Austrian School for Managers – some implications of scarcity

28 de October de 2009 at 12:03 pm | Posted in escola austríaca | Leave a comment

We have seen from the praxeological analysis of Rothbard that scarcity is a necessary condition for action, or, in other words, a general condition of action, meaning that without scarcity there is no room for economization. This fact also leads to a conclusion intuitively known by our grandparents: don’t spoil the children. It means when there is such abundance of a determinate good that people no longer consider it as a valuable resource, the behavior regarding these “non-valuable goods” will obviously become non-economic (since there is no reason for economization to take place).

 

We often observe  people wasting paper, paper clips, plastic cups, markers, pencils and all sort of office materials at workplaces. A secretary may believe, considering the amount of stocks encountered at hand, that there might be an endless supply of paper clips, spontaneously growing on her desk. But as economists often say, there is no free lunch, and even a paper clip has its costs. Someone is paying for it, as for all other resources used in a functioning firm. This example might be small; but huge amounts of precious resources are wasted day by day worldwide, causing unnecessary allocation of means, means that otherwise could have found a better and more efficient use.

 

The Japaneses are probably the most quoted example of efficient usage of resources. And two of the tools developed by them can be directly explained by the praxeological implications of scarcity and abundance – Just in Time and the 5S. Both methods rely on the idea that waste must be avoided and that less is more, leading to more rational an efficent use of availabe means. If stocks are cut to the level that is actually required by production, one might perceive huge gains in the outcome. Why is that so? I believe one of the possible explanation is the praxeology behind it – under abundance, the rational thing to do is not to economize. Instead, under constraints, the rational thing is to set up a scale of preferences, to economize: find the best use for the mean, and do it in the best known way.

 

But this is only one minor example of how praxeology can be used by managers in organizing the allocation of resources at the workplace. Praxeology may be applied for all areas of business. If we take contracts, for instance, we can perceive that people tend to act in a non-economical way regarding services such as electricity, internet, water and telephony supply. If quotas of these services are not offered at different prices, two different courses of actions by consumers is usually noticed, both with negative implications for a efficient allocation: or consumers pay for a service they are not even using, or they overuse it since there is no perceived cost for doing so. The result, nevertheless, is always a waste of resources.

 

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