Managerialism vs innovation

Does management's pursuit of efficiency crowd out innovation? I ask because of two interviews I've seen recently.

First is Matt Ridley's with Hon Lik, inventor of the e-cigarette, which describes how Mr Lik's invention was inspired by his own desire to quit smoking and facilitated by the fact that the "lab where he worked had a good supply of pure nicotine".

Secondly, Toru Iwatani, the creator of Pac Man, tells the FT:

Japanese game companies used to be places of total freedom. We had almost no orders, except to make fun games.

Mr Iwatani, says the FT, is "the product of a typical Japanese company structure that insulated people such as him from job insecurity and thus incubated creativity."

What we have here are two case where innovation occurred in situations which would horrify many Anglo-Saxon managers. Allowing employees to use company materials for their own personal pet projects as Mr Lik did, or giving them jobs for life and little oversight as Mr Iwatani enjoyed, aren't generally considered good management practices. And yet they produced important creations.

This point might generalize. If you have your nose to the grindstone and are working flat out, you might be very efficient but you don't have the time to experiment with new ideas.

For this reason, many innovative companies give employees space to follow pet projects: think of 3M's bootlegging (pdf), Google's 20% time, Microsoft's Garage or Apple's Blue Sky. These recognise the fact that orthodox managerialist structures, with their emphasis upon cost-effectiveness and following routine and protocols, militate against creativity. Employees thus need some protection from managerialism if they are to innovate.

Hence my question. Could it be that the spread of managerialism and the pursuit of "efficiency" in the static sense of trying to maximize output for given inputs has squeezed out innovation?*

Two things suggest an affirmative answer. One is casual empiricism: the growth of managerialism has been followed by a decline in trend labour productivity growth. The other is a paper from David Audretsch and colleagues, which shows that since the late 70s innovation has tended to come less from incumbent firms and more from new ventures.

If this is the case, then perhaps secular stagnation is not so much an aberrant feature of hierarchical capitalism as its logical consequence. I've said that stagnation might be the result of firms' wising up to the fact that a lot of innovation doesn't pay. But it might also be due to managerialism squeezing out the slack space in which innovation can occur.

Perhaps, then, Marx was right: whereas for a long time capitalism promoted growth, it no longer does so. As he put it:

At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters.

I say all this to endorse a point made by Mariana Mazzucato - that the Labour party can no longer assume that the economy will grow nicely but must instead put in place the policies and institutions that generate such growth. How compatible such institutions are with managerialist capitalism is, however, an open question - and one which Labour isn't even asking.

* My question is consistent with John Kay's theory of obliquity: maybe growth and innovation are unintended consequences which are stifled by attempts at conscious control.

Comments

[James C]

Like the post, managerialism quashing innovation is a point I've a lot of sympathy with.

David Graeber made a similar argument in an excellent article, with a wider historical view to back it up http://www.thebaffler.com/salvos/of-flying-cars-and-the-declining-rate-of-profit

[Matt Moore]

There's no need to look for anything very novel here, any cultural point about managerialism is beside the point. Your "wising up" story makes the most sense. Innovation is under-produced because it produces large positive externalities. Pigou subsidies can't be effectively targeted at "tinkering", and patent law only goes so far.

A broader criticism is that you are too often offering "institutions" as a solution to any problem. The institutional perspective is great, but it needs more specificity, otherwise it starts to seem a little bit like magical thinking that avoids trade-offs

[Alex]

This is like a update of Schumpeter's stuff on innovation, extending it to the issue of hierarchy vs autonomy in the workplace. I think something could be said here about the freedom academics now lack too, with a lot of output dictated by spurious REF statistics at the behest of managers and the state.

However I don't think it cam be just about "time" that employees have to innovate, but another factor too. There's psychological evidence (as I understand it) that means it's very easy to get people to be more efficient at an assembly line kind of process, but something less intuitive (like the 'candle problem'), standard tricks like payment by results actually hinder the person finding the solution. The problem requires more abstruse, abstract thinking, which efficiency from managerialism will not allow *breathing space* for, not just time. The reason this is important is because a lot of our economy (services) is based on such tasks, meaning this innovation may well be a special kind of skill significantly undervalued by current capitalism.

