Gary J. Miller, Managerial Dilemmas: The Political Economy of Hierarchy
Attention conservation notice: 1500 words on Gary Miller’s Managerial Dilemmas. MD tries to figure out what works and what doesn’t in organization design, but along the way I wonder if Miller is just recapitulating a moral principle or two that we all ought to be feeling anyway.
Working together is a public-goods problem: if all of us on the team work except for me, then I get the advantages of the team’s production without doing any of the work. But all of us on the team have the same incentives, so we all have an incentive to avoid doing work. But if we all avoid doing work, the team produces less than it could, and we all suffer. In the jargon, “everyone shirks” is a Pareto-inefficient Nash equilibrium: it’s where the process would settle because no one has an incentive to change what he does (the “Nash equilibrium” part), but it’s worse for everyone (the “Pareto-inefficient” part) than if everyone worked hard.
One way for managers to address this public goods problem is called “Taylorism“: study very carefully how much time and effort it takes people to accomplish a specific task, then insist that they accomplish that task in that much time. If the time-and-motion guys tell you that you can produce ten automobile hoods per day, you’d better produce ten per day or they dock you. This gets rid of one information problem: under the assumption that the workers want to shirk, take away their power to shirk by rigorously defining what their job is.
This “piece rate” system has obvious flaws. The time-and-motion guys need to measure actual workers doing actual work. The workers know this. So when the time-and-motion guys come around to measure, the workers will work slowly. And if a worker produces more than the piece-rate system says he can, his coworkers will not take kindly to it: they know that any consistently higher rate of production will only make them work faster, or it will lose them a job when the company realizes that it can do more with fewer workers. Some companies are real scoundrels about it and adjust the per-piece rate downward, so that the per-day rate that they pay workers stays constant.
So a piece-rate system, unless accompanied by a promise that you won’t be a scoundrel, appears to be a non-starter. And the company has every incentive to be scoundrels, if it will make them more money to do so. Or at least they have “every incentive” to do so if they look at the short term only. In the longer term, worker enmity may well offset these incentives. Workers may quit and go to other companies that aren’t as exploitative. They may institute a work-to-rule strike. There are lots of ways workers can get back at draconian management.
If I’m reading Managerial Dilemmas right, these sort of utilitarian calculi have never worked because economists have taken the short-term static view: we should do X to prevent Y, because that maximizes our income in the short term. The better approach is to take a long-term dynamic view. One way to model these sorts of problems is as an iterated Prisoner’s Dilemma: you (as my boss) and I (as the worker) are going to have to interact over and over again, so we can’t always act selfishly. If you always act selfishly, it’s in my interest to do the same. So then we both act selfishly, and we both lose.
Here’s the point where every exposition of the iterated prisoner’s dilema has to mention Robert Axelrod, specifically The Evolution of Cooperation. Gary Miller does not disappoint. Here’s the big message that I’ve now had beaten into my brain approximately 100 times: The Tit-For-Tat Strategy Does Really Well. That is, if you start your repeated game by not shirking and only shirk if your boss is a scoundrel, you’ll do all right. When he’s a scoundrel, retaliate. When he treats you well, quickly forgive his earlier trespasses. Everyone and his brother has made something huge out of Tit-For-Tat’s success. Bowles and Gintis even turn it into a moral about the politics of fairness.
The message for managers seems to be that they should learn from iterated game theory and apply what they learn to the structure of their workplace. Chief among these is that they need to find some way to make employees cooperate rather than defect. The only way to do this, in the long term, is to solve a commitment problem — in other words, for the employees to promise that they’ll go against their short-term self-interest and not shirk, and for the managers to promise that they’ll go against their short-term self-interest and treat the employees as valuable people. There are various ways to do this; Miller goes through several in the final third of the book. One is to convey a culture of openness: Hewlett-Packard apparently left doors to its labs unlocked, and encouraged employees to take equipment home. During economic downturns, some companies convince employees of their good faith by refusing to lay anyone off; they may impose pay cuts, but no one loses his job. The general way to describe these commitment strategies is that they are costly and difficult to fake. “Irreversible” might fit in there too: restructuring a factory to accommodate team-focused production is hard to reverse; the employees know you’re in it for the long haul.
