Rand Unbound, Part 8

Over at Cato Unbound, the Rand symposium has wrapped up with posts from Neera, Doug, me, and a final one from Neera.

Pyramid of the Capitalist System

A quick reply to Neera’s last, on the pyramid of ability: I certainly don’t doubt that “in every area of human endeavor a few people stand out above others and benefit others much more than they are benefited by them,” and I agree that it “would be odd if this were not the case in business.” If that’s all that Rand meant by the pyramid of ability, I’d have no objection.

But at least much of the time Rand seems to assume that the pyramid of ability corresponds to the hierarchy of the firm, with the best decision-makers gravitating to the top – as when she says: “The standard of living of [a] blacksmith is all that your muscles are worth; the rest is a gift from Hank Rearden.”

Moreover, Rand seems to assume that this generalisation holds, not just under idealised laissez-faire but, at least approximately, in the state-hampered market we live in. And that in particular is a claim that I think we have much reason to reject, both on the basis of everyday experience of what the business world is like, and on the basis of a theoretical understanding of the likely effects of government intervention.

Rand would never suggest that the government bureaucrats regulating a particular industry are likely to be better decision-makers than the people being regulated; quite the contrary! But to the extent that the market is pervaded by governmental privilege in the ways that Kevin Carson et al. delineate, the likelihood that success within the market must be tracking superior performance likewise goes down.

Pyramid at Giza

While Neera grants that workers know more about their own jobs than the owners do, she insists that “the owners know more about their work than the people they regulate.” I think that, to a large extent, this is not true under conditions of actually-existing corporatist capitalism, for the same reason that it was not true of state-socialist bureaucrats regulating the economy in the Soviet Union.

In order to regulate your work, I may not need to understand it as well as you do, but there’s a certain minimum extent to which I need to understand it if my regulating is to be useful rather than counterproductive; and what I’m claiming is that under both state socialism and corporatist capitalism, there are governmentally-enabled structural mechanisms that both a) interfere with the transmission of information up the hierarchy, thus making it harder for bosses to find out about the work of those they’re regulating, and b) insulate bosses and boss-driven systems from the ordinary negative effects of lacking such information. In short, Kevin is simply applying to corporatist capitalism the same critique that Mises and Hayek applied to state socialism.

On a different point: I notice that in the comments section of a previous post here, Neera objects to my defense of the unity of virtue (where I suggested, following Alexander of Aphrodisias, that if I am cowardly then I cannot be completely just, since justice sometimes requires courage) by noting that I might conceivably be cowardly only in situations where justice is not at stake; but when it is, “it’s not necessary that my cowardice prevail; my justice might trump my cowardice.”

crossroads

Here, though, Neera seems to be thinking of the unity of virtue as solely a thesis about motivation; but as I see it, it’s at least as much a thesis about the cognitive aspect of virtue (and thus a thesis about practical wisdom, to get back to another issue that Neera has rightly been stressing). (Actually, I think that, even more strongly, it’s a thesis about how the contents of the virtues are determined, in the metaphysical rather than the epistemic sense of “determined”; but I only need the cognitive point for now.)

In order for me to do the courageous thing in just those cases where justice demands it, I have to be able to identify what justice demands; but, I claim, the coward’s ability to do this is necessarily impaired, at least to some extent. As I put it in the piece I linked to:

I do not count as fully courageous unless I can be counted on to do the courageous thing in every situation, which in turn requires that I be a reliable assessor of which risks are worth taking; but which risks are worth taking might sometimes depend on the requirements of prudence, or justice, or loyalty; to the extent that I am imprudent, or unjust, or disloyal, I cannot be counted on to assess those risks properly in such possible or actual situations, and so I will not be fully just.

In other words, the problem is not just that the coward will see what justice requires but won’t be motivated to comply in cases where what’s required is risky, but that the coward’s confidence about even having identified what justice requires is to some extent ill-grounded, since cowardice itself exemplifies an inadequate responsiveness to what’s worth losing to gain what.

One more thing: I agree with Neera that Greek tragedies can offer good examples of cases where doing the right thing entails suffering for the doer, but I’m puzzled by her choice of Agamemnon’s sacrifice of Iphigeneia as an example, since that seems like a monstrously wicked choice rather than a virtuous one. I’d offer Antigone or Philoctetes as more plausible examples.

In addition, back on the pyramid-of-ability issue again, Bryan Caplan has another response to me here; once again I reply in the talkback.

Addendum: This response by Wendell Hoenir was just pointed out to me; I’ll comment on it later. Gotta prepare for class now!

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20 Responses to Rand Unbound, Part 8

  1. Kevin Carson February 4, 2010 at 5:50 pm #

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    Note: I think Neera meant the top managers knew more about *their own* work than did the people they were regulating.

