In America, people shopped at Walmart instead of local mom & pop stores because it had lower prices and more selection, so Walmart and other chain stores grew and spread while lots of mom & pop stores shut down. Why didn't that happen in Wentworld?
This comment caused it to occur to me that working in software development might produce a distorted view of this situation. In most types of companies, if you want to scale, you have to hire a lot more people to build more things and sell to more people. So scaling large is a much more natural thing to do. And cultural norms around that might then just spread to corporations where that’s less relevant.
It's worth noting that there's no Walmart in Germany. German shopping malls usually have a variety of different shops. While it's still true that a lot of those shops are chains, it's a different model than the Walmart model.
A company focusing on lower prices and more selection is not what won economically in Germany. Aldi and Lidl manage to focus on low prices but not high selection.
Aldi manages to expand to the United States but Walmart doesn't seem to be able to expand to Germany or for that matter Europe at all.
According to wikipedia, Aldi has ~ 273 000, Lidl has ~376 000 employees.
These are not local mom & pop stores, and scale similarly as Walmart, even if not concentrating on broadness of selection.
They are not mom&pop stores, but that does not mean that they are they same.
If they would scale similarly as Walmart, why is it easily possible for those companies to move to the US but not for Walmart to move to Europe?
Walmart is nearly an order of magnitude higher in employee count than that with 2,300,000 employees.
Aldi further has the Nord/Süd divisions where one brother runs each decision and has it's own hierarchy under them which makes for a different structure. Both Aldi and Lidl are privately held and not stock companies like Walmart.
Aldi has five layers of management while Walmart has nine layers of management. That's a difference in terms of bureaucracy.
If you are interested in how organizations are actually organized, being conscious of how they differ and how there different structures lead to different behavior is important.
In general having shopping malls that have their own branding and include dozens of stores, where Aldi and Lidl might be individual stores, is quite different than having all shopping malls owned by a large chain and run all the businesses in the shopping mall.
Of course they are not literally the same, but in the context of the particular article we are commenting on, both Aldi, Lidl and Walmart are large bureaucratic organizations (specialized in retail). They all benefit vastly from economics of scale and to increase output they have to create new stores and hire more people to run them (and increase the throughput of their supply chain).
I think the cruxes here are whether Aldi forced out small retailers like Walmart did; and how significant the difference between Walmart and Aldi is, compared to the difference between Aldi and large, successful retail orgs in wentworthland or christiankiland.
(my experience in German shopping is that most grocery stores are one of a half-dozen chains, most hardware stores are Bauhaus or OBI, but there isn't a dominant "everything" store like Walmart; Müller might be closest but its market dominance and scale is more like K-mart in the 90's than Walmart today.)
Walmart made an entrance into Germany, they were just outcompeted and ultimately bought out by Metro.
It did happen in Wentworld, the resulting corporate structure just doesn't look suspiciously hierarchical, and the corporate culture doesn't look suspiciously heavy on dominance/submission.
Hard to know the full story of what it would look like instead, but I'd guess the nominal duties of Earth!management would be replaced with a lot more reliance on people specialized in horizontal coordination/communication rather hierarchical command & control, plus a lot more paying for results rather than flat salary (though that introduces its own set of problems, which Wentworlders would see as one of the usual main challenges of scaling a company).
I think you might be living in a highly-motivated smart and conscientious tech worker bubble. A lot people are hard to convince to even show up to work consistently, let alone do things no one is telling them to do. And then even if they are self-motivated, you run into problems with whether their ideas are good or not.
Individual companies can solve this by heavily filtering applicants (and paying enough to attract good ones), but you probably don't want to filter and pay your shelf-stockers like software engineers. Plus if you did it at across all of society, you'd leave a lot of your workers permanently unemployed.
I think you might be living in a highly-motivated smart and conscientious tech worker bubble.
Like, in a world where the median person is John Wentworth
"What if the entire world was highly-motivated smart and conscientious tech workers?" is the entire premise here.
2That probably applies to at least half of all the sociological/governance stuff posted on LW… Plus no existing literature search beyond the first page of google scholar, or sometimes even at all.
Well if the question is "If the whole world is made of smart people with really high motivation, why is it how it is?" the answer is "That question assumes some false things"
Yeah, that's part of the problem with the hypothetical, but even in a world where the premises of Wentworld/ "What if the entire world was highly-motivated smart and conscientious tech workers?" were true, I'd still contest the idea that bureaucracy would be unnecessary, primarily due to both coordination reasons and the fact that verification would still be massively easier than generation for a lot of natural problems, so I still don't buy the logical implication.
There would probably be less bureaucracy, but not none in his world.
But that premise falls apart as soon as a large fraction of those (currently) highly motivated (relatively) smart tech workers can only get jobs in retail or middle management.
The large organizations we see are clearly not even remotely economically efficient
I think a large organizations are often have non-obvious advantages of scale.
My mental model is that businesses grow approximately until the marginal cost of adding another employee is higher than the marginal benefit. This can combine with the advantages of scale that companies have to produce surprising results.
Let's say you have a company with a billion users and a revenue model with net revenue of $0.25 / user / year, and only 50 employees (like a spherical-cow version of [WhatsApp in 2015](https://news.ycombinator.com/item?id=34543480)).
If you're in this position, you're probably someone who likes money. As such, you will be asking questions like
- Can I increase the number of users on the platform?
- Can I increase the net revenue per user?
- Can I do creative stuff with cashflow?
And, for all of these, you might consider hiring a person to do the thing.
At a billion $0.25 / year users, and let's say $250k / year to hire a person, that person would only have to do one of
- Bring in an extra million users
- Or increase retention by an amount with the same effect
- Or ever-so-slightly decrease [CAC](https://en.wikipedia.org/wiki/Customer_acquisition_cost)
- Increase expected annual net revenue per user by $0.00025
- Or double annual net revenue per user specifically for users in Los Angeles County, while not doing anything anywhere else
- Figure out how to get the revenue at the beginning of the week instead of the end of the week
- Increase the effectiveness of your existing employees by some tiny amount
A statement that you shouldn't hire past your initial 50 people is either a statement that none of these are available paths to you, or that you don't know how to slot additional people into your organizational structure without harming the performance of your existing employees (note that "harming the performance of your existing employees" is not the same thing as "decreasing the average performance of your employees"). The latter is sometimes true, but it's generally not super true of large profitable companies like Apple or Google.
