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True beyond the shores of Harvard
Blog post of the day, from Brad DeLong, excerpt:
Somebody last week--was it Jan de Vries? John Ellwood? Somebody else? I forget who, but it is not original to me--said that the right model for Harvard over the past century is Yugoslavia. Remember the story of the Yugoslavian socialist worker-managed firm? If you add another worker to the firm, that worker gets a pro-rata share of the firm's value added. The firm's value added has a component attributable to the firm's capital stock, a component attributable to the ideas embedded in the firm, a component attributable to the firm's market position, and a component attributable to the workers. Hire another worker, and only the last of these goes up: the first three do not, and so average compensation falls.
This means that a worker-managed firm is likely to shrink whenever it gets good news that makes it more productive--the larger is the value added due to ideas, capital, or market position, the more expensive does it become for the existing workers to replace workers who leave, let alone hire enough workers to expand. While a competitive market capitalist firm responds to good news about its productivity and value to society by increasing employment, a Yugoslavian-model market socialist firm responds to good news about its productivity and value to society by shrinking. On this analysis, the very success of Harvard over the past two generations together with its degree of worker management has created enormous internal pressures not to expand, the better to share out the surplus among the existing stakeholders.
Posted by Tyler Cowen on May 11, 2008 at 05:35 AM in Education | Permalink
Comments
That must be the nicest thing anyone has said about Harvard in years.
Posted by: dearieme at May 11, 2008 9:16:26 AM
That analysis also explains why American citizens rationally oppose increased immigration from the third world. Such immigration diminishes returns to current citizens.
Posted by: Vercingetorix at May 11, 2008 12:23:37 PM
despite being uncomfortable with many aspects of Harvard (including its unusual tenure system), i'm generally skeptical that it should be doing things much differently since it's so unbelievably successful. the Chinese research productivity rankings place it at the top by a pretty wide margin with only thirteen other schools producing even half as much research as the big crimson. even if these rankings are flawed in some way, there's no getting around the fact that Harvard is a very successful institution.
there's also the issue that the delong model assumes diminishing returns to scale, which is probably true if you think in terms of the endowment. however if there are a lot of network externalities to research then there may be increasing returns to scale (within reason) as you get to benefit from the ideas and resources provided by your colleagues.
Posted by: Gabriel at May 11, 2008 12:47:42 PM
By the way, Mankiw suggests that Harvard ought to think about moving its campus to another state, somewhere "South". I nominate Spartanburg SC.
Posted by: happyjuggler0 at May 11, 2008 1:00:56 PM
Gabriel - the model does not assume diminishing returns to scale, it assumes diminishing marginal productivity of labour with other factor imputs held constant.
quote:
"That analysis also explains why American citizens rationally oppose increased immigration from the third world. Such immigration diminishes returns to current citizens."
Only if you assume the government has positive net assets. If government debt, including future social security and medicare obligations, exceeds government assets, the case is reversed.
Posted by: Timothy at May 11, 2008 4:13:34 PM
A current example is American Indian tribes. Now that they get one casino each, many tribes have been expelling members without enough Indian blood in their pedigrees in order to increase the size of the share of the pie for the remaining tribe members.
Posted by: Steve Sailer at May 12, 2008 4:38:10 AM
No, Timothy, the "firm's assets" in question are all the capital and know-how in the hands of citizens-- the government is not "the firm" (you have maybe confused American government with Soviet Russian government-- American government is mostly a just a leech-- in modern American society the government acts like bad weather-- it drains productivity from society and transfers wealth from creators to rent-seekers.
Posted by: Vercingetorix at May 12, 2008 2:25:13 PM
Only if you assume the government has positive net assets
I think that Vercingetorix right that we should be looking at the whole society, and not just the government. In particular, I would focus on natural resources and anything where the supply can't quickly expand to match a growing society.
I'd expect rapid population growth to push up the price of housing (and land) and even make things like water, public green-space, and clean air a lot more precious.
Posted by: Adam Ricketson at May 13, 2008 7:13:40 PM
