Cultural Evolution of the Firm

Weeks, J. and Galunic, Ch. . A Theory of the Cultural Evolution of the Firm: The Intra-Organizational Ecology of Memes . Organization Studies 24(8): 1309-1352 Copyright 2003 SAGE Publications London, Thousand Oaks, CA & New Delhi) . 0170-8406[200310]24:8;1309-1352;036074 . 2013

A theory of the cultural evolution of the firm is proposed. Evolutionary and cultural thinking is applied to the questions: What are firms and why do they exist? It is argued that firms are best thought of as cultures, as ‘social distributions of modes of thought and forms of externalization’. This culture encompasses cultural modes of thought (ideas, beliefs, assumption, values, interpretative schema, and know-how). Members of a group enact the memes they have acquired as part of the culture. Memes spread from mind to mind as they are enacted; the resulting cultural patterns are observed and interpreted by others. This refers to the meeting of content and process: as memes are enacted the ‘physical’ topology of the culture changes and as a consequence the context for the decisions of other changes. Variation in memes occurs through interpretation during communication and the re-interpretation in different contexts. The approach of taking the meme’s eye view allows a descriptive and non-normative theory of firms.

Introduction

Firm theory: Why do we have firms? (and to what extent do they have us?). Firms have a cultural influence on people and that is why it is difficult to answer the question of why firms exist: we believe we need them because we were schooled in believing that. ‘They serve our purposes because they have a hand in defining those purposes and evaluating their achievement’ (p 1309). Assuming this is true then a functionalist approach, treating firms as if they are people’s tools, doesn’t help to understand why firms function as they do. It is not sufficient to start at a normative model and explain away the rest as noise as is the common practice with firm theorists; as a start they assume that firms should exist (for instance because of a supposed performance advantage over market forms of coordination) and that these theoretical advantages would pan out in practice. It is argued that a truly descriptive theory of the firm takes seriously the idea that firms are fundamentally cultural in nature and that culture evolves.

Existing theories of the firm

1) Transaction cost economics (Coase, Williamson): individuals will organize in a firm rather than contract in a market because firms are efficient contractual instruments; this organization economizes transaction costs. A contender is knowledge based firm theory (Conner and Prahalad, Kogut and Zander, Grant) positing that firms are better than markets at applying and integrating knowledge to business activity. These theories are complementary in the sense that they share the idea that business organizations exist because they offer some economic advantage to members. This theory makes a further attempt at enhancing purely economic theories of the firm. This theory reaches beyond the idea of a firm as a knowledge bearing entity to a culture bearing entity, where culture is a much wider concept of ideas than mere knowledge. In addition it is required to understand that some elements will enhance the organization’s performance and further the interests of its members and other will not. The theory must explain both. In addition the theory must explain how a firm functionally evolves if it is not towards an optimum in a best of possible worlds while aberrations are minimalized.

Defining Characteristics of the Firm

In transaction cost economics, the difference between a market and a firm is defined by authority (Coase). If B is hired by A to reduce the transaction cost of the market, then A controls the performance of B and hierarchy is introduced, whereas in a market A and B are autonomous: hierarchies and markets differ in how they exert control. The word ‘firm’ denotes the name under which the business of a commercial house is transacted, its symbol of identity (Oxford English Dictionary). It came to refer to a partnership for carrying on a business and then expanded to a broad definition of any sort of business organization. Hierarchy is common in business organizations, but it is not the defining attribute. The defining difference between market and firm is not only control but also identity; this is a key insight of the knowledge based view (Kogut and Zander 1992). People express this identity in their shared culture (Kogut and Zander 1996); the identity reflects participation in a shared culture. The knowledge based view claims that it is this shared culture that affords firms their lower transaction costs compared to the market. However, culture is left exogenous in the knowledge-based theory and in the transaction-based theory; culture is presupposed in both.

Assumptions

Bounded rationality: only if people are fully rational is the neo-classical assumption of rationality justified. In that case the organizational advantage over markets is limited and this assumption of transaction-based economics is invalid. If agents are unable to construct contracts with one another as autonomous agents is it valid. Similarly if no threat of opportunism exists and everybody is fully trustworthy (and known to be so) then organizations bring no additional advantage over the markets, market operations and firm operations imply the same transaction costs. Because this element is of a weak form (it suffices if some agents are unreliable), this is a realistic assumption. The third assumption is the functionalism: not only should transaction cost be economized, but given time and sufficient competitive forces (Williamson and Ouchi 1981: 363-364: 10 years). However, for the transaction cost theory to be descriptive, it needs an explanation of the identification and realization of the efficiency of the economies of the costs of transactions; how do economic agents know the origins, the effects of the cost and how do they know how to economize on them? This requires strong assumptions of neo-classical competition and human rationality. The knowledge-based firm theory is also functional and it is assumed that: 1) the interests of the individual and the enterprise are aligned and 2) individuals can and will always identify the relation between performance and business organization and market respectively when deciding whether to establish a firm or definitely be selected out in time. Firms are theorized to do better than markets is to share and transfer knowledge between members of the organization, individuals and groups, because of the shared identity. This shared identity is built through culture and this takes time; not only does it allow capturing of specific knowledge, also it limits the kind of future knowledge can be further captured and exploited.

An evolutionary model is more suitable: firms evolve as cultures and this need not be functional from the point of view of the organization as a whole. Cultural patterns do not necessarily arise among a social group because they benefit the members of the group equally: power may result in the benefiting of some members more than others, some elements of organizations even though carefully managed do not benefit every member equally and some elements seem not to benefit or disadvantage anyone. Culture seems to be an emergent phenomenon and even organizations that were created for specific purposes tend not to dissolve after having met them, but rather tend to adapt their goals for new purposes unforeseen by their founders.

Intra-organizational Perspective

Individuals learn more about organizations if they are more and longer involved with them, but they are likely to not learn all of it and seldom to accept all that is learned. This is called ‘population thinking’ (Ernst Mayer): every member of the organization has an interpretation resulting in a scatter of cultural elements that they carry and reproduce in a slightly different way. The scatter results in a center of gravity (or a contour) of the prototypical culture of the firm. The interpretation of the culture by each member is a variation to that prototype. None of them might be exactly the same but they have what Wittgenstein calls the ‘family resemblance’: ’They share enough of the beliefs and values and meanings and language to be recognized and to recognize themselves as part of the culture’ (p 1316) NB: this prototype resembles the organization of the autopoietic system that keeps it intact as a unity and that gives it its identity such as to allow it to be recognized by an observer. The entire scatter of cultural elements that builds the firms culture is the structure. Those elements that are dispensable are structure, those that are not are also part of the organization of the autopoietic system that is the firms culture. Complications: 1) how is the social distribution formed and how does it change over time? A theory is needed for the ecology of the cultural elements as well as how they change as they spread over the organization and how a flow of new cultural elements enter the firm and has an impact on existing culture 2) How do the careers of cultural elements develop over time. Memes refer to cultural modes of thought values, beliefs, assumptions, know-how &c. ‘Culture results from the expression of memes, their enactment in patterns of behavior and language and so forth’ (p 1317). Studying evolution of culture it is important to keep in mind that memes have a meanings in the context of other memes.

A firm theory based on knowledge-based firm theory must take into account not only knowledge but culture; it must be evolutionary so as to account for the firms’ changes over time, while a ‘use’ or a ‘purpose’ for some or all of the members of the population is not required for the change to take place.

Memes: The Unit of Cultural Selection

What this means is that the overall, intricate patterns of culture that we call firms are not the best understood as the result of the conscious and coherent designs of astonishing organizational leaders. Instead, for better or for worse, they emerge step-by-step out of the interactions of intendedly rational people making what sense they can of their various situations, pursuing their various aims, and often acting in ways that they have difficulty explaining, even to themselves’ (p 1318)

The key to evolution in the sense of an algorithm providing selection, variation and retention is that it postulates a population of replicators but it does not make assumptions about what those can be. Assuming that the environment stays the same, then every next generation will be slightly better adapted to that environment than the previous one. Competition is assumed for some scarce resource, be it food, air or human attention. Retention assumes the ability of a replicator to be copied accurately. ‘Firms and markets are cultural entities. They have evolved in the same way any part of culture evolves: though selection, variation and retention of memes. Memes are the replicators in cultural evolution. They are the modes of thought (ideas, assumptions, values, beliefs and know-how) that when they are enacted (as language and other forms of expression)create the macro-level patterns of culture. Memes are units of information stored in the brain that replicate from brain to brain as people observe and interpret their cultural expression. .. Memes are the genes of culture. Just as plants and animals and all biological organisms are the phenotypic expression of particular combinations of genes, so cultural patterns such as firms are the phenotypic expression of particular combinations of memes’ (p 1320)

Small Replicators

Genes are the replicators, not the organism. Organisms exist because they are a good way to replicate. Memes are the replicators, not people and not culture. But those memes that are part of firms replicate more than those who aren’t. ‘We have the firms that we do, in other words, not because they are necessarily good for society or good for their members (though often they are both), but fundamentally because they are good was for memes to replicate themselves’(p 1321). To study a firm in this sense is the equivalent of studying ecology: selection but not variation nor retention. Firms do not replicate themselves in toto; selection, however, is theorized as occurring to this object in its entirety. A unit of selection is required that is smaller than the firm as a whole.

Systemic Elements and Social Phenomena

First premise: memes are small and analytically divisible. Second premise: the environment where the selection of memes takes place principally includes other memes. The memes build on themselves and they do so according to the ‘bricoleur principle’ (Lévi-Strauss 1966: 17): building on making use of the materials at hand. Memes are recycled and recombined, informing and constraining the creation of new memes. Some are implicated more than others. NB: here the existence of culture is confused with the existence of memes. The latter are the tools for thought and culture is built of their enactment. And so memes are the experiments (anything that can be uttered) and culture is their expression in the physical world, even spoken, gestured & written (anything that is in fact uttered). ‘In firms, these fundamental memes are akin to what Schein ((1992) calls basic assumptions. They are deeply held assuumptions about the nature of reality and truth, about time aand space, and about the nature of human nature, human activity, and human relationships (Schein 1992: pp. 95-6). When these are widely shared in a culture, they tend to be taken for granted and therefore pass unnoticed. They structure the way firm members think of the mission and goals of the firm, its core competencies, and the way things are done in the firm. Often borrowed and reinterpreted from some part of the wider context in which the firm is located, they are central to the identity of the firm and the identity the firm affords its members. The concept of meme must be robust enough to include these taken-for-granted assumptions if it is to serve usefully as the unit of selection in a theory of the cultural evolution of the firm’ (p 1323). NB This does not explain clearly whence memes come. My premises is that the firm is a cultural pattern originating in the memes that stem from the commonly held beliefs in a society. Not that they merely structure goals and mission, but that they are the stuff of them. There is indeed a relation between the memes and the identity of the firm. There is no mention of the belief systems and more specifically belief in the idea of progress, ala capitalism &c.

Why Memes

Meme is the umbrella term for the category containing all cultural modes of thought. Memes are cultural modes of thought. The concept preserves the distinction between modes of thought and their forms of externalization: the memes in people’ s heads and the ways they talk and act and the artifacts they produce as a product of enacting those memes. ‘The firm is a product of memes in the way that the fruit fly is the product of genes’ (p 1324): a distinction is possible between particular elements of culture and the memes that correspond to them. ‘Memes, the unit of selection, are in the mind. Culture, on the other hand, is social. Culture reflects the enactment of memes. Culture is a social phenomenon that is produced and continuously reproduced through the words and actions of individuals as they selectively enact the memes in their mind. Culture may be embedded in objects or symbols, but it requires an interpreting mind to have meaning and to be enacted’ (p 1324)

With memes in Mind

Without human minds to enact it and interpret it, there is no culture: ‘Memes spread as they are replicated in the minds of people perceiving and interpreting the words and actions and artifacts (compare Hannerz 1992: 3-4; Sperber 1996: 25). They vary as they are enacted and reinterpreted’ (p 1324). A change in culture can be seen as a change in the social distribution of the memes among the members of the population carrying that culture. NB: the social distribution trick gets rid of the meme – culture difference. A change in memes produces different enactment in turn produces different culture resulting in different cultural products such as utterances and artifacts. From the existence of phenotypic traits, the existence of genes and their relation to that phenotype (that property) can with some considerable difficulty be inferred through a reverse engineering exercise. The analog statement is that from cultural features the existence of these particular memes that caused those features can be inferred. This statement is of a statistical nature: ‘He is implicitly saying: there is variation in eye color in the population; other things being equal, a fly with this gene is more likely to have red eyes than a fly without the gene. That is all we ever mean by a gene ‘for’ red eyes’ (p 1325, Dawkins 1982: 21). Concerning the substance of memes and the way it is enacted in culture: ‘Studies of psychological biases (Kahneman and Tversky 1973) can help us to understand ways in which the make-up of our brains themselves may shape the selection of memes’ (p 1326).

The Meme’s-Eye View

The essence is that not survival of the organism but survival of the genes best capable to reproduce themselves. These statements are usually congruent: whatever works for the organism works for the gene and the genes best suitable to reproduce are inside the fittest organism. The Maltusian element of Darwin’s theory is that evolution is about selection based on competition for a scarce resource; in the case of memes the scarce resource is human attention. Memes compete to be noticed, to be internalized and to be reproduced. Memes can gain competitive advantage by their recognized contribution to the firms performance; misunderstanding or mismanagement can lead to reproduction of the wrong memes by management. If firms would be subject to competition and the least successful would die out at each generation then the most successful would thrive in time: ‘We hold that a theory of the firm must be able to explain not why we should have firms, but why we do have the firms (good, bad, and ugly alike) that we have’ (p 1327). NB: This is too modest and I do not agree: before anything can be said about their characteristics, an explanation must be in place about the raison d’ for firms, why does something like a firm exist? But why this limitation of the scope of the explanation?

Mechanisms of Selection, Variation, and Retention

Selection. A meme is internalized when the cultural expression corresponding to it is observed and interpreted by a member of the firm. NB: Is not a form of memorization required such that the observation and enactment are independent in time and ready for enactment? A meme is selected when it is enacted. ‘At any point in time, the pattern of selection events acting on a given variation of memes across the firm defines the ecology of memes in the firm’ (p 1327) NB: Firstly it defines the culture in the firm as the expressions of actions, the enactments of the memes hosted by individuals; those enactments in turn harbor memes and those remain for other members to observe, to interpret and at to enact at some occasion. Selective pressures on memes are: function, fit and form. Function: members believe that some function is served when a particular meme is enacted. This is not straightforward because 1) functionality is wrongly defined because reality and the reaction to it is complex, especially given that people are boundedly rational. Events will conspire to ensure that ill-functioning memes are selected against: members notice that they do not lead to the aspired goal and stop reproducing them. If not they may be removed from their position or the part of the firm or the entire firm is closed. For myriad reasons (p 1328), members may not deviate from their belief in the functional underpinning for a particular meme and they keep reproducing it; therefore function is not a strong argument for the selection of memes. 2) Fit: the manner in which a meme fits into a population of other memes and the memes that fit with other dominant memes stand a better chance of survival: ‘Institutional theory emphasizes that organizations are open systems – strongly influenced by their environments – but that many of the most fateful forces are the result not of rational pressures for more effective performance but of social and cultural pressures to conform to conventional beliefs’ (Scott 1992: 118 in p 1329) NB: this is crucial: the beliefs deliver memes that deliver culture hen they are enacted. The feedback loop is belief > memes > culture > memes > culture and performance is a cultural by-product. How does the produced culture feed back into the memes? ‘Powell and DiMaggio (1991: 27-28) describe this environment as a system of ‘cultural elements, that is, taken-for-granted beliefs and widely promulgated rules that serve as templates for organizing’. In other words, as a system of memes’ (p 1329). NB: this is complex of just-so stories guiding everyday practice. ‘The memetic view shares a central assumption with institutional theory: choices and preferences cannot be properly understood outside the cultural and historical frameworks in which they are set (Powell and DiMaggio 1991: 10). Our perspective, our identity, is a cumulative construction of the memes we carry (see Cohen and Levinthal 1990; Le Doux 2002). We are a product of our memes’ (p 1329) NB: this is a long and generalized version of the memes originating in a belief in the idea of progress. ‘By focusing analysis on the social distributions of memes within the firm, rather than assuming the firm is a monolith that adapts uniformly to its competitive or institutional environment, the memetic view suggests that its isomorphism is always imperfect, and that there are always sources of variation that may evolve into important organizational traits’ (p 1330). NB: this is the equivalent of the monadic view: as perfect as possible given circumstances and time, but never quite perfect. Also the identity of the firm as a consequence of the autopoietic organization and the structure is develops and that adds additional traits to the identity but that can be selected away without losing its identity as a unity. 3) Memes can be selected for their form: the morphology of genetic expressions may influence reproductive success; the ease with which an idea can be imitated is correlated to its actual reproductive success (urban legend, disgustingness, sound bite, self-promotion in the sense of piggybacking on others so as to be reproduced more often and in the sense of creating more network externalities (Blackmore on altruism), catchyness, stickyness).

Variation

Novel combinations of memes and altogether new memes. NB if a memeplex is an autopietic system then it is closed to external information. It is a linguistic system. Signals are received and trigger the system to react to them. But no information is actually transferred; this implies that memes stay inside the memeplex and that other members carrying other memeplexes copy based on what they perceive is the effect of the meme in another member in their context. A distinction is made into mutation and migration of memes. The latter does not exist in in autopoietic systems. Hiring is limited because of the tendency to hire those who are culturally close to the firm as is; and the effect of firing severs the availability of their views. Different backgrounds of people in a firm are seen as a source of diversity of memes. NB: how does this idea match autopoiesis?

A difference is pointed out between potential variation and realized variation: the number of new memes that come available to the members of the firm versus the number of new memes that are actually realized. ‘If there is ‘information overload’ and ‘information anxiety’, then it is to a great extent because people cannot confidently enough manage the relationship between the entire cultural inventory and their reasonable personal share in it’ (Hannerz 1992: 32 in p 1332). In this way an increase in the potential memetic variety can lead to a decrease in the realized memetic variety. Whether a relation exists between the potential and the realized in evolving systems is unclear. ‘But an evolutionary perspective, and an understanding of the firm as an ecology of memes, should make us a little more humble about predicting unidirectional outcomes between such things as diversity and performance’ (p 1333). Mutation is a source of variation via misunderstandings. These are in practical terms the rule rather than the exception, especially if conveyed not via written or even spoken word. The final source of variation is recombination: move around the group and then actual recombination. NB: this is the preferred version in an autopoietic system.

