Anti-science vs. questionable science

Before my break, over at Crooked Timber, John Quiggin was having a go at John Tierney specifically and Republicans generally on their anti-science stance.

In some of the more hilarious comments, they seem to insinuate that agriculture policies are Republican driven; this may perhaps be the result of a number of non-Americans feeling informed enough to comment on American politics. The most egregious of these policies got their start during the Depression (though some pre-date it), and they grew much larger over the years. That roughly corresponds with the approximately 40-year unbroken period in which Democrats controlled Congress. And as Stephen Downes recently reminded us, the more enlightened Left actually prefers these policies because it maintains order among the Morlocks:

Speaking as someone from the left, I understand the need to provide these subsidies to rural and suburban regions. They are necessary because the free market, left to its own devices, would leave these regions completely unserved.

This would greatly exaggerate the 'time warp' effect, whereby rural regions would be decades behind urban regions, not only in technology, but also education and health care, and ultimately, attitudes and behaviours.

...

It turns out - and we have the empirical evidence for this now - that it is much cheaper to provide subsidies to these regions [rural areas in the US and Canada? Or Africa, Asia, and South America? He seems to have wandered around a bit by this point, so the antecedent is no longer clear - EH] rather than to take a 'law and order' approach. Responding to religious fanaticism, tribalism and the like by war and invasion costs hundreds of billions of dollars - a non-productive subsidy that amounts to thousands of dollars per resident. [I don't think he is still talking about Iowa ... but he does now seem to be implying that invasions are the necessary alternative to foreign aid subsidies! That is a false dilemma.]

Essentially, Downes is admitting that he and his enlightened fellows understand the need to do these things, but Republicans should nevertheless be blamed for actually doing them, and please ignore the history of New Deal farm policy. [1] I wouldn't let either party off the hook on this, though. Republicans took over Congress with the intent of rolling back some of these subsidies, and actually did so for a while (under a Democrat president), but then reintroduced them all under the Freedom to Farm Bill (under a Republican president). The Democratic Congress recently passed another horrific farm policy law with broad-based Republican support, and the silence over at DailyKos is deafening, except to continue to propagate the meme that the beneficiaries of the bill are Republican farmers.[2] As I said at CT, ag policy is non-partisan. Perhaps I should have said bipartisan?

There is a large group of people who tend to be unified by a mindset that is anti-Western, anti-industrial, anti-free-market. Not all share all aspects of this, and not all share the same level of venom, but they exist. At one end of the spectrum, you have the ignorant, violent kids who tore up Seattle and join ELF, who think that Hayduke was a pansy. At the other, you have the reserved lobbyists of the Sierra Club.

People in this group have a model of the world which is reinforced by pessimistic scientific claims. Anything which looks like an indictment of Western, industrial, modern society is immediately accepted on its face because it reinforces their moral views. This confirmation bias, however, goes unrecognized and unacknowledged because of the myriad of other biases that occur when looking back at it introspectively.

One of the biases which makes it difficult to identify past errors is hindsight bias, the tendency to believe that one's predictive abilities are better than they are. We tend to forget bad predictions and to remember good ones. Confirmation bias is the tendency to search for information that matches our preconceptions. Another is the winners' bias, in which we tend to examine hypotheses that actually turned out to be true in order to determine whether hypotheses are more frequently true, a bias which is in part selection bias and in part the Texas Sharpshooter's Fallacy. Selection bias is a distortion created by the manner in which data are collected, in this case resulting from limiting our selection of hypotheses to examine to after the fact rather than before the fact. The Texas Sharpshooter's fallacy is the determination of the hypothesis after the data have been collected. It would be far more constructive if we were to look at all of the hypotheses before the era which was being forecast and to look at which of those were true rather than looking at only the most memorable ones (recall bias?), which are inevitably the ones that eventually come true.

So, for example, we have the historical examples of epicycles, luminiferous aether, and phlogiston. Epicycles were introduced to try to explain the occasional regress of a planet in order to salvage the Ptolemeic or Earth-centric view of the universe. Luminous ether was the medium in which light travelled. Phlogiston was the element which sustained fire. These were important in their day, but are largely unknown today because they were, of course, wrong. These are just a few of the many now-discredited theories of how our world works.

More recently, we had the saccharin scare. Scarcely remembered today, the saccharin controversy was headline news in its day. Having determined that it caused cancer in rats, the FDA wanted to ban it as a carcinogen. They ran into tremendous popular and corporate opposition, since saccharin was the main sugar substitute in diet drinks at the time. They "compromised" by requiring the incorporation of warning labels. Years later, it was determined that saccharin has an effect particular not just to rats, but more specifically to male rats, in a way that does not effect humans. The entire controversy was completely misguided.[3]

Another example is the global cooling scare of the 1970s. It is still well-known that the Earth cooled during the 1940-1970 period, leading to concerns that the trend would continue until we entered a new Ice Age. Pollution was blamed, though it was noted that we are overdue for another Ice Age (in the literature, this is described as the end of the "interglacial period"). Bring this up on a climate change activist website and they will point out that the scare was largely created by articles in Newsweek and National Geographic magazines but was not predicted by scientists. While true that it was brought to the fore of public attention by the popular press, and that few scientists were predicting as opposed to positing the possibility of a new Ice age, the actual history at the time proves my point that these memes achieve some resonance in popular opinion despite the fact that they aren't true.[4] Afterwards, those who believed and advocated strong action claim to have never believed strongly.

It's almost a Lake Wobegon effect: all of today's environmentalists are above average in their ability to have picked only the true environmental scares of the 1970s. How did the belief in global cooling ever get so popular? Was there a die-off among environmentalists in the 1980s? That damn Reagan is probably behind it.

Finally, we have people who accept the claims of Paul Ehrlich:

"The battle to feed humanity is over. In the 1970s the world will undergo famines . . . hundreds of millions of people (including Americans) are going to starve to death." [1968]

"I would take even money that England will not exist in the year 2000." [1969]

Far from being ostracised for making a string (or two) of laughably wrong predictions, Ehrlich has received several awards for his "research". People want so badly to believe him that they continue to discount his way-off-the-mark predictions and accept his newer work at face value.
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Most scientists must necessarily be wrong most of the time, at least in published journal articles. This is the nature of science as a search for truth (truth which is as yet unknown): one must submit hypotheses to tests. Either most of those hypotheses must be wrong, or scientists are surprisingly good at guessing right answers, or publication bias is a factor. In fact, those are the findings of scientists researching the results of research: see this article by John Ioannidis and this article by Douglas Allchin for examples.

What is required is a substantial amount of skepticism, even for "accepted" conclusions. At one time in the not-so-distant past, ulcers were thought to be related to nerves, stomach chemistry, and diet. Not until 1979-1981, when two Australian researchers (Warren and Marshall) showed that most peptic ulcers were caused by a bacterium, Helicobacter pylori, did we have the truth. It is fortunate that Warren and Marshall rejected the consensus on this. Howard Aiken's assertion that you shouldn't "worry about people stealing your ideas. If your ideas are any good, you'll have to ram them down people's throats," summarizes the reception Warren and Marshall's ideas received from the medical community. Humans are not good at identifying truth that is at odds with their world view, or at identifying when falsehoods are confirming their world view.

We must be as skeptical of those who claimed that they always knew that Global Warming was true as of Anthropogenic Global Warming (AGW) itself, even if (or perhaps especially if) we believe it to be true. Skeptical, not hateful, dismissive, and/or obtuse. Not skepticism because we "feel" it isn't true, but skepticism for its own sake. The doctors who doubted Warren and Marshall made them prove their claims; that's as good for all of us as is the skepticism of Warren and Marshall that led to the discovery in the first place. Those who claimed they always knew the truth of AGW (especially the non-scientists), even when the evidence was more scant than at present, likely believed (and continue to believe) every pessimistic prediction, but conveniently forgot those that later turned out to be false. They weren't prescient; they were and remain ignorant. They are also ignorant of their ignorance.

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[1] A while back, I said that the Left may not be in favor of the Police State, but they are in favor of a Police State. They build it and then feign surprise when the other side uses it. They refuse to believe reports that their own guys use it for anything less than righteousness.

[2] This continues to be a vexing problem about which I intend to post sometime in the near future. That is, a completely misguided application of demographics along with confusing correlation with causation. In this case, we have policies which benefit farmers. Farmers are known to live in rural states. Rural states tend to vote Republican. However, less than 2% of the population farms. Furthermore, it is well known that a small portion of farmers receives most of the subsidies. They alone cannot account for the number of votes received by Republicans. Believing that it is Republicans representing Republican farmers that managed to pass a bill 318-106 in the House, and 81-15 in the Senate, defies explanation on any grounds other than partisan blindness. When you further find out that of those 15 voting against it, only two were Democrats while 13 were Republicans, you really must examine your premises. In other words, it is time for Democrats to drop the sanctimony on farm policy.

