March 21, 2013

Production as Privilege: Rationalization

This post continues our series examining the connection between production and the distribution of wealth and resources. The series has grown far out of proportion and dragged on far longer than originally intended. But far more exciting than all that is the fact that we have scored an original comic from artist David Yoder. He has a bunch of awesome comics to read or buy on his site, and you should really check them out. With a bit of luck, this will not be the last comic you see here.

Conceptual Tool #10: Rationalization

One of my favorite ways to understand the last few centuries is as a process of rationalization, or as it is sometimes known, "McDonaldization". Rationalization is an important idea both in academia (particularly in sociology) and in actual real-world history. Economics as a discipline, however, has only touched on certain aspects of rationality, and has failed to see it as a connected process.

Rationalization as an academic concept came from Max Weber, who used the Prussian buraucracy as a model. More recently, George Ritzer has repackaged the idea of rationalization in his book The McDonalization of Society, using (you guessed it) McDonald's as the archetype of rationality.

Defining Rationality

So what is rationality? It is a concept ripe for circular definitions--we tend to use it interchangably with "reason", but what does reason mean? What does it mean to be "irrational" or to "rationalize" an idea or a process? Etymologically it is similar to "ratio", which means means to calculate or measure. But when we use the word rationality we are talking calculating or measuring a certain thing: I think the idea hinges on causality.

The best definition I can come up with is: thinking or acting in ways that accurately link cause and effect. By extension this implies that when we act in the world we do so coherently, in ways consistent with our intent and motivation.

In sociology, rationality has a much more specific meaning, which Ritzer describes and I will copy from Wikipedia. There are four components:

1. Efficiency - Choosing the best, quickest, or least difficult means to a given end.
2. Calculability - Emphasis on the quantitative aspects of the product being sold.
3. Predictability - Involves the customer knowing what to expect from a given producer of goods or services.
4. Control - A way to keep a complicated system running smoothly. Rules and regulations that make efficiency, calculability, and predictability possible.
The theme of measurement and calculation is obviously still strong in the sociological definition, and you can understand rationalization as the process of optimizing the function of the organization--that is, making the operation as consistent with intent as possible. Optimization is achieved through the the four components above, all of which are related to measurement in a way, but which together change the organization itself.

In practice, rationalization is a process of breaking down production, and reconstituting it in standard ways (e.g. written down and quantified) that are more successful. Success can be economic or military or anything you can measure or compare. It is not inventing new things; it is inventing new ways to do old things that are more successful beause they are able to achieve the intended ends.

Rationality and Economics

I have been writing about efficiency and its relationship to productivity a good deal lately, so I will not elaborate much here. Suffice to say, efficiency is a well-trodden topic in economics (but it is perhaps more helpful to think in terms of cost reduction). The other three aspects of rationality--calculability, predictability, and control--are concepts economics gives a short shrift.

Calculability is certainly fundamental to economics itself, and something on the mind of every economist, but the idea has a different focus in economics than in sociology. Ritzer is talking about the ability of businesses to quantify aspects of their own business and the world they are interacting with: measuring customers served or the time it takes to fry a burger. Economists think a good deal about what can be quantified and how to do it, but they do not think much about businesses creating quantifiability, which is what rationality is all about.

Similarly, the issue of predictability comes up in economics all the time (particularly in terms of risk and uncertainty for businesses) but this is only tangentially linked to the idea of predictability relevant here. The economic ideas of risk and uncertainty play into business decisions on a micro level, but only so far as the external envinronment influences the business. Ritzer is talking instead about the internal processes of the business and how similar iterations of it can be--iterations over space (McDonald's franchises that serve the same food in the same way) or over time (I want to get the same burger I ordered last time). In economics, these issues typically get lumped into the infuriatingly vague "tastes and preferences" category, or the "value and costs" category which is almost as bad.

Another aspect of predictability, however, is starting to make an impression on economics through the (re-)incorporation of institutional factors into economic models. Predictability is seen as an important feature of market regulation and the provision of public goods. "Personalistic" transactions, based on individual relationships, differ from rational, impersonal transactions based on standardized rules and procedures. Rationalized bureaucracies facilitate well-functioning markets.

Control in the sociological sense crops up in economics primarily through the idea of the "principal-agent" problem, which boils down to the question: "how do principals get agents do do what principals want instead of what agents want?" Principal-agent issues are typically understood as incentive issues, and more control, or control over the right things (pay, bonuses, production targets), is typically seen as the solution. If an economist is looking specifically at intra-firm dynamics, he or she might model interactions using game theory, but in most cases these dynamics are assumed away and firms are assumed to be single units.

In a sense, control can be understood as a component of technology, which economics has famously little understanding of. In years past "technology" was referred to as "technique", which hints at the more human and social aspects: teachers use classroom management "techniques", for example, to control their students.

