Tag Archives: theory of the firm

Ask as Ideological Blinder

I started the Asking Project several years ago, out of irritation. The nominative use of the verb “ask” grates on my ears and, in organizations, it presents an illocutionary act of bad faith: an attempt by superiors to disguise orders or commands as requests. There is no negotiating an order issued in this form. You might talk about how you’re going to accomplish the task set for you, but not whether you are going to do it. No bids counter the ask, as they do on the trading floor, and refusal would amount to insubordination. 

In Private Government, Elizabeth Anderson finds the same bad faith gesture — and denial of an unwelcome truth — in the theory of the firm (here, as set out by Alchian and Demsetz in 1972). 

The question the theory is supposed to answer is why production is not handled entirely by market transactions among independent, self-employed people, but rather by authority relations. That is, it is supposed to explain why the hope of pro-market pre-Industrial Revolution egalitarians did not pan out. Alchian and Demsetz cannot bear the full authoritarian implications of recognizing the boundary between the market and the firm, even in a paper devoted to explaining it. So they attempt to extend the metaphor of the market to the internal relations of the firm and pretend that every interaction at work is mediated by negotiation between managers and workers. Yet the whole point of the firm, according to the theory, is to eliminate the costs of markets — of setting internal prices via negotiation over every transaction among workers and between workers and managers. 

Instead of allowing for negotiation, asks and bids, which it (rightly) sees as inefficient, the theory of the firm offers a hierarchy where managers have open-ended authority, or what Anderson sometimes calls “ incompletely specified authority.” Anderson herself muddles things a bit when she introduces this point: 

The key to the superior efficiency of hierarchy is the open-ended authority of managers. It is impossible to specify in advance all of the contingencies that may require an alternation in an initial understanding of what a worker must do. Efficient employment contracts are therefore necessarily incomplete: they do not specify precisely everything a worker might be asked to do. 

The larger point here is that presenting orders as requests — the ask —  is another “ideological blinder,” to use Anderson’s term: it borrows the jargon of the stock trader and market relations to describe (authoritarian) governance relations. Instead of the republican freedom that pre-industrial market advocates envisioned, workers are managed, or governed, as teams: 

The theory of the firm explains why [market relations among equals, or “anarchy”] cannot preserve the productive advantages of large-scale production. Some kind of incompletely specified authority over groups of workers is needed to replace market relations within the firm….in the great contest between individualism and collectivism regarding the mode of production, collectivism won, decisively. Now nearly all production is undertaken by teams of workers using large, indivisible forms of capital equipment held in common. The activities of those teams are governed by managers according to a centralized production plan. This was an outcome of the Industrial Revolution, and equally much embraced by capitalists and socialists. That advocates of capitalism continue to speak as if their preferred system of production upholds “individualism” is simply a symptom of institutional hemiagnosia, the misdeployment of a hopeful preindustrial vision of what market society would deliver as if it described our current reality, which replaces market relations with governance relations across wide domains of production.