One of the things that I find interesting is the popularity of Steve Jobs and apple with Hayekians and Austrians in general.
Apple was principally the complete opposite of the decentralized local-knowledge driven catallaxy that Austrian’s trumpet. It was a highly centralized, tightly controlled integrated company that managed every step of the process from design to retailing.
It was complete with an Apple ethos, domination by a Politburo of Inside Designers and a cult of personality surrounding the leader. According, to reports by insiders the Politburo ruled largely by fear and the wrath of the leader was famous.
I don’t know how seriously to take these particular allegations but it has been suggested that the law constrained Apple’s treatment of its employees. That they would have been more harsh and more exacting if they thought they could have gotten away with it.
Even more to the point rather than a constant evolving relationship between consumer and producer Apple seemed to operate on the basis of “Five Year Plans” in which the Politburo decided what the future was going to look like and did what was necessary to bring it into being.
This is exactly what is supposed to not work, yet it worked spectacularly.
I am not saying this refutes anybody’s theories. There are always outliers and the Corporation as a central planning solution embedded in a larger free market has always been a curious question for economists.
Its just interesting and should spur us to ponder deeply about what we really think is going on in an evolving market economy.
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Wednesday ~ October 26th, 2011 at 9:22 am
nemi
Right.
Another fun question is when the owner of e.g. a nature park with a fee to visit and stay transforms from a excellent role model of a man,usually called the” entrepreneur”, to a parasitic “politician”.
Does it depend on the number of goods that the entrepreneur is bundling together in the fee?
Does it depend on the size?
Or does he simply turn parasitic when he allows his customers to decide the fee, which goods that the fee should include, and who that should run the “company”?
(The last one is of course usually the answer – even though the Austrian/libertarian would formulate it differently)
Wednesday ~ October 26th, 2011 at 10:16 am
Johnnie Linn
All firms have hierarchical command structures. They are embedded in a price-driven market. The firm/market boundary is determined at the places where the advantage of hierarchy (speed) is offset by data degradation with higher number of levels in the hierarchy. The disadvantage of the command structure is that subordinates tend to paint an over-rosy picture of their situation to their highers-up because that is what they think their highers-up want to hear.
Steve Jobs might turn out to be the Josip Tito of Apple. A tyrant can keep a system together, but what happens when he is gone?
Wednesday ~ October 26th, 2011 at 1:45 pm
nemi
“All firms have hierarchical command structures. They are embedded in a price-driven market.”
This is true for North Korea as well.
“The firm/market boundary is determined at the places where the advantage of hierarchy (speed) is offset by data degradation with higher number of levels in the hierarchy.”
This does not follow.
Wednesday ~ October 26th, 2011 at 1:57 pm
freemarketanticapitalist
Johnnie Linn: Quite true. But the tendency of state intervention in the market is to artificially shift that boundary line in the direction of larger size and hierarchy, by subsidizing the operating costs of large-scale enterprise or suppressing competition from more efficient ways of doing things.
Wednesday ~ October 26th, 2011 at 10:50 am
Adam Gurri
You’ve read Coase’s Theory of the Firm, right?
Apple can do what it does because it gets crucial information and feedback from the market. A government central planner would not have that.
Never mind the complex, global hardware manufacturing ecosystem that Apple relies on and which emerged independent of any of Apple’s plans.
Wednesday ~ October 26th, 2011 at 1:18 pm
Karl Smith
Right but is that actually how Apple operated or did they create products because the design team thought that”s what the future of personal electronics *should* be like?
In other words, was there really a strong feedback loop.
Wednesday ~ October 26th, 2011 at 3:05 pm
Adam Gurri
In the 90′s the Apple design team had some very specific ideas that were spectacular failures (for instance, the Newton). This is not a case of Apple Wills it So; they are not planning the way the industries moves. They are seeing trends, and putting their own vision on top of those trends. Following Kevin Kelly’s arguments in What Technology Wants, we would have moved towards a touchscreen interface world without Apple, but it probably would have looked different from the way it does now.
