by liquid_x on 8/3/12, 11:52 AM with 159 comments
by grellas on 8/4/12, 12:52 AM
Here are my reasons for saying this:
For all of the economist's sagacity that the author has and evidently brings to this piece, the author's underlying case against modern hierarchical corporations seems to boil down to a populist analysis that is not so much a proof as a set of ill-developed assertions.
The author claims (a) that hierarchical managements lead to "corporate serfdom" and to "Soviet-like" dominance within the framework of the corporation itself, thereby crushing creativity and wasting resources, (b) that all this is made by possible by "toxic finance," and (c) that it is all "co-dependent with political structures that are losing democratic legitimacy fast."
Corporate serfdom? Toxic finance? Co-dependent on illegitimate political structures? This lumps every early-stage startup with every mega-corporation that has ever existed and, in effect, calls them all illegitimate. And that is a political assumption about "corporations" in the abstract, not an empirical analysis, because it cannot possibly be defended as an empirical analysis. Is it serfdom to join a YC company as a founder or an employee? Is YC a toxic funder? If the answer to both is no, does all this change once startups get bigger? How about a startup that purports to offer a different form of corporate culture ala Google? Are there serfs working at Google? Is their funding toxic? Or does this just apply to a Walmart or a Standard Oil or other mega-corporation that does not specifically do creative work in the tech field? Does hierarchical management consist of simply having the normal forms of corporate government - a board of directors and corporate officers - or does it come about only when people are given authority to hire and fire, to supervise the employment of others, and to direct them in what to do in their jobs? Is this all good, efficient, and respectful of human talent and creativity when the organization is small but soulless and deadening and even "Soviet-like" only when the corporation becomes large? If there is such a distinction, where is that line crossed? And does this mean that the corporate form is not innately evil but that a large organization of whatever type, organized hierarchically in its management structure, is what brings in the evil.
What, then, does Valve offer that makes it different? It too is a corporation. It is privately owned by a few persons who have had the luxury of screening all employees so as to hire only very bright, highly self-motivated persons to do predominantly creative forms of work. Working with such employees, Valve has been able to build a successful model by which these bright, motivated employees get to choose 100% of their projects and have complete freedom on how they manage their own time and on what results they seek to achieve. It all sounds like an amazing work environment but how many businesses get to focus in this way on creative forms of work or get to screen carefully to make sure they only hire self-motivated employees? And how many businesses have the luxury of doing this without needing to raise outside capital through their early stages? Moreover (and the author himself raises this point), to what extent can this scale? Can such a model work if the company grows a thousandfold and suddenly has 40,000 employees? Of course, the model inevitably breaks down at some point along the way because the environment in which the Valve employees currently function is highly unusual if not unique.
Unless human nature should radically change owing to technological progress (a dubious assumption in my view), we can continue to expect that, in any large group, there will always be those who fail to carry their weight, those who seek to take advantage, those who are incompetent, and those who are plain bad actors making life difficult for those around them or trying to cheat the company or steal from it or whatever. A hands-off management that lets all such persons do whatever they want will very quickly find itself immersed in problems and, ultimately, some mechanism needs to be put in place by which employees are managed, are disciplined, are rewarded, are redeployed, etc. in ways that conform to the goals of the organization and not necessarily with those of each individual actor within that organization.
Every form of business organization needs people with a vision to set its model and its goals and to direct people and resources in a way that maximizes the opportunities of successfully reaching those goals. In some situations, some or even all of the impetus for this can come from those who work in common without an overriding authority. Those situations, though, are by definition highly unusual at best. Valve may be one of them and even then it has to managed at some level even by its benign oligarchs who own it. And, even if technological progress could someday supplant the need for corporations, this piece does not make the case for how that will ever be possible. It is, then, an intriguing piece (with thought-provoking elements) but suggestive and incomplete at best in its main argument about Valve and marred by populist assumptions in its broader themes about corporations generally.
Yes, this is written from the standpoint of a startup business lawyer who has dealt with corporate forms of organization for some three decades now. This may give my views an inevitable bias in that direction but it also gives me a close familiarity with how such corporate forms work. From that perspective, what the author says just doesn't ring true. Business organizations generally aren't places where free-flowing creativity will hold sway above all else. The Valve model may be great but I just don't see it being made broadly applicable to the vast majority of businesses as they operate today or as I can even conceive of them operating in the future.
by cs702 on 8/3/12, 12:44 PM
Despite having grown to around 400 employees, Valve is evidently not like that. The author, Yanis Varoufakis, makes a compelling case that future companies may look more like it than like the traditional hierarchical corporations of today.