Status concerns do matter at all but I don't think it's the only explanation, or even the most important consideration, for why Apple, the most valuable company in the world by market cap, has 150,000 employees.
My mental model is that businesses grow approximately until the marginal cost of adding another employee is higher than the marginal benefit. This can combine with the advantages of scale that companies have to produce surprising results.
I think this really goes to the heart of the matter (and the dominance games the OP posts about are merely one common form this takes because humans are apes in clothing).
The important part to internalize is: in a terminally-large organization, the n-th person hired brings a net-value to the company of ~0 and 50% of employees are below average!
So, even if you live in a world of only JohnWentsworth's, companies will continue to hire until adding more people no longer adds value. The first John is presumably put to work on some extremely important and valuable problem that brings in a ton of value for the company. And the 2nd John, etc.... But by the time you get to John 1,567,793 the company is starting to run out of good ideas for what do do with John. So they put the new Johns into marketing or "brainstorming" or maybe one of the Johns is tasked with "employee success" and told to just go around looking for things that might possibly improve the productivity of other Johns in some way.
Now maybe John 1,567,793 doesn't play weird status games or brag about how many Johns he has under him. Maybe John has some other failure mode (one particularly common among bright people I know is trying to solve problems that have nothing to do with success). But economics dictate that there is a 50/50 chance John 1,567,793 is working on something that is obviously wasteful to an informed outsider (but not in a way that is legible to the shareholders). Most likely John 1,567,793 himself knows that what he is doing is wasteful, but who is going to volunteer the information "actually I shouldn't have a job/be paid this much".
"But why doesn't the company just fire the useless Johns?"
Maybe they do. Maybe the company periodically hires an outside consulting company that finds all of the Johns producing <0 value and fires them. But then economics dictates that the company hires more Johns until the net value to the shareholder from adding 1 more John is 0 again.
You might say "this is clearly wasteful, we should have a rule that says companies can't grow above size X" so that this doesn't happen.
But, remember, this outcome is the one that maximizes shareholder value. Your rule may be aesthetically pleasing, but it's basically just price controls for number of employees. You've banned something that looks bad, but at the cost of making the total economy less efficient.
Moral of the story: in a world where corporations are optimally large, we should expect:
- 50% of new hires bring negative net-value to the company
- Many roles at a company are obvious bullshit jobs that produce nothing of value
- Companies frequently could add large amounts of value by firing useless employees
- Marginal employees engage in games/self-deception to hide the fact that they are useless
- Any method you might use to fix this problem (gov't regulation, advice for startup founders) will fail to make the problem better (and most likely make something else worse)
- As a smart/motivated individual you are personally much more likely to be successful/useful at a small/growing company than a large established one
2It seems to make sense that if hiring an additional employee provides marginal shareholder value, that the company will hire additional employees. So, when the company stops hiring employees, it seems reasonable that this is because the marginal benefit of hiring an additional employee is not positive. However, I don't see why this should suggest that the company is likely to hire an employee that provides a marginal value of 0 or negative.
"Number of employees" is not a continuous variable. When hiring an additional employee, how this changes what the marginal benefit of an additional employee can be large enough to change it from positive to negative.
Of course, when making a hiring decision, the actual marginal benefit isn't known, but something one has a belief about how likely the hire is to provide each different amount of value. I suppose then one can just consider the marginal expected benefit or whatever wherever I said "marginal benefit". Though I guess there's also something to be said there about appetite-for-risk or whatever.
I guess there's the possibility that:
1) the marginal expected benefit of hiring a certain potential new employee is strictly positive
2) it turns out that the actual marginal benefit of employing that person is negative
3) it turns out to be difficult for the company to determine/notice that they would be better off without that employee
and that this could result in the company accumulating employees/positions it would be better off not having?
I think it would be more correct to say that is a part of the literature related to the theory of the firm. The theory of the firm covers a lot of ground and in some ways various branches have somewhat challenging relationships with their internal logic and approaches.
Indeed my understanding is that my mental model is pretty close to the standard economist one, thiugh I don’t have a formal academic background so don’t quote me as "this is the canonical form of the theory of the firm".
I also wanted a slightly different emphasis from the standard framing I've seen, because the post says
The economists have some theorizing on the topic (google “theory of the firm”), but none of it makes me feel much less confused about the sort of large organizations I actually see in our world. The large organizations we see are clearly not even remotely economically efficient; for instance, they’re notoriously full of “bullshit jobs” which do not add to the bottom line, and it’s not like it’s particularly difficult to identify the bullshit jobs either. How is that a stable economic equilibrium?!?
so I wanted to especially emphasize the dynamic where jobs which are clearly inefficient and wouldn't work at all in a small company ("bullshit jobs") can still be net positive at a large enough company.
Your original comment does not seem like it is an explanation for why we see bullshit jobs. Bullshit jobs are not just jobs that would not be efficient at a small company. To quote from Graeber, they are
a form of paid employment that is so completely pointless, unnecessary, or pernicious that even the employee cannot justify its existence even though, as part of the conditions of employment, the employee feels obliged to pretend that this is not the case
For more information see the relevant wikipedia article, and book.
The employee doesn't need to understand why their job is justified in order for their job to be justified. In particular, looking at the wikipedia article, it gives five examples of types of bullshit jobs:
- Flunkies, who serve to make their superiors feel important, e.g., receptionists, administrative assistants, door attendants, store greeters;
- Goons, who act to harm or deceive others on behalf of their employer, or to prevent other goons from doing so, e.g., lobbyists, corporate lawyers, telemarketers, public relations specialists;
- Duct tapers, who temporarily fix problems that could be fixed permanently, e.g., programmers repairing shoddy code, airline desk staff who calm passengers with lost luggage;
- Box tickers, who create the appearance that something useful is being done when it is not, e.g., survey administrators, in-house magazine journalists, corporate compliance officers;
- Taskmasters, who create extra work for those who do not need it, e.g., middle management, leadership professionals.[4][2]
The thing I notice is that all five categories contain many soul-crushing jobs, and yet for all five categories I expect that the majority of people employed in those jobs are in fact a net positive to the companies they work for when they work in those roles.
