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The recent and abrupt end of that whole “shareholder capitalism” fad that swept the US indicates that we are at an interesting turning point in the organization of the economy.  Surprisingly, this may be an opportunity for organization theory to have a place in creating a more humane society in the US.

My previous posts (and recent writings) have described developments that undermine the idea of a society of organizations in the US.  One is the disaggregation of production into an OEM model, where the parts needed to create a (temporary) organization are widely available (even to a guy in Irvine with an idea for cheap LCD televisions to compete with Sony and Samsung).  Another is the hegemony, and then the downfall, of the shareholder value model.

Meanwhile, back at organization theory, the dominance of neo-institutionalism has rendered the field largely irrelevant to any practical concerns.  We’ve got a lot of fun exposes of hypocrisy, documentation of diffusion processes dressed up in sociological mumbo-jumbo, and arid discussions of agency-structure dialectics.  But our understanding of organization design – formerly the practical application of organization theory — has languished, and other fields have stepped into the breach (particularly economics and information systems). 

But if the rightful domain of shareholder capitalism has retrenched, as I believe it has, then this might be an opening to rehabilitate organization theory, and even neoinstitutionalism, in the service of creating more participative enterprises.  Institutionalists describe the process by which entrepreneurs draw on the parts available (strewn around the landscape, in Meyer and Rowan’s imagery) to create organizations or projects.  One of the recurring themes of the literature is the role of bricolage (building “with the ruins” available), while another is the pervasive use of analogies and metaphors in creating new forms.  (“It’s like a McDonald’s drive-through for kidney transplants.”)  This kind of thing can be taught, say, to paying customers in b-schools.

If I’m right about the end of the “society of organizations,” or at least the end of the dominance of 20th-century-style encompassing corporations, then we may be on the verge of a Cambrian explosion of new organizational forms.  This time, however, we may be able to escape the utter dominance of shareholder value.  It’s happened before — consider the explosion of cooperative forms created in response to the first wave of corporatization, documented by the estimable Marc Schneiberg.  We still have a surprising number of such non-corporate forms around, even in the US: State Farm Insurance (a mutual), Land ‘o Lakes (a producer cooperative), REI (a consumer cooperative) and the 8000 non-profit credit unions that enroll an amazing 86 million Americans.  (It turns out the US is already socialist, but doesn’t know it.)  And how about Wikipedia, Linux, and the various social movements that generate spontaneous collective action in the absence of a profit motive (e.g., Iran’s “Twitter revolution”)?

Another world is possible, and Art Stinchcombe is its prophet. We’ve been dealt a hand of fantastic new technologies for organizing, and are temporarily free of some of the old constraints in which all enterprises have to end up with an IPO.  Organization theorists can midwife a new period of experimentation by compiling our “flea market” of alternative organization types, and mashing them up with new technologies that lower the costs of coordination.   Examples include Kiva (www.kiva.com), which allows people to do individual micro-lending, or sourceforge.org, where you can post or contribute to open-source projects.  (Incidentally, I’d love examples of this, if people have them.) 

So, to the barricades, or the organization design classroom!  I’m waiting to see that iPhone “democracy app” that turns GM into a kibbutz.

The metaphor that labels education as an “investment in human capital” and friendship as an “investment in social capital” has gone from an academic provocation to a corrosive b-school cliche. But there is one case where “human capital” is exactly the right term: corporate-owned life insurance, a.k.a. “dead peasants insurance” or “dead janitors insurance.” “Through so-called janitors insurance, hundreds of companies have taken out life-insurance policies on millions of workers of all kinds — with the companies as the beneficiaries. Employers take out the coverage because the policies provide tax-free investment buildup for the companies and provide tax-free death benefits when the workers, former employees and retirees die.”

Wal-Mart was the biggest user of COLI in the 1990s, taking out insurance on 350,000 of its workers, and received some negative attention for it a few years ago. But bankers now appear to have taken the lead in perfecting this innovation, using death benefits on current and former workers as a tax-free means to fund executive bonuses and retirement income. “The insurance policies essentially are informal pension funds for executives: Companies deposit money into the contracts, which are like big, nondeductible IRAs, and allocate the cash among investments that grow tax-free. Over time, employers receive tax-free death benefits when employees, former employees and retirees die.”

