Organisational Values as "Attractors of Chaos": An Emerging Cultural Change to Manage Organisational Complexity

Business organisations are excellent representations of what in physics and mathematics are designated "chaotic" systems. Because a culture of innovation will be vital for organisational survival in the 21st century, the present paper proposes that viewing organisations in terms of "complexity theory" may assist leaders in fine-tuning managerial philosophies that provide orderly management emphasizing stability within a culture of organised chaos, for it is on the "boundary of chaos" that the greatest creativity occurs. It is argued that 21st century companies, as chaotic social systems, will no longer be effectively managed by rigid objectives (MBO) nor by instructions (MBI). Their capacity for self-organisation will be derived essentially from how their members accept a shared set of values or principles for action (MBV). Complexity theory deals with systems that show complex structures in time or space, often hiding simple deterministic rules. This theory holds that once these rules are found, it is possible to make effective predictions and even to control the apparent complexity. The state of chaos that self-organises, thanks to the appearance of the "strange attractor", is the ideal basis for creativity and innovation in the company. In this self-organised state of chaos, members are not confined to narrow roles, and gradually develop their capacity for differentiation and relationships, growing continuously toward their maximum potential contribution to the efficiency of the organisation. In this way, values act as organisers or "attractors" of disorder, which in the theory of chaos are equations represented by unusually regular geometric configurations that predict the long-term behaviour of complex systems. In business organisations (as in all kinds of social systems) the starting principles end up as the final principles in the long term. An attractor is a model representation of the behavioral results of a system. The attractor is not a force of attraction or a goal-oriented presence in the system; it simply depicts where the system is headed based on its rules of motion. Thus, in a culture that cultivates or shares values of autonomy, responsibility, independence, innovation, creativity, and proaction, the risk of short-term chaos is mitigated by an overall long-term sense of direction. A more suitable approach to manage the internal and external complexities that organisations are currently confronting is to alter their dominant culture under the principles of MBV.

The varieties of regional change

Many metropolitan areas have experienced extreme boom-bust cycles over the past century. Some places, like Detroit, grew enormously as industrial powerhouses and then declined, while other older cities, like Boston, seem quite resilient. Education does a reasonable job of explaining urban resilience. In this paper, we present a simple model where education increases the level of entrepreneurship. In this model, human capital spillovers occur at the city level because skilled workers produce more product varieties and thereby increase labor demand. We decompose empirically the causes of the connection between skills and urban success and find that skills are associated with growth in productivity or entrepreneurship, not with growth in quality of life, at least outside of the West. We also find that skills seem to have depressed housing supply growth in the West, but not in other regions, which supports the view that educated residents in that region have fought for tougher land-use controls. We also present evidence that skills have had a disproportionately large impact on unemployment during the current recession.

Cyclical Skill-Biased Technological Change

Over the past two decades, technological progress has been biased towards making skilled labor more productive. The evidence for this finding is based on the persistent parallel increase in the skill premium and the supply of skilled workers. What are the implications of skill-biased technological change for the business cycle? To answer this question, we use the CPS outgoing rotation groups to construct quarterly series for the price and quantity of skill. The unconditional correlation of the skill premium with the cycle is zero. However, using a structural VAR with long run restrictions, we find that technology shocks substantially increase the premium. Investment-specific technology shocks are not skill-biased and our findings suggest that capital and skill are (mildly) substitutable in aggregate production.

Financial Repression in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714

If financial deepening aids economic growth, then financial repression should be harmful. We use a natural experiment – the change in the English usury laws in 1714 – to analyze the effects of interest rate restrictions. We use a sample of individual loan transactions to demonstrate how the reduction of the legal maximum rate of interest affected the supply and demand for credit. Average loan size and minimum loan size increased strongly, and access to credit worsened for those with little ‘social capital.’ While we have no direct evidence that loans were misallocated, the discontinuity in loan receipts makes this highly likely. We conclude that financial repression can undermine the positive effects of financial deepening.

The implicit theory of historical change in the work of Alan S. Milward

Alan S. Milward was an economic historian who developed an implicit theory ofhistorical change. His interpretation which was neither liberal nor Marxist positedthat social, political, and economic change, for it to be sustainable, had to be agradual process rather than one resulting from a sudden, cataclysmicrevolutionary event occurring in one sector of the economy or society. Benignchange depended much less on natural resource endowment or technologicaldevelopments than on the ability of state institutions to respond to changingpolitical demands from within each society. State bureaucracies were fundamentalto formulating those political demands and advising politicians of ways to meetthem. Since each society was different there was no single model of developmentto be adopted or which could be imposed successfully by one nation-state onothers, either through force or through foreign aid programs. Nor coulddevelopment be promoted simply by copying the model of a more successfuleconomy. Each nation-state had to find its own response to the political demandsarising from within its society. Integration occurred when a number of nation states shared similar political objectives which they could not meet individuallybut could meet collectively. It was not simply the result of their increasinginterdependence. It was how and whether nation-states responded to thesedomestic demands which determined the nature of historical change.

Technical inefficiency and public capital in US States: A stochastic frontier approach

This paper estimates a translog stochastic frontier production function in the analysis of all 48 contiguous U.S. states in the period 1970-1983, to attempt to measure and explain changes in technical efficiency. The model allows technical inefficiency to vary over time, and inefficiency effects to be a function of a set of explanatory variables in which the level and composition of public capital plays an important role. Results indicated that U.S. state inefficiency levels were significantly and positively correlated with the ratio of public capital to private capital. The proportion of public capital devoted to highways is negatively correlated with technical inefficiency, suggesting that not only the level but also the composition of public capital influenced state efficiency.

