Simon – The Architecture of Complexity

Simon, H.A. . The Architecture of Complexity . Proceedings of the American Philosophical Society, Vol 106, No 6, pp. 467 – 482 . 1962

Development of a general systems theory to find out which abstracting properties from all of them can apply to all kinds of systems. Do diverse systems have anything non-trivial in common? This is addressed by ideas under the umbrella of cybernetics (if not a theory than at least an interesting point of view). The goal is to cast some light on the ways complexity exhibits itself wherever it is found in nature. The rough description of a complex system used here is: a system made up of many parts which interact in a non-simple way. In such systems the whole may be more than the parts in a pragmatic sense: ‘In the face of complexity, an in-principle reductionist may at the same time be a pragmatic holist’ [Simon 1962 p 468]. How complexity frequently takes the form of hierarchy is discussed in four sections: 1) frequency of the occurrence of hierarchy in complex systems 2) hierarchic systems evolve more quickly than non-hierachic systems 3) dynamic properties of complex systems and they can be decomposed into subsystems 4) relation between complex systems and their descriptions.


A hierarchic system is a system that is composed of other interrelated hierarchic systems. DPB: a hierarchic system integrates other hierarchic systems until some lower, elementary level of subsystems is arrived at. What that level is, is somewhat arbitrary and how it can be done is a subject of this article. Hierarchy is often referred to the structure where systems are subordinated by a relation of authority to the system they belong to. This means the existence of a boss and subordinate subsystems. Each system has a boss who is subordinated to the boss of the system. This is a formal approach to hierarchy. ‘I shall use hierarchy in the broader sense introduced in the previous paragraphs, to refer to all complex systems analyzable into successive sets of subsystems, and speak of ‘formal hierarchy’ when I want to refer to the more specialized concept’ [Simon 1962 p 468].

>>Social Systems

One kind of hierarchy in social sciences is the formal organization of businesses &c. Another is families, tribes, clans, &c.

> >Biological and physical systems

Cell-up Cell>tissue>organ>system. Cell-down: Cell>nucleus>mitochondria>membrane>microsomes.

Elementary particles, Planetary systems

A gas is seen as a random distribution of complex systems, namely particles.

Hierarchy refers to a system with a moderate number of subsystems with their subsystems (a diamond is a flat hierarchy with many subsystems, and atypical). The number of subsystems subordinated to the system is the span of that system. If the span of a (sub) system is wide it is flat at that location. A diamond has a wide span / is flat at the crystal level, but not at the molecular level. Biological and physical systems differ from social systems in that the first are described in spatial terms and the second by defining who interacts with whom. This can be reconciled by defining hierarchy by intensity of interactions.

>>Symbolic systems: Books>Chapters>Paragraphs>Alinea>Words>Letters, &c.


Watch maker 1: One system. When assemblage is interrupted the entire watch falls apart. Watch maker 2: Subsystems of 10 subsystems each. When assemblage is interrupted the subsystem at hand falls apart. This one is more likely to survive.

>>Biological evolution

The time required for the evolution of a complex form from simple elements depends critically on the numbers and distribution of potential intermediate stable forms’ [Simon 1962 p 471]. Comments: a) no teleology is suggested and the structure can come from random processes. When complex forms once existent become stable they give direction. But this is survival of the fittest, namely survival of the stable b) not all large systems appear hierarchical c) the evolution of complex systems from simple elements implies nothing concerning the change of entropy: free energy can be taken up or generated by the evolutionary process

>>Problem solving as natural selection

Problem solving requires selective trial-and-error. .. In problem solving, a partial result that represents recognizable progress toward the goal plays the role of a stable sub-assembly’ [Simon 1962 p 472]. Human problem solving involves only trial-and-error and selectivity. The selectivity derives from heuristics to suggest which paths to try first.

