Saturday, May 10, 2008

Firms Run By The Power-Mad

"In a recent biography Eleanor Dulles reports on her experience in a New York hairnet factory circa 1920. 'The owner of the factory never came out there, he just sat in New York and took the money ... The manager was a very sharp type. I told him I could increase production, so I worked out an incentive scheme whereby for a 50 percent increase in production they could make 30 to 40 percent more in wages ... The girls really began to put out. They got very much interested in their work, and the good ones were soon earning 16 dollars and more a week.'

To her astonishment, the manager didn't like it.

'"I'm not going to have those girls thinking they are good," he said. "I'm going to get rid of the good girls. I didn't pay them to get above themselves."'

'He deliberately slowed down supplies and made things awkward for the smarter girls, so they just lost spirit and left.'" -- Harvey Leibenstein (1981) "Microeconomics and X-Efficiency Theory: If There Is No Crisis, There Ought to Be", in The Crisis in Economic Theory (ed. by D. Bell and I. Kristol), Basic Books


Gabriel said...

Isn't that a standard principal-agent problem? Owners and managers sort of thing?

Robert Vienneau said...

I don't have any disagreement with the idea that this situation can be theorized in terms of a principal agent problem, monitoring costs, etc. I posted it so as to be able to link to it elsewhere.

Anonymous said...

Actually, this is not too surprising. David Noble, for example, has documented how experiments in workers' self-management/control under capitalism have all increased efficiency, reduced wastage and so on. But they were all ended.

Why? Simply because the bosses were afraid of loosing their jobs. With workers' running their own workplaces, there is no need for a boss or an owner -- and, obviously, that is a worry for the bosses and owners.

Which, I should note, provides evidence to refute Nozick's argument that if workers' really wanted workers' control (i.e., genuine socialism) then the market would achieve it.

In reality, bosses and owners do not fund such experiments even in the face of higher efficiency (and so higher profits). In other words, the capitalist market selects against the more efficient mode of production!

This is discussed in section J of "An Anarchist FAQ", if anyone is interested.

And I should also mention an interesting observation made by the Italian anarchist Luigi Fabbri during the rise of Fascism. He noted that lots of bosses supported fascism primarily not because of fear of social revolution, but simply because their authority within the workplace had been eroded due to rising worker militancy. And they liked being little autocrats, so they supported fascism to put the workers' back in their place...

An Anarchist FAQ