Comment by Kevin_Carson on Competent Elites · 2008-09-27T06:24:35.000Z · LW · GW

P.S. Competence can actually be counterproductive, from everyone else's standpoint, when there's a conflict of interest involved.

Even stipulating that (say) Carly Fiorina, Bob Nardelli, and "Chainsaw Al" Dunlap are really a bunch of geniuses, how do you explain the fact that they screw up so bad. Either they really are smart, and are pursuing their self-interest in an intelligent manner that just happens to be at odds with the interest of the "little people" in the company, or they're just incompetent and following the flawed MBA playbook. Either way, what they're doing amounts in practice to the behavior of an Ottoman tax farmer: stripping the organization of assets, gutting human capital, and hollowing out long-term productive capability in order to game their own bonuses and stock options. If the corporate economy requires "geniuses" like this to administer it, it must be really fucked up.

Comment by Kevin_Carson on Competent Elites · 2008-09-27T06:11:05.000Z · LW · GW

You might well have been able to make the same observation about the senior planning officials in Gosplan and the Soviet industrial ministries. The problem is that nobody's "smart" and "competent" enough to administer a planned economy, and that's what a corporation is. The question isn't how "smart" or "competent" senior management is, but the nature of the information they act on given Hayekian information problems. More specifically, are they (as Kenneth Boulding said) in progressively more tangential contact with reality, the further up the hierarchy they are, until the guy at the top of the pyramid is living in a completely imaginary world based on information filtered from below. This is how hierarchies work--it's what R.A. Wilson called the Snafu Principle.

We have such large organizations, so isolated from genuine market data, that nobody's smart enough to run them. The solution is not to find the smartest guy you can to make CEO and put in charge of an enormous hierarchy. It's to reshape organizations so that 1) information problems are reduced by putting authority in the hands of people who are dealing directly with the situation, and 2) agency problems are reduced by eliminating the conflict of interest involved in hierarchy as a result of the ability to externalize the costs of decisions on those below.