Remarkable

So, therefore, I remark:

The corporate form exists in its current guise to support an ethos. That is the cult of maximisation. I deliberately omit the word profit from that last sentence. What most managers realise is that they have no idea what profit is. And they also realise that they have no idea how to maximise it, even if they really understand profit. That is because those with any insight realise that doing so requires a knowledge of the future with a degree of certainty that is actually beyond us all. So what they instead do is suggest that other, easier to identify (and fulfil) goals be used as proxies for profit maximisation. Almost invariable that proxy is income growth. The maxim is simple. It is ‘if it’s bigger, it’s better’. And so from the false microeconomic idea of profit maximisation was the cult of growth born.

Amazing how little he knows about business really, isn’t it? People are endlessly cutting unprofitable lines of work. Something he complains about a lot actually.

As I tell my students, the whole of political economy is about the influence of power over the allocation of resources in society. The isomorphic model of corporate form is designed to deliver unaccountable power to a few at cost to many. As it has spread the consequences have become more obvious. But so too has the need for the consideration of alternatives, to which far too little attention has been paid. That’s because if the modern cult of microeconomics is good at anything it is good at crushing alternative thought. We’re all paying the price for that.

Guess that’s why everything should be concentrated into an even smaller group of managers, the State?

30 comments on “Remarkable

  1. Obviously identifying profitable activities in complex organisations can be tricky, but isn’t that pretty much the point of management accountancy? Doesn’t the fact large businesses make extensive use of management accountancy suggest they are trying to maximise profit?

    The problem of managers being misincentivised to maximise the wrong thing (eg empire-building) is basically the principal-agent problem and is an entirely standard part of microeconomics, no?

  2. What most managers realise is that they have no idea what profit is.

    Profitable companies must have managers who do, or are they just lucky?

    they have no idea how to maximise it, even if they really understand profit. That is because those with any insight realise that doing so requires a knowledge of the future with a degree of certainty that is actually beyond us all.

    What? You require precognition in order to make the most profit you can? What the fuck? How does this make any sense? What is this ‘insight’ of his?

    His students are wasting their time and money.

  3. ‘it is good at crushing alternative thought.’

    says the man who has barred more people than any other Twitter user and who moderates every hostile comment on his blog…..

  4. “And so from the false microeconomic idea of profit maximisation was the cult of growth born.”

    I wonder if replacing all the big car manufacturers with local independent artisanal motor producers, would make the industry more profitable or consumers better off. Or whether in historical societies which had not yet invented microeconomics, business owners had no interest in growing their businesses.

    I also wonder whether in his long and illustrious career he never once was involved with a small business client who were barely scraping along and to whom the sensible advice was “you’ll never make a good living if you keep operating at this scale – you either need to expand the business and scale up, or find something else to do instead and, if you persist with it, treat the business as a hobby income on the side”. That presumably isn’t a rare scenario in the world of small business, though I’m operating from a mix of personal observations and Dragon’s Den rather than any hard statistics.

  5. The corporate form exists in its current guise to support an ethos. That is the cult of maximisation. I deliberately omit the word profit from that last sentence. What most managers realise is that they have no idea what profit is. And they also realise that they have no idea how to maximise it, even if they really understand profit. That is because those with any insight realise that doing so requires a knowledge of the future with a degree of certainty that is actually beyond us all.

    This may be the dumbest thing he’s ever written.

  6. The isomorphic model of corporate form is designed to deliver unaccountable power to a few at cost to many.

    Substitute the words “the state” for “corporate form” and you’re on to something.

  7. For a long time I thought that Captain Potato was dedicated to a cult of maximisation: his bodyweight.

    It appears that what he maximizes is bodily perspiration, with body weight come in a close second. He always seems to covered in a film of sweat.

  8. Sam Jones

    ‘What does he actually do all day?’

    Make apologies for child molestation on the grounds that the ends justified the means and otherwise the perpetrators political beliefs were fairly sound?

