INSTITUTIONAL INTERACTION OF ORGANIZATIONAL AND MARKET STRUCTURES
As a result of mastering the material in Chapter 2, the student must:
• rules of organization and market as socio-economic institutions;
• types of transaction costs;
• the classification of hybrid organizational and market structures in modern society;
be able to
• Identify the organizational and market characteristics of real social phenomena;
• determine the adequacy of the use of organizational and market mechanisms to achieve specific goals of social and economic development;
• the skills of institutional analysis of the social environment;
• a system of concepts of the neoinstitutional theory of organization.
Basic Organization and Market Differences
From the standpoint of the institutional approach, the behavior of people in society can be based on different systems of rules. Many directions of modern social thought connected with the definition of structural features of such phenomena as centralization and decentralization, capitalism and socialism, hierarchy and network, help to distinguish two basic configurations of rules of behavior. These rules for people who apply them, set the basis for possible scenarios of behavior, life values and social preferences. What are the characteristics characteristic of the organization as a set of rules, i.e. social institution? If you go from the opposite, first you should highlight the distinctive features of the market as a system-forming institution of modern society, the opposite organization.
First, for the market is characteristic recognition of the equality of all elements that make up the socio-economic system . Let this equality is no more than a legal formality , but from the point of view of the market all are equal: small and large firms, decent people and swindlers, separate individuals and huge corporations. All of them are economic agents. Between the economic agents, complex contractual relations are built, the nature of which implies a bilateral agreement, and not an order going from the top down. A person who comes to work and is still in the market space is equal to the organization. In this context, it is not clear who hires whom - the organization of the employee to perform certain functions, or the employee organization ("I can twist the nuts - hire someone to bring them, take them away, count, sell"). The inequality of the candidate shaking before the interview and the representative of the company, before whose eyes dozens or even hundreds of such people are going, obviously, but from the point of view of the market, there is no market consciousness of this inequality. Man as a subject of activity is equal to an organization and can demand for himself something special, some privileges and conveniences, can bargain for more profitable conditions, until he enters the organization with its hierarchy, strict distribution of power and predominantly one-sided ties.
Here comes a very important question about why a person in some cases part with his rights and gets inside the hierarchical structure. The answer to it as a whole is similar to the philosophical reasoning about the "burden of freedom". Equality of the subjects of activity in the market implies their freedom and, at the same time, responsibility for their actions. For one of the classics of H. Simon's organization theory, hiring a person in an organization means transferring authority in decision-making to one subject by another because of the difference in their position in the institutional environment. The hired refuse all or part of the right to make decisions and transfer it to employers more prone to risk, and in return receive a guarantee of a relatively stable income, i.e. salary. Thus, the rejection of life within the framework of the institution of the market is compensated in a certain way. Getting into unequal conditions and taking his position in the hierarchy, a person deliberately restricts his freedom, thereby avoiding its negative consequences.
The idea of equality of economic agents, which is realized in the contractual nature of all interactions in the market space, implies the necessity of constant negotiation, finding compromises, "bargaining" certain advantages. If you can not bargain with a boss, then with a business counterpart - not only you can, but you must.
Traditionalists in the idea of equality saw the main and most pernicious attribute of a social system based on market principles. However, in their arguments they proceeded from the existence of some people's higher knowledge, their involvement in absolute truth, comprehended by irrational (often isoteric) way. If this assumption is dropped, the market justifies its existence by the fact that none of its participants in absolute truth knows and therefore has no right to control other people. The market itself in this sense appears as an eternal mechanism of movement towards truth.
The second distinguishing feature of the market is the determining value of monetary estimates . If all elements of the system are equal, a universal equivalent is necessary, on the basis of which their activities can be compared. How to compare the work of a mason and a doctor, a foreign tour and a set of office furniture? All these and many other market entities can be compared only on the basis of their price. If one doctor takes twice as much for services, apparently, the quality of his work is better. This statement is an unshakable guide for consumers and investors. In the event that such comparisons reflect the truth, behavior and investors with their question, "Where to invest money?", And consumers interested in "What to pay for?", They receive a rational basis. In this situation, the market starts to work automatically, coordinating the creative will of a multitude of stakeholders and without the need for strong mechanisms that can correct it.