    But the point IMO is that “their own work” is, to a large extent, mostly wasted labor, consisting of tasks that would be unnecessary in the first place if the system weren’t organized so irrationally.

    And like Bryan Caplan, Neera mistakes your argument (and mine) for a critique of the relative worth or capacity of top managers *as human beings*. But that’s not it at all. Nobody–not Einstein, not John Galt–possesses the qualities to make a bureaucratic hierarchy function rationally. Nobody’s that smart, any more than anybody’s smart enough to run Gosplan efficiently–that’s the whole point. No matter how insightful and resourceful they are, no matter how prudent, as human beings in dealing with actual reality, nevertheless by their very nature hierarchies insulate those at the top from the reality of what’s going on below, and *force* them to operate in imaginary worlds where all their intelligence becomes usless.

    • Roderick February 4, 2010 at 10:25 pm #

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      I think Neera meant the top managers knew more about *their own* work than did the people they were regulating.

      Yes, that’s how I was interpreting her. I just meant that when a significant amount of A’s work is regulating B’s work, and when A is for, various institutional or whatever reasons, massively ignorant about B’s work, then B may very well know more about A’s work than A does.

      • Neera Badhwar February 5, 2010 at 3:36 pm #

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        Roderick: “I just meant that when a significant amount of A’s work is regulating B’s work, and when A is for, various institutional or whatever reasons, massively ignorant about B’s work, then B may very well know more about A’s work than A does.”
        Ha, ha, this is very clever – B the electrician knows how to regulate himself better than A does. OK, but i didn’t realize that managers and owners of businesses spent most of their time regulating blue collar workers. Hard to square this with the fact that this country (and the world overall) keep getting richer and richer. Also, Rand’s view of those at the top and those at the bottom is, like her other views, not of one piece. She often praised American common sense, created minor characters who are people of ability, such as Red in Fountainhead – Roark’s only friend till he meets Wynand – and makes room in Galt’s Gulch for blue collar workers.

        Regarding the cognitive aspect of the virtues: i meant my point about justice trumping cowardice to apply to all aspects of the virtue in question, not only motivation. Just because p is a coward in situations of danger, it doesn’t follow that when being cowardly will also require him to act unjustly, his cowardice will prevail rather than his justice. It is possible that it will, but not necessary. Now of course if being “fully courageous” entails doing “the courageous thing in every situation,” then i agree that the coward (in any sphere) cannot be just (in any sphere). But this requirement of god-like perfection is even stronger than Aristotle’s requirement for virtue – and makes virtue a quality no human being can have. I prefer to use the term to refer to qualities that are possible for human beings. And if we are interested in human virtue, we have to pay attention to the findings of empirical psychology (which i discuss in “The Milgram Experiments, Learned Helplessness, and Character Traits,” Journal of Ethics,” June 2009).
        .

      • Neera Badhwar February 5, 2010 at 5:32 pm #

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        PS: I forgot to add something i said in an earlier (CatoUnbound?) post: all that the unity of virtue requires is that, if you have even one virtue, you cannot have any vice or be incontinent w. respect to any sphere of human life. It does not require that you have all the virtues, even on your very high standard for virtue.

        • Neera Badhwar February 6, 2010 at 8:00 pm #

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          Now i’m “replying” to my own PS: i meant, of course, “all that a complete virtue requires is the absence of any vice or incontinence, it doesn’t require all the virtues”.

        • Roderick February 7, 2010 at 1:36 pm #

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          Hi Neera,

          I haven’t forgotten your posts here — will reply soon!

        • Roderick February 7, 2010 at 1:37 pm #

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          And ditto to the ever-patient MBH!

  2. MBH February 5, 2010 at 3:29 am #

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    Re: Hoenir’s rebuttal:

    So he thinks it’s wrong to distinguish between constitutive and instrumental views. He thinks you improperly separate the two.

    But as I read you, you don’t see a dichotomy between constitutive and instrumental views so much as a continuum — you might say, “a matter of degree.” I mean, he says you’re “misunderstanding… Rand’s view on the relationship between means and ends.”

    He thinks that a mean can be a part of the end. But I thought that’s exactly what the constitutive view is. While the instrumental view just takes one aspect of the end and isolates it — as if not attached to the network properties of the end — the constitutive view sees that aspect as connected to the end.

    I mean, his argument would be analogous to me saying that, “you don’t distinguish between analytic a priori and synthetic a priori judgments.” Of course, I’d be wrong because you do distinguish between them. You just don’t separate them.

    Hoenir’s misunderstanding rests on an inability to see the difference between separating concepts and distinguishing concepts.

