One thing I've wondered about is that when viewed from the inside, large organizations look like centrally planned economies - capital is allocated centrally and there is often quite strong command and control structures.
So why do large companies manage to run centrally planned systems whereas centrally planned states seemed doomed to fail?
Part of the mythology of western capitalism (as it is practiced) is that it's 100% market based. But as you've noticed, it's actually a whole bunch of centrally planned hierarchical petty dictatorships bumping and grinding like boulders in a sea of small businesses like sand grains. Sometimes one of the small businesses will swell up and become a boulder, and sometimes a boulder will crumble.
The main advantages of the market seems to be that failure is usually localized and containable -- although we came frighteningly close to a widespread meltdown in 2008 -- and, arguably, markets are better at promoting information flow and responding to new demands (although I suspect the growth of IP law and the existence of trade secrets counteract this to some extent).
But it's worth noting that the mean life expectancy of a publicly quoted corporation is around 30 years -- and the USSR made it through just over seven decades.
But cstross, the Soviet Union shot you
and your family in the back of the head if you tried to leave! And there were entire agencies devoted to getting persecuted minorities out of the USSR, including Sergey Brin's parents. It is not exactly comparable to what happens when you leave a company (the occasional Ballmer chair throwing fit notwithstanding).
As a Soviet immigrant, I take issue with the realism of your claim.
Yes, the country effectively had closed borders, and yes, it was downright impossible for most people to leave. A trickle of emigrants who were begrudingly permitted to leave officially began in the 1970s owing to international Jewish repatriation policies and so on, but that was not an option for most people.
Nevertheless, to suggest that people were simply shot for attempting to leave is an absurd level of hyperbole. They weren't shot, they were just prevented from doing so via the usual bureaucratic means.
There is the small number of people who attempted a beeline across the border - similarly to the Berlin Wall climbers - past the spotlights and the guards and all. Thankfully, there were not many of them, as this is a very stupid approach to crossing any national border anywhere. The American-Mexican border may prove to be an unusual exception.
So like a prison with life sentences! You could theoretically get out by a pardon -- but the only realistic way was to sneak out while hoping the guards missed, if they saw you...
The constant comparisons to a prison reflect the theoretical reality of leaving the country accurately, but poorly reflect the psychological perception of the issue by most citizens. The USSR was a vast, vast country, spanning 11 timezones horizontally as the Russian Federation does now. It contained 15 ethnically and culturally diverse republics, practically every far-northern, tundra, sub-tropical and tropical climactic region imaginable, and manifold examples of every kind of landscape and topography. In addition, travel to the Eastern European socialist republics was quite possible and routine for many people.
My point is, there was a lot to see inside the country. Were we technically "trapped" there? Absolutely. But to grok the actual significance of this, consider the single-digit percentage of Americans that hold foreign passports. Vanishingly few Americans have ever traveled outside the country, and a non-trivial number have never left their state or been beyond a neighbouring one.
So, while the fact that the borders were closed is important, and if that's your sole point, well, sure, but if you're likening it experientially to a prison, I think that's a little over the top. There were certain people who really wanted to leave and for whom that was undoubtably true. But as with most Americans, most Soviets were somewhere in the middle on that.
This is not an apologia or a whitewashing of the fact that our borders were closed, but an attempt to convey the human factor in a more nuanced, perceptive way.
>>The constant comparisons to a prison reflect the theoretical reality of leaving the country accurately, but poorly reflect the psychological perception of the issue by most citizens.
Of course, with information control from the cradle...
>>Vanishingly few Americans have ever traveled outside the country, and a non-trivial number have never left their state or been beyond a neighbouring one.
I thought Soviet didn't allow people to move to the place they wanted? Or was that just the big cities?
But sure, people traveled in the military service...? :-)
The Soviet Union shot you and your family if you tried to leave? Huh, that didn't happen to me or my family. Or any other person I know. I guess it's popular to spout bullshit like that though.
Soon after the formation of the Soviet Union, emigration restrictions were put in place to keep citizens from leaving the various countries of the Soviet Socialist Republics,[1] though some defections still occurred. During and after World War II, similar restrictions were put in place in non-Soviet countries of the Eastern Bloc,[2] which consisted of the Communist states of Eastern Europe.[3][4]
Most in the group were pessimistic about their chances — but none more than Mr. Mendelevich. He felt sure they would get caught, but to his mind, a group suicide was preferable to a life of waiting for an exit visa that would never arrive. Even a botched attempt, he figured, would at least attract the eyes of the world.