In other news (and a demonstration of this same misguided approach to demographics), Democrats are the party of the wealthy and they emit most of the greenhouse emissions. More to come on this, eventually.

[3] Curiously, Quiggin's response regarding the saccharin scare was that it was driven by the USDA, which he sees as a Republican creature:

As regards saccharin, a quick look at Wikipedia reveals that the anti-saccharin push came from USDA. I don’t think it would be too hard to look behind the curtain to red-state sugar and corn producers.

In the first place, the Wiki article specifically points out that the USDA opposition was mostly one man acting in accordance with the law, a law written by the meat-packing industry, so I can't completely discount Quiggin's claim. But Quiggin's assertion that red-state farmers were behind it is typical of the partisan blind under which the subjects of this article labor. Yes, some of those farmers were Republican. Some are Democrat, but he is blind to them. The laws were all written, supported, and not repealed by the Democrats even though they have controlled Congress for most of the period since 1907, and the White House for about half of it.

In the second, this doesn't explain how the FDA came to attempt to ban it.

In the third, doesn't this illustrate exactly what many of us have been saying with respect to regulatory capture? Specifically, that the government mostly exists to defend corporations in the guise of defending the average citizen?

[4] In fact, this has become a new interest of mine: How do such ideas get created and transmitted to seats of power? It isn't always via the press, and the locus of power is not always popular opinion. Take, for example, the ideas of the German Historical school, which got mainstreamed under the name of Progressivism by a route that seems to have included Robert Ely, John Commons, Herbert Croly, Robert M. LaFollette Sr., Teddy Roosevelt, Louis Brandeis, and finally FDR's cabinet. Why that school of thought? Why that route? Pure chance?

My point here repeatedly escapes the comprehension of the pessimists. I am not saying, "Scientific consensus in the 1970s was in favor of global cooling and impending an Ice Age." I am saying, "Public opinion in the 1970s was tipping toward a belief in an impending Ice Age and a desire to do something about it." It therefore doesn't matter what scientists were publishing in journals, or that there was no scientific consensus predicting the end of the interglacial period. What matters is that a significant number of voters believed it. How did they receive the information? How credible did they perceive it to be? How strong were their beliefs, and how far were they willing to go to act on them?

Promise of American Life (again)

In The Promise of American Life (part I here), Croly seems to accept the moral basis for socialism, but soundly rejects the Marxist formulas. Maybe this is what is meant by American exceptionalism?

In Socialism: Utopian and Scientific, Engels makes demands for gradual state takeover of private property. "In any case, with trusts or without, the official representative of capitalist society -- the state -- will ultimately have to undertake the direction of production. This necessity for conversion into State property is felt first in the great institutions for intercourse and communication -- the post office, the telegraphs, the railways." This nationalization was expected to lead to the whithering of the state:

Whilst the capitalist mode of production more and more completely transforms the great majority of the population into proletarians, it creates the power which, under penalty of its own destruction, is forced to accomplish this revolution. Whilst it forces on more and more of the transformation of the vast means of production, already socialized, into State property, it shows itself the way to accomplishing this revolution. The proletariat seizes political power and turns the means of production into State property.

But, in doing this, it abolishes itself as proletariat, abolishes all class distinction and class antagonisms, abolishes also the State as State. [1]

Croly would have nothing to do with that; in his estimation, the men (Hill, Harriman, Morgan) who built the great industrial concerns contributed to the national efficiency. Rather than banishing them, Croly wanted to harness them (and maybe control the amount of money they made [2]). His methods of regulating therefore consist of removing impediments to them, including the Sherman Act, and replacing it with a system of commissions who would review their decisions and make them more transparent. To what end? National efficiency, of course (the man had an efficiency fetish). But Croly was unsatisfied with the idea of a commission, since efficiency would normally require responsibility to be placed with one man; but by favoring national commissions, at least it gives him a way to preserve private property even as he expands the scope of the national government. Sounds like ... ?

The constructive idea behind a policy of the recognition of semi-monopolistic corporations is of course the idea that they can be converted into economic agents which will make unequivocally for the national economic interest; and it is natural that in the beginning legislators should propose to accomplish this result by rigid and comprehensive official supervision. But such supervision, while it would eradicate many actual and possible abuses, would be just as likely to damage the efficiency which has been no less characteristic of these corporate operations. The only reason for recognizing the large corporations as desirable economic institutions is just their supposed economic efficiency; and if the means taken to regulate them impair that efficiency, the government is merely adopting in a roundabout way a policy of destruction. Now, hitherto, their efficiency has been partly the product of the unusual freedom they have enjoyed. Unquestionably they cannot continue to enjoy any similar freedom hereafter; but in restricting it, care should be taken not to destroy with the freedom the essential condition of the efficiency. The essential condition of efficiency is always concentration of responsibility; and the decisive objection to government by commission as an efficient solution of the corporation problem is the implied substitution of a system of divided for a system of concentrated responsibility.

This objection will seem fanciful and far fetched to the enthusiastic advocates of reform by commission. They like to believe that under a system of administrative regulation abuses can be extirpated without any diminution of the advantages hitherto enjoyed under private management; but if such proves to be the case, American regulative commissions will establish a wholly new record of official good management. Such commissions, responsible as they are to an insistent and uninformed public opinion and possessed as they inevitably become of the peculiar official point of view, inevitably drift or are driven to incessant vexatious and finally harmful interference. The efficient conduct of any complicated business, be it manufacturing, transportation, or political, always involves the constant sacrifice of an occasional or a local interest for the benefit of the economic operation of the whole organization. But it is just such sacrifices of local and occasional to a comprehensive interest which official commissions are not allowed by public opinion to approve. Under their control, rates will be made chiefly for the benefit of clamorous local interests, and little by little the economic organization of the country, so far as affected by the action of commission government, would become the increasing rigid victim of routine management. The flexibility and enterprise characteristic of our existing national economic organization would slowly disappear, and American industrial leaders would lose the initiative and energy which has contributed so much to the efficiency of the national economic system. Such a result would of course only take place gradually, but it would none the less be the eventual result of any complete adoption of such a method of supervision. The friends of commission government who expect to discipline the big corporations severely without injuring their efficiency are merely the victims of an error as old as the human will. They "want it both ways." They want to eat their cake and to have it. They want to obtain from a system of minute official regulation and divided responsibility the same economic results as have been obtained from a system of almost complete freedom and absolutely concentrated responsibility.

This section of the book reminded me of those sections of Gabriel Kolko's Triumph of Conservatism, in which he traces Teddy Roosevelt's preference for regulating behavior by the Good Ol' Boy method. TR, the renowned trust-buster, didn't really like to bust trusts, but preferred to try to persuade the less civilized among them (read: non-Harvard men) to change their ways. Those who didn't go along, such as J. P. Morgan and (IIRC) John D. Rockfeller, felt his wrath and it was upon their necks that Roosevelt's mythological Trust-Buster reputation was built. Perhaps it was no coincidence that Croly expressed admiration for Roosevelt (one chapter features a comparison between Roosevelt, William Jennings Bryan, and William Hearst as reformers, with TR as the hero), and later, after the publication of TPoAL, Roosevelt based his New Nationalism upon some of Croly's ideas.

And it was much the same when discussing unions. First, the Sherman Act should be repealed, and second, unions should be recognized with a deal that brings their activities in line with the national efficiency. The highest accomplishment to which a man can aspire in the Crolyist world was to place his talents at the service of the nation. You know, for the sake of efficiency.

The alternative [preferred] policy would consist in a combination of conciliation and aggressive warfare. The spokesman of a constructive national policy in respect to the organization of labor would address the unions in some such words as these: "Yes. You are perfectly right in demanding recognition, and in demanding that none but union labor be employed in industrial work. That demand will be granted but only on definite terms. You should not expect an employer to recognize a union which establishes conditions and rules of labor inimical to a desirable measure of individual economic distinction and independence Your recognition that is must depend upon conformity to another set of conditions imposed in the interest of efficiency and individual economic independence. In this respect you will be treated precisely as large corporations are treated. The state will recognize the kind of union which in contributing to the interest of its members contributes also to the general economic interest. On the other hand it will not only refuse to recognize a union whose rules and methods are inimical to the public economic interest, but it will aggressively and relentlessly fight such unions. Employment will be denied to laborers who belong to unions of that character. In trades where such unions are dominant, counter-unions will be organized and the members of these counter unions alone will have any chance of obtaining work In this way the organization of labor like the organization of capital may gradually be fitted into a nationalized economic system.

...