Retention

Key elements are 1) longevity, 2) fidelity, and 3) fecundity. 1) Longevity is about the firm reproducing itself through the actions of individuals as they conduct recurring social practices and thereby incorporate and reproduce constituent rules and ideas, memes, of the firm. ‘In other words, firm activity is not a fixed object, but a constant pattern of routine activity that reproduces the memes that express these routines’ (p 1335). NB: routine activity in this phrase resembles the organization of an autopoietic system 2) Fidelity means how accurately memes are copied. This is an advantage over markets. ‘The defining elements of the firm (its characteristic patterns of control and identity) provide for meme retention. Control in firms means that employees accept to a relatively greater degree than in markets that they may be told how to behave and even how to think. They accept, in other words, reproducing certain memes and not others’ (p 1335). NB: this is a key notion: based on this definition of control in firms, this is the effect that firms have as the context (ambience) for their employees: they get to copy some desired memes and not others. I have a difficulty with the word ACCEPT in this context: how does it relate to the concept of free will and the presumed lack of it? ‘Those memes that become part of the firm’s identity become less susceptible to change (Whetten and Godfrey 1998). Being consistent with dominant memes in the firm becomes a selection factor for other memes, which further reinforces fidelity’ (p 1336). NB: Copy-the-product versus copy-the-instruction. 3) Fecundity refers to the extent to which a meme is diffused in the firm. This depends on the mind that the meme currently occupies: the more senior the member, the higher the chance that the meme gets replicated. ‘The cultural apparatus includes all those specializations within the division of labor which somehow aim at affecting minds, temporarily or in a enduring fashion; the people and institutions whose main purpose it is to meddle with our consciousness’ (Hannerz 1992: 83). This was meant to apply to societies (media &c.), but it can be used for firms just the same, especially because it is assumed to part of the standard outfit of firms that some groups of people meddle with the minds of other groups.

Why Do Firms Exist?

Why has the cultural evolution process led to a situation where the memes bundle together as firms?’ (p 1337). The scope of the answer is in the bundling of the memes (into patterns of control and identity) such that they have a competitive advantage over others; why do memes that are a part of firms replicate more often than memes that are not a part of a firm? NB: Weeks and Galunic are mistakenly assuming that memes in firms benefit their host by offering them an advantage (p 1338). ‘A cultural and evolutionary theory also forces us to recognize that the reasons firms came into existence are not necessarily the reasons this form persists now’(p 1338). Two questions arise: 1) what are the historical origins of the evolution of the firm and 2) why does the concept of the firm persist until today? Ad 1 origins) the idea is that large (US) firms exist around 50 years. The concept started as a family-run firms and grew from that form to a larger corporate form. As the scale of the business grew it was not longer possible to oversee it for one man and so management emerged, including the functional areas of production, procurement &c. ‘From a meme’s-eye view, we would say that these memes produced cultural effects with a tremendous functional selection advantage, but they did so only when bundled with each other. This bundling was made possible by the enacted identity and control memes of the firm. Thus, together, both sets of memes flourished’ (p 1339). ‘In evolutionary terms, this pattern is to be expected. Through bundling, replicators can combine in ways that produce more complex expressions that are better to compete for resources (such as human attention in the case of memes), but this bundling requires some apparatus to be possible. In our case, this apparatus consists of the memes that enact the firm’ (p 1340). NB: Because of their complexity they are better suited to compete because they better manage to retain bundles of memes for business functions such as production, procurement and distribution. Firms enhanced the faithful reproduction and enactment of those memes; they have reduced variation.

Persistence

Once the bundle of memes we call the firm had emerged, the logic of its evolution changed somewhat and the possibility of group selection emerged’ (p 1340). NB: I don’t believe that the concept of the firm has changed since it was initially conceived: it must be mirrored. Also as an autopoietic system it has to have existed as a unity and an organization, a unity from the outset in whatever slim shape. It cannot ‘emerge’ from nothingness and evolve into something.’There is always a balance in any evolving system between the longevity offered by retention at the level of the individual meme and for adaptation at the level of of the bundle of memes. The firm emerged because of the reproductive advantages it gave memes, but it persisted because it was also able to provide more effective variation and selection processes’ (p 1340). NB: this is about the diffusion of administrative and managerial processes.

Retention

Firms offer memes advantages of retention as a result of: 1) control: peole can be told what to do and what to think 2) the identity that employees develop towards their firms, which brings them to hold certain memes close and protect them against different ideas. ‘Control and identity come together in firms by virtue of the legitimacy granted generally by society and specifically by employees to managers of firms to impose and manipulate corporate culture and thus the assumptions, beliefs, values, and roles internalized by employees and enacted by them not only in the organization (when management may be looking to ensure displays of compliance) but outside as well’ (p 1341). NB: I find this still not entirely satisfactory, because I am convinced that the memes carried by management may be somewhat more specialized than those of the people outside the firm, but the general ideas are widely known and carried by members of society. A firm could not exist in a society where some of the memes that compose a firm do not exist or are not believed to be true. ‘Without very much exaggeration we might say that firms are systems of contractual docility. They are structures that ensure, for the most part, that members find it in their self-interest to be tractable, manageable and, above all, teachable’ (p 1341). The economy for an incumbent meme to be added to the memeplex is described as follows: ‘When you can give ideas away and retain them at the same time, you can afford to be generous. In contrast, it is less easy to maintain allegiance to any number of contradictory ideas, and especially to act in line with all of them. Thus, if somebody accepts your ideas and therefore has to discard or reject competing ideas, in belief or in action, he may really be more generous than you are as a donor’ (Hannerz 1992: 104 in p 1341). NB: members protect memes because they are a product of them. Firms through their efforts of dedicated management to replicate meme high-fidelity and their firm-specific language, facilitate the retention of memes in the minds of their members.

Apart from control and authority, firms provide identity for members. At the core of institutional thinking two elements are held: 1) human actors are susceptible to merging their identity with that of the firms and 2) to be an institution presupposes some stable core memes as attractors of social union. Ad 1 identity) people are inclined to collective enterprise for a need to cooperate (Axelrod 1997) and from a natural tendency to seek and adopt moral order (Durkheim 1984; Weber 1978): ‘This is the sense in which the firms have us as much as we have them: they socialize us, fill our heads with their memes, which shape our sense of identity and which we carry, reproduce, and defend outside the organization as well as inside’ (p 1342). NB: this is where process and content meet: members reproduce the memes provided by the firm and the enacted memes produce the culture which is the environment for the members to base their beliefs on about ‘how things are done around here’. The culture is now also the basis for the development of memes; the content has become process. ‘.. the presence of managerially assigned monetary incentives and career progression that motivate the display of adherence to corporate memes; and, not least, the power of leaders to sanction and select out actors who do not abide by corporate values’ (p 1342).

Selection and Variation

Firms offer two sorts of selection and variation advantages to memes: 1) they offer a context that places memes that are potentially beneficial to the firm in closer proximity to one another than is typical in markets (complementary ideas, groups socially evolving norms) and 2) the presence of professional management who motivated and responsible for the creating and enforcement of memes considered beneficial. ‘.. firms have an advantage over markets as superior explorers of design space and thus are beter able to create variation through novel recombinations of memes’ (p 1344).

Autopoiesis

Humberto R. Maturana, Francisco J. Varela . The Realization of the Living (Originally: De maquinas y seres vivos 1972) . ISBN 90-277-1015-5 . 1980 . D. Reidel Publishing Company . Dordrecht: Holland / Boston: USA / London: England

Foreword

A theoretical biology which is topological where the topology is self-referential from the point-of-view of the system itself and has no outside, ‘.. Leibnizian for our day’ (p v). Cognition is defined as a biological phenomenon and as the very nature of biological systems. Hence: ‘Living systems are cognitive systems, and living as a process is a process of cognition’ (p vi).

Essay 1: Biology of Cognition

1) What is the organization of the living? AND 2) What takes place In the phenomenon of perception? Ad 1) No valid definition is available that accounts for all systems: we can recognize them when we encounter them but we cannot say what they are. What is the invariant feature around which selection operates? NB that this is similar to my question concerning the invariant in business change! Look at systems not as open systems, exchanging energy and information with their environment, but closed. In addition a language is needed to describe autonomy as a feature of the system specified by the description. As a consequence notions of purpose, intent, use and function must be rejected. The definition of these systems as unities through their self-reference is their autonomy. Living systems are defined as unities through the circularity of the production of their components. Ad 2) With this theory the activity of the nervous system can be treated as the activity of the system itself and not of its environment. The external world only has a triggering role in the release of the internally determined activity. Moreover the working of the nervous system can only be understood by closing it off: perception is not the grasping of but the specification of an external reality. This can be connected with the Wagensberg model, but some modifcations are required to clean it from thermodynamical arguments. The question changes from: ‘How does the organism obtain information about its environment’ to ‘How does it happen that the organism has the structure that permits it to operate adequately in the medium in which it exists?’ (p xvi).

It was in these circumstances that one day, while talking to a friend (José Bulnes) about an essay of this on Don Quixote de la Mancha, in which he analyzed Don Quixote’s dilemma of whether to follow the path of arms (praxis, action) or the path of letters (poiesis, creation, production), and his eventual choice of the path of praxis deferring any attempts at poiesis, I understood for the first time the power of the word ‘poiesis’ and invented the word that we needed: autopoiesis. This was a word without a history, a word that could directly mean what takes place in the dynamics of the autonomy proper to living systems’ (p xvii)

In a sense it has been my way to a transcendental experience: to the discovery that matter, metaphorically speaking, is the creation of the spirit (the mode of existence of the observer in a domain of discourse) and that the spirit is the creation of the matter that it creates’(p xviii). I would refer to this as the meeting of content and process: beliefs lead to decisions which in turn lead to behavior which lead to a new context which, given beliefs, lead to new action and perhaps to a change of the belief also.

Unity, Organization and Structure

Unity. An observer performs the cognitive operation of distinguishing an entity from its background. They are distinguished for the separability of the respective properties endowed them through this cognitive operation. If this operation is performed recursively by the observer then the components of the entity can be distinguished and the entity is defined by the properties of its components. The observer can also observe the entity as a single unity and distinguish it in the domain of its properties as a unity and not in the domain of the properties of its components. If an autopoietic system is treated as a composite unity, it exists in the space defined by its components, but if it is treated as a simple unity then it is defined in the domain of the distinctive properties of the unity.

Organization and Structure. The relations between the components of a composite unity that define it as a particular kind of a unity constitute its organization. Only those properties are considered and only to the extent that they participate in the constitution of the unity they integrate. The actual components and their actual relations, concretely realizing a system as a member of a class of systems in which it categorizes because of its organization, constitutes its structure. Any given organization may be realized by many different structures and different subsets of components and their relations in a given structure may be abstracted by an observer as organizations defining different classes of composite unities. The organization specifies the class identity of a system and must remain invariant for the class identity to remain invariant; if its organization changes then its identity changes and the unity becomes a unity of a different kind. Conversely because an organization can be realized in systems with different structures, the identity of a system can stay invariant while its structure changes within limits determined by its organization.

Structural coupling. Unity and medium as independent systems operate in each interaction by triggering in each other a structural change, and select in each other a structural change. If the organization in a composite system remains invariant while it undergoes structural changes induced by its medium, then its adaptation is conserved. The structural change in the unity follows the structural change in the medium through a process of structured coupling. Else the outcome of the unity is disintegration. If the unity is structurally plastic, then its conservation of adaptation results in a history of structural couplings to the medium that selects its path of structural change. The configuration of constitutive relations that remain invariant in the adapted composite unity determines the possible perturbations that the unity can admit; it is a reference for the selection of the path of structural changes that take place in it in its history of interactions.

Epistemology. If a composite unity is specified as a simple system then the phenomenological domain is specified by the properties of the simple unity. Because that differs from the domain of the properties of the components phenomenal reduction is not possible. The relations between the components of a composite system interact through a system of contiguity. Necessarily relations such as control and regulation are not of contiguity, but referential relations specified by the observer using their meta-domain by using their view of the whole. The observer creates a meta-domain of descriptions that allows them to speak as if a unity existed as a separate entity that they can characterize by specifying the operations that must be performed to distinguish it. Having characterized it as a distinguishable entity, in that meta-domain can he only cognize the entity in terms of that meta-domain.

Society and Ethics

(1) ‘It is apparent that natural social systems as systems constituted by living systems require these for their actual realization. What is not apparent, however, is the extent to which the coupling of living systems in the integration of a social system entails the realization of their autopoiesis’ (p xxiv). Why is the use of the term ‘autopoiesis’ in the sentence above with regards to the organization of the social system avoided? ‘If, however, the autopoiesis of the components of a natural social system were not involved in its constitution because the relations that define a system as social do not entail them, then the autopoiesis of the components (and hence their autonomy and individuality) would be intrinsically dispensable’ (p xxiv). This means that if autopoiesis of the components of a social system is not involved in the constitution of a social system, then the autopoiesis of the components is not required. Hence the autonomy and individuality of the components would be ‘intrinsically dispensable’. This seems to be a hint at the status of people making up a social group. It does not take into account the existence of memes as components of a memeplex that forms the social fabric of a group.

(2) ‘Accordingly, I propose that a collection of autopoietic systems that, through the realization of their autopoiesis, interact with each other constituting and integrating a system that operates as the (or as a) medium in which they realize their autopoiesis, is indistinguishable from a natural social system. Or, in other words, I propose that the relations stated above characterize the organization of a social system as a system, and that all the phenomena proper to social systems arise from this organization’(p xxv) This must serve as the connection of the autopoiesis theory with the theory of memetics. The autopoietic systems are the belief systems of the components of the social system, namely individual people. Their autopoiesis is realized through the existence of the autopoiesis of the autopoietic social system. The component autopoietic systems and the social autopoietic systems both are realized through the other’s autopoiesis. Implications of this proposition are: (i) ‘The realization of the of the autopoiesis of the components of a social system is constitutive to the realization of the social system itself’ (p xxv) (ii) ‘A collection of living systems integrating a composite unity through relations that do not involve their autopoiesis is not a social system, and the phenomena proper to its operation as such a composite unity are not social phenomena’ (p xxv). (iii) ‘Therefore, the domain of social phenomena, defined as the domain of the interactions and the relations that an observer sees taking place between the compnents of a society, results from the autopoietic operation of the components of the components of the society while they realize it in the interplay of their properties’ (p xxv) (iv) ‘In a society, at any instance of observation, the structures of the components determine the properties of the components, the properties of the components realize the structure of the society, and the structure of the society operates as a selector of the structure of its components by being a medium in which they realize their ontogeny’ (p xxv) NB: this is the notion of the connection between process and content in a social system (v) ‘An autopoietic system participates in the constitution of a social system only to the extent that it participates in it, that is, only as it realizes the relations proper to a component of the social system’(p xxv)

(3) ‘A society defines the domain in which it is realized as a unity’(p xxv) Such a domain constitutes at least an operationally independent medium that operates as: a) a selector of the path of structural change that the society follows in its individual history, and b) ‘if stable, a historical stabilizer of the structures that realize the selected invariant relations that define the society as a particular social system’ (p xxvi).

(4) ‘To the extent that human being are autopoietic systems, all their activities as social organisms must satisfy their autopoiesis’ (p xxvii) ‘In man as a social being, therefore, all actions, however individual as expressions of preferences or rejections, constitutively affect the lives of other human beings and, hence, have ethical significance’ (p xxvi)

(5) ‘What determines the constitution of a social system are the recurrent interactions of the same autopoietic systems. In other words, any biological stabilization of the structures of the interacting organisms that results in the recurrence of their interactions, may generate a social system’ (p xxvi). Gene >> Meme. Also Kevin and Gavin.

(6) ‘A social system is essentially a conservative system. This is so because it is generated through the interactions of structure-determined autopoietic systems and operates as a medium that selects the path of ontogenic structural change of its components, which, thus, become structurally coupled to it. In our case, we as social beings generate, through our structure-determined properties, our societies as the cultural media that select our individual paths of ontogenic change in a manner that leads each one of us to the structure that makes us generate the particular societies to which we belong. A society, therefore, operates as a homeostatic system that stabilizes the relations that define it as a social system of a particular kind’ (p xxvi- xxvii).

(7) The domain of states of a system as a composite unity is determined by the properties that realize its organization. It follows that a social change in a human society can only take place if the individual properties and hence conduct of its members change.

(8) ‘All that matters for the realization of a society is that the component autopoietic systems should satisfy certain relations regardless of the actual structures (internal processes) through which they realize them’ (p xxvii) Hypocrisy.

(9) ‘Interactions within a society are necessarily confirmatory of the relations that define it as a particular social system; if not, the organisms that interact do not interact as components of the society which they otherwise integrate. It is only through interactions operationally not defined within the society that a component organism can undergo interactions that lead to the selection, in its ontogeny, of a path of structural change not confirmatory of the society that it integrates. ..social creativity, as the generation of novel social relations, always entails interactions operationally outside the society.. Social creativity is necessarily anti-social in the social domain in which it takes place’ (p xxvii-xxviii)

(10) ‘In general any organism, and in particular any human being, can be simultaneously a member of many social systems, such as family, a club, an army, a political party, a religion or a nation, and can operate in one or another without necessarily being in internal contradiction. .. An observer always is potentially antisocial’ (p xxviii)

(11) ‘To grow as a member of society consists in becoming structurally coupled to it; to be structurally coupled to a society consists in having the structures that lead to the behavioral confirmation of the society’ (p xxviii)

(12) ‘We as human beings exist in a network of social systems and move from to another in ou daily activities. Yet, not all human beings caught in the mesh of relations generated in this network of social systems participate in it as social beings’ (p xxviii-xxix). This means that if the interaction of someone in this social system does not involve their autopoiesis, is being used by the system but not a member or it is social abuse.

(13) (14) (15)

Biology of Cognition

1. Introduction

Man knows and his capacity to know depends on his biological integrity; furthermore he knows that he knows’ (p 5). This statement also explains the requirement of the existence of human beings as biological organisms for the existence of memes. ‘As a psychological, and hence biological function cognition guides people’s handling of the universe and knowledge gives certainty to their acts; objective knowledge seems possible and through objective knowledge the universe appears systematic and predictable. Yet knowledge as an experience is something personal and private that cannot be transferred, and that which one believes to be transferable, objective knowledge, must always be created by the listener: the listener understands and objective knowledge appears to be transferred, only if he is prepared to understand’ (p 5) Thus cognition is a biological function; it is known through knowledge.

(a) If an organism is a unity, in what sense are its component properties its parts? Has some property arisen from the properties of its organization or from its mode of life?

(b) ‘Organisms are adapted to their environments, and it has appeared adequate to say of them that their organization represents the ‘environment’ in which they live, and that through evolution they have accumulated information about it, coded in their nervous system. Similarly it has been said that the sense organs gather information about the ‘environment’, and through learning this information is coded in the nervous system [Cf. Young, 1967]. Yet this general view begs the questions, ‘What does it mean to ‘gather information?’ and ‘What is coded in the genetic and nervous system?’ (p 6)

III Cognitive Function in General

The Observer

(1) ‘Anything said is said by an observer’ (p 8)

(2) The observer can observe an object and its environment simultaneously. This allows them to interact with both independently and have interactions that are outside of the domain of the observed entity.

(3) An attribute of the observer is that they can interact both with the observed entity and with its relations. Both are units of interaction (entities)

(4) To the observer an entity is an entity if they can describe it. They can describe it if at least one other entity exists so as to distinguish the observed entity from in its description; the ultimate reference is the observer themselves.