>> The sources of selectivity

When we examine the sources from which the problem-solving system, or the evolving system, as the case may be, derives its selectivity, we discover that selectivity can always be equated with some kind of feedback of information from the environment’ [Simon 1962 p 473]. DPB: the approach to modeling evolution is the same as that to modeling problem solving. There are two paths of selection in problem solving: a) various paths are tried out, the results are noted and this information is used for further search and b) using previous experience: doing the same paths that lead to an earlier solution. In this way trial-and-error is reduced or eliminated. The closest analogue of this in organic evolution is reproduction.

>>On empires and empire building

When an empire breaks up, it doesn’t tend to fall apart into its smallest elements but into the next scale of subsystems.

>>Conclusion: the evolutionary explanation of hierarchy

Systems will evolve from stable intermediate forms faster than from basic elements to form hierarchies, the subsystems based on the intermediate forms. Hierarchies have the time to evolve.


A distinction can be made between the interactions within subsystems and between them. Their intensity and their frequency is different to orders of magnitude. Employees within the formal organization of a department have more and more intensive contacts than employees of different departments. The decomposable case can be used as a limit over a wide range. In the nearly decomposable case the interactions between the subsystems are weak but not negligible. From the latter case these can be proposed: a) the short run behavior of the subsystem is independent of that of the other subsystems and b) in the long run the behavior of a subsystem depends on the behavior of the others in the aggregate. This is illustrated with an insulated house within which there are somewhat insulated rooms within which there are hardly insulated cubicles. A change of the temperature in the rooms, induces a rapid change of the temperature between the cubicles, but a slow change of temperature between the rooms. If a complex system can be described with a nearly decomposable matrix then the system has the properties a) and b) above.

>>Near decomposability of social systems

Most of the communication channels in formal organizations are between employees and a very limited number of other employees. The departmental boundaries are assumed to assume the same role as the walls in the thermal insulation example.

>>Physico-Chemical examples

The theory of the thermodynamics of irreversible processes, for example, requires the assumption of macroscopic disequilibrium and microscopic equilibrium, exactly the situation described in our heat-exchange example’ [p 476]. DPB: how does this work?

>>Some observations on hierarchic span

Suppose that the elements of a system have properties for stronger bonds and for weaker bonds and that the stronger bonds exhaust through the bonding. Subsystems form through the strong bonds until they are exhausted. Then the subsystems will be linked by the weaker second-order bonds into larger systems. In social systems the number of interactions is limited by the serial character of human communication (one at the time) and limitation on the time consumption involved in a role and hence of the number of roles one can handle (one can have a group of friends consisting of a dozen but not hundreds).

>>Summary: Hierarchies tend to be near-decomposable.


People draw complex objects in a hierarchical way. The information about the object is arranged hierarchically in memory, like a topical outline. DPB: re active association. When information is presented in this way the relations between a subpart and another subpart can be presented and between subsubparts within each. Information about reations between subsubparts of different subparts is lost.

>>Near decomposability and comprehensibility

By representing parts hierarchically little information is lost (re b, aggregate effect above). Many complex systems have a near-decomposable, hierarchical structure. That enables us to see them. If complex systems exist that are not so structured then they are unobserved and not understood. ‘I shall not try to settle which is chicken and which is egg: whether we are able to understand the world because it is hierarchic, or whether it appears hierarchic because those aspects which are not elude our understanding and observation’ [Simon p 478]. DPB: the processes that brought forth our powers of perception and the processes in nature are fundamentally the same.

