Value Competition

Who Gets What: Social Preferences, the Creation of Social Surplus, and its Division among Managers, Workers, Shareholders, and Society

[Notes for a paper to be written with the above title...]

The Owner-Manager Plays the Insist-Yield game with His Employees

The key to prevailing in the game is a credible commitment to insist, against which the other player will rationally yield.   A "this business is mine," "my way or the highway" state of mind comes more naturally to the owner-manager, it is reasonable to assume, than it does to the employee-centered manager or the shareholder-centered manager.   Accordingly, one expects more credible commitments based on owner-managers having that kind of unyielding character than from the other types.

The problem with a "this business is mine" commitment to having things the owner's way is that it may well not be seen as ethically acceptable by the employees, in which case conflict is likely.  The contentious and occasionally bloody history of nineteenth century capitalism may be seen as involving exactly that type of conflict, with owner-managers who strongly asserted their prerogatives giving rise to angry movements of workers fighting against total control by owner-managers. 

A second, gentler way to prevail in the insist-yield game is to value the other side's payoffs in the situation in which both of you insist on getting your own way.  By doing that, you can wind up in the same place as the dognatic "I will always insist" player, but without the unpleasant, conflict-provoking dogmatism.

So which side is better equipped to value the other's payoff in the insist-insist situation?   Though  no absolute answer can be given, I would suggest that workers in the owner-manager business are in better shape to appreciate the owner's payoff for insisting than the owner-manager is to appreciate the worker's payoff for being feisty.

As long as the owner has not marked himself as unreasonable by being dogmatically insistent, it is not a difficult stretch for workers to understand and even feel for an entrepreneur-owner who has created a business.  It is a much  more difficult stretch for the owner-creator to feel a parallel empathy with the payoffs of rebellious workers.

If the foregoing is correct, it is harder for the owner-manager who has built a business to have a character that is altruistic in a useful way than it is for the worker.  The owner-founder, altruistic as he or she may be in certain ways in caring about the welfare of others, is likely to have difficulty in empathizing with workers who rebel. A  limited caring about the owner helps the workers to get their way against the owner, whose difficulty in  caring for the workers leads him to lose out in the "gentle commitment" game.

 

 

How to Overcome Obstacles to Broader Entrepreneurship: Another Contentious Answer

[The following perspective on what needs to be changed to get us to a better Smith-Hume future matches the one in the previous post, but with an anti-right instead of an anti-left valence...]

"First, we need to open up the possibilities for economic entrepreneurship by decisively blasting out hierarchical conservative practices and values that consign some people and some groups to passive, acted upon status while elevating others to dominant, active, innovating status.

Second, we need to open up the possibilities for cultural entrepreneurship by moving away from a stolid, deadening conservative traditionalism that puts people into boxes, with only a few people seen as artists, scientists, and as creators more generally, and the rest of us classified as mere workers of various kinds.

Finally, we need to open up the possibilities for social entrepreneurship through thrusting aside conservative norms of deference and passivity in the lower orders in favor of feistiness across the social spectrum.  As to the theory that opening up opportunities for political entrepreneurship for those further down will be enhanced by diminished political faith among those at the top: The idea is a dubious one--there is a certain unpleasant, resentment-based quality to it.  But even if its premises were granted and we wanted to reduce elite political faith, it is reasonable to think that elite conservative disdain for liberal hopes and elite conservative market evangelism are bigger problems to be addressed than hopeful elite liberalism is."

Two observations: 1) I take it that the relative merits of the contentious center-left claim as to the way forward and the previous contentious center-right claim are only determinable empirically rather than in some more sweeping fashion; 2) it's interesting (if not surprising) the way the aspiration to take down politics a peg among the elite to give more space to the people has its own competing political interpretations.

 

How to Overcome Obstacles to Broader Entrepreneurship: One Contentious Answer

[The following argumentative answer to what blocks a better future and thus needs to be changed is one that has considerable personal plausibility to me as a 1977 graduate of Harvard University and a 1981 graduate of Harvard Law School.  That background conditions me to see the current order of the world as one in which the attitudes of people within my old school and others like it occupy a central position, and a potentially better world as one in which those attitudes have undergone substantial rectification. 

