Thursday, July 21, 2011

Padgett, Emergence of Organizations and Markets, Part I

I'm an idea junkie. I have fairly diverse interests and scan lots of things. But, for the most part, the things I come across strike me as either generally similar to this or that idea I've come across before or interesting and novel but focused on a matter that isn't terribly consequential.

It is very rare that I come across something that strikes me as fundamental -- in the sense that it addresses a deep problem in a novel way that makes intuitive sense to me. I count three instances in the past decade:
1) Holling's conceptualization of the operation of systems in terms of panarchy.
2) Abbott's description of the process of knowledge change.
3) The ideas discussed in the rest of this post.

How do new organizational forms originate? As a visit to the Oil Drum, or virtually any other major environmental website shows, you see lots of calls for dramatic social transformation. And you can also find good studies documenting historical change in organizational form, for example Chandler's analysis of capitalist managerial organization. But these works, in a Darwinian sense, focus on the selection process -- why a novel form gets perpetuated -- rather than the innovation process -- how the novel form originated. While there is some discussion of where novel ideas come from, the focus tends to be on technological innovation. In many ways it makes sense to speak of bureaucracy as a technology, but it is profoundly problematic to think that the process of social innovation is just a mirror of the process of technological innovation. So, to summarize, a general recognition of the need for social innovation -- that is the development of new forms of social organization -- coupled with virtually no understanding of how novel forms of social organization are generated.

Into this gaping hole walks John Padgett and his collaborators with their forthcoming Princeton University Press title The Emergence of Organizations and Markets. In a work of stunning scope, they lay out a general theory of organizational innovation and then proceed to provide a diverse set of illustrative examples covering the sweep of modern history -- from early capitalism (the emergence of merchant banks, the partnership system, global markets and the joint stock system), thru studies of communist economic transition (China, USSR, Hungary), to the emergence of new linkages between science and capitalism (e.g., the emergence of Silicon Valley and other high tech research network clusters). While the book focuses on economic organization, there is no obvious reason the theory wouldn't apply to other types of organization.

In essence, Padgett translates the biochemical theory of autocatalysis, which Stuart Kauffman has argued provides a model for abiogenesis (the emergence of biological life out of inorganic matter), into a form useful for understanding the emergence of organizations. There are three key parts. First, there is the emergence of novelty. In the abiogenesis example, this would be the emergence of life out of inorganic chemicals. Second, there is the requirement of persistence through time. If life emerged, but failed to persist over many generations, then its development would be transient and not terribly important. Third, the new development must be consequential. The emergence of a single-celled living organism that persisted for millions of years but remained the only form of living organism, as significant as that example of life may be, is not as consequential as the development of a wide variety of diverse living organisms (cats, dogs, whales, people, birds, insects, etc.). I'm not talking about the value of the different organisms themselves, but rather the importance of a process which spills over into other areas and generates greater and greater variety.

In the process, Padgett comes up with a new way of thinking about individual humans: not as static, bounded objects but, rather, as dynamic flows of chemicals, energy and information embedded in networks. The implications for scholars interested in understanding conjoined socio-ecological systems, which have been plagued by the attempt to integrate ecology's focus on flows (energy flows and biogeochemical cycles) with approaches to human systems that emphasize the primacy of individuals and their actions, are hard to overestimate.

Here is how they organize the theoretical discussion:
First, we describe the problem of organizational novelty in the context of multiple social networks. Next, we explain our core dynamic motor of autocatalysis, at the levels of both chemical and economic production. Then, we extend the biochemical concept of autocatalysis to encompass the social production of persons. Fourth, we describe six network mechanisms of organizational genesis that we have discovered in our case studies. Fifth, we identify seven mechanisms of multiple-network catalysis that turned these organizational innovations into systemic inventions. Finally, we discuss the important outstanding issue of structural vulnerability to network tipping. This question of poisedness, for us, is the next research horizon.
There is way too much here for one post. So, there will be several spread out over time. If you can't wait, the key theoretical chapter is here. Padgett's homepage has links to other material, both published and unpublished, including several other chapters from the forthcoming book.  For an extended overview, including description of the multi-network perspective,  read on ....