[Phil]

The Italian workerists argued that the main driver in innovation in working practices, through the 1960s and 70s, was workers *avoiding work*: if you've got to make three widgets an hour and you can find a way to do them in 50 minutes, you've got time for a smoke. Then management notice what you're doing and tell you to make four widgets an hour, and so it continues.

The process was disrupted (the story goes on) by the youth movement of the late 70s, who didn't want to do *anything* for hours on end - they'd discovered that they could get much better (and more satisfying) results by working when they wanted to, using their creativity and doing lots of different things. Which led in turn to the rise of a new kind of business, employing workers who were expected to multi-task, think creatively and let work colonise their free time.

So if we aren't seeing innovation in business now, maybe it's because the working class is so weak and demoralised.

[BCFG]

This chimes with me.

Managers cannot see beyond their short term narrow little world.

So for example when they calculate the cost of paying sick they ignore the cost of not paying it! While they calculate the cost of making keeping someone on they don't calculate the cost of unemployment. while they calculate the benefits of low wages they are blind to the high cost of low benefits etc etc etc.

They also like to keep workers on the hamster wheel, never to get off. This produces an envrionment of false economy, where workers are not able to sit back, look at what they do and try to improve their procedures. Workers are given no space or time to improve.

We need a corporate model where the employees review the managers and not where the managers review the employees. We need a new corporate model. The capitalist one is broke.

[Steven Clarke]

Don't you ignore a lot of heterogeneity?

For every Mr Iwatani or Lik who prosper with job security and lack of oversight, aren't there plenty who would just slack off?

And doesn't the growth of 'skunk works' within companies and the sharing economy show that modern capitalism is providing more space for innovation than several decades ago?

[Metatone]

It's not just the management of workers, it's also the treatment of opportunities. It largely goes back to portfolio theory - in essence we've ended up in a bad attitude: "if investors wanted to invest in a company that makes a different product they would, your job is to milk the cash cow..."

[mike shupp]

Used to be a thing, back in the 1960's 3M and some US aerospace firms encouraged engineers to use one day a week or part of a week for independent projects. I don't know how productive this way -- memory says the post-it sticker pad was developed this way. And it seems to gone away during the 1970's as managers became more committed to active profit-oriented control of their workforce (perhaps the real issue, from my observation, was that younger engineers tended to focus on the immediate issues in front of them and were less inclined to look for diversions).

[Dave Timoney]

Mike Shupp makes a good point that "skunkworks" were (and I use the past tense deliberately) a product of a historical moment in American industry. Many of the firms that pursued this approach had the "luxury" of tolerant Department of Defense contracts, notably during the military investment surge of the 60s and 70s.

Many of these same firms had close ties with DoD-funded research institutions, such as Stanford and CaltTech, with the result that the idea pollinated a number of early technology companies that were incubated in the same environment. By the time that Google adopted it, it was pretty old-hat. One interpretation would be that the migration of the idea from the defense to the commercial tech sector reflected the "peace dividend" of the 90s.

Today, skunkworks is largely honoured in the breach, with "own time" treated as a self-regarding perk rather than an efficiency measure. The focus should not be on trying to get the corporate world to "tune in, turn on and drop out" (for many, skunkworks is just more CSR blather), but on developing mass innovation via the "own time" enabled through a basic income.

[Min]

Steven Clarke: "For every Mr Iwatani or Lik who prosper with job security and lack of oversight, aren't there plenty who would just slack off?"

First, I am not sure that lack of oversight is a good description of how they were managed. Maybe so, in their cases, but it is highly doubtful that they were treated with lack of oversight from day one.