- Flunkies:
- Receptionists + administrative assistants: a business has lots of boring administrative tasks to keep the lights on. Someone has to make sure the invoices are paid, the travel arrangements are made, and that meetings are scheduled without conflicts. For many of these tasks, there is no particular reason that the people keeping the lights on needs to be the same person as the person keeping the money fountain at the core of the business flowing.
- Door attendants, store greeters: these are loss prevention jobs: people are less likely to just walk off with the merchandise if someone is at the door. Not "entirely prevented from walking out with the merchandise", just "enough less likely to justify paying someone minimum wage to stand there".
- Goons:
- Yep, there sure is a lot of zero- and negative-sum stuff that happens in the corporate world. I don't particularly expect that 1000 small firms will have less zero-sum stuff going on than 10 large firms, though, except to the extent that 10 large firms have more surplus to expend on zero-sum games.
- Duct tapers:
- Programmers repairing shoddy code: It is said that there are two types of code: buggy hacked-together spaghetti code, and code that nobody uses. More seriously, the value of a bad fix later today is often higher than the value of a perfect fix next year. Management still sometimes makes poor decisions about technical debt, but also the optimal level of tech debt from the perspective of the firm is probably not the optimal level of tech debt for the happiness and job satisfaction of the development team. And I say this as a software developer who is frequently annoyed by tech debt.
- airline desk staff who calm passengers with lost luggage: I think the implication is supposed to be "it would be cheaper to have policies in place which prevent luggage from being lost than it is to hire people to deal with the fallout", but that isn't directly stated
- Box tickers:
- Yep, everyone hates doing compliance work. And there sure are some rules which fail a cost-benefit analysis. Still, given a regulatory environment, the firm will make cost-benefit calculations within that regulatory environment, and "hire someone to do the compliance work" is frequently a better option than "face the consequences for noncompliance".
- With regards to regulatory capture, see section "goons".
- Taskmasters:
- A whole lot can be said here, but one thing that's particularly salient to me is that some employees provide most of their value by being present during a few high-stakes moments per year where there's a massive benefit of having someone available vs not. The rest of the time, for salaried employees, the business if going to be tempted to press them into any work that has nonzero value, even if the value of that work is much less than the salary of the employee divided by the annual number of hours they work.
That said, my position isn't "busywork / bullshit doesn't exist", it's "most employees provide net value to their employers relative to nobody being employed in that position, and this includes employees who think their job is bullshit".
There's an interesting part of the interview of Pavel Durov of Telegram with Tucker. Telegram seems to run well with 30 engineers. Pavel Durov recounts having a conversation with Jack Dorsey where Pavel said that Jack could run Twitter with a lot less people. Jack agreed that he could but if he would fire a lot of people it would make investors scared so that's not something he can do.
It's worth noting that Google's headcount went down from 2022 to 2023 partly because of the belief that they had hired to many people who weren't effectively contributing to the bottom line.
After Elon Musk managed to fire so many people at Twitter while at the same time increasing the feature development at Twitter, the zeitgeist turned in a way that the big tech company decreased headcount to decrease inefficiencies.
I don't find this as convincing as others for a number or reasons. Caveat: I did a rather shallow read of the post and have not done deep thinking about the resonse below.
First, most of the managers I've worked with, and how I was as a manager, don't act like the dominance seekers you're describing. Not a claim that it doesn't exist, just that in my personal experience it doesn't seem to be something that seems to have been a big driver within the companies.
Second, I think the assumption of economic inefficiency exists therefore these big companies should all be failing seems a bit off target. The real question is not are they economically efficient or not but rather are they more efficient than alternative market arangements.
The above makes me think if all/most managergs are as decribled and the large business is far from achievable economic efficiency then we should see a lot of managers quiting their job when they plateau for whatever reason, starting small companies (something of the better to rule in hell than serve in heaven view). Those smaller more efficient companies driven by the domenant hungry former manager turned founder/owen would then start eatting away to the big companies. So we should not see large companies that persiste for so long. We should see a lot more creative-distruction occuring at the level of the business entity not just in the product space.
Now, I do think people/managers are to some extent motivated by the dominance goals but that is only part of the story and not sufficient to reach the conclusion about why these big companies exist. I think it also a bit of a mistake to thing big, for profit companies, even with the bureaucrasy work internally like big government.
I am not at all sure just how I would empirically test the hypothisis presented as it's such a hidden type of metric.
Last, I think one will probably find a pretty good measure of how big a company grows by looking at things like cost of using market exhange, internal economies of scale and internal network effects. How much of the size is explained that way would be the interesting question. WIth an answer there I think one might looking into just what the effect of the dominance movtivation on size might be. Does that increase or decrease the observed size?
Note that this model moderately-strongly predicts the existence of tiny hyperprofitable orgs - places founded by someone who wasn’t that driven by dominance-status and managed to make a scalable product without building a dominance-status-seeking management hierarchy. Think Instagram, which IIRC had 13 employees when Facebook acquired it for $1B.
Instagram had no revenue at the time of its acquisition.
faul's comment represents some of my other objections reasonably well (there are many jobs at large orgs which have marginal benefits > marginal costs). I think I've even heard from Google engineers that there's an internal calculation indicating how what cost savings would justify hiring an additional engineer, where those cost savings can be pretty straightforwardly derived from basic performance optimizations. Given the scale at which Google operates, it isn't that hard for engineers to save the company large multiples of their own compensation[1]. I worked for an engineering org ~2 orders of magnitude smaller[2] and they were just crossing the threshold where there existed "obvious" cost-saving opportunities in the 6-figures per year range.
- ^
The surprising part, to people outside the industry, is that this often isn't the most valuable thing for a company to spend marginal employees on, though sometimes that's because this kind of work is often (correctly) perceived as unappreciated drudge work.
- ^
In headcount; much more than 2 OoMs smaller in terms of compute usage/scale.
Large: economies of scale; need to coordinate many specialised skills. ( Factories were developed before automation)
Hierarchical: Needed because Large. It's how you co-ordinate a.much greater than Dunbar number of people. (Complex software is also hierarchical).
