So last time, I wondered: what kinds of innovation might an emerging hybrid CME/LME nonprofit economy be good at? Such an economy would be like a European coordinated market economy in that standard setting would happen cooperatively instead of competitively and labor relations would be “sticky” (it’s hard to fire people), but like an Anglo-American liberal market economy in that financing would happen in a public market with publicly available information and workers would continue to come in with general rather than highly specialized skills.
Coordinated market economies are good at incremental innovation, and liberal market economies are good at radical innovation, according to Hall and Soskice. Why should that be? Here I’m reminded of one of the key methodological lessons I learned from grad school; when thinking about causality, focus on the mechanism. This is one way to get across the gap between correlation and causation: try to tease out and classify the chain of events by which one thing causes another.
For example, in my dissertation, I argue that politicized security forces – in which the army and police have roughly equal resources, the army is more professionalized, and politicians have control over police at the local level – make a government characteristically susceptible to a particular type of armed challenge: insurrection from below. The mechanism I adduce for this is the incentives such a security-force configuration generate for potential armed rebels at the local level. If the police are captured by politicians and are not very professional compared to the army, there is a higher probability that when faced with insurrection from below, they will defect and join the rebels. (This happened a fair amount in Colombia during the La Violencia civil war of the 1940s and 50s, which was my case study.) And if the army is not that much stronger than the police in terms of resources, then they can’t simply crush rebel-affiliated police. This creates an opening for potential rebels, and in a country with politicized security forces, like Colombia in the 1940s and 50s, you’d expect to see more insurrection than other types of armed challenges, like military coups. (These, I argue, are likelier to happen in a country with militarized security forces, like Chile or Argentina.) The mechanism is the incentives that the configuration of control and power among army, police, and politicians creates for potential armed rebels.
So what’s the mechanism for radical vs. incremental innovation in coordinated vs. liberal market economies? For Hall and Soskice, it’s the incentives that labor relations and inter-firm relations create for workers and firms (think nonprofits).
- In a coordinated market economy, job security, peaceful labor relations, and high levels of skills give workers the freedom to try new things in the confidence that there will be uptake from management and that firms will be willing to share ideas with each other in the interest of improving overall processes.
How does that work in a hybrid model? You have relative job security, labor relations (at places outside large nonprofits like hospitals and universities) are generally peaceful. But are nonprofits open to new ideas from their workers? And do they share new ideas with each other?
- In a liberal market economy, the job market is much more open, which means that firms wanting to try something new have the latitude to hire workers knowing they can easily lay them off if the new project doesn’t work out. Financing is also more open, so established firms can acquire other firms doing innovative things (think Microsoft or Google hoovering up the startups that created Hotmail or YouTube) – which is a mechanism by which there are incentives for entrepreneurs to create startups that try radically new things. (This is not always a good thing; I remember meeting someone when I lived in the Bay Area in the late 90s who worked for a startup whose idea was “smell over the internet.” You would put a USB doohicky on your monitor that would emit different scents based on the webpage you were on. The doohicky was shaped like a nose.)
How does this work in a hybrid model? (The labor and firm relations, not the nose thing.) It’s relatively easy to hire nonprofit workers, but firing them is difficult. If financing were to become more open, more based on publicly available information, would we see established nonprofits “acquiring” other nonprofits doing innovative things?
It’s a fascinating possibility – a social-service agency that realizes it needs to do policy advocacy to really have impact on education “acquiring” a grassroots community-organizing effort that’s developing new advocacy tools. But it’s difficult enough for nonprofit mergers to happen, let alone nonprofit acquisitions.
Would this change with a social capital market? I’m not sure, because what the “varieties of capitalism” approach teaches us is that the systems of financing, labor relations, education, and inter-firm relations are connected, and their incentives shape and reinforce each other in powerful ways. So to change the financing structure without looking at the other systems might lead to some strange unintended consequences. I’ll explore those in a future post.