[T]he union should have the right to demand a minimum wage and a minimum working day. This minimum would vary of course in different trades in different branches of the same trade and in different parts of the country and it might vary also at different industrial seasons. It would be reached by collective bargaining between the organizations of the employer and those of the employee. The unions would be expected to make the best terms that they could and under the circumstances they ought to be able to make terms as good as trade conditions would allow. These agreements would be absolute within the limits contained in the bond. The employer should not have to keep on his pay roll any man who in his opinion was not worth the money, but if any man was employed he could not be obliged to work for less than for a certain sum. On the other hand, in return for such a privileged position, the unions would have to abandon a number of rules upon which they now insist. Collective bargaining should establish the minimum amount of work and pay, but the maximum of work and pay should be left to individual arrangement. An employer should be able give a peculiarly able or energetic laborer as much more than the minimum wage as in his opinion the man was worth and men might be permitted to work over time provided they were paid for the over time one and one half or two times as much as they were paid for an ordinary working hour. The agreement between the employers and the union should also provide for the terms upon which men would be admitted into the union. The employer, if he employed only union men should have a right to demand that the supply of labor should not be artificially restricted, and that he could depend upon procuring as much labor as the growth of his business might require. Finally, in all skilled trades there should obviously be some connection between the unions and the trade schools, and it might be in this respect that the union would enter into closest relations with the state. The state would have a manifest interest in making the instruction in these schools of the very best and in furnishing it free to as many apprentices as the trade agreement permitted.

Translation: The state must control industry, preferably monopolies, and then control the labor that works in those monopolies. If the unions won't go along, we'll start state unions (where have we seen this?). And the state won't countenance any shenanigans from you workers: you can bargain for a minimum wage and then shut up. This isn't for you, it's for the nation.

I am reminded of Chris Nyland's article, "Taylorism and the Mutual Gains Strategy" (Industrial Relations, Vol. 37, No. 4, Oct 1998), in which he describes Taylor's attempts to reconcile with various labor unions and convince them that efficiency was something they ought to embrace. The alliance between the Taylorists and unionists is attributed to (among others) Louis Brandeis: close associate of Croly, the coiner of the term "scientific management", and the leading spark for the Efficiency Movement. One of those unionists, Sidney Hillman of the Amalgamated Clothing Workers Union, entered into collaboration with members of the Wisconsin school of industrial relations [3], but disagreed with them over the scope of union-management negotiations. The Wisconsinists believed that the scope should be limited to wages and hours, but the unionists believed the scope should include more, including investment, plant layout, and promotions.

These dalliances between labor and the Taylorists continued right through the 1920s and the Depression, during which the Wagner Act was passed. In 1940, the creation of a bargaining agreement between GM and the UAW was influenced by the back and forth between unionists, Taylorists, and the Wisconsin school. According to Nyland,

In 1940, George Taylor [not Frederick Winslow] was appointed umpire of the newly signed UAW-GM contract. At the time, this development must have appeared a great opportunity to extend the mutual-gains model. Optimism that the model would be extended was common not ony within SAM, the AFL, and the CIO but also in wider industrial relations circles. For example, Sumner Slichter in 1941 devoted some two hundred pages of Union Policies and Industrial management to an examination of the history of union-management cooperative schemes for increasing production, quality improvement, and cost reduction. Slichter was aware that such schemes tended to have a high mortality rate and had been embraced by only a small number of employers. [...]

The hope that unionization of the automobile industry would assist the growth of the mutual gains model was, of course, not realized. As in the 1920s, it tended to be small, unionized enterprises experiencing difficult times that took up the mutual-gains option. As Leichtenstein [...] notes, while GM took much from the bargaining model that George Taylor had helped develop in the garment industry, the company was very selective as to the parts of the garment program it adopted. As a consequence, the company institutionalized a form of union-management closer to the model advocated by the Wisconsin school than that favored by [the Society for the Advancement of Management, or SAM, the name the Taylorist Society had chosen when it absorbed the Society of Industrial Engineers], and it was this model that was subsequently widely emulated through industry. Leichtenstein [...] has explained why this was so:

General Motors had a very different conception of how the grievance system and umpire machinery might function. the company, which had closely observed the way in which [George] Taylor handled disputes in the hosiery industry, wanted to avoid the freewheeling, all-inclusive style pioneered there. The largest corporation in the world had no need for the kind of economic tutelage so often meted out by those industrial relations "fixers" who had pioneered in the economically chaotic clothing trade.

In short, GM rejected "joint management" and instead institutionalized that amalgam of work practices, formalized grievance procedures, limited seniority, and constrained bargaining that subsequently became known as "New Deal Industrial Relations."

So Croly and his friend Brandeis got their way after all, at least with regard to unions. The Wagner Act, far from being the labor success it is frequently claimed, was a means of restricting labor's control over their work environment. Those aspects of work that today we call Taylorist should have been called the GM-Wisconsin model. As I argued in this article, it was GM's size and an accident of history rather than any special power of efficient management that led the world to adopt their accounting system, and so it is with their labor control system. In both cases, the adoption has been assisted by the federal government: in the first case by its adoption as the GAAP and the SEC, in the second by Wagner and the NLRB.

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[1] I guess I was wrong about the terminology of socialization and nationalization in this post, but the outcome is the same: fascists must have the state, Marxists seek to abolish it.

[2] At that time, they still naively believed that the Constitution had to be amended before you went off and assumed a power like taxing income. We have learned so much since then.

[3] Somewhere, I read that the ILGWU instituted the first Industrial Engineering program, but I don't recall where. I think Kevin Carson would suggest that the "mutual-gains strategy" will be effective right after the workers take ownership of the factory. But then it's a "worker-grains strategy," isn't it?

Knowledge regimes

The way most sciences are taught is to start with very simple models in which many unrealistic assumptions are made so that students can learn the big picture and major forces, and then the assumptions are gradually relaxed so that you end up with very sophisticated models. It is true of physics and economics. That was what the First vs. Second best debate between Dani Rodrik and several other bloggers was about a few months ago, to which I had three responses (here, here, and here).

I find the claim among the so-called Second Best camp to be over-simplified for several reasons. The first is the problem of vulgar second best-ism in which they spot an institutional failure, propose a correcting policy, and assume success without investigating whether there are multiple institutional failures which counteract each other, whether there is a private institutional response to the failure, whether the policy actually corrects the problem, or whether the policy has unintended consequences which give rise to a new institutional failure. I have a whole category for this.

The second is their assumption of a knowable, static set of affairs. This is an assumption that the Econ 101 theory is correct, but that the real-world solution of some master equation for universal efficiency and total spiritual creaminess requires state intervention because of those chewy chunks of degradation known as "institutional (market) failure" [1]. This presumes an optimal state of affairs that we should strive for -- the "correct" allocations of inputs, outputs, numbers and types of goods to be made, and prices. This seems to me to be impossible not only because of the unknowability of the current set of all knowledge, but because of the unknowability of all possible knowledge. Hayek was only half right: Not only is the sum of current human knowledge unknowable to a single person, but the sum of all possible knowledge is unknowable to all persons or groups except for the group which consists of all humans over all time.

Although the book isn't explicitly about this, Dengjian Jin's The Dynamics of Knowledge Regimes illustrates a relatively simple case in cultural comparisons, a single slice through the cone. The book is Jin's explanation of the competitive differences between the US and Japan. He notes that previous explanations of Japan's rise fail to explain the current stasis of that economy. Those explanations approach the problem from neoclassical, revisionist, institutional, cultural, technological, and complexity schools of thought, among which the revisionist and complexity schools might be counted as Second Best approaches, the former noting the importance of industrial policy, and the latter noting issues like path dependency. Jin, on the other hand, focuses less on trade and transaction and more on the way in which each culture creates, stores, transmits, and uses knowledge. Each culture has its distinctive isomorphic regime (to use his phraseology), and the two regimes are nearly mutually exclusive.

In Jin's description, the cultures can be identified along the relationship and identity axes, with Japanese falling more into connectual and contextual while Americans fall more into contractual and individual. In those terms, Williamson's contractual schema have little to do with the Japanese experience and therefore are relegated to the status of a subset of the possible relationship schema. The American knowledge regime both results in and encourages the creation of isolated, modularized, disconnected, universal knowledge, while the Japanese regime results in and encourages the creation of highly contextualized, tacit, specific knowledge. Jin also notes that the relationship between the state and industry tends to fall into the same isomorphic pattern, with Japanese government working very closely with the affected industries and American government working (or appearing to work) in a universalist relationship, i.e. DARPA awards contracts for knowledge creation in a competitive bid process while MITI would work closely with an alliance on a development project. Jin's book explores these ideas in detail and also shows how this produces competitive advantage for each culture in distinct sectors. For example, the American approach results in leadership in sectors such as software and biotechnology where talent and knowledge can be modularized and reconfigured endlessly, while the Japanese approach results in leadership in complex fabrication and assembly such as automobile and opto-electronics.

So whereas Americans work with a system which emphasizes contracting, Japanese work within a system which emphasizes long-term relationship building. Asymmetric knowledge and opportunistic breach of contract are therefore rarely a problem in Japan. On the other hand, network effects certainly are a strong problem for the Japanese while the creative destruction machine that is modern America blows through network effects rapidly (and the process appears to be accelerating). Thus, a problem that worries the second-besters in one culture doesn't even make it on to the radar in the other regime.

