Wednesday, February 24, 2010

Efficiency Matters

I’m uncomfortable starting any conversation with a disagreement, but it is a menial one that leads to a broader agreement, so I’ll try it. In a footnote on page 66 in “The Armchair Economist”, Landsburg argues that a high paid politician makes for a better politician, and I flatly disagree for a number of economically motivated reasons. Foremost among my disagreements comes from observation, as politicians move up the political hierarchy, from say a commissioner to a Senator and beyond, there tends to be a correlating decline in general scruples. Even the same politician seems to be subject to the function of, “x more dollars in income = y fewer units of honesty and usefulness”. It is a speculative observation, but an observation nonetheless. Moving on, as an office becomes more competitive a public servant must spend more time, money and resources competing, therefore spending less time performing their actual function. The officer must serve the public less and herself more (that pronoun goes out to you Camilla).

Eventually if rising political salaries were to lead to thier inevitable conclusion, public servants might spend the majority of their time on political survival and reelection and the vast minority on accomplishing anything. Now, Landsburg and I might agree this scenario is wildly inefficient, but Mises and I might agree this scenario is much more efficient than having a public servant actually pass legislation. In fact Mises and Landsberg might both argue the cost of paying a politician $200 thousand per year and having her work tirelessly to pass market reforms and legislation might equate to millions, possibly billions in additional costs and inefficiencies to businesses. Therefore, maybe it is worth paying every member of congress $1 million to have them compete tirelessly for a position whose purpose has become simply to compete tirelessly. Well, maybe rather than disagree with Landsberg, I should seek to agree and better understand the word ‘better’.

Mises believes the corporate model to the pinnacle of efficiency and function. The corporation embodies the determinism of the market and the fluidity of success and failure, and it is adaptable; without government intervention it is the organism to best suit societies’ ends and means, it is efficient because it is subject to loss and gain. On some level, Mises is completely correct, an organization not subject to clear loss and gain is doomed to become a bureaucracy, who is subject only to the status quo. However, I question whether the modern corporation is the most efficient embodiment of the market. Most companies are floated on someone else’s investment in the form of corporate bonds and shares, therefore the vast majority of employees will never realize the true extent of loss (I’m glossing over bankruptcy and the fact that a bank’s bad loan loss only needs to be huge to be socialized). Sure shareholders put plenty of pressure on their investments, but many often seek a short term, speculative gain rather than a long-term value, i.e. anything useful—which may or may not be efficient. Furthermore, modern corporations are full of jargon spewing MBAs who perform very strange rituals and functions, like mission statements and webinars. Here is what I am getting at, the most efficient incarnation of a corporation would be something more like an employee owned collective, like a law firm or a consultancy. The partners experience the loss of bad decisions directly, as well as the success of good ones, there is no need for a giant class of managers (the bulk of a corporate pyramid) as all the partners know their function and see the direct benefits of hard work and efficiency. The partners police themselves and each other, people are bought out rather than fired, therefore hiring (buy-in) decisions are a little more thought out. This model maximises loss and gain... So this is probably not really a viable corporate solution, but more a way to further Mises ideas on how to keep out bureaucracies. Though, I feel like if this were a good idea there would be more real world examples, but their aren’t, so that may say all I need to hear.

1 comment:

  1. There is something called the Singapore effect... (I don't know if it's actually called that, but bear with me.) It seems to correlate decreased government corruption with increased pay for those who govern.

    It's possible that it's just a coincidence...