Thursday, March 26, 2009

Does Technology Trump Regulation ?

I originally wrote this entry on September 1, 2004, and published it on

The short answer is "No," and the slightly longer answer is "No, not in the short term," where "short term" depends.

A post on EconLog (edited by Arnold Kling) about "Telephone Fees", ends with the following question:

Why aren't we able to kill regulations when they become technologically obsolete?

That the main mission of the regulation is to keep up with technology remains a point to be settled. (See my notes on the "unbundled network element" aspects of the 1996 telecom act: 1, 2, 3. Also see my telecommunications category for more on related issues.)

The arguments that blame the slow rate of regulatory change on inherent bureaucratic intertia have their own place and validity. However, . . .

Regulations define the rules of the game.

If you change the rules of the game more than is warranted, people will go play some other game with more stable rules or they will refuse to play the game. If people stop playing there won't be any game, and in commerce and economics, we know what happens when people refuse to play !

So, even when we have a more efficient and perfect bureaucracy (if one could ever exist), "validity" of regulation (which cannot be determined based only on technological criteria) needs to be balanced against its "stability" (which is required as a minimal insurance for protecting investment in assets that take advantage of it).

Sunday, March 22, 2009

The Functions of the Executive: Chester Barnard and Organization Theory

I originally wrote this entry on August 18, 2004 and published it on

Earlier, I quoted the summary of Chester Barnard's views on the individual and on why we cooperate with each other in organizations.

Here, I'll quote the summary of his views on the total context of organized cooperation and on how cooperation changes the very context of organizations.

Cooperation is the social aspect of the total situation and social factors arise form it. These factors may be in turn the limiting factors of any situation. This arises from two considerations: (a) The process of interaction must be discovered or intervened, just as a physical operation may be discovered and intervened (b) the interaction changes the motives and interest of those participating in the cooperation. (The Functions of the Executive, p. 60.)

From my own experience, item (a) in the above is primarily about change and strategy. If you want to remove a limiting factor, you may organize yourself in a band or a group. On the other hand, item (b) is about the dialectics that follows, making strategic behavior a cause of its own demise. More importantly, item (b) is about changes in motivation and interest which affect the participant in an organization simply through their participation.

Why we cooperate and adopt group purposes?

I originally wrote this entry on August 11, 2004 and published it on

Chester Barnard provides the following summary answer to this question:

Among the most important limiting factors in the situation of each individual are his own biological limitations. The most effective method of overcoming these limitations has been that of cooperation. This requires the adoption of a group, or non-personal, purpose. The situation with reference to such a purpose is composed of innumerable factors, which must be discriminated as limiting and non-limiting factors. The Functions of the Executive

Individuals in Organizations

I originally wrote this entry on August 10, 2004 and published it on

Chester Barnard provides the following account of the "individual" in organizations:

The individual human being possesses a limited power of choice. At the same time he is a resultant of, and is narrowly limited by, the factors of the total situation. He has motives, arrives at purposes, and wills to accomplish them. His method is to select a particular factor or set of factors in the total situation and to change the situation by operations on these factors. These are, from the viewpoint of purpose, the limiting factors; and are the strategic points of attack. The Functions of the Executive (1938)

Barnard starts by noting our limited power of choice. Earlier in his book he amplifies on this theme connecting choice to context (i.e. "factors of the total situation") one is acting in. The structure of action is then decomposed into motives, purposes and will. In terms of actual practice of acting, he notes that individuals usually select a factor or a set of factors in the "total situation" to affect. For example, say you don't like your career path. It could be because of where you are, what you're doing, who you're reporting to, the goals or the team. One can change one or a set of these factors. Which actual factor is selected depends on one's total situation. Next Barnard discusses purpose. Purpose determines one's goal. From the point of view of one's goals, some factors may be limiting. Those factors are exactly the ones that will be selected for change.

That's a brief summary of Barnard's views on "individual" actors in an orgniazation.

In the next post, I'll summarize his views on what moves individuals in an organization to adopt group purposes.

The Functions of the Executive: Chester Barnard and the Theory of Organization

I originally wrote this entry on August 10, 2004 and published it on

In my last semester at the Haas School of Business, I had the good fortunate of studying transaction cost economics (TCE) with the master: Oliver Williamson. He was a wonderful advisor, and although I had already read many of his essays, he guided my more extended readings and helped me gain a better understanding of the fundamental concepts of TCE. I started several ideas with him and finally settled on writing a paper that gave a transaction cost economics account of the bullwhip effect in supply chains. It was a fascinating exercise and learning experience. (Earlier on this weblog, I have written a brief account of the bullwhip effect, investigating it as a consequence of technological specialization and within the context of North's theories on the structual evolution of economic institutions.)

There was one book whose reading Williamson highly recommended to me: The Functions of the Executive by Chester Barnard. That book was first published in December of 1938. I have a copy of its 2002, 39th printing in my hands.

I've written about Chester Barnard and Oliver Williamson earlier, including a brief mention in a piece on Douglass North.

Today and possibly tomorrow, I'm going to extract a short summary of the first part of Barnard's book on The Functions of the Executive.

I think the material is important to anyone who works within a cooperative system, a business organization or any other kind of association.