Blog post of the day, from Brad DeLong, excerpt:
Somebody last week–was it Jan de Vries? John Ellwood? Somebody
else? I forget who, but it is not original to me–said that the right
model for Harvard over the past century is Yugoslavia. Remember the
story of the Yugoslavian socialist worker-managed firm? If you add
another worker to the firm, that worker gets a pro-rata share of the
firm’s value added. The firm’s value added has a component attributable
to the firm’s capital stock, a component attributable to the ideas
embedded in the firm, a component attributable to the firm’s market
position, and a component attributable to the workers. Hire another
worker, and only the last of these goes up: the first three do not, and
so average compensation falls.This means that a worker-managed firm is likely to shrink whenever
it gets good news that makes it more productive–the larger is the
value added due to ideas, capital, or market position, the more
expensive does it become for the existing workers to replace workers
who leave, let alone hire enough workers to expand. While a competitive
market capitalist firm responds to good news about its productivity and
value to society by increasing employment, a Yugoslavian-model market
socialist firm responds to good news about its productivity and value
to society by shrinking. On this analysis, the very success of Harvard
over the past two generations together with its degree of worker
management has created enormous internal pressures not to expand, the
better to share out the surplus among the existing stakeholders.
That must be the nicest thing anyone has said about Harvard in years.
despite being uncomfortable with many aspects of Harvard (including its unusual tenure system), i’m generally skeptical that it should be doing things much differently since it’s so unbelievably successful. the Chinese research productivity rankings place it at the top by a pretty wide margin with only thirteen other schools producing even half as much research as the big crimson. even if these rankings are flawed in some way, there’s no getting around the fact that Harvard is a very successful institution.
there’s also the issue that the delong model assumes diminishing returns to scale, which is probably true if you think in terms of the endowment. however if there are a lot of network externalities to research then there may be increasing returns to scale (within reason) as you get to benefit from the ideas and resources provided by your colleagues.
Gabriel – the model does not assume diminishing returns to scale, it assumes diminishing marginal productivity of labour with other factor imputs held constant.
quote:
“That analysis also explains why American citizens rationally oppose increased immigration from the third world. Such immigration diminishes returns to current citizens.”
Only if you assume the government has positive net assets. If government debt, including future social security and medicare obligations, exceeds government assets, the case is reversed.
No, Timothy, the “firm’s assets” in question are all the capital and know-how in the hands of citizens– the government is not “the firm” (you have maybe confused American government with Soviet Russian government– American government is mostly a just a leech– in modern American society the government acts like bad weather– it drains productivity from society and transfers wealth from creators to rent-seekers.
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