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Home arrow Management arrow Strategic Management in the 21st Century. The Operational Environment


If there is a theme in this chapter, it is that government involvement in the economy only serves to lessen confidence and the degree of certainty that one can have about the success of business outcomes. The admonition is that managers have to be on top of things increasingly in order to avoid pitfalls and missteps. In a competitive market economy, success is achieved by keeping ahead of your competition. Sure, one can be blindsided by an unforeseen entrepreneur building the proverbial "better mousetrap." But the main focus is on providing customers with better products and service than one's competitors. Adding government to the mix changes the focus of the manager as well as the modus operandi. The goals associated with maximizing wealth are largely unchanged, but the methods of doing so may be profoundly changed. Managers face options: do they concentrate on outperforming their competition in the marketplace or do they try to outmaneuver them in the halls of government? And, as we have seen, they have to be aware of the risk that the government will be a fickle master/servant or that the old benefits from alliances with government will be rendered moot by advances in technology and/or consumer consciousness.


In his farewell address to the nation on January 17, 1961, President Eisenhower foresaw the dangers we are facing. The speech is most famous for its warning about allowing the "military-industrial complex" to acquire too much influence in the halls of government. I leave you with another excerpt from the address, but invite you to read the speech in its entirety.

. . . Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers. The prospect of domination of the nation's scholars by Federal employment, project allocations, and the power of money is ever present—and is gravely to be regarded.

Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite.26


1 . The test of any theory is whether it works in the "real world." If a theory doesn't add to our understanding of how things work, it is simply a bad theory that either needs fixing or discarding. Ultimately any prediction must be based on something—and that something is, by definition, a theory. So, while the old saw about theories and the "real world" sounds nice, in reality it is just a red herring.

2 . Friedrich von Hayek, "The Use of Knowledge in Society," American Economic Review, 35, No. 4. (1945): pp. 519-30. American Economic Association. Available at

Hayek used his knowledge categories to buttress his thesis that central economic planning and socialism cannot work because it would be impossible for a central planner to possess the requisite specific knowledge of time and place to make good decisions. More recently, professors William Meckling (late; of the University of Rochester) and Michael Jensen (emeritus at Harvard) extended Hayek's knowledge taxonomy to apply to business leadership and the various managerial roles within an organization. So, while Hayek's original purpose was to discuss macroeconomic policy, Jensen and Meckling have taken the same ideas and applied them to the microeconomic levels of organizational management.

3 . Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916 (London: The Free Press of Glencoe, 1963), 4.

4 . This and subsequent timeline information were taken from the U.S. v. Microsoft: Timeline at (accessed February 19, 2011).

5. Benjamin Klein, "An Economic Analysis of Microsoft's Conduct," Antitrust (Fall 1999): 38^7.

6. (accessed February 19, 2011).

7. (accessed February 19, 2011).

8 . 2000 (accessed February 19, 2011).

9. icrosoft+Corp&id= (accessed February 19, 2011).

10. For a complete history and evaluation of the Interstate Commerce Commission, see George W. Hilton, "The Consistency of the Interstate Commerce Act," Journal of Law and Economics, 9 (October 1966): 87-113.

11. The actual text of the Wright Amendment used to be posted on the Southwest Airlines Website but has apparently been taken off following Southwest's current detente with DFW and American Airlines and the passage of the Wright Amendment Reform Act of 2006. The full text of the 2006 act is available at and a discussion of the original and reform bills is available at gov/UploadedFiles/LB_092906_suspensions.pdf starting on page 3 (both Websites accessed on February 19, 2011).

12. (accessed February 19, 2011).

13 . Harold L. Cole and Lee E. Ohanion, "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis," Journal of Political Economy, 112, No. 4 (August 2004): 779-816.

14. (accessed February 20, 2011).

15. Ibid.

16. Economist Lee Ohanian explains how the fundamentals of the economy were still robust in a video interview: (accessed February 20, 2011).

17. (accessed February 20, 2011). Italics added.

18. 133839730 (accessed February 20, 2011). Quote is reporter Arnold paraphrasing Mr. Barofsky's response. Barofsky later made this direct response: "This is a product of poor program design, of poor oversight by the Treasury Department, or poor execution of compliance. Treasury designed this program and its failings are its failings."

19 . (accessed February 20, 2011).

20. (accessed February 20, 2011).

21. U.S. CONST. art. I, § 8, cl. 8.

22. For a discussion of the history of copyright and patent legislation, debate, and case law, see Tyler T. Ochoa "Patent and copyright term extension and the Constitution : a historical perspective," Journal of the Copyright Society of the U.S.A., 49 (2001): 19-125. Also available at (accessed February 18, 2011).

23. Blog entry 8:21 AM Fri (February 25, 2010) (accessed February 27, 2011).

24 . The founding fathers of the United States recognized this when they attempted to craft a constitution for the government that restrained the scope and application of force and violence. The Bill of Rights would otherwise be unnecessary.

25. (accessed February 19, 2011).

26. Dwight D. Eisenhower, "Farwell Address," January 17, 1961. Audio and text available at howerfarewell.html (accessed February 27, 2011).

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