Tag Archives: Firms

Testing An Idealistic-Tech Hypothesis

Katja:

Relatively minor technological change can move the balance of power between values that already fight within each human. [For example,] Beeminder empowers a person’s explicit, considered values over their visceral urges. … In the spontaneous urges vs. explicit values conflict …, I think technology should generally tend to push in one direction. … I’d weakly guess that explicit values will win the war. (more)

The goals we humans tend to explicitly and consciously endorse tend to be more idealistic than the goals that our unconscious actions try to achieve. So one might expect or hope that tech that empowers conscious mind parts, relative to other parts, would result in more idealistic behavior.

A relevant test of this idea may be found in the behavior of human orgs, such as firms or nations. Like humans, orgs emphasize more idealistic goals in their more explicit communications. So if we can identify the parts of orgs that are most like the conscious parts of human minds, and if we can imagine ways to increase the resources or capacities of those org parts, then we can ask if increasing such capacities would move orgs to more idealistic behavior.

A standard story is that human consciousness functions primarily to manage the image we present to the world. Conscious minds are aware of the actions we may need to explain to others, and are good at spinning good-looking explanations for our own behavior, and bad-looking explanations for the behavior of rivals.

Marketing, public relation, legal, and diplomatic departments seem to be analogous parts of orgs. They attend more to how the org is seen by others, and to managing org actions that are especially influential to such appearances. If so, our test question becomes: if the relative resources and capacities of these org parts were increased, would such orgs act more idealistically? For example, would a nation live up to its self-proclaimed ideals more if the budget of its diplomatic corps were doubled?

I’d guess that such changes would tend to make org actions more consistent, but not more idealistic. That is, the mean level of idealism would stay about the same, but inconsistencies would be reduced and deviations of unusually idealistic or non-idealistic actions would move toward the mean. Similarly, I suspect humans with more empowered conscious minds do not on average act more idealistically.

But that is just my guess. Does anyone know better how the behavior of real orgs would change under this hypothetical?

GD Star Rating
loading...
Tagged as: , , ,

Expect Bigger Orgs

Me last year:

Over the last year I’ve reviewed several ~1900 era future dystopias, such as Metropolis, We, and Pictures of the Socialistic Future. I wanted to see fears of the industrial revolution, from an era when that revolution was still young. … The strongest concerns were about the new scales of social organization, arguably the central distinguishing feature of the industrial era. … People imagined entire cities and nations being organized as were factories and firms, with commands sent down from above, and little room for local discretion. … Today, it seems that such fears were overblown. … But it is also too soon to claim that these fears will not be realized. The scale of cities, firms, and nations continues to climb. (more)

Industry has made humans rich. And we have spent this wealth improving our lives in many ways. Which is why most long run industry-era trends are positive. But we aren’t very willing to give up the golden goose that lays our golden eggs: the industry processes itself. Which is why some trends are negative. For example, dense living is fairly central to industry, so density has increased, even though it seems to hurt our health, and many would prefer more space. Even more central to the industry process is big organizations. So firm sizes continue to get larger, even though most folks say they don’t like big firms.

Yes booster futurists often claim big firms are passé and the future is all startups and lean nimble firms. Don’t believe them. The rate of new firms has been declining with wealth and time, and firms continue to get bigger. (Data quotes below.)

I instead predict that future work life will look more like the work life at bigger firms today. So there will be less overall coordination and coherence, even as more effort is put into coordination via more meetings by more managers in more layers of management. Firms will have offices in more locations, with less in-person and direct communication. Workers will have more specific operational roles, and each do a narrower range of tasks. Firms will have stronger corporate cultures that depend less on distinctive individual personalities, and more on well-defined structures, like policy manuals and job descriptions.

Governments won’t save us from this: increasing regulation tends to favor larger firms, and government organizations are getting larger. Also, government functions are drifting up to be handled by larger scales of government. That is, functions once done by cities were next done by states, and finally by nations. I have seen the future, and it has many middle managers in long meetings discussing policy manuals. Count on it. Happy labor day.