Early the next day, as the plotters walked onto the tarmac, they were, indeed, caught. The K.G.B. had known of their plan for months. And the two leaders were later sentenced to death.
But Mr. Mendelevich was also right that their desperate act would make their demand for free emigration impossible to ignore. Now largely forgotten, this planned hijacking, and the Soviet government’s overreaction to it, opened the first significant rip in the Iron Curtain, one through which hundreds of thousands would eventually flee. With great drama, it undermined Communist orthodoxy. After all, if the Bolsheviks had built the perfect society, why would any well-adjusted citizens want to leave, let alone risk their lives to do so?
The essential weakness of the Soviet Union was exposed: to survive, the regime had to imprison its own population. This would be the beginning of the end.
Jews were understandably at the forefront of the emigration battle. Even as they were forbidden to exercise any kind of Jewish identity, they also had no option to assimilate in Soviet society. Their internal passports were stamped “Jew,” a word that three generations after the 1917 revolution signified little more than their status as outsiders. Many had come to feel that their existence inside the Soviet Union was untenable, that the only way to escape this paradox was to move away. But the doors were firmly shut; those who requested permission to leave were refused and then ostracized.
The push to emigrate, which had begun in the early 1960s as an underground movement, had grown by 1970 into an open campaign. Letters to the United Nations were signed by hundreds of Soviet Jews. Only a few months before the hijacking attempt, the Kremlin had called for a public relations counteroffensive that would paint Zionism as “a vanguard of imperialism.” A large press conference was arranged with “acceptable” Jews, including the prima ballerina Maya Plisetskaya and the comedian Arkady Raikin, vowing loyalty to the Soviet Union and denouncing Zionism as expressing “the chauvinistic views and racist ravings of the Jewish bourgeoisie.”
Heh, I've heard that argument before, my family and everyone I knew was "elite" somehow. No, we were certainly not. Or are you saying my problem is being Jewish?
Sergei Brin, who you mention, was his family also shot? If you applied for the paperwork properly you were allowed to leave.
The difference is that companies are voluntary associations of individuals. A government is a monopoly of force and justice; it can exert its authority even on those that have not explicitly (via a free contract) agreed to it.
Today that may be so; but prior to 1914 it was possible to move around anywhere in Europe (including the UK -- excluding the Russian Empire) without a passport or identity documents, and pretty much legal to settle anywhere. While the cost and difficulty of moving back then was greater than it is today, states had very porous borders and it was practical to vote with your feet (as in fact my grandparents did).
The first world war put an end to the old order and made nationality non-discretionary -- and we're still dealing with the fallout today (as witness the permanent floating founder visas thread on HN).
I remember that from the start of Niall Ferguson's The War of the World - in 1913 the world looked quite a bit like it does today (at least from a "globalization" perspective).
Everyone has obligations that tend to reduce their freedom. The ones who think they don't are called psychopaths.
In personal development, an early stage is to understand that you can be independent. E.g. you can choose how to act and how to react to the outside world.
A higher level of development is to realize that we're inter-dependent. No man is an island.
There will always be constraints on our options. I don't like it, but I'm getting used to it.
There is no absolute freedom, and there are no truly free contracts.
If you look at global markets the same way, the fall of the Soviet Union was also remarkably localized, it's just that the Union and its Satellite states covered so much of the planet.
Large companies are not total systems. The auditors and the setting of accounting standards are external. The police, courts, and law making are external.
In the 90's big companies developed the technique of paying the big accounting firms for consultancy work which subverted the independence of the auditors and paved the way for Enron. The accounting treatment of leases and uncancellable suggests that there have been similar "successes" in subverting the setting of accounting standards.
Elsewhere we see big companies having sufficiently close ties to political power that they can subvert the police and the courts and even the law making process. This also ends badly.
I don't see any prospect of researching how large companies work and then turning that into a blue print for socialism 2.0. Large companies seem to be viable because of a separation of business and government that is fundamentally incompatible with the common ownership of the means of production.
Creative destruction, as in the Austrian school, should be a major factor.
Think evolution of organizations, economically inefficient ones die. People learn (in the Lamarckian way, too) what works best at the present time.
