The Iron Law of Bureaucracy
> Pournelle's Iron Law of Bureaucracy states that in any bureaucratic organization there will be two kinds of people":
> First, there will be those who are devoted to the goals of the organization. Examples are dedicated classroom teachers in an educational bureaucracy, many of the engineers and launch technicians and scientists at NASA, even some agricultural scientists and advisors in the former Soviet Union collective farming administration.
> Secondly, there will be those dedicated to the organization itself. Examples are many of the administrators in the education system, many professors of education, many teachers union officials, much of the NASA headquarters staff, etc.
> The Iron Law states that in every case the second group will gain and keep control of the organization. It will write the rules, and control promotions within the organization.
This (and other organizational failures and technological innovations) is why there will always be startups and small businesses eventually where there was once a big entrenched business or two (or sometimes three).
There is also, of course, whole new industries and niches to be created out of nothing, value and wealth is never a finite pile. It's mostly a matter of human effort to find and break out these new areas. Sometimes just reinventing things as the old talent grows old and dies off, providing value in learning history.
1. The only thing that matters is the budget.
2. Bureaucracies only grow, never shrink, and the only thing you can control is the rate of growth.
Thanks for sharing another one with us!
What we have to note is that the 2,000 Admiralty officials of 1914 had become the 3,569 of 1928; and that this growth was unrelated to any possible increase in their work. The Navy during that period had diminished, in point of fact, by a third in men and two-thirds in ships. Nor, from 1922 onwards, was its strength even expected to increase, for its total of ships (unlike its total of officials) was limited by the Washington Naval Agreement of that year.
Edit: thanks OP for continuing to post this link, I as well found it enlightening :)
Strong claims like that require strong evidence and a theory of WHY that would (always) be the outcome.
I'm thinking of society as large. That is an organization too. Are we doomed by bureaucracy?
Once that happens, the organisation will promote people who do politics well. It's only a matter of time before the entire organisation is focused on internal politics (apart from the people actually doing the work, who become pawns in political moves). As the organisation grows and the layers expand and more layers of management become disconnected, it gets worse.
In a company, eventually the company will get disrupted and die off. In a government that's not a thing, and it'll just keep expanding and playing politics. This gets worse for government departments headed by a politician, because the politician is very focused on getting something they can boast about to their electorate in the few years they have in the department. And they're usually very familiar with the kinds of political games being played.
Source: We studied this in my MBA, it's a known thing. If I still had my textbooks I could dig out a reference.
I don't have empirical evidence for it, but I can take a stab at a rational explanation.
The second group faces no opposition in their pursuit for control of the organization and its processes.
At best, members of that group will fight among themselves, but certainly won't find resistance from the first group.
Control over various parts of the organization is therefore slowly given to one or more members of the second group.
This grows like a cancer: it starts from the bottom of the pool with people with no much skills, but looking for promotions while people with skills are looking for work results. In some very large companies I worked in (or with), techies focus on work while less competent people become managers; techies regard managers initially as admins that do work techies don't want to, but then the managers take over the organization and make it rot. This is initially far from senior leadership's sight, when it becomes visible it means most of the organization is already affected and it is too late. In most cases HR is helping with this because HR is completely disconnected and not understanding techies and the power dynamics ("those geeks nobody understands") and side with the bureaucrats because HR is also a form of bureaucracy (you don't get in HR is you are a brilliant STEM graduate).
I work in one of those organizations (US legal requirements make it a nightmare)... I even have stock incentives, and I couldn't care less.
Everyone hates “education bureaucrats”, but if the mission is educating children, at some level the state of the institution is critical to that mission.
Just like Christensen’s Dilemma books are mostly just anecdotes combined with patterns in history. As many such business books are.
But in my short time on this planet I’ve seen it in countless forms where I strongly believe it deserves such a title as “iron law”.
> Are we doomed by bureaucracy?
When empires collapse, you get small offshoots starting up somewhere nearby. If you search "tree life cycle" on google images you will see the analogy I'm trying to get at :)
So yes - a very large organisation. However Apple's chip design teams are much, much smaller than that. And because Apple mostly doesn't do chip design those teams are likely able to work like a startup, without much internal politics or in-fighting. Where as all of Intel's 100,000+ employees are basically devoted to chip design and manufacture.
Apple as a whole, though, is starting to look rather sick from the same sort of problems that Intel has. Under Jobs there was an energy and clarity of purpose that's been lacking for some time. The drift in Apple's core businesses are obvious. The iPhone has been stuck in turgid incrementalism for a long time now, and has already been largely "disrupted" by Android which sold into cheaper markets and used that to fund R&D budgets that match Apple's. We don't think of it as disruption because Android arrive so soon after the iPhone and thus there was no obvious delayed "disruption event", Apple just had their market share capped by the refusal to compete on price, which is why Apple fans have for years been forced to make arguments about why Apple is successful because they take a larger profit margin than others.
Their core Mac business has also been adrift for many years now. I and many others actively avoid trying to upgrade because things frequently get worse rather than better. The first decade of the century saw constant innovation in the Mac business, after all their best people were reallocated to the iPhone and iPad, quality entered a long period of decline. macOS releases struggled with regressions and rarely introduced new innovations worth caring about. Their apps and hardware have also stalled with own goals and unforced errors like the keyboard fiasco <looks at butterfly keys with holes in the plastic from ordinary levels of use>.
Developer experience and docs are another area of problems, there was a good rant about it posted here the other day.
All these are due to organisational rot, and most obviously, a form of in-fighting between iOS / macOS in which the iWorld got the best people and resources, leaving macWorld to pathetically try and steal things from the other group occasionally, regardless of whether it made sense for a laptop context or not.
And there's always corruption and politics where there are humans, be it in the mailroom or the boardroom.