--
PS. As someone who regularly reads the author's economics blog at http://yanisvaroufakis.eu, finding him on Valve's corporate blog was the source of quite a bit of cognitive dissonance for me. ("What the...? Why is Varoufakis showing up on Valve's corporate blog?" was my immediate thought.) I had to do multiple double-takes before it dawned on me that, yes, he somehow works at Valve!
by Spooky23 on 8/3/12, 1:33 PM
In the early 1800's in the US, you needed a act of the state legislature to form a corporation. This was difficult and came with other baggage (putting politicians on payroll, etc) so many more businesses were partnerships. Being a partner means that as you invest, you gain more equity AND more liability. It also means that governance becomes difficult as the partnership grows. As the industrial revolution brought about massive, more capital intensive businesses (railroads, steel, etc), the corporation become necessary to function.
If Hacker News was around in 1880, we'd be talking about corporate bureaucracy as a great innovation. It made sense.
I think what you're really seeing with Valve is a sort of modern partnership. I've seen similar sounding small businesses (farms, mostly) where running of the business is more consensus-driven or there is a "spontaneous" hierarchy that develops over time.
by mhartl on 8/3/12, 4:11 PM
Valve's model reminds me of the old Costco vs. Walmart debates. Costco, we are told, get lots more productivity out of its workers by treating them well—good pay, generous benefits, etc.—while Walmart suffers by comparison. What this analysis ignores is that the people are different. Costco has discovered that it can thrive by compensating disciplined, productive people well. Google does the same. Apparently so does Valve. But not all people have such discipline or high productive capacity—you couldn't just swap all Costco employees for the same number of Walmart employees and expect to get the same results, any more than you could with Google or Valve. The miracle of Walmart (or one of them, at least) is that they manage to thrive using the labor of people whose productivity is often marginal by the standards of Costco or Valve. Arguably, that is even more impressive, and perhaps more laudable. Unsurprisingly, Walmart's corporate structure is very un-Valve-like.
by crazygringo on 8/3/12, 10:42 PM
1) Moving between Valve projects may be like a "market" where the "buzz" around a project is like its "price"... but then the analogy breaks down, because in a real market, you'd have to pay to be on the hot team.
But at Valve you don't, so in this case, why doesn't everyone just drop their project and move to the hottest, most interesting team? Obviously in real life not everyone will, but if a team only needs 5 people, and 50 people want to join, who determines who really joins? Well, the project manager will have to choose, and now we're just back to managers choosing. Or am I missing something?
2) There's a lot of grunt work in software development. Bugfixes to maintain a year-old product, writing documentation, etc. If nobody wants to do the grunt work, then who does it? Because there's usually more grunt work than people who want to do it. Everyone wants to work on the new exciting sexy stuff, but that's not always what generates revenue and pays people's salaries.
by bryanlarsen on 8/3/12, 2:13 PM
I assume that Valve generously grants stock options to its employees, like most other Silicon Valley firms. This, combined with its interesting management structure, makes Valve a worker's cooperative in practice but not by law.
I suspect that if Valve lived in a jurisdiction with legal protections for worker's cooperative, that it would be one.
by jacques_chester on 8/3/12, 1:53 PM
A single data point that has several massively profitable ventures feeding its bottom line.
I'd be wary of drawing sweeping conclusions about political economy from a single example.
by alenox on 8/3/12, 12:55 PM
by codexon on 8/3/12, 8:22 PM
Anyone who has daily exposure to Valve's infrastructure will notice the flaws.
- Credit card breach http://www.theregister.co.uk/2011/11/13/steam_confirms_credi... ending up in foolish security measures like encrypting your password with RSA in javascript on top of SSL.
- Power outage of a single datacenter leads to Steam going down. http://kotaku.com/5884430/power-outage-knocked-out-valve-ste...
- Weekly unplanned outages of Steam Community and the Valve master server.
- Crashes and game breaking updates in nearly every TF2 patch. http://www.mail-archive.com/hlds@list.valvesoftware.com/inde...
This interview from Gabe shows that he knows there is a problem with this, but he doesn't realize how bad it is:
Newell: A lot of times people will want to complain. The first time somebody complains, you say, “Okay, fix it.” You just say, “I don’t know what you expect to happen now, but you’ve just given yourself a job.”
Fries: Does that train them to complain less or to fix things more?