(5) The set of all interactions of an entity is its domain of interactions and the set of all possible interactions with the observer (relations) is its domain of relations; the latter lies within the cognitive domain of the observer. ‘An entity is an entity if it has a domain of interactions, and if this domain includes interactions with the observer who can specify for it a domain of relations’ (p 8)

(6) The observer can define himself as an entity by specifying his own domain of interactions.

(7) ‘The observer is a living system and an understanding of cognition as a biological phenomenon must account for (the existence of DPB) the observer and his role in it (the phenomenon DPB)’ (p 9)

The Living System

(1) ‘Living systems are units of interactions; they exist in an ambience. From a purely biological point of view they cannot be understood independently of that part of the ambience with which they interact: the niche; nor can the niche be defined independently of the living system that specifies it’ (p 9)

(2) ‘Living systems as they exist on earth today are characterized by .. a closed circular process that allows for evolutionary change in the way the circuitry is maintained, but not for the loss of the circuitry itself. .. This circular organization constitutes a homeostatic system whose function is t produce and maintain this very same circular organization by determining that the components that specify it be those whose synthesis or maintenance it secures’ (p 9)

(3) ‘It is the circularity of its organization that makes a living system a unit of interactions, and it is this circularity that it must maintain in order to remain a living system and to retain its identity through different interactions’ (p 9)

(4) ‘Due to the circular nature of its organization a living system has a self-referring domain of interactions (it is a self-referring system), and its condition of being a unit of interactions is maintained because its organization has functional significance only in relation to the maintenance of its circularity and defines its domain of interactions accordingly’ (p 10)

(5) ‘Living systems as units of interactions specified by their condition of being living systems cannot enter into interactions that are not specified by their organization. The circularity of their organization continuously brings them back to the same internal state (same with respect to the cyclic process). Each internal state requires that certain conditions (interactions with the environment) be satisfied in order to proceed to the next state’ (p 10). The circular organization implies the prediction that an interaction will take place again. If it does not then the system will disintegrate, if it does it will maintain its integrity (identity vis a vis the observer) and move on to the next prediction. In a continuously changing environment the system can only remain intact if the environment does not change in that which is predicted. The predictions implied in the organizations are not predictions of particular events but of classes of interactions; interactions the features of which allow the organization of the system and hence its identity to remain intact. This makes living system inferential systems and their domain of interactions a cognitive domain.

(6) A niche is defined by the classes of interactions into which a system can enter. The environment is defined as the classes of interactions into which an observer can enter; they treat it as a reference for their interactions with the system. The observer considers the niche of a system the set of interactions that they observe to lie in its part of the domain of interactions of the environment. For the observer a niche is a part of the environment, for the system it is the entire set of possible interactions. As such a niche cannot be ‘part’ of the environment which lies exclusively in the cognitive domain of the observer. ‘Niche and environment, then, intersect only to the extent that the observer (including instruments) and the system have comparable organizations, but even then there are always parts of the environment that lie beyond any possibility of the intersections with the domain of interactions of the organism, and there are parts of the domain of the niche that lie beyond any possibility of intersection with the domain of interactions of the observer. Thus for every living system its organization implies a prediction of a niche, and the niche thus predicted as a domain of classes of interactions constitutes its entire cognitive reality’ (pp. 10-11) This is relevant for the observation of the firms by people as observers and vice versa.

(7) ‘Every unit of interactions can participate in interactions relevant to other, more encompassing units of interactions. If in doing this a living system does not lose its identity, its niche may evolve to be contained by the larger unit of interactions and thus be subservient to it. If this larger unit of interactions is (or becomes) in turn also a self-referring system in which its components (themselves self-referring systems) are subservient to its maintenance as a unit of interactions, then it must itself be (or become) subservient to the maintenance of the circular organization of its components’ (p 11). This is possibly relevant concerning acquisition of firms by other firms (DPB): cells >> bees >> beehive; cells >> people >> firms >> larger firms &c.

Evolution

(1) Evolutionary change is an aspect of the circular organization that preserves the system’s basic circularity. ‘Reproduction and evolution are not essential for the living organization, but they have been essential for the historical transformation of the cognitive domains of the living systems on earth’ (p 11)

(2) For a change in a unity without losing its identity with respect ot the observer, it must suffer an internal change. If an internal change occurs without the identity of the unity changing then the domain of interactions must change.

(3) After reproduction the new unity has the same domain of interactions as the parent if it has the same organization.

(4) Predictions about the niche are inferences about classes of interactions. Particular interactions may be of the same class and not distinguishable for the system but they may be to the observer.

(5) Aspects of the organization that are subservient to the maintenance of the basic circularity but do not determine it change from generation to generation. The system maintains its organization and its identity through interactions. The basic circularity remains unchanged, the way it is maintained changes. ‘The evolution of the living systems is the evolution of the niches of the units of interactions defined by their self-referring circular organization, hence, the evolution of the cognitive domains’ (p 12)

The Cognitive Process

(1) ‘A cognitive system is a system whose organization defines a domain of interactions in which it can act with relevance to the maintenance of itself, and the process of cognition is the actual (inductive) acting of behaving in this domain. Living systems are cognitive systems, and living as a process is a process of cognition’ (p13)

(2) ‘If a living system enters into a cognitive interaction, its internal state is changed in a manner relevant to its maintenance, and it enters into a new interaction without loss of its identity’ (p 13)

(3) The function of the nervous system is subservient to the necessary circularity of the living organization.

(4) The nervous system has expanded the domain of interactions and hence has transformed the unit of interactions and had subjected interacting to the process of evolution.

(5) This expansion of the cognitive domain (into the domain of ‘pure relations’) allows for non-physical interactions between systems such that the systems orient each other towards interactions within their respective domains. ‘Herein lies the basis for communication: the orienting behavior becomes a representation of the interactions toward which it orients, and a unit of interaction in its own terms. .. there are organisms that generate representations of their own interactions by specifying entities with which they interact as if these belonged to an independent domain, while as representations they only map their own interactions. .. a) We become observers through recursively generating representations of our interactions, and by interacting with several representations simultaneously we generate relations with the representations of which we can then interact.. b) We become self-conscious through self-observation; by making descriptions of ourselves (representations), and by interacting with our descriptions we can describe ourselves describing ourselves, in an endless recursive process’ (p 14)

Description

(1) A living system is an inductive system: what happened once will occur again. Its organization is conservative and repeats only that which works. The present state is always specified by the previous state that restricts the field of possible modulations by independent concomitances.

(2) For the observer any one of the system’s behaviors appears as an actualization of the niche, that is, as a first order description of the environment (denoted as Description); this is a description in terms of the behavior (interactions) of the observed system, not representations of environmental states. The relation between behavior and niches exists in the cognitive domain of the observer only.

(3) A living system can modify the behavior of another system by: a) interacting with it in a way that directs both toward each other such that the following behavior of the one depends strictly on the previous behavior of the other. In this case the two systems can be said to interact. b) By orienting the behavior of the other system to some part of its domain of interactions different from the present interaction but comparable to the orientation of the orienting system. This takes place if the domains of interactions of both systems are coincident; no interlocking chain of behavior takes place because the systems’ behavior is based on parallel but independent behavior. In this case the systems can be said to communicate; this is the basis for linguistic behavior. The first generates a Description of its niche that orients the second within its cognitive domain to an interaction, which ensues a conduct parallel but unrelated to the first. The orienting behavior to the observer is a second order behavior, denoted in italics as description (linguistic utterance DPB), that denotes whatever denotation they assign to it: ‘.. that which an orienting behavior connotes is a function of the cognitive domain of the orientee, not the orienter’ (p 28).

(4) In an orienting interaction the orienter’s behavior as a description generates activity in the orientee, which then, in turn makes a Description of its niche connoted by the orienting behavior of the first.

(5) ‘If an organism can generate a communicative description and then interact with its own state of activity that represents this description, generating another such description that orients towards this representation…, the process can in principle be carried on in a potentially infinite recursive manner, and the organism becomes an observer: it generates discourse as a domain of interactions with representations of communicative descriptions (orienting behaviors). Furthermore, if such an observer through orienting behavior can orient himself towards himself, and then generate communicative descriptions that orient him towards his description of his self-orientation, he can, by doing so recursively, describe himself describing himself .. endlessly. This discourse through communicative description originates the apparent paradox of self-description: self-consciousness, a new domain of interactions’ (p 28-9).

Thinking

(1) Thinking is the neuro-physiological process of interacting with some of its own internal states as if these were independent entities. From thinking behavior emerges in a deterministic manner. The difference with a reflex action is that the concerning the latter a signal can be traced back to the sensory system. In thinking the signal begins with a distinguishable state of activity of the nervous system itself (2) This process above is independent from language.

Natural Language

(1) ‘Linguistic behavior is orienting behavior; it orients the orientee within his cognitive domain to interactions that are independent of the nature of the orienting interactions themselves. .. Only if the domains of interactions of the two organisms are to some extent comparable, are such consensual orienting interactions possible and are the two organisms able to develop some conventional, but specific, system of communicative descriptions to orient each other to cooperative classes of interactions that are relevant for both’ (p 30). These are the interactions as per Knorr-Cetina.

(2) –

(3) ‘Behavior (function) depends on the anatomical organization (structure) of the living system, hence anatomy and conduct cannot legitimately be separated and the evolution of behavior is the evolution of anatomy and vice versa; anatomy provides the basis for behavior and hence for its variability; behavior provides the ground for the action of natural selection and hence for the historical anatomical transformations of the organism’ (p 31).

(4) ‘However, when it is recognized that language is connotative and not denotative, and that its function is to orient the orientee within his cognitive domain, without regard for the cognitive domain of the orienter, it becomes apparent that there is no transmission of information through language. It behooves the orientee, as a result of an independent internal operation upon his own state, to choose where to orient his cognitive domain; the choice is caused by the ‘message’, but the orientation thus produced is independent of what the ‘message’ represents for the orienter. In a strict sense then, there is no transfer of information from the speaker to his interlocutor; the listener creates information by reducing his uncertainty through his interactions in his cognitive domain. Consensus arises only through cooperative interactions in which the resulting behavior of each organism becomes subservient to the maintenance of both. .. The cooperative conduct that may develop between the interacting organisms from these communicative interactions is a secondary process independent of their operative effectiveness. If it appears to be acceptable to talk about transmission of information in ordinary parlance, this is so because the speaker tacitly assumes the listener to be identical with him and hence as having the same cognitive domain which he has (which never is the case), marveling when a ‘misunderstanding’ arises’ (p 32-3).

(5) –

(6) ‘If one considers linguistic interactions as orienting interactions it is apparent that it is not possible to separate, functionally, semantics and syntax, however separable they may seem in their description by the observer. This is true for two reasons: a) A sequence of communicative desriptions (words in our case) must be expected to cause in the orientee a sequence of successive orientations in his cognitive domain, each arising from the state left by the previous one… b) An entire series of communicative descriptions can itself be a communicative description; the whole sequence once completed may orient the listener from the perspective of the state to which the sequence itself has led him’ (p 33)

(7) ‘Linguistic behavior is an historical process of continuous orientation’ (p 34)

(8) –

(9) ‘Orienting behavior in an organism with a nervous system capable of interacting recursively with its own states expands its cognitive domain by enabling it to interact recursively with descriptions of its interactions. As a result: a) Natural language has emerged as a new domain of interactions in which the organism is modified by its descriptions of its interactions.. b) Natural language is necessarily generative because it results from the recursive application of the same operation (as a neurophysiological process) on the results of this application c) New sequences of orienting interactions (new sentences) within the consensual domain are necessarily understandable by the interlocutor (orient him), because each one of their components has definite orienting functions as a member of the consensual domain that it contributes to define’ (pp. 34- 5)

Memory and Learning

(1) ‘Learning as a process consist in the transformation through experience of the behavior of an organism in a manner that is directly or indirectly subservient to the maintenance of its basic circularity’ (p 35)

(2) ‘Learning occurs in such a manner that, for the observer, the learned behavior of the organism appears justified from the past, through the incorporation of a representation of the environment that acts, modifying its present behavior by recall; notwithstanding this, the system itself functions in the present, and for it learning occurs as an atemporal process of transformation. An organism cannot determine in advance when to change and when not to change during its flow of experience, nor can it determine in advance which is the optimal functional state that it must each; both the advantage of any particular behavior and the mode of behavior itself can only be determined a posteriori, as a result of the actual behaving of the organism subservient to the maintenance of its basic circularity’ (pp. 35-6)

(3 tm 7) –

(8) ‘Past, present and future and time in general belong to the cognitive domain of the observer’ (p 38)

The Observer

(1) The cognitive domain is the entire domain of interactions of the organism. It can be enlarged if new modes of interactions are generated or instruments are applied.

(2) –

(3) The observer generates a spoken description of his cognitive domain (which includes his interactions with and through instruments).

(4) ‘The observer can describe a system that gives rise to a system that can describe, hence, to an oberver. A spoken explanation is a paraphrase, a description of the synthesis of that which is to be explained; the observer explains the observer. A spoken explanation, however, lies in the domain of discourse. Only a full reproduction is a full explanation’ (p 39)

(5) ‘The domain of the discourse is a closed domain, and it is not possible to step outside of it through discourse. Because the domain of discourse is a closed domain it is possible to make the following ontological statement: the logic of the description is the logic of the describing (living) system (and his cognitive domain)’ (p 39) This bears a relation with the Wolfram statement that natural processes are the same as the processes that produced the human powers of perception and analysis.

(6) ‘This logic demands a substratum for the occurrence of the discourse. We cannot talk about this substratum in absolute terms, however, because we would have to describe it, and a description is a set of interactions into which the describer and the listener can enter, and their discourse about these interactions will be another set of descriptive interactions that will remain in the same domain. Thus, although this substratum is required for epistemological reasons, nothing can be said about it other than what is meant in the ontological statement above’(p 39)

(7) ‘We as observers live in a domain of discourse interacting with descriptions of our descriptions in a recursive manner, and thus continuously generate new elements of interaction. As living systems, however, we are closed systems modulated by interactions through which we define independent entities whose only reality lies in the interactions that specify them (their Description)’ (p 40)

(8) ‘For epistemological reasons we can say: there are properties which are manifold and remain constant through interactions. The invariance of properties through interactions provides a functional origin to entities or units of interactions; since entities are generated through the interactions that define them (properties), entities with different classes of properties generate independent domains of interactions: no reductionism is possible’ (p 40)

Post Scriptum

(i) ‘.. That is, man changes and lives in a changing frame of reference in a world continuously created and transformed by him. Successful interactions directly and indirectly subservient to the maintenance of his living organization constitute his only final source of reference for valid behavior within the domain of descriptions, and, hence, for truth; but, since living systems are self-referential systems, any final frame of reference is, necessarily, relative. Accordingly, no absolute system of values is possible and all truth and falsehood in the cultural domain are necessarily relative’ (p 57)

(ii) ‘Language does not transmit information and its functional role is the creation of a cooperative domain of interactions between speakers through the development of a common frame of reference, although each speaker acts exclusively within his cognitive domain where all ultimate truth is contingent to personal experience. Since a frame of reference is defined by the classes of choices which it specifies, linguistic behavior cannot be but rational, that is, determined by relations of necessity within the frame of reference within which it develops. Consequently, no one can ever be rationally convinced of a truth which he did not have already implicitly in his ultimate body of beliefs’ (p 57)

(iii) ‘Man is a rational animal that constructs his rational systems as all rational systems are constructed, that is, based on arbitrarily accepted truths (premises); being himself a relativistic self-referring deterministic system this cannot be otherwise. But if only a relative, arbitrarily chosen system of reference is possible, the unavoidable task of man as a self-conscious animal that can be an observer of its own cognitive processes is to explicitly choose a frame of reference for his system of values. .. ‘ (p 58)

Essay 2:

Autopoiesis – The Organization of the Living

Preface (Stafford Beer)

General: knowledge is categorized and so is our world view. Not wholes seen through different filters but parts derived through analysis and categorized.

The stuff of systems is relations between components. Relation is the essence of synthesis. During categorization the relations between the components are not included. Relations are discarded and alienated and distantiated from. ‘It is an Iron Maiden in whose secure embrace scholarship is trapped‘ (p64).

The world develops exponentially because it is a complex system. Knowledge is developed at a categorically at a linear pace and so in effect the understanding of the world is receding. This book is important in a general sense in that its meaning in a meta-systemic level and not at a interdisciplinary level. And so what appears is not classifiable under the old categories.

Particular: autopoietic systems are homeostats: the variable that keeps a critical system stable is the system’s own organization. Anything can change about the system but as such it survives.

Beer states that human societies are biological systems: ‘..any cohesive social institution is an autopoietic system – because it survives, because its method of survival answers the autopoietic criteria, and because it may well change its entire appearance and its apparent purpose in the process. As examples I list: firms and industries, schools and universities, clinics and hospitals, professional bodies, departments of state, and whole countries’ (p70).

If this view is valid, it has extremely important consequences. In the first place it means that every social institution (in several of which any one individual is embedded at the intersect) is embedded in a larger social institution, and so on recursively – and that all of them are autopoietic. This immediately explains why the process of change at any level of recursion (from the individual to the state) is not only difficult to accomplish but actually impossible – in the full sense of the intention: ‘I am going completely to change myself’. The reason is that the ‘I’, that self-contained autopoietic ‘it’, is a component of another autopoietic system’. These last statements also bear a relation to the experience with change management. It is related to the idea of a funnel resulting from the Western belief in the idea of progress (aka capitalism, aka free-market mechanism).

BELANGRIJK regarding social systems: the authors claim: ‘Our purpose is to understand the organization of living systems in relation to their unitary character’. This formulation of the problem begs the question as to what is allowed to be a called a living system, as theey themselves admit. ‘Unless one knows which is the living organization, one cannot know which organization is living’. They quickly reach the concusion however (Subsection (b) of Section 2 of Chapter 1) that ‘autopiesis is necessary and sufficient to characterize the organization of living systems’. THEN they display some unease, quoting the popular belief: ‘… and no synthetic system is accepted as living.’(p71). This is an important connection with memetics: now it is possible to claim that social systems (that is to say the memetic systems that bring them about) are natural systems and so they are not synthetic by design. I have argued that because it evolves it must be alive so as to be able to define the subject of evolution via the concept of living systems.

AUTOPOIESIS – The Organization of the Living

Systeem causaliteit

Introduction

Common experience is that living systems are autonomous and they can reproduce. Conversely if something shows signs of autonomy then it is naively often deemed to be alive. Autonomy is exhibited by living systems through their self-asserting capacity to maintain their identity through the active compensation of deformations. The endeavor of the authors is to disclose the nature of the living organization. Their purpose is to understand the organization of living systems in relation to their unitary character. Their approach is mechanistic: no forces or principles will be adduced which are not found in the physical universe. Their interest is in processes and relations between processes realized through components, not in the properties of components (p75). It is assumed that an organization exists that is common to all living systems, regardless the nature of their components (p76). It is assumed that living systems are machines: a non-animistic view, relations are the pivot, not the components, dynamism is a feature of many machines also. The research question is: ‘What is the organization of living systems,, what kind of machines are they, and how is their phenomenology, including reproduction and evolution, determined by their unitary organization?’ (p76).

