emergence of organizations and markets, part I by padgett & powell

A guest post by John Padgett and Woody Powell about their new book The Emergence of Organizations and Markets:

Innovation in the sense of product design is a popular research topic today, because there is a lot of money in that. Innovation, however, in the deeper sense of new actors—new types of people, new organizational forms—is not even much on the research radar screen of contemporary social scientists, even though “speciation” (to use the biologists’ term for this) lies at the heart of historical change over the longue durée, both in biological evolution and in human history. Social science—meaning mostly economics, political science and sociology—is very good at understanding selection, both at the micro level of individual choice and at the macro level of institutional regulation and lock-in. But novelty, especially of actors but also of alternatives, has first to enter from off the stage of our collective imaginary for our existing theories to be able to go to work. Our analytical shears for trimming are sharp, but the life forces that push up novelty to be trimmed tend to escape our attention, much less our understanding. If this book accomplishes anything, we at least hope to put the research topic of speciation—the emergence of new organizational forms and people—on our collective agenda.

One reason, but not the only reason, for this state of affairs is the current hegemony of methodological individualism. If one starts with axioms about actors, then necessarily those become reified exogenous assumptions by the analyst, not dynamic objects of emergence. No theory (including our own) can derive its own axioms. If the axioms of methodological individualism are actors, then those become the black hole of that theory—the part of the theory untouchable to itself.

A second reason for our collective blind spot lies even deeper. We are who we are. Therefore, it is difficult for any of us to see history, including our own, from a perspective other than our own. In particular, humans have a deep cognitive bias, and maybe even self-interest, in seeing ourselves as special. Darwin did not eliminate this bias. Even though now all agree that humans are products of evolution, social scientists (like the rest of humanity) seem fixated on focusing on those aspects of ourselves that seem to differentiate us from that evolution. Consciousness, rationality, language, culture—these are the usual candidates for glorifying and admiring ourselves. We certainly do not wish to deny the existence of any of these fascinating features of mankind. We just wish to interpret these as one among many forms of life. Humans definitely do, but they are not the only ones to produce, to communicate, and to cognize (i.e., information process) in ways that reconstruct themselves through time. This is the alternative axiom of the Padgett-Powell book: to understand the emergence of novelty, human and otherwise, through thinking about dynamic constructive and re-constructive processes in life.

This axiom might lead some readers to misapprehend us as socio-biologists, evolutionary psychologists, or evolutionary game theorists. Nothing could be farther from the truth. We do not operationalize our axiom by putting genes or pseudo genes (like “memes” or “strategies”) at the foundation of everything. Instead we define “life” as a network-oriented biochemist would define it, not as an atomistic social Darwinian would define it—namely, “life is autocatalysis.” Autocatalysis, in turn, is “a set of nodes and transformations, the interactions among which produce nodes and transformations that collectively reproduce the set” (in the face of fluid turnover and death among elements in the set). To understand the meaning and multivocality of this mouthful, substitute particular instantiations: (a) Biochemical autocatalysis or life is a self-reconstructing ecology of molecules and chemical reactions, in which chemical interactions among the molecules create other molecules that are already represented in the set. (b) Economic autocatalysis or life is an economy of products and production rules (a.k.a., technologies), whose production chains produces other products and technologies, which collectively reconstruct the economy. (c) Social life is a set of people and social relations, the learning interactions among whom reconstruct the types of people and social relations already there. (d) Linguistic life is a set of words and conversations, in which words and the syntactic ways they are assembled reproduce through conversational use.

Autocatalysis is a fundamentally relational and processual view of life, in which the objects that carry life—organisms, people, organizations, languages—are demoted from being Enlightenment-like autonomous agents to becoming transient carriers (almost Petri dishes, albeit sometimes very sophisticated ones) of the reproducing transformational dynamic of life that flows through them all. Three important corollaries follow from this view.

