Managerialism and the State

Karen De Coster has an interesting article at Lew Rockwell, "Dilbertville for Dummies," speculating on the role of the state in promoting the bureaucratic corporate culture that is currently the dominant form of business organization. Her point of departure is a Stephen Carson post at Mises Blog on how federal tax policy has encouraged the proliferation of cubicles. Cubicles count as furniture, it seems, and thus depreciate in only seven years, compared to 39.5 years for permanent structures. That spurred Carson to write:

How many unpleasant aspects of corporate life are traceable back to government intervention?

Not much more than a week before his death, Dr. Chris Tame posted an email to the Libertarian Alliance Forum on "the world of 'managerialism'"

- straight out of the pages of "Dilbert" - nothing do with a real free market, but the result of limited liability and the separation of ownership and control.

Not long ago, I was reading David M. Gordon's book Fat and Mean: the Myth of Managerial Downsizing. He demonstrated that, contrary to popular impressions, the total portion of the labor force devoted to managerial functions actually increased through the '80s and '90s. What's more, the average American corporation has about three times as many supervisory employees, proportionally, as its counterparts in Europe and Japan. And a much higher proportion of total wages and salaries (about 40%) goes to supervisory workers than was the case thirty years ago. The main reason, Gordon argued, is the mushrooming need for internal surveillance and tracking systems to cope with an increasingly disgruntled work force, as the pay of non-supervisory production workers has remained flat for three decades. The amount of resources devoted to supervision correlates closely with the degree of income polarization in a country.

But Gordon also argued that management autonomy had something to do with it. In many cases, the interests of stockholders would be better served if management staff were drastically cut, resources were shifted into more production workers and higher wages, and production workers had more control over the process. But that would be a death blow to the managerial culture in the average large American corporation. I don't go so far as Gardiner and Means or J.K. Galbraith in asserting management independence from stockholder control. But management does have a great deal of autonomy, bounded as it is, in promoting its own interests within the corporation. And one aspect of this is management featherbedding, with corporate bureaucrats demonstrating prestige through the number of liveried retainers in their respective domains. What's more, part of it is genuine cluelessness: they can't think of any way to improve how workers are doing things except to increase the number of managers swarming around and poking into everything they do.

Tax policy alone, in my opinion, has had a huge effect in promoting centralization, hierarchy, and the culture of managerialism. Capital depreciation, for example, artificially shifts the competitive advantage toward those corporations engaged in the most capital-intensive forms of production. The R&D tax credit, likewise, has promoted higher tech forms of production. The tax deduction for interest on corporate debt, along with the capital gains tax exemption of securities transactions involved in mergers, has the effect of subsidizing concentration. Not, I stress, that such tax expenditures are government "handouts." But their effect is exactly the same as if the state started with a corporate tax rate of zero and then imposed a punitive tax only on those firms engaged in low-tech, labor-intensive production. The form of production associated with these changes involves the deskilling of blue collar work, and the upward shift of control over production decisions into the hierarchy of managers and engineers.

But regulatory policy also has a large effect. For example, I recently learned that the Arkansas state health department actually requires hospitals to have a "quality" committee or an internal system of "process improvement" in every department. I'm surprised they haven't yet legislatively mandated having a mission statement, vision statement, and statement of core values. (JCAHO inspectors, whose accreditation process is still nominally private and voluntary, do in fact place a high priority on asking employees what the mission statement says and similar inanity.)

As you might guess, any time it is left to middle managers to find new ways of improving "quality," their solution is likely to be everything but increasing the resources and autonomy of production workers; again, as you might expect, it will rather involve expanding the power of middle managers with even more committees, meetings, tracking forms, etc., so that production workers have even more interference and paperwork to deal with, and less time to get their real work done. And "productivity" will be increased, to make up for these increased middle management costs, by cutting staffing even more and driving everybody even harder. In turn, the resulting proliferation of medication errors, hospital-acquired infections, and so forth, will spur management to devote still more resources to committee meetings and tracking forms. Any "reform" carried out by management will serve mainly to increase the power of managers.

Several years ago, Scott Adams wrote an appendix to The Dilbert Principle on his "OA5" management philosophy. That philosophy entailed, mainly, ruthlessly weeding out those not directly involved in producing or improving the product. As I understand it, that means in practice that the average American corporation would 1) streamline its hierarchy until it had supervisory staff in the same proportions as its European or Japanese counterpart; 2) put the savings into increased production staff and increased pay; and 3) replace all the "quality" and "process improvement" committees with a great deal more direct worker control over how the production process is organized on the shop floor (perhaps along the lines of the Coventry system). The result would likely be skyrocketing productivity and morale.

I've written a lot about how the state has contributed to the present system of absentee ownership and the separation of labor from ownership of the means of production, and artificially inflates rentier incomes. I stand by it. Certainly in the past few decades, the income of the very top plutocracy has exploded upward. But on the whole, I suspect that the average worker suffers almost as much from managerialism and the resources eaten up by bureaucratic overhead than from the income of rentiers.

To some extent, I suppose, the owners are held hostage by their dependence on the managerial class. The monopoly profits of big business depend on cartelization by the state; and given this situation, even at bare minimum a considerable power is entailed for the managerial bureaucracy. Such empowerment of labor over the production process, despite its almost certain benefits to productivity in the short run, would greatly increase the bargaining power of labor in the long run, and likely imperil profits as much as management salaries.