26 October 2013

The Fourth Economy and the Transformation of Business - Individual Autonomy and Freedom of Work

Centuries ago, the West realized that the medieval church and pope might not be the true representatives of God. This century, the West will come to a similar realization about corporations and CEOs as true representatives of markets.

Markets are a beautiful thing for many reasons. In a market economy, a person can't just follow his bliss. In order to eat, he has to show at least a passing interest in your bliss as well. Markets are far from perfect but they do direct attention outwards, away from one's belly button and out into the greater good.

Corporations are only approximations of markets. That is inevitable. It takes a lot to coordinate the activities of a corporation and there is simply no way that all its effort will be translated into market value. Not every product will become a blockbuster. There are times when a company will simply misfire and that will never change.

The more interesting criticism is that corporations themselves tend to be controlled by the visible hand of management rather than the invisible hand of markets. An employee's pay is determined by HR definitions and management review for instance.

It is possible to rely on market forces and allow employees to bid for tasks that would create more or less value. Tasks that feed into a new product launch could represent a percentage of future profits, for instance, giving employees incentive to bid higher (e.g., accept lower wages now in return for percentage returns later) on more promising projects. Such market mechanisms would not only allow employees to make more money but would give corporations important feedback on the perceived viability of their projects in the eyes of their own experts. This is just one of the ways that corporations could rely more on markets and less on control, but it would mean granting employees more autonomy, more choice about where to focus their attention.

We still have Catholics centuries after the Protestant Revolution. We will likely have some measure of the command and control corporation for generations. But the Catholic Church today is radically different from the Catholic Church of the 15th century. Even traditional corporations will be changed by the business revolution that's underway.

What the West did in religion, politics, and finance since the Dark Ages is grant increasing autonomy to the individual. Individuals are free to buy what they want with a loan, from a large boat they will use only once or twice to a small home they will live in every day. The American Dream offers access to credit and investment markets even for ordinary people; last century, finance was transformed. In the West, the individual is free to worship L. Ron Hubbard on Mondays or Peyton Manning on Sundays. No religious elite can dictate proper worship to the common man. And, of course, even the political elite have to win the approval of the common person in order to govern. The most defining thing about the West is autonomy for the ordinary person. In business, though, employees still get told what to do.

In keeping with this increase in autonomy, business and the corporation will be changed in our lifetimes as much as the church and religion, the nation-state and politics, and the bank and finance were changed in previous centuries. Just as the individual is now directed by personal revelation rather than religious elites, the individual will increasingly be directed by personal market perceptions and choice rather than corporate executives. It could be fascinating.

Increased autonomy isn't just the proper measure of economic progress. It matters because of another parallel between God and markets. Just as the medieval God benignly neglected a great deal of suffering, so do modern markets. Individual action - not the invisible hands of God or markets - is the tool through which change is so often made. We can blame it on impersonal forces as varied as God, markets, or genetics but it is, ultimately, how we act that determines what world we live in.

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