From the perspective of social network theory, the first corollary is that autocatalytic networks are not “pipes,” passively delivering unchanged lumps of material or information from one place to another. Networks instead do production or communication work, transforming the flows through them. What flows through the networks of Padgett and Powell? Products, words, and people. We call the first type of reproducing flow “production autocatalysis,” the second type “linguistic autocatalysis,” and the third type “biographical autocatalysis.” These three types of autocatalysis overlay and become intertwined into causal feedback (a.k.a., self-regulation) through multiple networks, both in social and in biochemical life. What are the transformational networks in Padgett and Powell? Basically, their theoretical networks are constructed out of production rules and relational protocols. Production rules or skills are the extant ways in the population under study in which flows of products, words or people are transformed through interaction. Think of this as technology in the case of products, conversation in the case of words, and learning in the case of people. Relational protocols are the extant ways in which interactions in the population under study are formed and broken. Think of this as like markets in the case of products, syntax in the case of words, and social opportunity and roles in the case of people. (Perhaps the word “institutions” could have been used in the last example, but that word has come to have so many disparate meanings that it has lost its analytical edge.) “Network evolution,” in this view, means change in the set of production skills and/or relational protocols that collectively reconstruct one another. More observable and measurable changing network topologies and distributions of agents are rooted in this.

A second corollary of autocatalysis is repair. Grab a chunk of an autocatalytic network and throw it into the trash, and the rest of the network may well be capable of reconstructing the destroyed section, through interaction among the remaining parts. This is what resilience is all about in living systems. Because they are autocatalytic systems, bodies can often (not always) repair injuries by themselves. The same is true with natural ecologies. The same is true with human economies. The same with human brains. The same with human cultures. In none of these examples does resilience always mean 100% return to exactly what was there before—though it sometimes can mean that. Often consequential hybridity is introduced in the process of resilient reconstruction from damaging perturbation. But the core point is that without autocatalysis there would be no resilient system there to reconstruct itself in the first place. In the face of death and destruction, either catastrophic or routine, living objects—organisms, people, organizations, whatever—cannot persist through time without the continuous reconstruction and repair of themselves by the autocatalytic networks of life in which they participate.

The third corollary of autocatalysis is a distinction between innovation and invention— Schumpeter revisited and updated by biochemistry. Unperturbed autocatalysis doesn’t lead to novelty. On the contrary, it leads to perpetual fat and happy stasis (in the sense of Prigogyne’s “far from equilibrium” dissipative systems), as long as you feed it. Autocatalytic systems to a first approximation are powerfully resilient, not innovative. They wouldn’t be alive if that weren’t true. That property notwithstanding, a consistent finding in this book—both in agent-based simulations and in our many empirical chapters—is that interaction among and spillover across multiple networks are the keys to understanding relatively rare speciation events in living and evolving systems. Agent-based models in the first section of this book yielded the surprising finding that autocatalytic processes automatically generate multiple overlapping production networks that interpenetrate each other through multifunctional parts in common. In competition, multiple autocatalytic networks that intersect to reinforce each other are more reproductively stable than single networks operating on their own. This multiple-network topology mimics the “overlapping and redundant control loops” so familiar in genetic regulatory chemical networks. Sociologists will be used to this issue as “the problem of social differentiation” of society into multiple domains. In autocatalysis, differentiation of domains is not as big a deal to explain as Durkheim and Parsons, in their more static formulations, thought it was. “Social differentiation” is just a corollary of life—nothing uniquely human about that.

The reason multiple-network architectures are so important for explaining path-dependent speciation is that one differentiated network becomes a self-sustaining pool for potential “innovations” in another network, with which it is intertwined. Actually in the second network, the production rule or relational protocol in question is boringly routine. Transposed to the first network, however, it could become “innovative” if its incorporation reproduces, which it usually does not. This is a biochemical-network way of rediscovering the “exaptation” idea of Stephen Jay Gould. In autocatalytic multiple-network architectures, multiple networks preserve pools of potential innovation for each other, even as they usually police against transgression.

In this context, Padgett and Powell define “innovation” as the transposition of production skills and relational protocols from one autocatalytic network domain to another. In our empirical observation, micro transpositions like this happen all the time, but almost always they goes nowhere—that is, the innovation is not picked up and reproduced—precisely because autocatalytic systems are powerfully resilient. Put more precisely, they are powerfully resilient in their constitutive cores. But around the periphery of “parasites” or “free riders” that are frequently observed in the agent-based models to tail off from autocatalytic cores, autocatalytic networks don’t care much about inconsequential innovation. Creativity at the micro level of individual agents, one might say, is greatly oversold in our Enlightenment culture: it is easy in the periphery of an autocatalytic network, where that doesn’t matter much; but it is incredibly hard in the core of the network, where its ramifying consequences are profound.

