economic theory

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The Fama Quasi-Nobel: Posthumous Award for EMH?

They’re kidding, right?

Nope. They mean it.

What’s really weird is that he splits the award with Robert Shiller and some guy called Hansen who is an econometrician and thus unintelligible and largely irrelevant to sensible discussion of the economy.

Back to Fama and Shiller: there are a few ways to deal with this.

Take One:

Fama was the guy who created the Efficient Markets Hypothesis (EMH). Looked at strictly this theory tells us that there is nothing an investor can do to outfox the market. This is because all the information that is out there is incorporated in prices. Thus all those ads telling us about past performance and about clever investment strategies are simple hoaxes. The market is what it is, and neither you nor I can outwit it unless by dumb luck.

This interpretation of EMH means it is a still solid, relevant and good piece of work. The problem is that it is built on much of the same quicksand as its companion theories that posit rational behavior. And because it can be reduced to that dictum that “the market is what it is” it has little value to anyone other than obscure finance theorists. It says that incoming news will produce a different result tomorrow, so today’s market price has no implication or meaning for tomorrow’s price.

In a nutshell EMH is another example of the hermetically sealed reality-resistant thinking that dominates modern economics: the only quirks or rotten stuff sit outside the pristine and pure wondrous working of the marketplace. Which is why theorists like Fama are so ideologically hell bent against anything that appears to intrude into their precious markets. Especially governments.

Take Two:

But Shiller has devoted much of his professional career to pointing out that people are a bit less – perhaps a lot less – than rational. At least in the meaning Fama has for rational.

In particular Shiller achieved notoriety for his study of real estate prices and noting the rise of the bubble that so famously burst a few years back.

Bubbles would suggest that markets are somewhat less than rational and are inclined to significant overshooting, undershooting, and other total misinterpretations of information. This is hardly efficient. Indeed a quick look at Shiller’s work seems to imply that he has debunked EMH pretty well. Don’t forget that according to EMH a house priced $100 one day and $1,000,000 the next is entirely within the realm of rational experience. The difference simply reflects different information. Duh.

So the quasi-Nobel prize committee is backing both sides of a very important argument. One that has huge implications for, inter alia, bank regulation. Do we regulate banks because they are likely to get swept away by Shiller-like exuberance? Or do we leave well alone because they are embedded in the smooth rational workings of the financial market place a la Fama?

Take Three:

This is what I call the “Krugman cop-out”.

His argument is that, even though Shiller seems to have undone Fama, and even though the work of the two seems to be in contradiction, the award to Fama is still worthy. After all someone had to dig the hole Shiller’s work subsequently filled up. Krugman is taking the old academic high road and trying to focus on all that now discarded effort. Perhaps he’s mindful that his work could also be debunked one day, and so he has closed ranks.

Take Four:

My view is that the quasi-Nobel committee was on the brink of giving Fama the prize back in the mid 2000’s, but was stopped dead in its tracks by the crisis, the bursting of the bubble, and the disarray this meant for the Fama camp. The committee had to wait for the dust to settle and for Fama’s defenders to rally around. They also had to allow the public of anyone interested in the prize to lose sight of EMH amongst all the post-crisis confusion and exposure of economics generally. Then they had to get someone else to steal the headlines – Shiller is a terrific choice – so that few outsiders would notice.

In many ways the award is akin to posthumous recognition. It is a reward for hard work done in the service of a now debunked theory.

EMH still has its supporters or course. They are that hardy band of rationalists who still dominate much of the economics landscape and who strenuously fight to keep reality at bay. Most of them appear to live in Chicago, which rather calls into question their rationality. Doesn’t it?

Well I think so.

 

Addendum:

For those of you confused by my references to the “quasi-Nobel”, I should make myself clear. I refuse to recognize the economics prize as a Nobel prize. It isn’t. It is a prize funded, not the Nobel Foundation, but by the Swedish Central Bank who sub-contracts the entire bureaucratic side of the award to the Nobel committee. It is thus a “faux” or “quasi” Nobel prize.

Besides, does anyone really think economics deserves a Nobel prize? I mean really?

 

 

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Has Economics Done Anything?

One of the blogs I read regularly is that called “Unlearning Economics”. I recommend it to you. A recent entry questions the efficacy of economic theory/thought. The challenge it issues is to come up with notable cases where economics has a definitive positive effect. The conclusion is that there are few. Certainly far fewer than justified by the vanity and fame of the leading practitioners of the art through the ages.

