Archive for the ‘self-interest’ Category

What economic incentive is there to form decentralized organizations?

August 20, 2007

Adam Smith wrote a seminal book in 1776 called The Wealth of Nations. It is a classic, laying the foundations for most of today’s economic ideas. Smith’s ideas are deeply ingrained into western societies.

Division of labor is central to Smith’s thesis. Division of labor leads to high productivity. By focusing one’s efforts on a single task, one develops a talent for that task and become very productive. The greater the productivity, the greater one’s wealth.

Division of labor is consistent with one’s self-interest.

Conversely, when a person attempts to perform many tasks he masters none, is inefficient, has low productivity, and is unable to attain wealth. This is not consistent with one’s self-interest.

Division of labor results in a society that does lots of trading (if a person produces only one thing, he must trade for the other things he desires or needs). This creates a highly interconnected, interdependent society.

Today there is much excitement about decentralization. In a decentralized organization there is no one in charge, everyone is independent.

“Units of a decentralized organization are by definition completely autonomous … In decentralized organizations, anyone can do anything … Any and every activity is within anyone’s job description.” [1]

In a decentralized organization each person is not focused on a single task; rather, each person is a jack-of-all-trades. Smith would argue that this leads to low productivity, which leads to low wealth, which is not consistent with one’s self-interest.

So I wonder: what economic incentive is there to form decentralized organizations?

[1] The Starfish and the Spider by Ori Brafman and Rod A. Beckstrom

What distinguishes a society from just a bunch of people living together?

August 4, 2007

Answer: Cooperation

It is cooperation that distinguishes a society from just a bunch of people living together.

What is cooperation?

Cooperation is contributing to the common good (sometimes at the expense of one’s own self-interest).

For example, when you volunteer to take an “action item” at a meeting you are doing so not in your own self-interest, but rather in the interest of the group.  You are cooperating.

Contributing to a charity is another example of cooperating.  It doesn’t benefit you, but it benefits society as a whole.

Cooperation, on both a small and large scale permeates any healthy society.  It is what distinguishes a society from just a bunch of people living together.

— The above is a summary of a portion of The Wisdom of Crowds by James Surowiecki

Misunderstanding “self-interest”

July 7, 2007

Narrow preoccupation with the economic market has led to a narrow interpretation of self-interest as myopic selfishness, as exclusive concern with immediate material rewards.

That is a great mistake.

Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue.  The scientist seeking to advance the frontiers of his discipline, the missionary seeking to convert infidels to the true faith, the philanthropist seeking to bring comfort to the needy — all are pursuing their interests, as they see them, as they judge them by their own values.

— Free to Choose by Milton Friedman