Tell that to any college/university in the western world!
There's a reason tuitions have risen so high and it's largely been cited as the ratio of admins to teachers as being at least 10:1 when it used to be much closer.
I personally blame cheap gov subsidized credit for this quickly forming trend, which only took ~2 decades to have a devastating effect on students who come out of school without a degree which can somehow pay back such debt (which we in STEM are fortunate and I personally dropped out early).
Term limits are best implemented where someone must take on a different job every x years. This doesn't solve the problem of entrenched vampiric bureaucrats entirely, but it at least pushes them towards the chopping block.
Liquid democracy is a type of democracy where people give their voting power for particular issues to whoever they trust most for that topic. Then that person may pass the cumulative votes onto someone they trust and believe in. The point of liquid democracy is to empower people who are actual experts in a subject. Rather than having laymen vote in ways that just empower the most socially adept.
The entire skillset involved with gaining power is so time-consuming, it's incredibly rare for someone to have it and an actual technical skill at the same time.
> Disentangling Accountability and Competence in Elections: Evidence from U.S. Term Limits
> We exploit variation in U.S. gubernatorial term limits across states and time to empirically estimate two separate effects of elections on government performance. Holding tenure in office constant, differences in performance by reelection-eligible and term-limited incumbents identify an accountability effect: reelection-eligible governors have greater incentives to exert costly effort on behalf of voters. Holding term-limit status constant, differences in performance by incumbents in different terms identify a competence effect: later-term incumbents are more likely to be competent both because they have survived reelection and because they have experience in office. We show that economic growth is higher and taxes, spending, and borrowing costs are lower under reelection- eligible incumbents than under term-limited incumbents (accountability), and under reelected incumbents than under first-term incumbents (competence), all else equal. In addition to improving our understanding of the role of elections in representative democracy, these findings resolve an empirical puzzle about the disappearance of the effect of term limits on gubernatorial performance over time.
B: Elected officials are supposed to be the overseeing representatives, rather than functional executives.(think board vs C-suite). Elected executive is overall a poor idea.
It's a shame. I like the idea of not concentrating power.
Three countries with fairly open and competitive elections, and very high levels of corruption and high levels of incumbency:
Then there are these least corrupt countries, that elect new people all the time:
Oh... and let's not forget, that the study is about how efficient the governors are... not about corruption at all.
When the company becomes successful and starts to grow, it starts to attract people who don't really care about the company and its mission—they are in it only for themselves. They only want to improve their lot, and are willing to play politics and backstab as required to get ahead..
If the company is only growing slowly, they can weed these types out during the interview process. But if they are growing quickly, they don't have time to interview properly and slowly and surely the company is transformed from a cooperative, mission-driven organization to one where employees are fighting against themselves.
Unfortunately these politically minded types are the ones who quickly rise up the ranks, and once most of the top areas of the company are populated by assholes, there is no cure.
In the history of the world, 99% of people has been "in it" for the salary. Who gives a rat's ass about the company or the product?
There’s analogies to building institutions in developing countries. See the constitution in the Ukraine (I think) or South Africa. Ginsberg commented publicly and Brayer agreed with (at a talk I attended) from a “source code” perspective those constitutions are superior to the American one. Sort of v2 efforts where you can adopt best practices. Yet most people would agree those younger nations don’t have stronger institutions and than the US.
So there has to be both an individual and organizational component.
This next comment is completely unbaked and probably terribly phrased, so please read it gently: in addition to the rest of the comments, I believe there is also (and I understand this is a terrible analogy) a “standby passive observer” mechanism mentality similar to how Hitler came to power. Conceptually, people that get hired externally should maybe be >50% of any large organization maybe. Those employees need to see repeated instances of malicious political acts go by (“hey aren’t we going to do something here”) and learn that sort of complicit passivity.
That’s probably a terrible analogy, but notice that there seems to be nothing the three or four people in this threat that worked at Intel could do to alter the company’s direction (obviously) but more importantly there’s also a tone of dread and finality in their words, and they seem to have all chosen to have left.
So, it seems, like nation building, a complicated problem to understand and solve.
In a lot of countries the most powerful institution is "family first" (sometimes extending that to ethnic or religious in-group second).
The (currently) successful countries got that way with a different norm, "same rules for everyone".
I'm viewing the emphasis on family first in recent Disney/Pixar movies with increasing concern. Sure it sells better in China, but at what long-term cost?
>The (currently) successful countries got that way with a different norm, "same rules for everyone".
Which successful countries are these? As far as I can tell, the richer, more resourceful, established tribes don't follow the same rules as everyone. They might not be as blatantly corrupt as others, or the corruption may be more higher level with more plausible deniability, but "family first" is human nature.
(Of course there are varying values of "everyone." Most countries pretty much excluded half of the adult population until recently.)
For "family first" countries: this is the default mode for humans, so pretty much every country at one point or another. Nigeria and India would be two ountries where it's important to be related to the right people. India's caste system further reduces opportunities for many, perhaps most, people. For more extreme examples: Yemen, Afghanistan.
You could have a constitution that says - everyone is free and we decide how to govern ourselves voluntarily.... And still get a country like Switzerland.
My views on the subject : https://realminority.wordpress.com/
Preventing the decline is possible, but is _continuous_ hard work.
If you're in a competitive market you're forced to innovate.
If you're a monopolist you can just sit there and extract wealth. Which Intel was for a while.
By the way, your little theory has support and a name, it's the resource curse in political economics.
When billions are raining from the sky, whether you do good work or not, the rational plan is to fight over those free resources, rather than work to create new ones.