I leave it to you to come up with your own lists.

But the larger point is that we are even concerned with the results of all that activity. Isn’t it a shame that we can, with a straight face, discuss whether economics is worthwhile.

After all, as I have noted many times, there is an economist somewhere who will defend any position. Raise rates or lower rates? Is trade good, or is trade bad? Stimulus or austerity? Capitalism is great, capitalism is evil. And so on. There are very few moments when all economists agree. Perhaps none. And these disagreements are not nuances. They are substantive. Economists cannot even agree on the phenomena that economics is supposed to be about. There is little common core, little agreement, and precious little settled theory.

It basically seems to be: “The so-called law of supply and demand look like a pretty good idea”. The rest? “Well that’s your opinion”.

This is after a couple of centuries of thought. And plenty of tooting of intellectual horns.

It isn’t much.

No wonder outsiders find it all baffling. Most people come across economics as a single course at school. Or they read about it in the media. It is always presented as far more certain than it deserves to be. And those classes in classic micro are simply devoid of anything related to actual human behavior, yet are elevated to the status of stunning insight. No wonder our business flounder constantly under the weight of toxic decision making. And to think: they believe they’re being smart!

Anyway. It’s a mess. One day what we call economics today will be seen as horribly naive and primitive. Until then we need to take it all with a massive grain of salt.

The economy is hugely important to us all. It would be nice if economists had something to say about it. In unison.

Addendum:

I find it sad that the person writing the “Unlearning Economics” blog feels the need to be anonymous. He or she is an economist in training, and yet is too concerned that his or her opinions might upset the establishment so much that her or his career may be jeopardized. That’s beyond sad. It’s flat out wrong.

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Parbuckle Policy?

For those of you buried in your debt debacle, government shutdown, defund Obamacare bunker allow me to offer you an insight into effective activity: the parbuckling of the Costa Concordia. What a success. The operation to re-float the stricken cruise ship went without a hitch. It was the most complex and largest effort of its kind ever undertaken, costing around $800 million so far – more than the worth of the ship when it was in good shape – and occupied a motley crew of 500 engineers, salvage experts, divers, and ten biologists. The latter being there to oversee environmental concerns.

I had no clue what parbuckling was up until now, but clearly its a careful, well thought through, and cooperative effort, with the goal being the ultimate shunting off for scrap of the 114,000 gross tonnage monster stuck on the rocks just off a little Italian island. The statistics alone are awesome. Thirty thousand tons of steel were used in the operation. Huge sponsons were attached to the exposed side of the ship and then fifty-six chains, each fifty-eight meters in length and weighing about twenty-six tons, were used to winch the ship off the rocks so that seawater  could flood into the sponsons and act as a weight to pull it upright. Once accomplished, those same sponsons were then filled completely so that they weighed the ship down and settled it thirty meters deep onto a one hundred and fifty meter long platform atop an artificial seabed made up of sixteen thousand tons of fill. There the ship will sit throughout the winter while it is fitted and fixed enough to be floated and hauled away to the scrapyard.

Phew. well done everyone involved.

Now maybe we can employ a similar process to overhaul US economic policy.

Perhaps we can winch it upright and off the rocks. Let’s face it: policy has been stuck aground for a very long time. We have made no progress, but the damage has accumulated steadily as the natural course of the economy has corroded and scarred it deeply. Eventually, if we are very lucky, we could even tow our policy off to the scrapyard and build ourselves a shiny new one.

Well, I can dream. Parbuckling is much more interesting than economics on two fronts.

One is the tired and fruitless quasi debate within the economics profession itself. After years of crisis nothing substantial has changed, nor is there much prospect of change. The same players say the same things. Chastise each other the same way. And generally display a total disregard for the social damage they managed to inflict with their false theories. Not that anyone is admitting to falsehood. Economics has creaked to a halt. It hit the rocks sometime ago – I would argue about seventy years ago, but that’s just me – and since then has devolved into a massive game of he-said she-said mudslinging, fact avoidance, and dyspeptic repetition of increasingly politicized nostrums. I don’t think we should dignify the edifice it has become with the moniker of “theory” any more. It has been exposed as a set of opinions of varying complexity and varying degrees of irrelevance. That there is an economist to fit any political idea no matter how half baked or extreme tells you all you need to know about how “scientific” economics is. The profession, such as it is, needs a good parbuckling, but won’t get it from within the safety of academia where path dependence dominates and prevents concerted action.