Now pull back a little and realize that Jin was only comparing dominant Japanese and US knowledge regimes. What would be the result of a similar study of all cultures? Or of subordinate cultures within the US, Japan, and other dominant culture types? Also, the Japanese emphasize tacit knowledge, some of which is destroyed by the simple act of trying to objectify and communicate it, so it is not even clear that we could understand all of the institutional failures in our own culture that a Japanese would note, and vice versa. What would happen if we were to be able to look at our own institutions not only in terms of Japanese understanding, but of all existing, or of all possible cultures?

Now, having made those observations, I immediately begin wondering about things like,

• What institutional failures are we failing to note?
• How many failures could there be that have yet to be discovered?
• Are there some failures that cannot be detected or described in terms understandable within our culture?
  
• Since failures may work in both directions, is the net effect of those underprovision or overprovision of the good or service in question? How can we know?
  
• Because we aren't aware of these failures -- indeed, because the state's relationship falls into the same patterns -- isn't it likely that attempts to counteract them will only exacerbate a set of underlying, undetected problems?
• Even if it were possible to detect all of the possible failures, is it possible to counteract those features which are (A) a distinguishing feature of our society, and (B) only detectable to someone outside our society, and (C) solvable only through techniques which are not available to our society or our state-society relationship? In other words, some problems are apt to be an undeniable feature of our society, but their solution is unavailable to us unless we fundamentally change our society ... in which case many of the other institutional failures and the corresponding responses will be rendered meaningless while we simultaneously choose a whole new set of institutional failures for which we have neither experience nor remedy. At best, we could go back, but then all we have is a mono- or bi-stable system in which we never completely eliminate institutional failure, but rather trade one type for another.
  

Don't think of the Stay-Puft Marshmallow Man, Ray!


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[1] pro forma, we ignore failures of the Really Big Institution, The State

Walmart CSR again

So, here's my kindergarten summary of how the mass market apparel industry works:

You have a company (a manufacturer) that makes clothing. If you don't actually sew it (you contract that out), you are still called a manufacturer. You are selling your clothing through boutiques, the internet, and so on. You want to make the leap into large retail outlets like J. C. Penney, Wal-Mart, Sears, Dillards, Macy's, whatever, so you start trying to get into those stores.

Those stores have very funny (funny-strange, not funny-haha) policies on charge-backs, returns, and how they pay their bills. Basically, they make you take all the risk. You send them clothing, they send back what they don't sell, they charge you back for every non-compliant item they can find (e.g. the tags are crooked). And to top it off, they don't get around to paying the bills for 3, 6, 9 months on end. But still, you are moving a lot more product through them.

Eventually, you realize that the interest rates on the money you are borrowing is killing you, so you get involved with a factor. The factor acts as a bridge: they take over your accounts receivable, but they pay you faster. The factor holds lots of sway over the retailers because they represent lots of their suppliers exclusively. If the retailers wants product, they have to pay the factor. The factors, though, charge for this service, and charge a lot: 15-20%. And that comes from you, the manufacturer. But at least you're getting paid, right?

So by choosing to sell through a major retailer, your choices are either to borrow money and pay interest on that or get a factor and pay them (though effectively you become their employee, since they have now taken over your accounts receivable). If you want to keep making money at these volumes, you need to cut costs. The easiest way is to go offshore and get cheaper sewing contractors.

Wal-Mart, on the other hand, has the reputation of paying their bills in a timely manner. They berate you on pricing [1], but at least they pay on time and offer volume opportunities.

If the major retailers would pay their bills quickly, there would be no need for factors and thus less temptation to go offshore [2]. Perhaps people concerned about Corporate Social Responsibility (CSR) are going after the wrong target? Perhaps they ought to be scrutinizing manufacturers' complaints about retailers' pricing and other policies, their business-to-business relations, rather than their employee or customer relations.

I'm just sayin'.

-------------------------------------------
This is Wal-Mart CSR again because I already wrote about it.

[1] Apparently, Wal-Mart also brow-beats its suppliers over their use of packaging and renewable fuel content, among other things. Wal-Mart is the world's largest buyer of organic cotton (WSJ-$), and becoming the largest purchaser of sustainably harvested shrimp and fish (WSJ-$). Is it green-washing? Could be. These efforts overlook more sustainable practices -- they are optimizing locally while sub-optimizing globally. But they aren't the ogres normally claimed.

[2] Why wouldn't they go offshore, for profit maximization, even in a factor-free world in which everyone paid on time?

1. Quality control, the ability to see and control problems

2. Flow, in Chandler's sense, the flow driven by the visible hand. This was the preferred method of operating a mass production business before WWII and the ascendancy of the GM/DuPont theory of management. You can't achieve flow with a 3 week or longer delay in the supply stream.

3. Leisure time; if you run a local business, you have the opportunity to blur work, relaxation, and other personal time, whereas when you run an international operation, you have to be "on" 24/7. This is the same problem faced by racing enthusiasts who are offered a sponsorship: do you really want it to be a job instead of a hobby?

4. Some other stuff that will have to wait for another post. Why do factors exist? Why doesn't someone vertically integrate textile, apparel, and retail? Or perhaps we can just shame my wife into writing that book.

Local, Action: Issues of Scale

In a recent debate hosted by Cato, Peter Leeson argues

In a recent study I compared Somali welfare under anarchy to welfare under government using all key development indicators for which data allowed comparison. According to the data, of the eighteen development indicators, fourteen show unambiguous improvement under anarchy. Life expectancy is higher today than was in the last years of government's existence; infant mortality has improved twenty-four percent; maternal mortality has fallen over thirty percent; infants with low birth weight has fallen more than fifteen percentage points; access to health facilities has increased more than twenty-five percentage points; access to sanitation has risen eight percentage points; extreme poverty has plummeted nearly twenty percentage points; one year olds fully immunized for TB has grown nearly twenty percentage points, and for measles has increased ten; fatalities due to measles have dropped thirty percent; and the prevalence of TVs, radios, and telephones has jumped between three and twenty-five times.
...
Should we conclude from Somalia's stateless improvement that it is a nice place to live? Of course not. But Somalia's pre- and post-government performance highlights an important point about the desirability of anarchy. Contrary to conventional wisdom, it is simply not true that any government is always superior to no government. If state predation goes unchecked, government may not only fail to add to social welfare, but can actually reduce welfare below its level under statelessness. Such was the case with Somalia's government, which did more harm to its citizens than good.

Dani Rodrik responded

I do not have any trouble with the idea that self-enforcing agreements (what Leeson calls "anarchy") can sometimes substitute for third-party (i.e., government) enforcement. Such self-enforcing agreements are maintained through the force of repeated interaction ("if you cheat me now, I will cheat you in the future,") through reputational mechanisms ("see, I am not the cheating kind of guy"), and collective punishment schemes ("if you cheat me, I will bring the wrath of my colleagues on you"). The literature is replete with examination of such informal institutions. See for example Avner Greif's work on medieval merchant guilds, John McMillan and Chris Woodruff's work on commercial dispute settlement in Vietnam, Marcel Fafchamps' work on firms' relations with their suppliers in Africa, and Elinor Ostrom's work on the management of common property resources around the world [1]. Leeson's own account of how pirates have developed self-enforcing arrangements to elicit cooperation fits squarely in this larger literature.

The problem with self-enforcing agreements is that they do not scale up. One of the findings from Elinor Ostrom's extensive case studies is that self-enforcing arrangements to manage the "commons" work well only when the geographic scope of the activity is clearly delimited and membership is fixed. It is easy to understand why. Cooperation under "anarchy" is based on reciprocity, which in turn requires observability. I need to be able to observe whether you are behaving according to the rules, and if not, I have to be able to sanction you. When the size of the in-group becomes large and mobility allows opportunistic behavior to go unpunished, it becomes difficult to maintain cooperation. Imagine that the pirates numbered in the millions and they could easily jump ship to join competing groups mid-voyage; would the arrangements Leeson describes have been sustainable?

Later in the essay, Rodrik concludes, "There is no example of a society that has become prosperous without a state machinery." He doesn't appear to be thinking about the fact that many societies that have not become prosperous in his sense (high GDP) have been sustainable over hundreds of years -- sustainable by definition.

In contrast to Leeson's note that it is not true that any government is better than no government, Rodrik arguees that more government is equivalent to good government. In fact, he is all but saying that state capitalism is the best option we have.

Unlike in pirate societies or pre-colonial Angola, modern economies require an elaborate and ever-evolving division of labor -- among owners of firms, managers, and their employees, among producers up and down the value chain, and between producers and providers of supporting services such as finance, accounting, and legal services. The complexity, fluidity, and geographic non-specificity of these activities leave too much room for opportunistic behavior for self-enforcing arrangements to work well. They require an external backstop in the form of government-enforced rules.
...
Which is why the scatter plot below, showing the relationship between per-capita GDP and the size of the public sector, should not be a surprise. There is a strong, statistically highly significant, and positive association between countries' income levels and the share of their economy that the government consumes. This highlights the complementarity between markets and the state. Those societies in which markets work best are the ones where the reach of the state is longer -- not shorter.