All of this sounds to me like fancy game-theoretic garb for a not-very-complicated idea: be good to your employees, and they will be good to you in return. I’m not convinced that these economic arguments will actually make anyone be nice to his employees or his superior. If you were already morally committed to the golden rule, you will still be morally committed to the golden rule. If you weren’t, it’s unlikely that this economic argument will suddenly swing you over. If game theory doesn’t already support the golden rule, so much the worse for game theory. On the one side we have sensible, deeply-felt moral principles; on the other we have an economic model that’s highly sensitive to assumptions about human behavior that we’re only just coming to understand. The moral principles win in a rout.
I felt the same way about Bowles and Gintis’s Recasting Egalitarianism. It might sway some people at the margins — people who believe in helping out the less fortunate but worry about the economic pitfalls of doing so. I wonder how many people are in that margin, though. I suspect that a great many people are morally committed to asset redistribution; Recasting Egalitarianism will not change their minds, though it will give them more reasons to advance at those asset-redistribution cocktail parties you hear so much about. On the other side from the egalitarians are those folks who are rightly suspicious of grand plans to put wealth where wealth wouldn’t go of its own accord; RE will do little to allay their fears of heavy-handedness.
For that matter I feel the same way about John Rawls: if you need to travel to a notional world in which you could be less fortunate than you are, in order to justify helping out the impoverished, will reading a few hundred dry academic pages really sway you? Isn’t this part of Rawls just a restatement of Matthew 25:35-40?
For I was an hungred, and ye gave me meat: I was thirsty, and ye gave me drink: I was a stranger, and ye took me in:
Naked, and ye clothed me: I was sick, and ye visited me: I was in prison, and ye came unto me.
Then shall the righteous answer him, saying, Lord, when saw we thee an hungred, and fed thee? or thirsty, and gave thee drink?
When saw we thee a stranger, and took thee in? or naked, and clothed thee?
Or when saw we thee sick, or in prison, and came unto thee?
And the King shall answer and say unto them, Verily I say unto you, Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me.
The first 2/3 of Managerial Dilemmas is quite useful and thought-provoking. It’s an analysis of exactly why designing hierarchies that work is difficult. The analysis of what’s wrong with piece-rate systems is a good example: few other authors go into much detail about exactly which organizational structures have been tried, which have failed, and what’s worked.
One result, which recapitulates Miller and Hammond’s paper “Why Politics is More Fundamental Than Economics: Incentive-Compatible Mechanisms Are Not Credible, is particularly captivating. It argues that in any hierarchy, it will always be necessary to “bind the king’s hands,” because the king (or the CEO) will always have an incentive to amass more wealth rather than do what’s efficient for his kingdom (or his company). No self-guiding economic mechanism will get you out of the fundamental political problem.
I’d recommend reading the first 2/3, then politely returning Managerial Dilemmas to the library.
The point of Rawls’ Theory of Justice was to create a moral construct free of the participants’ own theories of the Good including those based on religious beliefs, biblically based or not. No one needs to travel to a notional world or any other to justify helping out the impoverished; we do so because it’s the right thing to do and Rawls’ theory is just one way of discerning the right from the good.
Comment by bjm — February 29, 2008 @ 9:24 pm
Maybe not but I don’t think papers like the one you’re describing are designed to sway the man on the street in some casual big picture kind of way. They are laying dry, academic, conceptual foundations to more rigorously understand our intuitive notions.
The Bible attempts to inspire. Rawls, not so much.
Also, King James? We can do better. Go to here. There are many more translations to choose from, including non-English ones. Sorry, no Turkish, though.
Comment by mrz — February 29, 2008 @ 9:55 pm
For that matter I feel the same way about John Rawls: if you need to travel to a notional world in which you could be less fortunate than you are, in order to justify helping out the impoverished, will reading a few hundred dry academic pages really sway you?