The second is the continued anti-social rantings of the Republican party. It would be nice to have some serious right of center ideas being floated to spark sensible discussion about policy. Other, of course, than the ones that the Democrats float so that they can have a debate amongst themselves. Right now we do not have a loyal opposition. By that I mean we don’t have a right of center party responsible enough to compromise sufficiently to keep the wheels moving whilst expressing an alternative view. The modern Republicans cannot bring themselves to compromise on some topics while oppose on others. So they simply oppose. And thus grind everything to a halt.

I always get criticized for blaming everything on the Republicans. Why, I am asked, is it not reasonable to blame the Democrats and/or Obama for not compromising too? I can only shudder at the blindness implied by the question.

Blindness to the extraordinary right wing shift in America over the last four decades. The entire economic debate takes place on territory once thought of as right wing. Now it is considered centrist. The total triumph of right wing ideas back in the early 1980’s and cemented into place in the 1990’s even when a Democrat was in the White House, has left us a false sense of balance. There cannot be two sides to a discussion when all we are talking about are variations on a right wing theme. Or, put another way, how can the Democrats compromise when they have already conceded the big talking points? Asking them for more is asking for total capitulation of any long held loyalty to their core values. The shame is that some feel obliged to do that. Obama being one.

No one is fighting for the working family. Somewhere it became accepted that stagnant wages were not a political issue. Or that to speak of inequality was to be rude and offensive to those who have been lucky in life and  made a pot load of money. Or that unemployment of 6% to 7% was “normal”. Or that the salaries and bonuses of the elite – not just CEO’s but the entire corps of professionals that litter the top layers of  wage earning – were justified by their “contribution”. Whatever that is. And a contribution that hasn’t noticeably altered our economic competitiveness much if at all. Along the way it also became acceptable for banks to syphon off capital for their own use – aka gambling – rather than lending into the real economy. It also became normal for our corporations to be rewarded for undermining wages here by shipping jobs abroad. It became usual to discuss the impending doom of our social programs despite the lack of evidence that they were, in fact, doomed. And it became perfectly reasonable to funnel mountains of cash into our elections and thus corrupt democracy and hand control to the very rich.

Of course no one is fighting for the working family. They don’t count. Our elite is solving the problems that affect the elite. It isn’t leading the nation.

And this is why the entire impasse nowadays is so intractable. In economic terms, we have ended up as a right wing country far from the old centrist 1950’s and 1960’s. We will shift back, but right now there’s no room anymore to compromise from the left without giving up entirely on the concept of working families, middle class and other bedrock concepts of those centrist years.

The right has a similar problem, although as the active agent they are responsible for the next move. Having deregulated, favored profits, handed over power to big business, demeaned social programs, denounced government, undermined unions, and overseen the stagnation of wages, they have produced the modern economy. It is built in their image, whether they like or admit it or not. And it is stuck. Their trajectory is to go further to the right into extreme and uncharted territory. They criticize those of their own who falter at the prospect of this. They call them not conservative enough. They have had a forty year run of policy success, albeit sometimes from Democratic sources – Clinton is culpable for much financial deregulation. They have won the big battles and used up their old ideas. Any further victories have to come from ideas further afield. This implies a total break with the past. However good it may have been.

The point is that the right no longer about those bedrock concepts. It is obsessed with its idealist and ideologically extreme vision for America. In order to fulfill the goals of its more extreme members it has to careen along and undo all the post-war consensus. It has to plunge us back into the late 1800’s. That group of extremists is large enough to pull the entire Republican party along. It is not mainstream. It is not centrist. And it cannot abide compromise. Which is why it resorts to hostage style tactics when faced with opposition or failure. It cannot come back from the brink without admitting defeat and setting in motion a move back to the center. That would imply undoing some of the policy victories of the Reagan era – admitting that Obamacare is a good program is an obvious example. So it cannot admit that it lost the last election. It cannot countenance the onset of Obamacare, and it is willing to employ scorched earth or destructive tactics to force itself on the rest of us. It has nowhere to run.

So our economic policy is stuck on the rocks like the Costa Concordia, slowly rotting away, a hulk looming over what could otherwise be a pleasant and wealth making recovery.

