Lars Östman towards a general theory of financial control

Structure and control systems 

 

The overall economic structure contains many types of organisations: Pay-driven companies 

are growing with potential buyers´ purchasing power as a driving force and they have a 

world-wide impact on product markets and labour markets. National and local companies are 

pay-driven. Function-driven organisations are funded by taxes, primarily within national 

borders. Constellations of pay-driven and function-driven units are common, as well as many 

variants of relations from operational or financial points of view, for both private and public 

activities. Function-driven non-profit units, for example within popular movements, work 

within areas that other organisations do not deal with.   

The basic logic behind pay-driven units is the search for horizontal functions that could be 

satisfied for those who have the capacity and willingness to pay. Big business groups are 

almost borderless. Their preconditions and modes of operation make such an extension a 

natural consequence of powerful ambitions. Many people are concerned, as workers, users of 

output or savers. Only rather rarely are function-driven units borderless. Often their 

existence is based on the fact that certain defined groups should be served or satisfied, for 

example citizens of a nation or a municipality or the members of a non-profit association. 

The horizontal flows of many function-driven units are contingent on continuous 

decisions by allocating units. This is the case for tax-financed activities. In turn, however, 

allotments to them and their financial capacity are conditioned by the development of pay-

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driven activities in several ways. Not only is funding affected by private income generation. 

Also, pay-driven units normally have better opportunities for selection and improving 

productivity in some real sense. For this reason alone, costs of output tend to increase 

continuously in many function-driven operations.  

Nowadays, a substantial number of organisations are, directly or indirectly, occupied with 

financial allocation systems such as financial markets and tax systems. A large proportion of 

actors in emerging structures and control systems have weaker contacts than before with 

low-level, non-financial horizontal flows. In large organisations, relatively unconditioned 

decentralisation is not common. At the same time, there are obvious difficulties in 

organizing powerful subjects at really high, super-national levels where global problems can 

be addressed. Intermediate levels have grown – larger and larger groups of people and 

organisations that are specialised in administrative, financial, communicative and controlling 

techniques. These have been regarded as extremely important, there have been great 

ambitions to create incentive systems to direct and reinforce their work on a local and time-

bound basis. Traditional control subjects have lost some of their weight, both group 

executives and national leaders. Power has moved upwards – to the representatives of 

owners and super-national bodies, respectively.  

Those who represent

 

an organisation at the top are often professionals or politicians who 

are at distance from most substantial horizontal flows.  Top-level representatives have their 

mandates from unorganised individuals who are at an even greater distance from activities 

tending to disregard the relationships between their various, conflicting interests.  Parties 

may spatially and mentally be far from each other, but ultimately they are mutually 

dependent. Thus, top-level representatives have some interaction with large groups of 

anonymous individuals: voters, consumers or investors. For many pay-driven organisations, 

interaction is strong between vertical principals and customer groups that have purchasing 

power. These organisations aim at target groups with such power and they adjust products 

and costs accordingly: for what and how much do they believe customers are willing to pay? 

Functions-driven organisations should serve some specific group, for example citizens of a 

nation. Often this does not prevent them from defining target groups within that frame, even 

if it has no substantial effect on payments. In part, needs are humanitarian. Output must be 

modified with regard to allotted funds, which develop in their own way.