Giles Wilkes gives this nef report (pdf) a superb kicking. What strikes me, though, is that nef is, in an important sense, on the same side as the bankers they try to demonise.
What I mean is that both pretend to have perfect knowledge. Nef thinks that all externalities are identifiable and quantifiable. Bankers thought that risks were identifiable and quantifiable. They are pretty much the same mistake, the same arrogant and spurious pretence to expertise.
But limited knowledge is, perhaps, the central problem in economics. The are lots of issues we just cannot understand without recognizing its importance: why does unemployment exist? Why are asset prices volatile? Why does the price mechanism work better than central planning? Why do firms exist? You can’t begin to answer these questions without appreciating the importance of limited information.
It is in this context that I welcome the launch of an ownership commission.
The thing is, part of the case for worker ownership is that it is a means of using dispersed, fragmentary knowledge. Workers sometimes (often?) know better than bosses how to cut waste or improve efficiency. Giving them ownership might therefore be a means of improving efficiency.
There are two principles here we should make explicit.
First, ownership should, ideally, flow to where there is knowledge*. Not all ownership forms achieve this. For example, customer ownership did not stop Equitable Life collapsing, in part because customers didn’t really know what the hell it was doing. Similarly, shareholders’ failure to stop banks going bust wasn’t just a problem of collective action - it was that they didn’t know what banks were doing.
Second, ownership must entail real power. Again, this is not always the case. Many employees at Lehmans were significant owners, and some had an idea that it was heading for trouble. But they didn’t have the power to challenge Dick Fuld.
And herein lies my scepticism about the ownership commission. There’s a danger that it will advance a form of pseudo-ownership, which gives workers and customers responsibility without power. A genuine change of ownership forms, by contrast, would involve disempowering bosses. Is it plausible that New Labour - which has been the party of managers - will really do this?
* I say ideally because in truth it’s impossible to implement this principle perfectly, as knowledge cannot be quantified or even, often, expressed.
What I mean is that both pretend to have perfect knowledge. Nef thinks that all externalities are identifiable and quantifiable. Bankers thought that risks were identifiable and quantifiable. They are pretty much the same mistake, the same arrogant and spurious pretence to expertise.
But limited knowledge is, perhaps, the central problem in economics. The are lots of issues we just cannot understand without recognizing its importance: why does unemployment exist? Why are asset prices volatile? Why does the price mechanism work better than central planning? Why do firms exist? You can’t begin to answer these questions without appreciating the importance of limited information.
It is in this context that I welcome the launch of an ownership commission.
The thing is, part of the case for worker ownership is that it is a means of using dispersed, fragmentary knowledge. Workers sometimes (often?) know better than bosses how to cut waste or improve efficiency. Giving them ownership might therefore be a means of improving efficiency.
There are two principles here we should make explicit.
First, ownership should, ideally, flow to where there is knowledge*. Not all ownership forms achieve this. For example, customer ownership did not stop Equitable Life collapsing, in part because customers didn’t really know what the hell it was doing. Similarly, shareholders’ failure to stop banks going bust wasn’t just a problem of collective action - it was that they didn’t know what banks were doing.
Second, ownership must entail real power. Again, this is not always the case. Many employees at Lehmans were significant owners, and some had an idea that it was heading for trouble. But they didn’t have the power to challenge Dick Fuld.
And herein lies my scepticism about the ownership commission. There’s a danger that it will advance a form of pseudo-ownership, which gives workers and customers responsibility without power. A genuine change of ownership forms, by contrast, would involve disempowering bosses. Is it plausible that New Labour - which has been the party of managers - will really do this?
* I say ideally because in truth it’s impossible to implement this principle perfectly, as knowledge cannot be quantified or even, often, expressed.
Thanks Chris
This is the element of the nef study I did not have the patience or subtlety to include. nef-types have an utterly different approach to value and knowledge, which is painfully revealed in this study. The idea of an objective "what you're worth" is semi-religious, though given a very spurious empirical-analytical sheen in this case.
As you say, even the information in value free format is impossible to ascertain. What any of us are "worth" - the same challenge but even more difficult because of the extra factor of value - is quite impossible.
Whereof one cannot speak, thereof one must be silent - Tractatus 7.
Posted by: Giles Wilkes | December 16, 2009 at 05:01 PM
"What strikes me, though, is that nef is, in an important sense, on the same side as the bankers they try to demonise."
on the same side, but erring to some degrees of magnitude greater extent
Posted by: Luis Enrique | December 16, 2009 at 05:30 PM
Indeed, Luis. At least the bankers only thought they could determine value for their OWN company. The nef paper claims to be able to assess value through the ENTIRE economy. and through such a laughably simple-minded analysis that I had trouble believing it wasn't some sort of elaborate ruse.
Posted by: MattM | December 16, 2009 at 08:28 PM
I have to agree with you "knowledge cannot be quantified"...
Posted by: Account Deleted | December 18, 2009 at 04:17 AM
And a lot of it reflects a switch from bank deposits to securities; foreigners “other investments” in the UK, http://www.watchgy.com/ mostly bank deposits, fell by £143.2bn in Q1. And of course there’s no guarantee such buying will continue.
http://www.watchgy.com/tag-heuer-c-24.html
http://www.watchgy.com/rolex-submariner-c-8.html
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