Inefficiency in capitalism (was: Re: [ox-en] Re: Governments using Free Software)
- From: Robin Green <greenrd greenrd.org>
- Date: Thu, 29 Nov 2007 02:10:43 +0000
On Wed, 28 Nov 2007 22:58:50 [PHONE NUMBER REMOVED]
graham <graham theseamans.net> wrote:
I am trying to generalize on the basis of some very limited personal
experience, so this may well be wrong (if I write 'often', it's a
guess..).
Organizations have a formal hierarchy. In my experience this often
does not have a very close relationship to the actual power
relationships involved; or maybe better, it is a necessary but not
sufficient basis for actual power. Power over subordinates is often
actually maintained by restricting the flow of information, so
subordinates are unable to make sensible decisions about their own
work because they do not know the full context. But this is not
sufficient to maintain power relative to other people at the same
level in the hierarchy. In capitalist organizations this is often
done through control over money and budgets. Someone who controls a
large budget has more power than someone with a small one. For IT to
maintain a large budget is difficult, because IT is perceived as a
deduction from revenue, an expense rather than an investment [oops,
back to the value argument]. So the IT manager needs to be able to
justify this large budget through restricting information flow
'sideways' as well as downwards. The IT manager has personal contacts
with (say) Microsoft - who make this an integral part of their
business plan by inviting such people to become part of numerous
'councils' or other impressive and influential sounding bodies. Other
managers do not have these contacts, allowing the IT manager a) to
sound like an expert acknowledged by the outside world and b) to
announce apparently magnificent 'deals' on new software arranged
through his personal contacts, implying that if anyone else took his
place the budget would have to be even bigger.
Now, say there is an instruction to replace Word with OO in the
organization. Of course there are likely to be technical issues over
this. But, if successful, it reduces the managers power in a number of
ways:
- it may reduce his power over subordinates, who may know more about
this software than he does.
- it may reduce his budget, through reducing licence fees (which are
recurring; any additional training for the transition is a one-off)
- he has no special relationship with the suppliers he can use to
impress his colleagues with his unique connections
Managers are therefore likely to resist this. If forced to move to
free software (and I believe this was the Venezuelan experience in
the first phase) they will try to find companies which give them the
same benefits as proprietary software. Rather than a switch
essentially from proprietary software to free software, a switch
essentially from Microsoft to IBM, or Novell, allows them to
replicate the original situation, after some work. They can make the
same connections with the IBM salesmen they had with the MS salesmen.
They can make sure there are no 'hobbyists' working on the software,
and so that they have no subordinates who have greater knowledge of
the software than the company contacts. They can keep their large
budgets. The switch to free software is then really a switch to open
source, in the most limited sense. I believe this is part of the
meaning behind the Novell/MS alliance.
I think there is a lot of truth in this view. Large organisations tend
to develop numerous inefficiencies, and this is just one example out of
many - and I am not talking about paying low-level workers "too
much", but inefficiencies which benefit other rich and/or powerful
entities, whether that be suppliers, managers, executives or
governments. Everything from corrupt supplier contracts, to nepotism in
the higher echelons, and economically irrational short-term
decision-making (a prime example of the latter being the Northern Rock
debacle).
I wonder if anyone has written a book covering all these sorts of
ways, large and small, in which large organisations tend to shoot
themselves in the foot economically. It would make an interesting read,
I think.
I want to stray off-topic a bit and talk about large organisations of
all types. Right-wingers love to talk about how government is
supposedly inefficient, but many of their criticisms also apply to
many corporations and indeed charities.
So, given this inefficiency, why do we see trends of consolidation in
capitalist society? Well certainly having a lot of money to throw
around seems to be able to get you very good tax avoidance/evasion
advice from accountants (and indeed in some cases, it gets you
loopholes in the law created for you). Also, if you spend a lot of money
on lobbying, maybe you can get a lot of unnecessarily burdensome
regulations created (covering your entire field, or at least government
purchasing in your field) and make it hard or impossible for
smaller-scale operations to compete within the regulations. That's not
even getting into the profits to be made when you can benefit from or
even influence the foreign policy of governments (tied development aid,
military support, wars, post-war "reconstruction", etc.). Again,
it would be interesting to have a study of how much of the profits of
top multinationals are actually gains made due to tax avoidance/evasion,
subsidies, corruption, having regulations written in their favour, and
the like.
Then there's advertising and "brand recognition" effects, monopoly
coercion and network effects, etc. The ways in which "inefficient"
companies can manipulate "the market" to their advantage are legion.
