The coronavirus produced an epidemic of working from home. This has revealed a sharp split, between business leaders who want their workers back in the office, and a workforce that would rather stay home. My bet is that the return to the office that many CEOs anticipate will not take place. Building security firm Kastle Systems’ Workplace Occupancy Barometer probably will not return to 50 percent anytime soon. And I expect to see soft demand for office construction to last for many years.
Category Archives: business economics
Defining the term culture
From a paper by Gary Gorton and others.
A sensible list of elements in that package, though neither nearly exhaustive nor likely satisfactory to all, is as follows, adapted from a variety of such lists in the literature:
• unwritten codes, implicit rules, and regularities in interactions;
• identities, self-image, and guiding purpose;
• espoused values and evolving norms of behavior;
• conventions, customs, and traditions;
• symbols, signs, rituals, and group celebrations;
• knowledge, discourse, emergent understanding, doctrine, ideology;
• memes, jokes, style, and shared meaning;
• shared mental models, expectations, and linguistic paradigms.
Pointer from Tyler Cowen.
The paper goes down hill from there, ending up with a mathematical model. I think that the best way to approach the issue of corporate culture is to ask what problems various practices are supposed to solve. I think that in general there are three types of problems, all of which plague the process of central planning in general:
1. Coordination/resource allocation. Without a price system, how do you allocate resources efficiently? For example, the corporate organization chart is supposed to help with coordination. Also supposed to address the coordination problem is that bane of every white-collar worker, the business meeting.
2. Incentives/principal-agent problems. How do you implement systems that are not gamed to the advantage of individuals within the firm but to the disadvantage of the owners of the firm?
There are many problems of this type. And there are various errors that could be made in either direction, e.g. giving middle managers too much incentive to take risks or too much incentive to be risk-averse.
3. Playing the game of evolution: stick with the status quo; copy another player; or innovate. Each alternative has its pros and cons, depending on market conditions and internal capabilities. If your business plays the game well, you coalesce around making the right moves. If you don’t, you make too many mistakes and you lose.
Hiring practices are important here. If you always promote from within, that will bias you toward playing “status quo.” If you hire a lot of senior management from other firms, that will bias you toward “copy.” If you hire junior people and advance them quickly, that will help you play “innovate.”
Office workers trickling back
The number of workers returning to traditional office space has been edging higher since the week of Labor Day, when an average of 31% of the workforce was back in the 10 major cities monitored by Kastle Systems. The average hit 35% during the week that ended Oct. 1 and 36% during the week that ended Oct. 8, a new high during the pandemic period, said the security company that tracks access-card swipes.
The Kastle Systems Office Occupancy Barometer seems like a really interesting indicator to follow.
Explaining woke takeovers
perhaps economist Gary Becker, who was awarded the Nobel Prize in 1992 and died in 2014, had the answer. As the relative importance of firm-specific human capital declines, workers are less invested in their organizations. This weakens the organization’s commitment to its mission and values.
Balaji wants a $600 toilet seat
Someone, not Balaji, forwarded this to me.
the world needs a global, decentralized, censorship-resistant inflation dashboard. For the next 90 days, we’re accepting submissions for this project. We’ll invest $100k in the best entrant
…what we want to build is a maximally government-independent, on-chain, open-source, crypto oracle version of MIT’s Billion Prices Project, which uses raw data from many different online merchants to provide a public, transparent, reproducible, and internationally useful calculation of how much inflation is happening.
In addition,
The ultimate version of the smart contract would allow you to pick some weighted basket of goods to get a personal inflation calculator
Thirty-five years ago, there was a mini-scandal when it was discovered that the Pentagon was paying $600 for a toilet seat. When consultants looked into it, they discovered that the military procurement process kept adding requirements to proposals until they became ridiculously expensive to fulfill. I was reminded of that when I saw Balaji’s requirements document. In my email back to the individual who had forwarded it to me, I wrote:
I would say that by the time you could execute this, $100,000 would have been eroded by inflation to almost nothing. 😉
Seriously, it’s way too hard as described. Anyone who submits a proposal shows me that they are too delusional to be trusted with an investment.
If the problem is governments hiding inflation, then I would aim for a simpler solution. Come up with a list of about 20 broad categories, such as durable consumer goods, medical services, housing, transportation, etc. Then for each category come up with a list of about 10 items that are typical within the category, which together track broader price indexes in that category, and for which price data are obtainable in many locations. Think about items that would be hard for the government to manipulate–for example it is unwise to choose a type of bread that a government subsidizes. So now you have 200 items for which you need to collect data.