Also...
To quote an argument from your blog, there are many tens of millions of people needed to keep our civilization working efficiently (some specialized jobs might only have a few dozen practitioners, according to you).
And to keep up with research and new methods, in every decade a large percentage of all those jobs will be totally different.
Centrally planned system just can't touch that -- they can't even avoid traffic jams with a few million cars! (And those cars aren't [yet] genetically and culturally programmed to optimize their behavior individually and in groups.. and change a lot culturally every generation.)
Own petard, etc. :-)
Edit: A bit clearer, hopefully. Non-native language.
The command structure may be there, but not the element of control.
An employee is free to resign if he would prefer to work for someone else. He can't be sent to a gulag. Customers aren't forced to accept a company's product or service, and can choose a competitor instead. Managers can fire incompetent or insubordinate workers. Customers can criticize a product without fear of being shot.
Customer, manager, employee, investor -- everyone is in the situation voluntarily, so they must negotiate on the basis of mutual self-interest. The company as an entity is more stable because its constituents aren't essentially at war with one another.
Unless the market conditions are such that workers cannot move from one place of employment to the other due to collusion between capitalists or if the economy is such that it's impossible to switch jobs.
Let's be honest, job mobility even in market economies is a difficult affair for everyone but highly qualified professionals. The fact that IT workers can get a new job in a month is not indicative of the economy at large.
That is because they are, but in my country 99% of the business number and 70% of the economy are small and medium companies. When MS wants to make kinect or Apple wants to add sound recognition to the Iphone they buy it from small companies.
GM should have collapsed, all the megabanks and companies that were too big to fail show us how central planning works without control.
Some things need central planning(mass production), communism is state capitalism with only one megacompany. That is a supermonopoly.
I have friends that were in communist Russia, if you made -talked something that upset some member of the party(they were God), depending on the offense, you, your sister, your son won't be able to work anywhere(there is only one company after all). Nothing else was needed to control every one.
That may be the reason that large organizations are difficult to maintain. How many of the Fortune 500 companies today were still there 4 years ago?
As an organization grows, it requires people in support structures that are less linked to the ultimate bottom line. Ludwig von Mises proposed the idea that an organization requires a level of bureaucracy, in the absence of market signals. So to the extent that an employee is removed from from the direct market operations of the company, a bureaucracy is required.
Now, the reason companies don't outsource all their work to bidding contractors is that there is some value in holding resources in reserve. A bid-contractor is only as good as the next assignment, he may leave for another company when you need him the most. The solution is to have a contract where the particular individual will reserve his time and energy to one company (a.k.a. an employee). The employee will be effectively "slacking off", but will be on call for when his resources are needed.
Because a single large companies can fail, without destroying society.
Imagine if the company was all of society.
What I'm more interested in is this idea of democracy (inefficent, but least of a number of evils) vs. enlightened dictatorship (efficient, sucks if your priorities are different from leader's).
Small is beautiful in part because you don't need to convince a lot of people with disparate motivations to do something.
The same pattern arises in startup vs. bigco, and visionary CEO vs. design by committee.
The answer is that most large companies aren't run like centrally-planned economies. Executives may imagine themselves as generals at the head of an obedient army, but they are in reality deeply dependent on the actions of middle managers and employees. In fact, real generals are just as reliant on independent decisions of their officers and troops. Successful executives (and generals) are the ones who learn to balance top-down and bottom-up decision-making. The largest companies are perpetually engaged in a game of consolidation and reorganization into more independent entities.
First, they do often fail and are replaced by new companies where sclerosis hasn't set in yet.
Second, even huge megacorps are tiny compared to countries. Microsoft is about the same population as Antigua and Barbuda, and if Antigua and Barbuda tried to go the Soviet state controlled economy route I predict that they would be much more successful at it than the Soviets were because its much easier to govern a smaller country.
Comments
One thing I've wondered about is that when viewed from the inside, large organizations look like centrally planned economies - capital is allocated centrally and there is often quite strong command and control structures.
So why do large companies manage to run centrally planned systems whereas centrally planned states seemed doomed to fail?
Part of the mythology of western capitalism (as it is practiced) is that it's 100% market based. But as you've noticed, it's actually a whole bunch of centrally planned hierarchical petty dictatorships bumping and grinding like boulders in a sea of small businesses like sand grains. Sometimes one of the small businesses will swell up and become a boulder, and sometimes a boulder will crumble.
