Wednesday, November 23, 2005

Note to self on Hayek's discovery process


Alright. I'm working on our conscious capitalism stuff. Mackey's blog inspired me to study Hayek (whose stuff I've had on my shelf for a couple years), Mises and others. (Lots of reading to do.)

For now, I'm basically using this forum to capture some thoughts on
the "Hayekian discovery process" as mentioned by Mackey when describing his management style:

Q: You've mentioned your management style, and I would like to explore that more. It's certainly worked very well, but it doesn't seem to be a very libertarian one. Do you see your management style as paradoxical given your libertarian philosophy?

JOHN: Most corporations in the United States are hardly the epitome of libertarian utopias. In fact, most corporations in the United States are organized as top-down, command & control, hierarchical systems. Very little personal freedom exists in these corporations. Their employees are often managed through either pure financial incentives -- greed -- or through fear -- "my way or the highway". Whole Foods is very, very different. Our mission at Whole Foods can be summed up by our slogan "Whole Foods, Whole People, Whole Planet". We put great emphasis at Whole Foods on the "Whole People" part of this mission. We believe in helping support our team members to grow as individuals -- to become "Whole People". We consciously use Maslow's hierarchy of needs model to help our team members to move up Maslow's hierarchy. As much as we are able, we attempt to manage through love instead of fear or greed. We allow tremendous individual initiative at Whole Foods and that's why our company is so innovative and creative. Most retail companies create a prototype retail store format and then cookie-cutter reproduce it across the country. Think McDonalds. Not Whole Foods. We have no prototype store. All our stores are unique. Why? Because our team members are constantly innovating, experimenting, and improving them. Whole Foods is very much committed to a Hayekian discovery process and our team members -- both as individuals and as members of teams -- are leading this Hayekian discovery process. As our team members learn and grow as individuals, as they become self-actualized, as they become "Whole People", our company better fulfills its mission to all of its stakeholders.

The seeming paradox that you keep hinting at is no paradox at all. Human beings are both individuals and members of communities (or collectives). We learn and grow best through relationships and our growth will always be limited without them. I haven't met anyone that I consider to be self-actualizing who did it all by themselves. Freedom as an ideal is a very, very incomplete ideal when it lacks love. Freedom is my highest "political ideal", but love is my highest "personal ideal". We need both. There is no paradox and there is no contradiction here. Freedom and love: let us marry these two together!

--

Love that.

Alright, so below is a blurb on the "Hayekian discovery process."

In sum: Hayek proposed that capitalism promotes a development of tacit knowledge within an organization that allows for subtle distinctions to be made, improving the efficiencies of that organization's production. Which is one of the reasons why, Hayek would argue, a centralized socialist organization would fail to work optimally beyond a basic level of complexity.

Mackey's point: Whole Foods is constantly evolving by trusting its people's tacit knowledge and finding innovative ways for its "whole people" to contribute--providing a competitive edge to WF in the process. Sweet.

Here's the passage from Hayek's bio on Mises' site:

Much of the knowledge necessary for running the economic system, Hayek contended, is in the form not of "scientific" or technical knowledge--the conscious awareness of the rules governing natural and social phenomena--but of "" knowledge, the idiosyncratic, dispersed bits of understanding of "circumstances of time and place." This tacit knowledge is often not consciously known even to those who possess it and can never be communicated to a central authority. The market tends to use this tacit knowledge through a type of "discovery procedure" (Hayek, 1968a), by which this information is unknowingly transmitted throughout the economy as an unintended consequence of individuals' pursuing their own ends.(17) Indeed, Hayek's (1948b) distinction between the neoclassical notion of "competition," identified as a set of equilibrium conditions (number of market participants, characteristics of the product, and so on), and the older notion of competition as a rivalrous process, has been widely influential in Austrian economics (Kirzner, 1973; Machovec, 1995).

For Hayek, market competition generates a particular kind of order--an order that is the product "of human action but not human design" (a phrase Hayek borrowed from Adam Smith's mentor Adam Ferguson). This "spontaneous order" is a system that comes about through the independent actions of many individuals, and produces overall benefits unintended and mostly unforeseen by those whose actions bring it about. To distinguish between this kind of order and that of a deliberate, planned system, Hayek (1968b, pp. 72-76) used the Greek terms cosmos for a spontaneous order and taxis for a consciously planned one.(18) Examples of a cosmos include the market system as a whole, money, the common law, and even language. A taxis, by contrast, is a designed or constructed organization, like a firm or bureau; these are the "islands of conscious power in [the] ocean of unconscious cooperation like lumps of butter coagulating in a pail of buttermilk" (D. H. Robertson, quoted in Coase, 1937, p. 35).(19)

Most commentators view Hayek's work on knowledge, discovery, and competition as an outgrowth of his participation in the socialist calculation debate of the 1920s and 1930s. The socialists erred, in Hayek's view, in failing to see that the economy as a whole is necessarily a spontaneous order and can never be deliberately made over in the way that the operators of a planned order can exercise control over their organization. This is because planned orders can handle only problems of strictly limited complexity. Spontaneous orders, by contrast, tend to evolve through a process of natural selection, and therefore do not need to be designed or even understood by a single mind.(20)

Most commentators view Hayek's work on knowledge, discovery, and competition as an outgrowth of his participation in the socialist calculation debate of the 1920s and 1930s. The socialists erred, in Hayek's view, in failing to see that the economy as a whole is necessarily a spontaneous order and can never be deliberately made over in the way that the operators of a planned order can exercise control over their organization. This is because planned orders can handle only problems of strictly limited complexity. Spontaneous orders, by contrast, tend to evolve through a process of natural selection, and therefore do not need to be designed or even understood by a single mind.

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