Modernity, autonomy decentralisation

I think Adam Smith thought of modern commercial society as gradually diffusing power throughout the society and both creating and enabling a world in which decision making became more decentralised and people’s autonomy, productivity and virtue grew together. In average and in the long run. Which reminds me of this study.

Does Management Matter? Evidence from India
Nicholas Bloom, Benn Eifert, Aprajit Mahajan, David McKenzie, John Roberts

A long-standing question in social science is to what extent differences in management cause differences in firm performance. To investigate this we ran a management field experiment on large Indian textile firms. We provided free consulting on modern management practices to a randomly chosen set of treatment plants and compared their performance to the control plants. We find that adopting these management practices had three main effects. First, it raised average productivity by 11% through improved quality and efficiency and reduced inventory. Second, it increased decentralization of decision making, as better information flow enabled owners to delegate more decisions to middle managers. Third, it increased the use of computers, necessitated by the data collection and analysis involved in modern management. Since these practices were profitable this raises the question of why firms had not adopted these before. Our results suggest that informational barriers were a primary factor in explaining this lack of adoption. Modern management is a technology that diffuses slowly between firms, with many Indian firms initially unaware of its existence or impact. Since competition was limited by constraints on firm entry and growth, badly managed firms were not rapidly driven from the market.

So there you have it, modern management gets information flowing and enables greater decentralisation of decision making.

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11 years ago

The other reason why it doesn’t happen that fast is that it is pretty damn hard actually.

11 years ago

When I see, “increased the use of computers”, the first thing I wonder is whether the purchase, training, support and inevitable upgrade costs are factored into the 11% productivity improvement or not. At Indian wages I’m guessing probably not (but I’m to stingy to spend five bucks and a few hours studying the paper).

What’s more, computers have their associated risks — power failure probably comes to most people’s mind, but theft and other security issues are also significant, increased training expense every time a new employee comes through, all hard drives will fail (you guess when) and surprisingly large numbers of people have no backups…

I also can’t help laughing when I see anyone use the term “modern” next to any type of academic or industrial practice. Worse still, they use it in the title of textbooks.

John B
John B
11 years ago

Poor Tel,

Such a pessimistic view of the world!

The word “modern” actually has a role in the english language, regardless of how great the urge of some to resist both change and modernisation, which are not always the same things.

Yes, Tel, there are firms with functioning IT practices, including daily backups and off-site storage of said backups. There are even firms which do not rely on the health of hard drives at all, except during the actual process of creating documents.

Perhaps that is all far too modern for Tel to comprehend.