Why is demand for bosses rising?

Top bosses' pay is rising faster than that of workers. What economic theory can explain why demand for bosses is rising so much?
Orthodox neoclassical  economics is hopeless here. Insofar as it has a theory of the firm, it regards companies as black boxes, mere technologies for transforming inputs into outputs. On this view, bosses just solve linear progamming equations. Computers can do this. So demand for bosses should have fallen.
Austrian economics does better. It sees entrepreneurs as heroes because they discover the new processes and products that drive the economy forward. It's plausible that in a world where uncertainty and technical change are regarded as more salient than ever, demand for entrepreneurs would rise.
The trouble is, most chief executives of huge firms are as much like bureaucrats as entrepreneurs. Granted, Austrians and their allies have a good theory of rent-seeking. But whilst this might explain bosses' pay, it hardly justifies it.
What's more, there's a big, wise, strand of Austrian thinking which says the solution to uncertainty is to decentralize, to take power away from bosses, to replace central command with the price system. As Hayek wrote in this great essay:

We need decentralization because only thus can we insure that the knowledge of the particular circumstances of time and place will be promptly used...The problem is precisely how to extend the span of out utilization of resources beyond the span of the control of any one mind; and therefore, how to dispense with the need of conscious control.

Of course, he's contrasting central planning with the price system. But firms are a sort of central planning. You can read his essay as a case for breaking up firms, and reducing demand for bosses.
Why hasn't this happened? Maybe it's because the costs of transacting through hierarchy are in fact falling relative to those of transacting through the market - so firms are more and more efficient relative to markets and demand for bosses is rising.
Or maybe - and I know I risk of sounding like a broken record - the answer lies in the rise of managerialist ideology. Everyone's forgotten Hayek. They think problems can be solved if only the right people are in charge. Is it really a coincidence that demand for chief executives  risen at the same time as British politics has become more centralized? Maybe not - both developments reflect the same increased faith in central management.
There's another possibility. The function of bosses is not (merely) to co-ordinate activity and to discover new processes and products. It's to screw workers, as Stephen Marglin demonstrated in these brilliant papers. And in post-Fordist workplaces, this is increasingly difficult, perhaps because the increasing importance of human capital shifts power away from bosses towards skilled workers, as Luigi Zingales discusses here (pdf). You'd expect there to be rising demand for managers who appear to have the skills to overcome this.

Comments

[angry economist]

hmm maybe the wages are rising due to a shortage in good bosses, rather than there being a demand for more bosses?

or maybe, as I suspect, the expectations of the difference a good, well paid boss can make to an organisation are vastly inflated, and are not rational?

The answer might be in labour market economics. the prob is that NCL or austrian schools can be elegant theoretically but have trouble explaining a helluva lot of stuff, or even can't deal with the peculiarities of human capital, labour market transactions, and the intrinsic nature of labour itself.

[Piyush]

Maybe an investment in increasing the chief executive's pay is the cheapest and most effectve way for an organisation to keep its junior employees motivated to be upwardly mobile, hence increasing effort and productivity ?

[dearieme]

Maybe it's because bosses are judges in their own cause?

[Phil]

"The function of bosses is not (merely) to co-ordinate activity and to discover new processes and products. It's to screw workers"

This is good /operaismo/ - the Autonomists started from the idea that rebellion was the engine of productivity (you shave five minutes off the shift to get yourself a fag break, the boss finds out and cuts five minutes' worth of pay). Their solution was more rebellion, incidentally.

[Gracchi]

Great article. The other thing about it is of course it diminishes the control that shareholders have over the company- as it gets bigger shareholders have less control because there are more decisions to take and less that they can see. There is a wonderful bit in Road to Serfdom where Hayek deals with this in government but it also works in corporations- you don't represent who you should in the end when you get too big.

[Barry Marshall]

What if it can't be theorised? Maybe it's because they're greedy, and without anyone to tell them otherwise, they can get away with it?

[Chris Williams]

"costs of transacting through hierarchy are in fact falling relative to those of transacting through the market"

Now there's a thought.