> coined in 1977 by The Economist to describe the decline of the manufacturing sector in the Netherlands after the discovery of the large Groningen natural gas field in 1959
The graph of the distribution for value per person must be wierd, and definitely not flat. Maybe based on a power law, but I am unsure how to model the people that provide negative value, for example bad managers.
Though actually note that the classic Mancur Olson result is "the exploitation of the strong by the weak". That is, the person who has the largest share of output contributes disproportionately much to the public good.
Simple proof: write individual i's marginal benefit from the company's total effort X as
s_i f(X) - x_i
where s_i is i's share of the output f(X), and x_i is i's own effort.
Taking everyone else's effort as given, i will equate marginal benefit of own effort to marginal cost, so that total effort solves
s_i f'(X) = 1
f'(X) = 1/s_i
Now suppose the person with the largest share satisfies the above. Then everyone with a smaller share must have
f'(X) < 1/s_i
and therefore, if they are contributing more than the minimum possible, they have an incentive to reduce their contribution. So, this extreme version has that only the largest "shareholder" does any work. (A more realistic model has a convex cost of effort, so smaller shareholders do something, but they still contribute less than their output share.)
Intel is not a cooperative.
Fungible employees (the majority?) are paid a market clearing price (salary) for their effort. The company can derive much more value from an employee and the employee earns very little of the excess (perhaps bonuses to align working incentives).
Maybe those countries would find themselves in a similarly bad state (or worse) without those resources. Maybe their bad state is due to historical reasons - being former colonies with very little power on the world stage - and resources just couldn't help much.
Countries with a dominant resources that only found them when they were already developed don't suffer from the 'resource curse'.
In such cases not having resources doesn't mean you turn into Switzerland or Canada rather it means that it will be harder for one dominant dictator to hold on to power. In some African countries that are now proto-democracies, dictators simply couldn't hold on to power without easily available resource base.
Bruce Bueno de Mesquita work in 'The Logic of Political Survival' and '
The Dictator's Handbook' is quite interesting.
Also the USA is the poster child for this; it's arguable that without the California gold rush there would be no USA as this is what is thought to have capitalised the federal government sufficiently to impose order on the west and fight the south.
None of the options for dealing with this seem great. I've seen "internal incubator" type things which are designed to come up with new ideas, but honestly I'm not a fan of these. The structure incentivizes prototyping new "left field" ideas, but those ideas are likely not to gain any traction, and if they do, it is likely to be a mess to transition them into real projects within the more normal operations of the organization. And it does nothing for projects that are clearly important from inception, even if new; the "left field" incubator is not the right place to put something that isn't a crazy idea being tested but something known to be important.
I think a similar thing is happening at Amazon (the strong dictator stuff, I mean), and it's my hunch that Google has started following Intel's trajectory, they just haven't realised it just yet.
I think there's a relatively straightforward and fair solution to the problem, and that is to require a certain amount of experience before being permitted to stand as a political candidate. You could do this by having a minimum age limit (e.g. 35), or by having been employed or being an employer for a certain number of years e.g. 15. This would ensure that the people representing us have gained a little understanding and experience of the world we live in and the real needs of the people they serve. Right now, I feel politicians of all stripes are almost completely divorced from the rest of us, and the consequences of their actions.
I do feel it is somewhat foolish that any job in the real world, from management through to the lowliest worker requires years of experience, multiple qualifications and certifications, training and assessment. But politicians require no independent assessment of their capabilities. The ballot box is not a high enough bar when all the candidates are of low quality.
Yes exactly. I don't hold with the notion that the head of the NHS has to have been a doctor or the head of the MoD has to have been a soldier - there is value in being about to look at thing objectively with an outsider's perspective. But at the same time, I do absolutely believe that the Chancellor of the Exchequer should be someone, from any industry, who has employed people and had to make payroll on payday come hell or high water.
It would also benefit everyone if some life experience was required before becoming a teacher.
The ballot box is not a high enough bar when all the candidates are of low quality.
Agreed again, voting now is about holding your nose and choosing the least-worst. I want "none of the above" on the ballot paper and if it wins, the real candidates are banned from politics for life. Repeat until some decent candidates show up. But none of our incumbent politicians would ever pass that law for obvious reasons.
The point about teachers is also something I think is quite neglected today. A teacher with real-world experience of their subject is vastly better than someone who has known nothing of the world outside education. And that's of value far beyond the subject matter: they can provide career guidance and real-world perspectives of all kinds that less experienced teachers simply can't provide. Certainly some of the best teachers I had were those who had done real work.
Regarding the Chancellor of the Exchequer, I absolutely agree. But I think it should go further. I think all MPs should have direct experience of running a business and having to make payroll. Too many of them lack understanding of the reality of what a business is, and how the economy runs. It would temper some of the most extreme and dangerous actions, from taxation to social welfare spending. Too many think businesses are "rich" and can be taxed with impunity to pay for things of dubious benefit. It's easy to be profligate with other people's money if it seems like it's there for the taking. Experience might make them think about how to grow the economy to benefit us all, and reduce unnecessary expenditure. They might also think more carefully about supporting small businesses while ensuring large multinationals also pay their dues. I personally paid more corporation tax than several multinationals, despite earning less than the living wage.
For the first time, I set up and ran my own small consulting business for the past two years after being made redundant. (I'm also in the UK.) It was a small-time business with only one client for a couple of small contracts, and I since got a new permanent position. But the experience of having to do all the company registration, contract negotiation, invoicing, bookkeeping, dealing with accountants, paying corporation tax, and finally getting it all wound up was an invaluable experience which will likely be of great benefit in better understanding the businesses I work for. It gave me a proper appreciation of the realities of running a business, including all of the responsibilities you have to shoulder. I think every elected politician should have this experience. Every self-employed person in the country has a better understanding of the practical reality of economics and taxation than most of our politicians. And I think all politicians should be aware of the reality of what the rest of the country has to bear in response to the decisions they make.