The difference between control in economics and control in sociology is one of focus. Economics for the most part assumes away control--be it embedded in the firm organization or regulatory structure of a market. Sociology takes a more political view of control and all the ways in which different social forces can influence people's decisions and their views of the world.

How Rationalization Works

Ritzer does not focus on the causal relationships between the different aspects of rationalization (e.g. does predictability cause control or vice versa?). Instead he emphasizes that efficiency, predictability, calculability and control are all necessary, intertwined processes. The processes work together to provide businesses with an assortment of advantages. (Given that businesses are typically controlled by shareholders or owners, however, it may be better to think of these processes as providing shareholders and owners with more advantages.)

To understand the advantages of a rationalized business, simply compare a McDonald's hamburger to a local diner or even a home-cooked meal. Cooking at home is labor intensive--you have to go the store, purchase the meat and buns, start the grill, form the patties, and grill them each yourself. If you are not too good with the grill this can be a stressful process. A local diner is more specialized in that they are making more food at once, and can benefit from the accompanying economies of scale. Where a local diner has more trouble is in ensuring that the customer's expectations are precisely met each time--a different cook on the grill might make burgers differently, or someone just passing through town and eating at the restaurant might not know if the burgers were any good. Nor are local restaurants able to benefit from the economies of scale that franchised restaurants are able to--McDonald's presumably has more clout in the beef market, more money to spend advertising at the Superbowl, and more money to pay taste consultants to formulate the ideal blend of coffee than Bob's Local Diner.

The processes at McDonald's are better established, with established routines for each part of the burger's production. A diner, you could say, does not "produce" a burger. Obviously, not all of these things about the way McDonald's works are always advantages, and a burger on your grill may have certain qualities over one from McDonald's will never match. The point is that there are rational business reasons, given the way our economy is set up and our technology and people's preferences, for a business like McDonald's to exist.

The fast food business is only one example. In government bureaucracies, rationalization also plays an important role. Look at how the government regulates the transportation market. The system is made calculable through hundreds of different measurements: speed limits, point systems for driving infractions, and minimum ages are just a few of the obvious ones. The system is made predictable through clear rules that both drivers and police officers have to follow, and it is made efficient through changes through these laws. Laws also govern control: who can arrest you and who can be arrested; who can control vehicles and must be restrained by a seat belt (everyone).

Market economies based on laws, rights, and regulations must be administered, and the administration works best if it is done by a strong, capable bureaucracy with the correct incentives. While you may scoff at anyone calling the local Department of Motor Vehicles efficient, they do their job: if you fulfill the requirements you will get the license. Success or failure does not depend on whether you know the teller or whether they think you gave them a sufficient bribe. They may piss people off with wait times, but it is a fair system.

Rationalization can help organizations understand and respond to the world they operate in, but the idea is best understood as an internal process that governs actions and relationships within the organization. We can think of entire countries as organizations as well. Constitutional republics like the USA are rational not because they are able to conduct foreign policy that accurately reflects their self interest; they are rational because authority is vested in legal documents (their constitution and laws) and not people. Legal documents are predictable (they say more or less the same thing to anyone who reads them) and create calculable situations by specifying majorities or other criteria for power. The US constitution has many deliberate inefficiencies, but the difficulty in creating or changing laws can reduce other costs--such as unjust imprisonment.

Rationalization, Production and Distribution

Rationalization tends to take the productive process and break it into little pieces, because it is possible to arrange those peices in ways that better achieve the desired goals. The peices themselves might be simplified, but the simplified parts can facilitate a complex whole. (Complexity is not the goal, but a large complex system may outperform small simple ones.) The little pieces are often enhanced by mechanical technology or organizational structures.

The archetypal factory of the industrial revolution, the textile mill, is a perfect example of this. Instead of individual people spinning their own wool from their own sheep and weaving on small looms at home, large factories of workers weave processed cotton ceaselessly on giant steam-powered mechanical looms.

Rationalization is a specific way of understanding the technical improvements and cost reductions I have written about in several previous posts. Once you understand the idea of rationalization you start to see it everywhere, and you start to see how reactions to many other social issues are in a sense reactions to rationalization.

But we are concentrating here on production and distribution. The idea of rationalization is powerful because it starts us thinking about how technological change can remake the productive process--in ways that ultimately shape distribution. What ways am I talking about? Rationalization changes the skills required by workers, often polarizing low and high-skill jobs into lower and higher-skill jobs. It changes, often increasing, the nature of control in workplaces. It increases the scale of businesses. And it lowers costs in a myriad other ways, ways that have a wide range of consequences. These effects of rationalization have been some of the most powerful forces shaping distribution in the past two centuries.

