Herbert Simon (1916-2001) is most famous for what is known to economists as the theory of bounded rationality, a theory about economic decision-making that Simon himself preferred to call “satisficing”, a combination of two words: “satisfy” and “suffice”. Contrary to the tenets of classical economics, Simon maintained that individuals do not seek to maximise their benefit from a particular course of action (since they cannot assimilate and digest all the information that would be needed to do such a thing). Not only can they not get access to all the information required, but even if they could, their minds would be unable to process it properly. The human mind necessarily restricts itself. It is, as Simon put it, bounded by “cognitive limits”.
1981/6/8
HOW TO SUCCEED IN BUSINESS
Illustrations: drawing
CORPORATE CONTROL, CORPORATE POWER A Twentieth Century Fund Study. By Edward S. Herman. 432 pp. New York: Cambridge University Press. $18.95. EXECUTIVE By Harry Levinson. With the Assistance of Cynthia Lang. 370 pp. Cambridge, Mass.: Harvard University Press. $18.50. MANAGING THE PUBLIC'S BUSINESS The Job of the Government Executive. By Laurence E. Lynn Jr. 211 pp. New York: Basic Books. $14.95.
IN quite different ways these three books enlarge our understanding of the reasons for the disquietingly poor performance of the American economy since the late 1960's. Aspects of the continuing problem include flagging productivity, rates of saving and investment much below those of Japan and Western Europe, endemic dissatisfaction with government, erosion of America's competitive position in world markets and the calamitous condition of the auto and steel industries. Popular dismay at the failure of incomes to keep step with the cost of living contributed heavily last November to the displacement of a moderate Democrat as Chief Executive by a conservative Republican devoted, for good or ill, to public policies quite different from those pursued since the end of World War II by both Democratic and Republican Presidents.
In ''Corporate Control, Corporate Power,'' a notably well-written and keenly argued study, Edward S. Herman, professor of finance at the University of Pennsylvania's Wharton School, has reassessed the classic ''The Modern Corporation and Private Property,'' by A.A. Berle and Gardiner Means. Writing half a century ago, they pinpointed the mounting importance of the large corporation and argued that it was increasingly marked by separation of ownership and management:Control drifted inexorably into the hands of the managers, who were frequently able to co-opt one another and perpetuate their position. This enormously influential thesis has served John Kenneth Galbraith among others as the basis for the argument that even the managers have lost much of their effective authority to a ''technostructure'' (a word of Galbraith's coinage) of experts - lawyers, accountants, management consultants, marketing gurus and financial wizards.
Mr. Herman has reclassified some of the original Berle and Means data and drawn heavily upon subsequent inquiries, including some of his own, essentially to reaffirm the continuing validity of his predecessors' central finding. In 1981 as in 1931, managers enjoy considerable, but not unlimited, autonomy. So long as managers preside over a reasonable pace of profitable growth or plausibly explain financial setbacks as temporary, the stockholders, who ostensibly exert final authority, in fact remain passive, quite content to collect regular dividends and anticipate ultimate capital gains. Mr. Herman concludes that ''the corporation has become ever more dominant in economic life over the past 80 years'' and that, in so prospering, it ''has preserved its autonomy to a remarkable degree.'' Inevitably, ever more massive corporations (last year Exxon's sales exceeded $100 billion) have evolved into complex, formally organized institutions, as much characterized by bureaucracy as are the routinely excoriated government agencies.
Have growth, complexity and institutional preeminence nudged corporations away from an obsessive emphasis upon maximum profits? Do modern corporations aspire to growth, social responsibility and attempts to balance stockholder interests with those of employees, customers, suppliers and communities? (In his political explanation of corporate behavior, Nobel Prize-winner Herbert Simon has coined the neologism ''satisficing'' to describe these new tactics.) To these queries, Mr. Herman's response is convincingly negative. Profit continues to dominate the corporate vision. Indeed, the expanding role of security analysts, stock market expectations of short-run profits, corporate incentive systems that reward senior managers for almost immediate bottom-line results and the job-hopping propensities of contemporary business school alumni and alumnae all contribute to more rather than less insistence upon profit this year, if not this quarter, as the only meaningful measure of performance.