Voting after the bombing: Can terrorist attacks change the outcome of democratic elections?

Economists have recently turned their attention to the effects of terrorism. One much debated effect of terrorist attacks is its impact on the results of democratic elections. We use the electoral consequences of the terrorist attacks of the 11-M in Madrid to analyze this issue. We consider this particular experiment since the attack took place only three days before the 2004 Congressional Election, which allows the use of credible identification criteria. In particular, we use the advance voting by Spanish residents abroad, who cast their vote before the terrorist attack, to identify the effect of the bombing. We exploit this macabre natural experiment to run a difference-in-differences estimation using data on three consecutive Congressional elections. Our empirical results indicate that a terrorist attack can have a large impact on the outcome of democratic elections.

Organisational values as "attractors of chaos": An emerging cultural change to manage organisational complexity

Business organisations are excellent representations of what in physics and mathematics are designated "chaotic" systems. Because a culture of innovation will be vital for organisational survival in the 21st century, the present paper proposes that viewing organisations in terms of "complexity theory" may assist leaders in fine-tuning managerial philosophies that provide orderly management emphasizing stability within a culture of organised chaos, for it is on the "boundary of chaos" that the greatest creativity occurs. It is argued that 21st century companies, as chaotic social systems, will no longer be effectively managed by rigid objectives (MBO) nor by instructions (MBI). Their capacity for self-organisation will be derived essentially from how their members accept a shared set of values or principles for action (MBV). Complexity theory deals with systems that show complex structures in time or space, often hiding simple deterministic rules. This theory holds that once these rules are found, it is possible to make effective predictions and even to control the apparent complexity. The state of chaos that self-organises, thanks to the appearance of the "strange attractor", is the ideal basis for creativity and innovation in the company. In this self-organised state of chaos, members are not confined to narrow roles, and gradually develop their capacity for differentiation and relationships, growing continuously toward their maximum potential contribution to the efficiency of the organisation. In this way, values act as organisers or "attractors" of disorder, which in the theory of chaos are equations represented by unusually regular geometric configurations that predict the long-term behaviour of complex systems. In business organisations (as in all kinds of social systems) the starting principles end up as the final principles in the long term. An attractor is a model representation of the behavioral results of a system. The attractor is not a force of attraction or a goal-oriented presence in the system; it simply depicts where the system is headed based on its rules of motion. Thus, in a culture that cultivates or shares values of autonomy, responsibility, independence, innovation, creativity, and proaction, the risk of short-term chaos is mitigated by an overall long-term sense of direction. A more suitable approach to manage the internal and external complexities that organisations are currently confronting is to alter their dominant culture under the principles of MBV.

Skill-biased technological change and the business cycle

Over the past two decades, technological progress in the United States hasbeen biased towards skilled labor. What does this imply for business cycles?We construct a quarterly skill premium from the CPS and use it to identifyskill-biased technology shocks in a VAR with long-run restrictions. Hours fallin response to skill-biased technology shocks, indicating that at least part of thetechnology-induced fall in total hours is due to a compositional shift in labordemand. Skill-biased technology shocks have no effect on the relative price ofinvestment, suggesting that capital and skill are not complementary in aggregateproduction.

Interest rate restrictions in a natural experiment: loan allocation and the change in the usury laws in 1714

This article studies the effects of interest rate restrictions on loan allocation. The British governmenttightened the usury laws in 1714, reducing the maximum permissible interest rate from 6% to5%. A sample of individual loan transactions reveals that average loan size and minimum loan sizeincreased strongly, while access to credit worsened for those with little social capital. Collateralisedcredits, which had accounted for a declining share of total lending, returned to their former role ofprominence. Our results suggest that the usury laws distorted credit markets significantly; we findno evidence that they offered a form of Pareto-improving social insurance.

Expertise and finance: Mergers motivated by technological change

This paper argues that a large technological innovation may lead to a merger wave by inducing entrepreneurs to seek funds from technologically knowledgeable firms -experts. When a large technological innovation occurs, the ability of non-experts (banks) to discriminate between good and bad quality projects is reduced. Experts can continue to charge a low rate of interest for financing because their expertise enables them to identify good quality projects and to avoid unprofitable investments. On the other hand, non-experts now charge a higher rate of interest in order to screen bad projects. More entrepreneurs, therefore, disclose their projects to experts to raise funds from them. Such experts are, however, able to copy the projects and disclosure to them invites the possibility of competition. Thus the entrepreneur and the expert may merge so as to achieve product market collusion. As well as rationalizing mergers, the model can also explain various forms of venture financing by experts such as corporate investors and business angels.

Managing by values in the next milenium: Cultural redesign for strategic organizational change

The system of beliefs and values, that shaped the model for management and organizations during the 20th century, is just not good enough today. In order to keep a business functioning well and competing successfully in markets that are increasingly more global, complex, professionally demanding, constantly changing and oriented towards quality and customer satisfaction a new model is needed. In this paper, we will propose that both Management by Instructions (MBI) and Management by Objectives (MBO) today give notoriously inadequate results. By contrast, description of a new approach labeled: Management by Values (MBV), seem to be emerging as a strategic leadership tool. The paper outlines this approach and discusses the implementation of MBV as a tool to redesign culture in organizations and prepare them for the next millenium.

Small scale underwater change detection

In this paper, we present a method to deal with the constraints of the underwater medium for finding changes between sequences of underwater images. One of the main problems of underwater medium for automatically detecting changes is the low altitude of the camera when taking pictures. This emphasise the parallax effect between the images as they are not taken exactly at the same position. In order to solve this problem, we are geometrically registering the images together taking into account the relief of the scene