Now, I must note that I'm not trying to say that large organisations
are in an *absolute* sense inefficient. It may be that the savings you
get from economies of scale *sometimes* outweigh the "inefficiencies of
scale". I'm saying it's not necessarily a trivial question to answer,
because you have to take into account all sorts of ways in which "the
market" deviates from the "rational free agent" model, i.e. entities
deciding what are their wants, and then making the choice which best
satisfies those wants.
But *regardless* of whether these inefficiencies swamp the economies of
scale you sometimes get by consolidating companies, charities or
government agencies into larger units, there is an important question
here. Allowing all of these inefficiencies to exist is, well, stupid,
*even on capitalism's own terms* - unless it's somehow inevitable. But
is it inevitable? That is to say - is it inevitable that in a large
organisation you will have large amounts of money continually being
wasted by people who put their own interests above that of the
organisation - or who misperceive what will best serve the
organisation's goals? Or is it possible to have a more accountable,
responsible large organisation which better minimises such leaks? If the
latter, why isn't capitalism adopting it already, at least in the case
of corporations? I am very interested in these questions (even though
they may be a bit offtopic for this list).
One interesting theory is that class solidarity overrides the profit
motive here - e.g. investors forgoe some cost savings because they are
not as troubled by managers, executives and other large corporations
doing well by leeching off them, as they would be if lower-class
people like cleaners started getting paid better. (For example: you look
at the harsh opposition to living wage campaigns among US elites, and
contrast that with the seeming lack of concern about corporate lawyers'
bloated fees, and you begin to wonder if "irrational" classism plays a
part here). This seems highly unlikely to me - but what do I know - I
am not a capitalist, I do not know how they think.
I think what is more likely, though, is that in many cases an
inefficiency which would be terminally stupid for a small business,
because it would be so costly relative to revenues, is tolerated by
huge multinationals because it does not have much of an impact.
However, I think that many of these inefficiencies *do* have a
significant impact. So I think that other explanations have a part to
play, too: in many cases Linux and Free Software was simply overlooked
for years by managers, because it was a potentially radically different
approach that people didn't even *conceive* of. This started to change
when Linux started to get marketed - by word-of-mouth, from below, at
first, and then corporately.
I wonder, what other "innovations" in organisational behaviour
and structure are being overlooked because they are simply too far from
the mainstream, or too threatening, to be on the radar?
I think that also there is a huge degree of bullshit at work in large
corporations. Both self-deception in the higher echelons, and deceiving
investors. Private equity companies, much maligned though they are,
have proved that in some cases, large companies are very inefficiently
run, and even though shareholders could in theory force through the same
changes that the private equity firms implement, in practice they don't.
(But again, there is a question of how much of private equity
profits are actually due to tax evasion, and other "phantom
efficiencies". I don't know the answer to that one. I know that private
equity *partners* evade a lot of tax on their personal incomes by
classifying it as not salaries, but that's not the same as saying their
total corporate profits include a lot of tax evasion.)
In sum: capitalism is supposed (by its most ardent advocates, at least)
to be supremely efficient. Nonsense. Inefficiencies are all over the
place. Of course it's considerably more efficient than, say, the Soviet
system, but that's like stating "hey, at least the United States is
more moral than Nazi Germany". It's such a low basis for comparison.
I expect some people are wondering - why do you care so much about
capitalism's inefficiencies? Who cares if capitalists make stupid
mistakes and shoot themselves in the foot? Well, this leads to several
important lines of thought:
* To what extent are these inefficiencies solvable by the capitalist
system? To what extent will this happen anyway due to "market
forces" and to what it extent will it require some, shall we say,
"prodding"?
* Are there further, new opportunities for peer-production/peer-X to
"out-compete" capitalist entities in their own terms? To what extent can
peer-X coexist inside capitalism, as seeds of the future?
* How will capitalists invested in the old ways (i.e. almost all of
them) attempt to unfairly compete with / slant the playing field against
peer-X? How should we fight back?
I expect some people are also thinking - all this talk of "unfair
competition" and "efficiency" and whatnot sounds too social-democratic
or "market-socialist" (or worse!), and already concedes too much ground
to the capitalists. Well, I don't agree. In any economic system, there
is a need to be concerned about efficiency, competition, and unfair
competition. Moreover, if you're thinking about growing the seeds of
the new within the old, rather than abrupt revolution, you need peer-X
to be attractive to buyers as well as sellers - i.e. competition and
efficiency are important, obviously.
--
Robin
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