Bureaucratic: Hierarchical subdivision by itself is necessary but insufficient...it makes organisations manageable but not managed. Reports create legibility and Rules ensure that units are contributing to the whole, not pursuing their own ends.
I don't see what Wentworld is:
Are you giving up on scale per se?
Are you accepting scale but giving up on hierarchy -- If so, how do a thousand people in a flat structure co-ordinate?
Are you accepting scale and hierarchy , but giving up on bureaucracy?
Are you accepting scale, hierarchy, and bureaucracy, but...the right kind that doesn't come from the Will to Power?
Its easy to imagine a Dunbar number of grad student types all getting along very well with each other...but it isn't a world.l, its a senior common room, or boutique R&D department.
The trick of hierarchy is to divide a large amount of information about the whole organisation into a manageable amount of coarse grained information about the whole organisation (for senior managers) ... and a manageable amounts of fine grained information about sub-units (for middle managers)
From a super intelligent POV there is probably a ton of identifiable waste, but from a merely intelligent POV, you still have the problem of trading off globality against granularity. Its much easier to prove waste exists than come up with a practical solution for eliminating it.
Which, of course, is not to say that waste doesn't exist, or that there is no negative-sum status-seeking.
I think there's something to what you say, but your model is woefully incomplete in ways that miss much of why large bureaucratic organizations exist.
- Most organizations need to scale to a point where they will encouter principal-agent problems.
- Dominance hierarchies offer a partial solution to principal-agent problems in that dominance can get agents to do what their principals want.
- Dominance is not bad. Most people want to be at least partially dominated because by giving up some agency they get clear goals to accomplish in exchange, and that accomplishment gives them a sense of meaning.
- Also they may care about the mission of the org but not know how to achieve its goals without someone telling them what to do.
Basically what I want to say is that dominance is instrumentally useful given human psychology and the goals of many organizations, and I think most organizations don't exist for the purpose of exerting dominance over other people except insofar as is necessary to achieve goals.
My observation from the inside is that size and bureaucracy in Universities has something to do with what you're talking about, but more to do with a kind of "organisational overfitting" where small variations of the organisation's experience that included negative outcomes are responded to by internal process that necessitates headcount (aligning the incentives for response with what you're talking about).
I think this makes a lot of sense, and it points out that even people who write about status hierarchies don't REALLY take it seriously that it's one of the top motivations for most humans.
If status and dominance hierarchies are the only known way to make most humans (say, 70% of the intrinsic-extrensic motivation spectrum) actually cooperate, and there is an economy to scale of setting up and maintaining a hierarchy, then the current world of large organizations is pretty easy to understand.
Like, in a world where the median person is John Wentworth (“Wentworld”), I’m pretty sure there just aren’t large organizations of the sort our world has.
Yeah, Dagonworld is pretty dysfunctional - the garbage doesn't get collected, customers get yelled at when they call with a complaint, shelves get restocked rather randomly, etc.
… and it turns out the behavior researchers have done exactly that kind of test; they call it testing for “linearity”. Indeed, they’ve done it many many times over, with several different operationalizations of the statistics, in a whole slew of species.
This thread makes it seem like rock-paper-scissors “pecking order” is not that uncommon, at least among r/BackYardChickens subreddit participants.
I have a moderately-anti-status-ladders-per-se-being-important discussion in §2.5.1 here.
I think every part of your post where you rely on the existence of a strict status ladder, could be lightly rephrased to not rely on that, without any substantive change.
Once pointed out, that also sounds like how human status tends to work! The new hire at the company, the new kid at school, the new member to the social group, the visitor at another’s house… all these people typically have very low dominance-status, at least within their new context.
I think it comes from being more confident / comfortable in a familiar environment. There’s some game theory at play, see §2.5.4 here.
Rings true. Btw, I heard many times people with experience in senior roles making "ha ha only serious" jokes about how obviously any manager would hire more underlings if only you let them. I also feel the pull of this motivation myself, although usually I prefer other kinds of status. (Of the sort "people liking/admiring me" rather than "me having power over people".)
I think you’re pretty severely mistaken about bullshit jobs. You said
At the start of this post we mentioned “bullshit jobs” as a major piece of evidence that standard “theory of the firm” models of organization size don’t really seem to capture reality. What does the dominance-status model have to say about bullshit jobs?
But there are many counter examples of this not being a real concept. See here for many of them: https://www.thediff.co/archive/bullshit-jobs-is-a-terrible-curiosity-killing-concept/
But there are many counter examples of this not being a real concept. See here for many of them: https://www.thediff.co/archive/bullshit-jobs-is-a-terrible-curiosity-killing-concept/
That link has lots of argument against Graeber's particular models and methodology, but doesn't actually seem to argue that much against bullshit jobs as a concept. Indeed, it explicitly endorses to some extent the sort of model used in this post in various places (like e.g. explicitly calling out corporate empire-building as a thing which actually happens). For instance, this example:
The fake job in question is basically a contribution to that glamour: a receptionist who doesn't have much work to do. But this could end up being a money-saving proposition if the company is able to attract workers, and pay them less, by treating the presence of an assistant as a perk.
This makes me think. I think I'm realizing a bit late in life that I'm ASD, and all I ever wanted in work was to make cool stuff and do a good job. For the most part, I think my supervisors have just let me do my thing, with minimal oversight, overlooking as much as possible my quirkiness and occasional meltdowns.
But now I'm starting to be able to turn my autistic focus on developing models for what I'm beginning to see, a bit like you're describing, a whole world of status seeking, an invisible world I've only vaguely been aware of, not interested in participating in. But now that I'm experiencing some of the slowdowns of aging, I'm waking up to other ways of being in work and world that most other people have been doing their whole lives.
To me, this post is more about manager- and dominance-psychology than why large organizations exist. I guess you mean large, bureaucratically-bloated organizations, with lots and lots of fat. OK, yeah, I get it now. My background has been in leaner orgs. I can hardly imagine what it must be like to have a truly bullshit job. I've always been one to dive in and become relatively essential to operations.
in a world where the median person is John Wentworth [...] on Earth (as opposed to Wentworld)
Who? There's no reason to indulge this narcissistic "Things would be better in a world where people were more like meeeeeee, unlike stupid Earth [i.e., the actually existing world containing all actually existing humans]" meme when the comparison relevant to the post's thesis is just "a world in which humans have less need for dominance-status", which is conceptually simpler, because it doesn't drag in irrelevant questions of who this Swentworth person is and whether they have an unusually low need for dominance-status.