Accordingly, Mr. Herman casts a skeptical eye on claims that huge corporations deliberately surrender profits in pursuit of larger market share -let alone vague social objectives. The news that a corporation has exceeded its affirmative-action hiring target rarely if ever sends its stock soaring in cynical Wall Street. In Mr. Herman's opinion, growth is usually perceived by corporate managers as the path to future profit. Mr. Herman is similarly resistant to claims from business apologists that government regulation hobbles corporate initiative. On the contrary, because ''government has been confined to support functions and excluded from participation in primary economic activities,'' it has become ''a hostage to the business community,'' able to ''move only a limited distance in opposition to business desires'' lest incentives falter and recession ensue.
In short, like Charles Lindblom in his 1979 ''Politics and Markets'' and Thorstein Veblen at the turn of the century, Mr. Herman convincingly identifies large corporations as the most important of domestic interests. Such dominion entails, if not social enlightenment, at least economic responsibility for the consequences. By this standard, friends of large business have a job of explanation before them. As the more critical business media have been routinely complaining, corporate emphasis upon short-run financial gain has dangerously scanted research and development, neglected good design and dependable performance and driven the most patriotic of American consumers into the clutches of foreign suppliers. Far more successfully than their Japanese and German rivals, American corporations have resisted union participation in management, nonhierarchical organization of work in factories and offices, effective regulation and legal limitations upon layoffs and plant closings. It is a paradox of politics in a conservative society that Congress, the President and the public seem united in their eagerness to increase the rewards and diminish the restraints upon business entities that, on their recent record, seem better entitled to tighter public control and closer regulation.
What is to be done? In the enormous literature of business commentary, a persistent theme of advice to business leaders is to straighten up and improve their treatment of employees. In his book ''Executive,'' Harry Levinson, one of the leaders of the human-relations school of management, urges executives to become teachers and mentors. As he defines them, the central problems of management concern emotions and attitudes. Good leaders mesh individuals of differing temperaments and attitudes into smoothly functioning groups. Quite unlike Mr. Herman, Mr. Levinson takes it for granted that the modern corporation is a socially responsible agency with a major role ''in developing and strengthening the social forces that uphold the American democratic heritage.''
Happy workers produce more and goof off less. Their devotion to job and employer pays off in the larger sales and profits that in turn are the source of better wages and benefits for all. As Mr. Levinson makes clear, in the well-managed corporation there is no place for unions, which are predicated upon adversary relations between employer and employees. Practitioners of human-relations techniques in industry have often been accused, not without justification, of manipulation, but in Mr. Levinson's ideal situation no manipulation is necessary. Management and workers share objectives and reap mutual rewards.
Like most pleasant fancies, this one is blighted by unpleasant reality. When the issue focuses upon closing a factory in the Northeast and opening its replacement in Texas or Brazil, the interests of employees in the frost belt and the stockholders diverge. For that matter, young managers who are not adopted by mentors are unlikely to share the anointeds' enthusiasm for corporate success. Moreover, particularly during spells of slow growth or actual recession, American corporate reaction has been to trim payrolls ruthlessly, install labor-saving equipment, relocate facilities and otherwise promote the perceived interests of stockholders and top managers at the expense of workers, displaced executives and communities shorn of their economic sustenance.
There is another point. Mr. Levinson's senior executives teach above all by example. Exhortations to identify with an employer emanate with dubious grace and even less plausibility from supervisors busily negotiating their own passage to better jobs in rival organizations. The dissonance is acute between the individualistic ethic instilled by business schools and the ethos of group integration that animates Mr. Levinson's prescriptions for corporate renewal. *
Is government even worse managed than the corporation? As Laurence E. Lynn Jr. makes clear in his well-informed inquiry, ''Managing the Public Business,'' Congress habitually enacts statutes grandiose in objective, vague in specification of the techniques for their attainment, conflicting in definition of authority and, worst of all, inadequate in funding. The tendency has been especially marked in the environmental-and consumer-protection legislation of recent years. Under the circumstances, the wonder is not that Washington agencies sputter and operate at cross purposes, but that anything at all of consequence is achieved. With Mr. Lynn, the tale comes full circle. Government is the mirror image of the large corporation. Much as the latter is indulged and subsidized, the former is distrusted and harrassed.
