Co-ordination and Spontaneity in Non-Hierarchical Business Organizations
New Thinking in Political Economy series
Chapter 3: The Knowledge Problem in Firms
It is only in the last ten years that economists have begun to consider the possibility that ﬁrm owners/managers face the Hayekian knowledge problem. In a way, that is not too surprising: the mainstream of the profession has in general given little attention to Hayek’s epistemological insights, and the few Austrian and Hayekian economists have mostly devoted their scarce time to topics other than the theory of the ﬁrm. Fortunately, the 1990s saw much greater interest and inquiry into the implications of the knowledge problem to the ﬁrm organization. 52 Employees and entrepreneurship Hayek famously deﬁned the knowledge problem as: the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is . . . [one] of the utilization of knowledge which is not given to anyone in its totality. (1945, p. 77–8) In this quote it becomes obvious why the knowledge problem is also often referred to as the problem of dispersed knowledge: as Hayek explains, economically relevant knowledge is often dispersed among (or held by) many diﬀerent individuals. Almost all productive activities require that this dispersed knowledge somehow be either collected or co-ordinated, frequently not easily done – thus the ‘knowledge problem’. The usual (implicit) assumption about ﬁrms has been that the entrepreneur-promoter-coordinator possesses superior knowledge relative to his employees, and therefore that the knowledge problem...
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