The Iron Law of Institutions is: the people who control institutions care first and foremost about their power within the institution rather than the power of the institution itself. Thus, they would rather the institution "fail" while they remain in power within the institution than for the institution to "succeed" if that requires them to lose power within the institution.Broadly comports with my life experience. Some discussion here.
This is true for all human institutions, from elementary schools up to the United States of America. If history shows anything, it's that this cannot be changed. What can be done, sometimes, is to force the people running institutions to align their own interests with those of the institution itself and its members.
An earlier and somewhat more rigorously defined and argued variation is the Iron Law of Oligarchy by Robert Michels.
The iron law of oligarchy is a political theory, first developed by the German sociologist Robert Michels in his 1911 book, Political Parties. It asserts that rule by an elite, or oligarchy, is inevitable as an "iron law" within any democratic organization as part of the "tactical and technical necessities" of organization.It has long been a staple of observation in economics that unconstrained markets always tend towards oligopoly or monopoly.
Michels's theory states that all complex organizations, regardless of how democratic they are when started, eventually develop into oligarchies. Michels observed that since no sufficiently large and complex organization can function purely as a direct democracy, power within an organization will always get delegated to individuals within that group, elected or otherwise.
Using anecdotes from political parties and trade unions struggling to operate democratically to build his argument in 1911, Michels addressed the application of this law to representative democracy, and stated: "Who says organization, says oligarchy." He went on to state that "Historical evolution mocks all the prophylactic measures that have been adopted for the prevention of oligarchy."
According to Michels all organizations eventually come to be run by a "leadership class", who often function as paid administrators, executives, spokespersons or political strategists for the organization. Far from being "servants of the masses", Michels argues this "leadership class," rather than the organization's membership, will inevitably grow to dominate the organization's power structures. By controlling who has access to information, those in power can centralize their power successfully, often with little accountability, due to the apathy, indifference and non-participation most rank-and-file members have in relation to their organization's decision-making processes. Michels argues that democratic attempts to hold leadership positions accountable are prone to fail, since with power comes the ability to reward loyalty, the ability to control information about the organization, and the ability to control what procedures the organization follows when making decisions. All of these mechanisms can be used to strongly influence the outcome of any decisions made 'democratically' by members.
I think it is worth linking the idea of Iron Law of Oligarchies to the economic S-curve which describes business and economic life-cycles.
When you launch something, a new product, a new factory, a new career, a new policy, there is a predictable s-curve.
Starting in the bottom left is hard, expensive, risky, and initially unrewarding. Efficiency and effectiveness are both important measures, but the dominant measure is effectiveness. Are you providing a thing which people want and are willing to electively pay for? If whatever you are pushing catches on, then you have rapid growth (the rising curve). That growth is typically accompanied by rapidly expanding net revenues or valuation or both. This is the sweet zone.
At some point though, the easy money attracts in competitors. They crowd the market with substitutes or cheaper look-a-likes. At the top right of the S-curve, competition is brutal and you are competing primarily on efficiency. You know what needs to be provided for effectiveness. Now you are figuring out how to provide it at the cheapest price possible.
There are only four ways of avoiding the commodity competition dilemma at the top of the S-curve.
1) Be the commandingly lowest cost producer.
2) Establish through patents or otherwise some defensible intellectual property which precludes competitors from competing directly.
3) Build a brand that segments the price competition of the commodity market from a branded premium market.
4) Establish a guild, oligopoly or monopoly which shields producers from the brutality of bare knuckle competition.
There is actually a fifth way of avoiding commodity competition. Disrupt the market in order to establish a new S-curve.
Most producers prefer the oligopoly solution. Sure, it stifles innovation, it raises prices for consumers, and it corrupts the political system. But it is a lot easier than unbridled competition. Besides, regulators and politicians are a lot cheaper than competition. If you can get away with it.
Down at the bottom left, there is a premium placed on understanding the market and the consumers. Build a better mouse-trap and all that. You compete on better meeting the needs and expectations of the consumer (effectiveness). In the top right, you are competing on price and therefor you focus on efficiency.
Bottom left is the Zone of Innovation. Top right is the Iron Law of Oligopoly. Bottom left is the zone for freedom and personal striving. Top right is the zone for compliance and coercion.
Freddie de Boer had an essay that touched on similar topics.
What explains limited competition in city politics, in mature industries, in national politics (the establishment parties representing an oligarchy against the wishes of the citizenry), etc.? The Iron Law of Oligarchy which spawns the Iron Law of Institutions.
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