anders dan de hele wereld en alles daarin aan zich ondergeschikt te maken.

De westerse samenleving heeft zich geordend en geschikt tot een doelgericht systeem ter bevordering van economische en technische vooruitgang en oefent een aanhoudende druk uit op individuen om zich aan te passen. Deze objectivering van mensen staat in verband met de beheersingsdrang van diezelfde mensen en hun vooruitgangsgeloof. Thompson: ‘We started with the law of the survival of the fittest, but now end with the law of the fitting of the survivors’. Op dit punt breng ik de eerste zin uit het boek in gedachten: door het geloof in vooruitgang doet iedere individu er alles aan om dit vooruitgangsmodel tot werkelijkheid te maken.

Goudzwaard noemt deze samenleving een gesloten of een tunnelsamenleving: een strakke organisatie is gecombineerd met allesoverheersende doelstellingen. Daarbinnen staat alles in dienst om zo snel mogelijk het eind van de tunnel te bereiken. In de sociale betrekkingen heeft niets waarde dat niet bijdraagt aan het voortbewegen in die tunnel, al het andere is zinloos of waardeloos. Dit is een gechargeerd model: de meeste westerse samenlevingen zijn minder gesloten. De sleutel om te ontsnappen aan deze tunnel moet worden gezocht aan de wortel van het humanistisch ideaal, namelijk beheersing versus vrijheid. Dat overstijgt alle politieke of institutionele krachten: de structuur van de op vooruitgang gebaseerde samenleving is zo sterk, dat de werking van deze samenleving voortgaat, zoals een vliegwiel. Een verandering moet zich richten op het doorbreken van de verzelfstandigde rol van de vooruitgangskrachten in de samenleving. Bovendien moet voor een verandering niet de vooruitgang de maat te geven voor de samenleving, Het vooruitgangsdenken is circa 250 jaar gestart en is tot in de kleinste details en over de hele breedte in de westerse samenleving aanwezig. Het is te verwachten dat dit niet op korte termijn zal zijn aangepast.

De Piloten van Luyendijk

Deze post is een reactie op het recente en waardevolle boek van Joris Luyendijk: Dit Kan Niet Waar Zijn. Luyendijk analyseert als ’tot antropoloog opgeleide journalist’ en zonder kennis van financiële markten, het gedrag van mensen in hun professionele habitat: de financiële sector in Londen. Zijn eerste interview vraag is ongeveer deze: ‘hoe kun jij met jezelf leven na wat je de mensheid hebt aangedaan in de crisis van 2008?’. Zijn beeld na circa twee jaar onderzoek en 200 interviews is: een vliegtuig met problemen en een lege cockpit. Met de kennis die ik tot nu toe heb verzameld over complexe adaptieve systemen ga ik op zoek naar de missende piloten van Luyendijk. Verder lezen De Piloten van Luyendijk

Krugman over complexiteit in ruimtelijke economie (hoe steden ontstaan)

Deze post is gaat over het artikel: ‘How the Economy Organises Itself in Space: A Survey of the new Economic Geography’ van Paul Krugman in SFI Proceedings II, The Economy as an Evolving Complex System.

Dit artikel is een survey van onderzoek op dit gebied. Aangezien Spatial Economy buiten de scope van dit onderzoek is geef ik – en ik doe het artikel tekort – een paar voorbeelden eruit weer, die illustreren hoe complexe effecten optreden in eenvoudige economische situaties. Verder lezen Krugman over complexiteit in ruimtelijke economie (hoe steden ontstaan)

De Halfwaardetijd van Bedrijven

Deze post is naar aanleiding van een onderzoek dat is uitgevoerd door SFI (Santa Fé Institute) naar de levensduur van bedrijven. De halfwaardetijd van de onderzochte bedrijven is circa 10 jaar is, ongeacht de sector of de leeftijd van een bepaald bedrijf. De belangrijkste oorzaak van ‘overlijden’ van een zelfstandig bedrijf is een fusie of een overname. Kan dit leiden tot een wetmatigheid voor de leeftijd van bedrijven: katten 18, mensen 80, bedrijven 10? En wat is de reden dat bedrijven na verloop van tijd onderdeel van een ander bedrijf worden:  Schumpeter, Hubris van de bestuurders of bedrijfs’ecologische’ redenen? Dit is de link naar het oorspronkelijke artikel.

Padgett over zelf-organisatie

Deze post is grotendeels gebaseerd op het artikel ‘The Emergence of Simple Ecologies of Skill: A Hypercycle Approach to Economic Organisation’ van John F. Padgett opgenomen in Santa Fé Proceedings, ‘The Economy as an Evolving Complex System’.

Dit artikel is één van de sleutels voor mijn onderzoek, omdat het een antwoord geeft op de vraag hoe er samenhang kan ontstaan in activiteiten waarin die samenhang niet expliciet is. Verder bevat het geresenteerde model een voorstel voor een mechanisme waarmee lokale acties naar globaal gedrag propageren. Het model sluit aan bij mijn ‘velden van activiteiten’ (zie post Simplexity en Complicity), de Concepten van Dennett, de Memes van Dawkins, de Bucket Brigade algorithm van Holland (zie de post Inductie) en voorstellen van  Kauffman. Het model is ingebed in de evolutietheorie en geeft daarin een fundament aan het begip organisatie. Als laatste is er een hint naar een natuurlijke moraal die voortkomt uit de vorm van het proces en daar ga ik nog een post aan wijden. Verder lezen Padgett over zelf-organisatie