George Weinberg posted some interesting and detailed arguments against neocameralism, the general focus of which is that I’m abusing the word “corporation.” Since he’s right that I’m abusing the word “corporation,” he scores a hit and throws me onto my back foot.
Note that this is why I usually try so hard to work around ambiguous words. Fortunately, there is no need for coinage in this case. A much better word is readily available: institution.
An institution is a group of people working together to achieve some shared goal that demands detailed cooperation. This requires coordinated decision-making, or management.
The management of an institution can also be defined as its decision algorithm. There are two general classes of decision algorithm: formal and informal. A formally managed institution has a formal process by which decisions are made, and it does not deviate from this process, ever. Any deviation can be described as a formal violation.
An informally managed institution is also known as a gang. Informal management, while it can be quite regular and often even transitions into formal management, is fundamentally inseparable from violence, because violence can affect its decision algorithm. If the institution has any potential for profit at all, the powerful will turn it to their own profit. If there is any noncriminal use of informal management, it may be acceptable in knitting circles, as long as your knitting circle has no more than six people and none of them keep their needles sharp.
A gang big or strong enough to have an ideology, such as your average militant movement, people’s liberation front, political party, etc., etc., can be called a supergang. And a supergang that maintains exclusive control of geographic territory is a metagang—it has gone so far beyond mere ganghood that it deserves at least a little pseudoclassical dignity.
There are two general classes of formally-managed institution: eleemosynary and lucrative. Basically, an eleemosynary institution is a charity and a lucrative institution is a company. Gangs do not exhibit this dichotomy, because there is no such thing as an eleemosynary gang.
Both lucrative and eleemosynary institutions have a single logical owner. That is, we can define the institution as if it was simply directed by one person, although this agent may be an algorithm which takes inputs from many people and integrates them into a decision stream.
One of the great social-engineering inventions of the last two centuries was the concept of fractional control. Under fractional control, a single logical owner can be divided into fractions. The institution has an arbitrary number of personal owners, each of whom owns some fraction of it. The fractions sum to 1.
Fractional control requires a decision algorithm to integrate the decisions of these fractional owners. For example, one simple fractional control algorithm is majority rule, in which any fraction that sums to greater than 0.5 can make any decision. Obviously, this number and this rule are arbitrary. Decision algorithms can be arbitrarily complex—although when they are so complex as to be ambiguous or even just incomprehensible, the risk of informalism increases.
One fractional control algorithm that has proven very effective is indirect fractional control. In indirect fractional control, two algorithms are used: one to choose a controlling committee, and one to make decisions within that committee. A controlling committee is a small group of old white men, sometimes with a token woman, black or Irishman, who make decisions in a personal and collegial way, typically over martinis after a round of golf. However, these controllers still have formal rules for resolving disagreements, although ideally they never have to use them.
Note that indirect fractional control seems to work quite well for both eleemosynary and lucrative institutions. In both “nonprofits” and “corporations” as we know them today, the controlling committee is called the “board of directors.”
I am not quite sure how the average American 501(c)(3) nonprofit selects its board. I suspect the process is far too informal for my liking. In my book, the correct primary control algorithm for an eleemosynary institution is obvious: the donors are the owners. A donor’s fraction of indirect control is that fraction of the institution’s total lifetime donation receipts that he or she has contributed. Anything else strikes me as, quite frankly, dodgy.
The essential question about any institution is how its actions benefit its owners. Every formal institution by definition does what its owners want it to do. An institution may affect a large number of people in a variety of ways—for example, I am thankful that there is a new organic grocery down the street. But I am not a formal beneficiary of this institution, because I don’t own any part of it.
We think of an eleemosynary institution as existing to benefit the public. Typically this is the case in some general way. But formally, it is not the case at all—as in a lucrative institution, the beneficiaries of an eleemosynary institution are its owners.
An eleemosynary institution can benefit its owners either actively or vicariously. An active eleemosynary institution affects its owners’ lives directly. A vicarious eleemosynary institution does not affect its owners directly; instead, it affects something else in the world, in some way that pleases its owners.
A bridge club is an active eleemosynary institution—it benefits no one but the bridge players, who presumably control it. A battered women’s shelter is a vicarious eleemosynary institution—while I’m sure there are exceptions, its donors are seldom in need of its services.
No clear distinction can be drawn between the active and vicarious cases. Recall the definition of human action: the goal of action is to alter the state of the world, to one the actor prefers. Whether active or vicarious, an eleemosynary institution acts on behalf of its owners, who control it. Thus, as always, control and benefit are aligned.
Or, at least, it should. But it doesn’t always. Any formal institution, eleemosynary or lucrative, has the potential to evolve into an informal institution, i.e., a gang. We can describe an institution which is unlikely to degenerate in this direction as stable, and one which is likely to degenerate as unstable.
As I see it, there are two ways to ensure that an eleemosynary institution remains stable.
One is to ensure that it controls no capital. A bridge club, for example, owns nothing except a few decks of cards, and a can of Mace to cool the ardor of any old ladies who get too excited and start to trump each other with rubber dummies. Since the definition of capital is that capital is lucrative, and since all gangs are lucrative, an eleemosynary institution which controls no capital is stable. Deductive reasoning at its finest, folks.
Two is to ensure that its activities are regulated by a superior authority. Obviously, most “nonprofits” are in this category. A regulator uses overwhelming force to prevent or deter the eleemosynary institution from devolving into a gang.
Regulating vicarious eleemosynary institutions is pretty easy. It is a matter of enforcing contract law, just as in the case of lucrative institutions. The natural conflict is that the owners want to shelter battered women and help them back to independence by providing a secure and supportive environment, whereas the managers want to sell the shelter for conversion to luxury condos and squash courts, invest the proceeds in a hedge fund run by their cousins, and move the women into a stack of dog cages in the parking lot. If the law is enforced, the owners win—end of story.
Active eleemosynary institutions are much harder to regulate. An active eleemosynary institution is almost the same thing as a lucrative institution, except that lucrative institutions benefit their owners by paying them in money. In an active eleemosynary institution, the benefit to the owners is intangible and unquantifiable.
It’s easy to regulate a lucrative institution, because it’s basically obvious whether or not it is violating formality. A lucrative institution is formal if it follows its decision algorithm, and it pays an equal dividend to each holder of each share. Because dividends are paid in money and money is amenable to mathematics, this is not hard to check.
At least, it’s not hard relative to the problem of regulating active eleemosynary institutions. The problem of regulating the decision algorithm is identical. But how can we know that the institution is actually benefiting all of its owners equally? Perhaps 60% of the shareholders have organized as a gang, and are directing all the institution’s benefits to themselves, screwing the other 40%? Opportunities for friction abound.
Unfortunately, it’s hard to provide examples of how hard it is to regulate active eleemosynary institutions. This is because significant active eleemosynary institutions are quite rare. The closest examples are cooperatives, which when they work—which is certainly not always—tend to do so by adopting the standards and practices of lucrative institutions.
Unless, of course, we count the modern democratic state. Which is—or at least purports to be—a self-regulating active eleemosynary institution.
With a very unusual decision algorithm. Which resembles no decision algorithm in use by any other formal institution, active or vicarious, eleemosynary or lucrative, past or present. But to which many ascribe quasi-magical qualities of truth, wisdom, righteousness, etc. Not unlike other decision algorithms used in the past, which we now recognize as thoroughly informal. But clearly more adaptive than any such predecessor.
Do you ever get the feeling Occam’s razor is trying to tell you something?
Let’s face it: that last season of the Sopranos sucked. Actually, the last two seasons sucked. Actually, make it the last three. However, when Christopher explained to his AA sponsor that his higher power was his Mafia oath, it made up for a substantial fraction of the suckiness.
Suppose the democratic state is not a stable eleemosynary institution. Ergo, since today’s democratic states were not born yesterday, they are not eleemosynary institutions at all. Ergo, they must be informal institutions.
“Informal” being a nice word for “criminal.” Do you really think that in a state that’s a criminal institution, everyone goes around thinking that the state is a criminal institution? How long would such a state last? Just because the state isn’t a stable eleemosynary institution, doesn’t mean it’s not a stable criminal institution.
Au contraire—in a stable criminal institution, all or almost all of that state’s subjects will worship it. They will not even consider it morally neutral. They will think of it as good and holy and true. It will be their higher power, their Mafia oath. We see this in all the great metagangs—Nazis, Communists, Jacobins, etc., etc.
Of course, the Nazis, Communists and Jacobins were not just criminal states. They were murderous states. Clearly, there are essential moral and organizational differences between these systems of government and the Western postwar democracies.
On the other hand, there are also essential differences between a murderer and a bank robber. If we accept that a criminal state need not be a murderous state, we should expect to see a second tier of criminal states after the murderous states—ones which are not murderous, but merely felonious, venal, or otherwise larcenous.
Yet, in the conventional story, this tier does not exist—at least not in the First World. Instead, World War II and the Cold War were contests between murderous states, and those that were good and sweet and true. Specifically, when we look at the Nazis, the Communists, and the Universalists, we have a choice: either we are looking at two murderers and a felon, or two murderers and a saint. Two metagangs and a charity—or three metagangs.
Next week (remember, UR posts appear regularly every Thursday morning, as well as whenever else I feel they should appear), we’ll look a little more closely at the fascinating subject of corruption.