Both have politics since they are structures made of humans.
But they are completely different.
A company is a legal entity functioning within the framework of the legislation of a state, to start with.
It depends on the level you look at. For example the political skills of a manager to advance themselves at the expense of the organisation and their subordinates is identical whether at Raytheon or the DoD (to use an American example).
having worked at all three of
A Trillion Dollar corporation
A smaller company that grew quite a bit and sold for $5 billion+
A start up now
People optimize for what will make them rich/wealthy
In larger companies, the ENTIRE function of middle management is to extract wealth and not create it
In some ways it's a miracle Microsoft managed to get Satya Nadella as CEO. Normally the people who rise up the ranks are the politically astute
Don't discount Nadella's political astuteness. I think it would be more accurate to say he is not merely politically astute, but instead able to combine his skill at internal politics with customer empathy and technical intelligence.
>[...] Steve had invested in it because [search] would require the company to compete in a sector beyond Windows and Office and build great technology—which he saw as the future of our industry. There was tremendous pressure for Microsoft to answer Amazon’s growing cloud business. This was the business he was inviting me to join.
>“You should think about it, though,” Steve added. “This might be your last job at Microsoft, because if you fail there is no parachute. You may just crash with it.” I wondered at the time whether he meant it as a grim bit of humor or as a perfectly straightforward warning. I’m still not quite sure which it was.
But yeah, funny, though.
 The book is Hit Refresh, if anyone is curious.
 It was Bing:
>There was no mention of the cloud in that year’s shareholder letter, but, to his credit, Steve had a game plan and a wider view of the playing field. Always a bold, courageous, and famously enthusiastic leader, Steve called me one day to say he had an idea. He wanted me to become head of engineering for the online search and advertising business that would later be relaunched as Bing, one of Microsoft’s first businesses born in the cloud.
I don’t know about you but if my boss made a parachute joke while currently in a private plane flying south, it would be a scary thing.
Extremely well said, and having worked at two (initially) successful behemoths so far, I couldn't agree more.
Steve Jobs apparently demolished internal units, with the following outcome:
> As was the case with Jobs before him, CEO Tim Cook occupies the only position on the organizational chart where the design, engineering, operations, marketing, and retail of any of Apple’s main products meet. In effect, besides the CEO, the company operates with no conventional general managers: people who control an entire process from product development through sales and are judged according to a P&L statement.
Most corporations are organised around product groups, but what happens when the mobile products group comes up with a new device and wants to sell it to corporate clients? The enterprise products division might not like that. Imagine if Apple had a Mac division selling laptops, they might not have been happy about the Phone division coming out with the iPad and keyboard cases.
You don’t develop all new low profile keyboard technology, an original touch sensitive display interface system, a new hinge mechanism, a custom integrated security and image processing chip (T2), and a unique 5k display system through neglect. The problem is some of these advancements were simply misconceived. It wasn’t lack of interest or investment, it was poor execution of some of the new developments.
Steve Jobs used to say that being better necessarily meant being different, but being different means taking risks and sometimes they don’t pay off.
For a while, the software quality of new OS releases was night and day, comparing iOS and OS X. It was clear where the focus was. Apple's org structure has it's weaknesses.
Now that it's been a while, it wouldn't totally shock me if they ended up drifting Intel's way eventually.
Now if there were a technology to come up agains the iPhone (glasses anyone?) they'd probably face the same conundrum; disrupt themselves or be disrupted?
Maybe because it's newer and hasn't rotted yet.
First, there will be those who are devoted to the goals of the organization. Examples are dedicated classroom teachers in an educational bureaucracy, many of the engineers and launch technicians and scientists at NASA, even some agricultural scientists and advisors in the former Soviet Union collective farming administration.
Secondly, there will be those dedicated to the organization itself. Examples are many of the administrators in the education system, many professors of education, many teachers union officials, much of the NASA headquarters staff, etc.
The Iron Law states that in every case the second group will gain and keep control of the organization. It will write the rules, and control promotions within the organization.
Pieter Hintjens (creator of ZeroMQ) wrote a lot about this, and how organizations from big companies to small charities to software projects ought to design their internal structures of roles, titles, voting, auditing, to defend themselves against this kind of attack. Particularly if there's any kind of treasury, an opportunist will become tempted to take that role, but any kind of credit will attract people who want to take the credit without doing the work, power structures will attract people who want the power, and programmers who "just want to code" and avoid politics will find themselves at the bottom of a dysfunctional infected organisation structure with no power, no credit, and being instructed by distorted requests.
IIRC he tried to design the ZeroMQ organisation so that there wasn't any way for one person to insert themselves in a key point.
I'm not sure where on his blog I was reading that, but it's related to his writings about psycopaths as the opportunists, and might be part of his book Social Architecture
I could be mistaken, but I think this kind of happened with ZMQ where one contributor got annoyed and went off to create nanomsg.
Or when people complain about Linus Poettering and Systemd, either how it came to be in certain distributions, or how it took over certain subsystems, or people's behaviour around it - isn't that politics and power structures?
Or that recent post on HN ( https://news.ycombinator.com/item?id=25076197 ) where the Cairo project appears to have nobody left who is able to make a release and the last few years of releases were done by one person working at Samsung, and there hasn't been one since he left, and presumably there was no organizational structure for how to distribute this power to several people, or how to choose and "promote" someone to the job, or if nobody wants to do it, how years worth of effort came to end up on the rocks where nobody even cares anymore, isn't that a broken or absent organization one way or another?
"""In late 2009, the Chair and Red Hat sat down and decided, in a secret meeting, to rewrite the spec. [...] From scratch. By himself. After years and years of committee work. After years of investment by others in working code. Without asking anyone except Red Hat. And then, to force this spec through the working group using his usual tactics: bullying and lobbying. [...]