Those promised data quotes:

FirmSizeUp

First, the entrepreneurship rate falls with per capita income across countries. Second, average firm size increases with per capita income. … Third, the standard deviation of fim size increases with per capita income across countries. Fourth, the skewness of the firm size distribution also increases with per capita income across countries. … Average firm size increased with per capita income over U.S. history (1900-70). Figure 2.2 shows that this time-series relationship persists. … Firm size dispersion is substantially higher in industrialized countries compared to emerging markets. (more)

GD Star Rating
loading...
Tagged as: ,

Cooperate Or Specialize?

Futurists sometimes get excited about new ways to encourage cooperation in Prisoner’s Dilmena like games. For example, future folks might interact via quantum games, future AIs might show each other their source code, or future clans of em copies might super-cooperate with one another. Folks who know just enough economics to be dangerous sometimes say that this “changes everything”, i.e., that future economies will be completely different as a result. In fact, however, not only do we already have lots decent ways to encourage cooperation, such as talking and reputation, we also consistently forgo such ways to better encourage flexibility and specialization.

As I reviewed in my last post, we have strong reasons and abilities to cooperate within family clans, especially when such clans heavily intermarry and live and work closely together over many generations. And our farming era ancestors took big advantage of this. To function and thrive, however, our industry era economy had to suppress such clans, to allow more flexibility and specialization. Industry needs people to frequently change where they live, what kinds of jobs they do, and who they work with, and to play fair within industry-era reimagined firms, cities, and nations. Strong family clans instead encouraged stability and nepotism, and discouraged people from moving to cities and new jobs, and from cooperating fairly with and showing sufficient loyalty to other families within shared firms, cities, and nations.

Our industry era institutions consistently forgo the extra cooperation advantages of strong family clans, to gain more flexibility and specialization. This is now a huge net win. Our descendants are likely to similarly forgo advantages from new ways to cooperate, if those similarly reduce future flexibility and specialization. For example, future societies of brain emulations are likely to be wary of strongly self-cooperating clans of copies of the same original human. While such copy clans have even stronger reasons to cooperate with each other than family clans, copy clans might cause future organizations to suffer even more than do family-based firms, cities, and nations today from clan-based nepotism, and from low quality and inflexible matches of skills to jobs. Ems firms and cities are thus likely to be especially watchful for clan nepotism, and to avoid relying too heavily on any one clan.

Yes game theory captures important truths about human behavior, including about costs we pay from failing to fully cooperate. But prisoner’s dilemma style failures to cooperate in simple games comprises only a tiny fraction of all the important things that can and do go wrong in a modern economy. And we already have many decent ways to encourage cooperation. I thus conclude that future economies are unlikely to be heavily redesigned to take advantage of new possible ways to encourage prisoner’s dilemma style cooperation.

GD Star Rating
loading...
Tagged as: , , , ,

Brands Show Identity

Marketers have long noticed puzzlingly high levels of brand loyalty:

Consumers appear to have high willingness to pay for particular brands, even when the alternatives are objectively similar. The majority of consumers typically buy a single brand of beer, cola, or margarine, even though relative prices vary significantly over time, and consumers often cannot distinguish their preferred brand in blind “taste tests”. Consumers pay large premia to buy homogeneous goods like books and CDs from branded online retailers, even when they are using a “shopbot” that eliminates search costs. A large fraction of consumers buy branded medications, even though chemically equivalent generic substitutes are available at the same stores for much lower prices.

Brand loyalty is big barrier to innovation, and an important reason why inefficient firms manage to survive so long.

Brand preferences create large entry barriers and durable advantages for incumbent firms, and can explain persistence of early-mover advantage over long periods

In the latest American Economic Review Bronnenberg, Dube, & Gentzkow offer new clues:

Variation in where consumers have lived in the past allows us to isolate the causal effect of past experiences on current purchases, holding constant contemporaneous supply-side factors such as availability, prices, and advertising. … 60 percent of the gap in purchases between the origin and destination state closes immediately when a consumer moves. … The remaining 40 percent gap between recent migrants and lifetime residents closes steadily, but slowly. It takes more than 20 years for half of the gap to close, and even 50 years after moving the gap remains statistically significant. … The relative importance of brand capital is higher in [product] categories with high levels of advertising and high levels of social visibility. (more)

This ad effect is puzzling because:

Large literatures have measured the effects of advertising, but these studies often find no effects [of ads on sales], and the effects they do measure are estimated to dissipate over a horizon ranging from a few weeks to at most five or six months.