The main advantages of the market seems to be that failure is usually localized and containable -- although we came frighteningly close to a widespread meltdown in 2008 -- and, arguably, markets are better at promoting information flow and responding to new demands (although I suspect the growth of IP law and the existence of trade secrets counteract this to some extent).
But it's worth noting that the mean life expectancy of a publicly quoted corporation is around 30 years -- and the USSR made it through just over seven decades.
But cstross, the Soviet Union shot you and your family in the back of the head if you tried to leave! And there were entire agencies devoted to getting persecuted minorities out of the USSR, including Sergey Brin's parents. It is not exactly comparable to what happens when you leave a company (the occasional Ballmer chair throwing fit notwithstanding).
As a Soviet immigrant, I take issue with the realism of your claim.
Yes, the country effectively had closed borders, and yes, it was downright impossible for most people to leave. A trickle of emigrants who were begrudingly permitted to leave officially began in the 1970s owing to international Jewish repatriation policies and so on, but that was not an option for most people.
Nevertheless, to suggest that people were simply shot for attempting to leave is an absurd level of hyperbole. They weren't shot, they were just prevented from doing so via the usual bureaucratic means.
There is the small number of people who attempted a beeline across the border - similarly to the Berlin Wall climbers - past the spotlights and the guards and all. Thankfully, there were not many of them, as this is a very stupid approach to crossing any national border anywhere. The American-Mexican border may prove to be an unusual exception.
So like a prison with life sentences! You could theoretically get out by a pardon -- but the only realistic way was to sneak out while hoping the guards missed, if they saw you...
The constant comparisons to a prison reflect the theoretical reality of leaving the country accurately, but poorly reflect the psychological perception of the issue by most citizens. The USSR was a vast, vast country, spanning 11 timezones horizontally as the Russian Federation does now. It contained 15 ethnically and culturally diverse republics, practically every far-northern, tundra, sub-tropical and tropical climactic region imaginable, and manifold examples of every kind of landscape and topography. In addition, travel to the Eastern European socialist republics was quite possible and routine for many people.
My point is, there was a lot to see inside the country. Were we technically "trapped" there? Absolutely. But to grok the actual significance of this, consider the single-digit percentage of Americans that hold foreign passports. Vanishingly few Americans have ever traveled outside the country, and a non-trivial number have never left their state or been beyond a neighbouring one.
So, while the fact that the borders were closed is important, and if that's your sole point, well, sure, but if you're likening it experientially to a prison, I think that's a little over the top. There were certain people who really wanted to leave and for whom that was undoubtably true. But as with most Americans, most Soviets were somewhere in the middle on that.
This is not an apologia or a whitewashing of the fact that our borders were closed, but an attempt to convey the human factor in a more nuanced, perceptive way.
I get the human factors (i.e. the jail was big).
>>The constant comparisons to a prison reflect the theoretical reality of leaving the country accurately, but poorly reflect the psychological perception of the issue by most citizens.
Of course, with information control from the cradle...
>>Vanishingly few Americans have ever traveled outside the country, and a non-trivial number have never left their state or been beyond a neighbouring one.
I thought Soviet didn't allow people to move to the place they wanted? Or was that just the big cities?
But sure, people traveled in the military service...? :-)
The Soviet Union shot you and your family if you tried to leave? Huh, that didn't happen to me or my family. Or any other person I know. I guess it's popular to spout bullshit like that though.
Your family might have been part of the nomenklatura. But it is pretty indisputable that they gunned down Soviet Bloc defectors trying to escape.
The Soviet Union was a prison state.
http://en.wikipedia.org/wiki/List_of_Soviet_and_Eastern_Bloc...
Soon after the formation of the Soviet Union, emigration restrictions were put in place to keep citizens from leaving the various countries of the Soviet Socialist Republics,[1] though some defections still occurred. During and after World War II, similar restrictions were put in place in non-Soviet countries of the Eastern Bloc,[2] which consisted of the Communist states of Eastern Europe.[3][4]
http://www.nytimes.com/2010/06/18/opinion/18beckerman.html
Most in the group were pessimistic about their chances — but none more than Mr. Mendelevich. He felt sure they would get caught, but to his mind, a group suicide was preferable to a life of waiting for an exit visa that would never arrive. Even a botched attempt, he figured, would at least attract the eyes of the world.
