Daily Adams

Beyond ‘Bossism’ – Less Hierarchy is a Good Thing

The end of state-favored businesses may bring smaller, more supple organizations. They’d be less prone to the problems of large-scale planning:

Large, hierarchical firms seem likely to be beset by the incentive and knowledge problems that complicate the lives of state central planners.

The larger an organization, the more likely it is that managers will lack crucial information. This is both because there will be multiple layers separating various actors with relevant information (with institutional pressures impeding accuracy) and because there will be no system of prices encoding the information and usable for calculation.

In addition, the principal-agent problem besets large firms at multiple levels, fostering inefficiencies as workers—whether senior managers or front-line employees—seek their own goals rather than firm profitability.

Thus, it seems fairly clear that, all other things being equal, the smaller and flatter a firm is, the better the information available to participants will be. The more production decisions are based on actual market prices rather than on simulated intra-firm transfer prices, the more efficient and responsive to reality they’re likely to be. And the more a worker has skin in the economic game, the more likely she will be to make prudent, efficient, customer-responsive decisions.

Via Beyond Bossism | Bleeding Heart Libertarians.

Leave a Reply

Your email address will not be published.