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Comment by fiatmoney | Hacker News Reader

The notion of internal competition is really tricky, since you're also competing externally. If you believe in the classic explanations of the theory of the firm, "companies" exist so they can be effectively communist on the inside in an attempt to lower transaction costs. If you have teams competing against each other directly for resources, time-to-market, etc. you don't really have a reason to be a single company anymore.

OTOH, a little bit of internal competition to penalize complacency, if there's not too much wasting of resources, is probably a good thing. It's been fairly common IME for different teams to be working on very related concepts (eg, HPC platforms for different tasks), with a sort of implicit understanding that the team that does well will be able to do the logical extension of the project, and the team that doesn't will work on something else.

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> If you believe in the classic explanations of the theory of the firm, "companies" exist so they can be effectively communist on the inside in an attempt to lower transaction costs. If you have teams competing against each other directly for resources, time-to-market, etc. you don't really have a reason to be a single company anymore.

Sure you do. It allows someone at the top to flip the switch between market and central command. Ideal firm size and vertical consolidation varies between industries, and plausibly varies in different environments, different times, etc.

Ha! The team that "loses" gets to go try something new, and the team that "wins" gets to take their new product into maintenance/bug fix/enhancement mode?

Looks like the joke is on the winning team.

See also what happened to Sears when the CEO tried to apply objectivist principles.

I don't think it's objectivist at all -- it's somewhere between "let's not put all our eggs in one basket" and "it's unlikely we got it 100% the first time so don't be afraid to start from scratch."

For the downvoters: http://www.bloomberg.com/news/articles/2013-07-11/at-sears-e...

Where can I find more information about the theories that claim companies exist to be communist?

I don't buy the "first to win argument", but it would seem useful to take multiple approaches to solving the same or similar problems.

Coase's Theory of the Firm

https://en.wikipedia.org/wiki/Theory_of_the_firm

although I think fiatmoney is conflating a centrally planned command economy with communism.

although I think fiatmoney is conflating a centrally planned command economy with communism.

Seems like a distinction without a difference, considering that every time a nation tries to implement the latter they end up with the former as an "intermediate stage" of the revolution that somehow never goes away.

In a corporate body, there is no pretense that central planning is a transitional stage. There are a few exceptions like Valve and Zappos, but even fewer genuine success stories where a non-hierarchical structure has outperformed traditional ones in the long run.

Well the fascist countries for instance traditionally had a centrally planned command economy too, and 'fascist' (although that word has perhaps even more baggage than communism) is probably a closer fit to how companies act than 'communist'. Also while "crazy ass dictatorship" lacks any sort of unified political/economic manifesto, they always seem to end up looking like centrally planned economies too, though fewer companies of any real size end up as "crazy ass dictatorships" thanks to the magic of bureaucracy.

Yes, in the US, "fascist" is a general-purpose insult directed at whatever politicians or parties the speaker doesn't like. One of those terms that brings more heat than light.

I think that Morningstar is an even better, non-tech example with lower skilled workers - it shows that self organization works, even in normal firms.

http://www.inc.com/audacious-companies/leigh-buchanan/mornin...

"Communist" is a loaded word, but it gets at the idea.

One of the thorniest problems in business economics is this: we know free markets produce extraordinary results, but why is it that even in the absence of regulation, so little of the economy is structured as a free market? Very few businesses of any size operate internally as a market, instead they usually operate under hierarchical command and control. Markets generally exist only at the interfaces between organizations.

Why don't teams bid competitively within a company? How do individuals decide on the teams to form? Why are managers allowed to rise to the point of failure? Why do we pay people salaries instead of hourly wages? Why do we hire hourly wage labor as if though its was permanent?

The number of questions raised by this topic is endless.

The most general explanation is this: yes, companies adopt inefficient structures, but they more than make up for this through significantly reduced transaction costs.

"Why do we hire hourly wage labor as if though its was permanent?"

At the current cost of hourly labor if you made it even more like temporary labor than it already is the quality of worker you could obtain at that price would be terrible.

Some regulation is necessary to even define a free market.

If you believe current US (at least for most of the population) law theory, all employment relationships are completely at-will. They may be terminated at any time for any reason. I would argue that is all that is required for a free market. This would seem to contradict the claim that most companies to not internally operate as a market.

I know there exist serious breaches of this freedom (ie. slavery), but it is not supposed to be the norm anymore.

I have always thought that it was because the level of planning required to run a small to medium sized company is just able to be handled by the human mind. Economy level planning is just too complex for humans and we have to fall back on the next most efficient structure - free markets.

It's also interesting that we know opening up to external markets helps in some ways. For example, the app store.

In highly competitive environments, humans tend to adopt a "single executive" type organizational structure. In short, there needs to be a single decision maker who can set strategy, make decisions, approve direction and so on at at least the rate of the competition. Committee systems work fine when things are more steady state and there's less existential threat.

Nations almost all adopt an executive system because nations compete. The U.N. doesn't because Earth doesn't have to compete with anything else. Imagine a competitive interplanetary situation and you can bet the Secretary General of the U.N. would quickly gain significant decision making powers.

Collectivist market philosophies tend to be built on the assumption that there will be no competition internally and thus can be run by various committees. However, even countries trying to follow various types of collectivist ideologies ended up with single executive-types at the top, again because countries compete.

On the small scale, many indigenous tribal systems rely on a council during times of peace, and elect an executive (sometimes called a "war chief") during times of war.

The phrase "business is war" is particularly appropriate since most businesses operate like they're at war.

> On the small scale, many indigenous tribal systems rely on a council during times of peace, and elect an executive (sometimes called a "war chief") during times of war.

That's how the Roman Republic operated, too: the Senate would elect a dictator for six months to handle certainly irregular situations. Unlike any other Roman official, he had no colleague who could countermand his orders, and he was not legally liable for any act he committed in office.

"Why do we hire hourly wage labor as if though its was permanent?"

Could you give an example of this? Are you talking about using contractors to get through a project, and then keeping them on indefinitely after the project is over?

See also this old EconTalk interview: http://www.econtalk.org/archives/2008/01/munger_on_the_n.htm...

Read Ronald Coase's Nature of the Firm: http://www3.nccu.edu.tw/~jsfeng/CPEC11.pdf It isn't really that firms are communist internally, but that firms exist to reduce transactions costs. Such as contracting for every thing every day (i.e. I don't need a new contract every single day at my job).

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