Human Firm: A Socio-Economic Analysis of Behavior and Potential in a New Economic Age. (Book Reviews)

By Altman, Morris | Review of Social Economy, March 2003 | Go to article overview
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Human Firm: A Socio-Economic Analysis of Behavior and Potential in a New Economic Age. (Book Reviews)


Altman, Morris, Review of Social Economy


Human Firm: A Socio-Economic Analysis of Behavior and Potential in a New Economic Age. John Tomer, Routledge, xvii, 228 pp.

This is an interesting and stimulating book that should be widely read. The Human Firm continues Tomer's ongoing research on what has been referred to as the black box of the firm. In particular, Tomer introduces us to the concept of socio-economic failure, which is the focus of Chapter 2. This is an important extension of the concept of organizational capital introduced in his last book, Organizational Capital - The Path to Higher Productivity and Well-Being, published in 1987 (Tomer 1987). Indeed, Tomer's model of the Human Firm, which is counterposed to the "mainstream" model of the firm, builds upon his earlier conceptualization of organization capital, where the latter speaks to the notion that productivity is affected by how the firm is organized internally.

In the Human Firm he elaborates upon organizational variables, paying greater heed in this book to what he refers to as "soft" variables such as leadership, ethics, and spirit as well as the extent to which the firm is embedded and affected by the larger society. In so doing, Tomer provides a detailed review of the related management literature, rarely touched upon by economists. In Tomer's modeling of the firm, productivity is not simply a function of "hard" variables such as capital, Labor time, and technology and associated economic incentives, as it is in the "mainstream" literature, but also of organization capital, inclusive of "soft" variables, where organizational capital is identified as a cost of production. A key point made here is that firms need not and typically do not fulfill the potential for productivity and ethical behavior contained in the ideal organizational form. The ideal human firm would be fully rational with regards to organizational decision making and fulfill its social, environmen tal, and consumer responsibilities. It would also be less hierarchical and more cooperative in nature, which Tomer refers to as the Z firm. A firm which does not fulfill its potential and thus produces x-inefficiently suffers from socio-economic failure, this being a product of a firm failing to invest optimally in organizational capital. Tomer posits a positively relationship between investments in organizational capital and firm productivity and social output, where the latter includes minimizing negative externalities and maximizing ethical behavior. The decision makers of the firm can thus decide to transform their firm into the ideal firm by investing appropriately in organizational capital or "coached" into doing so by government. In Tomer's model, market forces alone cannot guarantee the absence of socio-economic failure. In the "mainstream" theory the potential contained in the firm's inputs is fulfilled as a product of relatively competitive market dynamics. For this reason, the 'mainstream' literatu re pays little heed to how the firm is actually organized (the black box of the firm) and how decision-makers within the organization are affected by social variables situated outside of the firm. At a foundational level, Tomer builds upon Leibenstein's (1966) x-efficiency theory and Simon's (1959, 1991) work on the implications of cognitive limitations of the human mind and positive transaction costs for organization and economic behavior. Both Leibenstein and Simon challenge the view that firm's will produce optimally in the typical real world market economy.

The more elaborate and nuanced concept of organizational capital presented here, embedded in the model of the Human Firm, is applied to explain the behavior of firms in market economies and to suggest correctives for firm behavior which would otherwise yields socio-economic failure. In this light, Tomer raises and addresses many important theoretical and public policy related issues in this well-organized and integrated book. In this sense he also provides opportunities for further research with regards to what remains unresolved in the Human Firm.

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