Free to Fail

Free to Fail

Creative Destruction Revisited

Hugh van der Mandele and Arjen C. van Witteloostuijn

This challenging book tackles one of the most fundamental questions in economics: Why are commercial organizations more efficient than organizations in the public domain?

Chapter 1: Introduction

Hugh van der Mandele and Arjen C. van Witteloostuijn

Subjects: business and management, organisation studies, strategic management, economics and finance, industrial organisation

Extract

The topic of this book can best be introduced by reproducing the conversation one of us had with his father (also an economist) many years ago: ‘Daddy, why is it that when the public works department repairs a road you see twice as many people taking twice as much time as a local contractor?’ Even though exaggerated (as any youth would do to stress a point and catch his father’s attention), the question relates to one of the most fundamental issues in the dismal science known as economics, studied since its inception about two centuries ago. Why do commercial organizations tend to be so much more efficient than organizations in the public domain? In this book, we aim to offer an answer to this question that differs from the one commonly given. The father’s answer followed generally accepted wisdom. ‘The contractor tries to earn as much money as possible. The more roads his firm repairs, the more money he gets. So he urges his people to work as fast as possible. He has to pay his workers: so the fewer people he has on the job, the more money he can keep for himself.