Chapter I – On Machines, Living and Otherwise

1. Machines

The properties of the components are irrelevant apart from those that participate in the interactions and transformations that constitute the system. The relevant properties determine those relations that determine the working of the machine which they integrate and constitute as a unity.

The organization of the machine is constituted by the relations that define it as a unity and determine the dynamics of the interactions and the transformations it may undergo as such a unity. The structure of the machine is constituted by the actual relations holding between the components integrating the machine in a given space. In this way a given machine can be realized by many different structures (p77).

‘Purpose’ is a means to explain more efficiently the workings of a machine: by using this concept, the imagination of the listener is invoked to reduce the task of explaining of the organization of a particular machine. It is not one of the constitutive properties of such a machine.

2. Living machines

a) Autopoietic machines

Machines can maintain some of their variables constant or within a limited range. This is expressed in the organization of the machine such that the process occurs within the boundaries of the machine which the very organization specifies. These machines are homeostatic and all feedback is internal to them. If there is a machine M with a feedback loop external to it such that a change in the output changes the input, then a M’ exists that includes the feedback loop in the organization that defines it. This is how autopoiesis is defined by the authors: ‘An autopoietic machine is a machine organized (defined as a unity) as a network of processes of production (transformation and destruction) of components that produces the components which: (i) through their interactions and transformations continuously regenerate and realize the network of processes (relations) that produced them; and (ii) constitute it (the machine) as a concrete unity in the space in which they (the components) exist by specifying the topological domain of its realization as such a network’ (p79). In this way the autopoietic machine generates and specifies its own organization through its operation as a system of production of its own components in their endless turnover under conditions of perturbations and compensation thereof.

The relations of production of components are given as processes; if these processes stop then the production stops. In an autopoietic system these relations must be regenerated by the components which they produce such that the system remain autopoietic.

Autopoietic organization means that processes interlace a network of processes of production of components which constitute the network as a unity as they realize it. Every time this organization is realized as a concrete system in a given space, the domain of deformations, which this system can withstand without loss of identity as it maintains its organization constant, is the domain of changes in which it exists as a unity (p80). Autopoietic machine:

(i) are autonomous because they subordinate all change to the maintenance of their own organization

(ii) have an individuality because they keep their organization as an invariant through its continuous production. This represents their identity which is independent of their interactions with an observer

(iii) are unities because of their autopoietic organizations and their operations specify their own boundaries in the processes of self-production

(iv) have no inputs or outputs because even though they can be perturbed by independent events and they can repeatedly undergo structural changes to compensate these. These changes are always subordinated to the maintenance of the autopoietic organization of the machine

The actual implementation of the organization in physical space depends on the properties of the physical materials that embody it. A machine will disintegrate if it is perturbed such that the organization would have to compensate outside of its domain of compensations. The actual way a machine is realized determines the particular perturbations it can suffer without disintegrating.

b. Living systems

In other words we claim that the notion of autopoiesis is necessary and sufficient to characterize the organization of living systems’ (p82).

Chapter II – Dispensability of Teleonomy

Teleology means to describe things by their apparent goal or purpose. Teleonomy means the quality of apparent purposefulness or goal-directedness in living organisms. Both are unnecessary for the understanding of the living organization.

1. Purposelessness

Ontogeny is generally considered as an integrated process toward an adult state following some internal project or program. At different stages certain structures are attained that allow it to perform certain functions. Phylogeny is viewed as the history of adaptive transformations via reproductive processes aimed at satisfying the project of the species with complete subordination of the individual to this end. Purpose or aim and function are not functions of any machine (allo or auto) but they belong to the domain of our actions, namely the domain of descriptions. When applied to some system independent from us, they reflect our considering the machine or system in some encompassing context. Define a set of circumstances that lead the machine to change following a certan path of variations in its output. The connection between these outputs and the corresponding inputs in the selected context is called the aim or purpose of the machine. This aim is necessarily in the domain of the observer. Function can be treated in the same way. Neither aim nor function of the machine constitute its organization and so they are not part of its operation. ‘Living systems, as physical autopoietic machines, are purposeless systems’ (p86).

2. Individuality

In fact, a living system is specified as an individual, as a unitary element of interactions, by its autopoietic organization which determines that any change in it should take place subordinated to its maintenance, and thus sets the boundary conditions that specify what pertains to it and what does not pertain to it in the concreteness of the realization’(p87). In its history as an autopoietic organization, change in a living system can only take place so the extent that it does not interfere with the system’s functioning as a unity; the autopoietic organization remains invariant. Ontogeny in this sense is an expression of the individuality of living systems and the way it is realized; it is a process of the becoming of a system that is fully autopoietic, at every point, the unity in its fullness and not a transit from an incomplete to a complete system. The notion of development (or even progress) is relevant from the perspective of the observer and belongs to their domain.

Chapter III – Embodiments of autopoiesis

The assertion that physical autopoietic systems are living systems requires the proof that all the phenomenology of a living system can be either reduced or subordinated to its autopoiesis .. This proof must consist in showing that autopoiesis constitutes or is necessary and sufficient for the occurrence of all biological phenomena..’(p88).

1. Descriptive and causal notions

The existence of an autopoietic system requires the existence of components with properties that determine their relations such that these realize its organization as a unity. The components are defined by their role in this organization; the domain of the relations of an autopoietic organization is closed. And in this way the autopoietic organization defines a ‘space’ in which it can be realized as a concrete system; the dimensions of this space are the relations of production of the components that realize it, namely Relations of:

(i) Constitution, that determine that the components produced constitute the topology in which the autopoiesis is realized

(ii) Specificity, that determine that the components produced be the specific ones defined by their participation in the autopoiesis

(iii) Order, that determine that the concatenation of the components in the relations of specification, constitution and order be the ones specified by the autopoiesis.

Notions that apply to all autopoietic systems are:

(i) energetic and thermodynamic considerations are not part of the design of autopoietic systems. They are however in vigor implicitly: if the components and their properties, including the relational ones, can be realized then the autopoietic system can be realized.

(ii) Specificity and Order are referential notions in the sense that they carry meaning only in the context of their part in the autopoietic organization of the system under review.

(iii) An autopoietic organization acquires topological unity via its embodiment in a concrete autopoietic system. ‘Furthermore, the space defined by an autopoietic system is self-contained and cannot be described by using dimensions that define another space. When we refer to our interactions with a concrete autopoietic system, however, we project this system upon the space of our manipulations and make a description of this projection… Our description, however, follows the ensuing change of the projection of the autopoietic system in the space of our description, not in the autopoietic space’ (p90)

(iv) Concepts such as coding and transmission of information do not refer to actual processes in an autopoietic system. They do not enter in the realization of the autopoietic system. And so the notion of specificity as described above does not imply coding, information or instructions, but it describes relations between components determined by and produced by the autopoietic organization. The notions of coding and regulation are cognitive and they represent interactions of the observer, not phenomena in the observed domain.

2. Molecular embodiments

(i) Production of constitutive relations; these relations determine the topology of the autopoietic organization including its physical boundaries: ‘There is no specification in the cell of what it is not’(p91)

(ii) Production of relations of specification; these relations determine the identity (properties) of the components of the autopoietic organization and as a consequence its physical factibility. There is no production in the autopoietic system (such as a cell) of relations of specification that do not pertain to it.

(iii) Production of relations of order

These relations determine the dynamics of the autopoietic organization by deteminning the concatenation of the production of relations of constitution, specification and order, and hence its actual realization. This occurs via the production of components that realize the production of relations the production of relations of constitution, specification and order.’There is no ordering through the autopoietic organization of the cell of processes that do not belong to it.’ (p92)

Compensation of deformation keeps the autopoietic system in the autopoietic space.’(p93)

3. Origin

The geometric properties of molecules determine their relations of constitution, namely the topology. Their chemical properties determine their possible interactions hence their relations of specificity. Taken together they determine the sequence and concatenation of the molecular interactions, namely their relations of order. An autopoietic system can exist if its relations of order, is produced and remains constant, concatenate the relations of constitution and specificity in such a way that the system remains autopoietic. Asa consequence, the question about the origin of an autopoietic system is the question about the conditions that must be satisfied for the establishment of an autopoietic space: ‘This problem (of origin DPB), then, is.. a general one of what relations .. any constitutive units should satisfy.’(p93). This leads to the following considerations:

(i) ‘An autopoietic system is defined as a unity by and through its autopoietic organization.’ (p93) ‘Without unity in some space an autopoietic system is not different from the background in which it is supposed to lie, and, hence, can only be a system in the space of our description where its unity is conceptually stipulated’ (p94)

(ii) ‘The establishment of an autopoietic system cannot be a gradual process; either a system is an autopoietic system or it is not’ (p94). ‘Accordingly there are not and there cannot be intermediate systems.’ (p94)

(iii) ‘Auto-catalytic processes do not constitute autopoietic systems because among other things, they do not determine their topology.’ (p94) A unity is defined by operations of distinction as provided by the autopoietic system; .. its origin is co-circumstantial with the establishment of this operation’(p94)

(iv) Two aspects concerning the origin of autopoietic systems: a) factibility and b) the possibility of their spontaneous occurrence. a) the establishment of a system depends on the availability of the components that constitute it and the proper concatenation of their interactions. If these occur then the system is realized. b) given factibility and given the existence of factual autopoietic system, natural conditions exist for the occurrence of autopoietic systems.

Chapter IV – Diversity of Autopoiesis

Reproduction requires the existence of a unity to be reproduced. This is necessarily secondary to the establishment of such a unity. Evolution requires reproduction and the possibility of change and it is necessarily secondary to the establishment of reproduction.

1. Subordination to the condition of unity

Unity is the distinguishability of a unity from a background, hence from other unities. It is the sole necessary condition for existence in a given domain. Its nature and the domain in which it exists are specified by the process of its distinction and determination. ‘Unity distinction is .. an operative notion referring to the process through which a unity becomes asserted or defined: the conditions which specify a unity determine its phenomenology. In living systems, these conditions are determined by their autopoietic organization. In fact, autopoiesis implies the subordination of all change in the autopoietic system to the maintenance of its autopoietic organization, and since this organization defines it as a unity, it implies total subordination of the phenomenology of the system to the maintenance of its unity’ (p97). Consequences of this subordination are:

(i) the establishment of a unity defines the domain of its phenomenology, but the structure of the unity determines the realization of the phenomenology in that domain.

(ii) if the new unity is autopoietic then its phenomenology depends on maintenance of the autopoiesis, which in turn may or may not depend on the autopoiesis of its components

(iii) The identity of an autopoietic unity is maintained while it is autopoietic: as long as it is a unity in physical space and it is a unity in autopoietic space, regardless of the extent to which it is otherwise transformed.

(iv) Only after the autopoietic unity as such is established can it reproduce as a biological phenomenon.

2. Plasticity of ontogeny

The ontogeny means the history of the structural transformation of a unity; in the case of an autopoietic system, it means the history of the maintenance of its identity through continuous autopoiesis in physical space. Comments:

(i) Different classes of autopoietic systems have different classes of ontogenies

(ii) Given that it does not have inputs or outputs, the organization of an autopoietic system determines which changes the system may undergo without loss of identity

(iii) The way the autopoiesis is realized during ontogeny may change, but it should take place without loss of identity meaning uninterrupted autopoiesis

(iv) The changes that an autopoietic system may undergo without a loss of identity are a consequence of deformations; the sequence of the compensating of the deformations is determined by the sequence of the deformations. Nota bene: ‘Although in an autopoietic system all changes are internally determined, for an observer its ontogeny reflects its history of interactions with an independent ambience.’(pp. 98-9)

(v) An observer may distinguish internally and externally generated perturbations even though these are intrinsically indistinguisshable to the autopoietic system itself.

(vi) Changes that an autopoietic system can undergo while maintaining identity can be: a) conservative change in which only the relations between the components change and b) innovative changes, in which the components themselves change. In the first case the system remains positioned on the same point in the autopoietic space, because its components are invariant. In the second case, the interaction leads to a change in the way the autopoiesis is realized and to a change in the position in the autopoietic space, because its components have changed.

3. Reproduction, a complication of the unity

Reproduction is operationally secondary to the establishment of the unity: it cannot be a defining feature of the organization of a unity such as a living system. Living systems are characterized by their autopoietic organization and as a consequence reproduction must be a complication of the autopoietic organization during autopoiesis. ‘.. and its origin must be viewed and understood as secondary to, and independent from the origin of the living organization… in order to understand reproduction and its consequences in autopoietic systems we must analyze the operational nature of this process in relation to autopoiesis’(p100)

(i) Replication – a system generates unities different from itself but in principle identical to each other. Copy – an object or phenomenon is mapped upon a different system so that an isomorphic object or phenomenon is realized in it. Self-reproduction – a system produces another system with a similar organization through a process that is coupled to the process of its own production. ‘It is apparent that only autopoietic systems can self-reproduce because they are realized through a process of self-production (autopoiesis)’ (p101).

(ii) Only in self-replication is the mechanism of reproduction internal (in principle identical) to the pattern reproduced.

(iii) In terrestrial living systems currently known autopoiesis and reproduction are directly coupled. In them reproduction is a moment in autopoiesis and the same mechanism that constitutes the one also constitutes the other, and consequentially: a) self-reproduction must take place during autopoiesis, b) the individuals produced are self-contained and no external self-reproduction is a form of autopoiesis; variation and constancy in each reproductive step are part of the reproductive mechanism but an expression of autopoiesis c) variation of the way autopoiesis is realized can only arise as a modification from a pre-existing autopoietic structure. As a consequence, to maintain autopoiesis constant, variation can only arise from perturbations that require further homeostatic complications d) Replication takes place independently from autopoiesis, copy takes place in heteropoiesis, self-reproduction is exclusive for autopoiesis and its origin is bound to it as a historically secondary phenomenon e) coding, message or information are not applicable to the phenomenon self-reproduction: ‘Thus, in self-reproduction there is no transmission of information between independent entities; the reproducing and the reproduced unities are topologically independent entities produced through a single process of autopoiesis in which all components have a constitutive participation’ (p102).

4. Evolution, a historical network

A state in a sequence of states arises as a modification of a previous state and not as an independent state. The notion of history may refer to the antecedents of a given phenomenon as a succession of events leading up to it or it may be used to characterize the phenomenon as a process.

(i) Evolution is the history of change in the realization of an invariant organization embodied in independent unities sequentially realized through reproductive steps while the structural realization of the unity at each step arises as a modification of the previous one which constitutes its sequential and historical antecedent.

(ii) Reproduction by replication or by copy of an unchanging model implies an uncoupling of the organization of the unities produced and their producing mechanism.

(iii) Ontogeny and evolution are completely different phenomena: in ontogeny the identity is never interrupted, while in evolution a succession of identities is generated through sequential reproduction. Only unities have ontogenies.

(iv) ‘Selection, as a process in a population of unities, is a process of differential realization in a context that specifies the unitary structures that can be realized’ (p105). This is illustrated by the genotypical space and phenotypical space, the first via variation ‘offering’ possibilities to the second as an experiment to select the ones for survival in that specific context a/p quote above.

(v) Evolution takes place as a history of change in the realization of an invariant organization embodied in the realization of successively generated unities. Reproduction must allow for change in the structure of the sequentially reproduced unities.

(vi) ‘Of the two possible mechanisms that can give rise to sequential reproduction, the only one which is accessible to autopoietic systems in the absence of an independent copying mechanism, is self-reproduction, because of the coincidence between the reproducing mechanisms and the reproducing unity. Sequential reproduction through copy takes place a present only in relation to the operation of living systems in their domain of interactions, particularly in cultural learning; cultural evolution takes place through sequential copy of a changing model in the process of social indoctrination, generation after generation’ (p106)

(vii) ‘A species is a population or a collection of populations of reproductively connected individuals which are thus the nodes in a historical network’(p106)

Strictly, a historical network is defined by each and every one of the individuals which constitute its nodes, but it is at any moment represented historically by the species as the collection of all the simultaneously existing nodes of the network; in fact, then, a species does not evolve because as a unity in the historical domain it only has a history of change. What evolves is a pattern of autopoietic realization embodied in many particular variations in a collection of transitory individuals that together define a reproductive historical network. Thus, the individuals, though transitory, are essential, not dispensable, because they constitute a necessary condition for the existence of the historical network which they define. The species is only an abstract entiry in the present, and although it represents a histoorical phenomenon it does not constitute a generative factor in the phenomenology of evolution, it is its result’(p107)

5. Second and third order autopoietic systems

If the conduct of two or more unities is such that is a domain where the conduct of one or more of them is a function of the conduct of the others then the unities are said to be coupled. Coupling arises as a result of mutual modifications undergone by the unities in the course of their ongoing interactions while their identities remain intact. If the identity of a unity is lost then a new unity may be generated as a result of it, but no coupling takes place.’.. coupling leads also to the generation of a new unity that may exist in a different domain from the domain in which the component-coupled unities retain their identity’ (p107)

The nature of the coupling is determined by their autopoietic organization:

(i) Autopoietic systems can interact without loss of identity as long as reciprocally inflicted perturbations lead to compensable disturbances in their structures. They can couple and constitute a new unity while their individual paths of autopoiesis become sources of the specification of each other’s ambience. To persist as a unity the disturbances must remain in the domain permitted by their organizations. As a result the coupling can become invariant while the coupled systems undergo structural changes as a consequence of it. In this way a composite system can develop in which the autopoiesis of the individual systems is subordinate to the ambience defined by the autopoiesis of all the other autopoietic components of the composite unity. Such a system will be defined as a unity by the coupling relations of its component autopoietic systems. A system whose autopoiesis entails the autopoiesis of the coupled unities which realize it, is an autopoietic system of a higher order.

(ii) ‘An autopoietic system can become a component of another system if some aspects of its path of autopoietic change can participate in the realization of this other system’ (p110)

(iii) ‘If the autopoiesis of the component unities of a composite autopoietic system conforms to allopoietic roles that through the production of relations of constitution, specification and order, define an autopoietic space, the new system becomes in its own right an autopoietic unity of the second order’ (p110) An example on earth is the multicellular pattern of organization.

Chapter 5 – Presence of Autopoiesis

1. Biological Implications

.., hence in a living system, loss of autopoiesis is disintegration as a unity and loss of identity, that is, death’ (p112).

