Knowledge that Transforms

Initially this paper was titled, Stephen Hymer's Influence on Public Policy in LDCs. In an attempt to research this impossible subject, I conducted a citation search in the SSCI. The SSCI listed 442 citations in 192 different journals over the period 1977 to 1983, a count that places Hymer in the top five writers on international business and the multinational enterprise over that period. His writings were cited in journals devoted to law, history, philosophy, sociology, psychology, political science, geography, business, anthropology, broadcasting, peace research, statistics, migration, and urban, regional, agricultural, trade, financial, labor, industrial, and development economics; they were cited in journals devoted to the study of Africa, Asia, Latin America, as well as Europe, Australia, New Zealand, and North America; and they were cited by authors across the spectrum from arch conservative to radical political economists. The breadth of discipline, geography, and viewpoint of the authors who found Hymer's writings useful in their analysis reflects Hymer's multidisciplinary approach to problems, the originality of his insights, the clarity of his thought, and the forcefulness of his writing. Although Hymer is best known for his work on the multinational enterprise (MNE), he also was intensely concerned with problems of less developed countries (LDCs) and the public policies they might use to alleviate the problems arising from trade and foreign direct investment (FDI). In his analyses, Hymer started from his base in economics, especially the economics of the MNE, but also used the insights of historical, political, and sociological analysis to illuminate these complex subjects. In using this approach Hymer may have fallen between two camps in the analysis of public policy issues in LDCs: the pure economists (who have often viewed him as a bright, but misguided and ultimately fallen angel) on the one side, and the radical political economists (who have viewed him as a rising, if somewhat backward star) on the other side. Instead of bridging the gap, Hymer may have fallen into it: his insights cited, but his conclusions discounted as faulty or half-formed. This is unfortunate, since Hymer, writing in the 1960's and early 1970's, speaks directly to many of the concerns of today and of the future: the New International Economic Order, the North-South dialogue, and the basic needs of those at the bottom of the income distribution in high-income and lowincome countries alike. Hymer's writings addressed two major questions: how best should a small, developing country interact with the world economy through trade, inward (and outward) FDI, and technology licensing? How best should such a country organize its internal economic activity to meet the needs of all its people, especially those in the lower two-thirds of the income distribution? To understand Hymer's approach to the analysis of these two questions and his contribution to public policy in LDCs, it is useful to set them within the context of his background, education and experience. Hymer was a Canadian. He grew up and received his first university degree in Canada, a country with a small, open economy, which largely exports raw materials and imports manufactured products, and whose manufacturing, energy, and mining sectors are dominated by subsidiaries of MNEs. In many ways, Canada was (and is) akin to the LDCs and his interests naturally turned in their direction. He was educated as an industrial organization economist at McGill and MIT. His experience and education, therefore, gave him a knowledge of large, multinational enterprises and the tools to analyze them. After MIT, Hymer worked in Ghana where he saw * Professor, School of Business Administration, University of Western Ontario, London, Ontario, N6A 3K7 Canada. I am grateful for partial funding from the Centre for International Business Studies and the Fund for Excellence, U.W.O.

Our approach to Heiner's thesis is shaped by interest in the processes of cognition, other sources of human behavior, and the implications of knowledge growth for man and the biosphere. His work is illustrative of uncomfortable implications and problems created by the explosive growth of knowledge in the modern era. Many of us work inside large organizations where our responsibility is to promote a kind of intelligent, flexible, and adaptive behavior that Heiner says must emerge as a condition of increased organizational complexity. From that perspective we were attracted to two of Heiner's major points about human behavior: first, that people cannot cope with all the information available; second, that knowledge creates uncertainty. We affirm these statements, but are uncertain of Heiner's view on how increasingly complex, viable, social structures evolve. One of our initial impressions was that he attributes consciousness to subhuman forms of life, even though his article claimed to be imputing only sensory or perceptual powers, not cognitive or conceptual ones. There remains nonetheless an impression that some kind of economic or biological (i.e., success or survival) rationality is the outcome of successful behavior. If Heiner is not attributing consciousness, he is at least observing development of behaviors that permit survival. Economic reasoning might call such behaviors from a retrospective viewpoint. As organisms and organizations become more complex, rationality of this kind seems to require more and more nearly conscious effort. Heiner calls optimization a special case occurring when uncertainty (the C-D gap) approaches zero. Optimization would be rational and also conscious, we infer, since it implies deliberate decision taking. At lower levels of certainty, rule-governed behavior prevails. The choice of rules and of behavior within them could be rational without full consciousness. This we infer is Heiner's meaning and we do not necessarily disagree (as some of our examples will demonstrate). We believe an implication of Heiner's work is that rational (i.e., enabling survival or success) behavior requires increasing degrees of conscious effort. We are given to understand that he is aiming at a more general theory of human behavior, one that subsumes optimization, or economic rationality, as special cases. He aims at illumination rather than revolution he says, but we think the implications are revolutionary. If he is not preserving economic man, then he is destroying the Invisible Hand. From the anthropological perspective, Heiner has situated economic debate squarely into the mainstream of Continental intellec*Wilde: Economist/Strategic Planner, Canada Department of Agriculture, Ottawa, Ontario, KIA 0C5 Canada; LeBaron and Israelsen: Resource Economist and Economist, respectively, Utah State University, Logan, UT 84322. 'This is the summary of a longer paper by A. H. Esser, Psychiatrist, Editor & Publisher, New York City; R. W. Jackson Physicist/Policy Advisor, Science Council of Canada; S. Miles, Policy Consultant, Toronto; J. Mitchell, Anthropologist/Information Manager, Canada Department of Agriculture; R. A. Schulz, Faculty of Management, University of Calgary; W. H. C. Simmonds, Engineer/Sociologist/Futurist, National Research Council of Canada (retired); G. Spraakman, Organizational Design Analyst, Government of Alberta; J. A. Wojciechowski, Philosopher of Science, University of Ottawa.

