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Not only large organizations but also small institutions would certainly break down if clear lines of authority did not exist. On the other hand, if abused, power can be corrupt power holder. For example, power can be used for individual benefit, an inflated sense of self-worth or devaluation of others.

I am a bit of confused as regards using on the other hand. Does it mean conversely, in contrast, by contrast, etc. or in addition, moreover, furthermore, etc. or both of them? Given sample sentence according to using on the other hand, I would rather I opted for the latter instead of the former, semantically. Am I right?

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"On the other hand" is used as a form of contrasting two different issues or two different benefits. "This option is good but the other option is also good," or "This option is bad but the other option is also bad." It gives no preference to either option; that is entirely determined by what the options are.

If we leave for vacation today, we can meet up with my brother. On the other hand, if we leave tomorrow, we can avoid all the traffic.

^Here, we contrast two different benefits.

Going on the south trail means we'll get rained on. On the other hand, we don't have the ropes to safely make it up the north trail.

^Here, we contrast two different detriments.

It can also be used to examine a cost and a benefit of a given choice.

This compact car can fit in so many different parking spots. On the other hand, I can barely fit a week's groceries in it.

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Given sample sentence according to using on the other hand, I would rather I opted for the latter instead of the former, semantically. Am I right?

No. "On the other hand" simply means that the decision has weights in both directions. In this case, the sentence is arguing for a balanced approach - not concentrating too much power in the hands of too few while keeping the chain of command tight enough to avoid chaos.

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Your first supposition is right—it's used to introduce something in contrast to something previously mentioned.

From Merriam-Webster's definition of the full idiom on the one hand, on the other hand:

—used to introduce statements that describe two different or opposite ideas, people, etc.
// On the one hand, I think the price is fair, but on the other (hand), I really can't afford to spend that much money.
// He's a good guy. His brother, on the other hand, is a very selfish man.

As in the examples, on the other hand can be used without first using on the one hand.


In the passage that was quoted, this essential use (in terms of the question) can be seen if it's paraphrased:

On the one hand authority is needed to keep institutions running, but on the other hand, authority can be abused.

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