“Inventions,” in Padgett’s and Powell’s terms, are innovations that tip autocatalytic networks—a much more serious matter. At the micro level, an innovation is no different from an invention; the difference is that inventions cascade out to affect the network arrangement of other rules and domains, whereas mere innovations do not. Think of the difference between the incessant churning of consumer styles (innovation) and the widget or organizational form that changes the way whole industries are organized (invention). The former is just a creative idea; the second is system tipping. For this reason, we focus in our empirical cases on analyzing inventions—their reproductions, their tipping cascades, and their structural vulnerabilities and cleavages—not on mere innovations, which too often are analyses of individual actors out of historical and social context. [Not that our empirical cases aren’t filled with individuals who made a difference in their “agency”; it’s just that those individuals are always situated deeply in social and historical network context. The reactions of that context, as much as the actions of individuals themselves, are shown to determine the difference between innovation and invention.]

The empirical cases of invention in this book span a very wide scope: the biochemical origins of life (chapter 2); the medieval invention of international finance (chapter 5); the Renaissance invention of the partnership system (chapter 6); the Dutch invention of the joint-stock company and stock market (chapter 7); the nineteenth-century construction of Germany (chapter 8); the twentieth-century invention of the central-command economy in Communist Russia and China (chapter 9); emerging post-Communist markets in Russia (chapters 10 and 11) and Hungary (chapter 12); the invention of the biotechnology firm (chapter 13) and its development in regional districts (chapter 14), in career systems (chapter 15) and in normative rules (chapter 16); the evolution of inventor networks in Silicon Valley and Boston (chapter 17); and finally organizational evolution in the open-source computer industry (chapter 18).

These cases are briefly surveyed in our second post. Besides documenting historically significant empirical cases of organizational speciation, in order to show others a future research agenda they were used inductively to develop autocatalytic theory by uncovering mechanisms of multiple-network transposition and recombination in action. The catalogue of such mechanisms constitute Padgett’s and Powell’s analogue to Mendelian rules of recombination—applied, however, to social networks rather than to chemical genes. The relational network analogue to Darwinian selection is autocatalysis itself. Put together, these two complimentary sides of autocatalysis (focused on resilience) and of network transposition and recombination (focused on invention) offer an approach to the construction of a relational, and path-dependent and eventful, evolutionary theory, applicable to the social sciences and biology alike. “Evolutionary theory,” in our view, should not be a matter of whether you prefer genes or consciousness. Such these obvious differences in living media, we argue, should not be allowed to obscure commonalities in all processes of life. “Life” does not refer to objects, be those biological organisms or cognitive concepts. “Life” refers to the dynamic and fluid relational principles of autocatalysis and invention that flow through any infrastructural medium, shaping that into agentic objects.

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Written by fabiorojas

February 7, 2013 at 12:01 am

10 Responses

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  1. Very interesting. Readers may also be interested in the use of ‘cladistics’ to map the innovation (speciation) and resulting diversity and selection of new organizational forms overtime:

    Ian McCarthy

    February 7, 2013 at 12:11 am

  2. i’ve a question about “speciation”: where there are species, there are also supposed to be genuses. so i’d ask what, if any, genus-level scheme may lie behind this book’s approach to speciation? I don’t spot an easy answer.

    in my preferred view, i’d like the answer to be four cardinal forms of organization: tribes, hierarchical institutions, markets, and information-age networks. and many years ago, powell’s answer appeared to be hierarchies, markets, and networks. but i gather that this current book offers/implies a different answer, and i’d like to ask for clarification. in places, hierarchies (i.e., organizations), markets, and/or networks, or their detailed specific and even hybrid manifestations, appear to be species, not genuses, compounding my wonderment as to what may be the genuses and how are they distinguished from the species in this book.

    david ronfeldt

    February 7, 2013 at 5:36 am

  3. [...] Read the full post here. [...]