(i) ‘The phenomenology of living systems, then, is the mechanical phenomenology of physical autopoietic machines’(p113)

(ii) ‘A biological explanation must be a reformulation of in terms of processes subordinated to autopoiesis, that is, a reformulation in the biological phenomenological domain’ (p114)

(iii)

(iv) ‘.. the biological phenomenological is not less and not more than the phenomenology of autopoietic systems in the physical space’ (p114)

2. Epistemological implications

(i) ‘As a result, the biological domain is fully defined and self-contained, no additional notions are necessary, and any adequate biological explanation has the same epistemological validity that any mechanistic explanation of any mechanistic phenomenon in the physical space has’(p116)

(ii) ‘.. an autopoietic system .. must be explained through autopoietic mechanical relations in the mechanical domain, the phenomena generated through interactions of the autopoietic unities must be explained in the domain of interactions of the autopoietic unities through the relations that define that domain’ (p117)

(iii) ‘The organization of the individual is autopoietic and upon this fact rests all its significance: it becomes defined through its existing, and its existing is autopoietic. Thus biology cannot be used anymore to justify the dispensability of the individuals for the benefit of the species, society or mankind under the pretense that its role is to perpetuate them. Biologically the individuals are not dispensable’ (p 118)

3. Cognitive Implications

The domain of all the interactions into which an autopoietic system can enter without loss of identity is its cognitive domain; this is the domain of all the descriptions it can possibly make. The particular mode of autopoiesis determines its cognitive domain hence the diversity of its behavior.

(i) knowledge (its conduct repertoire) is relative to the cognitive domain of the knower. If the way in which the autopoiesis is realized changes then the knowledge of the unity changes. In that sense knowledge is a reflection of the ontogeny of an organism, because it is a process of continual structural change without loss of autopoiesis and a continual specification of the behavioral capacity hence of its actual domain of interactions.

(ii) Autopoietic systems may interact with each other under conditions that result in behavioral coupling. Autopoietic conduct of A is the source of a deformation in B. The compensatory behavior in B is the source of a deformation in A, whose compensatory behavior for B is the source ..&c. These interactions occur in a chain while A and B interact independently based on their internal structure. Their behavior however is a source of compensable deformations to the other which can be described as meaningful in the context of the interactions in light of the coupled behavior. These are communicative interactions. This consensual domain of communicative interactions where behaviorally coupled organisms orient each other with modes of behavior based on their internal structure is the linguistic domain. Communicative and linguistic interactions are non-informative; organism A does not determine the conduct of organism B; that is determined by their proper organizations.

(iii) ‘An autopoietic system capable of interacting with its own states, and capable of developing with others a linguistic consensual domain, can treat its own linguistic states as a source of deformations and thus interact linguistically in a closed linguistic domain’ (p121). Properties of such systems are: a) An autopoietic system can treat some recursively generated states as objects of further interactions. This can give rise to a meta-domain of consensual distinctions appearing to the observer as a domain of interactions with representations of interactions. The system now operates as an observer. This can occur at any time and so the domain of these recursive interactions with its own states is in principle infinite, unless autopoiesis is lost b) A living system capable of being an observer can interact with descriptive states of itself in the sense of interactions with its own self-linguistic states. It is now an observer of itself as an observer, which can be repeated in an endless manner. The domain is called self-observation and consider self-conscious behavior is self-observing behavior, namely in the domain of self-observation. The observer as an observer remains in a descriptive domain as no description of absolute reality is possible. Some such description would require an interaction with the absolute by the autopoietic organization of the observer, not by an agent of it.

Living systems are an existential proof; they exist only to the extent that they can exist. The fantasy of our imagination cannot deny this. Living systems are concatenations of processes in a mechanistic domain; fantasies are concatenations of descriptions in a linguistic domain. In the first case, the concatenated unities are processes; in the second case, they are modes of linguistic behavior’ (p122)

Coordination of Economic Decisions

Douma, S. and Schreuder, H. . Economic Approaches to Organizations . United Kingdodom : Pearson . 20013 . ISBN 978-0-273-73529-8

The subject of this book is the  coordination of economic decisions. The (categories of) mechanisms for that job are markets and organizations. A special class of organizations is of course the firm. And so this summary of the above book is included as a connection of a new theory of the firm under construction with existing economic theories.

Chapter 1: Markets and Organizations

Economic systems can be segmented by their property rights regime for the means of production and by their dominant resource allocation mechanism1. The coordination problem is the question how information is obtained and used in economic decision-making, namely decisions where demand and supply meet. The book contributes to the answering of the coordination problem in economics: why are economic decisions coordinated by markets and by organizations and why do these systems for that job co-exist?

An economic problem is any situation where needs are not met as a result of scarcity of resources. Knowing this, then what is the optimal allocation of the available resources over the alternative uses? If resources are allocated optimally, they are used efficiently (with efficiency).

Economic approaches to organisations can be fruitful if the allocation of scarce resources are taken into account. To this end consider this conceptual framework (figure 1.1): division of labour (1) >> specialization (2) >> coordination (3) >> markets (4) AND organization (5) << information (6) << pressure from environment and selection (7)

1) division of labour as per Adam Smith: splitting of composite tasks into their components leads to increased productivity (this is taken as a fact of life in our kind of (western) society), because:

2) specialisation (Adam Smith: greater dexterity, saving of time to switch between jobs, tools) enables to do the same work with less labour: economies of specialisation. This higher performace comes at a cost to get acquainted with a new task. Higher performance but less choice: trade-off between satisfaction of higher performance and lower satisfaction because of limited choice and boredom

3) coordination: hardly anyone is self-reliant and exchange must take place between specialists to get the products needed and not self-made. The right to use them is transferred: a transaction takes place. This need to be reciprocal. Specialisation leads to a need for coordination, namely the allocation of scarce resources. There are 2 types of coordination: transactions across markets or within organizations.

4) and 5) markets and organizations: for example the stock market: no individual finds another to discuss allocation, but the price system is the coordinating device taking care of allocation. The price is a sufficient statistic (Hayek 1945) for the transaction. Optimal allocation occurs when prices meet at their equilibrium without parties needing to meet or to exchange more information than the price alone. Why is not all exchange via markets? Because if a workperson goes from dept x to dept y then the reason is not a change of relative prices but because he is told to do it (Coase 1937). A firm is essentially a device for creating long term contracts when short term contracts are too bothersome. They do not continue to grow forever, because as they grow, firms tend to accumulate their transaction cost as well; and so over time the tyransactio cost of the firm will offset those of the market. Transactions will shift between markets and organizations as a function of the transaction cost involved in either choice of alternative. Williamson (1975) has expounded this element to be adressed in Ch8 to include the marginal cost of either alternative. The balance between markets and hierarchies is constantly ‘sought after’ and when it is struck then the entrepreneur may decide to change its transaction cost by forming firms or increasing their size up to the point that its transaction cost becomes too high. Ideal markets are characterized by ‘their’ prices being sufficient statistics for individual economic decision making. Ideal organizations are characterized if their transactions are not based on prices to communicate informatiion between parties. Many transactions in reality are governed by hybrid forms of coordination.

6) Information: the eminent form of coordination is a result of the information requirements in that specific sitution. And so information is the crucial element in the model, producing the coordination mechanism. There are many situations where the price alone cannot provide sufficient information to effect a transaction – up to the point where price alone is entirely incapable of the transaction. Organization thus arises as a solution to information problems.

7) the environment and institutions are the environment in which the trade-offs between market and organization take place and they are economic, political, social cultural, institutional, etc in nature. The environment provides the conditions for the creation of both, shapes both and selects both. Institutions are the rules that shape human interaction in a society (a subset of MEMES with a regulatory character or just the entirety of the memes or the memes that are motivators); they are an important element in the environment of organizations and markets. Douglass North (1990, 2005b?). ‘In the absence of the essential safeguards, impersonal exchange does not exist, except in cases where strong ethnic or religious ties make reputation a viable underpinning‘ [Douglass North 2005b p. 27 in Schreuder and Douma p. 18]. Not agreed: evolution of morale.

If the institutions are the rules of the game imposed by the environment, ‘the way the game is played’ is shaped by the countries’ institutional framework – all institutions composing the environment of organizations and markets. These factors detemine which organizations and markets are allowed and if they do then they shape the way they function. These factors are dynamic.

This approach is fairly new because economists viewed coordination by the market between organizations and organizational scientists viewed coordination inside organizations.

Chapter 2 Markets

Standard micro-economic theory focuses on how economic decisions are coordinated by the market mechanism. Consumers decide on how much to consume, producers decide on how much to produce, they meet on the market and there quantity and price are coordinated.

Law of demand: the lower the price the higher the demand. Law of supply: the lower the price the lower the supply. Market equilibrium occurs where demand and supply intersect.

Theory of demand: goods are combined in baskets, each person can rank the goods in a basket for preference, the preferences are assumed to be transitive, each person prefers to have more of a certain good than less of it. Indifference curves represent the preferences of the person. If two baskets are on different locations on the same indifference curve (he is indifferent), then the utility of the two baskets is said to be the same (because the person’s satisfaction is the same for either). It iss assumed that the consumer knows which basket she prefers, but not by how much. The budget line indicates the person’s budget: if this line is combined with the indifference curve, the maximum utility is located on the tangential of the indifference curve with the budget line (there can be only one).

Theory of supply: how a supplier decides on how much to produce. The firm is an objective function describing the goals of the firm (profit, share value). The objective function must be maximized given the constraints of the firm’s production function. The production function describes the relation of the inputs of a firm and the maximum outputs given those inputs. Q=Q(K, L, M) is the maximum ouput at some given input. If K and M are given at some time then the output increases if L increases. L cannot be increased indefinitely and either K or M will constrain a further increase of L and thus of Q. To increase K takes most time and can only be executed in the long run only: in the short run (and so at any time) M can be changed, in the medium and the long term term L can be changed. L = variable short and long run, K = variable long run only. The production function represents all the combinations of K (LT; Capital) and L (short term; labour) isoquants that the firm can choose from if it wants to produce quantity Qx.

Profit maximization in competitive markets: assume that a firm wants to maximise profits. Then Profit = Q.p – c.K – w.L. Constraint of the production function Q = Q(K, L). Decide How Much to produce implies to choose Q. Deciding How To produce means choosing K and L. K and L are free, Q is their function. Short run: K is fixed so only L is free to choose. Profit = p.Q(KL)-c.K-w.L; its maximum is dProfit / dL = p.dQ / dL – w = 0 or dQ / dL = w / p. If dQ / dL is the marginal productivity of labour it decreases with increasing use of Labour (yet another unit of labour will decrease the marginal productivity of Labour, dQ / dL is a decreasing function.). The firm can choose how much to produce, not how to produce. Long run: dQ / dK = p. dQ / dK – c = 0. From which follows that dQ / dK = c / p, while (see above) dQ / dL = w / p. Solving both gives optimal values foor L and K and from that follows Q. The firm chooses K so that the marginal productivity of K is c / p while choosing L so that the marginal productivity of L is w / p. The firm can choose how to produce and how much.

Market coordination. Producers maximize profit: via the amount she calculates L in the short term and K and L in the long term. This results in a supply curve for all firms and an industry supply curve. Consumers maximize utility and for any given price he decides the amount he is going to buy, resulting in a demand curve for all consumers. Supply and demand meet at one point only, the intersection of their curves, and the resulting price is a given for consumers and producers. Now every consumer knows how much he will buy and every producer how much she will produce.

The paradox of profits. Normal profit equals the opportunity cost of the equity capital. Economic profit is any profit in excess of normal profit. If profit falls below the normal profits, then the shareholders will invest their capital elsewhere. In a competitive market a firm cannot make an economic profit in the long run, because profit attracts new incumbants, supply increases, prices go down and economic profits vanish. Hence the paradox: each firm tries to make a profit, but no firm can in the long run.

Comments: 1) if competition was perfect then resource allocation was efficient and the world would be pareto optimal. This does not imply that everyone’s wants are satisfied, however, it just means that, given some configuration, an initial distribution of wealth and talents, nobody can be made better off whithout someone else being worse off. 2) assumptions underpinning the assumption of perfect markets are: 2a) large number of small firms, 2b) free entry and exit of firms, 2c) standardization of products. 3) it is assumed that firms are holistic entities in the sense that its decisions are homogeneous, taken as if by one person with profit maximization in mind, given their utility function. 4) firms are assumed to have only one objective such as profit or shareholder value. If there are other then they must be combined into one as a trade-off. 5) it is assumed that there is perfect information: everyone knows everything relevant to their decisions. In reality information is biased: the insured knows more about his risks than the insurance company, the sales person knows more about his activities when travelling then his boss. This is not a sustainable market. 6) consumers and producers are assumed to maximize their profit and utility and so it is assumed that they must be rational decision makers. The decisions may be less solid and more costly the longer the prediction horizon is. 7) markets are assumed to function in isolation, but it is clear that the environment influences the market.

Chapter 3 Organizations

Are ubiquitous. It is impossible for markets alone to coordinate people’s actions. Paradox at the heart of modern economies: it is possible to an increasing extent to work individually doing specialized work but thhis is only possible because of some form of organization and interdependency. While people appear to have more agency, they are more dependent on others’ performance. The central question the is how organizational coordination – as opposed to market coordination – is achieved.

.. the operation of a market costs something and by forming an organization and allowing some of authority (‘an entrepreneur’) to direct the resources, certain marketing costs are saved‘ [Coase 1937 in Schreuder Douma 2013 p 48].

.. the problem of what is the best way of utilizing knowledge initially dispersed among all the people is at least one of the main problems of economic policy – or of designing an efficient economic system. The answer to this question is closely connected with that other question which arises here, that of who is to do the planning. .. whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals‘ [Hayek 1945 in Schreuder and Douma 2013 pp. 48-49].

The best use of dispersed information is indeed one of the main problems in economic coordination.

Mintzberg identified these ways in which work is coordinated in organizations: mutual adjustment, direct supervision, standardization of work process, standardization of output, standardization of skills, standardization of norms. ‘These are thus also the ways in which people in organizations can communicate knowledge and expectations. Conversely, they are the ways in which people in the organization may learn from other what they need to know to carry out their tasks as well as what is expected from them‘ [Schreuder and Douma 2013 p. 51]. In large organizations is it no longer possible to coordinate via the authority mechanism and so combinations of the other mechanisms are used.

Real organizations are hybrids of the above coorinating mechanisms. Some prototypical organizations are dominated by a specific coordinating mechanism: 1) Entrepreneurial Organization – Direct Supervision, 2) Machine O – Stand. of Work Processes, 3) Professional O – Stand. of Skills, 4) Diversified O – Stand. of Outputs, 5) Innovative O – Mutual Adjustment, 6) Missionary O – Stand. of Norms. When markets are replaced by organizations then the market (price) mechanism is replaced by other coordinating mechanisms. Organizations can take many forms depending on the circumstances: it can handle different types of transactions [p 58].

Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, mysellf included, are in a state of shocked disbelief‘ [Alan Greenspan former chairman of the Federal Reserve about the lack of regulation in the financial markets to the House Committee on Oversight and Govenment Reform during a congressional hearing in 2008].

Chapter 4: Information

The information requirements in any situation determine the kind of coordination mechanisms or mix of them. If agents cannot influence the price then the market is perfect and the agents are price-takers; in that case the prices are sufficient statistics conveying all the necessary information to the market parties. Under conditions of perfect markets (namely perfect competition) agents can only decide on the quantity at some price for some homogeneous good (namely no difficulties with the specifications, quality differences). The price mechanism is a sufficient coordination mechanism where the economic entities have a limited need for information. If all the required information can be absorbed in the price can we rely on the market (price) mechanism as the sole coordinating device.

If the specifications vary then more informtion than the price only is necessary. Sugar: commodity product, price suffices. Fruit: some changes with the season, some more info is needed by selecting the individual pieces. Soup: more info is needed, tasting not practical, brand name as a label to inform client of the specifications to expect. A brand name is a solution to an information problem. Uncertainties exist for instance the quality of next year’s fruit: retailers and suppliers may agree on a contingent claims contract (prices depends on the actual quality at that time). In practical terms it is difficult to cover all contingencies.

If client and supplier have different information then information asymmetry exists. Disclosing all information to a client needed to fully understand some solution or product enables the construction of the object by the client himself and destroys its value. This situation can invite opportunistic (or strategic) behavior in agents.

Hidden information means the existing skewness of availability information between the parties, leading the one to take advantage of the other. Hidden action means introduced skewness between the availability of information between parties. Hidden information and hidden action both come from unobservability, they both imply a skewness of information and both occur in both market and organizational environments. Hidden information is an ex-ante problem, while hidden action is an ex-post problem.

If everybody knew everything then all information would be of equal value.

Chapter 5: Game Theory

Coordination game: two or more players coordinate their decisions so as to reach an outcome that is best for all. Example new technology. If both choose the same platform then the customer is not forced to choose between tech AND brands, but brands only. This is an advantage for both. If the choice is to be made simultaneously then the outcome is unpredictable, if the decisions are seqeuential then one player will follow the other player’s choice of tech. As soon as a first player chooses then the choice must be comunicated to the other so as to reap the benefits and not allow the other to deviate.

The entry (monopolist versus incumbant) game: moving from one stage to two stages. This can be solved by looking ahead and reasoning backwards in a decision tree. Commitment in this sense means that a participant altes the pay-offs irreversibly by committing to some course of action so that it it becomes in its own interest to execute a threat. Example: investing in extending a mobile network prior to a new incumbant entering allows the monopolist to execute its threat to lower prices – thereby increasing its number of customers.

Situations involving more than two players in a single stage game: auctions. In both open auctions and closed bid auctions, the observability of information plays a crucial role. At an increasing bid auction the price may not be perfect for the seller as the one-but-the-last potential buyer may drop out at a price far below the cut-off of the last potential buyer. To prevent that, the dutch auction can be used: a decreasing price auction. In this way the seller reclaims some of the difference between the highest and the one-but-the-highest bid. A problem for the seller is that there is no minimum price. To establish a minimum a seller can revert to a two-stage auction: first the increasing price competition where the winner takes some premium, followed by a dutch auction. If the second stage does not result in a price then the winner of the first stage buys the lot. In this game, only the winner’s private information remains private, the others’ are known after the intial round. During the second round the bidder with the highest private valuation is induced to reveal it and the seller is willing to pay a premium to get this information. The premium is hopefully loer than the difference between the highest and the one-but-the highest bid.

Sealed-bid auction: best performance+synergies considering first bid competitor’s prize.

The observability of auctions pertains to the differences in availability of the private information of each of the participants in the auction. The winner’s curse is the question whether the winner was lucky to win or overly optimistic in her predictions. Competitors can collude to keep the price low.

Single stage PD, Iterated PD for many players. IPD with players’ mistakes: show generosity by retaliating to a lesser extent than the defection and show contrition by not re-retaliating if the other retaliates after a mistaken defection. However, too much forgiveness invites exploitation.

In evolutionary game theory strategies evolve over time: variation, selection and retention. In a fixed environment (fixed proportions of strategies) it pays to learn which competitors are exploitable: maximize cooperation with the cooperating strategies and exploit the exploitables. In a dynamic environment the fitter strategies increase their proportions in the population. If more can evolve then they co-evolve.

Chapter 6: Behavioural theory of the firm

In micro-economics the firm is viewed holistically (as a dot with agency), in behavioral theory it is seen as the locus of the coalition of the (groups of) participants of the firm. The starting point is not full but bounded rationality: cognitive and informational limits to rationality exist. Decision processes in the firm are described as step: 1) defining the goals of it2 2) how it forms expectations on which the decision processes are based 3) describe the process of organizational choice.