>>Simple descriptions of complex systems

There is no conservation law that prescribes that the description of a complex system should be as complex as the system itself. Example of how such a system can be described economically, or, in other words, how it can be reduced. This is only possible if there are redundancies in the system. If it is completely unredundant then the system is its own simplest (most economical) description and it cannot be reduced. DPB: this notion of reduction is exactly the opposite of the notion used by Ashby. He uses reduction to indicate the opposite of organization. That which is not organized can be reduced (away) until organization remains. This is the mathematical definition of reduction. Here it is the opposite: whatever is redundant leaves room, or in other words can be reduced to, a rule. Three forms of redundancy are: a) hierarchic system is often assembled from a few kinds of different subsystems in various arrangements. DPB: this is a form of repetition of the components used. b) ‘Hierarchic systems are often nearly decomposable. Hence only aggregative properties of their parts enter into the description of the interaction of those parts. Not the lower level properties of the composing elements of the parts play a part in the interactions of the components at the higher levels. A generalization of the notion of near composability might be called the ‘empty world hypothesis’: most things are only weakly connected with most other things’ [Simon 478]. DPB: This means that some properties of the subcomponents of a complex hierarchical system, which are themselves built of subcomponents, enable interaction with other subcomponents, and form the complex hierarchical system that they are a subcomponent of. But those enabling properties of the subcomponents are properties of, or based on properties of the subcomponents of the subcomponents that form the complex hierarchical system. ‘The children are not allowed to participate in the discussion between the family elders’. Given that emptiness can be described by the absence of a description it can be described economically. DPB: how is this a form of repetition? The aggregative properties of the subcomponents of the system repeat, and they are based on repeating or comparable properties of the sub-sbcomponents. c) Redundancy can originate in a constant relation between the state of a system and a later state of it. DPB: this is a form of repetition of the behavior of the system. It can be a literal repetition or the lingering of a system like a kind of an after image of the previous state. In any case the current state can be compared with the previous one and with the next state also. Cognition is the application of its powers to compare, identification of redundancy, so as to perform a (re)cognition of recurrence of coherence, namely pattern. On a devised continuum of cognition ‘a suspicion’ is on the one extreme, where a pattern merely reminds of something such that it cannot be predicted for what it ‘is’ or whether it will occur with any certainty. ‘Knowing’ is at the other extreme, where the pattern is known and its occurrence can be predicted with a high level of certainty.

>>State description and process description

State -: a circle is an object of which all points are equidistant from one point. Process -: hold one arm of the compass in place, rotate the other arm until is is back at the initial point. ‘These two modes of experience are the warp and weft of our experience. .. The former characterize the world as sensed; they provide the criteria for identifying objects, often by modeling the objects themselves. The latter characterize the world as acted upon; they provide the means for producing or generating objects having the desired characteristics. The distinction between the world as sensed and the world as acted upon defines the basic condition for the survival of adaptive organisms. The organism must develop correlations between goals in the sensed world and actions in the world of process. When they are made conscious and verbalized, these correlations correspond to what we usually call means-end analysis. Given a desired state of affairs and an existing state of affairs, the task of an adaptive organism is to find the difference between these two states, and then to find the correlating process that will erase the difference. Thus, problem solving requires continual translation between the state and process descriptions of the same complex reality’ [Simon 1962 p 479]. DPB: this is my equalizing of differences. It refers to adaptive organisms that is autopoietic systems. The translation between state and the process are then the same as the recurring consequence of structure and operations: the description of what it is and the description of what it does, &c. Refer to this in the main theory. ‘We pose a problem by giving the state description of the solution. The task is to discover a sequence of processes that will produce the goal state from an initial state. Translation from the process description to the state description enables us to recognize when we have succeeded’ [Simon 1962 p 479]. DPB: can this be coupled to challenge propagation?

>> Ontogeny recapitulates phylogeny

If genetic material is seen as a program, it: a) is self-reproducing, b) developed by Darwinian evolution. A human develops gills and then use them for other purposes. Instruct a 20th century workman to build a car by what he knows: start with a cart, remove the singletree then build a motor onto it, then a transmission. &c. DPB: this does not necessarily apply to the memetic instructionset of a firm. Or is it, sometimes routines are in place that stem from previous versions of work instructions that are no longer in place: ‘The generalization that in evolving systems whose descriptions are stored in a process language, we might expect ontogeny partially to recapitulate phylogeny has applications outside the realm of biology. It can be applied as readily, for example, to the transmission of knowledge in the educational process. In most subjects, particularly in the rapidly advancing sciences, the progress from elementary to advanced courses is to a considerable extent a progress through the conceptual history of the science itself. Fortunately, the recapitulation is seldom literal – any more than it is in the biological case. .. But curriculum revisions that rid us of the accumulations of the past are infrequent and painful’ [Simon 1962 p 481]. DPB: this is an important thought concerning the execution, namely the enactment of memes ad how the are restricted by the actual state of affairs, when the firm is operational.