  4. I am a political science PhD and I did not really understand the part beyond the 3rd paragraph.


    February 8, 2013 at 3:48 am

  5. @anon: The post above is more of a précis of the book than an introduction. The book is clearer because it has the advantage of long passages to explicate some difficult reasoning. In a way, the P&P project starts with the same phenomenon that Schumpeter sought to understand: how systems (economic, social) advance and transform from stasis to another static, or near static, state. Schumpeter used his Weberian idealtypus, the entrepreneur, as the catalyst. P&P have the advantage of the modern tools of complexity theory to invoke a catalytic, specifically an autocatalytic, process. The autocatalytic processes in biochemistry become a metaphor for social processes that share some elements of structural complexity. They are making the case that analogical reasoning between biochemical processes and social processes give a sufficient foundation for modeling overlapping social networks as the substrate for autocatalytic change. They go beyond Schumpeter’s “recombinations” to “network folding”, a stronger form of change, such as evolution of market structure in a trading network that will cause a significant reconfiguration of a political network (or vice-versa).

    There are a few points where the P&P project will make philosophers of science cringe. On page 12, they suggest that they are on the way to develop “social network analogues to Mendel’s biological rules for recombining genes”. This would be a tragic end to an otherwise illuminating approach to modeling non-marginal changes in social networks. Analogical reasoning is powerful if one does not attempt to “close” the metaphorical loop completely.

    Read this book.


    February 8, 2013 at 4:38 pm

  6. Thanks Randy. I will pick up a copy.


    February 8, 2013 at 5:05 pm

  7. @david: Do not make too much of P&P’s invocation of speciation. This is a difficult, complicated subject in biology and is likely to be of minimal value on organization theory. Moreover, the Linnaean classification system that uses genera as supra-classes of species is itself problematic, as the rules for grouping are not fixed. In some cases, they may be grouped ancestrally; in others, they are grouped morphologically. So, in the organizations realm (kingdom?), do we group species of firms by structure, behavior, organizational descent, or what? (Linnaeus used the sex organs of plants for classification…)

    We need to take care when we invoke these metaphors, particularly when care is not taken to be explicit as to the limits of of the shared meanings between the source and target fields. P&P also use “exaptation” in their text. The metaphor is marginally useful, but we dare not expect much from it.


    February 8, 2013 at 5:11 pm

  8. @randy, i’m inclined to agree with your cautions. yet, the post states that “If this book accomplishes anything, we at least hope to put the research topic of speciation — the emergence of new organizational forms and people — on our collective agenda.” so, the term “speciation” is not tossed in as a minor metaphorical gloss, and hence my questioning. if the term is being used more as motivational metaphor than as science, and/or without notions of genuses (ok, genera) in the framework, i can try to accept that, but i’d still like that clarified.

    while i’m curious about my questions, in a way they are only probes regarding what, for me, are other concerns: (a) what’s happening to efforts to identify / typologize major forms of organization? i liked powell’s original effort to add networks to the old hierarchies-and-markets scheme. is it a goner now? it suited my needs and interests, as noted here:

    more to the point, (b) what’s happening, and likely to further happen, to usage of the term “networks”. i’m mostly interested in networks as a distinct organizational form, one that has a long history but is only now coming into its own as an information-age design. yet, social network analysis and network science generally tend to treat all forms of organization as networks. i suppose i understand why that’s happening, but it muddles matters, esp. if /when analysts oscillate between the two usages — here treating network dynamics as sources and explanations of all kinds of social life, then there distinguishing a particular organizational creation as a network rather than a hierarchy (or whatever). a focus on speciation might help sort this out, but i’m waiting to see whether / how in the case of this book’s approach.

    david ronfeldt

    February 9, 2013 at 8:15 pm

  9. @david, you are asking some interesting questions about both our systems of classification and how organization theory deals with movement across classifications by organizations. I have been waiting for some progress on these issues since the publication of Bill McKelvey’s exceptionally thorough Organizational Systematics book and ‘Markets, Bureaucracies, and Clans” by William Ouchi. But I don’t see much cumulative progress. In my dark moments, I lay much of the blame on the so-called population ecology movement.

    But, I find the Padgett and Powell approach intriguing because it is explicitly about the origin of change across taxonomic boundaries. This has been sadly missing from evolutionary models in economics and sociology. I look forward to part 2.


    February 10, 2013 at 6:59 pm

  10. [...] Padgett and Ansell, “Robust Action and the Rise of the Medici, 1400-1434;” see also Padgett and Powell, The Emergence of Organizations and Markets [...]

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