Saturday, April 23, 2011
Is it possible for a large number of highly intelligent, highly competent people to act together in a highly INCOMPETENT fashion? Of course, just look at Congress! But even for-profit, joint-stock corporations can behave incompetently if they are cloistered from competition due to legal entry barriers and/or their large size. I've been interacting with LCFIs (large, complex financial institutions) since the beasts blew up the economy back in aught 8. My working hypothesis is that they were, and remain, organizationally incompetent. Lots of smart people behaving like utter morons. LCFIs resist this hypothesis because it suggests a policy that they cannot countenance, their breakup by regulators or raiders. They are too big to manage efficiently (diseconomies of scale) but so large that they cannot help making large profits, at least accounting profits, due to their market and political power. What Henry Kaufman called the Bigness Dilemma c. 2005 has muted somewhat. The dilemma now is HOW to break up ... you know the ones ... not IF they should be dismantled. At present, regulators have the power but not the will to do so and takeover specialists have the will but not the power.