It needs parbuckling. It needs salvage. But until the extremist stranglehold is broken the engineers cannot get to work.

Oh, and its only a couple of weeks until the debt ceiling crisis.

Back to the bunker.

 

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Five Years Already

Amazing. It’s roughly five years since the economy tanked, since Lehmann folded, and since we began to discuss the worth or otherwise of bailouts. Five long years. Five fairly rotten years. In that time we have been stuck in more ways than one.

First: economic policy has been somewhere between pathetic and horrible. The Obama administration came into power after the bottom had fallen out and seemed to assess things wrongly from the start. The big error made by the White House – one that reverberates to this day – was that such a dramatic economic collapse would inevitably be followed by an equally dramatic recovery once the bleeding had been stopped. So the policy goal was to provide just enough help to stop the free fall, let the automatic stabilizers like unemployment benefits kick in, and wait for things to come screaming back.

So much for that.

It was a strategic error of monumental proportions and one which was easily avoidable had someone – anyone – in the administration paid attention to recent history. I am being too harsh, people like Christine Romer did pay attention. Unfortunately Larry Summers has a louder voice and seems top have won the day. From that moment forward economic policy was inadequate.

Compounding this was the deep connection between Tim Geithner and Wall Street. Come to think about it, Larry Summers has such a connection too. That Treasury department and Wall Street nexus prevented an effective response to the banking crisis that roiled the economy throughout 2009. Instead of nationalizing Citibank – something deemed too radical and de-stabilizing in the good old US of A – taxpayers were forced to ante-up and allow the shareholders off the hook for their deplorable oversight of the bank’s management. The behemoth banks were allowed to wallow in their own mess and gobble up fallen peer banks so as to fatten up and thus book profits sufficient to offset their prior lunacy. Bank reform when it did arrive was too little, too late, and ridiculously complex – the lawyers are still arguing over the fine print and mush of the “reform” is not yet enforced.

Yes, it has taken five long years for the bureaucrats to put in place an insipid and pathetically ineffective so-called reform. Yet the White House looks on approvingly. Heck the heavy odds are that the White House wants to bring Larry Summers back to run the Federal Reserve Board as if he is a conquering hero and not a stooge of Wall Street.

Five long years indeed.

Unemployment is still too high. The economy generates jobs at a tepid rate. We have had more false starts than I care to remember. Housing has only recently staggered back to life. Demand is weak. Consumers have paid down debt, but with wages languishing they are likely to build debt up again. General Motors is still alive. Yea! But largely because it now builds lots of cars in China. Boo!

We have health care reform styled along Republican party lines, yet opposed ferociously by the Republicans. We have a Congress so mired in dysfunction and subject to extremist blackmail that it cannot do anything to fix the economy. Not that the Republicans want to do anything because they are beholden to right wing economic theory that says the economy will correct itself if only the government gets out of the way.

Which brings us to today.

There is a debate going on about how correct that right wing theory is. Well, it is correct. Economies do del-correct. Eventually. Sometime. Maybe. That isn’t the proper focus of discussion though. What we ought to be talking about is just how desirable that self-correction might be. Let’s use an analogy: most diseases can be fought off by the human body. Eventually. Sometime. Maybe. But we don’t think it sensible to let that happen. We intervene with medicine and treatments. That shortens the period of illness, accelerates recovery, and thus limits the long term damage.

Our economic policy debate has been – or ought to have been – about whether we administer medicine or not, and about whether we shorten the period of illness or not.

The doctors lost. Indeed, they weren’t even consulted.

Let’s review a little history.

The crisis was caused by excessive debt and loose or exploitive banking. That debt build up was in the private sector, where households were struggling to maintain a lifestyle in the face of stagnant wages. Rising inequality syphoned off too much income for the wealthy and left the middle and lower end of wage earners no longer able to keep up. And, don’t forget, wages adjusted for inflation have been stuck for thirty years. The entire Reagan era has been terrible for workers and average families. So, just as happened prior to the Great Depression, the vast majority of workers reacted to wage stagnation by borrowing. And, just like it did in the 1920’s, the debt bubble burst. It had to burst. The cost of all that debt became too burdensome in the absence of wage increases. The real estate bubble was just one part – albeit the most noticeable part – of a wider and deeper malaise. The infamous 1% was trashing the rest and starving the economy of demand.