Early the next day, as the plotters walked onto the tarmac, they were, indeed, caught. The K.G.B. had known of their plan for months. And the two leaders were later sentenced to death.
But Mr. Mendelevich was also right that their desperate act would make their demand for free emigration impossible to ignore. Now largely forgotten, this planned hijacking, and the Soviet government’s overreaction to it, opened the first significant rip in the Iron Curtain, one through which hundreds of thousands would eventually flee. With great drama, it undermined Communist orthodoxy. After all, if the Bolsheviks had built the perfect society, why would any well-adjusted citizens want to leave, let alone risk their lives to do so?
The essential weakness of the Soviet Union was exposed: to survive, the regime had to imprison its own population. This would be the beginning of the end.
Jews were understandably at the forefront of the emigration battle. Even as they were forbidden to exercise any kind of Jewish identity, they also had no option to assimilate in Soviet society. Their internal passports were stamped “Jew,” a word that three generations after the 1917 revolution signified little more than their status as outsiders. Many had come to feel that their existence inside the Soviet Union was untenable, that the only way to escape this paradox was to move away. But the doors were firmly shut; those who requested permission to leave were refused and then ostracized.
The push to emigrate, which had begun in the early 1960s as an underground movement, had grown by 1970 into an open campaign. Letters to the United Nations were signed by hundreds of Soviet Jews. Only a few months before the hijacking attempt, the Kremlin had called for a public relations counteroffensive that would paint Zionism as “a vanguard of imperialism.” A large press conference was arranged with “acceptable” Jews, including the prima ballerina Maya Plisetskaya and the comedian Arkady Raikin, vowing loyalty to the Soviet Union and denouncing Zionism as expressing “the chauvinistic views and racist ravings of the Jewish bourgeoisie.”
Heh, I've heard that argument before, my family and everyone I knew was "elite" somehow. No, we were certainly not. Or are you saying my problem is being Jewish?
Sergei Brin, who you mention, was his family also shot? If you applied for the paperwork properly you were allowed to leave.
The difference is that companies are voluntary associations of individuals. A government is a monopoly of force and justice; it can exert its authority even on those that have not explicitly (via a free contract) agreed to it.
Today that may be so; but prior to 1914 it was possible to move around anywhere in Europe (including the UK -- excluding the Russian Empire) without a passport or identity documents, and pretty much legal to settle anywhere. While the cost and difficulty of moving back then was greater than it is today, states had very porous borders and it was practical to vote with your feet (as in fact my grandparents did).
The first world war put an end to the old order and made nationality non-discretionary -- and we're still dealing with the fallout today (as witness the permanent floating founder visas thread on HN).
I remember that from the start of Niall Ferguson's The War of the World - in 1913 the world looked quite a bit like it does today (at least from a "globalization" perspective).
Free contracts are a fiction.
Everyone has obligations that tend to reduce their freedom. The ones who think they don't are called psychopaths.
In personal development, an early stage is to understand that you can be independent. E.g. you can choose how to act and how to react to the outside world.
A higher level of development is to realize that we're inter-dependent. No man is an island.
There will always be constraints on our options. I don't like it, but I'm getting used to it.
There is no absolute freedom, and there are no truly free contracts.
If you look at global markets the same way, the fall of the Soviet Union was also remarkably localized, it's just that the Union and its Satellite states covered so much of the planet.
At that scale, this starts to be an abuse of the word "localized". If you look at anything from far enough away it seems insignificant.
Scale matters. Most of the time when companies in a market system collapse, very few people starve or die.
Large companies are not total systems. The auditors and the setting of accounting standards are external. The police, courts, and law making are external.
In the 90's big companies developed the technique of paying the big accounting firms for consultancy work which subverted the independence of the auditors and paved the way for Enron. The accounting treatment of leases and uncancellable suggests that there have been similar "successes" in subverting the setting of accounting standards.
Elsewhere we see big companies having sufficiently close ties to political power that they can subvert the police and the courts and even the law making process. This also ends badly.
I don't see any prospect of researching how large companies work and then turning that into a blue print for socialism 2.0. Large companies seem to be viable because of a separation of business and government that is fundamentally incompatible with the common ownership of the means of production.
