Sunday, October 23, 2011

The RED Heart of Capitalism: Secret Socialism in our Midst!

I work for a big company.  A very, very big company.  You know this company, trust me.  You are likely to see the logo for this company at home or at your office every day.  Let's call it BigCo™ to protect the innocent.

BigCo™is usually positioned as a paragon of capitalist virtue and a model of how to run a large, global business.  The CEO of BigCo™ appears regularly with important political leaders and his advice is sought by the Administration and Congress as a voice of know-how to solve the problems of the most complex capitalist systems.  BigCo™ also happens to be a massive socialist bureaucracy with a planned economy and a pathological fear of competition.

Ultimately, companies live or die in the marketplace.  They offer products to customers, they compete with one another in tighter and tighter margins, improve processes to manufacture ultimately ending up with a better mousetrap.  Thomas Edison didn't invent the lightbulb, but he figured out how to make it profitable.  Henry Ford didn't invent the automobile, but he worked out a better way to build it.  Steve Jobs didn't invent the MP3 player, but he made it cool and easy to use.  These are the virtues of capitalism and the power of the market.  The market shapes and drives innovation through the competitive process, the "better mousetrap" is the result of this structured conflict between organizations.

But inside BigCo™ (and, as far as I know, all other large companies) is a gigantic centrally planned economy.  The market is nowhere to be found.  There are no markets for IT services or HR services or Finance services.  Those functions are clearly delineated and the turf guarded jealously by petty bureaucrats protecting their organizational turf and their fat budgets.  All the shortcomings of a centrally planned economy are on display.

The question to ask, of course, is that if markets are so efficient and so utterly awesome, and capitalism is so fabulous, why don't these captain's of industry enforce market behavior inside the walls of their own companies?  Why can't the invisible hand be set free to improve corporate governance and reduce internal costs? Can't we establish an equilibrium point inside a company as well as outside? Arent the same efficiencies available inside the company as well as outside?  What are the capitalists so afraid of?

BigCo™  employs a large workforce dedicated to the management of the Central Plan.  They organize and track and make sure that the appropriate (or inappropriate) levels of central control are exerted over the closed economy.  Workflows with countless layers of approval ensure that nothing gets done without everyone knowing about it.

It looks kind of like this:

The central planning bureau provided the required components and resources to meet the manufacturing goals. The bureau arranged for and scheduled the delivery of materials required for manufacturing. The dissemination of the manufactured goods was also the responsibility of the planning bureau. The designers, prototypers, and manufacturing engineers operated independently from the logistics of manufacturing. Manufacturers were not burdened by the challenges of defining and creating markets, estimating, meeting, or creating consumer demand for new and old products, or the logistics of taking the end product to a market. All of these functions were performed by the planning bureaus.
The USSR sounds exactly like BigCo™writ large.  We've got planning groups, design groups, finance groups, production groups, etc.  None of them compete with any other internal groups for the "business."  Indeed, they are all chartered monopolies, state mandated bureaucracies.  In fact, any attempt to challenge their authority is met with stern reprisals.

Working in IT, this becomes most apparent in the criticism of "Shadow IT."
Shadow IT is a term often used to describe IT systems and IT solutions built and used inside organizations without organizational approval.
The market forces at work in shadow IT are important to understand.  Shadow IT arises when the work of the central planning authority don't match the consumer needs of a given group or groups of "customers" inside the business.  So managers outside of IT seek to solve their own problems by embarking on projects that supplant the work of the IT department.

Rather than attempt to harness the supposedly efficient and competitive forces of the market demonstrated by shadow IT, the IT department attempts to squish it.  Competition is actively discouraged and suppressed.

So at some level, all economies are planned economies.  The question is, where does the planning start and what level of planning makes the most sense to achieve maximal good for the most people.

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