The Uses of Diversity. David Ellerman

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СКАЧАТЬ economies of modern industrialized society can more appropriately be labeled organizational economies than market economies. Thus, even market-driven capitalist economies need a theory of organizations as much as they need a theory of markets. The attempts of the new institutional economics to explain organizational behavior solely in terms of agency, asymmetric information, transaction costs, opportunism, and other concepts drawn from neo-classical economics ignore key organizational mechanisms like authority, identification, and coordination, and hence are seriously incomplete. (Simon 1991, 42)

      The economic theory of contracts and agency imagines a world where causal chains are well defined, where consequences can be imputed, at least probabilistically, to specific agents, where contracts can be clearly drafted, where performance criteria can be explicitly specified and they measure the right variables, and where fulfillment of the criteria or lack thereof can be objectively verified. It is a world where “complexity, uncertainty, instability, uniqueness, and value conflicts” (Schön 1983, 14) or, again, “uncertainty, complexity, and value conflict” (Hirschman and Lindblom 1971) can be somehow controlled or ignored. In such an imagined world, much of human activity could be carried out under performance-based contracts.

      But such (performance-based) reward systems are effective only to the extent that success can be attributed accurately to individual behaviors. If the indices used to measure outcomes are inappropriate, either because they do not measure the right variables, or because they do not properly identify individual contributions, then reward systems can be grossly inefficient or even counterproductive. (Simon 1991, 33)

      Simon went on to note that these considerations are not nit-picking; they cut to the core of the rationale for organizations rather than markets.

      In general, the greater the interdependence among various members of the organization, the more difficult it is to measure separate contributions to the achievement of the organizational goals. But of course, intense interdependence is precisely what makes it advantageous to organize people (i.e., in organizations) instead of depending wholly on market transactions. The measurement difficulties associated with tying rewards to contributions are not superficial but arise from the very nature and rationale of organization. (Simon 1991, 33)

      The Periodic “(Re-)Discovery” of Performance-Based Contracts

      One area where these issues are periodically played out is that of output-based or performance-based contracts. From time to time, private sector management “discovers” the idea of paying for performance (not just for time put in), of paying for outputs (not just inputs), and of management by objectives accomplished (not just intentions). It all sounds so obvious and so sensible that one must ask, “Why didn’t people think of this before?” The answer is that they did. And they discovered that it doesn’t work too well—aside from fairly rude forms of labor. In areas of human effort where effort, commitment, and the application of intelligence are important, the carrots and sticks of external motivation are insufficient for sustained performance (see, for example, Chapter 11 on “Inducements” in Stone 1997). Beyond simple and specific products, the determinants of quality are rarely susceptible to external monitoring.

      One area where these issues periodically play out is in education. In the United States today, parents and local politicians are “discovering” the idea of paying teachers for performance. One would hope that the substantive goal of schoolteachers is to awaken and foster a self-starting learning capacity in the students—but that goal is difficult for a third party to objectively certify. Hence, the measurable proxy goal of passing standard tests is used, and then teachers are pushed by educational administrators to fulfill the “performance-based” requirements by drilling students to pass the standard tests. In this way, the shoe-horning of education into the procrustean bed of performance-based contracts would probably do more harm than good to the original substantive goals of education.

      What sort of activities can or cannot be farmed out to arms-length market-based private provisioners under performance-based contracts? Even in a country with highly developed markets such as the United States, there is considerable controversy about maximal private provisioning (e.g., public schools, public safety, social welfare services, public health services, prisons, and so forth). It is even more controversial in Europe. When this philosophy is mired in controversy in developed market economies, then it is very difficult to understand how private provisioning with output-based contracts could be done well in the developing countries with their much less developed markets.

      Extrinsic and Intrinsic Motivation

      But let us assume away the problems of identifying and measuring the relevant variables and let us heroically assume away the “uncertainty, complexity, and value conflict” that afflicts human activities. Could we then replace governmental and private organizations with virtual nexuses of performance-based contracts? This brings us to the question of motivation. The economic theory of agency contracts is based on “economic” motivation, the “carrots” of monetary compensation, and the “sticks” of contractual penalties or termination of contracts. But this approach to motivation is based only the extrinsic motivation that can be used by the “principal” to control the behavior of the “agent.” Yet it seems that extrinsic motivation works as a long-term motivator for only a rather narrow band of rudimentary activities (“ditch-digging” and piecework are classic examples). More often the intrinsic motivators of craftsmanship, workmanship, professionalism, pride, self-esteem, and a sense of vocation, calling, and organizational identification are prominent, and the extrinsic motivators of “carrots and sticks”—while still important—are more in the motivational background.

      Piece rates and pay-for-performance schemes are examples of carrots in the foreground trying to get people’s attention and guide their actions. An equitable salary more geared to experience and seniority would be an example of keeping the carrot of pay in the motivational background so that other more intrinsic motives might emerge in the foreground to guide action. The tight coupling of pay with performance, as implied by agency theory, is beside the point when the pay is in the background.

      These considerations are quite clear in the quality-based (e.g., “Japanese”) management methods that take organization seriously. For instance, Edward Deming’s “New Economics” recommends to “abolish incentive pay and pay based on performance” (1994, 28), for example to pay salespeople by salary rather than by commission. Deming recommends replacing a system based on close monitoring and quality bonuses with a system using (for the most part) trust based on self-esteem and pride in the quality of one’s work. This approach to quality relies not on cleverly constructed pay-for-performance schedules but on switching over to a quality system driven largely by intrinsic motivators such as self-esteem and pride in one’s work—in short, quality as a calling. Simon came to similar conclusions about organizations in general. He identifies pride in work and organizational identification as some of the most important motivators. These intrinsic motivators are not controlled by the purse strings of managers. Other influential management theorists make the same point.

      “Intrinsic” rewards . . . are inherent in the activity itself; the reward is the achievement. They cannot be directly controlled externally, although characteristics of the environment can enhance or limit the individual’s opportunities to obtain them. Thus, achievement of knowledge or skill, of autonomy, of self-respect, of solutions to problems are examples. (McGregor 1966, 203–04)

      Paying someone to “identify” with the organization is like trying to “buy love.” The means corrupts and falsifies the end.

      

      Another Look at Corporations

      Since the American “model” is essentially only a textbook and lawbook model, to what extent is it really a possible option? In the American model, the employees have the legal role as the outside suppliers of an input—but in fact they are the СКАЧАТЬ