Monday 2020-10-19

The New Economics for Industry, Government, Education by W Edwards Deming

This comes across as placing cooperation over competition, which makes one wish for a typology of scenarios showing which are optimally handled by competition, which by cooperation, and which are indeterminate.

Optimal cost-cutting

In Japan, the pecking order is the opposite. A company in Japan that runs into economic hardship takes these steps: 1. Cut the dividend. Maybe cut it out. 2. Reduce salaries and bonuses of top management. 3. Further reduction for top management. 4. Last of all, the rank and file are asked to help out.
Why not use the following ordering? Since management sets the direction of the company, then start with them as they were in the best position to mitigate the failure.
  1. Reduce bonuses of management.
  2. Reduce salaries of management.
  3. Reduce buybacks of shares.
  4. Reduce the dividend.
  5. Reduce the rank and file.
The problem is that Recessions happen and are not the fault of anyone listed, which is a Red Bead problem (see the section below).

Perhaps replace cash cut with shares issued? This needs to be telegraphed far in advance so that a) execs can reduce personal debt and store ample cash buffers, and b) the maximum amount of share issuance per year can be determined.

What is optimal here anyway? The above uses the principle from legal liability where those best able to prevent a failure bear the responsibility. There are maybe better ways to handle this?

Optimal Firm Size

If a monopoly or any two or more companies or institutions that dominate a market were to put their heads together for uniform prices, they would be fools to set the price a cent higher than what would be best in the long run for the whole system ...

Competition leads to loss. People pulling in opposite directions on a rope only exhaust themselves: they go nowhere. What we need is cooperation. Every example of cooperation is one of benefit and gains to them that cooperate.

In Deming's World every system has an engineer somewhere handling price discovery.

If firms cooperate and divide customer bases, why should they be separate firms? Why not merge and reduce management overhead?

Red Beads

This is the Kobayashi Maru for the mid-level manager. What do people do when they encounter it -- just shrug and accept it, or find a way to ``cheat''? How many ways to cheat are there?
  1. Workers silently remove the red beads.
  2. The records keeper zeroes all the results.
  3. Worker ``accidentally'' spills the beads. Picks up only the white beads.
  4. Put all beads in one bin. Put empty bins in a row adjacent, assign target bead proportions to the bins descending to 0 pct red beads. Workers harvest beads, if a) equal to or less than the next box's target proportion, dump beads to next box, b) more than proportional, dump beads into the previous box, c) if equal, dump back into current box. Repeat.
This kind of situation (continuous improvement meets unimprovable process) invites rebellion, so we should see an efflorescence of hacks, all likely highly entertaining.

Misc Quotes

Nothing can do you so much harm as a lousy competitor. Be thankful for a good competitor. -- Alfred Politz. ...

The people of the world no longer live in isolation. Information flows across borders. Movies, TV. VCR, and FAX tell us instantly about other people, how they live, what they enjoy. People make comparisons.