Hierarchies are systematically stupid and inefficient, for the following reasons.
1. Hayekian information problems: The people in authority who make the rules interfere with the people who know how to do the job and are in direct contact with the situation. The people who make the rules know nothing about the work they’re interfering with. The people who make the rules are unaccountable to the people who do know how to do the work. Consequently, all authority-based rules create suboptimal results and irrationality when they interfere with the judgment of those in direct contact with the situation.
People in authority make stupid decisions because the people who know more than they do are their subordinates, and the only people who can hold them accountable know even less than they do.
The only way the people doing the work can get anything done is to treat irrational authority as an obstacle to be routed around, the same way the Internet treats censorship as damage and routes around it.
2. Groupthink: Hierarchies systematically suppress negative feedback on the results of their policies. As R.A. Wilson said, nobody tells the truth to a man with a gun. Hierarchies are very good at telling naked emperors how good their clothes look.
Hierarchies also systematically suppress critical thinking ability in their members. Psychological studies have found that people in positions of authority become less likely to evaluate communications based on their internal logic, and instead evaluate them based on the authority of the source.
3. Opacity from above: A major theme of “Seeing Like a State,” by James Scott, is that states try to make populations “legible” from above, and hence more amenable to control. We might add a “seeing like a boss” corrollary about the analogous phenomenon inside hierarchies. The problem is that such legibility is very costly, if not impossible, to achieve.
Hospitals are a good example. Most of the paperwork that nurses are required to fill out results from the fact that management doesn’t trust them to do what it wants them to do without some independent means of verification. But the paperwork is worthless, unless management operates on the assumption that those same nurses can be trusted to fill out the paperwork honestly. It all boils down to the fact that management knows their interests are diametrically opposed to those of the nurses, but there’s no way to actually get inside the nurses’ heads and look out through their eyes and thereby overcome this fundamental agency problem. So bosses constantly look for new, ineffectual gimmicks to get around the problem, resulting in endless layers of new paperwork that are as useless as the old paperwork.
Conclusion. To the extent that hierarchical organizations leave subordinates with freedom of exit, they are not coercive in the same way that the state is. But given that hierarchies are artificially prevalent because of state policies, and those who work within them do so as a necessary evil resulting from artificial constraints on the range of competing opportunities, the hierarchy resembles a microcosm of statist society, in which the agency and knowledge problems of authority internally mirror the irrationalities created by state authority in society at large.
So long as the predominant production methods required large aggregations of capital beyond the means of individuals and small groups, and corporate hierarchies were propped up by state ones, the cultural pathologies of hierarchy were surmountable. But technological change is rapidly eroding the requirement for capital outlays, nullifying the advantages of capital ownership, and increasing the vulnerability of hierarchy to external and internal attacks by self-organized networks.
So hierarchies, increasingly, lack the resources to compensate for their handicaps — even with help from the state. The state will only bankrupt itself, along with corporate hierarchies, in trying to prop up the old order.
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