Each participant receives inducements and makes contributions to the organization. These can have a wide defintion: they are a vector of inducements and contributions. What sets behavioral economics apart from standard micro-economics is that participants are not fully capable to know every alternative; it is in the information they have. For some of the elements of the vector of for instance employees these are even harder to know than regarding the pay; and so on for all participants of the coalition. In standard micro-economics the management is hired by the shareholder and works for them alone. In behavioral economics, management represents the interests of all stakeholders. The competitive environment as per micro-economics is a given, behavioral economics focuses on the decision making processes in the firm.

Step 1 organizational goals: in standard micro economics (SME) one goal is assumed of profit maximization. In behavioral economics it is assumed that every participant has her goals, that between them do not necessarily coincide. The composition and the overall goals of the coalition (the firrm) are arrived at via bargaining: the more unique the expected contribution the better her bargaining position. Each participant demands that the goals reach some individual level of aspiration; if that hurdle is not reached she will leave the coalition. Theoretically in the long term there would be no difference between the levels of achievement in the firm, the levels of achievement of other firms and the level of aspiration of the participants in these respects. The difference between total resources and total payments required to preserve the coalition is the ‘organizational slack’. So in the long run there would be no organizational slack. However, the markets for the various contributions are not perfect because information about it is difficult to obtain and the levels of aspiration change only slowly. In behavioral theory it is assumed that operational subgoals are specified per managerial area; it is however often impossible to define operational goals per area. And so aspirational levels are identified taking into account the effects of the conflicts between areas and so the conlict is quasi-solved instead of completely.

Step 2 organisational expectations: SME assumes information symmetry; in behavioral firm theory this is not the case. The production manager needs the sales manager to makes a forecast. Expectations means to infer a prediction from available information. Members have different information and different inference rules.

Step 3: organizational choice: SME assumes that behavior of firms is adequately described as maximizing behavior: all alternatives are known and they can be compared so as to maximize the objective. Behavioral theory rejects these assumptions: decisions have to be made under limitations. They make decisions on a proposal, without knowing what alternatives turn up the next day. SME assumes that firms search until the marginal cost of additional searching equals the marginal revenue of additional searching. Other firms would take advantage of this because they decide quicker. In reality this is impractical. In behavioral theory alternatives are roughly evaluated based on available information one at a time instead of maximizing their (assumed) objective function and weighted against some aspired level. This process is better described (then maximizing) as satisficing: to search for alternatives that satisfy levels of aspiration and is threfore acceptable. This process is closer to reality because alternatives often present themselves one at a time (is that so?). Also it is quite implausible that the consequences of each alternative can be calculated because people cannot handle all the relevant information: their rationality is bounded. They intend to be rational but only manage to a limited extent. The final argument why firms are rather satisficing than maximizing is that each stakeholder has her objectives and if a firm has no single objective functon, how can it maximze? Alternatives are evaluated against an aspiration level of each stakeholder and if they meet those they are then accepted.

Even the inteded rationality is rather generous when it concerns people. Kahneman and Tversky concluded that people are biased and use simple rules of thumb to decide.

Chapter 7: Agency Theory

This theory stems from the separation of ownership and control and discusses the relation between the entities the principal and the agent, who makes decisions on behalf of (or that affect) the principle (e.g. manager – shareholder). Dialects of the theory are: the positive agency theory (the firm is a nexus of contracts), that attempts to explain why organizations are as they are, and the principal and agent theory (how does the principle design the agent’s reward structure).

There is a stock market for corporate shares and a market for corporate control, entire companies. Here competition between management teams increases the pressure on management performance. Also there is a market for managerial labour: management of a large firm is typically more prestigious than a smaller one. Also there is a market for the firms products: the more competition in those marjets, the less opportunity for the manager to wing it. Lastly the pay package of the manager usually includes a profit or stock related bonus that brings the manager’s interests more in line with the shareholder’s.

Managerial behavior and ownership structure.

Monitoring and bonding.

Entrepreneurial firms (owned and managed by the same person) and team production. The entrepreneur monitors and controls the work of others and gets paid after all the contracts have been fulfilled. If a freelancer puts in n extra effort she enjoys m extra utility working alone. If in a team putting in extra n she enjoys only 1/m additional utility. This results in shirking: when in a team people tend to put in much less effort then when they work alone. Everyone is willing to put in more effort if the others do also. If this can be monitored by the other members of the team then a solution can be for all to agree not to shirk and to punish someone who does. Else it is unobservable , an informational problem. [Minkler 2004]. If shirking can be detected by an independent monitor (and not or with difficulty by the other team members) then if the monitor is paid a fixed pay then the monitor is incentivized to shirk also. If the monitor has a right to the residuals after the contracted cost are fulfilled, then she will have no incentive to shirk. If the monitor is to be effective then she must be able to make changes to the team (revise contracts, hire and fire, change individual payments) without consent of all the other members and sell her right to be the monitor (to justify actions the effect of which is delayed in time). The monitor in this sense is the entrepreneur, the firm is an entrepreneurial firm. This theory assumes the existence of team production and that monitoring reduces the amount of shirking. The latter implies that this is useful if it is more cumbersome for the members to monitor themselves and each other then for an outsider to do it; only in that case is this model viable.

In these two ways 1) consumption on the job and 2) shirking are restricted by managers.

The firm as a nexus for contracts: if 1) and 2) then how to explain the existence of large corporations not (or to a limited extent) owned by their managers. Shareholders in this sense merely have contracted to receive the residual funds: they are security owners. Shareholders are just one party bound by a contract to the firm like many others with their specific individual contracts.

[Fama and Jensen 1983 a, b] explain entrepreneurial and corporations with this ‘nexus of contracts’ model. ‘They see the organization as a nexus of contracts, written and unwritten, between owners of factors of production and customers‘ [Schreuder and Douma 2013 p151].

The residual payment is the difference between the stochastic cash inflow and the contracted cash outflow, usually fixed amounts. The residual risk is the risk of this diffrence, borne by the residual claimants or risk bearers. The most important contracts determine the nature of the residual payments and the sttructuring of the steps in the decision process of the agents: initiation (decision management), ratification (decision control), implementation (decision management), monitoring (decision control) of proposals. Fama and Jensen distinguish between non-complex and complex organizations: non-complex are the organizations where decisions are concentrated in one or a few agents, complex ini more than a few (small and large organizations respectively). If a small firm is acquired by a larger one, then the decision control transfers from the management of the smaller to the larger while decision management stays with the management of the smaller firm. As the management of the smaller firm is no longer the ultimate risk bearer nor the receiver of the residual payments, this confirms the theory.

Theory of principal and agent

In this theory risk and private information are introduced in the relation between agent and principal. Conditions concerning these issues in the previous versions of the agency theory are relaxed here. If the performance of the firm depends on the weather (random) and the performance of the agent, then: situation 1) the principal has information about the agent’s performance, 2) the agent has no information about the agent, 3) the agent has no direct information about the agent’s performance but has other signals.

These models are single-period and single-relation and therefore not realistic, because agents are usually employed for more than one period. Also if more than agent is employed often in circumstances that are not exactly the same and therefore the relation is different. Monitoring is costly and so the question remains how and how much to monitor. The model is based on monetary criteria only and that is not reality.

Chapter 8: Transaction Cost Economics

The fundamental unit of analysis is a transaction. Whether a transaction is allocated to a market or a firm is a cost minimization issue. Schreuder and Douma argue that to assume tht cost in a firm are lower than cost outside of it is a tautology, becaue: ‘If there is a firm then, apparently, the costs of internal coordination are lower than the cost of market transactions‘ [Douma and Schreuder 2013 p167]. But boundaries can emerge for other reasons than costs alone and, contary to what they claim, this can be empirically tested in a ‘make or buy comparison’. Transaction cost economics as per Williamson is based on bounded rationality and on opportunism. Bounded rationality means that the capacity of humans to formulate and solve problems is limited: it is ‘intendedly rational but only limitedly so‘ [Simon, H.A. . Administrative Behavior (2nd edition) . New York . MacMillan . 1961 and Organizations and Markets . Journal of Economic Perspectives / vol. 5 (2) pp 25-44 . 1991]. Bounded rationality will pose problems when the environment is uncertain or complex. Opportunism is defined as ‘self-interest seeking with a guile’ and as making ‘self-disbelieved statements’. Opportunistic means to try to exploit a situation to your own advantage in some cases by some people. It is difficult and costly to ex-ante find out who will do this and in which cases. Opportunistic behavior can occur ex-ante (not telling the buyer of a defect prior to the transactio) and ex-post (backing out of a purchase). This problem can occur when trading numbers are small and if the numbers are large but reputations are unimportant or information about reputations is unavailable.

Whether a transaction is governed by the market or by an organization (the mode) is governed by the sum of the production cost and the transaction cost and by the atmosphere. The atmosphere is the local environment where the transaction takes place itself giving satisfaction (for example to work as a freelancer or be an employee of some organization). This acknowledges the fact that economic exchange is embedded in an environmental and institutional context with formal and informal ‘rules of the game’ (as per chapter 1); ‘the informal rules of the game are norms of behaviour, conventions and internally imposed rules of conduct, such as those of a company culture. this can be related to the informal organization. ., he acknowledges the importance of such informal rules, but admits that both the concepts of informal organization and the economics of atmosphere remain relatively underdeveloped’ [Williamson 1998, 2007 in Douma and Schreuder 2013 p. 174].

The fundamental transformation means that lock-in occurs after a supplier has fulfilled a contract during some time and has learned how to manufacture efficiently. This lock-in is effectively a monopoly in a many supplier situation.

Critical dimension of a transactions: 1) Asset specificity (asset required for one transaction only) resulting in the availability of quasi-rent (everything above the variable cost) that the buyer will want to appropriate. Solution: merger or long-term contract includes inspection of the buyer’s business by the seller. 2) Uncertainty / complexity 3) Frequency. If 1), 2) and 3) are high then the transaction is likely to be executed within an organization in the long run. If the cost of transacting under the different modes differ then the more efficient mode will prevail. This leads to competition between organizational forrms and the one that turns out to be most efficient prevails in the long term.

A peer group is a group of people together without hierarchy. The coordinating mechanism is mutual adjustment. Advantages are: 1) economies of scale regarding specific assets 2) risk-bearing advantages 3) associational gains (atmospherical elements like higher effort, inspiration, quality). Disadvantages are shirking and so even in peer groups some form of hierarchy emerges (senior partners).

A simple hierarchy is a group of workers with a boss. The advantages are: 1) team production (monitoring according to Alchian and Demsetz (1972), separation of technical areas according to Williamson (1975), this is rare). 2) Economies of communciation and of decision making (in a simple hierchy the connections are n-1, in a peer group the number of connections is 1/2n(n-1): the cost of communicating is much higher in a peer group),re decision making takes less effort and less cost also as a consequence). 3) Monitoring (to prevent shirking in a peer group).

Multistage hierarchies: U form enterprises are functional hierarchies. They suffer from cumulative control loss and corruption of the strategic decisionmaking process. M-form enterprises are a solution for those problems: divided at top level into several semi-autonomous operating divisions along product lines. Top management is assisted by a general office (corporate staff). Advantages: 1) responsibility is assigned to division management cum staff 2) the corporate staff have auditing and advisory role so as to increase control 3) the gereal office is concerned with stratefgic decision including staffing 4) separation of general office from operations allows their executives to not absorb themselves to operational detail. A third is the H-form, a holding with divisions, the general office is reduced to the shareholder representative.

Concerning coordination mechanisms other than markets and organisations: markets coordinate via price mechanisms, organizations via the 6 mechanisms defined earlier. Namely: mutual adjustment, direct supervision, standardization of work process, standardization of output, standardization of skills, standardization of norms. Often the organizational form is a hybrid of some of the ‘pure’ configurations. In addition the markets are usually to some extent organized and organizations can have markets of all kinds inside of them.

Williamson’s transaction cost economics is also called the markets and hierarchies paradigm: markets are replaced with organizations when the price coordination breaks down3. Comments on the paradignm are that: 1) people are not that opportunistic: they can and do trust each other, 2) markets and organizations are not mutually exclusive coordination mechanisms but they should be viewed as a continuum.

Ouchi introduced clans as an intermediate form between markets and organizations as markets, bureaucracies (later hierarchies) and clans [Ouchi 1980, Ouchi and Williamson 1981]. Clans are a third way of coordinating economic transactions. The replacement of bureaucracies for hierarchies was standard form in organizational sociology [Max Weber 1925, translation by A.M. Henderson and T. Parsons . The Theory of Social and Economic Organization . New York: Free Press . 1947]: personal authority is replaced with organizational authority. Modern organizations now had the legitimacy to substitute personal rules for organizational rules, described by Weber as bureaucracies. Ouchi argues that in those bureaucracies prices are replaced with rules. And the rules contain the information required for coordination. The essence therefore of this type of coordination is not its hierarchic but its bureaucratic nature.

The third way of coordinating transactions is a clan. The clan relies on the socialization of individuals ensuring they have common values and beliefs: individuals who have been socialized in the same way have common norms for behavior. The norms can also contain the information necessary for transactions. This is clarified by an axamples of Japanese firms, where workers are socialized so as t adopt the company goals as their own and compensating them for non-performance criteria such as length of service. Their natural inclination as a result of socialization is to do what is best for the firm. Douma and Schreuder argue that Ouchi’s emphasis on rules does not cover the entire richness of observed organizations and it is subsumed by Mintzberg’s typology in 6.

The role of trust: the position of Williamson is that you cannot know ex ante whom to trust because some people cheat some of the time. If you like your business partner and you know that she trusts you, you are less likely to cheat on her, even if that would result in some gain: trust is an important issue. If the trust is mutual you can develop a long-term business relationship. Trust is important between and within organizations. If, in general, people are treated in good faith then they are more likely to act in good faith also. But as Williamson argues, you cannot always ex-ante be sure about the stranger and you might be needing to prepare for an interaction.

Chapter 9: Economic Contributions to Business/Competitive Stategy

Economic contributions to strategy planning and management are mainly related to content, not process: the focus is on the information that firms need to make their choices.

Move and counter-move: In 5.3 commitment was introduced as a way to change the pay-off in a game setting. The example concerned the investment in a network by National, the existing cellphone provider. ‘Commitments are essential to management. They are the means by which a company secures the resourcces necessary for its survival. Investors, customers and employees would likely shun any company the management of which refused to commit publicly to a strategy and back its intentions with investment. Commitments are more than just necessities, however. Used wisely (?), they can be powerful tools that help a company to beat the competition. Pre-emptive investments in production capacity or brand recognition can deter potential rivals from entering a market, while heavy investments in durable, specialized and illiquid resources can be difficult for other companies to replicate quickly. Sometimes, just the signal sent by a major commitment can freeze copetitors in their tracks. When Microsoft announces a coming product launch, for instance, would-be rivals rethink their plans‘ [Sull, D.N. . Managing by Commitments . Harvard Business Review, June 2003 pp. 82-91 in Douma and Schreuder 2013 pp. 223-4].

Memeplex > Belief + Environment > Predicting* / Planning* > Committing* > Execution = Acting as Planned, * means anticipating the future. Compare to: ‘Each single business firm and each business unit in a multibusiness firm needs to have a competitive strategy that specifies how that business intends to compete in its given industry‘ [Douma and Schreuder 2013 p. 228].

Chapter 10: Economic Contributions to Corporate Strategy

In a multibusiness firm some transactions are taken out of the market and internalized within the firm: capital market, management market, market for advise. Also some transactions between the individual businesses are taken out of the market and internalized, such as components, know-how. The question is whether this approach is more efficient than the pure market approach, namely is value created or destroyed. Parenting advantages poses 2 alternative questions: 1) decide whether corporate HQ adds value. Yes if it is cheaper than the market. 2) Can another HQ add more value to one of the business units. Yes if another parent cannot add more value to the BU. This is related to the market of corporate control earlier discussed.

Value adding activities of HQ are: 1) Attract capital and allocate to business units 2) appoint, evaluate abd reward business unit managers 3) offer advice 4) provide functions and services 5) portfolio management by making adjustments to the business units.

In a mature market economy it is harder for an organization to surpass the coordinating capacity of the market. In a less developed economy this threshold is easier to meet and organizatrional coordination is more favourable than market coordination. Organizational relatedness of business units A and B sharing the same HQ can take different shapes: 1) vertical integration (A supplying B) 2) horizontally related (A and B are in the same industry) 3) related diversification (A and B share same technology or same type of customer) 4) unrelated diversification (A and B share nothing). Portofolio management means management of the business units.

Chapter 11: Evolutionary Approaches to Organizations

The perspective is on the development of organizational forms over time: from static to dynamic. The anaysis is about populations of organizational forms, not the individual organization but the ‘species’. Organizations are human constructs: ‘.. organizations can lead a life of their own, to continue the biological analogy – but the element of purposive human behaviour and rational construction is always there‘ [Scott, W.R. . Organizations: Rational, Natural and Open Systems (5th edition) . Englewood Cliffs . NJ: Prentice Hall . 2003]. Thus the creationist view is likely to have more implications for the organizational view than for the biological view. The meaning of the term construct goes beyond the design of something, and includes a product of human mental activity. It might be said that organizations are more constructionist / constructional than giraffes. ‘Organizations are much less ‘out there’: we have first to construct them in our minds before we find them. This delicate philosophical point has important consequences. One of those consequences is that it is harder to agree on the delineation of organizations than of biological species. Another consequence is that it is much less clear what exactly is being ‘selected’, reproduced’ in the next generations and so on‘ [Schreuder and Douma 2013 p 261].

Similarities between the organizational and the biological view evolve from the assumptions that 1) organizations have environments and 2) environments play a role in the explanation of the development of organizational forms. As a result the development of organizational forms instead of individual forms can be studied and additionally the concept of environment is broadened to anything that allows for selective processes. As a reminder: selection on certain forms of organization is now replacing adaptation of individual firms to their environment. ‘So, there is no question that selection, birth and death, replacement and other such phenomena are important objects of orgnizational study as well‘ [Douma and Schreuder 2013 p. 262].

Ecologists study the behavior of populations of beings: what is the defintiion of a population in organizational science and what is the procedure for the distinction of one population of organizational forms from another. Organizational ecology distinguishes three levels of complexity: 1) demography of organizations (changes in populations of organizations such as mortality) 2) population ecology (concerning the links between vital rates between populations of organizations) 3) community ecology of organizations (how the links within and between populations affect the chances of persistence of the community (=population of firms or society?) as a whole). 1) has received the most attention, 2) and 3) not so much.

The definition of a species is interbreeding: its genotype, the genepool. According to Douma and Schreuder there is no equivalent for organizations. This can be solved using the concept of memes identifying the general rules that are adopted by participants in this kind of organization, DPB.

