November 22, 2020 at 12:39 am #4531
Blair Fix’s “An Evolutionary Theory of Resource Distribution” (Real-World Economics Review, 2019) provides a compelling, wide-ranging theory of social power and its effects. Near the end of the article, however, as he rightly assails the assumptions of human capital theorists about the relation of “hidden skills” to hierarchical positionality, I believe he hits a wrinkle in his richly laid-out tapestry of human competition and collaboration.
This wrinkle is not one that undoes his thesis. Rather, when smoothed out, I believe it lends even more credence to his characterization of the power ethos so central to our modern corporations. In the following response, I propose to do some of that smoothing out, picking up from his critique of the “unobserved heterogeneity issue” (Acemoglu and Autor, 2011).
Is a growth or loss of skills reflected directly in an individual’s professional promotion or demotion (and consequent rise in or loss of income)? No, of course not. As Fix establishes, the timings just don’t work out. Skills take time to develop while promotions happen instantly. Skills deteriorate gradually while demotions often take place without warning.
But this is an oversimplification of the relationship between skill-change and hierarchy-change. After all, isn’t a promotion the realization of pre-developed skills? Isn’t demotion an “unrealization” of skills, deteriorated or not, that the firm no longer deems useful?
To be promoted, an individual generally attempts to grow skills that can be realized through promotion and the expansion of their professional power. Until promotion, many of these skills go unrealized because there are no outlets to realize them. Call these outlets “professional responsibilities.” These responsibilities may be directly related to an individual’s ability to wield power over (or inspire obedience in) subordinates. They may also be related to the individual’s mastery over aspects of their established professional discipline, or to aspects of disciplines other than their own.
This is why, in some firms, titles like “lead” exist, for individuals who focus on growing their depth of current skills rather than the breadth necessary to become a “manager” or “director.” Fittingly, pay increases are generally smaller for promotion into a “lead” role than they are for promotion into a “manager” role, which explicitly expands an individual’s control over subordinates. When being demoted, it is reasonable to surmise that these skills are being deemed unnecessary to the utility of the firm. Through the decrease in hierarchical position and income, the utilization of these skills (embodied in the individual) is being unrealized—usually forcibly so. Unlike promotion, individuals rarely seek demotion.
That all of these decisions (of promotion and demotion; of increases and decreases in income; of not just the realization but the quantification and even the very evaluation of professional skills) are made by those up the hierarchy about those down the hierarchy is evidence enough of hierarchical power distribution in a firm—evidence ultimately borne out in Fix’s empirical research into the distribution of income within the firm. It doesn’t need the damning timing “mismatch” that he identifies.
This is the essential difference between the unfree corporation and the free association. A corporation might provide mechanisms (beginning with the initial job interview, and continuing through one-on-one check-ins with a manager, annual performance reviews, etc.) for the individual to advocate for their skills and, therefore, hierarchical position and income. However, the ultimate decisions about that individual’s skills and position are made on the terms established by the corporation—or more specifically, the corporation’s hierarchy. In a free association, an individual is treated as the ultimate authority on their skills, and other associated individuals (whether working above, below or alongside the subject) act as the legitimizing agents of their skills, responsibilities, position and income through a process generally referred to as democracy.
Even if the “hidden skills” that human capital theorists must believe in to explain the positions and movements within a given hierarchy were to exist, these skills would not account for an individual’s relative lack of input about the skills with which they themselves are most intimately familiar and control over how those skills are utilized. The belief in these “hidden skills” is merely capitulation to the logic of the corporation’s unaccountable hierarchical structure: a belief that those above can and do truly understand, assess and compensate those skills simply by the nature of their position in the hierarchy.
If that were the case, these “hidden skills” wouldn’t be hidden at all. They’d be easily explicable, measurable and even testable. Not only could we potentially see how often a manager is right or wrong in their assessments of subordinates, we would likely see this reflected in the manager’s own position in the firm’s hierarchy.
But this is not how managers are assessed. While a constant revolving door of subordinates may constitute a dark mark on a manager’s record, it is by no means make or break. Just like the successes of a manager’s subordinates are defined by their obedience to the manager, a manager’s success is defined by their obedience to the individuals even further up the hierarchy. If the company or industry culture is such that turnover rate is deemphasized, a manager’s “hidden skill” at assessing subordinates is also deemphasized. Think of fast food service, telemarketing and other industries that not only ignore a manager’s inability to successfully assess and retain talent but rather develop systems that make constant turnover less disruptive.
So if these hidden skills don’t exist (or at least are explicable as observable skills), where does this leave us? Back with Fix’s concept of the modern “power ethos” in which people are empowered to act according to their social influence. That influence allows them to control when the skills of subordinates are realized and unrealized, regardless of when the subordinates actually develop those skills. Decisions about the realization of skills are made according to the mission of the firm, or more specifically, the logic of the corporate hierarchy. If those skills are “not needed” by the firm, then the individual will not be promoted and their professional responsibilities will not be expanded—regardless of how useful the skills may be agnostically.
It’s in this hierarchical decision-making process (and not simply the promotion or demotion of individuals within a hierarchy, or even their increased or decreased income) that the true control inherent in the power ethos is made apparent—a process that readily and regularly eschews useful skills and their potentialities in service to the “needs” of the firm, dictated by those at the very top of the hierarchy with the least information about the firm’s members but the most power over them.
November 22, 2020 at 9:23 am #4533
A quick note, Jeremy, to say that your comments are well received. They highlight many of the problems of understanding causation in a social environment, and are worth a detailed reply. I hope to have one by next week.
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