At the same time, I strongly believe that the way the world looks to me, though one hopes not altogether detached from reality, captures only a part of reality of what the world is.  If Smith-Hume for the 21st century is to be a viable vision, it needs to be one that works for people who see blockages to progress in places other than the ones my personal experiences and my personality incline me to see them.  So if you find yourself irritated by the grafs below, fair enough...stay tuned for the next post...]

"First: To encourage econonomc entrepreneurship and accomplishment among more people all across the economic spectrum, a key thing that needs to happen is the blasting out of the antipathy to money-making as a goal that was at the core of Marx and that remains intertwined with the way many left of center people think and feel.  Only if deep-seated left ambivalence about economic entrepreneurship can be firmly consigned to the scrapheap of history as decisively as the old, dead vision of a nationalized, post-capitalist economy has already been can we really move forward. 

Second: To encourage cultural entrepreneurship and accomplishment among more people, a key thing that needs to happen is the blasting out of a unionist, "it's just a job," clock-oriented mentality.  Though that reactionary, resentful state of mind is found among all kinds of people in all kinds of positions, its political home is on the left and its practical base lies in teacher's unions and other groups allied with the left. 

Finally: To open up more room for people lower down in the socio-economic spectrum to be social entrepreneurs, it would be a very good thing if the elite in our society turned their moral fervor away from politics toward some other arena.  Just as the decline in religous faith among the elite empowered ordinary people, so too with an elite decline in political faith.  The heart of elite political fervor lies on the left, and so here as in the other domains it is encrusted left ideology that presents the greatest obstacles to a more open, more entrepreneurial, more successful future."

 Stay tuned for an opposing approach...

 

Carrying Forward the Practical Utopianism of the Scottish Enlightenment

Let us assume that Smith and Hume basically got the path for social progress right in the late 18th century: The way forward is to blend practicality and aspiration in a way that is conducive to the expansion of opportunities and accomplishments for and by a widening circle of people.

What follows for us?  Three major things, it seems to me.  First, in the area of economic productivity, we need to figure out ways for many more people to enjoy the ongoing sense and reality of creativity and innovation that a relatively small proportion of people now do.  We don't want as large a majority of our population a hundred years from now to be, say, highly paid but perhaps disillusioned cogs in big corporations, government offices, or professional firms who do not themselves engage in entrepreneurial economic activity.  Not everyone could or should be an economic entrepreneur, and we should be deeply grateful for the rise of organizations that have freed people in wealthy nations from grinding micro-entrepreneurship--and yet, a better future will be one in which a much larger proportion of people than now are economic entrepreneurs in at least a part of their lives. 

Second, in the area of cultural productivity defined by often hard to monetize accomplishments in the arts and sciences, we similarly want to have a substantially larger proportion of people who are cultural entrepreneurs.  Not everyone could or should be a cultural entrepreneur painting pictures, writing songs, conducting scientific experiments, and so on--and yet, a better future will have such activities being a part of the lives of a much larger proportion of adults than is now the case. 

Third, in the area of social productivity defined by morally infused activity with other people and individually, we could similarly use a broadening of entrepreneurial spirit and a resultant expansion of social accomplishments.  Again, we will not all be social entrepreneurs--but it would be very nice indeed if a significantly higher proportion of us took on the role for part of our lives.

Let's assume (a big assumption, to be sure) that that 21st century reformulation of Smith and Hume in terms of expanded economic, cultural, and social entrepreneurship is a good form of practical utopianism.   That leads to two matched question: What are the obstacles to getting there?   And how can we overcome those obstacles?  

It seems to me there are two (no doubt more) plausible responses...I'll try to lay them out in the next two posts...

 

 

 

 

 

North, Wallis & Weingast on the Natural State and the Open State

Violence and Social Orders is not a good book formally, in that its sometimes intensely detailed micro-level history on matters such as English land law mixes uneasily with its sweeping macro-level perspective, announced in the subtitle: "A Conceptual Framework for Interpreting Recorded Human History."  (I deeply empathize with the problem, having tried unsuccessfully to write a book on political ideology that blended narrative historical sweep, case studies, and modeling.)  It is a good one substantively, though.  The account it gives of the transition from the elite bargains of traditional or "natural" states to a more open order of perpetual organizations and widespread competition is a worthwhile contribution to the Adam Smith-Charles Tilly-Francis Fukuyama tradition.

