A Spontaneous Order Firm

Valve’s Chief Economist tries to explain the Valve Model:

A corporation that tries to function as a type of ‘spontaneous order’ (i.e. without an internal system of command/hierarchy) seems like a contradiction in terms. Smith’s and Hayek’s spontaneous orders turn on price signals. As Coase et al explained in the previous section, the whole point about a corporation is that its internal organisation cannot turn on price signals (for if it could, it would not exist as a corporation but would, instead, contract out all the goods and services internally produced). So, if Valve’s own spontaneous order does not turn on price signals, what does it turn on?

The answer is: on time and team allocations. Each employee chooses (a) her partners (or team with which she wants to work) and (b) how much time she wants to devote to various competing projects. In making this decision, each Valve employee takes into account not only the attractiveness of projects and teams competing for their time but, also, the decisions of others. The reason is that, especially when insufficiently informed about projects and teams (e.g. when an employee has recently joined Valve), an employee can gather much useful information about projects and teams simple by observing how popular different projects and teams are (a) with others in general, (b) with others whose interests/talents are closer to their own.

Just like in a marketplace, everything in Valve is in flux. People move about (making use of their desk’s wheels), new teams are formed, new projects are concocted. All this information is observable by the naked eye (one notices an empty spot where David’s desk used to be, and then finds out that David moved to the 4th floor to work with Tom, Dick and Harriet), on the company’s intranet, in cross-team meetings where teams inform each other on what they are working on). People learn constantly, both by observing and by doing, the value to them of different projects and teams. These subjective values keep changing, as the time and team formation signals that are emitted by everyone else are updated.

The idea here is that, through this ever-evolving process, people’s capacities, talents and ideas are given the best chance possible to develop and produce synergies that promote the Common Good. It is as if an invisible hand guides Valve’s individual members to decisions that both unleash each person’s potential and serve the company’s collective interest (which does not necessarily coincide with profit maximisation).

It’s an interesting post, much longer than I have quoted here, although no evidence is given that the time allocation system works anything like an invisible hand–a few good games do not a social revolution make.

Coase’s islands of conscious decision are also often misunderstood. The islands are not cut off from the market sea but are permeated by the sea. Everything that goes on within the firm does so in light of the shadow prices projected from outside. Absent those prices the firm fails into socialist miscalculation.

Still, there is something to be said for how modern technology can coordinate mass action. The phenomena is perhaps most evident in the way that distributed computing coordinates the actions of thousands of computers to solve various problems, each day and each hour drawing on a different set of computers. Coordinating people in this way allows them to quickly participate in joint actions, such as a flash mob. (See also anonymous). Indeed, silicon Valley writ large is not that different from internal Valve, people end and form new firms all the time.

Capitalism allows within itself many alternative social arrangements, to think, however, that one particular such arrangement is the one that must govern the whole is badly to miss the point.


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