    • MBH February 5, 2010 at 3:32 am #

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      I shouldn’t say it “rests on an inability.” That’s not fair. It rests on an overlook.

  3. Kevin Carson February 7, 2010 at 1:34 pm #

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    Neera: “Hard to square this with the fact that this country (and the world overall) keep getting richer and richer.”

    This ignores the unseen, the portion of GDP that consists of “broken windows” (like subsidized waste) or rents on artificial property rights, the portion of commodity price that consists of cartel markups and embedded rents on “intellectual property” and other artificial rights, and the extent to which the prices of goods and services reflect calculational chaos in the centrally planned corporate microeconomy and state capitalist macroeconomy.

    We see some technological advances, we see goods being produced that have some use value, and we see an increase in the nominal dollar output of goods and services. What we do not know is that, in an economy of genuine market prices with no cartels or artificial scarcity, where market entry and competition were free, the stuff people are presently consuming is the kind of stuff that they would freely choose to buy. Which sounds an awful lot like the old Soviet economy, as a matter of fact.

    Stephan Kinsella has argued that the U.S. economy cannot be fundamentally corporatist or statist, because if it were the calculational chaos would make it non-functional. But the examples of feudal Europe and the USSR indicate that the leaven of market pricing in a fundamentally distorted statist economy, required for technological progress and functionality in providing some basic standard of living, is fairly low.

    An economy can absorb an amazing amount of calculational chaos and still function and grow–especially if its measures of “functionality” and “growth” are themselves false metrics that are part of the overall calculational chaos.

    • Neera February 7, 2010 at 3:17 pm #

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      “What we do not know is that, in an economy of genuine market prices with no cartels or artificial scarcity, where market entry and competition were free, the stuff people are presently consuming is the kind of stuff that they would freely choose to buy”

      1. good point, but we know that they would buy roughly the same *kind* of goods. And even if we would buy different kinds of goods, there is no denying that over the last century or so, we have more and more money to buy stuff with, and more and more stuff – and kinds of stuff – to choose from. V. far from the case of the Soviet economy.
      2. Are there any studies of worker-owned companies vs. hierarchically organized corporations in the US? if so, what do they show in terms of productivity, profit, and worker satisfaction?

      • Kevin Carson February 9, 2010 at 3:39 pm #

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        “we know that they would buy roughly the same *kind* of goods.”

        Well, sure. But the old USSR manufactured the same *kind* of goods in general terms: refrigerators, cars, TVs, microwaves, furniture, housing, etc. The question was whether, in any particular case, a given good was the most efficient use of inputs–because the metrics for measuring efficient use were distorted to the point of meaningless. I would argue that the state capitalist price system, with its embedded IP rents, cartel cost-plus markups, etc., reflects very nearly the same level of distortion.

        In addition, there’s the question of how these same general *types* of goods, specifically, are designed and how efficiently they make use of resources.

        And I would argue that the difference between our corporate economy and a genuine free market, in those regards, is as different as night and day. Without copyrights and patents, and without the institutional imperatives toward supply-push distribution inherent in mass-production technology, the competitive pressure would be toward modular design for ease of repair and reuse.

        The overwhelming majority of operations in our economy are the moral equivalent of digging holes and filling them back in, or of intermediate steps in a Rube Goldberg machine–all undertaken because they can be passed on to the consumer on a cost-plus basis, and because the firm undertaking them exists in a cartel structure with other firms that do the same thing.

        “And even if we would buy different kinds of goods, there is no denying that over the last century or so, we have more and more money to buy stuff with, and more and more stuff – and kinds of stuff – to choose from. V. far from the case of the Soviet economy.”

        But perhaps also equally far from the kinds of variations that would prevail in a free market. A good many of the variations reflect, not substantive difference in product capabilities, but the institutional imperatives of supply-push distribution in a mass-production economy. Brand loyalties are a form of targeted pricing whose main purposes are 1) to create artificial product differentiation for the sake of avoiding genuine price competition in a commodity market, and 2) to create pressure toward planned obsolescence, in order 3) to satisfy the mass-production imperative to keep expensive product-specific machinery running at full capacity.

        “2. Are there any studies of worker-owned companies vs. hierarchically organized corporations in the US? if so, what do they show in terms of productivity, profit, and worker satisfaction?”

        The one industry-specific case study I’ve seen was of the plywood co-ops in the Pacific NW, where the cooperatives had only a quarter as many front-line supervisors as conventional capitalist plywood firms. The reason was reduced agency and information problems when the work was controlled by the same people who both understood it and profited from it.