An organizational form is defined as the core properties that make a set of organizations ecologically similar. An organizational population is a set of organizations with some specific organizational form. [Caroll and Hannan in 1995 in Douma and Schreuder 2013 p264]. An assumption is the relative inertia of organizations: they are slow to respond to changes in their environment and they are hard-pressed to implement radical change should this be required. As a consequence organizations are inert relative to their environments. This sets the ecological view apart from many others as the latter focus on adaptability. In other approaches efficiency selects the most efficient organizations. The Carroll and Hannan approach of ecological organizations is that these have other competences: 1) reliability (compared to ad-hoc groups) 2) routines can be maintained in organizations but not in ad-hoc groups 3) organizations can be held accountable more easily 4) the organizational structures are reproducible (procedures must stay in place). Selection pressures will favor those criteria in organizations and so they will remain relatively inert: inertia is a result of selection, not a precondition.

What is the size of a population, namely how many organizations with some typology do wee expect to find in a population: 1) what is its niche 2) what is the carrying capacity. Whether an actual organization survives is detemined by 1) competition with other organizations in their niche, 2) legitimation is defined as the extent to which an organization form is accepted socially (D & S are confusing the organizational form and the actual organization here). As they perform consistently and satisfactorily then they survive.

[Nelson, R. and Winter, S. . An Evolutionary theory of economic change . 1982] Their view is routine behavior of firms and developments of economic systems. Firms are better at self-maintenenance than at change if the environment is constant and if change is required than they are better at ‘more of the same’ than at other kinds of change. They denote the functioning of organizations with: 1) routines that are learned by doing 2) the routines are largely tacit knowledge (Viz Polyani 1962). Organizational routines are equivalent to personal skills: they are automatic behavior programmes. ‘In executing those automatic behavior programmes, choice is suppressed‘ [Douma and Schreuder 2013 p272]. Routines are 1) ubiquitous in organizations, they are the 2) organizational memories and they serve as an organizational truce meaning that satisficing takes the place of maximizing in the classical sense. ‘The result may be that the routines of the organization as a whole are confined to extermely narrow channels by the dikes of vested interest … fear of breaking the truce is, in general, a powerful force tending to hold organizations on the path of relatively inflexible routine‘ [Nelson and Winter 1982 pp 111-2 in Douma and Schreuder p. 272].

Thre classes of routines: 1) operating characteristics, given its short term production factors 2) patterns in the period-by-period changes in production factors 3) routines that modify over time the firm’s operating characteristics. And so routine changing processes are themselves guided by routines. And so just as in the biological sphere, the routine make-up of firms determines the outcomes of their organizational search. (The pivot of this categorization is the presence of production factors in the firm and how that changes over time; my starting point, via Rodin, was the presence of ideas that might or might not lead to the buying or making of production factors or any other method, contract, agreement, innovation or mores DPB). Whatever change happens it is expected to remain as close as possible to the existing situation minimizing damage to the organizational truce.

‘He (Nelson) went on to point out that there are three different if strongly related features of a firm..: its strategy, its structure, and its core capabilities’. .. Some of the strategy may be formalizedand writtten down, but some may also reside in the organizational culture and the management repertoire. .. Structure involves the aay a firm is organizaed and governed and the way decisions are actually made and carried out. Thus, the organization’s structure largely detemines what it does, given the broad strategy. Strategy and structure call forth and mould organizational capabilities, but what an organization can do well also has something of a life of its own (its core capabilities DPB).

Nelson and Winter classify themselves as Lamarckian, while Hannan and Freeman classify themselves as Darwinian [Douma and Schreuder 2013 p 275]. In my opinion this classification is trivial as memetic information can recombine so as to introduce new ‘designs’ in a darwinian sense or starting from the environment, new requirements can be introduced that the organization must deal with to in the end internalize them in the rules, DPB.

Hannan and Freeman conclude that organizational change is random, because 1) organizations cannot predict the future very well 2) the effects of the orrganizational change are uncertain. Nelson and Winter conclude that some elbow room (namely learning imitation and conscious adaptation) exists, but that changes are constrained by the routines that exist at some point. From a practical point of view organizations are less adaptable than might be expected.

Differences between ecological and evolutionary approach: 1) in the ecological approach the organizational form is selected, in the volutionary approach the routines are selected 2) the ecological approach observes the organization as an empty box in an environment, whereas the evolutionary approach introduces behavioral elements and so the inside of the firmm is adressed as well.

Chapter 12: All in the Family

The model encompasses a family of economic approaches. The chapter is about their similarities and differences.

Information is pivotal in the model detemining which coordination mechanism prevails. Environmental and selection pressures on both markets and organizations. In this context the pressure on organizations results in the population power law and the pressure on the stock exchange results in the power law (or exponential ?) for the distribution of the listed firms on the grid.

Commonalities in the family of models: 1) comparison between markets and organizations 2) efficiency guides towards an optimal allocation of scarce resources and therefore in the selection of either markets or organizations as coordinating mechanism 3) information is stored in the routines, the rules, arrangements.

Process and / or content traditional dichotomy: differences in the family of models: content theories dealing with the content of strategies or process theories enabling strategies to come into being. Similarly approaches to organizations can be distinguished as process (what are the processes regardless the outcomes) and content (what is the outcome regardless the process leading up to it). From process to ascending content: behavioral theory – organizational ecology – evolutionary theory – dynamic capabilities – RBV – strategy – transaction cost economics – positive agency theory – principal agent theory.

Evolutionary theory is classified as a process based theory with increasingly more capabilities to generate outcomes.

Static and dynamic approaches: itt turns out that on a content-process and statis-dynamic grid, the middle sections are empty: there is no theory that addresses both dynamicism and content generation simultaneously. View picture 12.3 p. 302.

Level of analysis ascending from micro to macro: dyad of individual persons – small group with common interest or purpose – intergroup of groups with different interests or purposes – organization as a nexus of contracts, a coalition, administratieve unit – organizational dyad as a pair of interacting organizations – population of organizations as all organizations of a specific type – system as the entire set of all organizational populations. View picture 12.4 on p. 304.

The extension of the evolutionary theory with dynamic capabilities has provided a bridge to Resource Based View strategy theories and it implies that evolutionary theories can now allow for more purposeful adaptation than before. In addition the managerial task is recognized in the sense of build, maintain and modify the resource and capability base of organizations.

Lastly: 1) at all levels of analysis (dyads to systems) economic aspects are involved 2) the approaches address different problems because they view a different level and because of different time frames 3) even at the same level of analysis different theories see different problems (differrent lenses etc).

Paragraph about complex adaptive systems.

Chapter 13: Mergers and Acquisitions

The significance of m&a: 1) globalization 2) strong cask-flow after the 2001-2003 slump 3) cheap financing facilitates PE 4) shareholder activism and hedge funds. Success and failure: target firms’ shareholder gain 20+% while bidding firms’ shareholders break even. If this is due to more efficient management of the bidder then the market for corporate control is indeed efficient, else: the market can be elated when the deal is announced but disappointed after the deal is closed. Using event analysis (change in stock price around take over) The net overall gain seems to be positive: M&A apparently in that view is a worthwhile activity as it is creating value for the shareholder. Using outcome studies (comparison of performance of merged of taken-over firms against competitors) shows that associated firms compared to a non-merging control group in 11% of the transactions come out stronger after the event and weaker in 58%. This is consistent with event studies in the long term. Details: 1) combined sales equal or lower in spite of consumer prices tendency to rise 2) investments equal 3) combined R&D lowered 4) assets restructured 5) lay-off unclear 6) management turnover in about half the cases. Serial acquirers seem to be more successful than occasional acquirers.

Focus-increasing acquisitions tend to show the best results. Diversifying acquisitions the worst. The best approximation of the success and failutre rate of any acquisition in general is about 50/50. Target shareholders do best, buyers shareholder break-even. Management encounters changes.

Strategy, acquisitions and hidden information: buyers and sellers suffer from hidden information (risk of buying a lemon).

Auctions: the vast majority of M&A take place via an auction. Description of the process.

The winner’s curse and hubris: a majority of the M&A’s destroy shareholder wealth.

Adverse selection. Moral hazard.

Chapter 14: Hybrid forms

This is a form of coordination in between market and organization. Examples: franchise, joint venture, purchase organization, long-term buyer-supplier relation, business groups (some tie of ownership, management, financing etc), informal networks.

The basic thought was that if asset specificity rises then transaction cost rises more rapidly in a market configuration than in an organization: and in a hybrid form this is in between. As an illustration: if asset specificity is very low then the market can coordinate this, if it is medium specific then a hybrid can coordinate it, else it has to an organization to coordinate it.

Tunnelling is the transfer of value through artificial invoicing. Propping is to prop up underperforming or struggling firms to the benefit of the controlling owners.

Chapter 15: Corporate Governance

This is the system by which the business firms are directed and controlled via rules, responsibilities for decisions and their procedures. It also involves the way the company objectives are set, the means of attaining them and the monitorig of them. The focus here is on the relation between the shareholders and the management. Problems can arise for a lack of alignment and because of information asymmetry between them. This may arise because sharwholders expect the management to maximize their shareholder value, while the management expects to maximize her utility function. Porblems: 1) free cash flow issue in mature markets and hubris 2) difference in attitude towards risk: shareholders invest some portion in each firm to spread risk, a CEO invests all her time in the firm: the shareholder expects that risk be taken, the CEO tends to more risk averse 3) different time horizons: shareholder are entitled forever, CEO’s are contracted for a limite period only 4) the issue of on-the-job consumption by management. Any program in this area should focus on reducing the information gap and the existing interests: the size of the agency problem can be reduced by organizational solutions and market solutions.

[Paul Frentrop 2003] shows that the main reason for improvement of the corporate governance regulations was stock market crashes and scandals such as the South Sea Bubble in the UK 1720 and the 1873 Panic in the USA.

The evolution of different corporate governance systems in the world: 1) social and cultural values: in Anglosaxon countries in the social and political realm individual interests prevail over collective interests and this may explain why markets play a relatively large role 2) is the concept of a corporation viewed from a shareholder perspective or from a stakeholder perspective 3) the existence of large blockholdings in companies by institutional investors (yes in Germany and Japan, no in the US) implies a difference of the corporate governance 4) the institutional arrangementss have been developed over time and they incorporate the lessons of the past; in that sense the countries’ policies are path-dependent. Do these diffferences between countries’ corporate governance regulations increase over time or do they converge? This may be the case because: 1) cross-border mergers, 2) international standardization of discosure requirements 3) harmonization of securities regulations and merger of stock exchanges 4) development of corporate govenernance codes (best practices) incorporating those of other countries.

1If private ownership is combined with market allocation the system is called “market capitalism”, and economies that combine private ownership with economic planning are labelled “command capitalism” or dirigisme. Systems that mix public or cooperative ownership of the means of production with economic planning are called “socialist planned economies”, and systems that combine public or cooperative ownership with markets are called “market socialism.

2In Schreuder and Douma ‘it’ is replaced with the organization.

3In this sense Williamson’s ideas are descendant of Coase’s, who argued that organizations are primarily characterized by authority (here: direct supervision).

DBC Pierre – Lights Out in Wonderland

This is a selection of some quotes of said author in the above novel. I found this to be useful for the development of my theory on the firm. Importantly in the novel some aspects are pointed out concerning the new relation between individual people and firms. Note that these are quotes from a novel: these can be useful in general and in this case (firm theory) in specific, because some novels have the capacity to shed light on new stuff.

Yes it’s over: profit won the game, but like an infection, killed its host. We were the host. Quality died out because we relinquished the right to filter our own choices; profit became the filter of all choice. Truth died out because we no longer filter true experience; media profit became the filter. The infection found every human receptor, bound to every protein of existence, sucking them dry to feed corporate tumours immunised against us by government. Now the host is a carcass, the market a bacterial enzyme. So adieu!’ [DBC Pierre Lights out in Wonderland fn p. 5]

Ah Customer Service. It falls to Dalí girl to work the gulf between a photograph of a glamour model in a telephone headset and a collections department not based at this address. She squirms because despite efforts to erase her common sense, culture has left a nodule of reason intact. That fragment of tumour makes her uncomfortable enforcing outrageous terms. Her employer should have picked up on that’ [DBC Pierre Lights Out in Wonderland fn p. 8]

David West is an origami person.* Spread, creased, and folded by culture into a clever likeness of a man, a napkin adornment without ideas beyond his own folds, unfolding others to crease then back in his own image’ [DBC Pierre Lights Out In Wonderland p. 15]

Free-market economics is an antiquated, smutty and careless box of tricks whose whimsical main flaw is clear even to a child. Still look how many adults fall breathless with lust to its promise – even though they must abandon empathy and moral judgment to embrace it. Their dirty secret puts all their intelligence to work throwing dust in the air around one glaring truth: that without trickery or eroding value, without extortion, manipulation, deceit or outright theft – profit will simply not perpetually grow’ [DBC Pierre Lights Out in Wonderland fn p. 20].

Remember this: there are no receptors left for cleverness in the public domain. You need never be more than slightly clever or slightly nice. Anything more will arouse suspicion and rage, and confound the software that runs the country. This is because society’s mechanisms are calibrated for stupidity and indolence – and not to be that way is now, by definition, anti-social’ [DBC Pierre Lights Out in Wonderland p. 29].

Stupid nature, which the church led us to admire as a perfect system, has crippled us as it cripples and kills everything through shoddy design’[DBC Pierre Lights Out in Wonderland pp. 31-2].

Capitalism is a limbo. Not a structure but an anti-structure. Driven not towards a defined end, but hovering over a permanent present, harvesting a flow of helpless human impulses. It builds no safe futures, leaves no great structures, prepares no one for roads ahead. And why would it? We don’t march through an age of civilization, but float between Windows and Mac, treading water’[DBC Pierre Lights Out in Wonderland p. 36]

The head of a pharmaceutical company admitted that only thirty percent of drugs work properly on thirty percent of people. And if you observe life you’ll see that he merely identifies the mean threshold of human success in nature. The drug company was a working model of the mathematics of expectation, endeavour, whim and fortune. Therefore abolish the notion of one-hundred-per-cent solutions to touted by culture. According to nature, thirty percent is a windfall’[DBC Pierre Lights Out in Wonderland pp. 43].

And if it was profitable it must be true´ [DBC Pierre Lights Out in Wonderland p. 64].

.. and highlights are the pixels of a life. We’re all witnesses together of the jumping fish, nobody else in the world is. The same pixel is added to each of our lives, ..’[DBC Pierre Lights Out in Wonderland p 79]

It has done this thinking that I am a food writer’ [DBC Pierre Lights Out in Wonderland p 104].

Volgens Ten Bos is Bureaucratie (als een) Inktvis

This is a summary of Ten Bos’s book: ‘Bureacratie is een Inktvis’. The concept of a hyperobject is valuable and was extensively used in my book about the firm.

Characteristics of a bureaucracy are: 1) they have viscosity 2) they are not confined to some location 3) they exist in different time dimensions 4) they are only discernible in phases 5) they are interobjective.

1) viscosity people dealing with bureacracies know these ethical stances: a) groups not individuals are the source of true creativity b) to belong is not a wish but a moral law to which an individual must comply c) to become subject to rationality and science of the collective leads to individual and collective benefit. This ethik is omnipresent in bureaucracies: bureacratic memes.

This is the system by which the business firms are directed and controlled via rules, responsibilities for decisions and their procedures. It also involves the way the company objectives are set, the means of attaining them and the monitoring of them. The focus here is on the relation between the shareholders and the management. Institutions can be seen as bodies of rules forming the environment of markets and organizations where trade-offs take place. The nature of these environments can for instance be economic, political, social, cultural and institutional. The environment provides the conditions for the creation of both coordination mechanisms, for shaping them and providing selection mechanisms evolving both. The environment of organizations and markets consists of rules shaping human interaction safeguarding transactions from any risk explicit to them. In this sense ‘the way the game is played’ is shaped by the cultural institutional environment, which itself is a result of cultural evolution. It is suggested here that this myriad detailed routines, rules and attitudes evolve via human communication from person to person. And in that way that they are capable to generate a finite yet large variation of tentative and experimental beliefs and corresponding decisions and actions for people to exhibit in their professional and private lives alike.

The average counts: to not spend money is good but keeps the collective poor and to spend is sinful but benefits the collective. In that sense mediocracy is a good thing because it benefits the collective and excelling as an invidual damages the collective. As a consequence average performance is beneficial: too much or too big or too deep can never be a good thing. And this hangs in the balance: to not act so as to maximize some things (be a brilliant individual) yet to act so as to maximize other things (consume). Traditional theory of bureaucray states that the person and the position are separate entitities, but starting from the hyperobject theory it becomes clear that this is not possible and bureacracy exists in all of people’s daily activities. The appropriate term for this phenomena is ‘institutionalism’: what is ‘done’and ‘not done’ is institutional and to go against the grain is unprofessional or dilettante behavior. The prototypic and unreliable illustration: monkies associate cold water with some action and institutionalize their action. In this sense people become neophobic: people are very hesitant to engage in something new. Everyone is responsible and no one is accountable; good or bad are annihiliated because everything is proceduralized and everybody is responsible. ‘Nobody really washes her hands clean but everybody washes them together’ [Ten Bos 2015 p. 52].

2) Non locality

In everyday reality we manage to identify objects also using their locality in space and time. In addition we can use speed and acceleration to find out what they are. People are used to observe the world in a three dimensional grid where there a distance between ourselves and other things potentially as well as a difference in speed and acceleration. This is useful for our daily survival but it is also a construct whereby people become separated from their environment, while in fact they are an integrated part of it [Ten Bos 2015 pp 53-4]. Instead of distinguishing people as entities isolated from others and from their environment (the wish to communicate something is the cause of the communication and that the subject is separated from her communication), a better alternative is to understand that individuals are not discrete elements but entangled and very hard to distinguish. This is relevant for people dealing with bureaucracies (bureaucrats) also: the person, her position, the context have become so entangled that they are impossible to distinguish, cause and effect have become indistinguishable. As a conseqence people can act very differently in different locations and at different times: they are driven by outside forces alone and no internal forces. In bureaucratic reality cause and effect have become separate: the process becomes indeterminate. Everything touches everything else, everything is connected: it is an endless sequence of paper, conversation, decision and idea. In that sense bureaucracy is also the denial of singularity and while everbody affects eeverybody else, they are at a distance from each other.

3) Waves

When dealing with hyperobjects the observer has no control over the situation. Bureacracy is the water in which we swim; we don’t know much about it and what we are doing really is survive. This must be clear: this water is often a subtle and often a not quite so subtle form of violence. This violence leads us to the execution of a lot unnecessary work of the kind ‘bulllshit jobs’ [Graeber in Ten Bos 2015 p 59]. People dealing with bureaucracies often do not understand this environment or their positions in it because there is no perspective for their actions. Whatever is written does not conform to what is spoken or what is thought and in a bureaucracy nobody is authentic and everybody is to some extent stupid. This condition of stupidity is relevant in this era of late capitalism.

The pivot is shifting from a correct execution of the tasks belonging to the position, to the correct handling of the administrative tasks that come with the job. ‘This resembles the image of a large ferry boat that, nearly out of control, drives through a sea of drowning people’[ Peter Sloterdijk 1995 pp 13-4 in Ten Bos 2015 p 61]. The expression of emotion does not help, because it is not seen as solidarity and also because to express emotions something concrete to react to is needed. And so as a consequence people tend to feel small in relation to these processes within hyperobjects. The reactions of people between themselves (for example evaluations) are filtered and temporized in relation to their context and so people dealing with hyperobjects tend to be unsure of their performance.