As for slacking off, that is an empirical question. And probably there are a lot of factors that go into it. When I was in Japan, I noticed that with job security there was some slacking off. What happened is that some people were given low paying sinecures and basically ignored by everybody else. My guess is that they were less than 1% of the workforce. If US suddenly granted lifetime job security, we might see 2% - 3% of people slacking off, but they would be resented by other workers, and that number might drop over time. Without the ability to fire at will, employers would also alter their hiring practices. And the inability to lay workers off during economic downturns would provide an incentive to improve productivity by other means. Things are not so simple.

[Peter Dorman]

I wouldn't claim to answer all the questions about innovation and static efficiency, but the paper I discussed in my EconoSpeak post earlier this month is germane: http://econospeak.blogspot.de/2015/06/a-newold-theory-of-firm-put-to-use.html

[rogerh]

My UK experience was that provided you were established as a reasonably creative/useful type back in the 70s and 80s you were often left to pursue hunches. Similarly it was easy to walk along the nearby production lines, pick up a few components, take back to the lab and try a few ideas. Saleable products did not always come from the cleverest people, interaction was important.

Perhaps modern Western labs are a bit more driven, I would be surprised if so, seems to take away the point. Perhaps it is harder to come up with a commercially useful idea. Perhaps the causation is that lack of easily developed money making ideas has led to more managerialism rather than the other way. But having experienced managerialism later on I can confirm it it pretty deadening and ideas now get dreamt up in marketing meetings and then analysed and Powerpointed to death. Perhaps a vicious spiral.

[Rick]

Chris, I'm not entirely sure what you mean by growth of managerialism here. Surely firms have been trying to maximise efficiency by managing people at least since the days of F W Taylor.

What has changed, perhaps, is the extension of this into other spheres like academia and public services. Also, the pursuit of shareholder value has upped the ante.

I'm still not sure that people are more closely managed now than they were in the 70s though.

[chris]

@ Rick - of course, attempts at close supervision go back decades. But whilst we have little hard data here, surely there's a mass of anecdotal evidence to suggest that workers are more closely overseen now. Since the 70s, we've seen the decline of petty pilfering, ringing tills, liquid lunches and so on - in part because technical change has permitted greater oversight (eg CCTV, containerization):
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/12/debuncification.html

[tta]

This could be a symptom of organisations becoming more egalitarian.

Historically, I think there were many circumstances where individual managers could cut someone whose tinkering showed a bit of promise a great deal of slack. Today, this sort of thing is regarded as favouritism and (the great catch-all sin) unprofessionalism.

This seems like a loss to me.

[BCFG]

"This could be a symptom of organisations becoming more egalitarian."

This would only have credibility of you believe the idea that great people must be given licence to express themselves at the expense of others.

However, if you view this from the other direction, i.e. that investing in everyone rather than in the 'elite' results in greater overall benefits then the problem is that managerialism seeks to crush this general creativity in favour of obedience to their narrow world view and their petty prejudices. Prejudices that miss a whole raft of costs.

And it should be noted that the best way to encourage the 'elite' to achieve is actually to fight elitism. This is because elitism never picks out the best but picks out those born into the right family, or those who are lucky. Whereas investing in everyone actually catches these geniuses who had the misfortune of being born in the wrong time and place.

"For every Mr Iwatani or Lik who prosper with job security and lack of oversight, aren't there plenty who would just slack off"

is there a better illustration of this narrow prejudicial managerial world view than this? But what do you expect from Steven Clarke?

[Kaleberg]

After WWII, there was a lot of research money floating around and a lot of bright people did some amazing research in both government and corporate labs. The corporate labs were typically the product of high marginal tax rates and strong anti-trust enforcement. The government labs were often the object of ridicule for their Laputan attitudes towards the practical.

You could watch the war on this set up during the 1970s when there was a big push for directed research focused on practical problems as opposed to blue sky puttering around. There was also a big push against corporate inefficiency which was supposedly a product of high taxes and strong anti-trust enforcement. In the 1980s, the efficiency experts won and everything that was not compulsory was forbidden.

We've been eating our seed corn since.