Alas, Rodrik seems committed to conflating the quality of governance to the size and scope of it, as he switches back from size to operation: "Prosperity is achieved when states are effective in setting and enforcing the rules of the game, not when they wither away."

I welcome Rodrik's entry to the blogosphere. So far, he is proving very valuable as a source of material showing that defense of state capitalism is something to which both the Chamber of Commerce Right and Crolyist Left agree. [2] It's a fight between two sides of the same coin, the one side saying that we need government to rationalize the entire economy (by which I mean, "to coordinate everything in accordance with a central plan") while ignoring the side effects (increasing concentration of wealth and power), while simultaneously claiming that it is the other side that is doing this. The other side claims to defend free markets while actually defending the businesses and people benefiting from state policies.

And, in the present essay, Rodrik provides a generous amount of material to help me with the third installment of the Local, Action series. In the first two essays, I explored local commerce and associational activity. In this one, I am more interested in discussing localism as a preferred method for governance. I will gladly concede that dividing the world into loose confederations of local or regional sovereignties will result in a lower rate of growth, but I will simultaneously assert that the median person will not necessarily be worse off, that the least well off will be much better off, and that the society will likely be much more sustainable than the existing system which Rodrik prefers.

It is well-known that interpersonal communications scale poorly with the number of people involved. The most effective means of communication is direct conversation; we evolved to convey and to receive a great deal of information via non-verbal means (gestures, facial expression, voice timbre). People cannot handle the cognitive load of more than a few other people. Anthropologist RIM Dunbar posits

there is a cognitive limit to the number of individuals with whom any one person can maintain stable relationships, that this limit is a direct function of relative neocortex size, and that this in turn limits group size. The predicted group size for humans is relatively large (compared to those for nonhuman primates), and is close to observed sizes of certain rather distinctive types of groups found in contemporary and historical human societies. These groups are invariably ones that depend on extensive personal knowledge based on face-to-face interaction for their stability and coherence through time. I argued that the need to increase group size at some point during the course of human evolution precipitated the evolution of language because a more efficient process was required for servicing these relationships than was possible with the conventional nonhuman primate bonding mechanism (namely, social grooming). These arguments appear to mesh well with the social intelligence hypothesis for the evolution of brain size and cognitive skills in primates.

(hattip: Life With Alacrity blog, at which this is an interesting and related post)

Dunbar calculated that humans could effectively socialize in groups of about 150 people. He also notes that modern military organizations are limited to no more than 200, a limit arrived at by trial and error over several centuries.

Once language and then writing was developed, we had the means to communicate to but not with a wider group. Writing can allow one person to reach more people, it is more precise and can possibly unload some of the emotional content, allowing a more rational conversation, but it isn't interactive. Personal relationships maintained by physical interaction are closer than impersonal relationships maintained by broadcast, a difference of kind, not degree. In Human Scale, Kirkpatrick Sale cites research from sociology and anthropology to argue for two types of naturally sized community: the neighborhood, roughly limited to 500 people, and the community of 5,000 to 10,000, roughly corresponding to the two types of communication. A Pattern Language makes similar arguments for the optimal size of regions, towns, neighborhoods in political, economic, and architectural terms.[3]

Not being able to communicate with many people effectively means that our ability to find out about their activities and intents is limited. We might forgive someone for making a mistake if we understood their motivations. We might also allow a mistake to pass if we knew that person was usually very conscientious. So contract breaches can be handled in a very cost-effective way when we have personal knowledge of the deliverer, but contracts become much more costly to enforce as our physical, mental, and emotional distance from the other party increases.

Thus, reputation and other features of self-enforcing contracts are difficult to scale up because it becomes difficult for people to directly observe compliance and to sanction the non-compliant. Rodrik does not seem to be aware, however, that the same problems stalk state enforcement of its own regulations. [4] Not only can the state not monitor everyone, but citizens can not effectively guard the guardians the further removed they are from them. It is difficult (costly) to hold politicians to their promises, to know the content of laws, and to know the quality and activities of the bureaucrats charged with enforcing the regulations. Laws may therefore work to the advantage of the wealthy and powerful, they may not be enforced effectively, or they may be enforced selectively, giving rise to corruption.

Locally, citizens can engage more freely and more securely in give-and-take. One day, the majority may agree to something that puts some at a disadvantage. We all know it and can confirm it personally. Later, we can agree to do something that compensates the victim(s). We have a better handle on who is getting the shaft and who is getting more than their fair share, and when the numbers are small, we are capable of keeping a running balance sheet on the externalities of our collective actions. [5]

In From Mutual Aid to the Welfare State, David Beito describes at length the activities of review committees sent to the homes of the covered. Their direct observation was not only an effective way of weeding out the fakers, but also provided stronger credibility for legitimate cases, so strong that when requesting special grants for hard cases, lodge members gladly forked over. After all, they weren't giving to charity, they were contributing to a mutual fund, one which they themselves might need to draw against one day.

Mancur Olson addresses the scaling issue in The Logic of Collective Action. He argues that small groups are able to use moral and social pressure to maintain group cohesion. The larger the group gets, the more costly it becomes to maintain cohesion. In large numbers, the group must offer some kind of tangible, excludable good in order to maintain he necessary cohesion. Because of the difficulty of herding large numbers to a common goal, small but focused groups may come to dominate the larger groups.

Scaling is the same argument that Tyler Cowen offers against the local food movement (sorry, no link). Sure, it may be possible for a few (usually wealthy or eccentric) individuals to obtain their food locally, and it should be of higher quality, but it becomes more difficult to attempt to feed entire cities from local farms. The Northeast corridor is unlikely to return to self-sufficiency in its current state, though this is interesting.

I would extend the arguments of the local food movement to the state: if you think that government is a good thing, local is better. Just as you can produce inexpensive food products by mass production techniques by giving up nutritional value, loading the environment with pollutants, and allowing national brands to push out local flavor, you can also mass produce your law by giving up legislative quality, loading the legal environment with barriers to entry and regulatory sclerosis, and allowing one-size-fits-all regulations to push out local custom. When your food is produced far away, you have little idea what ingredients or processes are being used. Just so, you have little idea how earmarks are getting into legislation or who stands to benefit from each 30,000 page bill. Transparency does not scale well, publicly or privately.



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[1] Let's also add Lisa Bernstein's study of the diamond industry and Jacob Loshin's delightful piece on how innovation and secrets are kept in the magic industry without Intellectual Property law.

[2] Need evidence of that fact? Check out this blurb for a book advertised on Max Sawicky's site:

In his new book, economist Dean Baker debunks the myth that conservatives favor the market over government intervention. In fact, conservatives rely on a range of "nanny state" policies that ensure the rich get richer while leaving most Americans worse off.

I found it on a post arguing in favor of one of Rodrik's Crolyist, pro-industrial policy posts. Irony was not intended. When I pointed it out, Sawicky nominated me for a Blogalympics Long Jump medal, apparently oblivious to the obvious.

[3] Were the 300 M inhabitants of the US divided into towns of that size (say, 6667), there would be 45,000 such towns. Using Sale's calculation of one square mile per town (admittedly, he only had 5,000 inhabitants) and a 15 square mile green belt around each town, this would require about 720,000 square miles, which he calculated to be less than one-fifth of the nation's total land and less than one-half of the area given over to cropland at that time.

[4] Actually, that's not entirely true. Rodrik himself characterizes federal policies as "targeted on a loosely-defined set of market imperfections that are rarely observed directly, implemented by bureaucrats who have little capacity to identify where the imperfections are or how large they may be, and overseen by politicians who are prone to corruption and rent-seeking by powerful groups and lobbies." So, he seems to recognize it, or perhaps he is just using arguments he has encountered but not really understood or accepted for rhetorical effect?

[5] One way of looking at this is to consider the costs to obtaining consensus and the cost of externalities arising from the decisions. A dictator has nearly zero (0) cost of reaching a decision, but the externality cost is likely to be very high. On the other hand, it would be extremely costly to obtain a 100% consensus of a large group, but there would be no externalities. Given methods of reaching a decision, like log-rolling, the externalities of the final decision may be expensive. The larger the group, the higher the cost of reaching a decision, and given Olson's observations about the ability of small, focused groups to dictate to large, dispersed groups, the cost of obtaining and the external costs grow as the group grows. This is an insanely abbreviated version of one line of analysis in The Calculus of Consent.

Me vs the libertarian vice

As the argument goes,

Private actors and markets tend to be dynamic because the actors respond to incentives. Proactive people will be promoted in dynamic companies and those will win market share from companies that stifle creativity and drive creative individuals away.