I have an issue, though.  The open access order we live in feels to me not like the end of history but like a yet more mature natural state, with all the segmented, bargaining elites--academic, religious, military, financial, manufacturing, etc.--of the old order mitigated by greater impersonality and access, but still very much present.   There are a lot of different 1 percents (or .01 percents), but the world we live in is very much a world of elites and others.

Maybe that is not something to be grumpy about.  But maybe it is...[to be continued]

 

NJ Transit Conductors: The Rule-Followers and the Relaxed

The conductor on my train from Newark to New Brunswick today didn't charge me the $6 step-up that railroad rules say is supposed to be charged when a rider shows a pass for South Orange to Newark, which is my regular commuter route.  That's a frequent occurrence, and it leads me to wonder about the degree to which the relaxed attitude of many of the conductors toward the rule is part of an optimal "yin-yang" balance with their many colleagues who do follow the rule...

My intuition is that a revenue-maximizing railroad does want some nonenforcement, partly for practical situational reasons, such as a crowded trains with a short time between stops.  I also suspect it should want some level of broader, "we're mellow and not enforcing the rule" nonenforcement.  The basic point is that rule enforcement creates in some cases a high level of tension between the RR and the patron.  Patrons who are aware that the RR makes errors in their favor are likely to be much mellower and less likely to abandon or otherwise dis the RR when it makes rule-enforcing errors against them, as will inevitably be the case. 

That's the way it works for me.   Some of the time, conductors misread their cards and charge me more than $6--for some reason, $9 is the usual erroneous figure.  I don't complain by pointing out the right number and embarrassing them in front of other riders.  I would if some conductors didn't let me off the hook altogether.

So is the level of nonenforcement optimal?  I have the "reform government" intuition that it's not.  My guess is that I get away w/ not paying the step-up substantially more than I should.

I also intuit/guess/suspect that if NJ Transit had a better labor system instead of the "job security after a probationary period" system I suspect it has and shares w/ most government agencies, the proportion of conductors enforcing the step up rule would go up by a fair amount.

At the same time, I don't think the optimal rule enforcement rate is close to 100%.  Even in a hypothetical world where all the conductors have all the time in the world to enforce the rule, are indefatigable workers, and don't mind doing the enforcement and taking the heat at all, the rule should sometimes not be enforced.  The RR has an interest in having some conductors who are mellow (and/or conflict averse) and let the riders off the hook some of the time. 

 

 

 

The Division of Leadership between the Visionary and the Executive

Some morning-or-two-afterthoughts in relation to the selective altruism paper...possible material for including in a revised version for journal submission...

First (and maybe last) thought of the day: Does the selective altruism analysis cast any light on the standard business practice of having both a big picture CEO and an executing President (as well as having a policy-making board and employees of the firm; corporate life can be described as a nested series of visionary-executive combinations), and on parallel practices in politics (e.g., political appointees and career employees in agencies) and in the government and non-profit sectors (e.g., policy setting school boards and implementing superintendents)?  

A subquestion of particular interest to me as an administrator in a business school department that has a major concern with operations issues:  Does selective altruism cast any light on the reality that it is the visionary as opposed to the executive who is at least nominally on top in all these dyads?

Okay...let's think...

Maybe selective altruism does shed light here, at least in regard to the second question.  A key issue with the selective altruism model of leadership, as with others, is whether one can in the end prevail on everything as a leader, or whether there is a division of labor with the preferences of the follower prevailing on plenty of things or even most things.  The second view seems plausible to me for normative and practical reasons.  Selective altruism I believe should take that into account.  Servant leaders and the other types don't simply win by their selective altruism, as in the paper.  Some of the time they actually do wash the feet of the followers.  Otherwise, it is hard to see how in the end all the types avoid collapsing into the masterful leader, who for all his considerable virtues is also a troubling character and whose consistently commanding style should be only one way to lead, not the way.

So, on why the executives report to the visionaries rather than the other way around: It is plausible to me that a commitment to lead based on one or another character type is less abrasive to others when it relates to intangible matters of vision than when it relates to concrete matters of operations.  Relatedly, it is plausible that a character type with a commitment to lead as to vision finds it easier to pass the screen of ethical acceptability than a type with a commitment to lead as to specifics.  The latter type has some obvious advantages in the struggle for life, and we should expect it to be an important character type with a number of variations.  But it is a type that finds it difficult to pass the screen of ethical acceptability.

