Key Takeaways
- Societies face rising unrest and malaise due to slowing growth, rapid technological change, and significant structural shifts.
- Organizational economics is crucial for understanding how firm and government structures influence policy effectiveness and economic outcomes.
- Demographic changes, particularly an aging population, necessitate workplace adaptations, including rethinking HR policies and fostering diverse workforces.
- The successful integration of Artificial Intelligence (AI) hinges on complementary organizational changes, not just the technology itself.
- Applying organizational economics to public administration can reveal bottlenecks in bureaucracies and improve policy implementation.
Navigating Societal Shifts: The Role of Organizational Economics
In a landscape marked by decelerating growth and swift technological advancements, societies are experiencing heightened unrest and social malaise, with populism gaining traction. Significant structural transformations across technological, demographic, and geopolitical spheres are on the horizon, underscoring the critical need for improved policy and institutional design to navigate these changes effectively.
The efficacy of any policy, including its distributional consequences, is intrinsically linked to how businesses respond (Azmat et al. 2024). Furthermore, the successful implementation and impact of policies are dependent on the organizational structures orchestrating them, particularly government bureaucracies and their inherent incentive systems. Organizational economics offers a framework to analyze these mechanisms, examining how organizational structures and incentives shape individual and collective behavior, and consequently, economic outcomes (Gibbons and Roberts 2013).
Expert Insights on Policy and Productivity
Reflecting this perspective, a recent panel discussion at the Organisational Economics workshop at Bocconi (the IMO ESF Conference) brought together three leading European economists actively involved in policy design. The distinguished panellists included Clémence Lenoir, macroeconomic and public policy advisor to the French President; Juan Francisco Jimeno, Chair of the Spanish Productivity Board; and Monika Schnitzer, Head of the German Council of Economic Advisors. They shared insights into the most pressing challenges confronting their respective governments and explored how organizational economics can illuminate the impact of structural forces and inform the design of policies aimed at fostering productivity and growth.
Adapting the Workplace to Europe’s Aging Population
The panellists identified demographic change as one of the most significant challenges facing European governments. For instance, an increasing ratio of older to younger workers can diminish career prospects for the youth, reduce labor mobility, and consequently hinder human capital accumulation, innovation incentives, and overall productivity. However, they emphasized that the actual impact is contingent upon organizational adaptation. This places considerable demands on HR departments to revise their strategies within existing regulatory frameworks. Key considerations include determining optimal worker retention periods, when to offer early retirement, how to adjust recruitment and non-monetary benefits (such as remote work policies) amidst competition for younger talent, fostering collaboration within diverse workforces, and integrating AI into these various HR functions.
Productivity outcomes are critically influenced by the organizational choices firms make regarding task allocation, promotion and decision-making systems, team design, and knowledge transfer mechanisms. Immigration is often considered a solution to demographic decline, but its effectiveness is also tied to firm-level organizational practices. Successfully integrating foreign workers requires managerial strategies that acknowledge and address heterogeneity in culture, norms, and communication. Success hinges on the adeptness of firms in designing contracts, monitoring systems, and cultural integration initiatives.
💡 Consequently, governments formulating policies on retirement, retraining, immigration, and labor regulations can enhance their effectiveness by explicitly incorporating firms’ anticipated responses and needs. This necessitates further theoretical and empirical research from academia to better understand and assess how organizations can optimally address these evolving challenges.
The Productivity Paradox: Optimizing AI Through Organizational Design
All three panellists underscored the transformative potential of Artificial Intelligence (AI). While AI’s capabilities are undeniable, its adoption has been gradual, leading to uneven productivity gains. From an organizational economics standpoint, this scenario is not surprising: technology alone does not automatically translate into increased productivity. It requires complementary shifts in organizational structure, incentive systems, managerial practices, and strategic decision-making to effectively manage the transformation (Milgrom and Roberts 1990, Bresnahan et al. 2002).
The panellists highlighted that AI adoption necessitates a clear strategy, both at the institutional level and within individual organizations. The risk of a fragmented development exists, potentially leading to a lack of synergies, duplicated efforts, the absence of general-purpose tools and practices, and, significantly, detrimental technological developments that could be neutral or even counterproductive to societal productivity. Examples include attention-grabbing applications (like social media, widely suspected of reducing productivity and cognitive abilities in children) or algorithms designed for rent extraction that redistribute existing wealth without fostering efficiency gains.
📍 Organizational barriers to AI adoption—such as coordination friction, misaligned incentives, and limited managerial capacity—emphasize the need to connect technological advancement with organizational design and decision-making processes. AI also reshapes the demand for managerial skills, elevating the value of adaptive, technology-complementary capabilities while diminishing the need for routine management tasks. The panellists observed that these challenges are particularly pronounced for Small and Medium-sized Enterprises (SMEs), where managerial expertise and access to business education may be constrained. This intersects with demographic challenges, as older management cohorts might face adjustment difficulties, directly impacting growth potential (Garicano 2025).
✅ Regulations and initiatives that acknowledge these dynamics are more likely to support effective AI adoption and facilitate a swifter economic transition. This is crucial for governments, employer associations, unions negotiating agreements and contracts, and for the development of upskilling and training programs.
The State as an Organization: Enhancing Bureaucratic Efficiency
Even when there is widespread agreement on necessary reforms, their implementation often lags. The Draghi Report (2024) on Europe’s productivity challenge exemplifies this gap: despite broad consensus on issues and required actions, implementation proceeds slowly. Organizational economics offers explanations for this phenomenon: bureaucracies are complex organizations whose performance is influenced by internal incentives, information flows, and inter-unit coordination (Olken 2007, Finan et al. 2017). Bottlenecks frequently arise from misaligned incentives, hierarchical impediments, and inadequate mechanisms for processing and acting upon information.
⚡ Consequently, policy effectiveness is as much a function of legislative ambition as it is of organizational design within the state apparatus. The panellists from various countries agreed on a perceived lack of both theory and empirical evidence regarding the most effective ways to reform European decision-making and implementation bodies to enhance agility.
Expert Summary
The insights from the expert panel consistently highlighted that organizational structures and managerial decisions play a pivotal role in shaping the outcomes of policies related to demographics, AI adoption, and governmental implementation. Addressing current and future societal challenges requires a deeper integration of organizational economics principles into policy design and academic research.