(The fact that I feel motivated to write this comment probably owes to my need for dominance-status being within the normal range; I construe statements about an author's medianworld being superior to the real world as a covert status claim that I have an interest in contesting.)
... is that why this post has had unusually many downvotes? Goddammit, I was just trying to convey how and why I found the question interesting and the phenomenon confusing. Heck, I'm not even necessarily claiming the Wentworld equilibrium would be better overall.
2FWIW I downvoted this mainly because I thought you were much too quick to dismiss the existing literature on this topic in favour of your personal theories, which is a bit of a bad habit around here.
1... is that why this post has had unusually many downvotes?
Nah, I'd expect it's more broadly because it's making an arrogant-feeling claim that the organization-design market is inefficient and that you think you can beat it. Explicitly suggesting that a world in which the median person were you wouldn't be like this maybe put that in sharper relief, but I don't think this specific framing was a leading cause at all.
There might also be some backlash from people who'd previously interfaced with relatively more benign big organizations, who are weary of these sorts of models and view them as overly cynical/edgy.
My guess for the downvotes is that independent of the median-you thing, being so critical of large organizations that their existence confuses you can seem like you're implicitly placing yourself above everyone who, for whatever reason, chooses to partake in such an organization. To them, the calculus could bear out such that it seems beneficial, and starting a post with the assumption that they're terrible and inefficient can be irksome. That, coupled with the fact that I'm guessing there are people who've spent a lot of time thinking about how to manage organizations well and see it as difficult to opine on from the outside without wisdom from practice, who could see this and think it, well, slightly overconfident.
This is independent of whether the post is true, which I'm probably leaning much more toward than the downvotes. Though it still has a lot of upvotes on net, so trying to figure out why a small fraction of downvotes exist is harder than if they were larger.
1You do seem to be implying via your assumption that bureaucracy is so bad that a world like yours wouldn't have bureaucracy at all because it's so inefficient and misaligned, so the assumption I was making is that the Wentworld equilibrium would be obviously better than real life equilibriums:
Like, in a world where the median person is John Wentworth (“Wentworld”), I’m pretty sure there just aren’t large organizations of the sort our world has. Nobody would ever build such an organization, because they’re so obviously wildly inefficient and misaligned. And even if somebody tried, everyone would demand prohibitively high prices to work either for the large organization or with it, since it’s just so deeply unpleasant to interface with. Nobody would buy anything sold by such an organization, or vote for such an organization to continue to exist, because the organization as an entity is so obviously both incompetent and untrustworthy. So how on Earth (as opposed to Wentworld) are large organizations stable?
This feels like a great theory for one motivation, but it isn't at all complete.
For example: this theory doesn't really predict why anyone is ever hired above the bottom level of an organization at the margin.
Temporarily taking the post's theory as given, then speculating: managers a few levels above the bottom won't feel much dominance increase from hires at the bottom if they're too organizationally distant for it to register, I'd think; the feeling boost from Nth-level reports would drop sharply with increasing N due to less personal contact. They would then seek to manipulate their set of direct reports. Some would see internal underlings as a threat, want to get them out of the way, and not necessarily have another insider suitable to displace them with. Some would see outsiders with external status markers (intelligence, high-profile accomplishments) whom they can gain indirect status by hiring directly. Some might be obstructed directly from engaging internal promotions or get outcompeted for the internal pool.
Sure, securing an economic surplus is sometimes part of an interesting challenge, and it can presumably get one invited to lots of cool parties, but controlling surplus is typically not as central and necessary to “achievement” and “association” as to “power”.
I guess that the ultra-deadly ingredient here is the manager gaining status when more people are hired, but hardly has any personal stake in the money that gets spent on new hires.
If given the choice between receiving the salary of a would-be new hire, or getting a new bs hire underling for status, I'd definitely expect most people to take the double salary option.
Like I don't expect these two contrasting experiences to really stack up to each other. I think if it's all the same person weighing these two options, the extra money would blow the status option out of the water.
That's a pretty clean story for why in smaller, say 2-5 person companies, having less bs jobs is something I'd predict (though I don't have sources to confirm this prediction). In these smaller companies, when the person you're hiring gets payed by a noticeable hit in your own paycheck, I wonder if the experience of "ugh, this ineffective person is costing me money" just dramatically cancels out the status thing.
And then potentially the issue here is that big companies tend to separate the ugh-this-costs-me-money person from the woohoo-more-status person?
So how on Earth (as opposed to Wentworld) are large organizations stable?
My model, prior to reading further:
Well, what do such structures maximize? By what goals are they optimal?
The answer that seems obvious to me is "the perceived power of those at the top of such organizations". The people constituting the-organization-as-a-whole are obviously in a suboptimal configuration for maximizing their collective economic efficiency, or their collective power. But the people in charge find themselves in nominal command of an enormous pile of resources. They are poorer, in an absolute sense, than they would've been if the world were in the equilibrium state in which people are arranged in more efficient economic structures. But they are relatively much more rich and influential than their underlings, which parses as optimal by their power- and status-maximizing heuristics, so it's in their individual interests to preserve this status quo.
At the cultural level, this equilibrium is maintained by such organizations instinctively cooperating with each other to preserve it (as Zvi outlines e. g. here, I think). This is probably also culturally supported by upper managers essentially wanting to feel like "the king of their kingdom", using historical kingdoms/governments as reference points. Said kingdom/governments, in turn, have historically ended up in big-dumb-organization configurations to maximize the power of those at their helm. (Except they spread their influence by more obvious conquest-and-pillaging, not by hiring people.)
Everyone outside mazes isn't well-versed enough in the subject to understand what they're signing up for when joining, or unable to imagine superior alternative configurations, or culturally indoctrinated to view such structures as inherently valuable as well. So they don't demand larger pay, aren't unwilling to work with large organizations, don't vote to dissolve them, et cetera.