One of my spin-off projects was the Digital Standards Organization, and I came to understand what was needed to protect a standard from predatory hijack. I summarized the definition of a "Free and Open Standard" as "a published specification that is immune to vendor capture at all stages in its life-cycle." What the "free" part means is, if someone hijacks your working group and starts to push the standard in hostile directions (as Red Hat did), can you fork the standard and continue? Does the license allow forking, yes or no? And secondly, does the license prohibit "dark forks," namely private versions of the standard?
If either answer is "no," then you are at the mercy of others. And when there is money on the table, or even the promise of money, the predators will move in. The AMQP experience gave me a lot of material for my later book on psychopaths. [...]
If we'd managed to build a thriving community around OpenAMQ, it would have survived. So the lesson here is simple: community before code. Today this is obvious to me. Eight years ago, it wasn't."""
And reference this (http://hintjens.com/blog:120) Social Architecture FAQ which talks about rude but highly skilled people contributing to projects (read that with "community before code" and the quote "if you want to go fast go alone, if you want to go far go together" in mind).
His book on Psychopathy was panned on Reddit, as well as on Goodreads:
Likewise, the wikipedia article for Social Architecture has been listed "not notable" for the past four years, and hasn't seen any meaningful edits since 2016.
With respect to the author, I'm not surprised. Nerds like ourselves enjoy "discovering" ideas, slapping pretentious labels on them, and then evangelizing them to the whole world... without checking if other people know more about those ideas than we do.
Pieter Hintjens died in 2016.
Is there any actual panning of his book by someone who read his book, in your link? Or anyone who engaged in good faith - e.g. it's a book about his experiences of problem behaviour patterns that hurt others?
The larger point is that the audience he chose to market to, rejected his ideas. Whether or not his audience was acting in "good faith" is irrelevant to his failure to communicate.
It means there's immense incentive for teams to monopolize skill and reduce other teams' value so they get picked. It also encourages posturing as strongly as possible, rather than accurately, since it's all based on perception - it's not like you can prove you'll do a better job than another team. To make it worse, if a highly valuable project seems like it might fail, the company will likely throw more resources at it - the risk to the team for getting in over their head is relatively low (and still looks great on a résumé), compared to the risk to the company.
Whereas, in a smaller company with a smaller pie to divide amongst folks, the growth of the pie is the most important thing.
Startup going well, productive team and people to work with.
Some guy who sucks with years of sucking experience joins to “manage” the company/team/department into the ground.
I work for a not for profit now and we get paid less, very few people suck.
Instead they optimize to many things like money, prestige, power, security, and so on. Much like you can't describe health as a single thing, when you collapse your insight to a single variable you miss everything in your simulation of how reality works.
This applies to an individual level but especially applies towards a cooperative level with multiple individuals. When we cooperate (or just act in ambiguous situations) sometimes trying to collapse your actions to "mental shortcuts" aka Heuristics in Judgment and Decision-Making to borrow some thinking fast and slow language further reduces insight.
A great example comes from this article. The group in charge of the Pentium product line would not be thrilled to see the Celerons launched, since that would cannibalize their sales. Obviously for long term success of Intel this was the right move, but from the perspective of the Pentium team this might be a horrible idea.
Much like countries and empires. Once growth largely stops being the easiest way to capture wealth "entrepreneurs" start eating away from the inside.
This is not a slam against people from wealthy nations. I am one of them. I just think it's a danger to be aware of.
However the small companies almost always have VC investors, which brings negative effects which are approximately as awful (just in totally different ways).
If you can find a small self-funded company that isn't gonna get squashed next time Masayoshi Son sneezes, it'll be the best job you've ever had.
And what I view as completely irrational is the fact that in so many cases, the self-interested option is actually to work together and do something meaningful that advances you far more than chasing a quarterly metric.
It seems to me this would go the other way. Making a good product (in the sense that it's successful in the market) is what you want a company to do, but that's the thing mostly aligned with the profit incentive.
If profits are taxed heavily then spending resources on making a better product so that more people buy it doesn't make you a lot more money, but spending resources on office politics brings non-monetary personal benefits like status and control, so managers would have a greater relative incentive to do those things. See e.g. Soviet Union.
One of the biggest problems today is actually that the tax code provides incentives for corporations to retain profits within the organization rather than paying them out to shareholders to invest in something else, which results in inefficient corporate bloating.
Making a better product also doesn't necessarily lead to profits. That's an oversimplified perspective. There's a far greater correlation between monopoly power and profit. In some cases this monopoly status comes from truly groundbreaking work. Not in all cases though.
Multinational corporations commonly avoid taxes by keeping profits offshore in a low tax jurisdiction. In order to pay the money to shareholders they have to repatriate them and pay corporate income tax on the money, and then the shareholder has to pay tax again on the dividend or the capital gain from the buyback.
Or they can leave the money where it is, not pay any of those taxes and invest it in some index fund from there. But then the money is stuck inside the corporation, and gets invested in some index fund instead of potentially going to some higher risk/reward investments that some of the original shareholders would have chosen.
> On the contrary, recently many needed to be bailed out because they paid out too much to shareholders instead of saving enough for a rainy day.
COVID-19 isn't a rainy day, it's a once in a century pandemic. Most companies have never made enough money to be able to survive it, and the ones that did still shouldn't be hoarding it just in case. Systemic problems get solved through systemic actions, e.g. lowering interest rates or sending stimulus checks. To expect companies to have saved enough money to survive rare systemic events without that is to penalize and destroy any company lean enough to have been unable to save it to begin with.
> Making a better product also doesn't necessarily lead to profits.