I think that gets Rawls wrong in a really important way. As I will never, ever tire of pointing out, the original position is a device that allows us to capture and formalize certain intuitions about what a fair outcome would be. It’s not a device for justifying our attachment to that outcome or motivating us to bring it about.
Suppose you’re selling me a car. We want to arrive at a fair price. What is that? Well, it’s what we arrive at as a result of a process of rational bargaining. But wait! You have big muscles, and I feel intimidated. It’s pretty clear that my intimidation is distorting the results of our rational bargaining process, leading me to accept a worse deal than I otherwise would. So we imagine a hypothetical case: What would we agree to if I wasn’t intimidated? And we go through the other distorting factors (say, I’m in the middle of a desert, and need the car to survive) to remove them and make sure that the rational bargaining process is giving us an intuitively plausible result.
Now. We’re applying in this case to a hypothetical situation, one in which I’m not intimidated by your bulging muscles. But is it far-fetched and unrealistic? No! It’s entirely reasonable to ask what we would have agreed to in the absence of factors that would shake our faith that rational bargaining will give us a fair result. Perhaps it helps us see that I would have come out $100 richer if I hadn’t been intimidated.
And here’s the thing: This thought experiment is only a way of modeling some of our intuitions about fairness. It does not, and is not intended to, justify our basic attachment to fairness itself. Something else entirely must justify that.
This is a much simplified presentation of what I think is a pretty basic distinction in Rawls’ theory. He was clear about it even in early writings, like for example his 1963 paper “The Sense of Justice.”
On the other hand, you are entirely correct that Rawls’ prose sucks.
And I would blog about this, but I’m embarrassed to say anything about Rawls in front of my Rawls-expert co-blogger Paul.
Comment by Chris — March 1, 2008 @ 9:03 am
Thanks for all the feedback about Rawls. What I’m getting from Chris and bjm is that the moral commitment to helping the less fortunate is prior to Rawls, and that Rawls just wants to help us clarify some notions once we’ve accepted fairness as a goal. Is that right? I feel like the early chapters in A Theory Of Justice contradict that, but I don’t have it in front of me at the moment. I’ll take a look tomorrow.
mrz: as for the translation I chose: I just like King James. I also like the New Revised Standard. I own both. James has more poetry, seems to me.
Comment by slaniel — March 1, 2008 @ 2:46 pm
Not so much prior to Rawls (since he addresses it elsewhere) as distinct from the part of his argument where he sets out the original position stuff.
I confess it’s been a long time since I read ATOJ, but one place to look is Chapter VIII (The Sense of Justice), especially sections 73 and 75. There Rawls tells a story about how we might come to be attached to justice that doesn’t at all rely on the original position or anything like that. Rather, the story is about how we’re constituted as social creatures, and how we respond to institutions we tend to judge are just. So, Rawls tells two entirely different stories: one to figure out WHAT justice is and another to figure out WHY we might care about justice. Only the first story focuses on us as rational agents behind the veil of ignorance.
So I think, at any rate. I confess I don’t know much about this. I do know, however, that many people have interpreted him the way you do. M. Sandel, for example, wrote a whole book complaining about how thin and bloodless Rawls’ conception of human choice is and how the choices that we would make in the original position can have no significance for us since we’re not in the original position and there are certain things we can’t set aside. But I think that’s just a serious misreading of Rawls.
Comment by Chris — March 1, 2008 @ 3:34 pm
Wow Steve. What an interesting discussion! A post that cites both Rawls and Bowles and Gintis is a post near and dear to my heart. (For what it’s worthy, my views pretty much follow those set out in Daniel Hausman’s essay in RE.)
As for how to understand Rawls, I think Chris has done an admirable job here. It really is important to keep the phrase “device of representation” in mind here. And the early chapters, indeed the early pages, of Rawls are crystal clear here. See the last paragraph of section 4 for a respresentative passage. (Or google “A final comment. We shall want to say”…and a few books that quote this passage should pop up.)