Newell: If you hired the right person, it trains them to fix stuff. If you hired the wrong person, they’ll say, “Oh, this is mean.”
by guelo on 8/3/12, 4:49 PM
by aero142 on 8/3/12, 7:48 PM
by wtvanhest on 8/3/12, 1:54 PM
The reason, I and others on HN don't like BigCo, is because we feel stifled, but that doesn't mean that it isn't the most efficient business model.
by yochaigal on 8/3/12, 10:33 PM
by stcredzero on 8/3/12, 9:41 PM
by larrys on 8/3/12, 9:01 PM
Let me boil this down a bit.
Heads in the clouds. So using Valve, with it's particular product (games) and it's type of employee (young) we are going to construct an argument that ends in:
"and it so happens that it constitutes the reason why I am personally excited to be part of Valve: The current system of corporate governance is bunk. Capitalist corporations are on the way to certain extinction. Replete with hierarchies that are exceedingly wasteful of human talent and energies, intertwined with toxic finance, co-dependent with political structures that are losing democratic legitimacy fast, a form of post-capitalist, decentralised corporation will, sooner or later, emerge."
One wonders if people who write things such as Yanis, well, if they've every done anything outside the academic world and pure theory relying on what appears to be on the surface well written arguments that would probably go over the head of Sam Walton or Warren Buffett.
by Tycho on 8/5/12, 8:30 PM
However one factor I generally find missing in a lot of economic analyses is that no matter how 'feudal' or 'hierarchical' an organisation may be, workers choose whether to work there or not. The classic characteristic of soviet states was that you couldn't leave even if you wanted to...
by clarnet on 8/3/12, 1:42 PM
Of course, he's another non-authority thinker but with a quite different perspective and way to think the world, the society and men.
Take some of your time at gutenberg.org: - What is Property? by P.-J. Proudhon http://www.gutenberg.org/ebooks/360 - System of Economical Contradictions; or, the Philosophy of Misery by P.-J. Proudhon http://www.gutenberg.org/ebooks/444
by ianbishop on 8/3/12, 3:23 PM
Regardless of the article though, one detail always seems to slip past me. Who answers the phones?
by casca on 8/3/12, 10:29 PM
The topic is "Coase on Externalities, the Firm, and the State of Economics", well worth the time if this topic interests you.
by onitica on 8/3/12, 12:55 PM
Don't get me wrong, I think traditional corporate structures are often abominations and I think Valve is a great company. It just seems to me that if you take the spontaneous order philosophy to the extreme than corporations in general just become unnecessary overhead.
by guscost on 8/3/12, 3:27 PM
by aytekin on 8/3/12, 4:38 PM
by AndrewDucker on 8/3/12, 12:46 PM
by InternetPerson on 8/3/12, 3:42 PM
There seems to be a lot of noise about Valve these days. Some examples: the "Windows 8 is going to be a catastrophe" thing; the "we're hiring super elite Linux developers" thing; the "our engine is faster on Linux?!" thing; and now this navel-gazing self-congratulatory gobbledygook.
Sudden Clarity Clarence asks, "Is Windows 8 going to have an app store? Could that be a threat to Steam? Is all this noise just saber-rattling?"
by sopooneo on 8/4/12, 1:39 AM
by inopinatus on 8/4/12, 12:31 AM
* Hire great people,
* Give them goals and the resources they need, and
* Get the hell out of their way.
by michaelochurch on 8/4/12, 1:07 AM
His insight about corporations being Soviet in nature is spot-on. Corporatism is neither capitalism nor socialism, but a hybrid system to give a well-connected elite (~0.5%) the best of both systems and the other 99.5% the worst of both worlds. Look at air travel; that's about as Soviet an experience as one gets, but the pricing is aggressively and mean-spiritedly capitalistic. Or consider suburbia as a microcosm. The rich live in places like the Hamptons and have both rural and urban amenities, while the poor live in depressed, polluted exurbs that combine the worst of city and country life.
What Valve sounds like to me is a post-scarcity capitalistic model where there's still inequality of results (as, IMO, there should be) but there isn't pain or poverty.
In our current world where there is a lot of scarcity (even though it's outmoded and artificial in the US) people work a certain way, and give up too much power, because the alternative is risk of economic misery. In a post-scarcity world with more of a safety net, people probably would "wheel their desks" to other projects, companies, and opportunities (or split their time among more than one, rather than lingering in this undiversified full-time thing) more freely. That's what we're starting to see in technology, as the demand for programmers increases and the stigma against changing jobs frequently (assuming there's upward progress and learning) goes away.
by jebblue on 8/3/12, 2:03 PM