Another way to put the point: Egalitarian, forgiving, sympathetic, and servant leadership are all readily translated into types of visionary leader that pass an ethical screen, bu are not so readily translated into operational leaders.   The masterful leader is the reverse: very easily translated into operational leadership, but with greater difficulty in passing the acceptability screen. 

One way for masterful leaders to pass the acceptability screen is by getting extraordinary results; that greater pressure on the masterful type to perform to overcome its ethical deficiencies leads to an empirical prediction that the results associated with masterful leaders will be better than those from the other selectively altruistic types.  I hasten to note such an empirical relationship would not necessarily show that organizations should prefer masterful leaders; what the hypothetical relationship would show in my view is that masterful leaders are more likely to get weeded out when they perform badly, not that the type is better at the creation of value than other leadership types.  It does seem to me, however, that such an empirical relationship could lead an organization in that direction; a boss who is masterful would more readily be held accountable all else equal than the other types of selective altruists and thus should be preferred in hiring and promotion.   The counter I take it is that compared to a Smithian sympathetic manager who cares about highest joint value outcomes, the masterful leader is likely to entrench himself and to in fact be difficult to remove.  Accordingly, certain other types of selectively altruistic leaders may wind up being more accountable.

Much as submissiveness and deference are very important parts of our makeups, human beings are nitty about being ordered to do things.  The visionary leader who avoids that type of direct order is thus advantaged as a type over the operational leader. 

Violence and Hunting as Leadership Games

Instead of seeing violence as an outcome of a PD in which both players have a predatory incentive to kill and steal or of a Trust game in which both players fear that the other will be aggressive, violence can be seen as an outcome of a Leadership game in which the players will do best if one of them leads and the other follows, adequately but not well if neither one leads, and disastrously if they fight one another for leadership.  Sample payoffs for such a "Lead or Yield" game are shown below:

                                                  Other

 

                                  Yield                               Fight to Lead

    Yield           Non-violent Disorder (0, 0)           Order (5, 10)

Self

  Fight to Lead        Order (5, 10)                Violent Disorder (-50, -50)

In a Leadership game, your best response to pacifism or aggression by the other player is opposite what it is in Trust.  In Trust, the best response to aggression is aggression, while in Leadership the best response is to yield.   The best response to pacifism in Trust is pacifism, while in Leadership the best response to pacifism is aggression--or assertion, if one wants to use a more positive term to reflect the value added by the combination of leadership by one player and following by another.

Hunting can also be modeled as a Leadership game rather than a PD or a Trust game.  The best results from the hunt come from one player leading and the other following, with worse results if there is no leadership or a leadership struggle.  Sample payoffs are below:

                                                   Other

                               Yield                                         Lead

    Yield           Lack of leadership (2, 2)            Organized hunt (5, 10)

Self

  Lead               Organized hunt (5, 10)          Leadership struggle (0, 0)

 

 

 

Hunting as a Trust Game or a PD Game

Important as it is, the negative-sum violence game just described is, one hopes, less common than positive-sum games such as trading or hunting in which the players are likely though not certain to achieve a positive payoff of some kind.

Below is a hunting game in which both players face a choice between cooperating and finagling, and the payoffs follow the PD:

 

                                                                          Other

                                                Cooperate                             Finagle

                Cooperate                     5, 5                                   0, 10

Self    

                 Finagle                       10, 0                                   2, 2

As always in a PD, you are better off finagling no matter what the other player does.

Now, the hunting game with Trust payoffs:

 

                                                                         Other

                                                Cooperate                             Finagle

                Cooperate                    10, 10                                   0, 5

Self    

                 Finagle                          5, 0                                   2, 2

Here, as in Trust games in general, both of you do best by cooperating; you have a reason to finagle only if the other player is going to finagle.

Compared to the violence game with its relatively clear picture of aggression, the meaning of finagling or cheating in a hunt is open to interpretation.  If finagling is outright theft of the killed animal, the PD payoffs work in immediate material terms.  But in that case, I would suggest that the future-discounted payoff for the thief may well be lower than the payoff when both players cooperate, given the likelihood that the hunters know one another very well.  In that case, the game is a Trust game, not a PD.  In any case, in the hunting game as in the violence game, the players are unlikely to see themselves as having PD payoffs.  They are likely instead to see themselves as having Trust payoffs, and as feeling pressure to finagle not because they can get their best outcome from doing so but from concern the other player will do so and leave them with their worst outcome.  (Obviously, both players cannot successfully finagle by stealing the captured animal; one way to interpret the situation in which both finagle is that they abandon cooperation in favor of pursuing lower-value game individually, which makes the game a Stag Hunt, one of the variants of Trust.)

