Arnold Kling  

Two Systems

Finally, Some Justice... Quibbling with Mankiw...

Here is an idea I am playing with. It is about two systems for obtaining, retaining, and enforcing status. I need to come up with names for the systems.

How Status isSystem ASystem B
Obtainedmarket acceptancecredentials

This table is inspired by thinking about the question of why academics tend to lean left. What occurred to me is that they live in a system that is similar to the political system and different from the business system.

In the business system, your status comes from market acceptance. If the market likes your offering, you have high status. To hold onto that status, you must deal with competition. Ultimately, you have to accept the choices that consumers make.

In the other system, which applies to permanent government employees, teachers, and professors, status comes from credentials. You automatically get more money if you have a higher degree. You can acquire tenure, which insulates you from job loss. (During the recent recession, compare the rate of job loss among people in system A with that in system B.) Finally, you operate on the basis of authority. In government, you can force people to obey your edicts. In education, you can force students to take your courses--or, better yet, to pay your salary even though hardly any students enroll in your courses.

Health care has many System B characteristics. The leading Wall Street firms have a bit of System B going for them (I would not push this notion too hard). That is, they seem to value credentials (Ivy League graduates, former government officials), and they may enjoy government backing that insulates them from competition and choice to some degree.

System B is sometimes justified as appropriate for science. Supposedly, we want scientists to have credentials, to enjoy tenure, and to have their authority respected. Extend this thinking to "social science" and you have a justification for System B government, with rule by social science elites. However, science is not well served by System B (see William Byers' The Blind Spot on the science of wonder vs. the science of certainty). And there is still a big difference between the physical sciences and the social sciences.

If you are a fan of System A, you face an issue with respect to System B. Do you try to work within that system, or do you try to remain outside of that system? One can make the case either way. However, my own inclination is to try to make government and education operate under System A. Hence, as skeptical as I am about something like Seasteading, I root for its success. I also root for entrepreneurial education efforts like the Khan Academy.

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CATEGORIES: Political Economy

COMMENTS (20 to date)
Keith writes:
Extend this thinking to "social science" and you have a justification for System B government, with rule by social science elites. However, science is not well served by System A (see William Byers' The Blind Spot on the science of wonder vs. the science of certainty).

Do you mean "is not well served by System B"?

CZempel writes:

Business is, well, business, but within corporations politics plays a heavier role than academics seem to appreciate.

Various writes:

Yes, I agree with everything you say. I also think there is another factor at work. System B organizations tend to be relatively large, or at least not small. On the other hand, let's just say about 50% of businesses are small businesses (I'm just guessing....I don't know what the real answer is). As an operator or even as an employee of a small business, there is nobody to insulate you from the cruelties of the real world. No one to insulate you. You must deal with competition at a personal level to simply survive, yet alone gain status.

LA writes:

This argument coincides with one discussed by William Niskanen in "Bureaucracy and Representative Government." He presents the idea that bureaucracies are inefficient because they try to maximize the size of their budgets. He then goes on to say that most of the time they actually succeed in doing this, and supply an output up to twice that of a competitive industry faced by the same demand and cost conditions. Another economist, Gordon Tullock, argues that the best way to rid bureaucracies of these inefficiencies is by relying less upon the state and more upon the market and private firms. The market is imperfect but has proven to be the most efficient way to determine the prices of goods and services. The government would be wise to take the advice of these two economists and allow private firms to produce those goods and services the voters want the government to supply.

DougT writes:

You should also be a fan of homeschooling, which takes education outside of System B completely. The genius of the American Experiment is that it locates authority not in the State but in the individual.

Vacslav writes:

This reminds me the chapter entitled The sociology of the intellectual from Schumpeter's Capitalism... where he discusses, among other issues, why intellectuals are hostile to System 1, along the same or similar lines as yours.

Any firm has a lot of System B in it - that's how its structure is maintained, that's how it functions. Unlike the political system of the state or of the university, firms do fail - eventually all of them fail.

Lori writes:

What CZempel said. I would say the similarities between System A and System B outweigh the differences. "Connections" are more important in System A than competition and more important in system B than credentials. Who you know is more important than what you know in both systems. Most of the jobs in System A are in sales. And a university president is basically paid to schmooze. The same can be said of virtually all elected officials, who are utterly dependent on campaign contributions. And no career advancement is possible in either system without resorting to "networking," which is basically a euphemism for inside pull.

some commenter guy writes:

I think there are already labels commonly in use for this dichotomy, such as "market-oriented" for System A, and "bureaucratic" for System B.

I feel a little uneasy labeling everything in System B as "bureaucratic," but I can't think of a better name.

Tim Worstall writes:

System B is "feudal".

Arnold Kling writes:

Helpful comments. I agree that large businesses are in many ways closer to System B. I am thinking of calling the two systems "markets and hierarchies." That is what Nobel Laureate Oliver Williamson called them.