I think that a lot of the requirements go way beyond trying to get a decent measure of inflation, e.g. enabling the calculation of an individualized inflation estimate. If it were me calling for proposals, I would focus the requirements on obtaining a hard-to-game inflation measure and get rid of all the other crazy requirements. This looks like something a team of government bureaucrats would dream up, and no genuine entrepreneur should go near it.
Seminar for Paid Substack Subscribers
More information here. We will meet using Zoom. Eight weeks, forty bucks.
The seminar will meet on Monday evenings, from 8-9 PM New York time, starting November 1 and finishing December 20.
The topic is Institutional Irrationality. I think that many of our current problems cannot be solved by institutions that have gone off the rails.
Speaking of Institutional Irrationality
If Afghanistan should have taught us anything, it is this: When confronting an enemy, we need a clear set of goals, a reasonable plan to achieve those goals as efficiently as possible and an ironclad exit strategy.
He argues that the virus response failed to do this.
Go back to the quoted passage and for “When confronting an enemy” substitute “When our organization undertakes an initiative…” That might make for a pretty good definition of institutional rationality. It leaves out the possibility of rationally setting out to undertake an activity permanently. But in fact it is hardly ever viable to do the exact same thing in the exact same way long term.
Remote capital
In the post pandemic future of work, nine out of 10 organizations will be combining remote and on-site working, according to a new McKinsey survey of 100 executives across industries and geographies. According to the Wall Street Journal, technical and engineering employees applicants are insisting on being able to work from home part of the time. “It’s become really sort of a requirement if you’re looking for top talent,” according to a software executive.
One consequence of the pandemic is that our businesses created a lot of what I call “remote capital,” meaning the ability to handle work remotely. The most obvious example is the use of Zoom. But managers had to learn to deal with remote work forces, and workers had to learn how to get things done and learn things when not in the office.
I understand the argument that young people need mentoring and networking, and the office is better for that. I understand the phenomenon of “Zoom fatigue.” And I think that the generally bad reviews given to remote K-12 education tell us something the disadvantages of not being together in person–although some of what it may tell us is that giving parents a window into the classroom exposes them to some disappointing realities of K-12 pedagogy.
But I think that the winning businesses will be those that can creatively deal with the challenges posed by remote work, as opposed to those that try to force as many employees into the office as much as possible. The more effectively you can use remote workers, the less you will have to pay a premium to get people to work for you, since the vast majority of workers prefer not to have to go to the office five days a week. And, of course, you save on office rent.
I think that within a few years we will see more remote work than during the pandemic. I would bet on remote capital.
Who is an insider?
Andrew Gelman gives a wishy-washy answer.
Steven Levitt’s an outsider in academic economics because, before he blazed the Freakonomics trail, it was generally considered second-rate for economists to work on fun little problems instead of the big questions. I often feel like an outsider myself because I do applied statistics and it sometimes seems that theoretical work gets more respect within the statistics profession. I know this feeling is ridiculous—I’m as much of an insider in statistics as Levitt is in economics or Cuomo was in politics—but it’s hard sometimes to avoid having that outsider feeling.
I go back to David Halberstam’s description of Robert Lovett as the ultimate insider. If you wanted to get ahead in the foreign policy world circa 1960, Lovett’s approval was a big factor. Similarly, if you wanted to get ahead in macroeconomics circa 1980, Stan Fischer’s approval was a big factor. In my macro memoir, I contrast Fischer with Robert Shiller. Shiller won a Nobel Prize, and I think everyone would agree that his research had greater impact (setting aside my own mixed feelings about Shiller’s work). But Shiller did not have the same weight within the profession. I think it’s because there is another game going on, aside from the game of doing important research. Call the other game academic politics, if you will. It means pleasing those above you on the totem pole and joining in when someone below you is mocked and scorned. Think of how a member of a teenage gang behaves in order to achieve higher status within the gang. Fischer mastered that game, and Shiller never really bothered to.
Shareholders vs. stakeholders
if a focus on stakeholders always or usually benefited shareholders, then there would be no reason to argue for a focus on stakeholders. Thus, one can reasonably assume that those who advocate a focus on “stakeholders” believe that such actions would make shareholders worse off, but that this social tradeoff is worthwhile.
I doubt that anyone says this out loud. In any case, Taylor links to a paper by Bebchuk, et al, that finds (as they and others have always found) that CEOs focus on shareholders.