Sunday, February 27, 2011

Are Bosses Always Right?

Disagreements over the role of unions usually come down to this: do you believe that managers normally make the right decisions over how to run organizations? If you do, then “union rules” just get in the way, and unions need to be weakened or eliminated in order to increase efficiency, as supporters of Scott Walker (and his predecessor in Indiana) argue. If you think bosses can be wrong, or capricious or self-serving, you support unions as a way to reduce power differences and compel more dialog. The debate over the Wisconsin drive to eviscerate public sector unions is really about whether you think a world in which some give orders and others simply obey is the ideal.

Where does economics come down on this? There are nice models of information flows within organizations that support dispersion of power, but they are somewhat exotic and not what gets pulled off the shelf when economists reach for a simple representation of organizational dynamics. Instead, we have crude principle-agent models of the employment relationship in which bosses always seek greater efficiency and have to fine tune the carrots and sticks of employment contracts so that workers will go along. Williamsonesque transaction cost theory is built on the same assumptions: managers must defeat workers’ opportunism, just as shareholders must subdue the opportunism of managers. Does this bias follow from the deeper assumption of individual self-interest? I think not: manager opportunism could just as readily be directed down the ladder as up. Rather, what we see is an unspoken class bias, an expression of the same instincts that lead to identifying with order-givers rather than order-takers—the belief that hierarchy is a reflection of differences in competence and social commitment and not just an organizational form.

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