Insurers had a strong interest in building this business, of course, and those interested in “institutional entrepreneurship” might find a great tale in how insurance companies managed to persuade state regulators that companies had an “insurable interest” not only in current employees but in those they had fired years ago. (The Wall Street Journal describes one bank that bought life insurance on a credit risk manager who had already survived two brain surgeries; fired him four months later; and subsequently collected $1.6 million when he died.)

The financial services industry is regarded as a wellspring of American innovation. Many of the fruits of this innovation have been enjoyed around the world in the past two years. But insurance rarely gets its due. Yet from Charles Ives and Wallace Stevens to AIG’s Hank Greenberg, the insurance business has nurtured artistic genius, in music, poetry, and legal legerdemain.

For several years I have been harping about the declining significance of the organizations that organization theorists write about in the US.  Much of the field seems to imagine a society comprised of countable organizations, like an urn filled with balls of different colors, even as the organizations we encounter turn out to be Potemkin Village facades. (Fabio recently addressed the conundrum of sampling organizations.)  I’ve described instances of this in previous posts about OEM medical research, pet food, blood thinner, and CIA assassinations.

On occasion, real organizations with actual employees disappear, but like the aroma of an adolescent male who’s been gulled by Axe commercials, their scent lingers on in the form of “brand equity.”  This morning’s New York Times Magazine gives an example of such a ghost organization: Linens ‘n Things, a large US retail chain that was recently liquidated and all its 589 outlets shuttered. As is often the case, the brand name itself was auctioned off in the liquidation, and is now attached to an online retail site operated by a generic e-commerce contractor.  According to the article, “Linens ‘n Things itself now has few direct employees, or even a full-time chief executive.”  (Something similar happened to Circuit City, which went from good to great to liquidation last fall, shedding 34,000 employees. Its brand was purchased by Systemax Inc. and now graces another website.)

We might think of this as the hermit crab approach to organizations.  There are several examples of well-known manufacturers that have effectively disappeared but left behind familiar brand names that were profitably re-purposed (cobbled together? recombinated? bricolaged?).  Memorex had a memorable ad campaign for blank audiotapes in the 1970s (“Is it live, or is it Memorex?”), and enough consumers remembered it that it was worth attaching the name to blank CDs and USB drives.  Polaroid’s dormant label was also floating out there for re-use in electronic products unrelated to instant photography, like portable DVD players.  And Westinghouse, founded in 1886 in Pittsburgh and long the major American rival of GE in businesses such as power generation, morphed into CBS in the 1990s, losing its industrial businesses along the way. (It was subsequently acquired by Viacom, then spun off again.)  You can now buy a “Westinghouse” LCD television at an online “Circuit City” store, although the product bears no relation whatsoever to the old Westinghouse Electric company.

The generic infrastructure for producing and distributing goods has become so well-articulated that creating a firm is now a lot like snapping together an Ikea project.  As Meyer and Rowan (1977: 345) put it, “the building blocks for organizations come to be littered around the societal landscape; it takes only a little entrepreneurial energy to assemble them into a structure.”  My favorite example is Vizio, which is one of the three largest flat-panel television “producers” in the US.  It was created a few years ago by a Taiwanese-born entrepreneur in Irvine who recognized that flat-panel TVs are largely built from commodity parts, so he pitched Costco on a low-priced product to be built by a Taiwanese contract manufacturer that one of his friends had founded.  Vizio is now distributed through several chains, including Costco and Sam’s Club.  It turns out that a half-dozen employees can be enough to build a major business that competes with Sony and Samsung. 

 There are still some brand names floating free out there.  It might be a fun class project for orgtheory to buy the Pontiac brand, work out a distribution deal with AutoNation or Penske, and find an up-and-coming Chinese maker of electric autos to supply product.  It won’t bring any jobs back to Detroit, but it might show a practical application of new institutional theory.