Annotations re An Evolutionary Theory of Economic Change

Nelson, R.R. . Winter, S.G . An Evolutionary Theory of Economic Change . The Belknap Press of Harvard University Press . Cambridge, Mass . 1982 . ISBN 0-674-27228-5

Preface: creative intelligence, technological or other, is autonomous and develops erratically. Its future cannot be known. The terms economic change and economic development are presupposed: what is their meaning? Later on: the unfolding of economic events over time.

Backdrop: doubts about disparities in economic development, long-term ecological viability, and the relation between economic success and fundamental human values, and the stresses related to each.


First premise: economic change is relevant and interesting. Second premise: existing economic theory must be reconstructed.

Firms are assumed to be profit oriented (searching for ways to improve it), but not profit maximizers over choice sets. Also this theory does not focus on an industry equilibrium where the non-profitable are driven out until the profitable ones are at their desired size. Firms are not modeled using maximization calculus but as sets of capabilities and decision rules. These change over time as a result of deliberate problem solving as well as because of random events. The market, through a economic equivalent of  natural selection, ferrets out the worst performers.

The section Introduction summarizes some complaints with regards to the general equilibrium theory in economics, including rational agents, information, competition, transaction costs, increasing returns &c. It is concluded that these critiques are confirmed by many economists, the authors feel they are members of a crowd.

The authors complain that there is an orthodoxy not just concerning the commitment to values and norms of scientific inquiry but also concerning commonalities in intellectual perspective and scientific approach, and even that there is a narrow set of criteria that serves as an acid test to establish if an expressed point of view is worthy of respect. They concede however, that it is temporary and ever-changing. The authors illustrate: ‘We should note, first of all, that the orthodoxy referred to represents a modern formalization and interpretation of the broader tradition of Western economic thought whose line of intellectual descent can be traced from Smith and Ricardo through Mill, Marshall, and Walras. Further, it is a theoretical orthodoxy, concerned directly with the methods of economic analysis and only indirectly with any specific questions of substance. It is centered in micro-economics although it is pervasive in the discipline’ [Nelson and Winter p 6].

The orthodox views and approaches have their own self-preserving connotative properties: ‘(concerning standard undergraduate textbooks prefiguring the advanced texts) The best of the texts are notably insistent on the scientific value of abstract concepts and formal theorizing, and offer few apologies for the strong simplifications and stark abstractions they employ. Neither do they devote much space to caveats concerning the theory’s predictive reliability in various circumstances. .. Many of the strong simplifying assumptions commonly employed – perfect information, two commodities, static equilibrium, and so on, are emphasized in such texts for reasons having to do with the perceived limitations of the students, and not because the discipline has nothing better to offer‘ [p 7]. And more specifically a drawback of the focus on equilibrium dynamics (and even more when statics DPB) is:’.. , but it is no caricature to remark that that continued reliance on equilibrium analysis, even in its more flexible forms, still leaves the discipline largely blind to phenomena associated with historical change‘ [p 8]. And with regards to the approach to assumed rationality of economic agents in intermediate and advanced textbooks: ‘As theoretical representations of the problems faced by economic actors increase in realistic complexity and recognition of uncertainty regarding values of variables, there is a matching increase in the feats of anticipation and calculation and in the clarity of the stakes imputed to those actors‘ [p8]

Malthus has made the connection between economics and biology, firstly natural selection: ‘Market environments provide a definition of success for business firms, and that definition is closely related to their ability to survive and to grow. Patterns of differential survival and growth in a population of firms can produce change in economic aggregates characterizing that population, even if the corresponding characteristics of individual firms are constant. Supporting our analytical analysis on this sort of evolution by natural selection is a view of ‘organizational genetics’ – the processes by which traits of organizations, including those traits underlying the ability to produce output and make profits, are transmitted through time‘ [p 9]. This hints at a kind of cultural evolution: all kinds of traits of firms are evolved, including those enabling it to make profits &c.