Rationalization can cause skill polarization by reducing the required skill for some jobs while increasing the required skills for others. Think of the skill gap between the McDonald's burger flipper and the McDonald's food scientist with a PhD in Mouth Feel, and how they are the rationalized evolution of your dad standing outside by the grill. Unskilled labor is easily replaceable and cheap, and thus good for the bottom line. This is particularly important because of the scale of operations--the vast majority of employees are near the unskilled end. The skilled worker can command higher prices because they are inherently scarcer (due to things like PhD admissions). The polarization is not symmetrical; rather it ends up being a pyramid without a middle with a large cohort of unskilled work and a smaller tip of skilled labor.

Technology as a general concept may have an ambiguous effect on skills required of workers: it can deskill work or it can eliminate work (depending on the type of technology); it can make workers more productive or less necessary (depending on the demand for the product); and it can increase or decrease the skills required of workers. A cash register might eliminate a worker's need for math skills; but it might also increase the need for a worker to multitask, pouring drinks and assembling orders while answering a customer's question about calorie counts. Similarly, an advanced robot in an automobile factory might simplify employees' jobs to the push of a button, or it might require them, or a quarter of them, to know advanced robotic programming.

But technology in the context of rationalization is less ambiguous. As noted above, control itself can be understood as a technology: the processes rationalization touches are deliberately simplified, dumbed down and subjected to more control--partly because control enhances predictability, partly for its own sake, and partly because quantified, simplified processes make control easier. Although I do not have data on this, I would expect the overall trend within industries to be that of skill polarization.

Control can impact distribution of wealth and resources in ways that are not well understood by economics. Economics focuses on markets, but markets can only provide limited accountability in terms of price competition and demand. Control requires either hierarchy or some other accountability structure, which is why firms essentially shelter their internal operations from the market. As an example, pay is an important part of establishing hierarchy, and pay may be linked more closely to status in the hierarchy than with required effort, skill, or even supply and demand.

Rationalization also tends to shift control not to people but to written rules and procedures, shrinking the amount of people who actually shape the institution. Managers may have little to do with the actual design and processes of the business, instead simply enforcing what has been written. This standardization can have enormous benefits in terms of productivity and the ability of the organization to adapt, grow, and succeed. But the powerlessness of people within an organization can also be problematic not only in term of wages but in terms of rationality itself: anyone who has ever worked for a large organization quickly realizes there are some things that do not make sense but are nevertheless done "because that's just how we do things around here."

A third fundamental way in which rationalization impacts the production and distribution is through increasing scale. As somebody once said (apparently this is attributed to Stalin but no one is sure who said it first), "Quantity has a quality all its own." Scale changes many things, but it is not immediately clear what.

Scale in business has the tendency to concentrate profits near the top because that is basically the point of the corporate model of control. If you have 100 different independently owned burger restaurants, those profits stay in each restaurant. But with McDonald's, a portion of those profits go back to corporate headquarters and then on to investors. McDonald's is a franchise, so in some ways the scale is actually not as large as other corporate entities. But the point is that at McDonald's, operations are standardized in cost-minimizing ways, ways that facilitate the minimization of employee wages across the board.

Assuming that there are certain market sectors that become crowded with competitive entrants, we can also think of scale as prohibiting new experimentation and diversity. A national market for fast food or groceries or auto parts or anything controlled by two or three huge players is a market that is difficult for small players to enter and compete within. Larger businesses have more leverage in the labor marketplace (as well as many other markets) and are less likely to be susceptible to institutions that increase worker's ability to gain a part of the profits. For example, if the person who controls a basic wage rate for someone flipping burgers is far away at corporate headquarters, there may be less pressure to pay a living wage than if the business owner lives down the street.

In the end rationalization is primarily about reducing costs in the above-mentioned ways. Scaling up, increasing control, and decreasing the skill required of workers all help lower costs to organizations. This can be a very good thing: if cars were built by hand by a single craftsman nobody would have a car. But costs can also be a zero-sum game. Institutions that have become too rational can end up being irrational for a large portion of the people they affect, because their rationality is too narrowly considered. This is a major point of Ritzer's. Rationalization may come with costly externalities, like pollution or repetitive stress injuries, or it may simply shift costs in ways that benefit some at the expense of others.

Rationalization is not going away; if anything it is only in its infancy. Organizations like Samasource specialize in breaking down work even further, rationalizing processes that were not previously economically feasible. Control over employees is also evolving, as new technologies help quantify the previously unquantifiable. And technology continues to encroach on scarce abilities.

As our technologies, our workplaces and our work change, we need to use all the tools at our disposal to understand the economic as well as the social impact of those changes. The concept of rationalization helps reveal the how the forces shaping businesses can have social impacts as well as distributional consequences.

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