Wednesday ~ October 26th, 2011 at 3:34 pm
Kevin Carson
Yep. We’d have probably had touch-screen interface w/o all the AOL throwback stuff — walled gardens, and all the other “Information Superhighway” crap that the Gates/Gore/Gingrich axis were creaming in their pants about 20 years ago.
Not worth it to me, though. Most of what I do on the Web involves writing, so I prefer to carry a phone just for actually talking, and connect to the Web through my trusty old iBook.
Wednesday ~ October 26th, 2011 at 11:50 am
Curt Doolittle
You have to be kidding. Are you serious? It has to be sarcasm.. You have to do be trolling Karl?
The market determines Apple’s success. Consumers determine it. Not by opinion by by ACTION – action expressed as exchange.
Tech companies in general, seem to have a sort of 10 year life span. Most exceptional companies have a 10 year period of exceptionalism followed by a decline. THer are incredibly rare exceptions, but the composition of the top 500 companies that are supported by the absurdly life-extending stock market shows that it’s almost impossible to stay on top for long.
Private companies organize to efficiently (profitably) exploit market opportunities. They then (generally) fail due to over extension of credit, the innovator’s dilemma, and employee/management rent-seeking. One of the most common reasons they fail is due to “bureaucratization and financialization” – the belief that the measurements that they keep (financial) are indicative of the future. And they are not. They are the record of the success and failure of our speculations. They indicate management’s ability to forecast in previous circumstances that may no longer exist.
MARKET GOVERNMENT?
Set up a government where there is a national sales tax that is used to fund government services, where borrowing is not from foreign investors but willingly from citizens (a house), and where the sitting government can be “bankrupt” and therefore outcast, therefore nullifying all contracts and laws issued by that government, and then you would have some semblance of a government that was innovative and focused on GDP, rather than redistribution and debt.
THE AUSTRIAN POSITION:
Socialsim (central planning) cannot work because prices are necessary for economic calculation (individual planning) and because people have no incentives to operate by market means. That’s Mises. Pure and simple. Hayek’s broader view, poorly stated at times, is that over time (from decades to a century) the normative habits people develop, each of which consists of forgone opportunities (opportunity costs endured by individuals), will no longer be ‘paid’ and people will revert to their natural rent seeking behavior, rather than their hard-working behavior.
English political stability was a byproduct of this class structure. What we have seen since the dissolution of that class structured government as a reaction to the “error of socialism and the religion of communism” has been class warfare and the destruction of habitual (Hayekian) values. Those values that were developed over millennia, and were unique to the west: the “zen” of the “balance of power and competition”.
THE SMITH/KRUGMAN/THOMA/DELONG POSITION
Democratic Redistributive Socialism Through Monetary Inflation has no innovative,productive, competitive, cultural (habitual/Hayekian), institutional, political, and therefore long term consequences. OR, that those consequences are either beneficial, or immaterial. THe counter-argument is that human beings are racist, “culture-ist”, ‘religionist”, classist, and nationalist, and effectively tribal.. My proposition is that they are all of these things, because in a large diverse, complex market society they need status signals as badly as they need prices. This problem can only be solved by organizing into small homogenous nation states where individuals in the internal status-economy see the least distortion of their signals, and their signals come at a very low cost – by behavior rather than positional goods, and are therefore they are more charitable to one another, because redistribution reinforces their existing status signals, rather than ‘funds the competing set of status signals’ – which is what creates racism, culturism, etc.
THE PLATONIC POSITION
Plato was wrong: we cannot predict a philosopher king – we cannot build one. We cannot train them. We can only FIND them. And in finding them, we can only find them by evidence of their efforts in the MARKET, or in WAR. Even then, there are very few Steve Jobs’ who can consistently create ideas ahead of consumer demand for them. Doing it once is an accident. Doing it over and over again is genius. Genius is rare. Genius is an outlier.