With regards to the teleological trap: ‘It is neither difficult nor implausible to develop models of firm behavior that interweave ‘blind’ and ‘deliberate’ processes. Indeed, in human problem solving itself, both elements are involved and difficult to disentangle‘ [p 11].

Evolutionary Models

The Structure of Orthodox Models

Common denominators of ‘orthodox theory’ are A) a maximization model: 1) something gets maximized 2) there is a set of things that the firm knows how to do 3) the firm’s action is the result of an actionable choice (given constraints and conditions). It attempts to explain the rules of the firm in this way. B) Equilibrium calculus leads to explanations of the choices hence behavior of firms in specific circumstances. The equilibrium provides another equation to the set in order to determine the value of some variable. The suspicion is that this approach is not aimed at the explanation of economic principles and dynamics but at the wish for results from the calculus. The choice and use of mathematical tools have influenced the thinking about economics.

The Structure of Evolutionary Models

And we see ‘decision rules’ as very close conceptual relatives of ‘production techniques’, whereas orthodoxy sees these things as very different. Our general terms for all regular and predictable behavioral patterns is ‘routine’. .. In our evolutionary theory, these routines play the role that genes play in biological evolutionary theory‘ [p 14]. Some important features are: persistency, determining the behavior of the firm, heritable, and selectable. I agree with this statement because it is very similar to the Rodin Testament, roughly: once an idea exists, it can be considered done. An idea can be anything. Not everything in business can be described with routines as many things are not routinely. This is accommodated by the idea that some decision rules as well as their outcomes are characterized by stochastic rules. I am not so happy with that expression, because I am always hoping for an explicit model without the use of probabilities. The authors explain that stochastic terms are required to cover for what is not predictable; had they been predictable then they would have been an element of the set of routines.

Although the routines that govern behavior at any particular time are, at that time, given data, the characteristics of prevailing routines may be understood by reference to the evolutionary process that has molded them. For the purposes of analyzing that process, we find it convenient to distinguish among three classes of routines‘ [p 16]: 1) activities that cannot be changed at a short notice because of its stock of capital 2) period-by-period augmentation or diminution of the firm’s capital stock 3) firms possess routines which operate to modify aspects of their operating characteristics. Why do we need this classification into three kinds of routines?

These routine-guided, routine-changing processes are modeled as ‘searches’ in the following sense. There will be a a characterization of a population of routine modifications or new routines that can be found by search‘ [p 18]. This is the thought that a population of ideas pre-exists; once they are searched and uttered then they can be actioned. How they search is described as: ‘A firm’s search policy will be characterized as determining the possibility the probability distribution of what will be found through search, as a function of a number of variables – for example, a firm’s R&D spending, which in turn may be a function of its size. Firms will be regarded as having certain criteria by which to evaluate proposed changes in routines: in virtually all our models the criterion will be anticipated profit. .. Our concept of search obviously is the counterpart of that of mutation in biological evolutionary theory‘ [p 18]. This requires the assumption that people are capable of anticipating a profit; that they are capable of interpreting the effects of their anticipations on their actions. It is also left implicit why people do that fundamentally: they look for alternative routines to make more profit but why would they essentially do that?

The models in this book are of industries: situations where similar firms interact in a market context characterized by demand and supply curves. To keep clear of short term dynamics (single price on a market in a single period) a temporary equilibrium is assumed. No long-run equilibrium is assumed. The firms have a current operating characteristic, and exist in exogenously determined demand and supply conditions. This configuration determines the profitability. Profitability operates through firm investment rules as a determinant of expansion and contraction off the size of the firm. Through search and selection do firm evolve over time, every state the basis of the next. Operating characteristics of the firm change because of the searches of thát firm. But this is a stochastic process: at every state (not one but) a distribution of possible next states is generated. This method is easily translated to Markov chains. However, the processes in Markov chains are not very by themselves close to economic models.