The revelation that hundreds of articles published in medical research journals were actually written by contractors in the employ of pharmaceutial companies, and fronted by high-status “authors” at fancy universities, seems to be part of a broader movement toward an OEM (“original equipment manufacturer”) format among organizations.  Pet food laced with melamine was sold under over 100 brand names but produced by the same vendor in Ontario, poisoning thousands of pets in the US.  Baxter Health’s blood thinner heparin, manfactured by a Chinese contractor, killed 81 and injured hundreds of others due to toxins in its supply chain (which reaches back to rural pig farmers).  The dream of financial economists, in which the corporation is nothing but a nexus-of-contracts, seems to have come true.

The OEM format has also found traction in the US federal government.  Vigorous interrogation, extraordinary renditions to allies with different cultural traditions around prisoner treatment, you name it — they often turn out to be done by contractors.  Nowadays, you can’t even trust the label on a CIA assassination, as it might turn out to be Blackwater.  Don’t brand names mean anything any more?

The American OEM state in its current version traces back to the Clinton administration.  As part of his “reinventing government” initiative, Clinton sought to emulate some of the best practices of the corporate world to enhance government efficiency.  A principal way this was accomplished was by the use of contractors.  The Federal Activities Inventory Reform Act of 1998 (“FAIR Act”) mandated that every Federal agency and department — including the military — identify any activities they do that could in principle be done by contractors, and put them out for bid each year.  Activities that were “inherently governmental” were supposed to be immune from contracting, but the boundaries around that term proved porous.  (What could be more inherently governmental than assassination programs?)

Federal civilian employment declined every year under Clinton from a high of over 3 million at the start of his term to 2.7 million at the end, and it has stayed at almost precisely this number ever since. At the same time, there has been a burgeoning growth of contractors, with annual spending growing from $200 billion to $400 billion under Bush. This sector is far larger than many of us realize, and contract employees evidently outnumber Federal employees by a big margin. “The biggest federal contractor, Lockheed Martin,… gets more federal money each year than the Departments of Justice or Energy.”  Indeed, the three largest remaining US-based manufacturers are all military contractors (Boeing, Lockheed Martin, and Northrop Grumman).

Organization theorists by and large have not caught up with this model of the OEM state. We’re still accustomed to thinking of states as sovereigns, the source of laws and regulations (although recent work by Joel Baum and Anita McGahan on the growth of neo-mercenary corporations is a great start). Of course the OEM state is not entirely new: Italian merchant states of the Renaissance also contracted out for military and tax services. And many states are in effect run as conglomerate businesses (e.g., Singapore, Dubai). But is there more work out there examining the OEM state? If not, why not? (Can we convince any promising grad students to abandon performativity or actor-network theory for a dissertation on the forms of 21st century states?)

First off, thanks to the orgtheory crew for inviting me on as a guest blogger.  I am clearly the oldest one in the room by a couple of decades, which reminds me of that Mos Def concert I attended a couple of years ago. I can only hope that blogging does not lead to Twitter and piercings.

It has recently come to light that major drug companies routinely contract with ghostwriters to draft journal submissions favorable to the drug companies’ products and then shop them around to high-status researchers to serve as their “authors.”  The most recent example is Wyeth, which evidently paid for over two dozen published papers (at $25K a pop) supporting the use of hormone replacement therapy for menopausal women.  Wyeth sold $2 billion per year of such drugs in 2001.  The following year, Wyeth’s sales plummeted when a large Federal study found that hormone replacement drugs increased the risk of cancer, heart disease, and stroke.

Wyeth was far from alone, as apparently ghost-written journal articles are an open secret in the industry, widely used as a marketing device by big pharma companies for drugs ranging from fen-phen (which causes heart damage) to Vioxx (which increases the risk of heart attack and stroke).  In fact, Merck funded the creation of a faux-journal in Australia, the “Australasian Journal of Bone and Joint Medicine,” which ran for 3 years to push its pain reliever Vioxx until the drug was removed from the market.

Top medical schools are rife with researchers who have attached their names to articles that, in some cases, they have barely read.  Some journals have adopted policies requiring the disclosure of financial relationships, and Sen. Grassley is attempting to use NIH funding as a lever to stop the practice.  But the prior scientific record, going back at least a dozen years, evidently contains hundreds of articles that are effectively marketing propaganda for drug companies.

I had two divergent reactions to this revelation. Read the rest of this entry »