Excellent - you've made my day - one of my favorite authors replying to a comment of mine on HN (pity it took me 8 hours to notice!).
Creative destruction, as in the Austrian school, should be a major factor.
Think evolution of organizations, economically inefficient ones die. People learn (in the Lamarckian way, too) what works best at the present time.
Also...
To quote an argument from your blog, there are many tens of millions of people needed to keep our civilization working efficiently (some specialized jobs might only have a few dozen practitioners, according to you).
And to keep up with research and new methods, in every decade a large percentage of all those jobs will be totally different.
Centrally planned system just can't touch that -- they can't even avoid traffic jams with a few million cars! (And those cars aren't [yet] genetically and culturally programmed to optimize their behavior individually and in groups.. and change a lot culturally every generation.)
Own petard, etc. :-)
Edit: A bit clearer, hopefully. Non-native language.
The command structure may be there, but not the element of control.
An employee is free to resign if he would prefer to work for someone else. He can't be sent to a gulag. Customers aren't forced to accept a company's product or service, and can choose a competitor instead. Managers can fire incompetent or insubordinate workers. Customers can criticize a product without fear of being shot.
Customer, manager, employee, investor -- everyone is in the situation voluntarily, so they must negotiate on the basis of mutual self-interest. The company as an entity is more stable because its constituents aren't essentially at war with one another.
Unless the market conditions are such that workers cannot move from one place of employment to the other due to collusion between capitalists or if the economy is such that it's impossible to switch jobs.
Let's be honest, job mobility even in market economies is a difficult affair for everyone but highly qualified professionals. The fact that IT workers can get a new job in a month is not indicative of the economy at large.
That is because they are, but in my country 99% of the business number and 70% of the economy are small and medium companies. When MS wants to make kinect or Apple wants to add sound recognition to the Iphone they buy it from small companies.
GM should have collapsed, all the megabanks and companies that were too big to fail show us how central planning works without control.
Some things need central planning(mass production), communism is state capitalism with only one megacompany. That is a supermonopoly.
I have friends that were in communist Russia, if you made -talked something that upset some member of the party(they were God), depending on the offense, you, your sister, your son won't be able to work anywhere(there is only one company after all). Nothing else was needed to control every one.
That may be the reason that large organizations are difficult to maintain. How many of the Fortune 500 companies today were still there 4 years ago?
As an organization grows, it requires people in support structures that are less linked to the ultimate bottom line. Ludwig von Mises proposed the idea that an organization requires a level of bureaucracy, in the absence of market signals. So to the extent that an employee is removed from from the direct market operations of the company, a bureaucracy is required.
Now, the reason companies don't outsource all their work to bidding contractors is that there is some value in holding resources in reserve. A bid-contractor is only as good as the next assignment, he may leave for another company when you need him the most. The solution is to have a contract where the particular individual will reserve his time and energy to one company (a.k.a. an employee). The employee will be effectively "slacking off", but will be on call for when his resources are needed.
Because a single large companies can fail, without destroying society.
Imagine if the company was all of society.
What I'm more interested in is this idea of democracy (inefficent, but least of a number of evils) vs. enlightened dictatorship (efficient, sucks if your priorities are different from leader's).
Small is beautiful in part because you don't need to convince a lot of people with disparate motivations to do something.
The same pattern arises in startup vs. bigco, and visionary CEO vs. design by committee.
Recent history suggests that this isn't true - the "too big to fail" banks.
The answer is that most large companies aren't run like centrally-planned economies. Executives may imagine themselves as generals at the head of an obedient army, but they are in reality deeply dependent on the actions of middle managers and employees. In fact, real generals are just as reliant on independent decisions of their officers and troops. Successful executives (and generals) are the ones who learn to balance top-down and bottom-up decision-making. The largest companies are perpetually engaged in a game of consolidation and reorganization into more independent entities.
First, they do often fail and are replaced by new companies where sclerosis hasn't set in yet.
Second, even huge megacorps are tiny compared to countries. Microsoft is about the same population as Antigua and Barbuda, and if Antigua and Barbuda tried to go the Soviet state controlled economy route I predict that they would be much more successful at it than the Soviets were because its much easier to govern a smaller country.
Because they do, indeed, fail quite often.
Examples abound in the last economic downturn.