Of the standard triumvirate, "land, labor, and capital", labor (including knowledge) is the variable that determines the end products of a society from a fixed set of resources.⁽¹⁾ Labor is also important to human beings directly in that how one labors, particularly when one labors for a substantial amount of time, in large part directly determines one's quality of life -- apart from the indirect (e.g., monetary or "purchasing potential") one may derive from one's labor. Given particular finite resources, the ends to which labor employs itself or can be, and is, trained and employed to work those resources determines the economic conditions of a society, and any of its social conditions that are derived from its economic conditions. 

The Soviet and American space programs were some of the most dramatic examples of how the direction of labor influences what can be or is accomplished. The pyramids of ancient Egypt are another. War also demonstrates what a society can accomplish (for better or worse) when it channels a great deal of labor toward a particular goal. The rebuilding of Europe and Japan after World War II are further examples. Of course, no matter how directed or how much effort, labor probably is insufficient to accomplish every goal, but labor is necessary to accomplish many goals. Wasted labor accomplishes little more than no labor; enjoyable wasted labor has some benefit apart from its lack of accomplishment; unenjoyable or detested wasted labor is a worse burden than no labor.

Any collection of people who labor together, no matter what their number, can be unproductive⁽²⁾ in two ways:

1) by inefficiently pursuing some desirable goals.

2) by pursuing some wrong goals, sometimes especially when this is done efficiently and effectively. For example a company might very effectively channel resources into a product that, unknown to them, is about to become obsolete. By working efficiently, it might develop by far the best and the most cost-effective models of the soon-to-be obsolete product. Or a school district might channel all its resources into a highly effective model of education that turns out students with the best grades, but who cannot achieve much outside of school, or who cannot think for themselves and who are thus benefitted by their education only to the extent they are around others who lead them in beneficial directions they can most readily follow.

But productivity is not the only measure of achievement. The means used to achieve productivity are important too; and so are goals besides productivity. Slavery or military rule or strong centralized control of whatever sort may be very productive, but that hardly justifies them, even if they were most productive and indefinitely able to be sustained. Even productive, freely given, hard work may not be justified if it is not as fairly rewarded as it should be, or if leisure would be a better end than what the labor produces. 

Good organizations, whether business, government, or whatever will be those that are able to continually determine the right goals and avoid wrong goals (financial and non-financial), and most efficiently pursue them in the fairest and most humane way. I would suspect there is more than one form of good organization, though there may be some principles common to all. 

What strikes me as interesting, however, is that many people seem to seek, willingly accept, or tolerate, different standards of management behavior for different kinds of organizations and for different types of goals. A person for example may want government to give him the most freedom possible and then happily go to work for a company that is so regimented it even tells her or him how to dress, what hours to work, what his or her job function is, what equipment to use, what constitutes legitimate absence or paid absence, what health care policy they have company access to, etc. Or a person may think he or she operates best with the most freedom, but that his or her employees operate best when coordinated or controlled, not because he or she has any particular evidence to feel that way, but just because of intuitions or ego. Or in some areas of life what is considered a legitimate monetary incentive is in other areas considered to be a bribe at worst, or temptations toward a conflict of interest at best. Those who work for incentives whose goals one supports are considered to be admirable, knowledgeable business people who can find opportunities and take advantage of them; those who work for incentives whose goals one does not support are considered to be greedy, unprincipled opportunists always willing to sell out to the highest bidder. There is no simplistic answer about what degree of freedom or voluntarily accepted centralized control or coordination is better with regard to the organization of labor. 

There are potential advantages and disadvantages to both freedom and centralized control or management. The trick is to try to put together as much as possible the advantages of both while eliminating the disadvantages of each. The ultimate goal is to channel labor in the most humane, fair, and efficient way possible toward the best possible financial and non-financial ends. 

The advantage of centralization is that coordination of many people or groups is much more efficient. Sometimes without centralization, coordination is not even possible because key people or groups will not "buy into" an idea -- even if it is a good one-- and participate. Sometimes ideas are not even thought of because no one is looking at a "bigger picture" than what their immediate work group normally does. (See Chapter 10, "The Invisible Hand Explained")

One disadvantage is that immediate feedback of the problems with the directives does not always efficiently find its way back to the planners and coordinators. So problems that could readily be solved by a person working on his own (or a small group) are ignored or allowed to fester and grow while information works its way back to central planners and new directives are issued and communicated in response. Further, central planners do not always have a real "feel" for the problems at the working level, and may not come up with as good a solution as people at the working level given the authority to act. Central planners may even compound problems that they don't truly grasp. 

The second disadvantage to centralized planning is the "too many eggs in one basket" problem, when too many resources are channeled into a faulty idea or program, without other resources channeled into other directions that might be able to facilitate necessary changes. Channeling all available resources in one direction makes it very difficult to make some necessary changes, particularly large ones, in a short amount of time.

Finally, a problem of centralized, or top-down, management is the lack of daily or immediate psychological incentive for those at the working level to do a good job, since the ideas they are implementing are not theirs and since the rewards from good work are often diffused, distant, or minor by the time they get back to them. The proportionally smaller one's part in an enterprize, even a monumental enterprize, the less immediate "psychic reward" or satisfaction or incentive there is to participate with much enthusiasm or conscientiousness. (This may be compounded if there is a pecking order such that those at the top --particularly if they appear to do little "actual" work-- get a disproportional amount of the rewards.)

Oppositely, freedom to apply labor as one, or a small group, sees fit, can prevent altogether, or lead to great inefficiency in, a worthy enterprise that needs direction and coordination. But freedom in the work place often leads to great breakthroughs in new directions, since people often will channel much energy into otherwise unexplored areas they find personally interesting or potentially rewarding (whether financially or otherwise). Numerous scientific advances have occurred because scientists felt free to pursue their ideas. Similarly in business, where Chester Carlson comes most prominently to my mind. He labored long and hard on his own to invent an instant copying process (later to become Xerox) while large companies saw no reason for such a machine even to exist ("There is already carbon paper, for making extra copies of document").