At least at the Federal level, Americans probably get better government than they think they do. By contrast, corporations deliver less in the hard coin of efficiency and rising living standards than the public might justly expect, given the corporations' privileged position in our society. It is unlikely in the extreme that complete enactment of the Reagan Administration's economic proposals will measurably improve corporate performance.
CORPORATE CONTROL, CORPORATE POWER A Twentieth Century Fund Study. By Edward S. Herman. 432 pp. New York: Cambridge University Press. $18.95. EXECUTIVE By Harry Levinson. With the Assistance of Cynthia Lang. 370 pp. Cambridge, Mass.: Harvard University Press. $18.50. MANAGING THE PUBLIC'S BUSINESS The Job of the Government Executive. By Laurence E. Lynn Jr. 211 pp. New York: Basic Books. $14.95.
IN quite different ways these three books enlarge our understanding of the reasons for the disquietingly poor performance of the American economy since the late 1960's. Aspects of the continuing problem include flagging productivity, rates of saving and investment much below those of Japan and Western Europe, endemic dissatisfaction with government, erosion of America's competitive position in world markets and the calamitous condition of the auto and steel industries. Popular dismay at the failure of incomes to keep step with the cost of living contributed heavily last November to the displacement of a moderate Democrat as Chief Executive by a conservative Republican devoted, for good or ill, to public policies quite different from those pursued since the end of World War II by both Democratic and Republican Presidents.
In ''Corporate Control, Corporate Power,'' a notably well-written and keenly argued study, Edward S. Herman, professor of finance at the University of Pennsylvania's Wharton School, has reassessed the classic ''The Modern Corporation and Private Property,'' by A.A. Berle and Gardiner Means. Writing half a century ago, they pinpointed the mounting importance of the large corporation and argued that it was increasingly marked by separation of ownership and management:Control drifted inexorably into the hands of the managers, who were frequently able to co-opt one another and perpetuate their position. This enormously influential thesis has served John Kenneth Galbraith among others as the basis for the argument that even the managers have lost much of their effective authority to a ''technostructure'' (a word of Galbraith's coinage) of experts - lawyers, accountants, management consultants, marketing gurus and financial wizards.
Mr. Herman has reclassified some of the original Berle and Means data and drawn heavily upon subsequent inquiries, including some of his own, essentially to reaffirm the continuing validity of his predecessors' central finding. In 1981 as in 1931, managers enjoy considerable, but not unlimited, autonomy. So long as managers preside over a reasonable pace of profitable growth or plausibly explain financial setbacks as temporary, the stockholders, who ostensibly exert final authority, in fact remain passive, quite content to collect regular dividends and anticipate ultimate capital gains. Mr. Herman concludes that ''the corporation has become ever more dominant in economic life over the past 80 years'' and that, in so prospering, it ''has preserved its autonomy to a remarkable degree.'' Inevitably, ever more massive corporations (last year Exxon's sales exceeded $100 billion) have evolved into complex, formally organized institutions, as much characterized by bureaucracy as are the routinely excoriated government agencies.
Have growth, complexity and institutional preeminence nudged corporations away from an obsessive emphasis upon maximum profits? Do modern corporations aspire to growth, social responsibility and attempts to balance stockholder interests with those of employees, customers, suppliers and communities? (In his political explanation of corporate behavior, Nobel Prize-winner Herbert Simon has coined the neologism ''satisficing'' to describe these new tactics.) To these queries, Mr. Herman's response is convincingly negative. Profit continues to dominate the corporate vision. Indeed, the expanding role of security analysts, stock market expectations of short-run profits, corporate incentive systems that reward senior managers for almost immediate bottom-line results and the job-hopping propensities of contemporary business school alumni and alumnae all contribute to more rather than less insistence upon profit this year, if not this quarter, as the only meaningful measure of performance.
Accordingly, Mr. Herman casts a skeptical eye on claims that huge corporations deliberately surrender profits in pursuit of larger market share -let alone vague social objectives. The news that a corporation has exceeded its affirmative-action hiring target rarely if ever sends its stock soaring in cynical Wall Street. In Mr. Herman's opinion, growth is usually perceived by corporate managers as the path to future profit. Mr. Herman is similarly resistant to claims from business apologists that government regulation hobbles corporate initiative. On the contrary, because ''government has been confined to support functions and excluded from participation in primary economic activities,'' it has become ''a hostage to the business community,'' able to ''move only a limited distance in opposition to business desires'' lest incentives falter and recession ensue.
