Maybe it’s not technology that’s killing of corporation but incompetence?
As a corollary this would explain why government bureaucracy is often so inefficient, selection effects can’t kill of disfunctional government departments.
Very interesting observations! Personally I’d perhaps phrase it the other way around, not ‘incompetence is killing corporations’ but more something like ‘what changed in the past 70 years that allowed people to build long-living corporations back then and not now, assuming today’s regular company deaths are caused by incompetence?’. My personal guess is that either back when these long-living companies were founded (~1890’s) there was much more low-hanging fruit on the market, allowing less efficient companies to still survive, or alternatively that today’s economic environment is much more risk-tolerant so the selection for competence happens much more *after* founding a company.
I agree fully with the government bureaucracy remark, although I suspect there are a ton of other very important effects at work there too (for example, out of all organisations I expect governments in particular to have high accountability and regular run-ins with Chesterton’s fence, both of which increase bureaucratic load).
This is a disturbing line of thought, and… while I think this is not a complete explanation, it feels like it explains a lot.
The word “incompetent” does a lot of heavy lifting here, though. What exactly it means in this context? Do we play motte and bailey with meanings “a complete retard, making random decisions” and “less awesome than Elon Musk”?
Because if we assume that people are complete retards, then the market selection is not strong enough to explain what keeps the lights on. (Mathematically speaking, there are much more possibilities to screw up things, than the number of companies trying to provide electric power.)
So I guess the correct interpretation is that people are sort of competent, but the selection effect allows (some of) them to achieve more than their personal competence alone would predict. A complete retards would ruin any company, but if you find people who have a 10% chance of keeping the company running… then you simply need dozens of them in dozens of companies, and some of the companies will survive. But because the situation changes, the survival dice will be rolled again later, and the person who kept the company running yesterday may fail to keep it running today.
EDIT: This interpretation also fits the “low hanging fruit” hypothesis: For simple types of companies, you can find people who have a 10% chance to keep them running. For difficult types of companies, you can only find people who have a 1% chance. But if there is enough money, enough people will try it, and some of these companies will survive, too. Their life expectancy will be much shorter, though.
It could even provide an answer to Eliezer’s post about competent elites: similarly to Peter Principle, if you are a super-competent person whose chance to keep the company running is not the usual 10%, but rather 50%, it is more profitable for you to actually try running a more complex company (where you have the 10% chance, and anyone else has 1%) instead. So it is true that more competent people end up in more complex companies, and at the same time, people end up in positions that exceed their personal competence.
I think ‘competent’ should in this context mean something like ‘has the ability to, after being pointed to a gap in the market, build and/or keep functional a company that fills this gap’. This agrees fully with what you said, there is an extreme lot of wiggle room between ‘total retard’ and this sense of competent (in fact, I think almost everybody lives in this wiggle room). Furthermore, I think it makes sense to naively think that the abundance of successful companies suggests a lot of people are competent in this sense, whereas I claim this is not the case.
There are not a lot of CEO of big companies and those who are believed to be competent can draw huge salaries. Even if all the CEO would be competent the total pool of people might be still quite small.
There’s also the interesting question of why we have successful cities that have lifespans of hundreds of years that get a lot less management and why companies that are managed by a CEO fail so often.
Why is the organization form of a city so much more stable?
Because demand for cities isn’t volatile? Like, if you’re a company, you’re operating in the market, where people have a choice whether to use/buy your product/service. If what you’re producing isn’t high-quality/doesn’t meet a market need, your company fails (and the quality of the product is often a direct consequence of a CEO’s decisions).
Conversely, with cities there’s a lock-in: people build lives there; they invest in their houses, communities, and personal relationships. Cities are not nearly as fungible as (almost all) products. So even if the city is poorly run, people have strong incentives to stay there rather than moving elsewhere.
Plus, a city is more than its organizational structure: it’s the geographical features, the businesses that operate there, and the people who live there. (To some extent the latter two are downstream of the city’s organization, but they’re definitely not fully determined by it).
tl;dr it’s a lot easier to lose customers than to lose citizens. I don’t think the situations are all that comparable or that we can learn anything meaningful about competence by looking at the success of the average city.
Not completely surprised but would wonder how much of that is accounted by merger and it that should be considered the same as failure/bankruptcy cases.
I suspect the technology that would make mergers less costly has increased since the 50s. If so there were perhaps mergers that were not taking place but would have.
That matches reality. The average age of companies in the SAP500 is now at 20 years and was 60 years in the 1950s: https://www.cnbc.com/2017/08/24/technology-killing-off-corporations-average-lifespan-of-company-under-20-years.html
Maybe it’s not technology that’s killing of corporation but incompetence?