At the time of inflation, such guidelines are being destroyed. That is why the monetarists, who can be best described as apologists for the market as a socio-economic institution, primarily focused their criticism on inflation as the most destructive phenomenon for a market mechanism. In conditions of high inflation, the market loses its ability to self-regulate, as subjects of market relations lose their coordinates for their reasonable behavior. For example, the fact that one bulb costs three rubles and the other costs five rubles, ceases to mean that one is better and the other is worse. Maybe the difference in price says only that one is produced two months later than the other. When comparing products of different industries, where inflation is at different rates, the possibility of competent estimates is also reduced to a minimum.
Prices set the direction of market development, while the price mechanism is often in conflict with the first and basic principle of the market - the equality of all actors. But inequality is unstable. Each of the subjects has a chance to fall or rise. In this sense, they remain equal. The adaptation of the economic system is always conditioned by unexpected changes; the sense of using the price mechanism is to inform individuals about the increase or fall in demand for what they are doing or can do, for some reason beyond their control. Adaptation of the entire structure of production activity to changed circumstances is based on the fact that the reward received for different types of activity changes irrespective of the merits or shortcomings of those who are affected by these changes.
Thus, monetary estimates become the basis of the market as a socio-economic institution. In addition, often inadequate, inaccurate and incomplete monetary estimates are regarded as harmless least evil.
The third defining element of the market is freedom and competition . Equal rights and opportunities of market system elements have complete freedom in proving which one is better and which worse. To subjects of market relations nobody has the right to specify how to act. In an equal battle they defend their viability.
In the market conditions, competition is a life-affirming mechanism that promotes progress and rational behavior of the subjects making up the economy. At the same time, one should pay attention to the fact that competition creates a system of negative incentives - "you will not turn around - perish". Like any system with negative incentives, competition has its shortcomings, manifested more or less clearly depending on the characteristics of the institutional environment.
As is well known, in the theory of management the emphasis on negative incentives in the process of managing people's work leads to the fact that people are only interested in avoiding punishment, while the goals of their organization are not at all interested. As a result, they choose the deviant way of behavior, which seems to them the most convenient and economical (forge reporting, strengthen informal ties, do poor work, but on time, etc.).
Approximately the same thing happens with the subjects of market activity, who are afraid to suffer from competition. Competition creates envy. Envy is a powerful stimulus for optimizing economic behavior. And in the West, people are not only not afraid of this phenomenon, they are often consciously stimulating it. If your neighbor has built a three-story house, and you envy him, you will work harder, work better and save money for the same house. But it is clear that a much simpler (and rational?) Way out of the situation is the situation in which you, without a long time thinking and working hard, set the neighbor's house on fire. The work is less, no envy, and the psychological balance in the soul is restored.
One of the main reasons for the hostility to competition is undoubtedly that competition not only shows how to produce things more efficiently, but also puts those whose income depends on the market, on the choice: either to imitate the successes that have been achieved, or partially or completely lose their income. Thus, competition creates something like impersonal coercion, like instructions or commands from above, which forces many individuals to rebuild their way of life.
The competition has many faces. It is competition, as nothing else, that gives the market an irrational character that is irreducible to any logical model. In this context, it makes sense to recall and summarize a number of ideas expressed in due time by the German sociologist L. von Wiese and subsequently developed by F. Hayek. Along with rational scientific knowledge, competition is a specific irrational mechanism for studying reality and seeking new opportunities for human development. Without competition, many facts would remain unknown to anyone, at least not used.
Owing to the above circumstances, for all its clarity and transparency, as well as the ability to self-development, the market mechanism is not always capable of leading to the best socio-economic results. In these cases, the organization that starts in its own way to coordinate various areas of business activity comes to the fore.
The organization as an economic institution has signs that are directly opposite the market.