Les writes:

It seems to me that your dichotomy is accurate, but with a caveat.

The caveat is that System B can only resist reality so long as coercion can be maintained. For example, the U.S. Postal System is being eroded by fax, email, instant messaging and texting. How long the U.S. Postal System can survive depends on how long it can monopolize the mailbox due to government coercion.

So System B bureaucracies may prevail in the short run. But in the long run they can survive only so long as coercion can be maintained.

guthrie writes:

Other names you might consider:

Persuasion/Coercion (borrowing from Les)

Spontaneous Order/Directed Order (borrowing from Troy Camplin, et al)



Open End/Closed Loop


Cyril Morong writes:

This reminds me of Nozick's article "Why Do Intellectuals Oppose Capitalism?" at

Here are two key paragraphs from Nozick's essay:

"Intellectuals now expect to be the most highly valued people in a society, those with the most prestige and power, those with the greatest rewards. Intellectuals feel entitled to this. But, by and large, a capitalist society does not honor its intellectuals. Ludwig von Mises explains the special resentment of intellectuals, in contrast to workers, by saying they mix socially with successful capitalists and so have them as a salient comparison group and are humiliated by their lesser status. However, even those intellectuals who do not mix socially are similarly resentful, while merely mixing is not enough--the sports and dancing instructors who cater to the rich and have affairs with them are not noticeably anti-capitalist.

Why then do contemporary intellectuals feel entitled to the highest rewards their society has to offer and resentful when they do not receive this? Intellectuals feel they are the most valuable people, the ones with the highest merit, and that society should reward people in accordance with their value and merit. But a capitalist society does not satisfy the principle of distribution "to each according to his merit or value." Apart from the gifts, inheritances, and gambling winnings that occur in a free society, the market distributes to those who satisfy the perceived market-expressed demands of others, and how much it so distributes depends on how much is demanded and how great the alternative supply is. Unsuccessful businessmen and workers do not have the same animus against the capitalist system as do the wordsmith intellectuals. Only the sense of unrecognized superiority, of entitlement betrayed, produces that animus."

Pandaemoni writes:

What do you mean by "status?" In an academic setting, the goal (one hopes) is ultimately to get to truth, but a market-oriented system would not get you there. Too many minority positions (that are valuable in the debate) would be rejected by the market, and certain truths would as well. In other cases, the market in ideas would clearly keep alive spurious claims simply because people prefer to believe in certain fictions than embrace the truth.

For example, right now the free and open exchange of ideas in a unregulated format seems to be helping Donald Trump surge higher than many thought he would because he is questioning Obama's citizenship. The truth of his position that Obama is Kenyan is irrelevant, because the market (or at least a sizable nice in the market) for ideas enjoys thinking that Obama is a secret-Kenyan.

I would grant that the current tenure system has flaws just as bad, but I wouldn't for that reason cede the field to Option A. The strength of the current system is that, once you have tenure, you are free to say whatever you like, damn the consequences. How that has led to a left-wing bias in academia I do not know, since presumably conservatives are, if we were all behind a veil of ignorance, just as likely to gain a voice in such a system.

I'd want to think more about a third option, than accept either of the two you present.

Seth writes:

I like the dimensions.

A couple more suggestions:
Evolutionary and Devolutionary.
Productive and Destructive.

Jeremy, Alabama writes:

"Momentum" and "Position".

I worked for a mid-size software development tools company during the internet boom. Our CEO's favorite phrase was "Position is nothing; Momentum is everything!" The phrase works just as well, the opposite way, to describe government bureaucracies.

Troy Camplin writes:

Clearly it should be

spontaneous order --- organization/directed roder

scale-free social network --- hierarchical social network

But I repeat myself.

Jack writes:

This is an absurd argument. Tenure is obtained by convincing your peers that you deserve tenure. Academic authority obtains only to the extent to which it is seen to be deserved within the academic community. Authority is granted on the basis of expertise, not assumed. That sort of authority can quickly be squandered away.

I will not waste my electronic breath further, except to say that the worst part of this post is that you do not make the connection between being liberal and being an academic. This is the worst sort of correlation-ism. Worse, you do not even hint at why liberal academics would take such strong stances on issues like gay rights, women's rights, environmental and social justice issues, and so forth. 95% of your 'essay' depends upon unspoken assumptions of the most crude sort.

AM writes:

How do you explain that SF Bay Area, home to so much business success that doesn't rely on the state, leans heavily left? In fact, this is true of other high-tech hotspots like Seattle, Boston, and Austin. What gives? Being a libertarian-leaning engineer in Silicon Valley, I am struggling with this puzzle.

Kevin Clark writes:

A post which illustrates a good example of your two systems in conflict:
Interestingly, neither system would be considered philosophically capitalist.

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