… so e.g. large companies or government agencies are basically runaway human monuments of dominance and submission, limited mainly by their budget.
Yeah, that seems to agree with my model.
I'd only add that this setup increases upper managers' status outside the organizations as well, and in a fairly robust manner. It's not quite like with the rhesus monkeys: the CEO of a Fortune 500 company, if they leave their organization and seek to join a new one, wouldn't start at the very bottom at all. They'd often end up at the executive level as well, or even straight-up be re-hired as a CEO.
You know how the org structure is always hierarchical for some reason? And managers end up being massive communication-bottlenecks across the org, because horizontal coordination usually has to route through them? That’s not a bug, that’s a feature of an organization whose managers optimize first for dominance-status, and only secondarily for making money.
Hm, I don't know if that's necessarily a bug from the perspective of efficient organization design either. Inasmuch as organizations are control systems reflecting the domain they control, the hierarchy reflects the hierarchy of natural abstractions, with the managers/subsystems at higher levels "acting as natural latents", inducing conditional independence between lower-level subsystems. This has productivity-boosting results as well: see e. g. Joel's "development abstraction layer" argument (the people within the subsystem can focus their optimization-power solely on the domain they're responsible for, with no distractions).
Obviously this is horribly mismanaged in practice, but it feels like a warped feature of a fundamentally productive structure.
I'm gonna leave my thoughts on the ramifications for academia, where a major career step is to repeatedly join and leave different large bureaucratic organizations for a decade, as an exercise to the reader.
Like, in a world where the median person is John Wentworth (“Wentworld”), I’m pretty sure there just aren’t large organizations of the sort our world has.
I have numerous thoughts on how Lorxusverse Polity handles this problem but none of it is well-worked out enough to share. In sum though: Probably cybernetics (in the Beer sense) got discovered way earlier and actually ever used as stated and that was that, no particular need for dominance-status as glue or desire for it as social-good. (We'd be way less social overall, though, too, and less likely to make complex enduring social arrangements. There would be careful Polity-wide projects for improving social-contact and social-nutrition. They would be costly and weird. Whether that's good or bad on net, I can't say.)
The main testable-in-principle predictions are that economic profits causally drive hiring in large orgs (as opposed to hiring causing economic profits), and that orgs tend to expand until all the economic profit is eaten up (as opposed to expanding until marginal cost of a hire exceeds marginal revenue/savings from a hire). Actually checking those hypotheses statistically would be a pretty involved project; subtle details of accounting tend to end up relevant to this sort of thing, and the causality checks are nontrivial. But it's the sort of thing economists have tools to test.
Actually checking those hypotheses statistically would be a pretty involved project; subtle details of accounting tend to end up relevant to this sort of thing, and the causality checks are nontrivial. But it's the sort of thing economists have tools to test.
Yes, it would be a challenge statistically, and measurment a challenge as well. It's not really about subtle accounting details but the economic costs -- opportunity costs, subjective costs, expected costs. Additionally, economics has been trying to explain the existance, size and nature of the firm at least a century but still has not come to a firm conclusion.
I suspect a big part of the problem here is that a firm is a rather complex "thing" and and it's not clear any single explanation that is logically consistent internally can explain the phenomena as the whole does not necessarily hold to some easily understood collection of parts. For instance, at a certain size do we think of a firm as a market particiant maximizing profits (or some internal dominance metric), a hybrid part market participant and part internal market or perhaps no longs even a market participant even when providing goods/services to some external market but really functioning as an alternative market form for those acting within the that large firm? If you accept the view that explaining the firm requires explanations at each of those levels and believe such a theory exists, then you also have to believe that some unified theory of micro and macro economics also exist as it's basically the same problem.
So I'm not sure it's correct to say "economist have tools to test" in the sense of and they will come up with clear and uncontested answers rather than perhaps have shed a bit of light on something but have not yet identified the elephant they are touching.
This makes a lot of sense. I guess that the most successful bureaucratic companies have optimized for a balance of dominance/status and profit margins. For example a bureaucratic company although not mainly motivated by profits must increase them in order to hire more people, but people cost money, so in order to maximize the dominance hierarchy they must minimize employee cost while maximizing profit.
Large bureaucratic organizations have long seemed… strange to me, on an intuitive level. Why do they exist? Like, in a world where the median person is John Wentworth (“Wentworld”), I’m pretty sure there just aren’t large organizations of the sort our world has. Nobody would ever build such an organization, because they’re so obviously wildly inefficient and misaligned. And even if somebody tried, everyone would demand prohibitively high prices to work either for the large organization or with it, since it’s just so deeply unpleasant to interface with. Nobody would buy anything sold by such an organization, or vote for such an organization to continue to exist, because the organization as an entity is so obviously both incompetent and untrustworthy. So how on Earth (as opposed to Wentworld) are large organizations stable?
The economists have some theorizing on the topic (google “theory of the firm”), but none of it makes me feel much less confused about the sort of large organizations I actually see in our world. The large organizations we see are clearly not even remotely economically efficient; for instance, they’re notoriously full of “bullshit jobs” which do not add to the bottom line, and it’s not like it’s particularly difficult to identify the bullshit jobs either. How is that a stable economic equilibrium?!?
In this post I’ll present a model which attempts to answer that ball of confusion. The summary is:
There’s a lot of steps here, and I’m not super-confident in this model. But when I step into the model, large organizations no longer look strange and confusing; the model seems to generate a remarkably good description of most real large organizations, both private and public.
Now let’s walk through the model in more detail, starting with relevant background studies.
Background: Dominance-Status
Empirical Ontology Justification: Dominance-Status Is A Thing
“Status” typically connotes a mental model in which we could assign everyone a number/rank, and then some kind of behavior involving any two creatures is supposed to be well predicted by whose number/rank is greater. In particular, for dominance-status (beyond just humans), the number/rank is supposed to predict which of a pair tends to aggress and which tends to back down, between the two of them. That’s a substantive model which makes empirically testable predictions: there are possible patterns of dominance/submission which cannot be well predicted by assigning each creature a number/rank and then comparing numbers, no matter what ranking we use.