The Need for an Evolutionary Theory

1 The awkward treatment of economic change by orthodox theory

Economic analysis deals with change. Its adequacy should be measured against its ability to shed light on change in a firm or an industry as a result of exogenous change and its adequacy to clarify innovation. It does not or in an ad-hoc way. Firm and industry behavior after an external shock is not derivable from profit maximizing and equilibrium formalisms of orthodox theory. ‘The most  intellectually exciting question on our subject remains. Is it true that the pursuit of private interests produces not chaos but coherence  and if so, how is it done?‘ [ Hahn 1970, pp. 11-12 on p 26].

Little progress was made (at he time) to theorize economic change because of the impediments of maximization and equilibrium. Note that those are two obstacles posed here, but others are: perfect markets and rational agents. And the same goes for innovation. In other words: orthodoxy operates better when change is absent. There has not been recognition of the central role and the autonomous character of technological development.

In the last half of the 20th century the central thought was that firms are profit maximizers and the economy (industries) are in a (moving) equilibrium.  Technical advance comes from profit oriented investment of firms. By the standard of thee orthodox models profit is now a disequilibrium phenomena, because profits stem from an advantage a firm has over the competition afforded by innovation. In addition innovation is hard to predict: different competitors make different bets and only ex-post is it clear who was wrong and who was right. Profit maximization and static equilibrium does not explain economic growth. This originates in the adherence to orthodox tradition: it had to turn to abstractions and move away from key features of capitalist dynamic such as uncertainty, transience of gains and losses and unpredictabilities of technological advance.

In this vein it is extremely difficult to develop a model for Schumpeterian competition out of the components of maximization and equilibrium. This development risks getting stuck in verbal theorizing instead of formalization. This gap between orthodoxy and Schumpeterian insights had (at the time) not been bridged: business processes of change and innovation were to be over-simplified and the diversity of firm characteristics and hence of their interactions with the industry were obscured.

Diagnosis an Prescription

Main differences and agreements with orthodoxy:

1) Agreement: agents (esp. firms) have objectives, usually profit; profit is the main criterion for their choices.  Difference: the choice is perfect and absolute and long term versus the choice is imperfect and as per the status quo at the time. ‘… Carrying out a new plan and acting according to a customary one are things as different as making a road and walking along it‘[ Schumpeter 1934 pp. 79, 85 in p. 31-2]. Change present problems that automaton maximizers are ill-equipped to solve and theories incorporating automaton maximizers are ill-equipped to analyze [paraphrased p 32].

2) Agreement: competition drives decision making in firms in their industries and so it is worthwhile to look for a state where the forces of competition would be in equilibrium and would no longer produce change. Difference: orthodoxy goes much further to introduce equilibrium at an early stage and narrowing down the possible states of the firm: ‘Such models do not explicate the competitive struggle itself, but only the structure of relations among the efficient survivors. .. This theoretical neglect of competitive process constitutes a sort of logical incompleteness, … It is only in equilibrium that the model of optimizing behavior by many individual actors really works. Disequilibrium behavior is not fully specified (unless it is by ad-hoc assumptions. But this means that there is no well-defined dynamic process of which the ‘equilibrium’ is a stationary point: consistency relations, and not zero rates of change, define equilibrium ‘ [p 32]. This is an important sub-conclusion: the design of the theory and the models are static in nature. Static situations are the norm, equilibrium is not a special case (zero change) of a system usually in disequilibrium, but it is the norm and disequilibrium can only be treated as a special case. The models do not explain how equilibrium comes about from disequilibrium, because they can only describe equilibrium situations as per their structure. 3) In conclusion the formalizations based on orthodoxy cannot deliver: ‘Increasingly, orthodoxy builds a rococo palace logical palace on loose empirical sand‘ [p 33].

Allies and Antecedents of Evolutionary Theory

Managerialist thinking diagnosis the problem of orthodox theory as a failure to represent correctly the motives that directly operate on business decisions.  These insights are useful for insights into managerial behavior and performance, but they do not explain the problems with orthodoxy as described earlier above.

Behavioralists (Herbert Simon) adress some or all of these issues: bounded rationality because people cannot have complete information and they do not have computational power in some situation to maximize over all possible alternative utilities. Calculations are therefore global and situational, maximization is not absolute. Firms satisfice: their objectives function is limited because they don’t have the complete overview of their utility trade-offs and because they they are coalitions of decision makers associated with the firm. Disagreement with the behavioralists in the search of the authors for an explicit model of industries, instead of the behavior of individual firms. Evolutionary models are simpler but explain the industry compared to behavoralist’s.