Chris is also correct that the job of the original position is to try to give a number of distinct and secure intuitions of fairness and justice their proper place in the derivation of final principles of justice. And in fact, your invocation of the golden rule shows us why we might want something like Rawls’s procedure. Rawls had surely read and absorbed Kant’s criticism of the golden rule, namely that it’s moral authority is only as strong as the authority embodied in the follower’s contingent desires. That is, if I have a quite Hobbesian approach to life, if I am happy to kill and be killed, then following the golden rule won’t transform my aims into worthy ones. If I do unto others what I would have them do unto me, and if I won’t begrudge anyone’s trying to kill and plunder–perhaps I find it admirable and an expression of honor!–then, well, you get the picture. So we’re already in need of something else, some that can supplement what the golden rule does capture about fairness. But where do these supplementing elements come from?
Rawls answers that they come from other of our pre-theoretical convictions about fairness and fair choice. Chris’s car salesman example is apt here. —But, when we have a collection of intuitions about fairness, each compelling in its own right but without a clear understanding of how they should be combined, then we might well wish for something like the original position, which is designed to model each of these intuitions in a clear way, but also in a way where the whole construct can be then used to see what principles of justice would emerge. So Chris is correct again to say that Rawls is not trying to justify being good to the Hobbesian man who cares not all all about this. Rather, he is addressing the rest of us, those who have rough ideas about what is fair or good, but who seek for, as he puts it, guidance where guidance is needed. —And this connects up with your question, “if you need to travel to a notional world in which you could be less fortunate than you are, in order to justify helping out the impoverished, will reading a few hundred dry academic pages really sway you?” Rawls’s answer would be that he is trying to show you what your commitment to justice and fairness comes to. Sure, you should be interseted in helping the less fortunate. But how much help are you obligated to give them? Are you obligated to give and give until you impoverish yourself? Should you be prepared to sacrifice some of your (or someone else’s) basic liberties if that would contribute to a system that more efficiently meets serious needs in your society? If person A needs a kidney to survive and if you could do without one of yours, does A have a right to your kidney?
Or here’s one: Bowles wrote a short paper in the 1970s arguing that the capitalist hierarchies needed for capitalist efficiencies render equality of opportunity a myth. The traits of character needed in order to excel in such societies are likely to be developed and then transmitted by those on the top, thus ensuring that their offspring are more suited for those jobs. But if capitalist efficiencies make life better for all, including for the least advantaged, then are we allowed to sacrifice equality of opportunity in order to maximize the prospects of the least advantaged?
Now, one may quibble with Rawls’s answers to these questions, but the fact is that he sought to develop a decision procedure that could answer them. I think we clearly need answers to them, and that we would be hard-pressed to rely on simple intuition in cases as complex as this. We are in a place where guidance is needed, and Rawls’s “dry academic prose”, for all its faults, is a masterful attempt to provide that guidance.
Comment by Paul — March 2, 2008 @ 10:10 am
Eh. It’s still dry academic prose. I think what Steve is ultimately saying is that he’s now read so many dry academic papers that he’s had enough. He wants to relax on the beach with a good novel about guys with stubble that drive muscle cars and have the tenacity, grit, and just plain giant balls to jump those cars over 6 or 7 school busses. That’s way better than reading 2400 pages of dry smack talk about “Social” “Justice” from guys wearing suit jackets with leather pads on the elbows.
Comment by mrz — March 2, 2008 @ 10:41 pm
That may well be a joke-comment. I don’t know you well enough, mrz. But for my money, someone who now has a post about ” An Introduction to Econophysics: Correlations and Complexity in Finance” up on his site, and who recommends 2/3 of “Managerial Dilemmas: The Political Economy of Hierarchy,” is manifestly not saying that “he’s now read so many dry academic papers that he’s had enough.”
Comment by Paul — March 2, 2008 @ 11:23 pm
SEVEN SCHOOL BUSSES!!!! Rawls has nothing on that kind of action.
Comment by mrz — March 2, 2008 @ 11:28 pm