Making a worse product in a competitive market has a strong relationship with going out of business.
> There's a far greater correlation between monopoly power and profit.
But that's an independent problem. The solution there isn't to raise taxes, it's to break up monopolies.
That does happen, but many including the biggest tech companies found a clever way around it. Via a combination of ultra-low interest bearing bond sales and share repurchases. It does the same thing but avoids those taxes. So there's no incentive for profit retention on net.
> COVID-19 isn't a rainy day, it's a once in a century pandemic.
Part of going into business is accepting risk, including systemic risk. That's why the corporate veil exists and it's generally positive for the overall economy when weak businesses fail. A strong business would have an operating model that can withstand such risk.
> To expect companies to have saved enough money to survive rare systemic events without that is to penalize and destroy any company lean enough to have been unable to save it to begin with.
Maybe those companies shouldn't have been in business then and that capital would have been better deployed somewhere else. I'm surprised that opportunity costs of capital allocation are ignored when defending bailouts. They introduce market inefficiency and reward complacency.
> Making a worse product in a competitive market has a strong relationship with going out of business.
In principle, yes. In reality, most markets are not competitive to that degree. Perfectly competitive markets don't exist in a modern regulated economy. We can talk about removing regulatory burden to make this true, but that's not where we are now.
The loans allow the money to be transferred back into the domestic entity, but there are then restrictions on issuing more in dividends or buybacks than you have in profits, and borrowing isn't considered profit. So they can get the money back into the US and use it for wasteful empire building but they can't give it to the shareholders -- it makes the problem worse.
And buybacks have more advantageous tax treatment than dividends but they're still taxed as capital gains on the difference between the price you bought the shares and the price you tender them for, which doesn't happen if the money stays inside the corporation.
> Part of going into business is accepting risk, including systemic risk. That's why the corporate veil exists and it's generally positive for the overall economy when weak businesses fail. A strong business would have an operating model that can withstand such risk.
You're using two incompatible definitions of weak. In the first case you want weak businesses to fail because they're inefficient, i.e. they're consuming more resources than they produce and go bankrupt. In the second case the business fails because there is a situation resulting in a temporary loss of revenue (shutdowns) but the business still has operating expenses (e.g. rent) and is too efficient to have enough slack to bridge the gap. The inefficiency wasn't caused by the business occupying space it couldn't use, because at the time nobody could use that space -- the loss was a sunk cost to society at large.
If you let them fail then when the temporary situation ends there is greater market concentration because the leanest companies failed, which allows the remaining ones to charge higher margins due to the reduced competition to the detriment of their customers or suppliers.
> I'm surprised that opportunity costs of capital allocation are ignored when defending bailouts. They introduce market inefficiency and reward complacency.
This is why "bailouts" should be distributed uniformly without regard to risk of failure, e.g. through lower interest rates or fixed sum payments to everyone. Then you're not rewarding the most precarious companies because they get no more than anyone else, but you still prevent them from failing. Meanwhile those in a stronger position can use the money they received to increase investment or consumption, which is what you want in a down economy anyway.
> In principle, yes. In reality, most markets are not competitive to that degree.
It still works like that in practice much of the time. Blockbuster's product wasn't as good as Netflix and now they're gone. GM's product wasn't as good as competing ones and it led them into bankruptcy. Blackberry, Sears, RadioShack, Circuit City, AOL.
It could happen more than it does, but it still does.
The argument has been subtly shifted here, from businesses not being able to return capital in the form of dividends due to taxes to business not being able to do so due to loan covenants. Irrespective of the latter point, it is clear that given low interest rates, repatriation tax policy has no effect on incentives for capital repatriation. The biggest most profitable companies that pay out large dividends and do share buybacks make frequent use of this.
As for the loan covenant restrictions, from an economic stability perspective, it's very poor incentive design to allow companies to repay dividends when they're not profitable. This is in effect what you mean when you say "restrictions on issuing more in dividends or buybacks than you have in profits". A business thus impacted should focus on getting profitable. Liquidation is also an option. Dividends and buybacks should not be.
> This is why "bailouts" should be distributed uniformly without regard to risk of failure
This policy sends a message that foresight doesn't matter and reinforces a short-term oriented time horizon. Not only is that worse for society, it's worse for business in the long-run due to investment disincentives. Providing temporary support to individuals or local small businesses to preserve communities, especially vulnerable ones, is a different story and this is not an argument against it. Bailing out large well-managed businesses on the other hand makes no economic sense, these businesses can easily be restructured, sold, and given a new lease on life under new ownership. Antitrust concerns should be handled by courts, not by bailouts.
> increase investment or consumption, which is what you want in a down economy anyway.
Not all investment is equal, some investments have a much better return than others. Good policy incentivizes the latter as opposed to incentivizing indiscriminately. Investment for the sake of investment leads to waste and is bad for the economy in the long-run.
> and is too efficient to have enough slack to bridge the gap. The inefficiency wasn't caused by the business occupying space it couldn't use, because at the time nobody could use that space -- the loss was a sunk cost to society at large.
This is very oversimplified. Larger businesses can tap into financing, working capital, and have many other tools available to deal with this. And if they can't, that's not efficiency, that's poor operational discipline. Since the owners stand to gain when such a business does well, they should be ready to lose when things go poorly. It shouldn't matter if the cause is one akin to a force majeure.
> Blockbuster's product wasn't as good as Netflix and now they're gone.
Netflix had a much lower cost of capital in the beginning and also a much lower fixed expense. In their case not having storefronts improved the product but that's not a fixed relationship. One can come up with many cases where the opposite holds. Therefore it only applies to that particular case and doesn't support the general argument. Similar nuances exist for the other anecdotal examples listed.