First, it is the inequality of the elements making up the system, the mandatory hierarchy . Even in the most modern "flat" organizations with horizontal low-level structures always have bosses and subordinates. The rights of the former are always greater than the rights of the latter. Chiefs have an indisputable right to give orders to subordinates, and those in turn are required to carry out these orders. They must fulfill them not on the basis of a contract, not bargaining for themselves the best conditions in each particular case, but simply because they are subordinates, and the meaning of their existence in the organization is the fulfillment of orders.Orientation to the hierarchy, to the fundamental inequality of people in society, led supporters of traditionalism and a new right ideology to justify Nazi ideas (one nation by nature higher than another) and justify authoritarian orders (inequality of strata and population groups in relation to the sovereign, which was typical for the Middle Ages). Why create a system with the declared equality of all elements when we live in a world where people are far from equal: are smart and stupid, moral and immoral, strong and weak?
So, no organization can be imagined without a vertical power. In any firm, persons who are entitled to decision-making, usually senior management, collectively have broad powers that enable them to legitimately give orders for the conduct of the affairs of the firm that they deem appropriate and require them to be executed. "
The hierarchy creates an intelligible space for a person, where it is clear where to move and what to do for this. The hierarchy of statuses corresponds to the hierarchy of goals. The highest goal in the organization is pursued by top management, and often by one of its creators and leaders. People who occupy the lowest positions in the hierarchy in a traditional organization may not be included in the global goal at all, but they are faced with those goals that would correspond and not violate the basic goal of the whole organization. For this, a system of appropriate incentives is created. A person comes to a firm to earn money, but at the same time achieves useful goals for leadership. A soldier in battle may have as his main goal to see the preservation of his life, but the command in every possible way directs him to achieve victory over the enemy. The hierarchy in this plan is gradually tightens rights. Approaching the summit, it is simultaneously approaching the organizational goal. But only senior managers have the right to think about the nature of the goal as such.
The subordinates serve as hands, feet, ears, and, to some extent, the brains of the leader. He, giving orders, forms a special organizational space, fundamentally different from the marketplace, where each pursues his goals, these goals are not connected in any way, and the overall goal of the development of the whole system simply does not exist.
It should be noted that the activity of the organization is always cheaper than the activity of the market. You do not need to sign contracts, you do not need to negotiate, you do not need to choose executors, have special bodies to monitor the performance of contracts, etc. The theory of transaction costs, originating from O. Wilmson, points to the fundamental economic effectiveness of the organization in a variety of situations.
The second aspect of the organization is the priority of non-monetary estimates over monetary . The manager of the workshop evaluates the gross production, the discipline of workers, the speed of execution of tasks, the quality of products, and not only and even not so much for the money that the shop brought to the enterprise as a whole. R. Coase very accurately in his time characterized the situation: "I can, I believe, consider the distinguishing feature of the firm the replacement of the mechanism of prices."
The non-monetary estimates are much more complicated, but they are complex and speak much more about the business entity than the profit and loss figures, the cost of production and the profitability of production. In addition, in some cases, when it comes to the so-called "high matter", monetary estimates generally become purely conventional. What does the picture say about its price of $ 100? A year later, it can generally depreciate, and can rise in price by ten times. The same goes for ideas, scientific developments, brands, images, etc. Their price indicates only that they can pay so much today for them. The price does not reflect their essence, on the basis of price factors one can not judge that one idea is better (or worse) another. Therefore, often non-monetary estimates are required, which are able to predict the end of an event to a much greater extent than monetary ones.
The phenomenon of non-monetary estimates is easily illustrated by the example of strategic planning used by a variety of organizations. Over the past decades, many non-monetary tools for assessing the position of the firm on the market and its internal features have been created (M. Porter's models, the Boston Consulting Group and many others in this series), since it is impossible to develop a clear roadmap to the goal based on accounting information only. In this regard, the organization as an instrument for achieving the goal is simply forced to operate with multiple scales and types of measurements. Management of an organization can be much more expensive than managing a purely market system, where it is enough simply to maintain an adequate price structure, to prevent inflation, etc.