Further, indirect control tends to sprout in free enterprise systems, often by means of incentives that may be more or less effective. Indirect incentives, such as tax code changes, complicate the issue of freedom and control. There is no easy answer whether incentives manipulate and control (but in less obvious ways) or instead just provide reasonable opportunity; therefore there is no easy answer whether incentives enhance or negate freedom. (In this regard incentives tend to be like peer pressure -- they tend to make people do things by making them want to do things they would not otherwise do or want to do. Anything which manipulates people's desires impinges on freedom, but not always in a bad way, and not necessarily to the extent that it feels, or ought to be seen as, coercive. The concept of freedom is not as straightforward as it seems; see chapter 24, "Freedom".) 

Also, incentives are not often very precise, and do not often give predictable results, attracting either insufficient or too much labor or energy for a particular enterprise. They are like open invitations for which the uncoordinated response is thus unpredictable and often harmful. Tax code manipulations notoriously overstimulate enterprises they were simply meant to boost slightly, or foster unexpected undesirable new enterprises altogether. Tighter monetary policy may harmfully shrink an economy it was only meant to slow in expansion. A forecast for the need for, say, electronic engineers in the next decade may bring a glut of engineering school graduates at that time. When a university predicts severe dorm overcrowding, that may cause students to seek alternative housing in such large numbers that numerous dormitory vacancies occur. There are various ways sometimes to fine-tune incentives and make their results more predictable, but gaining any knowledge of these often requires a certain amount of experience (trial and error) and thus cause severe problems for people while those in charge of incentives try to hone their skills. Coordination by incentive may permit some sense of free choice, but it does that often at the cost of inefficiency and waste -- sometimes bringing great personal hardship to its victims. Finally, incentives are indiscriminate and often attract people of dubious potential or dubious skill to an enterprise, as much as they attract those who could be most effective. As everyone knows --but only when they are talking about programs they do not like-- having incentives, such as money, to solve a problem does not guaranty solutions or desirable results.

The issue of whether to manage or channel labor at all, or, if so, how to channel or manage it most humanely, fairly, efficiently, and most effectively is extremely important for any group of people, whether a business or a country. And it is more complex than just choosing between (what seems on the surface to be) freedom and (what seems on the surface to be) efficiency.

1. Capital is derived from labor. The specific nature of the capital that is produced depends on labor's producing it. "Land" actually does not mean land, but refers to the working and living space available and to the natural resources (or raw materials) available in the land to be worked on, and that are necessary to be worked on in order to produce needed or desired benefits. But if technology will ever support human undersea or sky and space living and working conditions, working space will become a virtually unlimited resource, as long as there is the labor and the raw materials necessary to "build" it. This is just as high-rise buildings meant more space on a given amount of supporting land. Raw materials are the limiting factors of what can be produced, but given adequate labor and increasing inventiveness (another aspect of labor) for getting at and using them, it is difficult to say what the end-product limits are of the resources ultimately available.  (Return to text.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2. A group of people can be judged to be relatively productive (or wasteful and unproductive) by either of two criteria. They can be relatively productive compared to other similar groups working in different ways to achieve the same ends. Or they can be relatively productive (or unproductive) compared to some possible ideal use of their labor. This latter sense of efficient or wasted use of labor is often difficult to determine, especially without experimental results that then show relative unproductivity in the first sense -- results that show a similar group's working in a different way is actually more productive. Many of the arguments for free-market capitalism involve the claim that it has produced the best economic results compared with any other system; but many of the arguments against either free-market capitalism or particular elements of free-market capitalism involve the claim that changes would produce an even better system, one closer to the most ideal system possible. The first is an argument about actual results; the second, one about potential results. 

But even comparing actual results of two different systems is not entirely objective or straightforward, as when Nixon argued more color tv sets showed the superiority of capitalism (as practiced in the United States) and Khrushchev argued that greater rocket power proved the superiority of Communism (as practiced in the Soviet Union) -- to use a simplistic example. Less simplistically it is sometimes difficult to compare two society's who have radically different balances in the distribution of radically different amounts of end-product. Is a society with more leisure and more recreation better or worse than a harder working society with more, say big homes? Is a society that has more benefits which are unequally or unfairly distributed better or worse than a society which has fewer benefits but has them distributed more equally or more fairly?

Comparing the actual with an alleged potential is perhaps even more difficult, unless some reasonable, and reasonably safe, experimentation can be done. There are experiments periodically, on various scales, by various businesses or governments. In the U.S. one state government may try a lottery to raise revenue in a way that is resisted less than tax increases. Others may follow depending on the results of the first one's attempt; or they may follow with modifications; or not follow at all, for non-financial reasons, even if state lotteries prove to be financially successful. It is my guess, from what I have personally seen of, and informally read about, many businesses and governments that they do not experiment enough on safe, small scales. How many states might ask a volunteer county or city to try out some suggested new state practice in order to see whether it might work on a smaller scale first, supporting that county in the event the experiment fails? How many business leaders will give employees or divisions a chance to try out some new idea on a small scale, adequately supporting them in case the attempt yields poor results? How many school districts will supportively allow one school or one grade level, or even one teacher, to try out something that is radically different regardless of how much philosophically arguably better it might seem? Of course, some governments and businesses allow and support small scale experimentation of arguably reasonable innovation. But it seems to me that inflexible, homogeneous rigidity, regimentation, and tradition or inertia rule far, far more. And I see little general difference between businesses and governments in this regard. (Return to text.)