In another paper (forthcoming), I have contrasted wage setting in the 1920's with that of the post-World War II period. During the 1920's and early 1930's, the U.S. Bureau of Labor Statistics published an incomplete sample of reported wage-change decisions at the establishment level. Perhaps the best way to summarize the results is to direct attention to Table 1, which presents the distribution of manufacturing wagechange decisions during 1924 and 1925, years in which consumer price inflation was, respectively, -.2 and +4.0 percent on a December-to-December basis. The table shows a wide array of wagechange decisions ranging from cuts of over 20 percent to increases of similar magnitude. This dispersion of decisions is remarkable by post-World War II standards. Moreover, the postwar evidence suggests that nominal wage cuts are a rarity, even in periods of low inflation. When they do occur, as in some recent union concessions, the cuts result from a painful negotiations process against a background of threatened or actual mass layoffs. By the 1920's, many features of modern corporate enterprise were present. But were of little significance in most sectors, including manufacturing, the result of a sustained open shop campaign by employers after World War I. There was little labor market intervention by government. Workers resented wage cuts-during periods of generalized wage cutting such reductions became important causes of strikes-but employers implemented them anyway. And when employers did not want to take the blame for wage cuts, they used company unions to negotiate reductions (Robert Dunn, 1927, pp. 21-23). In short, in the absence of or other institutional constraints, the implicit contracts offered by employers in the 1920's provided substantially more wage flexibility than existed after World War II. The wagesetting mechanisms of the 1920's did not approach the flexibility of a classical auction market, a fact of some comfort to implicitcontract theorists. However, it is unclear that one needs to go much beyond simple explanations of how wage cuts (or even relative wage slippage) would lead to worker resentment and management caution.

In the late 1960's, the Federal Communications Commission (FCC) introduced competition into telecommunications. Initially limited to specific services and types of customer equipment, the limits soon gave way. By 1980, the FCC's policy was to promote competition. In 1982, the Antitrust Division settled its suit against AT&T with close to total victory, achieving divestiture of the Bell Operating Companies (BOC). AT&T remains in equipment and interexchange services, which are growing increasingly competitive. To facilitate divestiture, the FCC adopted several policies: asserting jurisdiction regarding depreciation and then adopting methods that more nearly reflect economic costs, eliminating regulation of equipment prices, and restructuring the procedures whereby interstate services share local exchange costs. Two aspects of these new policies are worth emphasizing. First, astonishingly enough, economics played a central role in changing federal telecommunications policy, as acknowledged by Philip Verveer (1984), the lawyer who developed the antitrust case against AT&T, the Chief of the FCC's Cable Television Bureau when cable was deregulated, and the Chief of the Common Carrier Bureau when the FCC formally adopted the policy of minimizing federal regulation of telecommunications. The intellectual foundation of these policies is an economic case that the industry will be more efficient if it is minimally regulated and maximally competitive. Second, the new federal policy is widely despised by state regulators. My title is from an eloquent decision in Texas, which also characterized cost-causative pricing as from the Antoinette School of Rate Design (Mary Ross McDonald and Angela Marie Demerle, 1984, p. 35). State regulators dislike federal procompetitive policy because it transferred several billion dollars of revenue responsibility to the states and threatens state regulatory policies. Thus far, the state response has hardly been accommodative. Instead, federal and state regulators are fighting a three-front Jurisdiction War. This paper briefly analyzes the economics and politics of state resistance to federal policies. For more details, see my companion paper (1985).