Saturday, August 31, 2013

Loyalty, Optimization and Corporate Empires

Peter Turchin's War and Peace and War analyzes patterns of empires in history, extending the work of Gibbon's Roman history and especially the Arab historian Ibn Khaldun, in particular his idea of asabiya, or solidarity. Turchin argues that everyone's recent favorite whipping boy, the rationalist concept of Homo economicus, cannot explain how states can fluorish or fall; that there has to be a social glue which is not simply aggregate self-optimization. This (Khaldun and Tuchin state) is asabiya. In a recent article he argues that this can also explain the decline and fall of corporate empires like Microsoft.

There are some problems with Turchin's very interesting book, and it's interesting to apply asabiya to corporations, but I think it's not needed to explain the free-rider problems of big companies. It's certainly true as Turchin says that small-ish companies, as they are making the transition to larger ones, often has plenty of knaves weaseling their way in. If you've ever been present during this transition you've no doubt seen this first-hand.

The problem here is that you can still explain this in terms of the behavior of Homo economicus. The founders and the few people who come after them understand what is needed for the company's success, act in plain view of all the other (few) employees with the risk of termination and a damaged reputation, and understand that their own behavior has a big impact on that success. That is to say, when even a rational low-asabiya individual comes into a small company, they know that if they free-ride, it will hurt the company badly and soon, and everyone will know it. As the company gets bigger, it gets easier for free-riders to hide, and their free-riding hurts the company less and over a longer-term.

It's also worth asking how there could be asabiya in an organization that just appeared? The closest thing to this is the camaraderie that emerges at small companies (which is not a bad thing) but that camaraderie is less about some abstract idea of the company and more about a social connection between the founding few individuals. And asabiya to the founders in place of the company as a whole can and does end up damaging the quality of decisions and therefore the fortunes of the company as a whole.

No comments: