Organizational justice

[This may be the first draft of a paper to be submitted to a conference in the Jesuit University Ignatianum in Krakow w the same title, or may be not, depending on how happy I am with the final result… it is, however, an issue I have been wanting to tackle for some time now but had postponed so far to deal with lighter matters]

Declaring that capitalism sucks and that the way we have chosen to organize our societies is fundamentally flawed and not conductive to human happiness and/ or flourishing is great fun and a source of moral validation (so much so that it is impossible not to perceive in such denunciations a whiff of suspicious self-righteousness that no truly moral worthy subject should stoop to), but at the end of the day everybody needs to earn a living, bring home the bacon, put some food in the table and a roof over his (and eventually his loved ones’) head and so on and so forth. Nowadays, to that end you normally don’t go out in the woods to hunt and fish and chop wood, but you join an existing organization, where you are assigned some tasks and perform them to the best of your ability. Or at least to the extent that would convince those in levels of responsibility that it is in their best interest to keep on employing you. Even if you choose the route of being an autonomous professional selling your skills in the open market there are a number of relationships you enter into (with the regulatory body that determines how your practice should be carried out, with subcontractors to deal with aspects of your daily routine you choose to outsource, with customers that -hopefully- end up paying your bills, with tax authorities you have to pay to so you can go on with your business, etc.)  that place you firmly within the context or an organization, even If it lacks a common juridical personality, as would be the case with the salaried employee within a company.

So the intermediate entity between the whole social system (capitalism, in all its soul-crushing evil, yadda, yadda, yadda…) and the individual is the organization. Even the unemployed belongs to one or multiple organizations: the agency that pays him the unemployment benefits (if there is such a safety net in his country), the newspaper where he seeks jobs or the provider that hosts the on line games he spends his days playing are all organizations he is more or less loosely attached to. The homeless person that seems to have severed every last social tie also belongs to some organization or other, from the parish or the social shelter where he sometimes sleeps to the mental health facilities where he may be eventually institutionalized. That means that, although very few can recognizably and significantly influence the whole social system, most can definitely have an impact in the organizations they belong to. Which in turn means that questions of justice, although they can be predicated of the whole social system, can only be put in practice in the institutions that mediate between such system and said individuals.

Interestingly, a lot has been written about the fairness and justice of the system as a whole: from Leviathan by Hobbes to A Theory of Justice by Rawls, including the Two Treatises on Government  by Locke, the Metaphysics of Morals by Kant, the Elements of the Philosophy of Right  by Hegel, On Liberty by Stuart Mill, the Communist Manifesto by Marx, the Responsibility Principle by Jonas, the Social System by Parsons, the Theory of Communicative Action by Habermas and Anarchy, State and Utopia  by Nozick. They all deal with society writ large: how it is ruled (or should be ruled), how decisions are made (or should be made), how property is held and transferred (or should be held and transferred -or not), what rights and duties people have as members of an all-encompassing group, what they owe to each other (the title of another book by Thomas Scanlon) and what they can demand each other. In the old Aristotelian term, they all find that justice required a certain political system, and that the definition of such system was the most meaningful contribution towards a more just world. But as to what happens when they step out of that all-encompassing group (the polity) and enter (more or less voluntarily, we will need to expand on that later on) in a smaller association, all have very little to say, apart from in general defending the possibility of individuals freely entering and leaving such association (but most authors seemed to have in mind political parties, or established churches rather than the more prosaic commercial companies that people in fact must join in a modern market-ruled economy).

Which is kind of a funny lapse, because, again, almost nobody is going to be able to single-handedly reform the whole judicial system, or seriously challenge democracy and the rule of law as organizing principles, or translate their denunciations of the free markets into more substantially redistributive institutions, but everybody has a certain level of control over how they perform their day to day work, the work they happen to do for, you know… an organization. So giving some direction of how to behave oneself in such environment would seem to be of more practical concern, and more influential, than thundering about the evils of a distributed decision making system (that happens to impersonally favor great wealth concentration at the expense of great effort and suffering from a poorly compensated majority that has to be kept in the dark about how stacked the system is against them) that has showed for some centuries to be quite impervious to any single actor’s decisions.

But before we proceed with trying to change such sorry state of affairs, I’ll have something to say about that wider critique that so many intellectuals have luxuriated in so frequently until now. To avoid being labelled a conformist (not that I would care) I’ll clarify that I don’t consider such critique lacking justification or, more pointedly, merit. I myself have dwelled at length in the shortcomings of our current system (shortcomings that don’t entirely compensate for the more abundant ones exhibited by any alternative system ever actually attempted: Two views of the system), and have even tried my hand at sketching how an better system may look like (both here: What is Anarcho Traditionalism and here: What a sunny future for humanity looks like ). I take my hat off and raise my glass to all the dreamers, the purveyors of alternative social arrangements, the utopians and the commune-founding nonconformists (between which I’ve counted myself more than once). Let’s just admit they have not been historically very successful in hastening the dawn of Heaven on Earth or, absent that, the development of a society a iota more fair and just than our current one. And what I portend to do is to hasten such a dawn (of the more just society, I leave Heaven on Earth to the Almighty) by analyzing not how everybody should behave as a member of society, and how such vast construct should be arranged (something I’m in no position to influence whatsoever, as weren’t Hobbes, Locke, Kant, Hegel, Mill, Marx, Jonas, Parsons, Habermas, Rawls or Nozick, each in his own time), but how we should act within the organizations that actually employ us, and how such smaller units should be arranged.

In a very Socratic way, if we intend to identify the rules for creating more just organizations we will need to start defining what justice is. The most common definition around is “giving each one his due” or “giving each one what corresponds to him”, which doesn’t get us that much closer, as we then have to inquire into what is due to each member of the organization, or what corresponds to each one, and we may to our dismay find that the answer to both is “what justice dictate they should receive”. So if we want to break from this circular definition we have two main alternatives:

·         Define justice as consisting in giving to each as they deserve, that is, what they have earned according to some previously agreed rules

·         Or define justice as giving to each as they require, that is, ensure everybody’s needs are equally tended for

Both are fraught with difficulties: determining what every member of the organization contributes to the common good (what he has earned, and thus what he in return deserves) is famously tricky (if I’m the one apportioning the rewards, I’ll likely have a strong incentive to value my own contribution and that of those close to me as more substantial than anybody else’s… anybody else would likely have a different view of such valuation, and thus of the justice of the resulting distribution); determining what each one requires independently of merit or contribution would incentivize free riding and asocial behaviors (as exemplified by the communist motto “from each according to his ability, to each according to his need” that unsurprisingly fostered a society where everybody seemed to have a lot of the latter and very little of the former).

It has to be noted that the rules we are attempting to pin down have to do with distributive justice: within the framework we are dealing with, they would be the rules pertaining how to assign the benefits the organization provides. They have less to say regarding who is entitled to give orders, what are the limits of such orders (if they are indeed somehow limited) and how much exertion those expected to obey them should apply in carrying them out. We will have a bit more to say about that kind of rules (which we could group under the header of procedural justice), but let’s first explore a bit more how the aforementioned benefits are apportioned.

One approach to determining as fairly as possible the benefits each member of the organization “deserves” is to have an impersonal mechanism setting them. If any single person could decide with complete freedom what each member, including himself, enjoys of the common product it is difficult to avoid the impression that he will have a strong incentive to overcompensate himself and those close to him (the level of “closeness” can depend on a number of factors, like family ties or similar tastes or similar personality traits or even gender or race that are generally considered germane to “just desert”, and thus should not be taken into consideration if a just distribution of rewards is to be achieved). But if there are “external”, “objective” rules that he has to apply to decide how much of such common product he gives to each member of the organization we think that there is less opportunity for “unfair” or “unjust” distributions; we tend to assume that if the rules are impersonal and “objective” enough they should produce an equitable, unobjectionable distribution. That, of course, is absolutely false: take an impersonal rule like “give 100% of the organization’s income to the tallest employee” (or the fattest, oldest, youngest, of darkest complexion, of lightest complexion, whatever) or “distribute the organization’s income proportionally to the number of days between each employees birth date and the 23^rd of June of 2003”. Such rules are surely as objective as you may dream, but the distribution that may result from their application won’t be “fair” or “just” by any standard measure, and will likely result in people leaving the organization in droves, except for those favored by them (that in most cases won’t be especially deserving, or able to contribute in an especially significant way, thus causing the quick demise of the organization for lack of adequate talent).

You may suspect I have chosen some outrageously irrational samples of “objective” rules to make some point, and you would be entirely right. The lesson I want my readers to take home is this: “impersonal” rules, with a patina of objectivity around them, do not guarantee a fairer, more just outcome than just giving full discretionality to a member (or reduced group of members) of the organization to decide about how the benefits it produces should be distributed. However, most theoreticians of the matter seem to have concluded (not recently, the argument started to take shape about 300 years ago) that there is one particular set of objective rules that almost magically guarantee the fairest, most just arrangement that can be conceived. A magical set of rules that allow us to forget about the fairness of the organizational arrangements we enter into, as its application ensures we all get the best deal we could dream of. What extraordinary set of rules are those? I’ll defer to a highly regarded academic text, the eighteenth edition of Economics by Samuelson & Nordhaus, page 288:

A general-equilibrium market system will display allocative efficiency when there is perfect competition, with well-informed producers and consumers and no external effects. In such a system, each good’s price is equal to its marginal costs and each factor’s price is equal to the value of its marginal product. When each producer maximizes profits and each consumer maximizes utility, the economy as a whole is efficient. No one can be made better off without making someone else worse off…

… The basic point to see is that, because prices serve as signals of economic scarcity for producers and social utility for consumers, a competitive price mechanism allows the best mix of goods and services to be produced from a society’s resources and technology.

