Bosses Don’t Wear Bunny Slippers

Synopsis

The article presented the seeming contradiction between the existences of firms in spite of the efficiency of markets. More specifically, it initially demonstrated the option of outsourcing everything instead of organizing firms, which will ultimately afford the bosses more time for recreation and relaxation.  Munger then proceeds to argue that the establishment of firms is really consistent with the forces of market.  Adhering to Coase, “firms are contractual means of reducing transactions costs”. The organization of firms is a management strategy for a more cost-effective and competent monitoring and control of transactions at every step and aspect of production.  Moreover, firms respond to market forces.

The market structure is a description of the competitive environment of a certain industry that affects how member companies behave in terms of pricing, production and efficiency.  In reality, firms are a combination of internal and external outsourcing.  And the firm decides what to produce and to outsource on the basis of profits – the least cost with the greatest profit. The article thus, stresses the role and importance of management – its monitoring and coordinating functions, in the activities of the firm and it’s planning function on deciding what to produce or contract out on the basis of profits.

Ideas and Business Concepts

Market Forces – the interaction of supply (the willingness and ability to provide) and demand (a desire supported by capacity to pay) that shapes a market economy.  Price is one of the major factor that influence change of supply and demand.

Outsourcing – business strategy where a company takes some of its existing processes and lets some outside party do them. The article highlights the objective of outsourcing for reducing costs and quality assurance.

Management – Planning, organizing, staffing, leading and controlling.

Did Dr Munger convince you?

While I agree with the conclusions of Dr. Munger, the fundamental foundations for these arguments are not amenable.  For one, he manipulated and used the economic concepts in a very simplistic manner in order to serve his article.  For instance, when talking about market forces, he focused on “price” alone.  In reality, the two major factors that influence the changes in supply and demand are output and price. Secondly, there are other factors other than price that move people and firms to decide what products to produce. For instance, the “market structure” describes the degree or level of competition in the industry, which is primarily affected by the nature of product or service i.e. homogeneity or differentiation, freedom and barriers to entry by other companies and control over price and supply.  Understanding market structures is necessary for minimizing losses, maximizing profits and stabilizing market share.

Dr. Munger’s presented scenario where the boss, practically outsourced all the works of the firm to attain efficiency and provide him more time to relax is highly fictitious if not ridiculous.    What I mostly disagree with this article is the author’s demeaning treatment of the employees and workers of the firm, which is exactly one of the greatest faults of some management practitioners. The author treated the human resources in the business as just another expense account instead of considering them as the valuable assets of the organization that not only bridges the objectives of the organization into action but are the sources of product innovation and initiators of progress.  The author has a myopic sense of management in which decision making purely emanates from management and to which employees blindly follow.  This is exactly the kind of management approach that engenders conflict between management and employees.  This is exactly the kind of management approach that lowers motivation and productivity of human resources in an organization. Contrary to Munger, it is employees that define an organization.  And the success of firms depends greatly on the human capital.

Reference:

Munger, Michael. (2008). Bosses Dont Wear Bunny Slippers: If Markets Are So Great, Why Are There Firms? Library of Economics and Liberty. January 7, 2008. Retrieved from: http://www.econlib.org/library/Columns/y2008/Mungerfirms.html