Government bureaucracies are static; there are no incentives. If they do a job poorly, they still keep their market share and jobs.

It occurs to me to take to heart Tyler's suggestion that the libertarian vice is to think that gov't quality is fixed. I confront the second statement from above, asking whether it is true if we consider what I have said about bureaucrats. Chiefly, are they self-selecting? If so, then they have reason to see a good job done regardless of the benefit to themselves, i.e. in spite of the fact that they have few or no market incentives to do a good job.

It seems that there would be a tradeoff between "work for myself" and "work for my ideals", i.e. some might not be self-selected and some might be sell-outs. What percentage of people are self-selected, and how strong are their ideals? Also, they may over time begin to blur the two, perceiving "that which makes my job easier" as "that which is right".

Local, action: Buying Whole Foods' local claims

In Kevin Carson's book chapter, "Decentralized Production Technology", he has this to say about my comment about Viking appliances and planned obsolescence:

Here I take issue, at least in part, with Husman's analysis. First of all, it's hard for me to understand why the average lifetime of an appliance, as determined by the durability of its components, should as a matter of strict definition be excluded as a matter of design choice. After all, Husman himself mentions Viking refrigerators as an example of a product specifically designed for longevity. Second, he seems to be defining "planned obsolescence" far too narrowly. Planned obsolescence refers not just to how soon or how frequently an appliance breaks down as a result of problems with individual parts, but also to how amenable it is to repair. Planned obsolescence, in this latter sense, includes 1) a deliberate choice among design alternatives in favor of a design that makes repair more costly, difficult, or complicated, and 2) the use of such expedients as patents to control the availability and pricing of replacement parts.

First, as I pointed out, the Viking appliances are expensive, on the order of $6,000 for a refrigerator. And the same is going to be true of many such things: a Mercedes or Lexus is going to last longer, all things being equal, than any economy car. So I'm not opposed to including longevity as a design criteria, but rather pointing out that the longest lasting items are going to utilize the latest and most expensive elements and techniques. On the other hand, a Toyota lasts longer than its similarly priced competitors and people desire that feature. Second, I'm going to definitely concede that Kevin has a good point about repair difficulty/ease being part of the equation. The original Model T was made to be easy for farmers to repair, and they loved it. The current generation of cars is ridiculously difficult for the shade-tree mechanic to do anything but change a tire.

But that's beside the point I'm after in this post. What I'm mostly after is the fact that moving to an economy that we might prefer is going to look expensive. I introduced this with the appliance debate, but I'm going to flog the "controversy" between Michael Pollan and John Mackey for the rest of the material.

I first happened to hear about Michael Pollan during this interview on Fresh Air; I have his book Omnivore's Dilemma on my get-around-to-reading list, but this interview will have to suffice for now. It supported most of the things I have come to believe about our diet, corn, and related issues. Note especially his comments after 29:00, in which he says,

To eat in a way that is healthy for you and healthy for the environment and doesn't use a lot of energy is more expensive. That's an issue we have to grapple with. A lot of this food is elitist food, and can be called elitist food, and often is -- usually by proponents of the industrial food system. Any situation where McDonalds is claiming the high moral ground, I'm a little dubious of and this is one of them. But I think we have to confront this.

There's several different ways to look at it. One is cheap food is not as cheap as it looks. The real cost of that $0.99 burger in terms of ... is charged to public health, is charged to the environment, is charged to your health. Even though it's cheap at the register, that is not the real cost of that food. That is an irresponsible price. I don't know that people want to buy irresponsibly.

Now some people don't have a choice. There are a percentage of people in this country who probably can't afford to eat organic or even to eat more sustainably 'cause organic is not the only answer. Let's not oppose organic to everything else; there are many more alternatives out there. Grass fed beef is not organic but it's better, I think, than organic.

If you go to the supermarket, it is true that -- and you're a rational actor, and you don't have a lot of money -- if you're basically buying energy for you're family -- that's to say calories -- the rational thing for you to do under the system we have is to patronize the center of the store, all the processed food. Because a dollar will get you 2500 calories of cookies, of snacks, of potato chips and if you go to the produce aisle, it will only get you 250 calories of carrots

So, y'know, we're programmed by evolution to seek the most energy with the least effort possible and the supermarket has created an environment where that forces people essentially to buy the least healthy calories. But that's not a function of the free market, that's not a function of nature, either. That is a function of policy. There's a reason that the least healthy calories in the supermarket are the cheapest, and that is essentially "policy": we subsidize the cheap calories. We subsidize ... those calories are calories that come from corn and all those calories -- all that high fructose corn syrup -- is subsidized by our taxpayer dollars, the carrots are not.

So it seems to me that for the people who are shopping this way, the challenge is to change the set of incentives and figure out a way to make the healthy food cheaper and to make the unhealthy food a little bit more expensive.

[transcript acquired the with old-fashioned method: listen and type. I hope it's accurate.]

From the interview, Pollan's point seems to be that we should be more careful about what we eat. For example, avoiding anything with HFCS is a good shorthand for not confusing "food products" with "food". He also differentiates between good and bad organic, where bad organic is the type where free range hens never actually get outside (apparently, they haven't checked their contracts). I believe that the use of petroleum as the major input to our food is a problem since one of petroleum's alternative uses is transportation and that means that the cost of food to our poor people is rapidly becoming impacted by the transportation choices of increasingly wealthier people in China and India.

And we thought we freed ourselves of such considerations when we shucked the gold standard.

So Pollan finally ends up endorsing something like the 100 mile diet described by Alisa Smith and J.B. MacKinnon in their book of the same name. He believes that eating local means that farmers will use better inputs (no pesticides or petroleum) and that local farming will inhibit sprawl. And since localism is the point of this post, I swear I will return to it after dealing with two asides.

First, I believe he could have selected better examples. For example, by having all of our farming concentrated in Iowa, they may have eliminated birds there, but we increase the potential for green space around our cities everywhere else. He is basically proposing that we replace the native species of plants around our cities with food stuffs, which only shifts the problems around a little, but does not eliminate them. Indeed, this is the argument of Nobel Peace Prize winner Norman Borlaug, the so-called father of the green revolution. In an article in The Economist, he argues

Thanks to synthetic fertilisers, Mr Borlaug points out, global cereal production tripled between 1950 and 2000, but the amount of land used increased by only 10%. Using traditional techniques such as crop rotation, compost and manure to supply the soil with nitrogen and other minerals would have required a tripling of the area under cultivation. The more intensively you farm, Mr Borlaug contends, the more room you have left for rainforest.

Granted, Borlaug and I are offering a false dilemma here*, but the point is that Pollan doesn't seem to have thought this far through the problem (perhaps he has and it didn't come out in the interview; I haven't read the book).

Second, Tyler Cowen's critique at Slate left me flat. Tyler points out that Pollan's approach neglects to value our time and other market signals. Tyler makes a good point when he says that we may respond to higher fuel prices by driving less or buying smaller cars, but that we probably won't start growing grapes in the back yard. However, I'm surprised that Tyler doesn't more strongly endorse Pollan's descriptions of the problems of subsidization. Neither does Tyler recognize a benefit in which I expect him to be most interested, which is the improvement in food quality that might arise from a more local, fresher supply of ingredients.

While Tyler mentions the problem with the corruption of the term "organic", and agrees with Pollan that shopping at Whole Foods is an insufficient response to the three problems in the industrial food system (our health, our environment, the treatment of animals), Whole Foods founder John Mackey responded much more vigorously in a series of blog posts and public forums. As a result, each has moved a little in the direction of the other, Pollan agreeing that the Whole Foods approach is not as bad as he thought and getting better, while Mackey conceded that some of their practices needed review and changing.**

Mackey's summary of his arguments can be found in this presentation. In slides 39-41, he mentions something that has bothered me for some time now. While writing about the theme of self-sufficiency in Kirkpatrick Sale's Human Scale, I told a story about driving out to a local chile farm to acquire the green ambrosia. Even in my high efficiency automobile (46-50 mpg), it probably required a quart or two of fuel to make the round trip. Most other vehicles would require more, and most of the city lives further away from Lujan Farms than I do. The fuel required per pound of a truckload of chile would probably be much lower when delivering to a market in the center of town, but people still have to get to the market. This is an optimization problem, so the least-energy solution will not necessarily be "don't shop at Wal-Mart". Given existing social circumstances, the optimal solution will probably depend on where you live and what you drive; "shop at Wal-Mart" may actually be the solution for many people.

That is only part of the issue. When you account for all of the inputs (soil, sun, water, etc.), the fact that some geographic regions are blessed with some of these in abundance while others are not, and that economies of scale can be realized when using railroads and ships, local may not be the answer for everything. Mackey's summary of this part was, "If you live in Berkeley, you will use less fossil fuel and produce less carbon dioxide by buying rice from Bangladesh than from California." I'm inclined to think that even if that particular claim is not correct, it will be true that some foods will be less energy intensive when grown and shipped from afar rather than locally.

