Monday, May 28, 2012

Organizational change and trust

Back to our discussion of Brink Lindey' book, The Age of Abundance.

One point which Lindsey puts across very clearly is how the success of capitalism depended on institutional innovations. Many of the features which seem so dominant and inescapable and natural in our lives today are not, in fact, very old or deep-rooted. Imagine a world without corporations, for example.

Industrialization was as much an organizational as a technological revolution, and at the center of the action was the development of the large-scale business enterprise. Prior to 1850, it didn’t really exist. Nicholas Biddle ran the Second Bank of the United States during the 1820s and 1830s with only two assistants. Around the same time, John Jacob Astor, the richest man in America, employed just a handful of clerks to manage his American Fur Company.
That soon changed, as huge amounts of capital were devoted to large scale enterprises like railways or steel mills. The corporation became one of the central institutions of sociery.

But it was not simply a matter of organizations. It was a mater of cultural norms which encouraged trust. In many ways, a reputation for sober, church-going virtue and commited work ethic was essential to elicit cooperation.


Decline of Trust

Cooperation was essential to wealth and affluence.

The stupendous levels of wealth enjoyed today require the ability to pursue large-scale as well as long-term projects. We depend, in other words, on the cooperation if not the kindness of strangers—anonymous millions who somehow trust each other enough to do business together, and even to put their lives in each other’s hands. The Protestant bourgeois ethos greatly facilitated the emergence of such large-scale trust by providing a new and abstract form of unity founded on a shared faith and lifestyle. In their worship, dress, and manners, the members of America’s Protestant establishment ostentatiously advertised their “respectability,” and thus their trustworthiness in business dealings.
But the countercultural trends that developed in the sixties put some of this in doubt.

The continued commitment to the work ethic was also tinged with doubts. With the ebbing of religious zeal, worldly success no longer signaled proof of divine favor. And with the ebbing of scarcity, the once-obvious prudence of hard work and incessant accumulation was no longer unquestionable. Middle-class Americans sensed, if only dimly, that they were now in the realm of freedom—that continued participation in the extended division of labor was a choice, not a necessity.

Americans were steadily less willing to put up with deferral of pleasure, self-restraint or patience.

Now, rather than serving as a balm, affluence acted as instigator and rabble-rouser. The ethos of self-realization, unleashed by prosperity and empowered by the technologies and trust networks of the mass-consumption economy, would follow its own ineluctable logic—and the prudence and self-restraint born of the Depression and war years would soon be swept away.

Society became more socially liberal.

Now that the mass pursuit of happiness had begun in earnest, Americans grew increasingly restive in the face of any obstacle or constraint, no matter how deeply rooted or time-honored. In the logic of affluence, once physical necessity receded, the confinements of conventional necessity—the dictates of custom and established authority—began to crack and crumble.


Other people are the challenge

This also meant that for the first time the main obstacle to progress was not indiferent nature, with its storms and famines and floods - but lack of social cooperation with others.

According to Riesman, the rise of the other-directed ethos was a product of growing affluence. “Increasingly,” he wrote, “other people are the problem, not the material environment.” As a result, the pugnacity and intolerance of the old Protestant bourgeoisie had become outdated and dysfunctional. In the kinder, gentler world of the office place and suburban block party, a more genial, tolerant, relativistic frame of mind was needed. “The other-directed person must be able to receive signals from far and near; the sources are many, the changes rapid.


This recalls a point we saw Douglass North stressing in his book about understanding economic change. According to North:

The contrast between the institutions and beliefs geared to confronting the uncertainties of the physical environment and those constructed to confront the human environment is the key to understanding the process of change.

Problems posed by the transition of a belief system from one constructed to deal with the physical environment to one constructed to confront the complex problems of the human environment are at the core of the problems of economic development. There is nothing automatic about such a transition being successful.

The approach of the sixties radicals did not deal successfully with the human environment. It reinforces the core of what North says:

The ideal economic model comprises a set of economic institutions that provide incentives for individuals and organizations to engage in productive activity.
The Aquarians did not do that. Our challenge as a society is to adapt to change with new institutions that do. Some of our most familiar institutions, such as corporations, the labor market, and money income, may need to evolve and adapt a bit.


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