THE SMITH/KRUGMAN/THOMA/DELONG PLATONISM
Platonism. It is what it is. The market is smarter. Private governments that ‘owned’ the political institutions (parliamentary monarchies), and employed a ‘house’ for each social class, and forced them to work together were superior to egalitarian governments because of the temporal bias and difference in skill and ability of the social classes.
NET
If it is true that prices are necessary for calculation and incentives, then it is also true that status signals are necessary for planning and coordinating human activities. The status economy may in fact take precedence over the monetary economy, since in industrial society, the only substantive difference between social classes is the portfolio of positional goods.
THE MMT POSSIBILITY
MMT is counter-austrian, however, it may provide a portion of the answer as long as, at the very minimum, a lower house comprised of all citizens must approve all borrowing (printing), and an upper house comprised of all market-property-owners (businesses) approve all taxes, and where there are no ‘defined benefits’, and all laws automatically sunset.
You can get away with a lot of distortion of the information systems in the short term. But in the long term human beings are what they are. Natural law eventually prevails.
Wednesday ~ October 26th, 2011 at 1:16 pm
Karl Smith
Not Sarcasm, I am just thinking out loud here about the fact that you had an extremely dictatorial mini-system that in practice vastly out-performed a more diffuse collection of competitors.
I tried to be clear that it was “interesting” not definitive about anything.
Wednesday ~ October 26th, 2011 at 12:13 pm
Wonks Anonymous
Timothy B. Lee already made the analogy before:
http://www.forbes.com/sites/timothylee/2011/08/01/why-google-is-winning-the-smartphone-wars/
Which Hayekians are huge fans of Apple? I know some of them said nice things about Jobs after he died as an example of an entrepreneur who created things rather than the political/military heroes traditionally celebrated, but I’m not aware of much other than that.
Wednesday ~ October 26th, 2011 at 3:41 pm
What Does Steve Jobs Show Us About Central Planning, Democracy, and Occupy Wall Street? // Eli Dourado
[...] Smith playfully suggests that it is ironic that Steve Jobs has so many fans among Austrian economists: Apple was principally [...]
Wednesday ~ October 26th, 2011 at 3:42 pm
roystgnr
Survivorship bias is why central planning seems to work so much better among free market participants: the businesses who do it well end up being prominent parts of the market; the businesses who start doing it poorly end up being wiped out and replaced by the ones who did it well. This process almost never applies to governments, and when it does it’s much bloodier.
Wednesday ~ October 26th, 2011 at 4:32 pm
freemarketanticapitalist
As I recall Jeffrey Friedman made a similar argument: that the main Hayekian information function was not rooted in the behavior of individuals but in the sorting function of a competitive market.
I’d throw in the caveat that the sorting function and survivorship we have now do *not* reflect a free market mechanism, but are rather an artificial ecosystem in which the selective pressures are determined by state policy in colllusion with the big corporate players.
Wednesday ~ October 26th, 2011 at 5:47 pm
Tel
Karl, you seem to believe that Apple operated in a vacuum. I’ll first point out that Apple has never been the primary player in the computing market — not at any level. They have always been a niche company trying to pull customers away from other products.
I can remember what computing was like in the 80′s and there were a lot of brands on the market — Xerox, Sun, Amiga, Atari, Clive Sinclair, Acorn, and of course Apple, and IBM, and the IBM clones, and no doubt others. The diversity in the computing market was stripped away by the basic problem of compatibility — everyone buys what their neighbour buys, because they want to be able to exchange software, parts, data files, etc with their neighbour. The IBM / intel / Microsoft combo won that battle hands down because they got the big businesses to standardize on the PC platform.
Apple tried lots of niche ideas that failed, remember the e-Mate?
