The Nature of Economics (4)


The Nature of Economics (4)
Why does not neoclassical economics seriously analyze the firm? There are a few related reasons.
First, as mentioned before, human behavior in the firm is different from that in the market. Individualism cannot be supported in the firm. Although one of the implicit ideological goals of neoclassical economics is to spread this Western ideology around the world, a fuller analysis of the firm would make it impossible because individualism can be supported loosely only in organized markets.
A second reason is that human behavior in the firm is not simple. It cannot be described by a simple principle of price mechanism with pursuit of self-interest. In fact, a raison d'être of the firm is for the employees to refrain from pursuit of self-interest to some extent in order to have cooperation among employees. Thus analyzing both market and firm seriously would make the theory complex. Neoclassical economics avoids this difficulty by focusing only on the market. However simplicity is not sufficient for scientific excellency.
One may say the discipline of management or business administration analyzes the organization. But this division of labor has a serious problem because different disciplines may produce different proposals. For example, economics may advocate low job security and management high job security. Thus we need to analyze by all means both market and firm simultaneously. This is similar to the case where one maximizes the sum of two functions. Maximizing the two separately is not proper to produce the right answer.
A third reason is that efficient human relations and institutions for the firm are likely to differ across cultures. For instance, while highly cooperative human relations are efficient in some countries, less cooperative human relations are efficient in others. This point is inconvenient to those who want to spread Western values such as individualism to the world using economics.
Therefore, we can infer that serious analyses of the firm have been ideologically and strategically avoided in neoclassical economics. Economics is an ideology.

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