That is interesting, and it suggests that there is a maximum size for optimum efficiency of around 400 employees.

What that implies is that companies larger than 400 employees are not more successful because of greater efficiency, but rather because of greater “power” due to size alone.

This suggests that limiting company size is a way to improve efficiency in the entire economy.

Competition could be limited to competition based on efficiency through regulation, but that doesn't work in real life because large companies have more political power and they use that political power to enforce regulations that favor the type of power they have, not efficiency.

Restricting company size would be simple to implement, simply increase taxes based on employee number above a certain level (the opposite of what happens now).

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Sorry for the late comment on this thread, but I haven't visited for a while, but this is an interesting question to me. As noted by Gwern, definitely Coase's transactions theory is relevant here. I actually also have practical experience on this as well. A company I worked for actually was taken over by another large firm and the then CEO had exactly this philosophy. He believed that with business units greater in size than 400 people or so the leader of the unit lost touch with the business and so could not optimise things. So for a while we had a company consisting of around, I think, 40 business units. While it was probably true that the individual leaders had a very good hand on their individual business this meant that the top leadership basically had an impossible task in developing overall strategy and implementing overall corporate initiatives. There was also a lot of duplication of effort and local marketing or government relationships were not be handled very effectively. So after not very much time we abandoned the idea and went to much bigger units.

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So would it work to nest this structure two levels deep? That is, could 200,000 people be organized into 400 divisions each like this, where the head of the whole thing could always call any division head and get frank answers?

Why would you want to? Coase on the firm would seem to be relevant here: if this info king structure was indeed genuinely an improvement (anonymous talk - the cheapest kind), don't put it in a large corporate structure, just run a 500 person company and contract with other 500-person companies.

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Mark, I do appreciate that liberals have a bias too. It happens to be a different bias than conservatives. It is conservatives, that when confronted with incontrovertible proof that their ideas are not true, double-down and believe them even more strongly. The more highly educated conservatives are, the less they accept science (in general, not necessarily specific individuals).

Conservatives have more inertia, more hysteresis in maintaining the status quo, including the beliefs they have always had. They also defer more to conservatives with more “seniority”. Reagan's 11th commandment. Deferring to other conservatives even when those other conservatives are factually wrong is not a strength; it is a weakness.

One need look no further than Conservapedia, where one can find the Truth behind such controversies as the theory of relativity (only a theory), the theory of evolution (only a theory), the theory of radiometric dating (only a theory), the theory of global warming (liberal hoax). Do any conservatives criticize or even note any factual errors in Conservapedia? Why not? There is no shortage of them.

People can hate Obama for his policies, no one can hate him for policies he doesn’t have. The “death panel” meme was fabricated because Sarah Palin hates Obama so much, she hates him as if he did have a “death panel” policy. Palin used the “death panel” meme to justify her hatred of Obama.

This is exactly the same way that many anti-Semites used the Blood Libel against the Jews to justify their hatred of Jews. No observant Jew could ever use the blood of a Christian as food, or in a religious ceremony. The Blood Libel was completely made up to justify hating and then killing Jews.

If we look at how different individuals deal with groupthink, look at the wikipedia entry on it. JFK (a liberal) saw how disastrous groupthink was in the Bay of Pigs, and so worked to avoid groupthink so he could make optimal decisions. As a result, the Cuban Missile Crisis was averted without global nuclear war (a good thing).


GWB (a conservative), surrounded himself with like-minded neocons who told him what he wanted to hear or whatever suited their own personal agenda. As a result the US went to war with Iraq over non-existent WMD. 3+ trillion pissed away, thousands of US service men and women dead, hundreds of thousands injured. Hey, but Halliburton made a ton of money. That money is now being planted to bear fruit again via Citizen's United.

A mob going in the same direction, even if that direction is wrong can sometimes overwhelm a scattering of individuals.

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I don't think such a culture of fear could be effective for very long in the information age, even on a small scale.

I worked at a small company where the President/CEO cultivated a culture of fear. Employees perceived that small mistakes had large consequences. The CEO grew the company from 30 employees to 300 and increased revenue and profits at an even greater pace, so the company founder, investors, and board of directors loved him. For a while.

The culture created horrific turnover, more than double the industry standard, stifling further growth. The CEO was ousted.

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Matthew C. -

First - I hate you for making me look up the word Lysenkoism.

Second - I'd be willing to bet that this is not the lowest quality post. Daedalus has posted here many times, and I doubt this is his worst.

Third - Daedalus statement about conservatives not accepting accurate information is true. But it's true for liberals as well. And everyone else. He's really just talking about confirmation bias. The fact that Daedalus jabs at conservatives for having confirmation bias tells us a lot more about Daedalus than it does about conservatives.

Fourth - You've taken the jab a little personally, don't you think? The nature of your attack on Daedalus tells us more about you than the flaws of Daedalus.

Fifth - Just kidding about hating you. But - come on - Lysenkoism? Who uses that word? Perhaps you know someone. Or several someones. But in a public forum, even an economist's forum that appeals to more critical thinkers, it comes off as pretentious.

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If your really concerned about the proper way to nest the ~400 member groups, you might look at how Heinlein organized communication of the revotion in "The Moon is a Harsh Mistress"

i find it much harder to believe that people are really giving frank answers to begin with. I'd like more details about your original story. Did the manager have some way to verify that the information he was receiving was truthful? how much time is sunk into the task of getting that information. in short, does this method even work on the scale originally put forth?

