Wednesday, September 09, 2009

Constructive criticism and free markets

This post is inspired by a draft blog post that I've read, by Jason Robb. He designs user interfaces - and in the interest of not horribly misportraying his skill by elaborating on a subject which I have no expertise in, I'll say that it primarily involves web sites - and please check his site out.

The post of Jason's in question is basically a suggestion on how a specific incident of criticism, well known to his readers, could have been better handled had the person doing the criticizing been "constructive" and not antagonistic towards the subject of his complaint. Now it's not as though I'd never heard of constructive criticism before; it's one of those things that everyone's mother told him or her to practice. For some reason today the aspiring economist in me thought about this bit of common sense and the following bold conclusion emerged:

Constructive criticism in a work environment is much more common when the work is part of a free market.

At first glance, this seems like a complete non sequitur. But think this through...

First, let's take a hypothetical situation. Alan has some kind of work interaction with Bobby(this could be direct supervision/subordination, contractor, vendor/client, etc.), and is dissatisfied with some nontrivial aspect of Bobby's work. Alan at this point has several choices:

  • Not mention the dissatisfaction.
  • Politely complain about the problem(i.e., constructively criticize).
  • Rudely complain about the problem,
  • Tell himself and others that "it's not a bug, it's a feature", so to speak.
The next question we have to ask is "Which choice is Alan likely to make?"

Here's where the economics come in. Possibly the most basic principle in economics is "People respond to incentives." So what incentives does Alan face here? Possibly Bobby is a good friend or family member of Alan's, which will significantly affect their work interaction. More likely, though, their work relationship is dominant*, and the set of incentives facing them is determined by this.

What are the incentives for Alan and Bobby? This is where the bolded hypothesis above is significant. The set of incentives in a free market work environment are very different from those in a government workplace, or a regulated monopoly(e.g. a local utility company), or some other organization such as an educational institution which is not subject to market pressures.

When Alan and Bobby operate in a free market, Alan has an incentive to maximize the value of his work output whenever he's able to do so. By proving his ability to add value, he can increase the demand for his labor and thus get a higher income or a broader customer base. And of the 4 choices listed above, the one which will add the most value to Alan's work is constructive criticism of Bobby. Leaving the problem alone or claiming that it's not a problem won't work for long, and being rude to Bobby is less likely to solve the mutual problem than courtesy would. Giving constructive criticism to solve a problem is thus the most beneficial solution in a free market.

Now if Alan was working for a government, or at a non-profit institution, or in a regulated industry, he no longer necessarily has an incentive to demonstrably add value to his work's "customers", for several reasons. First, he probably won't be rewarded monetarily for doing so - salaries in these workplaces are determined generally by a fixed schedule based on Alan's rank (or specific position) and time of service, or by credentials amassed. Second, he won't pay any price for failing to add value to the customers unless he does so in such a flagrant manner as to embarrass the organization. Third, it's simply hard to define a measure of "value" in these workplaces, whereas the free market organization has profits or losses which are quite a clear indicator of how much its services have been valued.

So how will Alan deal with Bobby in this case? It's anybody's guess. His personal pride in his work might motivate an effort to effect a change in Bobby - but suppose they both work in a government bureau, and Bobby's on the verge of retiring and couldn't care less what Alan asks him nicely to do. In this case Alan's logical decision might be to annoy Bobby continually until Bobby agrees to change something.

Suppose Bobby is Alan's superior, and can exert significant influence on Alan's career prospects. Is Alan more likely to criticize, and receive a negative evaluation if he's seen as insufficiently polite? Or will he swallow his pride and tolerate the inefficiency?

What if Alan is an admissions officer at a university, and Bobby is touring the campus with his teenage daughter? Alan knows that the school's football program loses money on the whole, and distracts many students from their academic work. When Bobby and his daughter mention the team, is he likely to discuss these facts that he knows quite well or will he emphasize the team's Bowl game appearances?

In a non-market workplace, "constructive" criticism may indeed exist - but only because of the courtesy and professionalism of the individual, not the inherent behavioral incentive in the organization.

That is all.

*U.S. Census statistics show that in 2006 approximately 82% of employees were in workplaces of 2o people or larger. I'm not aware of any figure on how many close friends or family members the average person has, but for purposes of this post I've assumed that the number is sufficiently small as to not affect the general conclusions about workplace incentives.
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