Instead of outright thievery, finagling in the hunt game can be interpreted instead in terms of harder to detect "cover your ass" or CYA behavior that minimizes the risks for the CYA player, who, say, does not take the same chance of getting gored by the tusked boar that the cooperator does and in doing so makes the hunt more dangerous for the cooperator and less likely to result in success.   If finagling is CYA behavior rather than outright thievery, the immediate material payoffs for the players as well as the future-discounted ones are likely to follow Trust rather than the PD.  The finagler lowers the probability of success to a degree that hurts him as well as the cooperator; that means his payoff for taking advantage of the cooperator is less than his payoff for mutual cooperation; that in turn means the game is Trust and not the PD.

My intuition is that hunts by our ancient ancestors and by ourselves are more likely to feature finagling in the form of CYA behavior than finagling in the form of outright thievery.   Accordingly, it seems to me that the immediate material payoffs associated with cooperating versus finagling in a hunt are usually better described as Trust games than as PDs.   Further, even if the immediate material payoffs of cheating are accurately described by a PD, the future-discounted payoffs seem likely to be better described by Trust than by the PD.

 

 

 

Hunting as a Trust Game or a PD Game

Important as it is, the negative-sum violence game just described is, one hopes, less common than positive-sum games such as trading or hunting in which the players are likely though not certain to achieve a positive payoff of some kind.

Below is a hunting game in which both players face a choice between cooperating and finagling, and the payoffs follow the PD:

 

                                                                          Other

                                                Cooperate                             Finagle

                Cooperate                     5, 5                                   0, 10

Self    

                 Finagle                       10, 0                                   2, 2

As always in a PD, you are better off finagling no matter what the other player does.

Now, the hunting game with Trust payoffs:

 

                                                                         Other

                                                Cooperate                             Finagle

                Cooperate                    10, 10                                   0, 5

Self    

                 Finagle                          5, 0                                   2, 2

Here, as in Trust games in general, both of you do best by cooperating; you have a reason to finagle only if the other player is going to finagle.

Compared to the violence game with its relatively clear picture of aggression, the meaning of finagling or cheating in a hunt is open to interpretation.  If finagling is outright theft of the killed animal, the PD payoffs work in immediate material terms.  But in that case, I would suggest that the future-discounted payoff for the thief may well be lower than the payoff when both players cooperate, given the likelihood that the hunters know one another very well.  In that case, the game is a Trust game, not a PD.  In any case, in the hunting game as in the violence game, the players are unlikely to see themselves as having PD payoffs.  They are likely instead to see themselves as having Trust payoffs, and as feeling pressure to finagle not because they can get their best outcome from doing so but from concern the other player will do so and leave them with their worst outcome.  (Obviously, both players cannot successfully finagle by stealing the captured animal; one way to interpret the situation in which both finagle is that they abandon cooperation in favor of pursuing lower-value game individually, which makes the game a Stag Hunt, one of the variants of Trust.)

Instead of outright thievery, finagling in the hunt game can be interpreted instead in terms of harder to detect "cover your ass" or CYA behavior that minimizes the risks for the CYA player, who, say, does not take the same chance of getting gored by the tusked boar that the cooperator does and in doing so makes the hunt more dangerous for the cooperator and less likely to result in success.   If finagling is CYA behavior rather than outright thievery, the immediate material payoffs for the players as well as the future-discounted ones are likely to follow Trust rather than the PD.  The finagler lowers the probability of success to a degree that hurts him as well as the cooperator; that means his payoff for taking advantage of the cooperator is less than his payoff for mutual cooperation; that in turn means the game is Trust and not the PD.

My intuition is that hunts by our ancient ancestors and by ourselves are more likely to feature finagling in the form of CYA behavior than finagling in the form of outright thievery.   Accordingly, it seems to me that the immediate material payoffs associated with cooperating versus finagling in a hunt are usually better described as Trust games than as PDs.   further, even if the immediate material payoffs of cheating are accurately described by a PD, the future-discounted payoffs seem likely to be better described by Trust than by the PD.