Analysts of Firm Organization and Strategy

Such strategies differ from firm to firm, in part because of different interpretations of economic opportunities and constraints and in part because different firms are good at different things. In turn, the capabilities of a firm are embedded in its organizational structure, which is better adapted to certain strategies than to others. Thus, strategies at any time are constrained by organization‘ [p 37]. Assuming that organization is self-organization in an autopoietic sense then it is autonomous. Firm capabilities and strategy must logically flow from it. Strategy must logically be a narrative after the fact explaining the way that the business is conducted.

In the evolutionary models higher order decision rules can serve as strategies. Change  in strategy or policy can be treated in the same way as change in technique. Connections exist between the firm’s strategy and its appropriate (or is it the other way around: the appropriate strategy to go with the organizational structure?) organizational structure and between the technique it commands and its organizational structure.

Views of the Activist Firm

.. to view large firms and relatively concentrated market structures as the typical cases in the ‘interesting’ part of the economy, if not in the economy as a whole. These perspectives converge in an assessment of the larger corporation as a critical feature of the institutional dynamics of modern capitalism, as a relatively autonomous chooser of society’s means and some extent of its effective ends, and as the stimulus for the development of new social institutions for its control and accommodation‘ [p 39]


This theory is evolutionary in order to be able to be Schumpeterian.

Frank Knight and the Modern Austrians

Schumpeter stressed innovation as  a deviation from routine behavior, and argued that innovation continually upsets equilibrium‘ [p 41]. Reality brings new opportunity to bear all the time and the economic problem is how to respond to it and make a profit. It is however, impossible to calculate the effects and only afterwards will become clear what was the right thing to do. This theory is a theory about market processes.

Evolutionary Theorists

The article of Alchian Uncertainty, Evolution and Economic Theory of 1950 is an antecedent of this theory: ‘.. this problem had been anticipated by Alchian who emphasized the ‘reproduction by imitating of rules of behavior‘ [ Alchian 1950 pp. 215-6 in p. 42]. Socio-biology is involved via E.O. Wilson 1975. Campbell 1969 argued for a focus on variation and cultural selection retention theory for sociocultural evolution. ‘Our own work may be viewed as a specialized branch of such as theory .. ‘ [p 43].

Classical, Marxian and Neoclassical Antecedents

This theory is consonant with the original ideas of the classical theory as per Smith and John Stuart Mill. Much of the economic theories of Marx are evolutionary and also in other aspects compatible with this theory: capitalist organization of production defines a dynamic evolutionary system and the distribution of firm sizes and profits must be understood in evolutionary terms. But this theory makes no distinction between profits and wages and also do politics not play a role. Lastly the ideas of contradictions and of class have no place in this theory.

Economics comprises two different styles of theorizing: formal and appreciative. In a broad theoretical framework phenomena are observed in a particular framework of appreciation. A theory defines economic variables and their relations and provides a language and a mode of acceptable explanation. Implicitly a theory distinguishes and ranks the elements considered more and less important, complete and sophisticated, respectively. Formal theory is an important source of ideas for invoked in appreciative theory and sharpens its tools. Experimental data that are not accounted for by existing theory are grist for extensions and amendments to them. Appreciative theorizing in a sense follows formal theorizing, because the odds are larger that it is more fruitful where the other is and in that sense the dependency is a constraint.

Heterodox tradition has not made it into mainstream economics because of vested intellectual interests and parochialism [Galbraith . The New Industrial State . 1967]. Conversely the existing theories are flexible and accommodating. However not everything is deemed important or interesting to cater for it; that obviously is a risk for theory development because orthodoxy decides what should be interesting and what not. It occurs that theories are not found interesting the real reason being that the new ideas could only be married to the existing theories implementing large adjustments.