Finally, the third distinctive feature of the organization is the need to restrict competition, focus on cooperation . As shown above, competition can be very damaging. Therefore, the practice of traditional Japanese management focuses on preventing even the most seemingly innocent and positive competition between employees. For this purpose, equalizing salaries are used, depending on the length of service, the confidential nature of assessments of work activity, the collegiality of all basic managerial decisions, in which no one can "privatize" their results and thus cause envy among others. In the Japanese mentality, it is considered immoral to oppose one person to another, comparing them. It is no coincidence that Japan, developing market relations on formally Western principles, is often called "Japan Inc.", i.e. corporation Japan. Even with a good reason, we can talk about the "Soviet Union Inc.", because the planned economy really built the economic system, not by market principles, but by organizational principles, likening the entire country to a giant corporation in which all enterprises were nothing more than shops.
Orientation to cooperation in many ways provides a synergistic effect. Adding the efforts of many people to achieve the same goal always leads to the discovery of new numerous opportunities for choosing the most successful path. The organization is capable of generating additional energy by itself, as competition creates it. But unlike the latter, organizational energy runs out when the goal is achieved. The energy of competition is impermanent. The synergistic effect in an organization can be of a multiple nature, from absolutely rational to related to myth-making. The first simple kind of synergy should be attributed to the usual division of labor, which allows to fully reveal the additional effects of specialization and coordination of efforts. More complex effects arise at the level of corporate culture. In essence, they are similar to the spirit of victory in the army or sports team, when there is a general rush, causing multiple additional efforts, and sometimes sacrifice.
But the cooperative nature of the organization as an institution has its own basic flaw - vulnerability, because the organization always depends on the center. Bertin pyramid not only determines the direction of development of the organization, but also coordinates the activities of its constituent elements. That is why these elements are not so full and independent, as it is typical for the market space. Orientation of all elements to the execution of the will of the center inevitably leads to the fact that they themselves can not function optimally without an external force guide. Vulnerability in this plan means that the destruction of the top of the organizational system leads to its inevitable disintegration. What gives the organization the opportunity to coordinate and quickly implement large projects, at the same time serves as its "Achilles" fifth. The principle of synergy and cooperation, fully realized within the organization as an institution, implies a high degree of risk of the entire social system created by the principle of organization.
Market structures in this sense are much more stable. The most well-known artificially created network environment - the Internet - was originally conceived by American scientists as some invulnerable information shell capable of withstanding a nuclear strike or any other cataclysm affecting a significant part of the entire system. Immediate impetus to the creation of a global computer network was the launch in the USSR in 1957 of the first artificial Earth satellite. In the cold war, the US Department of Defense set the American science the task of creating a communication structure that could work after a nuclear attack, when most communications will be destroyed. The main ideas were clear: we need to create a communication system that does not have one main center. That is, to build not a communication organization, but some kind of market, and build so that data arrays are transferred from node to node without the participation of the center or the top of the hierarchy.
The Internet does not focus on the center, it does not have a hierarchy, it does not imply synergy from a clear coordination of common efforts. At the same time, the destruction of several servers and part of the network itself does not inflict a fatal blow to the Internet.
This feature of the market as an institution makes its self-development a natural process. The market is indestructible, like life itself. The organization is as easy to destroy as any artificial creation. If some social system or sphere of human activity reaches its market quality, it begins to assume its eternal or at least long existence. Therefore, the market can be considered as the most important institution of development stabilization. This stabilization is primarily connected with the dropping into the system of random processes that are not subject to the center and phenomena. It is humility before the inevitability of chance, the habit of coexisting with stochastic processes (processes that can be very painful because of its unpredictability) distinguish the conscious choice by the subjects of the economic activity of the market as a set of rules for their behavior.
The unpredictability and randomness enclosed within the social system, the unpredictability and chance that no one encroaches on, in order to "reason" their logic and rationality, make the market an institution that determines the possibility of self-development of the system, and in this sense significantly limit the organization.
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