F.A. Hayek provides great arguments against government intervention in the economy. There can be a role in providing assistance to individuals or communities, Hayek was famously supportive of both, but it's important to not let that bleed over into market dynamics which must remain competition-based.
Are you saying that low profit enterprises create more value?
The thesis is attractive but also makes me wonder about Apple, high profit and also highly creative.
Ex-Intel engineer here that worked in R&D- I saw the exact same situations during my time and was one of the reasons I left. The way that teams in the same org with the same goals couldn't or wouldn't work together was incredibly frustrating and such a massive waste of effort. At the time I thought it was a unique situation with our group, but it's sad to see that it's more of a systemic issue that still hasn't been corrected.
People who are political as a prerequisite need to believe there is both a reward and a low fear of retaliation/termination for their actions.
Sometimes it makes sense to have a bit of competition, but having multiple prototypes (often with slightly different design parameters - e.g. a reliable design, an advanced design, and a moonshot) is a better competition than having managers attacking each other with passive-aggressive Powerpoint shows in a conference room.
In our case, making two teams work independently on the same problem just created a situation where each team had half as many resources.
Given Intel’s history of paying median rather than top wages and losing their best employees to competitors, they didn’t even have one full department capable of pulling this off, let alone 2 or 3.
You repeat this multiple times depending on your resources. When things get really expensive, you should be down to one idea.
You got it. Not to mention that you're incentivizing them to hoard work/attention/resources from one another, or engage in other organizational anti-patterns that would obviously be/become problems to solve if you didn't put the artificial "constraint" of internal competition in the way.
These issues saw them going from 50% of the console market in 1993/4 to folding console operations less than a decade later.
SEGA is my favourite example of 'too big to fail' and turf wars.
Console Wars is a great book about this story.
I really feel for people who are in these companies. Who put in 6+ years of university/higher education and think that “if I could only fight my peers for the top spot” when “top” is relative.
To someone else’s point, I totally acknowledge that there are certain industries that you have to have a degree to do anything meaningful. I also know there’s tons of companies out there that need bright minds to create the next big thing.
I used to think that I was in competition with my coworkers for that promotion, for that top spot, to basically prove to myself that I could and prove to others I should. I stopped wasting time trying to prove what I already know and now focus on what I don’t.
Office politics sucks and I refuse to play the game. If I get passed up for promotion or if I’m unhappy I leverage my rights under my states at-will work laws and go find somewhere else to work.
The best places I’ve worked where this wasn’t a thing (the elite competition for who’s right) were places that acknowledged your contributions, explained why you did/didn’t get the promotion, laid out plans for you to achieve that (or have you on that list for when it opens up) and then actually honors that promise.
Edit: I know some people with diploma who "gamed" the system, e.g. memorized queries for exam without having any understanding of SQL and passed.
I didn't say it was. Meritocracy in this case was in reference to the company's internal competition (organic or not) for top spots at the company.
I completely understand there are certain jobs where you need a degree. Bar even. A lot of software engineering doesn't fit that mold. I'm 100% behind requiring an advanced degree if you're writing software that controls: lives/property/money in any meaningful way. Money in this case being large capital investments, not consumer payments. I'm a big proponent of hiring people who need a second chance, who maybe are down on their luck, or otherwise have a different path than suburban white America or the H1B visa mills they created (caveat, I'm white). I think there are plenty of opportunities for software engineers without degrees to build web apps, mobile apps, services, integrations, automation, etc.
There's selfish, winner takes all competition that creates winners and losers, and then there's healthy, productive competition where everyone who engages comes out better off for challenging themselves against a peer.
And obviously, there has to be a culture that provides resources no matter the outcomes. If you starve the 'losers', you're just creating desperate bait dogs in a toxic work environment.
To truly grow as a company you need to grow as teams. Cooperation, trust, empathy for your customers as well as your coworkers. Positions of leadership should be given to those who show an aptitude to lead through problems to desirable outcomes, regardless of who/where they are. Flatter org structures to prevent this chasm of salary difference which creates this toxicity in competition for those spots.
Netflix pays their engineers a ton, because they provide the value. Everyone is compensated at a level that everyone is happy working there (for the most part, happiness is relative, I digress). Companies should be providing everything they can to those who provide value to the company. If an individual wants more responsibility, they must provide more value as a result.
Two decades of requisite grunt work will also encourage your best junior talent to seek out start-up opportunities.
For silicon and hardware in general, the job market is much, much smaller, making that decision significantly more difficult.
And half the time the supervision is the exact opposite. Concepts like stack ranking are a sure-fire way of making the workplace more contentious, politicised, and publicised.
Because that's the thing about
> intense competition
95% of the time it's about visibility, the technical excellence only matters if it's visible and publicised to decision-makers, which means self-aggrandisement and a mastery of office politics not only can compensate for lacking technical skills, but will usually edge out technical skill entirely.
When you’re small all that competitive energy is directed at your competitors. When you’re king of the hill that competitive energy turns inward.
Natural consequences, timely feedback, parallel modeling, Socratic questioning, mirroring...
If you want to know how to handle the politics of a large organization, try interacting with children. The parallels are amazing.
And he's actually 3, so I can't really sit around and wait another 5-6 years before I get to figure out the perfect "business customer" :D
So which team/location ended up winning?
Just one anecdotal story, one of the wafer guys had an idea to improve a process. He went to his boss who shot it down instantly. Wafer guy knew he was right so went to another manager who liked the idea and implemented it. It ended up working and being a great idea. Instead of being rewarded for his idea, wafer guy was fired by his manager for failing to follow the chain of command.
It's built into the culture at Intel to be territorial to advance. It's been that way for at least 30 years. I personally don't see it changing any time soon.