Suppose, for instance, that we have three chickens: Audrey Henburn, Beakoncé, and Chickira[1]. We put two of them at a time in a cage with only one feed bowl. We find that Audrey chases Beakoncé away from the bowl, Beakoncé chases away Chickira, and Chickira chases away Audrey. We can represent this graphically, with an arrow B -> A indicating that A “wins against” B:
Notice that the graph contains a cycle! That means these dominance relationships cannot be represented by a ranking. Why? Well, the ranking would need to satisfy:
… but put those all together and we get rank(Audrey) > rank(Audrey), which is not how numbers work. (And if we instead replace “>” with “≥”, we find that all three must have the same rank, which would make the model useless.)
On the other hand, if the graph looks like this:
… then we can represent the relationships with a ranking: rank(Audrey) > rank(Beakoncé) > rank(Chickira). All of the arrows in the graph go from the lower-ranking hen to the higher-ranking hen.
More generally: we can represent dominance relationships with a ranking exactly when the graph is acyclic.[2] Of course in practice we expect the occasional violation of the dominance ranking, but that’s fine, approximation is a thing we can account for. So: we can empirically test whether the concept of a “status ranking” makes sense at all, as an ontological choice, by checking whether the dominance interaction graph contains statistically very few cycles.
… and it turns out the behavior researchers have done exactly that kind of test; they call it testing for “linearity”. Indeed, they’ve done it many many times over, with several different operationalizations of the statistics, in a whole slew of species. The paper I was reading which prompted this post - “Dynamics of Hierarchy Formation: The Sequential Development of Dominance Relationships” - looked at hens, basically as described above. They only used ten groups of chickens, but all groups developed a linear hierarchy after a day or two of interaction. The paper also cites a long list of similar work in other species: “wasps and bumble bees (WILSON, 1971), chaffinches (MARLER, 1955), red cross bills (TORDOFF, 1954), coyotes (BEKOFF, 1976), cows (SCHEIN & FOHRMAN, 1955), ponies (TYLER, 1972), pigs (RASMUSSEN et al, 1962), rhesus monkeys (SALE, 1967), baboons (HAUSFATER, 1975), vervets (STRUHSAKER, 1967) and human children and adolescents (MISSAKIAN, 1976; SAVIN-WILLIAMS, 1977, 1979, 1980)”. Note that last one: humans too.
My main tentative takeaway is that the justification for a “dominance status ranking” as an ontological choice is extraordinarily strong compared to the usual standards of social science. This looks like[3] one of the best-justified ontological choices I’ve encountered in academic research, and it might be a good textbook example of the right way to “choose the ontology”. Dominance-status as a ranking is real.
Some Key Pieces Of How Dominance-Status Works
Having established that we’re talking about a natural Thing at all, let’s talk about how it works. How does the dominance hierarchy form, and what determines the ordering?
Here’s the key quotes which got me thinking (from the same paper as the previous section):
And, in a different experiment:
So in rhesus monkeys, new members join the group at-or-near the bottom of the dominance-status ladder. Likewise when “visiting” other groups: the “visitor” enters at-or-near the bottom of the dominance-status ladder.
Once pointed out, that also sounds like how human status tends to work! The new hire at the company, the new kid at school, the new member to the social group, the visitor at another’s house… all these people typically have very low dominance-status, at least within their new context.
So hypothetically, if you’re looking to “status-hack” - e.g. secure a high ranking in a dominance-hierarchy without actually having the chin of gigachad - one strategy is to invite people “into your own territory” a few at a time, and slowly add people to whatever group(s) you’re in.
… ok, but how do you draw new people into your dominance hierarchy? Obvious answer: pay them money. We’ll come back to that shortly.
The Unconscious Economics of Managers
If you ask managers at large organizations what their main goals are in their work, presumably they will not say “grow the organization under me in order to establish dominance over as many people as possible”. Even if you could read off the thoughts of such managers, you’d probably see that they don’t think of building a dominance hierarchy under themselves as a major goal.
But I suspect that if you looked at the unconscious incentives involved, the things which make managers feel good or bad, dominance-status would play a much more central role. This is the domain of unconscious economics: the “goals” which humans or organizations act like they’re pursuing tend to come less from explicit planning, and more from subconscious positive/negative reinforcement of behaviors and selection effects on people in various roles.
The idea that managers are mostly subconsciously motivated by dominance-status is an old one. For instance, from psychology, here’s Wikipedia on “Need Theory”[4]:
From a different direction, here’s Investopedia on “Empire Building”:
Yup, that all sounds like managers optimizing mostly for dominance-status.
Solve For The Equilibrium
We now have the basic recipe:
… so the obvious prediction here is that managers will spend whatever budget they control to hire as many people as possible to work under them.
Now let’s go through various predictions this model makes, as well as some otherwise-confusing features of the world which make sense under this model.
Budget Is The Limiting Factor
In the case of for-profit companies, the model predicts that companies will expand headcount until the budget runs out. It’s not that companies hire to make more money, it’s that they make money in order to hire. Thus places like e.g. Google, which IIRC has like 30k technical employees, the majority of which don’t work on any of Google’s main cash cow products.
In the case of government organizations, the model predicts that e.g. departments will ~always spend all their budget, and in-practice the job of an agency head is mostly to secure more funding, not to make the agency cost-effective. I’ve heard that’s indeed how it typically works.
Within-org, the model predicts that middle managers’ battle for budget is the highest-stakes part of their job. We should expect much of managers’ job to center around making their department’s work look very difficult and important, so that lots of budget needs to be assigned to it. Note that actually solving problems, permanently, is highly detrimental to this goal. Solutions which require lots of ongoing maintenance are “better”, for purposes of chasing dominance-status.
Note that this model moderately-strongly predicts the existence of tiny hyperprofitable orgs - places founded by someone who wasn’t that driven by dominance-status and managed to make a scalable product without building a dominance-status-seeking management hierarchy. Think Instagram, which IIRC had 13 employees when Facebook acquired it for $1B. Or Berkshire Hathaway, which as a holding company owns subsidiaries with hundreds of thousands of employees, but IIUC only has 20-30 direct employees in the core business.
Internal Alignment
Under this model, how well are lower managers’ incentives aligned to upper management?
