The Radical account of hierarchy comes down to this: (1) All legitimate efficiency purposes of organization can be discerned by reference to the neoclassical theory of the firm; (2) neoclassical theory makes no provision for hierarchy; accordingly (3) the alternative hypothesis—namely, that hierarchy operates in the service of power—wins.
Original contributions by Stephen Marglin (1974) and Katherine Stone (1974) are central to the Radical critique. WhetheXthere is an efficiency justification for hierarchy is examined by Marglin both with reference to Adam Smith’s treatment of the division of labor and in terms of the historical displacement of nonhierarchical by hierarchical modes. To the question “What do bosses do?” Marglin offers the reply: Bosses exploit workers, and hierarchy is the organizational device by which this result is accomplished.
T.S. Ashton contends that examining the organization of work in the context of pinmaking is regretable:81 Pinmaking is neither economically important nor technologically interesting. The pinmaking example nevertheless has several advantages. For one thing, the technology is simple. Not only are the tasks and tooling relatively’uncomplicated, but successive stages of pinmaking are technologically separable. There is no occasion, therefore, to disallow certain types of nonhierarchical work modes at the outset because of the “imperatives of technology.” Instead, a wide range of organizational modes are technologically feasible, and transactions rather than technology are arguably determinative.
Second, the pinmaking example has the advantage of being already familiar to social scientists. Indeed, it would be difficult to cite another case where the economies that accrue to the specialization of labor are thought to be so clearly established. Not only does Smith discuss the production process in detail, but Charles Babbage (1835, pp. 1-75-83) and Ashton (1925) give even more complete descriptions. Third, and related, although Smith’s use of th* Pmmaking example to illustrate the advantages of the specialization of labor was long thought to be uncontroversial, Marglin argues that Smith’s discussion of alternative modes for organizing pinmaking is incomplete and is biased in favor of hierarchy. Whether pinmaking ought to be organized hierarchically is thus actively open to dispute.
Smith s discussion of the division of labor in the context of pinmaking is worth recounting in detail. He observed that
… in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head, to make the head requires two or three distinct operations; to put it on is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them. I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day. [Smith, 1922, pp. 6-7]
The factors that are responsible for the advantages attributable to the division of labor are identified by Smith as follows:
This great increase of the quantity of work which in consequence of the division of labour, the same number of people arc capable of performing, is owing to three different circumstances; first, to the increase of dexterity in every particular workman; secondly, to the saving of the time which is commonly lost in passing from one species of work to another; and lastly to the invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many. [p. 9]
Several things are noteworthy about those observations. For one thing, Smith is imprecise about the organizational and ownership relations that exist among the workmen in the small factory in question, though one may infer that the workmen were subject to an authority relation and that the plant and equipment was owned by a capitalist owner-manager who directed the work. Second, only a single alternative to factory organization of the kind described is considered. The alternative is for each man to work “separately and inde- pendently,” each pin being crafted separately, start to finish, before work on the next is begun. Intentionally or not, the comparison is thereby rigged in favor of factory modes of organization.
As Marglin (1974, p. 38) points out, the separate crafting of each indi- vidual pin is absurd. Both dexterity and setup time economies can be realized by substituting batch processing for separate crafting: “It appears to have been technologically possible to obtain the economies of reducing setup time without specialization. A workman, with his wife and children, could have proceeded from task to task, first drawing out enough wire for hundreds c thousands of pins, then straightening it, then cutting it, and so on with eac successive operation, thus realizing the advantages of dividing the overa production into separate tasks.” Indeed, in Marglin’s view, the “capitalist division of labor, typified by Adam Smith’s famous example of pin manufacture, was the result of a search not for a technologically superior organization of work, but for an organization whictfguaranteed to the entrepreneur an essential role in the production process, as integrator of the separate efforts of hiTviwRers into a marketable product” (1974, p. 34; emphasis added).
As indicated, the familiar neoclassical production function framework, whereby economizing is accomplished mainly by equating marginal rates of transformation with relative factor prices, is simply inimical to the proposition that organization form matters. Marglin recognizes this and appears to concede that hierarchical organization yields economies of other kinds. The success of the factory (hierarchy) over the putting-out system is thus described by Marglin as follows Additional or related productivity advantages of hierarchy, as compared with the putting-out system, are that hierarchy permits the benefits of innovation to be appropriated more completely (Marglin, 1974, p. 48) and serves to check “embezzlement and like deceits” (p. 51).
Despite productivity and efficiency consequences of those kinds, radical economists take the position that hierarchy lacks redeeming social purpose. For one thing, productivity gains that are attributable to discipline are involuntary. The disutility of work presumably more than offsets the output gains that result from discipline. Second, although hierarchy may check transactional disabilities associated with nonhierarchical modes, those disabilities are evidently thought to be unimportant or are explained, by institutional defects of a remediable kind. As an example of the latter, Marglin (1974, p. 49) contends that the patent system could be reshaped in ways that vitiate the innovative advantages the patent system currently assigns to hierarchy. Accordingly, his answer to the question, “Is hierarchical authority really necessary to high levels of production?” appears mainly to be negative: Although hierarchy may favor the accumulation of capital (p. 34), the coupling of the hierarchical organization of work with an extensive division of labor is artificial and has as its object the exploitative purpose of “ ‘divide and conquer’ rather than efficiency” (p. 39).
Not only do radical economists argue that hierarchy lacks a compelling efficiency rationale, but they further contend that the history of hierarchy supports the alternative hypothesis, namely, hierarchy arose in the service of capitalist power over labor. Stone’s (1974) interpretation of the transformation of the steel industry in the late nineteenth century develops that argument in a way that both Samuel Bowles and Herbert Gintis (1976) and Marglin (1974) find compelling. Also, radical economists take the position that not only are nonhierarchical work modes more efficient, but they result in greater work satisfaction (Bowles and Gintis, 1976, pp. 78-81).
The steel industry transformation is interpreted in transaction cost terms in section 5, while the matter of work satisfaction is deferred to the following chapter. The central issue, and my main interest here, is an assessment of alternative work modes in transaction cost terms. If, as alleged, hierarchy does not serve efficiency purposes, the power relationship hypothesis is more compelling. If, however, hierarchy serves to economize on transaction costs, then an alternative explanation for the historical events to which Marglin and Stone refer warrants serious consideration.
Source: Williamson Oliver E. (1998), The Economic Institutions of Capitalism, Free Press; Illustrated edition.