Sunday, April 09, 2006

Big corporations function as socialist style command economies

This is my first ever economics blog, so please bear with me. I'm a small-time economics fan - have read some Hayek, read the latest popular economics books like Freakonomics, and read the Wall Street Journal every day. I'm a big believer in the free-market.

I'm currently work at a large online travel company, in a data services group. We do all kinds of stuff with data - purge, merge, consolidate, cleanse, report, etc., for the whole company. Recently there was a big reorganization. And because management felt that there were a lot of uncoordinated projects going on, there was a big effort made to gather all the project plans in one place, and prioritize them.

It was the master plan. And it struck me - this master plan is similar in one very important way to the old socialist style economic planning. There's no prices to determine what's actually important to people! Different groups in the company can't say, "It's worth $10,000 to me to have this new report ready by next week". Instead, they have to pressure management, and be a squeaky wheel to get what they want. If there were actual dollar amounts attached to the different requests, it would be much clearer what's actually valuable to people.

Of course, pricing is not as meaningful without competition. As in, "My group can create this report for you for $5,000 instead of $10,000". That would be interesting, to have multiple data (or other) groups in a company, all competing to provide services of one kind or another within the same company. It certainly wouldn't be a corporation as we currently understand the term.

It's not too likely that this kind of company will come in the near future. But I think that experimenting with some elements of a free market economy (meaningful prices, competition) inside the corporation could shake things up a bit, and introduce some of the efficiencies of a free market into the inner workings of large corporations.

2 Comments:

Blogger Roger Weber said...

One large Seattle area birck and mortar retailer hired a new CEO while I was working there. He attempted to implement exactly this practice. Sadly, he didn't last long.

9:10 AM  
Blogger Sylvia Moestl Vasilik said...

Thanks for my first comment, Roger! I'd be very interested in details.

4:47 PM  

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