  9. It should be incredible but nothing in the world of Captain Potato is impossible. So while arguing that all organisations are isomorphic he also admits that they are not

    Reply
    Richard Murphy says:
    February 15 2018 at 12:47 pm
    We have incorporated cooperatives

    Friendly societies

    Community interest companies

    And more

    But even within limited companies we have by guarantee and by shares

    And trusts come in a multitude of forms

    But even then it is not form that matters here so much as substance: how within the legal wrapper is management, accountability, decision making and reporting organised? Nothing dictates the current isomorphic form.

    And that, you idiot, is because it is not isomorphic

  10. Expect something like this to start appearing all over his blog:

    Candidly, your argument is isomorphically unsound and contributes nothing to the debate.

    This is your last appearance here.

  11. What most managers realise is that they have no idea what profit is.

    Well I thought I knew. Revenue less cost, correct?

    I’ve also found through long experience that widening the gap between the two increases gross profit.

    It’s true that some costs are a grey area because we’re a subdivision of a big organisation, but so what?

  12. He’s been at Wikipedia again….

    ‘Isomorphism in the context of globalization, is an idea of contemporary national societies that is addressed by the institutionalization of world models constructed and propagated through global cultural and associational processes. As it is emphasized by realist theories the heterogeneity of economic and political resource or local cultural origins by the micro-phenomenological theories, many ideas suggest that the trajectory of change in political units is towards homogenization around the world. Such similarities so called isomorphic changes are found by researchers, explaining, despite of all possible configurations of local economic forces, power relationships, and forms of traditional culture it might consist of, an previously-isolated island society that made contact with the rest of the globe would quickly take on standardized forms and appear to be similar to a hundred other nation-states around the world. Isomorphic developments of same conclusion are reported from nay nation-states’ features, that is, constitutional forms highlighting both state power and individual rights, mass schooling systems organized around a fairly standard curriculum, rationalized economic and demographic record keeping and data systems, antinatalist population control policies intended to enhance national development, formally equalized female status and rights, expanded human rights in general, expansive environmental policies, development-oriented economic policy, universalistic welfare systems, standard definitions of disease and health care, and even some basic demographic variables. These isomorphisms are difficultly accounted by theories reasoning from the differences among national economies and cultural traditions, however, they are sensible outcomes if nation-states are enactments of the world cultural order.’

  13. I’m sure he just doesn’t understand words. He’s like a colleague I used to work with who insisted “we have to use a proprietary system like HTML”.

  14. Ritchie takes a hiatus from condemning profit, as he states that businessmen define it as poorly as he does (and he is wrong). Instead, he rails against the “cult of maximization.” But no business pursues Large Numbers as a be-all and end-all. Rather, they state their VALUES (notably, profit; notably, achieved through customer satisfaction) and yes, they seek to maximize them. Ritchie today is railing against measurement.

  15. Isomorphism is a precisely-defined mathematical term. From the look of the above Wikipedia entry, it’s been appropriated by social economists in the hope that it will make them sound more like proper scientists. See also ‘point of inflection’.

  16. Obviously the isomorphisms are endomorphisms, but are they invertible? Then they’d be automorphisms.

  17. ‘And they also realise that they have no idea how to maximise it, even if they really understand profit.’

    Quite literally false. Ipso facto, his ignorance is on display.

    Managers know that the contribution to profit from their little piece of the company is COST CONTROL. They all know it.

    For Murphy not to know that says he’s unfit for purpose. Seriously, this should be a discharge offense.

  18. Gamecock, so this means that Captain Potato’s cult of maximisation is precisely wrong. I dare you to suggest this on his site

  19. George W beat me to it.

    From my experience, and having read about Robert Reid at British Rail before privatisation, managers are incentivised to minimise costs. So the cult in business is more about minimisation than maximisation. From reading the reports of the National Trust, this attitude is prevalent there too – minimisation of CO2 emissions, for example. The same seems true of Glyndebourne

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