Recursion is good for status at the top: if e.g. your underling has underlings, then your underling has high status, and your dominance over them implies you have even higher status. Recurse over a very large organization, and CEOs of big orgs have completely ridiculous wirehead-level status. So lower managers' incentives are actually pretty well aligned with upper managers' incentives: lower management grows their status (by hiring), which grows their superiors’ status.
One notable implication: insofar as “the goal” is dominance-status for upper management, it makes sense for pay to scale with status rather than value-add. What the boss actually “wants” is dominance over the highest-status underlings they can get. (And for purposes of choosing underlings, the boss isn’t just interested in their underlings’ dominance-status, but also other forms of underling-status; e.g. high prestige also does the trick.) Paying more for status than for object-level competence makes sense, when dominance-status is what the org is actually optimizing for.
So in some ways, internal incentives are actually quite well aligned: lower-level managers are incentivized to increase their own status by hiring as many of the highest-status people as they can, and that’s exactly what increases higher-level management’s status.
On the other hand, below the level of upper management, middle managers also battle over shares of a limited budget. That part of their incentives is not so aligned with upper management; middle managers are incentivized to grab more budget even in ways which e.g. reduce the revenue of their company (in the private case), or decrease the budget available to other parts of the government where it might be “better” spent to more efficiently buy status (in the public case).
Increasing Managers’ Dominance-Status Is The Real Job
At the start of this post we mentioned “bullshit jobs” as a major piece of evidence that standard “theory of the firm” models of organization size don’t really seem to capture reality. What does the dominance-status model have to say about bullshit jobs?
Well, in some sense, increasing managers’ dominance status is the actual main job for most of the org.
You know how there’s a weird resistance to paying people more than their managers, even when the market value of the manager is clearly lower? That’s not a bug, that’s a feature of an organization whose managers optimize first for dominance-status, and only secondarily for making money.
You know how big orgs are notorious for policies or physical space layouts or norms which are kinda mildly demeaning toward low-level employees in ways that don’t actually make any money for the org? That’s not a bug, that’s a feature of an organization whose managers optimize first for dominance-status, and only secondarily for making money.
You know how actually pointing out the wild economic inefficiencies of a large org is itself often seen as an aggressive and impolite move, within the org’s culture? That’s not a bug, that’s a feature of an organization whose managers optimize first for dominance-status, and only secondarily for making money.
You know how the org structure is always hierarchical for some reason? And managers end up being massive communication-bottlenecks across the org, because horizontal coordination usually has to route through them? That’s not a bug, that’s a feature of an organization whose managers optimize first for dominance-status, and only secondarily for making money.
Why Doesn’t Economic Selection Pressure Win?
We started this post by asking how on Earth large organizations are stable. We’ve partially answered that question: managers are mostly motivated by dominance-status, and the bureaucratic hierarchy is shaped to satisfy that motivation. But to answer the question and wrap up the post, we still need to address one last piece: if large bureaucracies are so “wasteful”, if they’re pouring all their economic profits into building the biggest dominance hierarchy rather than e.g. making money for shareholders (in the private case) or satisfying voters (in the public case)... then why don’t these big bureaucracies die to competition?
When I look at real-world large organizations, at first glance it seems like there’s multiple answers. In some cases, economic selection pressure does win to a significant extent - e.g. industries like restaurants or game development or high-frequency trading have a relatively high proportion of relatively-small companies, and even the bigger companies seem less completely consumed by dominance optimization. In other cases, the big organization sits on a natural monopoly, like Facebook or telecom firms. Then there are government organizations, where voting systems basically fail to provide a strong enough counter-incentive to prevent the dominance-status instincts of politicians and managers from taking over. Then there are industries which are de-facto mostly about salespeople convincing customers to buy overpriced products, like car dealerships or most Wall Street firms, and for some such products the dominance-hierarchy itself seems to operate as a kind of sales tool - a thing to show off to prospective clients. Then there are industries where performance evaluation is very poorly coupled to purchase decisions, like education and healthcare.
So at first glance, there are many reasons why economic selection doesn’t kill Big Bureaucracy. But at second glance, I think there’s a unifying theme which mostly accounts for most of these examples.
Model: there’s a substantial chunk of the population which is motivated mainly by dominance-status. When such people find themselves with an economic surplus, they spend it on building the biggest dominance-hierarchy they can afford. And there’s lots of different ways someone can end up in control of an economic surplus - natural monopoly, government, information asymmetry (a.k.a. salespeople lying their asses off), etc. But big dominance hierarchies end up being a major convergent theme under all these different economic inefficiencies, because dominance-status is a thing which lots of people want to spend their economic surpluses on.
Furthermore, while different people are predominantly motivated by different things, dominance-status seems to be the most common motivator which drives people to optimize really hard. For instance, if we take Need Theory at face value (which, reminder, I don’t necessarily endorse), then the most common motivators cluster under “power”, “achievement”, and “association” - a.k.a. dominance-status, solving hard challenges, and socializing. Notably, unlike dominance-status, “achievement” and “association” do not particularly drive people to build or control big social systems, or to grab economic surpluses. Sure, securing an economic surplus is sometimes part of an interesting challenge, and it can presumably get one invited to lots of cool parties, but controlling surplus is typically not as central and necessary to “achievement” and “association” as to “power”. It’s not much surprise, then, that the sorts of people who actively seek out jobs in management, or run for high-ranking public offices, are the sort who are mostly motivated by dominance-status. And even if I don’t endorse Need Theory in general, the general idea that dominance-status is the main motivator which specifically drives people to grab lots of economic surpluses… seems pretty plausible.
Summary
Let's recap. Why large bureaucratic organizations?
Thankyou to Claude for these, um, excellent hen names.
Proof: if acyclic, toposort the graph, ranking is the toposort order. If cyclic, find a cycle, and reuse the previous argument for a three-chicken cycle to prove that there is no ranking which represents the relationships.
note that I have not done a deep lit review, so this is a surface level “looks like”
Note that I don’t vouch for the empirical correctness or generalizability of Need Theory research. I’m citing it mainly to emphasize that this is an old idea, so the evidential bit-cost to at least privilege the hypothesis has long since been paid multiple times over.