the state as a nexus-of-contractors

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?)

Written by Jerry Davis

August 25, 2009 at 2:41 pm

Posted in uncategorized

10 Responses

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  1. Nice post.

    This isn’t quite what you’re looking for, but Machiavelli’s ‘The Prince’ has some interesting “state as nexus-of-contracts”-type intuition in it (see the various discussions around mercenaries and their proper ‘uses’).

    Also perhaps related — the Greif et al’s ‘Merchant Gild as Nexus of Contracts,’ as well as some of the econ/poli sci stuff on rent-seeking (e.g., Tullock).



    August 25, 2009 at 3:09 pm

  2. this is an important phenomenon, but actually lots has already been written about it!? maybe it pertains mainly to a different circuit from you all, but most recent writings about the future of the state/government contain sections on it, usually under rubrics about government by market and/or government by network. outsourcing and subcontracting has grwe immensely under clinton and bush, but it gained momentum earlier mainly under reagan (remember devolution?).

    acc to quick check of handy biblio, books and articles about the future of the state that cover this include ones by by: Agranoff, Ansell, Atkinson, Borzel, Considine, Dedeurwaerdere, Donahue, Eggers, Fountain, Goldsmith, Jessop, Kamarck, Kenis, Kettl, Light, Milward, Provan, Reinecke, Slaughter, not to mention broader theorizings by Bobbitt, Castells, Drucker, and Rosecrance. the baum and mcgahan paper you mention looks interesting but derivative of these earlier writings.

    but perhaps i misunderstand your point about the OEM state, a term i’ve not heard before?


    david ronfeldt

    August 25, 2009 at 4:01 pm

  3. Agreed. There is already a sizeable literature in Poli Sci on government by network, network governance, government by market, but I am assuming Jerry here means more looking at this phenomenon more from the private side – how private firms take on the roles of government, rather than simply follow their rules (ala Fligstein).

    As such, the implications are more troubling for org theory which undertheorizes the state, than for poli sci which has recognized the power and place of contractors for a while.



    August 25, 2009 at 4:30 pm

  4. Thanks to David for the leads and DR for the clarification. There is of course a large literature in political science on market states (as Bobbitt puts it), but its insights seem to be lamentably lacking in organization studies, where states are often viewed either as a mystical construct (e.g., John Meyer) or a feature of an organization’s “environment” rather than worthy objects of study in their own right.
    I had a couple of things in mind with the post: (1) organization theorists ought to be paying more attention, because the field’s views on states-as-sovereigns has become “quaint” relative both to reality and to other disciplines, and (2) there is reason to imagine that there is something in common about the OEM sensibility that one sees in science, government, and business.



    August 25, 2009 at 5:34 pm

  5. Jerry – I can certainly agree with you that org. studies don’t take the state seriously enough. Still, there seems to be something state-like about states that the “nexus of contract” idea just doesn’t capture completely.



    August 25, 2009 at 5:53 pm

  6. To Brayden’s point — one thing that I think is very different about states is the manner in which states are held to account for their actions (thus affecting boundary choices and contract activity). In theory, states are held accountable by the public through legislative action and judicial proceedings, assuming U.S. and similar contexts; so we might think of states as attempting to manage (including hide) their boundaries in reaction to such oversight. I believe there’s a long history of court cases and laws which push and pull those boundaries — for example, in reaction to some entities going too far in outsourcing, courts declared it impermissible to outsource “inherently governmental” functions***, which is where we get that phrase from. So public entities have more reasons to hide their boundary choices than private entities do. In practice, however, so much flies under the radar of public oversight anyway, as Jerry points out, and so public entities might not need to actively hide their boundary choices in order to avoid such political battles…. making them indeed look like their private counterparts??

    ***I’m playing fast and loose with the description, but that’s the general gist.



    August 25, 2009 at 11:07 pm

  7. […] the state as a nexus-of-contractors « via kwout […]


  8. Great post, Jerry.

    Back in the day, during the Clinton Administration, I worked for a federal employees union and I organized a protest on this. I had my partner Tim dressed in a black burka-like outfit parading up and down the stage with a sign that read “shadow government.”

    I think the “oem state” captures the idea really well. This is a classic ‘boundaries of the firm’ problem but where the boundaries are sometimes set, not by where it would be difficult to protect against malfeasance, but rather where malfeasance is more easily concealed. We need not diminish the state’s sovereigntyness; they’ve done it to themselves in a lot of ways.



    August 26, 2009 at 11:34 am

  9. […] The State as a nexus-of-contractors A really interesting idea from one of the brilliant orgtheorists, which I wish I had time to think about a bit more fully, but don’t right now. Seems esp. relevant to the early 19th century, when the American federal state, was largely contractors. […]


  10. […] with 2 comments For a few years I have been harping about the declining significance of the sorts of 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. […]


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