In short, like Charles Lindblom in his 1979 ''Politics and Markets'' and Thorstein Veblen at the turn of the century, Mr. Herman convincingly identifies large corporations as the most important of domestic interests. Such dominion entails, if not social enlightenment, at least economic responsibility for the consequences. By this standard, friends of large business have a job of explanation before them. As the more critical business media have been routinely complaining, corporate emphasis upon short-run financial gain has dangerously scanted research and development, neglected good design and dependable performance and driven the most patriotic of American consumers into the clutches of foreign suppliers. Far more successfully than their Japanese and German rivals, American corporations have resisted union participation in management, nonhierarchical organization of work in factories and offices, effective regulation and legal limitations upon layoffs and plant closings. It is a paradox of politics in a conservative society that Congress, the President and the public seem united in their eagerness to increase the rewards and diminish the restraints upon business entities that, on their recent record, seem better entitled to tighter public control and closer regulation.
What is to be done? In the enormous literature of business commentary, a persistent theme of advice to business leaders is to straighten up and improve their treatment of employees. In his book ''Executive,'' Harry Levinson, one of the leaders of the human-relations school of management, urges executives to become teachers and mentors. As he defines them, the central problems of management concern emotions and attitudes. Good leaders mesh individuals of differing temperaments and attitudes into smoothly functioning groups. Quite unlike Mr. Herman, Mr. Levinson takes it for granted that the modern corporation is a socially responsible agency with a major role ''in developing and strengthening the social forces that uphold the American democratic heritage.''
Happy workers produce more and goof off less. Their devotion to job and employer pays off in the larger sales and profits that in turn are the source of better wages and benefits for all. As Mr. Levinson makes clear, in the well-managed corporation there is no place for unions, which are predicated upon adversary relations between employer and employees. Practitioners of human-relations techniques in industry have often been accused, not without justification, of manipulation, but in Mr. Levinson's ideal situation no manipulation is necessary. Management and workers share objectives and reap mutual rewards.
Like most pleasant fancies, this one is blighted by unpleasant reality. When the issue focuses upon closing a factory in the Northeast and opening its replacement in Texas or Brazil, the interests of employees in the frost belt and the stockholders diverge. For that matter, young managers who are not adopted by mentors are unlikely to share the anointeds' enthusiasm for corporate success. Moreover, particularly during spells of slow growth or actual recession, American corporate reaction has been to trim payrolls ruthlessly, install labor-saving equipment, relocate facilities and otherwise promote the perceived interests of stockholders and top managers at the expense of workers, displaced executives and communities shorn of their economic sustenance.
There is another point. Mr. Levinson's senior executives teach above all by example. Exhortations to identify with an employer emanate with dubious grace and even less plausibility from supervisors busily negotiating their own passage to better jobs in rival organizations. The dissonance is acute between the individualistic ethic instilled by business schools and the ethos of group integration that animates Mr. Levinson's prescriptions for corporate renewal. *
Is government even worse managed than the corporation? As Laurence E. Lynn Jr. makes clear in his well-informed inquiry, ''Managing the Public Business,'' Congress habitually enacts statutes grandiose in objective, vague in specification of the techniques for their attainment, conflicting in definition of authority and, worst of all, inadequate in funding. The tendency has been especially marked in the environmental-and consumer-protection legislation of recent years. Under the circumstances, the wonder is not that Washington agencies sputter and operate at cross purposes, but that anything at all of consequence is achieved. With Mr. Lynn, the tale comes full circle. Government is the mirror image of the large corporation. Much as the latter is indulged and subsidized, the former is distrusted and harrassed.
At least at the Federal level, Americans probably get better government than they think they do. By contrast, corporations deliver less in the hard coin of efficiency and rising living standards than the public might justly expect, given the corporations' privileged position in our society. It is unlikely in the extreme that complete enactment of the Reagan Administration's economic proposals will measurably improve corporate performance.