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As already suggested in earlier comments, to add a second level of this structure, you can't just join the subtrees at a single point of access, or you become vulnerable to deception by a regional king.

The parent node must have this info-query privilege at least to its grand-children or great-grandchildren, or else the siblings must have (via means informal or formal) the same access.

In other words, unless you're at the very lowest level, you need to "candidly report to" both your local 500-boss and his boss-of-100-bosses.

If the overlap is very small, this might work most of the time while remaining vulnerable to occasional deception. If it's too large, then you lose the hierarchical scaling.

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500 sounds way high to me.. What about the research showing human groups at the 150-200 range (i.e., a company commander). How many students does a professor know well enough to write a recommendation for? Isn't the level of knowledge one would require in order to know of whom to ask an intelligent question without wasting time? Managerial time is a scarce resource, so a manager needs to call the right person the first time.

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Poelmo, the problem is that lying and cheating can give the appearance of success, and those that are able to flip the businesses or assets that appear to be successful before they are widely known to be not successful will get high returns.

That was what Enron did. That is what Bernie Madoff did. That is what Greg Smith claimed that Goldman Sachs was doing.

Matthew, Sorry I struck a nerve.

If you actually read Chris Mooney's book, you will find that it is very much science based. Reality does have a liberal bias.

Stalin only rejected science when it suited his purposes. Stalin was not a liberal. He only tolerated scientists who were liberal in his nuclear weapons programs. As a biographer said “Stalin may have been crazy, but he was not stupid”.

Conservatives really do have a lock on the politicization of science.


I appreciate that they are unable to appreciate this. Why is Santorum claiming that AGW is a gigantic conspiracy?

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A hearty congratulations for writing the absolutely lowest quality comment ever posted to this blog.

You and your kind are the exact sort who committed dissidents to psychiatric hospitals in the Soviet Union and labelled them as nutjobs.

Science in the service of a political ideology (in your case, left-liberalism) is no longer. . . science at all.

The fact that you cannot even recognize the sort of Lysenkoism you are espousing and are trying to advocate for it here -- shows that you have never viewed science as anything other than a club for your collectivist political inclinations to bash those you disagree with.

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I think with any company you should beable to voice your own ideas and concerns. I know that a lot of my friends feel like they cannot ever talk to anyone 'higher up' for the fear that they might loose their job!

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You're absolutely right that morality and factual thinking are very important. I was talking more about motivation (because that also applies to a wider range of businesses, though what I said about giving shares to employees would also work to reduce executives leaving a trail of bankrupt businesses behind).

Let's say you do work at a bank that doesn't fool around with CDSs and doesn't do business with third world dictators. Then you'd still have to be motivated to actually work. I imagine that's very hard because working for a bank isn't particularly fun and you know you're not really making the world a better place or anything like that, you're just making rich people richer because you get paid for it and you couldn't get a better job.

So how do you get motivated to do more than the absolute minimum that just barely keeps you from being fired? I believe the following things would help:

1) giving shares to employees (so if the company does better you get more dividend)

2) provide mobility: promote an excellent but low-ranking employee to a high function once in a while so people have something to aspire to

3) encourage anonymous (but evidence based) whistleblowing (who better to inform the CEO about a manager's misbehavior than the person who is aspiring to take that manager's job?)

4) make the workplace look less like a prison: having cubicles and no windows kill motivation

5) encourage ideas from all levels and give people a few hours per week to work on their own projects

Of course this is all just kicking in open doors, but that's what managers do for a living (which begs the question, why not cut management to improve efficiency?)

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Poelmo, I think that “dedicated” is not the right term. I think what is necessary is having goals that are consilient and an ability to not succumb to groupthink or wishful thinking.

A type of information structure like this would only work for liberals because conservatives could not accept accurate information even if it was offered.


I suspect that the story is about a manager from decades ago because a bank operation based on accurate information and reality would not and could not work 5 years ago. Everyone making, rating and selling those CDOs and CDSs knew they were toxic and not “investment grade”. Because everyone in a position to affect policy was making tons of money, it didn't matter that those not on the payroll got fooled and defrauded.

We used to have such people, they were called professional journalists. They would call on people and if they didn't get straight answers would dig deeper until they found the truth and exposed those who were lying. We don't have them any more, what we have are entertainers and spin meisters who simply lie and spread disinformation so people not on the payroll get defrauded. It started with asbestos, then tobacco, then air pollution, war, banking and now AGW.

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"So would it work to nest this structure two levels deep? That is, could 200,000 people be organized into 400 divisions each like this, where the head of the whole thing could always call any division head and get frank answers?"

No, not unless those 400 division heads were as dedicated as the supreme head. The problem is the supreme head cannot confirm how dedicated the division heads are because he does not have access to the people below the division heads (unlike the manager of the 500 person bank who had access to every single employee).

You can approximate that 500 person bank's efficiency by encouraging anonymous whistleblowing (including protection when someone's identity is leaked) and giving all employees shares in the company, or by making employees proud of their work (good luck doing that in a bank though, because you don't have to be a financial expert to know that working for a bank doesn't exactly equate ridding the world of hunger or HIV).

But hey, Robin, I like this critical tone. Many of your colleagues (especially the American ones) would not dare to speak out about corporate waste like this, or they would blame it all on the "gubmint".

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Who was the manager - Stalin?

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