01 November 2011

Scales of organization

InformationWeek: The BrainYard | Venkatesh Rao | Social Wars: A New Hope

It's surprising how few people recognize the irony that the hearts of capitalism are governed by Soviet-style five-year-plan thinking.
That's not ironic at all. More people should realize it, but it's not ironic, or contradictory, or hypocritical, or any of the other common complaints that typically follow this observation.

Markets are a great system for managing the interactions between modular components. The optimal organization for one of those modules is not optimal for the system as a whole. There are differing transactions costs... blah blah... Coase... yadda yadda... efficiency... and so forth. You can figure this bit out yourself if you don't already know it; I don't have time.

Firms are certainly more authoritarian than the capitalist system at large. Fine. The authoritarian organization of the firm has very high variance. Sometimes they make the correct decision and sometimes they don't.  And markets use that to their advantage. That's part of the genius of markets. Successful firms are harnessed and promoted, while unsuccessful ones are suppressed and die.  This smooths out overall performance and balance exploitation and exploration.*

It's no different than many other complex dynamical system. The method of organizing a brain is completely different than the method of operating a single neuron. The system of genetic evolution is completely different than the way individual organisms operate. There's no contradiction there.

I'll add that the reasons it helps to organize individual neurons or organisms using a complex dynamical system overlaps considerably with the reasons you want to use a complex dynamical system to organize firms. But that's a whole essay topic, so I'll leave it for you to think about.

* No, "exploitation" has nothing to do with sweatshops.  I mean it in the technical sense.**

** I want a way to specify that typographically.  Some sort of mark or phrase (like sic) that could be used to mean "the preceding is meant in a narrow, possibly technical sense rather than the common or colloquial usage as you might assume."

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