The quality of what is coordinated

We argue a lot over how to manage social coordination. Market or state? Integrated within a large firm, or outsourced and bid?

I think we pay too much attention to how we coordinate, and too little attention to the quality of what is coordinated.

We do pay attention to quality at the most micro level. When the objects of coordination are individuals, we go on about "education" constantly. I don't think education is our problem. We are more and better educated than we ever have been.

But the units that we actually coordinate, when we argue about state and market and the boundaries of firms, are not for the most part individuals. They are meso-level entities — firms or divisions of firms, government offices or non-profit organizations, churches or "social movements" (networked groups of people acting in common purpose).

All of these institutions are eventually composed of individuals, of course. All rabbits are eventually composed of atoms. In theory perhaps you could deduce a rabbit's behavior from a complete understanding of its constitutive atoms. But in practice, to do anything meaningful with rabbits you will have to concede them their rabbithood, and make sense of them at that level. That they are almost entirely oxygen, hydrogen, carbon, and nitrogen will not get you very far. Similarly, you will not make useful sense of social affairs if you restrict your analysis to the characteristics of individual humans.

Our firms and business units, our government offices and nonprofit organizations, our churches and social movements are performing poorly. I don't think the problem is so much that the market isn't working or the state isn't working, or that our mix of coordinating mechanisms is out of kilter. It's that the quality of what we are coordinating is bad.

I hesistate to point this out, for fear I may encourage a new wave of grifters and management consultants to sell fixes. God save us. There is no "treatment" we can subject to random trials that will remedy this, one firm or organization at a time. The problem is systemic. Deployment of ideas so universal and straightforward they can be sold as "rational", "scientific", and "evidenced-based" is what did us in in the first place. We model firms as profit maximizing, so let's rejigger them to really become monomaniacal profit and shareholder-value machines, and mark all other aspirations contesting within these complex organisms as "agency costs" to be eliminated. Corruption is bad, and when we allow human discretion based on anything other than reviewable hard information — "evidence" — it becomes difficult to distinguish wisdom from corruption. So we ban wisdom, and demand every decision be justifiable on the most simplistic and legible grounds.

We desperately require — and we do desperately require! — a society more just across racial, gender, and other identity fault lines. A bit oddly, identity categories are so universally recognized that identity demographics constitutes hard information. So whatever else an organization is up to, concerns about demographic balance crosscut and constrain whatever scope remains for internal discretion. To admit this isn't to say that racial discrimination is okay, any more than it is to say corruption is okay. It is to say that the approach we've taken to addressing these problems — having outside institutions police internal decisionmaking — imposes costs in organization quality. Perhaps there are other approaches that would be more effective with fewer downsides.

As internal quality declines, organizations turn to scale and market power to ensure survival despite their deficiencies. Their dysfunction becomes everybody's problem more than their own.

Our impulse when something is malfunctioning is to subject it to more intensive supervision and control. Often that is a mistake. It renders the thing we are correcting more constrained and more brittle than it otherwise might have been. If in fact the supposed malfunction was adaptive given the circumstances of the thing, and those circumstances remain unchanged, then imposing greater constraint will leave it seeking to malfunction in the same way, just able to do so less effectively. The thing is left crippled, rather than functional.

A better solution is to change the circumstances under which the malfunction was adaptive. High tax rates on corporate payouts and earnings render firms less obsessively profit maximizing. Ecosystems made up of smaller organizations in competition with one another render corrupt decisionmaking less costly to outsiders (by narrowing the scope of its effect), and more costly to the organization itself (as corruption yields competitive disadvantage). Rewarding integration rather than policing and punishing discrimination relieves decision-making within organizations of constraint while incentivizing organizations to deliver a social good that we urgently require.

I have views on grand questions like the balance between market and state. Those arguments turn stale and stereotyped very quickly. Across ideological fault lines, however, perhaps we might find a bit of consensus that we face problems not just in how we coordinate, but in the quality of what is coordinated.

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Update: See also The limits of Death Star thinking by Jennifer Pahlka. (Thank you Steve Roth!)