        The single best general source on cooperative vs. conventional capitalist performance is a literature review by Avner Ben-Ner, Tzu-Shian Han and Derek C. Jones, “The Productivity Effects of Empoyee Participation in Control and Economic Returns: A Review of Empirical Evidence,” in Ugo Pagano and Robert Rowthorn, eds., Democracy and Efficiency in the Economic Enterprise. Their main advantage is a focus, through a wide range of studies, on “first-difference” comparisons rather than static cross-firm comparisons.

        There’s also an important body of work by Luigi Zingales and Raghuram Rajan on the perverse incentive structures of the capitalist firm. They argue that, even in physical production industries, the rapid reduction in capital outlay requirements and the increased need for skilled labor have resulted in a decisive shift from physical capital to human capital as the source of most equity in the firm, and the source of most profit. And in the least capital-intensive industries, like software and financial services, almost all equity and profits result from human capital–i.e., the tacit, job-specific knowledge of the workforce.

        The problem, in the typical managerial capitalist firm, is that the ownership structure and distribution of rewards don’t reflect this state of affairs. Since human capital is the main source of firm equity and profit, a property and incentive structure that doesn’t reward this contribution (that instead treats labor, under conventional GAAP principles, as a direct course to be downsized as much as possible while management reaps the rewards for productivity increases) leads to perverse results. The owners of human capital are reluctant to invest their capabilities in the firm, for fear their contributions to increased productivity will be expropriated by managers in the form of bonuses and stock options. To go back to the plywood co-ops, workers were quoted as saying they actively looked out for inferior product being generated by the process, and for better ways to reduce cost and improve quality–and enthusiastically volunteered their job-specific knowledge to the firm when they found such ways. In a conventional firm, they said, they wouldn’t do that–they’d just be giving management an excuse to lay some people off and give themselves bonuses.

  4. Anon73 February 9, 2010 at 4:22 pm #

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    “In a conventional firm, they said, they wouldn’t do that–they’d just be giving management an excuse to lay some people off and give themselves bonuses.”

    I hadn’t thought about this before but it does ring true – don’t try too hard under capitalism, or your coworker will be laid off and you’ll be responsible for his job!

    Along the same lines, I read a post from a man who wanted to quit his job at some sort of office where he was being called by his boss to fix problems after hours and where he felt he was constantly having to do the work of other people (e.g. the front desk receptionist). In the end he said that despite the “gray hairs” he was getting he would stick it out by thinking about the money in the bank (it was a $13 an hour job).

  5. Kevin Carson February 9, 2010 at 4:42 pm #

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    I forgot to add that the usual approach of workers in enterprises where they do not appropriate the returns of their contributions to productivity is commonly called “satisficing”: contributing what they consider necessary to hold onto their jobs, and not an iota of effort beyond that. That differs only in degree from the enthusiasm and energy slaves displayed for their work. To a considerable extent, wage workers are constantly engaged in what the Wobblies call “working to rule.”

  6. Neera February 10, 2010 at 2:59 pm #

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    Thanks, will look into the literature you suggest, and your own work. I’m skeptical about the possibility of large-scale non-hierarchical organizations for any length of time on psychological grounds – there’s just too much evidence of hierarchies in different groups from different cultures across time, and from animal studies as well. But perhaps in a genuinely free market there would be less hierarchy. (Unfortunately, i’m pretty sure we’ll never find out!)

  7. Kevin Carson February 10, 2010 at 3:18 pm #

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    I fear you may be right about our witnessing a completely free market in our lifetimes. But I suspect the reasons for the scarcity of genuine free markets dovetails with the prevalence of hierarchies. If hierarchies have been ubiquitous, so have states. Virtually every advanced society in the world has had states, class exploitation, and centralized hierarchies, ever since the first bands of conquerors figured out the peasantry produced a surplus that could be milked by force.

    • Anon73 February 10, 2010 at 4:23 pm #

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      What I wouldn’t give for a time machine so I could visit the past and see the formation of the state, and then visit the future to see what develops!

      • Roderick February 10, 2010 at 5:03 pm #

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        I suspect I’d want to interfere.

        • Kevin Carson February 10, 2010 at 5:37 pm #

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          Yeah, some combo of The Guns of the South and The Seven Samurai, showing the peasants in the cooperator societies how to use pungi stakes and frag grenades against the dominators. I’d sure like to blow me up some Sumerian temple guards.

  8. Neera February 12, 2010 at 2:08 pm #

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    “But I suspect the reasons for the scarcity of genuine free markets dovetails with the prevalence of hierarchies. If hierarchies have been ubiquitous, so have states. Virtually every advanced society in the world has had states, class exploitation, and centralized hierarchies”

    It’s worse: every family, every village, every tribe has had hierarchies. I don’t think a state is necessary for hierarchies. Human beings are sufficient!

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