As a corollary this would explain why government bureaucracy is often so inefficient, selection effects can’t kill of disfunctional government departments.
Very interesting observations! Personally I’d perhaps phrase it the other way around, not ‘incompetence is killing corporations’ but more something like ‘what changed in the past 70 years that allowed people to build long-living corporations back then and not now, assuming today’s regular company deaths are caused by incompetence?’. My personal guess is that either back when these long-living companies were founded (~1890’s) there was much more low-hanging fruit on the market, allowing less efficient companies to still survive, or alternatively that today’s economic environment is much more risk-tolerant so the selection for competence happens much more *after* founding a company.
I agree fully with the government bureaucracy remark, although I suspect there are a ton of other very important effects at work there too (for example, out of all organisations I expect governments in particular to have high accountability and regular run-ins with Chesterton’s fence, both of which increase bureaucratic load).
This is a disturbing line of thought, and… while I think this is not a complete explanation, it feels like it explains a lot.
The word “incompetent” does a lot of heavy lifting here, though. What exactly it means in this context? Do we play motte and bailey with meanings “a complete retard, making random decisions” and “less awesome than Elon Musk”?
Because if we assume that people are complete retards, then the market selection is not strong enough to explain what keeps the lights on. (Mathematically speaking, there are much more possibilities to screw up things, than the number of companies trying to provide electric power.)
So I guess the correct interpretation is that people are sort of competent, but the selection effect allows (some of) them to achieve more than their personal competence alone would predict. A complete retards would ruin any company, but if you find people who have a 10% chance of keeping the company running… then you simply need dozens of them in dozens of companies, and some of the companies will survive. But because the situation changes, the survival dice will be rolled again later, and the person who kept the company running yesterday may fail to keep it running today.
EDIT: This interpretation also fits the “low hanging fruit” hypothesis: For simple types of companies, you can find people who have a 10% chance to keep them running. For difficult types of companies, you can only find people who have a 1% chance. But if there is enough money, enough people will try it, and some of these companies will survive, too. Their life expectancy will be much shorter, though.
It could even provide an answer to Eliezer’s post about competent elites: similarly to Peter Principle, if you are a super-competent person whose chance to keep the company running is not the usual 10%, but rather 50%, it is more profitable for you to actually try running a more complex company (where you have the 10% chance, and anyone else has 1%) instead. So it is true that more competent people end up in more complex companies, and at the same time, people end up in positions that exceed their personal competence.
I think ‘competent’ should in this context mean something like ‘has the ability to, after being pointed to a gap in the market, build and/or keep functional a company that fills this gap’. This agrees fully with what you said, there is an extreme lot of wiggle room between ‘total retard’ and this sense of competent (in fact, I think almost everybody lives in this wiggle room). Furthermore, I think it makes sense to naively think that the abundance of successful companies suggests a lot of people are competent in this sense, whereas I claim this is not the case.
There are not a lot of CEO of big companies and those who are believed to be competent can draw huge salaries. Even if all the CEO would be competent the total pool of people might be still quite small.
There’s also the interesting question of why we have successful cities that have lifespans of hundreds of years that get a lot less management and why companies that are managed by a CEO fail so often.
Why is the organization form of a city so much more stable?
Because demand for cities isn’t volatile? Like, if you’re a company, you’re operating in the market, where people have a choice whether to use/buy your product/service. If what you’re producing isn’t high-quality/doesn’t meet a market need, your company fails (and the quality of the product is often a direct consequence of a CEO’s decisions).
Conversely, with cities there’s a lock-in: people build lives there; they invest in their houses, communities, and personal relationships. Cities are not nearly as fungible as (almost all) products. So even if the city is poorly run, people have strong incentives to stay there rather than moving elsewhere.
Plus, a city is more than its organizational structure: it’s the geographical features, the businesses that operate there, and the people who live there. (To some extent the latter two are downstream of the city’s organization, but they’re definitely not fully determined by it).
tl;dr it’s a lot easier to lose customers than to lose citizens. I don’t think the situations are all that comparable or that we can learn anything meaningful about competence by looking at the success of the average city.
Cities do need customers for the products that they export as well. Otherwise they can’t import the food to feed their population.
Not completely surprised but would wonder how much of that is accounted by merger and it that should be considered the same as failure/bankruptcy cases.
I suspect the technology that would make mergers less costly has increased since the 50s. If so there were perhaps mergers that were not taking place but would have.