The real question is why Apple survived at all in this market, when pretty much nothing else did. Apple almost collapsed but Microsoft was facing the threat of an anti-trust breakup (I think this was late 90′s can’t be bothered looking up the details) and Microsoft pumped money into Apple to keep them alive. Around that time Linux and BSD were just starting to appear as competitors for MS but early days for these platforms (although BSD itself is much older, for various reasons it was not widely available). Microsoft needed to pretend there was competition in the market so they kept a harmless competitor alive on life support while the heat was on.
Then along came iPod. The iPod was what saved Apple, and it wasn’t even a computing device. Anyhow, the iPod was really just a copy of the Creative Labs “Zen”, but iPod had a killer feature — the iStore. You could buy songs at a low price online, one song at a time. This was retail innovation, not computing innovation. Of course, the iPhone primarily exists to facilitate the iPhone Apps store which is exactly the same idea… and it’s been a very successful approach to retail. Lots of other people are trying to copy this now (e.g. Valve Corporation and “Steam”).
Wednesday ~ October 26th, 2011 at 5:58 pm
Evolution and the Firm « Modeled Behavior
[...] response to my Apple and Central Planning post Eli Dourado writes Armen Alchian takes this further in his 1950 article, Uncertainty, [...]
Thursday ~ October 27th, 2011 at 8:38 am
Ricky
Apple had no committees under Steve Jobs’ tenure. None. Jobs fairly recently described Apple as the world’s biggest startup. Apple is a pretty flat company, and Jobs believed in small teams. Engineers/designers were given the freedom to explore. It operates in a more bottom-up fashion than is commonly reported, and risk-taking and failure is encouraged. There is lots of failure inside Apple. For every iGadget that makes it to the Apple Store, dozens of others do not. And each iGadget that makes it has been through a Darwinian process to get there. Further, witness Jony Ive’s description of Job’s careful treatment of fragile ideas and his ability to listen intently: http://www.businessinsider.com/jony-ive-steve-jobs-2011-10
One can also point to Apple’s acquisition strategy. For a company so focussed on consistency of design, Apple is remarkable in that it did not suffer from the “not invented here” syndrome. Also, how much of an Apple device’s components are actually made by Apple, and how much of the manufacturing process is actually performed directly by Apple?
I have no trouble seeing why Apple is popular with Hayekians.
Friday ~ October 28th, 2011 at 1:05 am
J Cortez
I can’t say I know for certain, but I’m not sure Apple is as centralized as you say. But I have to admit my ignorance. But still, your post is not correct in regards to what central plan means.
Centrally planned, as classical liberal minded economists (like Hayek, Mises, Friedman, etc) referred to it, meant state control and state planning. Obviously, you know this. But the point your trying to make doesn’t follow. A business like Apple is completely different in the context your trying to use it.
In a free market, businesses are limited by their bank accounts, credit lines, physical property, capital (human and otherwise,) and most importantly, their ability to attract customers. The world is unequal and no one has enough stuff. This is a good thing because it facilitates exchange, which helps determine prices. The price system makes cost accounting possible. That all these things exist creates the environment in which there can be a private planner creating
The government central planner can do none of these things because it is completely outside the market. The usual necessity of profitability is either badly defined or doesn’t even exist. Also, the usual limits of money and personnel are more elastic if one knows how to lobby congress. Lastly, access to the price system is impeded because there’s no need for profitability, there is therefore no need to negotiate for better prices. And that’s assuming were talking about a democratic government.
If we’re talking about a communist government, the above arguments are compounded. There’s incentive problems on top of it. In addition, the fact that the government owns everything means there is no real exchange. It would be like your right hand transferring a dollar bill to your left hand. (Can you really call that exchange?) Then there’s the fact that any pricing would be total fantasy. All of these combined leads to the systems that failed miserably and at great human expense.
You should differentiate between private and public. The two operate differently, with different principles. The Austrians aren’t without their issues, but to say that the existence of a central plan in the private context is an argument against the Austrians is to misunderstand what they’re saying.
Mises cover some of this, but Coase has the best explanation in regards to why “planning” in the context of a firm works the way it does.