The Foundations of Contemporary Orthodoxy

Systematic understanding of the activities inside firms is not a high ranking subject of interest of economists, but rather industries and national economies &c. The firm is treated as a functional element in the analysis at hand; it is a black box the input and output are gauged at the convenience of the observer. Firms in real life do not do these actions, respond to price changes, or manage productive input combinations or manage financing in isolation, but all of them in parallel. The emphasis in this book is similar, namely on the aggregate (industry, nation), not the individual firm. Different subjects have to be addressed separately in a laboratory firm because it is not logically feasible to observe them simultaneously. The authors keep in mind the events within the firm, having in mind the development of a model for the larger systems.

Orthodox theory treats ‘knowing how to do’ and ‘knowing how to choose’ as different things, namely the ability to choose from a clear set of options and the ability to choose optimally respectively. In this theory they are treated as very similar things: the range of things a firm can do is somewhat uncertain as is the capabilities to choose in a given situation. The parameters are, in that order: objectives  > howto > optimal choice >< internal and external conditions. In what sense can business firms have objectives?

1 The Objectives of Business Firms

In the simplest orthodox model the objective is profit or business value and the more the better. Two opposite considerations: the business firm with the number of individuals involved, the diversity of their roles and the complexity of their relations VERSUS individualist utilitarian philosophy underlying neoclassical theory and optimality theorems. ‘In this philosophical framework, economic organization in its entirety is appraised for  its effectiveness in satisfying the wants of individuals. ‘A forteriori’, the business firm is viewed as in some sense an instrumentality of individuals, rather than an autonomous entity‘ [p 54]. If Miller’s Mill is the subject of observation than the relation between the interests of the owner and the ‘interests’ of the firm are clear, but this relation becomes strained if the subject is  General Mill. I can’t really believe there is a distinction: Miller has many roles to play and some of those can become mixed. In the case of  the owner (and the employee and the CEO &c.) of General these roles are specialized and less mixed. But in my view there is no fundamental difference between small firms and large ones.

Managerialists argue that not the – often passive – shareholder’s interests are relevant but the manager’s. The manager’s interest is operational and can be associated with size and growth. Another school defines a firm as a nexus of bargaining between parties to get to a coalition (Cyert & March). ‘Goals’ and ‘Objectives’ of the firm cannot impose a coherent structure on a firm’s actions. In their view the matter cannot be resolved, because that would involve more bargaining than possible in practical terms. Instead the firm remains in a state of quasi-resolution of conflict. Even if top management manages to negotiate a common ground then the interests can be different during the implementation and result in a new round of bargaining such that it is an important factor in the behavior of the firm: objectives such as profit and revenue are useless unless they are made specific as to how to achieve them for all involved (ie associated with the firm).

In reality, firms’ goals can  be vague, because even if a main objective is established then the partial objectives may remain unclear, unaligned or not sufficiently specified for their users. If this is true for reality and firms show behavior then it can also be true for the firms of this theory. What is in fact required is a procedure to determine which action is to be taken.

2 Production Set and Organizational Capabilities

In 1 some examples were discussed concerning the motivational aspects of the theory of the firm. There is little theory concerning the capabilities of firms: formally what a firm can do is catered for through production sets: the set Y of production possible for the j-th producer is a production set [Debreu 1959 p34 in p 59]. What is the firms production set? ‘The production possibility is set is a description of the state of the firm’s knowledge about the possibilities of transforming commodities‘ [Arrow & Hahn 1971 p 53 in p 60]. But what is the nature of knowledge? In orthodoxy the connotation is with ‘a way of doing something’ or ’technology’ as in a book with blueprints, the knowledge of scientists and engineers. DPB: I reckon in general it is what people believe to be true and specifically it is what they believe to be true concerning their business environment. If it is related to science or engineering then chances are larger that it is in fact true and not only believed to be so. ‘Implicit in both metaphors (‘blueprinted knowledge and knowledge of engineers and scientists, DPB’, and in other discussions, is that technological knowledge is both articulable and articulated: you can look it up. At least, you could if you had the appropriate training‘ [p 60].

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.


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.


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).


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.


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.


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.


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).