Albert O. Hirschman

There can be no doubt that competition is one major mechanism of recuperation.

Coffee is incompatible with anarchy.

he likes surplus but is fearful of paying its price.

The economist cannot fail to note the similarity of the situation with the model of perfect competition. For this model contains the same basic paradox: society as a whole produces a comfortable and perhaps steadily increasing surplus, but every individual firm considered in isolation is barely getting by, so that a single false step will be its undoing. As a result, everyone is constantly made to perform at the top of his form and society as a whole is operating on its—forever expanding—“production frontier,” with economically useful resources fully occupied. This image of a relentlessly taut economy has held a privileged place in economic analysis, even when perfect competition was recognized as a purely theoretical construct with little reality-content.

Leibenstein’s emphasis is on the uncertainties surrounding the production function and on the nonmarketability of managerial and other skills.

In the first place, there are the well-known, large realms of monopoly, oligopoly, and monopolistic competition: deterioration in performance of firms operating in that part of the economy could result in more or less permanent pockets of inefficiency and neglect; it must obviously be viewed with an alarm approaching that of the political scientist who sees his polity’s integrity being threatened by strife, corruption, or boredom.

The deterioration in performance is reflected most typically and generally, that is, for both firms and other organizations, in an absolute or comparative deterioration of the quality of the product or service provided.1 Management then finds out about its failings via two alternative routes:

The wide latitude human societies have for deterioration is the inevitable counterpart of man’s increasing productivity and control over his environment.