But is Mackey sincere when he claims that Whole Foods' supply chain is not as bad as Pollan claims and getting better? I was originally going to post about an article in Forbes that I bookmarked some time ago (To Fight Rivals, Whole Foods Buys Local). Unfortunately, Forbes can no longer find the article on their own site. Fortunately, Google can find it elsewhere, so I excerpt it here without linking:

Dairy general manager Matt Lucas began bringing the glass bottles himself from the Morning Fresh farm in Bellevue, Colo., 60 miles north of Denver. Until then, Morning Fresh had long made its name on home deliveries.
Since his Whole Foods deliveries began in 2004, Lucas estimated, his dairy's sales have increased 20 percent. Morning Fresh now sells at least 1,000 gallons a week to supply a Whole Foods distribution center serving 10 stores.
"It's a breath of fresh air to get involved with a group like that. They were so excited to get our product in their stores," Lucas said.
By strengthening -- or, as some farmers say, returning to -- their commitment to local products, Austin, Texas-based Whole Foods and Boulder-based Wild Oats Markets Inc. are fending off big chains like Wal-Mart Stores Inc., Kroger Co. and Safeway Inc., which have expanded their own organic offerings and put pressure on the smaller "natural" grocers. "With Wal-Mart barging into the lower-end organic sales, this is a way these other retailers can differentiate from what Wal-Mart is doing," said Dan Hobbs, a cooperative development specialist with the Rocky Mountain Farmers Union.
...

Small local growers often cannot offer lower prices than large-scale operations that benefit from economies of scale and cheaper labor. But fuel costs for shipping food are less for shorter trips, which in turn often require less packaging to preserve food. Buying local also shortens the time it takes produce to get to market, preserving nutrients and freshness, ....
...
Whole Foods defines a local product as having traveled less than seven hours to get to the store.
It sells more than 200 produce and floral items from more than 60 local growers in the region covering Colorado, New Mexico, Kansas and Missouri. Overall, it does business with more than 2,400 independent farms.

Apparently, Whole Foods is looking at local foods (in the article, consumer interest in local food is credited in part to Pollan's book) as a competitive advantage over purveyors of "bad organic" such as Wal-Mart. If true, it means that Whole Foods' conscience and self-interest are aligned with those of their customers, suppliers, and (if you believe John Mackey's New Agey Manifesto) employees and stock holders. If true, that's pretty cool.

A few things can be pulled out of this.

• I think the struggle between Whole Foods and Wal-Mart leaves us all better off than Pollan does. I can't tell which paradigm will win, but I am certain that having them square off with two different formulas -- and having the local farmers market and small grocery stores as well -- means that my food supply is simultaneously more secure, less expensive, and of higher quality than if someone was to start mandating that their favorite approach should be the victor. Also, Wal-Mart is a big boy, so perhaps the merger of Whole Foods and Wild Oats creates a stronger competition between the two.
• Still, as Pollan points out, it is policy that the corn industry should be as large as it is. Frito-Lay and Coke need to occupy all that premium shelf space because they have products that need to be sold to keep the machine running. In that sense, Wal-Mart is a creation of both Sams: Uncle and Walton.
• Mass producers have genuine advantages over craft production. For one, their cash prices are lower. Amana is cheaper than Viking, Kraft is cheaper than the dairy farm down the road, Wal-Mart is cheaper than Whole Foods. If I'm on a limited budget, that's going to be important.
  
• However, there are hidden costs. Note that above I said, "moving to an economy that we might prefer is going to look expensive", not "be expensive". All things considered, and on average, cheaper appliances and vehicles are typically not as long lasting or efficient, cheaper food products are not as tasty or nutritious as organic and artisan foods, and mass production relies on a massively subsidized infrastructure. We taxpayers pay for agriculture subsidies and transportation subsidies, while we as people pay for the externalities (farm runoff, smog and soot).***
  
• The cost of transportation is a factor in whether local or mass produced is less expensive. The railroad ushered in the first age of mass production and broke down state and regional barriers and built a nation while the container and container ship ushered in the age of globalization. If we are entering an era of permanently higher fuel costs, those trends may reverse. That's not all bad.
  

I am interested in understanding how to reverse some of the policy decisions of the past 150 or so years without reverting socioeconomically to what existed then (grinding poverty, extreme inequality -- contra to what populist demagogues would have you believe about today being the worst of times in those regards). Employing lean production can build a local manufacturing base that produces high quality goods at low costs with little waste, benefiting both workers and consumers. Removing taxpayer supports shifts the advantage from ADM and Cargill toward local farmers. And local governance moves power out of distant capitals and bureaucracies into our hands.

In an upcoming post, I want to say something about local energy production.

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* You could combine localism and organic methods.

** Other takes on the Pollan/Mackey "smackdown turned lovefest":

• An Open Cupboard suggests that Whole Foods should be more diligent about teaching people to shop on a low income. Easy: vegetarian.
• Whole Foods blog: Points out that Whole Foods stock took a $2 billion dive after Pollan's book came out, but also notes that may be attributable to other problems.

*** Yes, it is literally true that the corresponding costs of obesity cost us money through Medicare/Medicaid. However, that also is a matter of policy and I am not going to start using that as a pretext for dictating other people's behavior and food choices.

Halt in the Decline of Work Hours

I'm sure someone must have done more serious research on this, but I'm curious as to why the work week has been frozen at 40 hours. Going back 200 years, farmers worked sunup to sundown (and perhaps then some), 7 days a week. Through the 19th century, various laws in England, the US, and elsewhere were passed, sometimes following private practice, reducing the hours to 12, then 10, then 8, while the workweek was reduced from 7 to 6 and then to 5. So far as I know, with the sole exception of France, that trend stopped at the 5 x 8 = 40 hour week in the 1920 or 1930s. Yet productivity continues to climb, so why haven't work hours continued to follow suit?

1) Due to the passage of the 16th Amendment and then SSI legislation, taxes have eaten up all of the surplus since then.

2) Health care insurance has absorbed all of the gains.

3) The period in which it has become feasible to drop to 20-30 hours per week has coincided with the rise in globalization. The competition won't let us slow down.

4) It is a coordination problem: high income workers prefer to work longer weeks, and want/need someone to be on the other end of the phone whenever they call.

5) It is a different coordination problem: because of the explosion in labor legislation at the state and federal level in the Progressive and New Deal eras, it is simply too complex to change all of the relevant law.

6) There has been a realization that such legislation shackles those at the bottom who would like to get ahead by working longer hours.

7) The productivity gains have been apparent, not real.

8) Some of us *are* working less, it just isn't showing up. One way is by retiring early. The other is by switching to alternative work schedules (4 x 10) or work arrangements (telecommuting, comp time, better vacation and sick leave packages). Yes, 4 x 10 is still 40, but the off-book time to commute is less, and the one day per week to run errands without taking time off is significant.

I think 1 is overplayed. 2 is a strong contender, but doesn't explain all of it, especially outside the U.S. 3 might make a slight contribution. I doubt 4, 5, and 6; not the truthiness of them, but rather the strength of these arguments to dissuade a majority from obtaining the desired change; after all, the same arguments in 6 apply to minimum wage laws. I doubt the truth of 7. There might be something to 8, but probably not as much as we would like; the benefits described have fallen to high income workers, whereas previous work hour reductions helped those on the low end.

Work organization all in one post

Thanks for coming back, thanks to Kevin Carson for noticing (damn, two weeks too early), and welcome to all of the Mutualist Blog readers. I'm looking forward to Kevin's comments regarding Lean (or kaizen or whatever you want to call the amorphous set of principles that originated in the US, attained dominance in Japan, and are slowly being repatriated). I have seen far too little informed and intelligent criticism of Lean management.

This series (links below under Production Modes) has been an extended review of Oliver E. Williamson's (OEW) The Economic Institutions of Capitalism, starting with a roundup of New Workplace books listed in a pair of posts called The New Workplace and Flow . In one chapter of that book, OEW compares the efficiency and hierarchy of different modes of organization. The purpose is to examine whether hierarchy has merely enforced itself (the power explanation), as argued by Stephen Marglin and Katherine Stone, or whether the dominant modes of organization have an efficiency explanation. In Williamson's words,

The central issue, and my main interest here, is an assessment of alternative work modes in transaction cost terms. If, as alleged, hierarchy does not serve efficiency purposes, the power relationship hypothesis is more compelling. If, however, hierarchy serves to economize on transaction costs, then an alternative explanation for the historical events to which Marglin and Stone refer warrants serious consideration.

OEW examines 6 modes of organization under 3 broad categories, two modes of contracting used by each, two types of hierarchy, and 11 measures of efficiency.