Actually, I'm a bit overly pessimistic. While computer tech seems to get all the credit we are experiencing a golden age of materials science. The problem with materials science is that improved lubricants and low friction surfaces don't get headlines, except, maybe, as a human interest story when someone wins a Nobel Prize. The stuff in the labs is mind boggling, but hard to explain, and likely only to result in increments. The trick is that a certain point increments turn into real differences in kind - look at solar and wind power today.

If of an age where you have given up looking for flying cars, consider that you grew up in a material world of wood, metal, ceramic and rubber and now live in a world of synthetics and processed materials. I just look at the stuff in my desk drawer, and it seems alien.

[financewhiz]

It's hard to read any business literature without hearing about the importance of innovation, and the argument that management squashes innovation is not an original one. I think you raise an interesting point that innovation is difficult to curate, and even more difficult to capitalize upon. When companies promote innovation, there is a degree of egaltarianism involved. Program's like 3M's and Google's make these companies desirable places to work, helping to draw and hold talent.

[Truth to Power]

Agreement with Alex on Joseph Schumpeter and ‘Creative Destruction’, you should also note the comments on BBC Radio 4 ‘In Business’ programme, http://www.bbc.co.uk/programmes/b05v6gr4.

I started work as a scientist in 1975 working in a government research laboratory straight from university. I was surprised to find that the director frowned at PhD’s which I later discovered was because (a) the work
was not relevant to the specialist work that we did, and (b) it seemed to condition the scientists in a way that they became less innovated as they did not think outside of the ‘box’. I have often observed that those with PhD’s are poor innovators … something was and is still lacking in our education system … perhaps they become complacent and feel that they have nothing to prove. At that time (not now) the culture within the research lab and university was very similar. My first observation was that none of my colleagues were normal; many were paranoid and hid what they were doing, some were prone to having tantrums, one worked in a dark room with an oil lamp on his desk (health and safety would have had a field day), all were deep specialists, all wanted to be world experts and none of them could be managed in any normal sense. It was a vocation staff worked all hours without overtime payments. If you wanted someone to solve a particular problem the best way of doing this was to doubt that they were cleaver enough to solve such a difficult problem (I guess it was the ‘rebellious child’ ego state). In order to manage a scientist you need to understand their cultures and behaviours, and you do so by asking questions, challenging them, or subtly challenging their knowledge and abilities drawing from their ‘rebellious child’. I now realise that this was ‘diversity’ or ‘requisite variety’. All knew the problems that were unsolved and that is what they did … they innovated. The time and funding was always available to perform science and develop new ideas and this is where the seed corn came from which Kaleberg correctly notes. These people were without doubts the world experts in their respective fields. Within this world people like David Nutt, Sir Tim Hunt, Dr David Kelly, Francis Crick (who have all received backlashes from the system) wold have been seen as having honesty, and integrity, were decent respected and perfectly normal people.

Move onto today – ‘diversity’ is interpreted as meaning ‘protected characteristics’ (race, sex, sexual orientation, etc.,) all of which has little if any meaning within the context of ‘science and innovation’. ‘Diversity’ is a tool used by many to get what they want from the system. Measuring the efficiency of a scientist is extremely difficult … anyone who says that they can either do not understand or are being disingenuous. Today the government research labs try to emulate industry. I observed that corporatism, branding and modern methods of management kill innovation. It is clear that corporate behaviours and branding, together with modern managers (many of who are not scientists), have created a chain reaction which is wrecking UK GDP. Corporatism and branding has stolen the identities of the scientists, destroying their will to innovate, causing them not to work standard hours. Today the true innovators would be considered as being unemployable, but if they were they would undoubtedly be sacked. Modern corporate scientists are not challenged, motivated, and lack the ‘requisite variety’ to innovate. Today it is exactly like working on a Ford production line where the scientists simply have jobs. I remember hearing one manager saying to a member of staff that a scientist simply applies ‘scientific process and that everyone is a ‘scientist’’. Sorry Rick the world has completely changed and scientists are gagged and stifled.