1 THE NONMARKET ENVIRONMENT OF MANAGEMENT Introduction

2 1 To be successful, your organizations must be efficient in production and responsive to consumer demand. You must anticipate and adapt to change, develop new products and services. You must acquire assets and liabilities efficiently and husband them prudently. Effective management in the market environment is a necessary but not a SUFFICIENT condition for success.

3 2 Success also depends upon the social, political, and legal arrangements that organize interactions outside of, but in conjunction with, markets. This is the Non-Market environment of the organization

4 3 Managers are responsible for the formulation and execution of nonmarket as well as market strategies. This means that you need frameworks for analyzing nonmarket issues, principles for reasoning about them, and methods for formulating strategies to address them.

5 4 Conceptual frameworks include the NONMARKET ISSUE CYCLE, the ISSUE FRAMEWORK outlined in chapter 2 of your text, and the ETHICAL FRAMEWORKS we will discuss the last month of the term.

6 5 The first part of this course will deal with playing the game in both domestic and transnational arenas. This is the political aspect of the course. The second will deal with changing the game. This is the ethical aspect of the course. Or, if you prefer, the positive and the normative aspects.

7 6 Baron, the author of your text, notes that the core discipline underlying this course is political science. That is true, but as you will discover, positive political science looks a lot like economics

8 7 Here I would like to talk about 2 of the 4 Is. INSTITUTIONS and INTERESTS (what are the other 2?)

9 8 We can talk about Institutions three ways: FunctionFunction StructureStructure ProcessProcess

10 9 Structure Government/Nongovernment Level of Government –Subnational –National –Transnational Branch of Government –Legislatures –Regulatory and Administrative Agencies –Judiciaries

11 10 Functions –Spending –Taxing –Regulating Processes – –Decision-Making Processes Voting ProceduresVoting Procedures Adversarial Due ProcessAdversarial Due Process Administrative Due ProcessAdministrative Due Process Administrative DiscretionAdministrative Discretion

12 11 Effects of Government Function are PERVASIVEEffects of Government Function are PERVASIVE EVERY ACTION of GOVERNMENT affects the LEVEL and DISTRIBUTION of WEALTH in SOCIETYEVERY ACTION of GOVERNMENT affects the LEVEL and DISTRIBUTION of WEALTH in SOCIETY POLITICAL PARTICIPATION is driven primarily by SELF INTERESTPOLITICAL PARTICIPATION is driven primarily by SELF INTEREST SELF INTEREST is driven primarily by DISTRIBUTIONAL concernsSELF INTEREST is driven primarily by DISTRIBUTIONAL concerns

13 12 Demand = w(&a)tpDemand = w(&a)tp Consumers’ Surplus = D-PConsumers’ Surplus = D-P Supply = w(&a)tsSupply = w(&a)ts Producers’ Surplus = P-SProducers’ Surplus = P-S TransferTransfer Deadweight lossDeadweight loss

14 13 Individuals have a lot of assets they can exchange for political influence Knowledge/InformationKnowledge/Information Organization/TimeOrganization/Time Personal relationshipsPersonal relationships MoneyMoney

15 14 Individuals often exchange political influence for other assets Money (bribery/extortion)

16 15 Government Affects the INTERESTS of FIRMS in two ways: SPECIFICALLYSPECIFICALLY by CHANGING their COMPETITIVE POSITIONby CHANGING their COMPETITIVE POSITION (the tax code specifies nominal incidence, supply and demand real incidence)