The argument begins by distinguishing between innovation and invention and explaining why that is crucial.
innovations improve on existing ways (i.e, activities, conceptions and purposes) of doing things, while inventions change the ways things are done. Under this definition, the key to classifying something as an invention is the degree to which it reverberates out to alter the interacting system of which it is a part. ... But to make progress in understanding discontinuous change we need to embed our analysis of transformation in the routine dynamics of actively self-reproducing social contexts, where constitutive elements and relations are generated and reinforced.
From there, it turns to a network description of a social system.

In a crosssectional view, all social systems look like this to a social-network analyst. Each plane in the figure represents a different domain of activity. In the illustrated example of Renaissance Florence, these are the economic domain, where goods are produced and exchanged among companies; the kinship domain, where babies are produced through marriage among families; and the political domain, where deals are made among factions within the state. Other domains not shown, like religion and the military, could be added. Solid lines represent the collective units (or "constitutive ties”) of cooperation or partnership in production – namely, firms, families and factions, respectively. Such organizational units are called constitutive because they teach the people participating in them production and communication skills. Circles are placed around these units when they become corporate or formal, through having collective names. Dotted lines represent exchanges (or “resource flows”) between production units – namely, products, wives and deals, respectively. Markets are sets of dotted lines. The people participating in organizations and markets can be categorized in various ways, through either personal attributes or institutional memberships, as shown. ....
Vertical lines in figure 1, connecting superimposed dots, are people. Each dot in a plane is a role. In the economic domain, for example, the person may be a businessman; in the kinship domain, he may be a father; in the political domain, he may be a politician – all depending upon how he is attached to others in that domain.

In short, Padgett renders social systems as a set of networks linked together by individuals who are themselves embedded into multiple networks. The key thing to realize is that the vast majority of social science research looks at one network domain at a time. As a result, it remains blind to interactions between different types of network. It is these cross-network interactions that become the focus of Padgett's analysis.
Our interest is how multiple-network topologies can shape the dynamics of emergence and evolution of organizational actors over time. Innovation in our usage is recombination, through one of a variety of organizational genesis mechanisms of network folding. Invention in our usage is the system tipping that might ensue, as a cascade from the original innovation through multiple networks. 
...
In equilibrium, cross-domain interactions, while always present, are not necessarily crucial for the analyst to attend to. Background conditions of other domains can be taken for granted by analysts and participants alike during periods of multinetwork regime stability. We define “regime stability” as a reproducing set of interlocking roles, not as behavioral constancy. It is possible, in other words, to take actors as temporarily given, but only within specific historical regimes. In contrast, multiple-network feedbacks are fundamental to attend to during periods of regime transition or change. No matter how substantively important, regime changes themselves – that is, changes in the constitution of actors – are hard to understand within our segregated academic disciplines, precisely because that is when modularity between domains breaks down. Western economic advisors to Russia, brimming with overconfidence and ignorant of the context, discovered this to their dismay. The central finding and argument in this book is that organizational innovation and systemic invention require attention to causal feedbacks of selection, reproduction and tipping across multiple networks and domains.
...
Organizational innovation becomes systemic invention (if it does) when local network transpositions spill over or cascade through multiple-network feedback into the global networks to which local relations are linked. People are the usual channels through which these feedbacks are carried. If and when this chain-reaction occurs, the selection environment itself for the organizational innovation is altered. This can lead to non-linear rates of tipping, in other words, to the dynamics of punctuated equilibria.

In sum, organizational innovations result when the network structure of one domain is folded into another. Think, for example, of the Mafia. Here we have an 'family' network organized around kinship ties, relations of trust and reciprocity, etc that has been folded into the economic domain resulting in a economic enterprise (organized crime) modeled on a kinship network. It is the folding of networks, rather than the typical focus on the actions of this or that individual, that facilitates organizational innovation.

Making these general observations about innovation and invention more systematic requires greater precision in the motor behind multiple-network feedback. For Padgett, that motor is autocatalysis. Consider Figure 1 as a cross-sectional snapshot from a movie. Autocatalysis, taken up in Part II, brings this otherwise static picture to reproductive life by adding the dimension of time.

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