4) Phases

A hyperobject cannot be seen in its entirety but only in parts or in time, as phases. To see it as one the observer would have to ascend to a higher dimension but our senses are limited to the dimensions of the reality they are in. Hyperobjects can appear to not exist for some time but then jump back into view at some point. Hyperobjects are permanently active and never stagnate. Nobody is in control of these processes including the bureaucrats themselves. There is no master mind steering these processes, the machine runs by itself, there is no higher authority. And conversely those considered to be in charge are not effectively in control or to a limited extent. Power is not centralized and can be dispersed in the organization or can even be located at the floor. Often the management has limited power and can not say much for risk of having to execute whatever they have expressed: they also feel observed and controlled. Though hyperobjects are at some times more present or noticeable than at other times, they have a tendency to force themselves to grab the attention. An important characteristic of bureaucracies is testing: once tested, certified or accredited – all procedures to conform to some standard – doors are opnede that were closed before.

This is an automatic absolvent for reflexivity: having entered some test it is no longer required to think about the essence of the thing put to the test, but about the essence of the test itself. People believe that to summarize some tested element by highlighting some issues and ignoring others implies to really understand and to know the element and to identify its causes in an attempt to improve the global performance of some system by tuning the micro-mechanisms. The thought behind this system is to represent reality in the simplest way and to then organize it. And yet, audits and tests are on many occasions no more than an opinion of the person designing the test. And as a consequence the acceptability of the test result depends on the trust that the testee has in the tester. And as a result the selection procedure of the most trustworthy testing agency and not discussion of the facts becomes the main issue for the test. The selection of the testing facility and the testing procedure itself have become the authority for trustworthiness.

The test now provides the certainty much sought after: having achieved the required score the testee feels she can rest assured. But two elements remain unsettling: has the test unveiled facts about the the truth or the testee: what is now known that wasn’t known before the test? And for how long does this last, namely when is the next test due? And so central to the hyperobject is a feeling of stupidity in the individual caused by the object, the bureaucracy in particular. Whenever testing, a bureaucracy looks in a literal way, not at her, but right through the individual in that sense causing a feeling of being stupid and clumsy in the given situation. The proffered support isn’t necessarily useful or helpful and this cannot be known in advance; it is known in advance however that the amount of offered support increases over time.

5) Interobjectivity

The essence is that people can use instruments and means and machines to leave marks that will last for weeks and months and years. These marks are symbols of power: whatever their concrete meaning is, they have the intention to state something and to hold someone to the statement. When the statement isn’t understood then the receiver of the mark pretends that she does understand. Kafka has understood that bureaucracy can be a comedy where everybody pretends to understand what everyone else says and does either or not intentionally. Bureaucracy cannot work if the people are dumb and cannot understand what the written texts say. People need to be enlightened to just the righ level so as to be capable to understand what the bureaucracy requires.

Bureaucracy requires the existence of the tools to register and administrate. The marks of power must remain in existence for some time and the ‘continuity of ink’ supports this. Importantly the objects that surround and pervade bureaucracies also shape the decisions and the communication. These are infrastructural conditions and restrictions that are made available or imposed by the objects that surround people populating bureaucracies.

Individuals exist between private person, her autonomous self, and the official person, her function in a hierarchy, servicing herself as well as the bureaucracy, namely the system that is her environment. ‘This perspective on people as employees sheds light on the concept of hyperobjects also. At this point we begin to understand how the hyperobject not only encompasses people but pervades them’ [Ten Bos 2015 p 112]. The confusion is how people’s wishes to live a normal life as an autonomous human being can be satisfied within the confines of the hyperobject, as often suggested by the human resources manager.

Sculptor’s Testament by Rodin

AUGUSTE RODIN
Nov 12, 1840 – Nov 17, 1917
SCULPTOR’S TESTAMENT TO THE YOUNG ARTISTS
(As translated by Paul Schnell)

You young people about to make yourselves beauty’s servants, perhaps it will please you to find here, a résumé of much experience.

Love with devotion the master that preceded you. Bow to Phidias and Michelangelo. Admire the divine gaiety in the one and the savage melancholy in the other. Admiration is the wine of the noble spirit. But guard against imitating your predecessors.While paying attention to the delivery, you must understand the essence of what is eternally fruitful, namely the love of nature and truthfulness. These are the two great passions of all geniuses. All have loved nature without compromise. Acquiring this knowledge will help you avoid affectations. Tradition recommends that you consult with reality and forbids all blind following of any master. Nature is your only goddess, believe in her without reservation and be convinced that she is never ugly, nor will she ever inhibit your ambition to serve her. All is beautiful to the artist, his penetrating gaze discovers the true character of all things and all beings, that is to say, the inner truth that shines through the form and this truth is beauty—and you will meet up with this truth—-work persistently.

You sculptors
, strengthen your sense of spacial depth. The intellect finds it difficult to deal with this concept and stays preoccupied with that which represents the surface. To think of the form in terms of material density is hard, but it is your task. Establish clearly, above all, in the figures you are shaping, the total layout. Emphasize strongly the postures. Every part of the body, head, shoulders, hips and bones declares itself to you. Art demands certainty, only withcertainty of stated lines are you diving into space and taking possession of it. When your composition of the large and whole is firmly in place, you are home free, as your figures are already living. All the rest seems to comply with the whole and details appear to materialize as if by themselves. (‘Quand vos plans sont arrêtés, tout est trouvé. Votre statue vit déjà. Les détails naissent et ils se disposent ensuite d’eux-mêmes’). So when you sculpt, do not think in terms of surface, but rather in terms of space. Let your intellect perceive of every plane as if a mass, where its final appearance is struggling to escape its background. Imagine having it grow upon you by itself. All life emanates from a center, wherefrom it sprouts and spreads from the inside out. It is in this manner that one feels in all good sculpture, a powerful inner strength, that is the secret in ancient art.

You painters,
observe in reality, depth extensions (perspective), the third dimension and look at a painting by Rafael and see how this master, when showing a frontal view of awoman, he lets the breast recede at a slant and thereby creates the illusion of the third dimension. All great painters work spatially. In their knowledge of the spatial lies their strength. Think about the fact that mass, rather than line, tells the story. When you sketch, do not worry about the outlines, but only that which is bodily, the bodily determines the outline. Practice without let up, devote yourself completely to the work. Art is nothing but feeling, but if you don’t know about mass, proportions, color and lack dexterity of hand, all living feeling is for naught. What indeed would become of even the greatest poet in a foreign land, whose language he did not know. Unfortunately, in thenew generation of artists, one finds poets not wanting to learn to speak, which is the reason they can only stutter. Be patient, do not believe in the value of impulse, it does not exist. An artist’s most noble virtues are reflection, care, honesty and willpower. Create your work with straightforward workers. Be truthful, you young people, I don’t mean for you to be exact in a boring way, such as that found in photography and castings. Art begins first and foremost from the inner truth. All your shapes, all your colors, must express feeling. The artist who is content with a superficial likeness and who slavishly reproduces worthless details, will never become a master. When visiting an Italian Campo Santo, you have no doubt seen the childish manner with which the artists entrusted with decorating the graves, busy themselves reproducing literally all garment embroidery, lace and braids worn by the statues. I suppose you can call them exact, but they are not the truth, because they do not point to the soul. Almost all sculpture remind us of Italian cemeteries or the memorials in our public places, where one sees only capes, tables, chairs, machines, balloons and telegraphs. No inner truth, therefore no art. Abhor this kind of rubbish, be truth-loving to the extreme. Do not ever hesitate to express what you feel, despite stepping in opposition to commonly accepted concepts, you may not be understood at first, but fear not being lonely, soon friends will follow you. That which is the deepest truth for one human being, is the same for all. Make no grimaces, no fancy twisting to attract the public. Simplicity and naturalness, the fairest is right before your eyes. Those people you know the best, my very dear and great friend Eugene Carriere, who departed us so early in life, knew in his painterly rendition of his wife and child, that he only had to glorify the maternal love to be exalted.

Masters are those who observe with their own eyes, what the world has seen and by perceiving the beauty in all things—too simple for others to catch sight of. Accept the criticism, you will understand it easily—it is what will make you sure of yourself when torn by doubt. Be not confused by criticism that does not affect your conscience. Fear not unjust criticism—it will upset your friends and force them to reflect on the love they bear you and realize the foundation on which it rests, making them, as a result, more determined to stand by your side. When your talent is at an early stage of development, you will begin to acquire just a few followers, and on the other hand, quite a few enemies. Do not lose courage, the first group will be victorious, because they know why they love you—the others do not know why they hate you. The first is passionately involved with the truth and constantly supplying you with new followers. The others show no durable eagerness for their false opinions—the first is tough, the other go as the wind blows, the truth wins inevitably. Do not waste your time with social or political connections. You will come to see many of your contemporaries, with the help of intrigue, gain fortune and fame, they are not truthful artists. Some of them, in the meantime, are quite worldly clever and if you allow yourself to tangle with them on their territory, you will waste all your life’s energies on this and not have a minute left over for your art. Love with devotion and passion your artistic calling, there is nothing more beautiful. It is more sublime than the common man suspects.

The artist provides a grand example, he loves his work, his pay is the joy he receives from work well done. The world will become a worthwhile place, when all the people in it, have the souls of artists, that is to say, when all enjoy their life’s work. Art is also a wonderful guide to sincerity. The true artist always expresses what he thinks, at the risk of offending all existing prejudices.

Heat and Information

David Wolpert of SFI presents a logical model of the relation between heat and information. Many things fall out of this, and satisfying, for me at least, is that complex adaptive systems are large and by considered to be engineered systems: computers in other words. Ground breaking stuff that I want to learn much more about.

Levitt over de Publieke Opinie

De onderwerpen in het boek Freakonomics zijn alledaags: er worden mechanismes in beschreven in alledaagse situaties. De aanpak is praktisch en niet een poging tot een allesoverkoepelende economische theorie. De definitie van economie die ik zelf heb geleerd is: ‘het gedrag van mensen op het snijvlak van vraag en aanbod’. Levitt gebruikt deze variant: ‘explaining how people get what they want‘. Zijn uitgangspunt is dat wat zich afspeelt tussen mensen weetbaar is. De uitkomsten zijn vaak intrigerend, omdat ze verrassend en tegenintuïtief zijn. De onderzoeker, de schrijver dus, laat zich niet meeslepen door de ‘communis opinio’, de publieke opinie.

Levitt citeert J.K. Galbraith over publieke opinie, in het engels conventional wisdom‘ als volgt: ‘We associate truth with convenience, with what most closely accords with self-interest and personal well-being, or promises best to avoid awkward effort or unwelcome dislocation of life. We also find highly acceptable what contributes most to self-esteem. Economic and social behaviors are complex, and to comprehend their character is mentally tiring. Therefore we adhere, as though to a raft, to those ideas which represent our understanding’.

Ik wijd deze post aan dat boek, omdat die aanpak me aanspreekt: uitkomsten van welk onderzoek, model of theorie dan ook moeten minimaal iets beschrijven, verklaren, liefst voorspellen van de wereld om ons heen in praktische zin. Zie hieronder een aantal verkorte herkenbare voorbeelden, in het boek is ook de statistische onderbouwing opgenomen. Want hoewel ik veel vertrouwen heb in de ‘wisdom of the crowd’ heb ik dat niet in de publieke opinie.

Voorbeelden

Men denkt

De prikkel is

De feiten zijn

Wat veroorzaakt de vermindering van city crime na 1995? Wapenwetten, sterke economie, nieuwe aanpak van de politie, betere gevangenissen, veroudering Legalisering van abortus Na verloop van tijd minder geboortes uit arme eenoudergezinnen, minder potentiele criminelen
Zorgt een makelaar voor de hoogste prijs voor je huis? Kent de markt, kent de waarde van het huis, kent het gedrag van de koper, kortom betere kennis, beter geïnformeerd De makelaar verdient een % van de totale verkoopprijs Bijv. 6% 1/1 delen met de kopende makelaar en 1/1 delen met kantoor=1,5%. 10k verschil levert 150 euro op. Sneller verkopen beter dan een hogere prijs.
Passen leraren de cijfers van hun leerlingen aan? Een goede leraar=> hoge cijfers=>de kinderen doen het goed. Hij zelf ook. Eer en glorie, (financieel) voordeel. Ja: de leraar wil beter scoren door te verdoezelen dat hij zelf slecht is
Verloopt de Sumo competitie eerlijk? Eervolle en oude sport: winst wordt niet gekocht, verlies niet toegestaan Tournooien (66 worstelaars) bestaan uit 15 potjes. Als je er 8 wint blijf je in het circuit. Daar blijven en 100K bonus voor de tournooiwinnaar. Laatste tournooidag: 7-7 winnen vaak tegen 8-6 of 9-5. Die kunnen het tournooi niet meer winnen, dus laten de 7-7 winnen. Het volgende tournooi winnen ze zelf.
Zijn mensen betrouw baar? Mensen betalen trouw hun consumpties uit een onbewaakte counter. Wel bagel eten, toch niet betalen. Slecht betalen: mdw grote bedrijven, relatief slecht weer, ‘beladen’ feestdagen (X-mas), onprettige bedrijven, hogere rang
Waarom is de KKK lastig te bestrijden? Ondoordringbaar bastion. Eigen code. Lijkt gevaarlijk door geheimen. Geheim genootschap met eigen (gekke) rituelen, status voor leden. Als geheime informatie publiek wordt, verdwijnt het ‘elan’.
Waarom wonen drugdealers bij hun moeder? Crack dealers verdienen veel geld. In ruil nemen ze grote risico’s. De kans om veel geld te verdienen en voor succes en de eer. Kleine kans om legaal succesvol te worden. In slechte buurten is het aanbod van jeugd met weinig kansen groot. Zoals in alle sectoren is het inkomen van ‘werknemers’ in drugsbendes een fractie van dat van de top.
Hangt het succes van een kind af van de opvoeding? Een betere (en meer) opvoeding leidt tot een hogere kans op maatschappelijk succes voor de kinderen. Meer actie en activiteiten van de ouders leiden tot geslaagde kinderen. Het is niet wat de ouders doen, maar wat ze zijn dat leidt tot succes van de kinderen. Een ‘tiger mom’ is niet effectief.
Bepaalt je naam je toekomst? Je naam heeft invloed op je toekomstig succes. De ouder geeft het kind een naam waarin zijn verwachtingen over de toekomst van het kind besloten ligt. Je naam bepaalt niet je toekomst.

Conclusies en relevantie

  • Incentives bepalen het gedrag van de ontvanger ervan. Niet noodzakelijk ook degene voor wie het voordeel was bedoeld.
  • De publieke opinie zit er vaak naast. Die heeft ook weer zijn eigen redenen om iets te vinden, maar niet (noodzakelijk) de werkelijkheid.
  • Grote effecten hebben vaak een kleine, subtiele origine.
  • Experts gebruiken hun informatie- en kennisvoorsprong voor hun eigen gewin.
  • Als X en Y zich hetzelfde gedragen, is er dan een correlatie of een causaliteit? In het eerste geval: is X de reden voor Y, Y de reden voor X of is Z de reden voor X en Y?
  • Mensen zijn niet goed in het inschatten van risico’s. Dingen die Nu gebeuren worden zwaarder ingeschat. Dingen die Afschuw wekken worden zwaarder ingeschat.
  • De aanpak van dit onderzoek relevant voor dat van mijn onderzoek, zoals in de eerste alinea beschreven
  • De uitkomsten geven betekenis aan de interacties tussen mensen: de incentive bepaalt de richting van het gedrag van de ontvanger en heeft dus invloed op de autonomie van de ontvanger. Die beslist niet langer autonoom wat haar goed dunkt maar volgt de prikkel van iemand die haar betaalt voor een bepaalde uitkomst.

Gebaseerd op het boek: Freakonomics – A Rogue Economist Explores the Hidden Sides of Everything, van Steven D. Levitt en Stephen J. Dubner.

The Trouble With Harry

harry2Harry is characterized by the trouble he causes others dealing with him, in vein with Hitchcock’s 1955 film. However, where the movie character is deceased, in the story below he is much alive and kicking. Now try this: (loosely) replace Harry below with some other protagonist of your choice kicking up trouble, like ‘my local bank’, ‘soccer league’ or … Enjoy it!

Harry in general works poorly or not at all. He grows 5-6% each year and as he does, he tends to encroach (make you do stuff), redistributing human effort into different forms. He either works by himself or not at all and if he doesn’t, you can’t make him – forcing doesn’t help. Should he work, leave him alone and don’t change anything.

A new Harry generates new problems, so do without him if possible. If you can’t, then keep him as small as possible. If designed from scratch for a complex task, he will never work and cannot be made to work. You then need to start over, beginning with a simple design. If made by expanding the dimensions of a smaller version, he will not behave like the smaller version. You need to start over also. Plan to scrap the first version, you will anyway.

He develops his own goals the instant he comes into being and follows those unscrupulously, regardless of any need or of changed conditions. He can’t be fully known and is his own best explanation. Harry is capable of failing in an infinite number of ways and will be operating in failure mode most of the time. Growing in size and complexity, new functions appear suddenly in a stepwise fashion as he loses basic functions.

Harry typically displays unexpected ‘prima donna’ behavior: he kicks back, gets in the way and tends to oppose his own functions. Now fully prepared for the past, he tends to malfunction conspicuously just after his greatest triumph. Temporary patches meant to improve will become permanent and former versions continue to haunt later ones. Internal operations define his functions and the larger he is, the less is the variety offered. If large, he is capable of bringing about errors of mind-boggling proportions.

He tends to attract Harry-kind-of-people. People ‘in his circles’ do not do what he says they are doing. His interface with individuals tends to be narrow anyway. To be fair: he himself is not exactly doing what he says he is doing. So the names of things are not the thing itself: they are what they are reported to be: if Harry says it happened, it happened.

Information from outside his inner circle tends to decrease and ‘home grown information’ increases for individuals in it: the outside fades and becomes less important. The meaning of communication with Harry is: feedback hasn’t fed back, until he changes his course. If he ignores it, he has begun the process of terminal instability.

In order to remain unchanged, he must change and that is The Trouble With Harry.

De Piloten van Luyendijk

Deze post is een reactie op het recente en waardevolle boek van Joris Luyendijk: Dit Kan Niet Waar Zijn. Luyendijk analyseert als ‘tot antropoloog opgeleide journalist’ en zonder kennis van financiële markten, het gedrag van mensen in hun professionele habitat: de financiële sector in Londen. Zijn eerste interview vraag is ongeveer deze: ‘hoe kun jij met jezelf leven na wat je de mensheid hebt aangedaan in de crisis van 2008?’. Zijn beeld na circa twee jaar onderzoek en 200 interviews is: een vliegtuig met problemen en een lege cockpit. Met de kennis die ik tot nu toe heb verzameld over complexe adaptieve systemen ga ik op zoek naar de missende piloten van Luyendijk. Lees verder De Piloten van Luyendijk