Sunday, February 23, 2014

The Collapse of Complex Societies

Interesting post from Judge Posner - link.  From the post:

"Competition between organizations is an important control on the divergence (which economists refer to as “agency costs”—the costs created by the fact that the employees of an organization have their own goals that often conflict with those of their employer). But nations do not feel the same competitive pressures as corporations. Even a small, miserable, effectively bankrupt nation like Greece does not disappear, as large corporations not infrequently do, because of its inefficiency. Because corporations are simpler and smaller and also more constrained by competition than nations, we can expect them to be managed more efficiently, and specifically to adopt an organizational structure that minimizes agency costs. So let’s glance at the structure of the typical large corporation and compare it to our federal government structure. There will be a board of directors to exercise a general but loose supervision over the corporation (and in turn subject to very loose control by the shareholders), intervening decisively only in crisis situations or where there is vacancy in the office of the Chief Executive Officer. The CEO will be the dominant figure in the corporation, exercising something close to dictatorial power, assisted by a small personal staff. Often he will overshadow the chairman of the board of directors—he may even double as chairman and CEO. There will be a Chief Operating Officer, exercising day to day management, while the CEO, as the public face of the corporation, will formulate policy, provide overall guidance, inspiration, and “vision,” appoint the major subordinate corporate officials (general counsel, chief information officer, chief financial officer, etc.), and maintain personal relations with important investors, customers, competitors, and regulatory officials. The corporation will have several or many operating divisions, reporting to the COO or CEO, each headed by a vice president or equivalent. The employees in each division will serve at the pleasure of their superiors; no one will have fixed tenure. 
Compare the federal government. The closest to a board of directors is the Congress, but it differs mainly in having a good deal of policy responsibility, and, since it does not appoint and is not appointed by the President (corresponding to a corporate CEO), there is no presumption that its policy preferences will coincide with the President’s. The President’s exercise of his own policymaking powers will often work at cross-purposes with Congress’s exercise of its powers; nor can he appoint senior officials without the concurrence of a division of the Congress, namely the Senate. A further dilution of presidential power results form the existence of an independent federal judiciary, headed by the Supreme Court. Federal judges and Justices have lifetime tenure, can invalidate legislative and executive action both federal and state, and rarely (because of that tenure) will a President be able to appoint a majority of the Supreme Court Justices or other federal judges." 

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