Grove certainly sends quite utilitarian vibes. He also says that a collaborative culture is important. Your comment suggests that neither he nor his successors managed to make Intel's culture collaborative enough.
Higher management is probably often an iterated prisoners dilemma. Collaborating is best for the company but defecting is good for the ambitious manager.
It did have a few ideas which were new to me and it presents a holistic consistent management philosophy which you don't get from reading a hodge-podge of blog posts.
Two (for me) new ideas: Matrix organisation is inevitable for large companies in search of the sweet spot between agility and efficiency. Knowledge workers are middle managers.
Overall: Good book but not "you have to read it" level.
But we are now living in a world where mobile is more important than desktop, and mobile chip designs have enough power to be a threat to the desktop market, and perhaps even the server market in the not-too-distant future. This is something that should worry Intel.
That was only around 2000. There was a lot for me to get excited about since then:
* Dual-core / multicore
* On-chip integrated graphics that weren’t awful (low-end discrete graphics aren’t a thing anymore)
* Gigantic L3 and L4 caches (a side-effect of on-chip graphics)
* Turbo mode making a comeback (yes, I know Turbo Mode switches actually slowed down computers)
Judging by Apple’s direction, it’s looking like we’ll start seeing actual (ultra-fast) RAM on-chip too, with Optane that could mean we can finally move-away from block-addressed storage and have a massive flat memory-space for everything .
I kinda laughed when AMD beat Intel to the punch not once, but TWICE. (1GHz, then 64b).
I also worked on the 740, 810 and 815 (both hardware and drivers, oddly, I did a lot of stuff). Game devs HATED us for the 810/815 because it was such huge volume they had to target it as the LCD.
RTL is a way to model a digital circuit and some common HW design languages are VHDL, Verilog amd Intel's proprietary iHDL.
Numbers are just Intel chipset families.
Why so? Few more material, and device generations are on the way. Litho has went through more generation changes in the last 1 decade, than in any previous one.
Whole new device classes are on the way: optics on silicon, new memory, logic in the backend, and logic on package.
Semiconductor engineering is still a career suicide though, that haven't changed in the last few decades.
> optics on silicon,
Yep! That and quantum and post VNeumann architectures. There's some weird shit on the horizon that I probably won't live to see in household products, but I don't think it will be be optical deposition by layer. It might, who knows, I"m officially talking out my arse now. :)
And not even for I/O, but for on-die communications, and busses.
High speed SERDES may well be replaced by same-die optics, as a lower transistor count, dumber, and cooler solutions.
This is so true. I am currently a hardware engineer and planning to switch to software. If you are not in Nvidia, Apple or other mega-growth hardware companies, you are suffering atleast 40% paycut compared to software industry and also working about twice as hard, using obsolete tools and flows, and almost no opportunities for technical advancement or significant impact. Meanwhile the annual raises are cost-of-living adjustments. Its truly depressing.
Wow, so I need to thank myself for accidentally bumbling towards ops and dev? Meh, for me it’s just that in EU there’s a total dearth of opportunities in the industry
Could you go into more detail?
The long term is that the industry will get less, and less labour intensive as more, and more old, labour intensive fabs are retired, and new ones are 100% AMHS.
Intel has money and equipment and existing market share: there's no reason for them not to be profitable for the long term, as long as they stop acting like they don't have any competition (as they did until 2018) or that their only competition is AMD (as they currently are pretending).
Broadcom also tried and also failed. They came in cocky because they had succeeded in making Wifi chips with a 10-20 people team so thought that 500-ish people was more than enough for cellular even if Qualcomm had 4x that...
I would not be surprised if Intel fell into the same trap.
I guess even Sailfish OS that came after MeeGo is not really immune to SoC supplier dropping out under it as the first Jolla smartphone with Sailfish OS should have run on a SoC from Sony Ericsson only for SE dropping out of the game as well! And the (in?) famous Jolla Tablet had one of those Intel Atom x86 mobile processor.
I'm not sure the engineers themselves having a big ego is a negative. I'd want a team who thinks they can do anything. But how you manage those guys is the problem...
I'm no longer surprised, but I'm still always amazed when this happens. It is really crazy how groups within organizations are often unable to see that collaboration is massively more in their interests than minor empire building. It's like they're trying to building a wooden fort a moat filled with mudaround it when they could be building Camelot.
(Well, Camelot minus the whole thing with Lancelot giving it to Guinevere, Arthur to his sister, and his estranged son coming back to kill him. Not quite that Camelot.)
I also seem to remember shopping around for a new phone a few years back and coming across android phones running on what seemed like a Frankenstein Atom processor. At the time I thought it was a promising concept, though benchmarks weren't flagship quality. But I'd hoped to eventually see dual-boot phones I could slot into a shell of a laptop to have access to a an ultraportable low-end windows box when needed. I'm kind of disappointed that never came about. (I know there's some promising "shells" for android phones, but I'd really like an OS I can fully control for my desktop experience, and Linux phones don't quite seem mature enough)
Anyway, any insight on the above from your unique perspective would be welcome.
Entrepreneurs typically rate low. They rely on goodwill and reciprocity and great relationships to get things done as they have zero power. Early power comes from getting people to buy into your vision.
Corporate middle / senior managers rate higher because it it generally all about the power.
The interesting insight was that as an entrepreneur, when your business scales it is hard to retain the “low Machiavelly” approach. This is where a lot of the growing pains come from..
Edit: add link
Turf war and cookie leaking is a problem for all big companies, we are all humans, when there is no external threat, we turns to infighting. After all, why not? This will compensate the missing competing pressure that is also necessary as well.
But unable to have a cohesive strategy and call the shot would be Intel's own downfall. Looking back the past decade, they are on a one-way losing path, without any meaningful expansion. Had they have a decisive leadership, it will definitely fare better right now.