Federated

The second of Oliver Williamson's (OEW) organization methods from The Economic Institutions of Capitalism (described in this post) is another "entrepreneurial" mode he calls "Federated". He describes it thus:

Stations are located side by side in a common facility. Intermediate product is transferred across stages according to contract. So as to avoid the need for supervision orcontinuous coordination, buffer inventories are introduced at each station. Subject to the condition that buffer inventories do not fall below prescribed levels, in which event penalties are assessed, each worker proceeds at his own pace.

He goes on to say that it is "uncertain and perhaps doubtful" that this mode was ever widely used. He cites Pat Hudson ("Proto-industrialization: The case of the West Riding World Textile Industry in the 18th and early 19th centuries," History Workshop, 12 (Autumn, 1981)) as saying that "the majority of early woolen mills were occupied and run [...] by small manufacturers ... rather than by wealthy mercantile concerns," but that it is not clear whether they traded between stations. But if the mode didn't exist, why bring it up at all? OEW explains that it is useful as a hypothetical, and especially as one in which worker autonomy is preserved.

So what are the salient features of the federated system?

• It is classified by OEW as an "entrepreneurial mode" (again, as opposed to collective or capitalist)
• Compatible with agoric modes, again in my opinion
  
• OEW considered it to be a "continuous contracting" mode
  
• In terms of contractual hierarchy, OEW classifies it as being low. Workers own their own equipment, and there is no central agent
• In terms of decision-making hierarchy, with no boss, it is also at the lowest end of the scale
  

So it's not very hierarchical, but how does it stack up efficiency-wise? Poorly, as it turns out.

Efficiencies:
a. Product flow
1. Transportation expense - Having everyone under the same roof means that transportation costs are economized, an improvement on Putting out.
2. Buffer inventories - The fact that everyone is dependent on upstream contractors puts you at their mercy. If you happen to be downstream of a poor operator, so much the worse for you, and even contractual countermeasures aren't going to help very much. Buffer inventories are anathema to flow production.
3. Interface leakage - This also receives low marks (recall that this means loss of material from one station to the next).

b. Assignment attributes
4. Station assignments - Same as Putting out (good).
5. Leadership - In this category, the federated system loses marks. There is no central figure to point out when prices are too high, manufacturing processes are taking too long, or whether the group is in fact making the right product.
6. Contracting - Same as Putting out in OEW's opinion, but I suspect the same moderating tendencies as before. That is, the use of modern predictive maintenance practices make this less important, but the comparative cost of contracting between this and systems which economize on contracting will tip in their favor.

c. Incentive attributes
7. Work intensity - Same as Putting out.
8. Equipment utilization - Same as Putting out.
9. Local shock responsiveness - Same as Putting out, or perhaps worse. At least with the central agent doing the subcontracting in putting out, someone might recognize the problems and redirect work to another subcontractor.
10. Local innovation - Same as Putting Out.
11. System responsiveness - Same as Putting out.

Bottom line: minimally hierarchical, but the same 5 out of 11 on efficiency. This is one of the three modes of organization that could be roughly described as "cooperative".

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