Production modes:

• Entrepreneurial
  • Putting-out
  • Federated
• Collective
  
  • Communal-emh (every man for himself)
  • Peer groups
• Capitalist
• • Inside Contracting
  • Authority relation
    

Contracting:

• Continuous
• Periodic
  

Hierarchy:

• Contractual
• Decision-making
  

Efficiencies:

a. Product flow

1. Transportation expense

2. Buffer inventories
3. Interface leakage

b. Assignment attributes

4. Station assignments
5. Leadership
6. Contracting

c. Incentive attributes

7. Work intensity
8. Equipment utilization
9. Local shock responsiveness
10. Local innovation
11. System responsiveness

Mode	# Efficiencies	Contracting	Contract Hierarchy	Decision-making Hierarchy
Putting out	5	Continuous	Medium	Medium
Federated	5	Continuous	Low	Low
Communal-emh	4	Limited periodic	Low	Low
Peer groups	8	Limited periodic	Low	High
Inside contracting	6	Continuous	High	Medium
Authority relation	9	Complete periodic	High	Very high

First, a note about the aggregation of efficiencies: As OEW notes himself, this is not a very rigorous means of comparing. He says, "Aggregation to obtain an overall efficiency rating for each mode requires that the relative importance of the eleven efficiency indicators be addressed. This will obviously vary across industries." Later, he calls this system "rough".

Obviously, there is no way to directly compare the net total economy of two modes if, for example, they have the same total score but one scores higher in transportation and another in incentive. The efficiencies are rated as either existing or not (a "bivariate" measure), and no attempt is made to calculate or assert the magnitude.

Second, there is little discussion of why this particular set of measures and no other is used. During the course of this review, I have introduced two that I thought could be relevant, especially as we note the growing dominance of the Toyota model and demise of the GM model of management. The two I have introduced were Quality Control and Worker Satisfaction. The GM model neglects both, while Toyota obtains much better economies in both areas. By this, I am not arguing that GM's quality is lower, but rather that the method by which they achieve quality is more expensive (less economical) than the method by which Toyota obtains it and that GM worker satisfaction is obtained by less economical methods than those used by Toyota. There may well be more measures of efficiency than those used by OEW than the two I have added, and some may well be more important.

Finally, I note that OEW does little analysis of the conditions in which these alternative modes are employed. The conditions of 18th century England, in which the Putting Out system was created, are different from those of 21st century United States. Yet Putting out saw its zenith in manufacturing then and there, while Putting out as a method of developing software may be still on the rise. As Kevin Carson is sure to point out, the rise of state capitalism has almost certainly corresponded with a rise in companies preferring Authority relation to more agorist modes, possibly to the detriment of all.

OEW's purpose was to demonstrate the technique, not to prove that one or another mode was superior and that his efficiency claims were definitive. The nature of the market system is that companies are always trying ideas in new combinations, so while the analysis of Authority relation may hold, in general, it is possible that someone will find a way to combine the effective parts of that mode with the effectiveness of others while suppressing the negative parts of both. For example, the Toyota style of subcontracting has much in common with both Putting out and Inside Contracting.

technorati tags: organization theory "Oliver E. Williamson" "Transaction Cost Economics" book review economics

Authority Relation

The last production mode listed by Williamson (OEW) in The Economic Institutions of Capitalism is "Authority Relation". It is what most of us have come to know as the "normal" work environment, with a boss directing workers (and perhaps that boss has a boss, and that boss has a boss, and so on up to the capo di tutti capo).

• It is classified by OEW as a "capitalist mode" (as opposed to entrepreneurial or collective)
• Not compatible with agoric modes almost by definition
  
• This form seems to have existed from the Renaissance forward, but apparently does not seem to have taken hold in large scale (manufacturing) organizations until the 18th or 19th century, after "putting out" and "inside contracting". Certainly, the M-corporation (multi divisional) did not come along until the 20th century, with GM as the archetype.
  
• OEW considers it to be a "periodic contracting" mode. However, he qualifies this: "Contracting under Authority Relation is apt to be somewhat more complete, in that explicit and implicit understandings regarding the zone of acceptance of the employment relation [...] need to be reached. Once agreement has been reached, however, this is an essentially noncontractual mode. Adaptations of an operating kind are made within the framework of that rather general contract, whereby boss and worker essentially agree to "tell and be told."
  
• In terms of contractual hierarchy, OEW classifies it at the top (very hierarchical), tied with Inside Contracting.
  
• In terms of decision-making hierarchy, this is the most hierarchical.
  

OEW finds this to be the most efficient method of organization with the analysis below.

Efficiencies:
a. Product flow
1. Transportation expense - Economic, everyone under the same roof.
2. Buffer inventories - Can be controlled economically. Fiat takes the place of pecuniary penalties to eliminate these.
3. Interface leakage - Workers making a salary have no incentive to "shade quality" as they would under Inside Contracting

b. Assignment attributes
4. Station assignments - Effective. In comparison to Inside Contracting especially, workers in this mode "are less given to aggressive subgoal pursuit and do not resist adaptations because they do not possess the requisite property rights."
5. Leadership - Effective.
6. Contracting - Effective.

c. Incentive attributes
7. Work intensity - Not efficient. The worker's compensation is not tied directly to his productivity. I'm not sure I agree: recent studies have shown that the people working the longest hours are professionals and white collar workers whose compensation is highest, and I don't know if he is considering workers making piece rate. I intend to say more about this some time in the future, but for now, please consider the work of Edward Lazear (via MarginalRevolution and Kathleen's informed comments at Fashion-Incubator).
8. Equipment utilization - Effective.
9. Local shock responsiveness - Effective.
10. Local innovation - OEW finds this mode to lack economy with respect to this attribute, but doesn't explain himself (or maybe I just can't find it). It seems to resonate with the finding for work intensity, but again I think that the rediscovery of Deming may work counter to this. The entire goal of (insert favorite descriptor here - kaizen, TQM, Quality Circles, TWI, Lean) is to encourage local innovation. To the extent that these management techniques are actually (not rhetorically) adopted, workers are also happier with their work.
11. System responsiveness - Effective. Workers may slack off under supervision, but the flip side is the ability to direct change effectively.

Although not covered in these areas of efficiency, Quality Control is again not explicitly addressed. Workers encouraged to work faster may cut corners, requiring oversite and inspection. That is a diseconomy. A culture where active participation exists will be more economical WRT quality control.

Also not covered explicitly is Worker Satisfaction, which I find surprising given the attention given to the subject of labor organization and unions later in the book. While this measure may be implicit in Work intensity and other incentive attributes, it isn't addressed directly. Admittedly, OEW and others might protest that Worker Satisfaction is no measure of efficiency, but I would beg the case that it is. Workers who find little job satisfaction may have to be placated with other concessions, including pay, perquisites, vacation, health care, and so on. Workers finding none of the above may leave, which could be detrimental if they take any significant investment in training with them, or seek alternative means of protest including strikes, slacking off, spreading hatred and discontent, and a host of aggressive and passive-aggressive behaviors that serve as disincentives to others.

Bottom line: Williamson finds Authority Relation to be not only very hierarchical, but also very efficient. It succeeds in 9 of the 11 areas of efficiency. This exceeds the Peer Group mode's 8 of 11 efficiency score by 1, so it is neither much more efficient nor much more hierarchical that that collective mode.

Next: a wrap-up.

Inside Contracting

I'm glad I'm finally getting to this mode of organization. This is the first production mode that Williamson (OEW) lists under "Capitalist modes" in The Economic Institutions of Capitalism. It also happens to have a rich history that may still be active. Inside contracting was the standard organization used by the New England armories throughout in the 18th and most of the 19th century. It carried on into sewing machine manufacture, reaper manufacture (McCormick), and possibly even bicycle manufacture, all of whom evolved from the armory manufacture. It was an integral part of The American System, as explained by Hounshell (
From the American System to Mass Production, 1800-1932: The Development of Manufacturing Technology in the United States).

• It is classified by OEW as an "capitalist mode" (as opposed to entrepreneurial or capitalist)
• It was extensively used in the early gunmaking industry, which in turn lies at the heart of mass production and modern manufacturing and quality control methods. David Hounshell writes, "the inside contract system had been used for many years throughout American manufacturing, particularly in New England. In some respects, inside contracting resembled the putting out system, but its particular characteristics were derived from the factory system. Although the Springfield Armory never adopted inside contracting [...], almost all the New England armsmakers employed it. When coupled with armory gauging systems and machine tool design, inside contracting became a distinguishing characteristic of the Yankee armory practice extensively employed in all types of metal fabrication in the second half of the nineteenth century." Pratt & Whitney were inside contractors at the Colt armory, and went on to become first machine tool makers and then engine makers.
  
• Because of the influence of the armory practice on the manufacture of sewing machines and reapers (among other things), inside contracting was used in other industries. Hounshell writes, "[Lebbeus B.] Miller [a man Singer hired to "'design and supervise the construction of special tools for the production of interchangeable parts' for Singer machines" but who eventually rose to become superintendent] helped introduc