Market-Based Management®

Friedman says NO to third way!

Socialism, as the government ownership of all property and firms, is dead.  Despite this markets have not been fully embraced, especially in Europe. Many still believe that a free market is not the path they wish to walk, especially in labor markets, and so seek to have the government involved in pursuit of neither socialism nor the free market as they search for a third way.  Here is Milton Friedman's take in a recent interview for New Perspectives Quartarly (NPQ) the Winter 2006 issue (and available here - no subscription required)

NPQ | British Prime Minister Tony Blair argues there is a “third way”—for example, flexible labor markets without hire-and-fire American-style. This, he argues, is more suitable to the “European social model” with its enduring concern with social justice. Is there an in-between way, or must it be all or nothing?

Friedman | I don’t think there is a third way. But it is true that a competitive market is not the whole of society. A great deal depends on the qualities of the population and the nation in how they organize the non-market aspects of society.

NPQ | Perhaps the Scandinavian countries are a model to look at. They are high-tax but also high-employment societies. And they have freed up their labor markets much more than in Italy, France or Germany.

Friedman | Though it is not as true now as it used to be with the influx of immigration, the Scandinavian countries have a very small, homogeneous population. That enables them to get away with a good deal they couldn’t otherwise get away with.

What works for Sweden wouldn’t work for France or Germany or Italy. In a small state, you can reach outside for many of your activities. In a homogeneous culture, they are willing to pay higher taxes in order to achieve commonly held goals. But “common goals” are much harder to come by in larger, more heterogeneous populations.

The great virtue of a free market is that it enables people who hate each other, or who are from vastly different religious or ethnic backgrounds, to cooperate economically. Government intervention can’t do that. Politics exacerbates and magnifies differences.

Ford's Future

Mark Fields, Ford's president of American operations, recently talked about the need for Ford to restructure and 'rightsize' - a term used to describe the closing of at least 14 North American plants.  Ford is examining its dealer network and trying to figure out the appropriate geographic mix. From the article

Fields also said Ford was taking a more collaborative approach to working with its dealers as it cuts costs and readies a new line-up more heavily weighted toward passenger cars and hybrid vehicles.

"I think to one degree or another we have been arrogant in the past," Fields said.

Global Views on Free Markets

Here's a fascinating read... This University of Maryland survey seems to be very consistent with our anecdotal experiences as we roam the world conducing MBM workshops. Hat tip to Dennis Broughton for bringing it to our attention.

The 'new' organization

A recent economist had a survey about the evolving nature of businesses. One quote I found interesting

“You can't have a bunch of hippies running a plant full of explosive hydrocarbons,” he says. “But would you rather have the plant operated by trained professionals, for whom pride in safe working is part of their personal identity, or by people who only work safely because they are afraid of the boss? The identification of discipline with hierarchy is a dangerous mistake.” Mr Fairtlough's preferred alternative is something he calls “responsible autonomy”, a form of organisation in which groups of workers decide for themselves what to do, but are accountable for the outcome.

The article goes on to say "But there are many reasons why companies are not in a hurry to adopt them." An article examining why 'scientific management'  (the type of managment espoused by Fred Taylor) is not yet dead starts by describing the three main tenets of Taylorism.

The first principle of "scientific management" as Taylor called it, is the decoupling of the labor process from the skills of the workers: "The managers assume [..] the burden of gathering together all of the traditional knowledge which in the past has been possessed by the workmen and then of classifying, tabulating, and reducing this knowledge to rules, laws, and formulae".

The second principle is: "All possible brain work should be removed from the shop and centered in the planning or laying-out department".

The third principle is, that management should not leave it to the workers to decide how they go about their tasks. Instead, management should prescribe exactly how, and how fast, the tasks must be performed.

The author goes on to say that one of the key attractions of Taylorism is that it

"promises that the best possible method, "the one best way" will be used. Whether there exists a one best way to work may be a matter of philosophical debate. Taylor strongly believed in it."

Organizations will continue to practice a version of Taylorism as long as the people "at the top" always believe that their way is the best (and therefore the only) way. A worker who is treated like a machine will never contribute as much to the process as a worker who is truely engaged and whose knowledge is respected and harnessed. A organization that rejects Taylorism must therefore ensure that its workers not only have the knowledge and skills to do the job but that they also have values and beliefs aligned with their organization. Only then will an organization engender a culture of 'responsible automony' and allow all of its employees a chance to find fulfillment in their work.