We could formulate what I propose to call “the Economist rule” as follows: “give to each member of the organization as much as he contributes at the margin (as much as he adds value to each good or service the organization sells)”. That is indeed “how the real world works”: the salary of every employee (or the fee every independent professional can command) determined by the market in proportion to what the consumers are willing to pay for what said employee does to whatever it is his company (or himself directly) sells. Sounds very rational, objective, impersonal and thus fair, doesn’t it? Only it is essentially bunk, and it has as much to do with how salaries are really determined in a company as the number of angels that can fit on a pin’s head has to do with the atomic weight of iron…

Let us quickly review a number of problems of the definition of “an efficient general equilibrium market-system” as defined by Samuelson and Nordhaus (and widely accepted by most economists today):

·         There isn’t anything like “perfect competition” in most markets, starting with the labor market (where the number of weekly, monthly and yearly hours is capped by law; the state taxes those hours differently depending on the industry and legal status of the worker; there are in some jurisdictions floors to how much can be offered per unit of work -minimum wage-; there are vast asymmetries in negotiating power between the parts, even in the face of collective bargaining from the workers, and information about salaries in other industries or in other firms within the same industry is typically very difficult to come by) and including the energy market, the travel market, the manufactured goods market, the health market, the residential building market, the personal (domestic) services market, the agricultural market and the financial market, at a minimum to try to reduce externalities and protect consumers and the environment  

·         Neither producers nor consumers are in any meaningful sense “well-informed”. Even in these times of apparently easy access to “all of humanity’s knowledge”, when any conceivable piece of information is “just a click away”, you would be surprised by how little executives know about what their customers value, what they workers demand, what their machines can realistically produce and what their productive processes yield

·         A direct consequence of the above is that the much vaunted coincidence of marginal costs with marginal prices that sets the overall production level for each firm is but a mirage. To begin with, it presupposes a production function where the costs slope upwards (the cost of producing an additional unit grows with every additional unit produced) and a consumption function where the utility (and thus what the consumers are willing to pay) slopes downward (as they derive less satisfaction from every additional unit consumed), which is theoretically pleasant to contemplate, but not that frequent in real life. In real life not only production and consumption functions can slope in whatever direction (depending on demand elasticity and the amount of fixed vs variable costs) but are more discrete than continuous, so they may not even intersect in any meaningful sense (so firms necessarily produce either less or more than what the public is willing to consume at the price they ask for, and there is no “natural” way to adjust prices to make demand and supply coincide, having to resort to rationing, queuing, perpetual inventories or semi-permanent overcapacity)

·         Although I can grant that companies (or suppliers in general) know what maximizing benefits consists in (benefits are measured in money, and although money can get pretty metaphysical, i.e. how much are Apple’s benefit really worth, if it finds no attractive investment to park them into and all it can do is sit on top of them as a growing and useless pile of cash?, at least everybody can agree that if firm A earns more money than firm B in the same amount of time, it is generating more benefits) I firmly believe that there is no such thing as “maximizing utility” for consumers. What the f@%k is utility? How does it compare between different people? And for the same person between different moments in time? I know, I know the standard answer of economists: “revealed preferences”, so utility is exactly and precisely measured by what the people is willing to pay for each unit of satisfaction. Rather than go in a furious rant that would take me far away from the original goal of this post, I’ll just point that such argument is rather circular, and using the fact of people paying a certain price for something as a justification that such price is the right measure of the value of such something is the very definition of question begging, and introduces in the explanandum the very explanans that we are trying to define.

In summary, if there is no such thing as “perfect competition”, no such thing as “well-informed” producers and consumers and no such thing as meaningful “utility maximization” through the information provided  by prices, can we say with a straight face that the “market mechanism” ensures a just and fair distribution of the companies’ rewards? No, we definitely can not. Which means we can not abdicate our responsibility of fairly rewarding our fellow employees by discharging the decision on how much to pay them to the market, assuming that if we pay them a “market salary” we are doing good and all is well. Because such “market salary” is an empty ideological construct (“ideological” in the worst, most Marxist sense of the word: a deliberate attempt made by those that benefit the most from the current system to justify it and thus better impose it on the many disadvantaged by it). Nothing new here, as I’ve already developed most of my objections to the supposed application of economic logic to real life here: Shortcomings of economic "science" and here: Shortcoming II (some drollery)

So we are back at square one: we quickly dismissed the possibility of a distributive justice based on needs, as it compromises the viability of the organizations that adopt it by attracting and rewarding free-riders and moochers. We have just dismissed the possibility of a distributive justice based on desert, as the supposedly objective criteria used to determine the amount of desert of each individual is highly suspect, and ends up leading to tremendously well paid top executives profiting handsomely from the squalor and exploitation of the majority of the workforce.

What I would suggest is that we better dismiss distributive justice altogether, and confine it to a wider organization (the whole state, which uses its power of taxation to achieve a more just distribution of the whole social product). For smaller, economic organizations (firms and companies) I would argue that it is procedural justice the one that we must be concerned about, and the one that defines if they are fair to its members or not. And to define the “right” sort of procedural justice and how it should be understood I propose to look not at the classical economists and utilitarians (Hume, Smith, Mill), but to a figure that only recently has been vindicated as having something relevant to say about organizations. None other than the German philosopher Immanuel Kant.

Which will require an additional post, as this is already too long (well, this looked since the beginning like a to part installment, I’m sure you already saw this coming)…