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Final-Fan said:
So would it be fair to say your statement was more about very large firms generally instead of vertical firms specifically? If that is the case, though we may disagree about the extent to which what you said is true and/or the size at which companies are genuinely diseconomized by their nature instead of by creeping mismanagement (avoidable ossification, politics, etc.), I don't think there is a fundamental issue between us regarding that statement. |
I suppose if we considered a wage relationship between a small-business owner and their employees, there is no knowledge problem because the small business owner is actively involved in the business and has constant direct input from their employees, the customers, and knowledge of prices. Sure, this can be considered to be a vertical institution because the business owner is in a position of (what I'd consider justified) authority over the use of their property, but I'd argue it is much less vertical than we experience with large-scale organizations that require a system of hierarchy in order to function cohesively (just as a command economy requires a bureau to centrally manage resources, a corporation has a board of directors.) In the small-business wage relationship you can directly speak with the person who calls the shots, and decisions can be made without limitations from other departments and/or higher levels of management. The worker has influence on the management decisions, even if they don't make the final decisions. This is not the case for a large institution and it is the case that the larger the institution is the more its hierarchies become counterproductive, as there are not only knowledge problems, but coordination problems secondarily caused by the knowledge problems.
I can't think of a large firm that is not structured according to some hierarchial relationship. Can you?
In an anarchic society, large scale coordination would likely take a sort of federalist form, where organization is from the bottom-up (individual -> institutions -> cooperating institutions -> societies) via market mechanisms rather than top-down via commands. This allows for large-scale coordination, because each individual makes decisions according to market mechanisms (prices) rather than according to the design of somebody above them. So the criticism is not that large-scale coordination is inherently impossible, but rather that the structure of the organization in combination with its large size creates costs, which become larger with scale. Eventually these costs make profitability impossible, unless the institution devolves power (flattens.) A vertical institution can work okay on a small scale, but once you get to the scope of -- say Walmart -- the effects of the knowledge problem compound because there is no internal market mechanisms. These organizations get around it by a combination of defacto devolution and state subsidies/privileges.
So yes, it is the size that is the problem, but the size is only a problem because of the way the institution is designed. By devolving power to the individual parts of the company, efficiency can improve, and this is by definition flattening the organization. The same concept can be applied to politics. It is very much impossible for the president of the United States to micromanage the entire lives of everyone in the United States. So instead power is separated and retained by the governments closer to the people. An anarchist would argue that self-ownership > community-level government > state-government > central government. This is because the likelihood that your consent has been given, and your values are accurately represented decrease the further away the instituitions/persons are from you.
Anyway,
Tl:DR Version
Yes, it is the size that is the problem, but only because of the way the organizations are structured. Large-scale cooperation can be successful if a bottom-up approach were taken rather than a top-down one.
It seems as if companies are catching on to this as well.
http://www.tuw.edu/business/top-down-vs-bottom-up-management/