Let me suggest that an important use of brands is to create and signal identities. We create a coherent understandable idea of the kind of person we are, integrated with the kind of products we use, and we prefer not to change that concept, so that others can continue to rely on their expectations about us. We are willing to pay higher prices, and neglect info about quality, in order to keep a persistent style and appearance. So brands are naturally more important for products we use that others see more, and where ads have made connections to identity more salient.

GD Star Rating
loading...
Tagged as: , , ,

Are Firms Like Trees?

Trees are spectacularly successful, and have been for millions of years. They now cover ~30% of Earth’s land. So trees should be pretty well designed to do what they do. Yet the basic design of trees seems odd in many ways. Might this tell us something interesting about design?

A tree’s basic design problem is how to cheaply hold leaves as high as possible to see the sun, and not be blocked by other trees’ leaves. This leaf support system must be robust to the buffeting of winds and animals. Materials should resist being frozen, burned, and eaten by animals and disease. Oh, and the whole thing must keep functioning as it grows from a tiny seed.

Here are three odd features of tree design:

  1. Irregular-Shaped – Humans often design structures to lift large surface areas up high, and even to have them face the sun. But human designs are usually far more regular than trees. Our buildings and solar cell arrays tend to be regular, and usually rectangular. Trees, in contract, are higgledy-piggledy (see pict above). The regularity of most animal bodies shows that trees could have been regular, with each part in its intended place. Why aren’t tree bodies regular?
  2. Self-Blocking – Human-designed solar cells, and sets of windows that serve a similar function, manage to avoid overly blocking each other. Cell/window elements tend to be arranged along a common surface. In trees, in contrast, leaves often block each other from the sun. Yet animal design again shows that evolution could have put leaves along a regular surface – consider the design of skin or wings. Why aren’t tree leaves on a common surface?
  3. Single-Support – Human structures for lifting things high usually have at least three points of support on the ground. (As do most land animals.) This helps them deal with random weight imbalances and sideways forces like winds. Yet each tree usually only connects to the ground via a single trunk. It didn’t have to be this way. Some fig trees set down more roots when older branches sag down to the ground. And just as people trying to stand on a shifting platform might hold each other’s hands for balance, trees could be designed to have some branches interlock with branches from neighboring trees for support. Why is tree support singular?

Now it is noteworthy that large cities also tend to have weaker forms of these features. Cities are less regular than buildings, buildings often block sunlight to neighboring buildings, and while each building has at least three supports, neighboring buildings rarely attach to each other for balance. What distinguishes cities and trees from buildings?

One key difference is that buildings are made all at once on land that is calm and clear, while cities and trees grow slowly in a changing environment, while competing for resources. Since most small trees never live to be big trees, their choices must focus on current survival and local growth. A tree opportunistically adds its growth in whatever direction seems most open to sun at the moment, with less of a long term growth plan. Since this local growth end up committing the future shape of the tree, local opportunism tends toward an irregular structure.

I’m less clear on explanations for self-blocking and single-support. Sending branches sideways to create new supports might seem to distract from rising higher, but if multiple supports allow a higher peak it isn’t clear why this isn’t worth waiting for. Neighboring tree connections might try to grab more support than they offer, or pull one down when they die. But it isn’t clear why tree connections couldn’t be weak and breakable to deal with such issues, or why trees couldn’t connect preferentially with kin.

Firms also must grow from small seeds, and most small firms never make it to be big firms. Perhaps an analogy with trees could help us understand why successful firms seem irregular and varied in structure, why they are often work at cross-purposes internally, and why merging them with weakly related firms is usually a bad idea.

GD Star Rating
loading...
Tagged as: , ,