Neoliberal management may reduce productivity

Thursday, March 16th, 2017

Chris Dillow suggests some ways that neoliberal management may reduce productivity:

Good management can be bad for investment and innovation. William Nordhaus has shown that the profits from innovation are small. And Charles Lee and Salman Arif have shown that capital spending is often motivated by sentiment rather than by cold-minded appraisal with the result that it often leads to falling profits. We can interpret the slowdowns in innovation and investment as evidence that bosses have wised up to these facts. Also, an emphasis upon cost-effectiveness, routine and best practice can deny employees the space and time to experiment and innovate. Either way, Joseph Schumpeter’s point seems valid: capitalist growth requires a buccaneering spirit which is killed off by rational bureaucracy.

As Jeffrey Nielsen has argued, “rank-based” organizations can demotivate more junior staff, who expect to be told what to do rather than use their initiative.

The high-powered incentives offered to bosses can backfire. They can incentivize rent-seeking, office politics and jockeying for the top job rather than getting on with one’s work. They can crowd out intrinsic motivations such as professional pride. And they can divert (pdf) managers towards doing tasks that are easily monitored rather than ones which are important to an organization but harder to measure: for example, cost-cutting can be monitored and incentivized but maintaining a healthy corporate culture is less easily measured and so can be neglected by crude incentive schemes.

Empowering management can increase opposition to change. As McAfee and Brynjolfsson have shown, reaping the benefits of technical change often requires organizational change. But well-paid bosses have little reason to want to rock the boat by undertaking such change. The upshot is that we are stuck in what van Ark calls (pdf) the “installation phase” of the digital economy rather than the deployment phase. As Joel Mokyr has said, the forces of conservatism eventually suppress technical creativity.


  1. CMOT says:

    I was curious about the “neoliberal” management style, but I’m guessing that’s just so his left-wing audience will know he means bad.

    Scott Alexander has a long review of James Scott’s Seeing Like A State, and I think Dillow’s essay could more accurately been titled “Managing Like A State”.

    It seems to me Dillow’s describing the US auto industry from the McNamara era to the oil embargo absolutely perfectly.

  2. Borepatch says:

    The article starts out talking about “good management” and then gives several examples of terrible management.

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