So the bottom fell out, and the private sector began a long period of lower spending while it shed debt. Cash was used to pay down debt instead of for buying stuff. That meant sales dried up and businesses fired workers. That drained even more cash from the economy, raised fear and uncertainty, and made the slump worse.

With demand slumping and the banks near bankrupt, the Fed responded with aggressive monetary policy. The problem was that interest rates were already low – the Fed had kept rates low during the early 2000’s because the economy was weak after the 2001 recession – and so could not go too much lower before they hit zero. A further problem was that even zero rates was not enough to induce anyone to borrow and then invest because they were too focused on getting debt burdens down.

We were trapped. Rotten economic policy from the 1980’s on, lowering taxes for the rich, pushing up inequality, favoring business, deregulation, and the reliance of markets instead of government, had combined to create an unsustainable economy. It was going to break down sometime. It came apart with a vengeance in 2008.

Five long years ago.

Since then right wing economics has, by and large, ruled policy. The stimulus of 2009, so reviled by the right wingers, was pathetically small. That inadequacy was born directly from the miscalculation I referred to above. It was designed to be a stop-gap, not a curative. The White House believed in market magic and the self-healing properties of the economy. They imagined a small stimulus would do.

It didn’t. It couldn’t.

It stopped the rot. It did not build a recovery. We were left discussing whether it worked because it was never designed to work clearly enough to be obviously successful. It was intended to be in the background while things returned to normal. Which they were never going to do quickly without lots more medicine.

The problem is this: an asymmetrical economy, one where profits boom as wages stagnate, where the top 1% get to rewards and the rest flounder, where deregulation allows banks to over-lend without consequences, where business is preferred to consumers, where the safety net is weakened to save the government money, and where government spending is cut even as the private sector shrinks, is one that will, eventually, implode. And when it does that vaunted self-correcting ability of right wingers love to talk about is seriously weakened. The economy’s immune system cannot function properly.

Yes, the classic right wing recovery will turn up one day. A weak upturn in investment is inevitable once all the old machinery needs replacing. But it won’t be sufficient to get us back on our feet alone. The elimination of strong wage growth will impinge on business investment plans. Why invest if there’s no one out there with cash to buy what you are making? The economy needs demand as well as supply.

On an emergency basis that demand has to come from the government going into debt and spending what it borrows. Simple. Simple medicine. A simple remedy.

And it needs wages to get back to their historic share of the economy so that workers have spare cash to spend and don’t have to crimp on everything. That means profits have to fall as a share of the economy – down from their current near historically high levels.

And it means we have to stop obsessing over budget deficits. Not that we will. The Federal deficit has fallen sharply, and Federal employment is dropping quickly too. The states are busy in deep austerity measures. Combined these things are slowing us down and costing us jobs. We are busy creating our own headwind. Policy is hurting not helping.

And we are now having a discussion about whether economies can self-correct? Really?

No, I mean: really??

After five long years of stagnation and policy failure?

After five wasted costly years?

Who cares if they self-correct?

Not the unemployed that’s for sure.

 

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The Firm – A Note To Myself, Part One

I am thinking through my views on the business firm as an economic entity. My notes so far [no particular order]:

  1. The modern business firm is a reaction to, and exist because of, uncertainty. Other rationales are subsidiary to this. For instance New Institutional Economics [NIE] explains firms in the tradition of Ronald Coase and focuses on transaction costs, agency issues, the potential for cheating, and asset specificity. But all these are symptoms of uncertainty. The problem with NIE is that it tries to hew close to the neoclassical line and thus avoids confronting uncertainty directly. Those symptoms are all useful to know and have to be dealt with, but are not the cause of a firm’s existence.
  2. All firms have a great deal in common – structure, operations, purpose, attitude towards customers, relations with the environment etc – so can speak of each firm as being an “instance” of a general form. We are interested in that general form.
  3. All firms enclose and occupy a logical and physical space in order to offset uncertainty. I call this space “operating space” [OS].
  4. Within OS firms create an “alternative reality” that is more certain than the exterior real world. They do this by invoking strategic plans that substitute arbitrary or created “facts” for the unknowns in the environment. They then assume the reality of these facts and conduct their operations accordingly. The contradiction of the plans by unfolding actual reality puts a premium on adaptability and causes a constant need to update plans.
  5. As an aspect of that alternative reality, firms set prices – in a variety of arbitrary ways – in order to impose some sense of certainty on their immediate future. Such prices are modified as the firm learns about unfolding reality. This sets in motion an iterative feedback loop tying the firm’s planning to the environment – which includes other firms. So firms try to set prices, which end being modified as information is revealed. The dominant force in pricing is their initial determination which is institutional in character.
  6. OS is extensive and thus expensive. This imposes a cost on consumers who tolerate OS provided that it is socially beneficial.
  7. The social benefit of OS is that it allows productive processes that are fragile with respect to uncertainty to take place. The management cost of OS is therefore acceptable depending on that fragility, which in turn depends upon the complexity of the product and the time it takes to produce.
  8. Management cost is not that associated with production, but is – more importantly – that associated with creating, monitoring, adjusting, and executing plans. Management not only manages production, but in conforms that production to the firm’s planned reality.
  9. Any phenomenon that reduces endemic environmental uncertainty diminishes the need for firms – the Internet is an example.
  10. This is because consumers have access to more information and thus causing the cost of creating and maintaining OS to exceed its social value. Consumers then have the ability to “dis-intermediate” OS. This puts pressure on management to eliminate costs.
  11. Enclosed within OS are a set of “processes” that encompass production.
  12. Each process is composed of a mix of “roles” and “routines” that embody the firm’s knowledge.
  13. Roles, consist in main, of “secondary knowledge”, which is the capacity to learn, adapt, and modify actions. It is responsive to the environment, to error, to mutation, and thus is the center of the ability to change.
  14. Routines consist, in the main, of “primary knowledge”, which is the codified, and thus less expensive and more easily replicated, form of knowledge. Routines are specific to a task and require less skill to execute. They are more easily automated. Firms prefer primary knowledge because it is predictable and can thus be built into a plan more comfortably – the output is also predictable, reducing uncertainty with respect to product.
  15. Routines are preferred because of this reduction in uncertainty, but are flawed – perhaps fatally so – with respect to a sharp contradiction not plans by unfolding reality. Primary knowledge is useful only insofar as the future mimics the past, which given endemic uncertainty degrades its use inevitably. Thus the need for the learning capacity of secondary knowledge and its ability to identify the need for and subsequently develop new primary knowledge.
  16. Production itself consist of the imposition of order on hitherto disordered raw material substrate. Thus production is a creative force temporarily offsetting the tendency towards disorder in the environment. Order is imposed by the elimination of information from the substrate. Of all the potential states for that substrate only one is chosen – the others are removed or prohibited. The raw material is thus rendered into a specific state for a single or limited range of uses.
  17. The imposition of order requires energy, which is thus part of the production “function” along with raw material, the knowledge of the required order, the knowledge of how to impose order, and the labor and equipment needed to execute the roles and routines embodying the process.
  18. The production process can be viewed as a lengthy algorithm being applied against the substrate. The longer the algorithm the more information content the end product possesses.
  19. There is a tendency towards greater information content as the accretion of knowledge within an economy enables exploration of more intractable areas of “product space”.
  20. Potential product space has no bounds. Possible product pace is bounded by the constraints of the economy’s “basis”. Actual product space is that part of the possible subject to the plans established within the total set of firms’ OS.
  21. An economy’s basis consists of its state of knowledge [all forms]; its institutional structures; its geographic [resource] limits; its available technology; its cultural constitution; and its available networks through which communication [access to information, contacts etc] and logistics [transport etc] are enabled.
  22. The more complex the basis the more able an economy is to access product space. In particular as economy’s learn there is an increase in complexity in the economy. Rising complexity places a greater premium on OS within which to manage creative processes. Hence the increasing dominance of large OS spaces and rising management cost in general. For society to benefit from the production of complex products it has to tolerate this rise in management cost.
  23. But the emphasis is on tolerance. Consumers would prefer lower costs and smaller OS.
  24. Realizing this, and yet faced with increasing complexity, managements execute a variety of approaches to reduce overall cost. There are two generic approaches: greater emphasis on primary knowledge – lower production cost, but less adaptability; and reducing management cost itself by automating semi-skilled or even skilled activities [converting roles into routines], de-layering, and relying less on internally generated “know-how” and more on externally provided “know-how”.
  25. From this we can understand that business firms – because of their desire to maintain an OS – are in confrontation or competition with consumers. For consumers firms are both desirable [production of complex products] and undesirable [imposition of intolerable management costs]

Part Two next week …

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