Abstract
When analyzing the reasons for an economy's deficient performance, economists usually point to economic factors, especially to the insufficiency of economic incentives. In contrast, this article argues that in some important situations it is the social influences on firms that cause the problem. Conventional may be a root cause behind some economic difficulties, but a socio-economic of the firm seems to be a root cause of U.S. firms' to adapt their management to important new realities and mortgage redlining in urban areas. Thus, the purpose of this article is to develop the hypothesis of socio-economic in relation to the firm and apply it to the case of organizational and redlining. To understand the socio-economic of the firm, it is necessary to develop a view of the firm as a social as well as an economic entity. That is, it is necessary to view the firm as part of a that is embedded or encapsulated in its society. From this perspective, one can gain an appreciation of how the social forces acting on the firm can be very powerful both in contributing to desirable and undesirable outcomes. This article focuses on the latter, the situations. Section one of the article focuses on the concept of as orthodox economists use the term and defines a new type of known as development failure. Section two defines and explains the concept of the socio-economic of the firm. This concept follows from the idea that the economy and thus its firms are partially embedded in the society. Section three defines the concept of organizational and shows how it is a type of socio-economic of the firm. Organizational is viewed as a situation where organizational learning fails to take place. Section four develops in detail the hypothesis that U.S. management has not adapted to the new competitive realities of the 1970s and 1980s. The social forces holding back the needed organizational innovation, in spite of sufficient incentives, are the essence of the hypothesized socio-economic of the firm. In section five, the mortgage redlining example is analyzed. Market Failure The Orthodox View The term, market failure, as used by many orthodox economists, is a microeconomic phenomenon that causes less than optimal allocative efficiency. It is something that interferes with the optimal resource allocation that would be expected from the independent maximizing behavior of agents in a static context. Among the reasons for such failures are 1) the imperfect flow of information, 2) transactions costs, 3) the nonexistence of markets for some goods, 4) power, 5) externalities, and 6) public goods (Stokey and Zeckhauser 1978, pp. 297ff). The term market failure is increasingly being used more broadly as a rationale for government intervention in the economy in situations where the does not perform up to society's objectives. In this vein, the of the by itself to achieve a satisfactory distribution of welfare and the to maintain full employment of resources are well recognized by economists. The list of types of is apparently still growing (as illustration, see Baumol and Blinder's list, 1988, chapter 29). Development Failure Datta-Chaudhuri (1990) has used the term market failure in connection with an economy's to achieve its potential rate of development. For example, this research indicates the India and the Philippines grew much slower than South Korea because the former countries' institutions (their soft infrastructure) inhibited certain types of private sector learning and adjustment necessary for more rapid development. South Korea, on the other hand, with considerable assistance from its government did a better job of creating the institutional forms and environment necessary for rapid industrial learning. …
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