The Emergence of Organizations and Markets

John F. Padgett, Walter W. Powell

• Publisher: Princeton University Press
• Year: 2012
• Print ISBN: 9780691148878, 9780691148670
• eBook ISBN: 9781400845552
• Topic: Social Sciences
• Subtopic: Business Development
• Index: Social Sciences

A dynamic framework for studying social emergence

The social sciences have sophisticated models of choice and equilibrium but little understanding of the emergence of novelty. Where do new alternatives, new organizational forms, and new types of people come from? Combining biochemical insights about the origin of life with innovative and historically oriented social network analyses, John Padgett and Walter Powell develop a theory about the emergence of organizational, market, and biographical novelty from the coevolution of multiple social networks. They demonstrate that novelty arises from spillovers across intertwined networks in different domains. In the short run actors make relations, but in the long run relations make actors.

This theory of novelty emerging from intersecting production and biographical flows is developed through formal deductive modeling and through a wide range of original historical case studies. Padgett and Powell build on the biochemical concept of autocatalysis—the chemical definition of life—and then extend this autocatalytic reasoning to social processes of production and communication. Padgett and Powell, along with other colleagues, analyze a very wide range of cases of emergence. They look at the emergence of organizational novelty in early capitalism and state formation; they examine the transformation of communism; and they analyze with detailed network data contemporary science-based capitalism: the biotechnology industry, regional high-tech clusters, and the open source community.

1

The Problem of Emergence

John F. Padgett

Walter W. Powell

ORGANIZATIONAL NOVELTY

Darwin’s question about the origin of species is worth posing and exploring as much in the social sciences as it was in biology. Human organizations, like living organisms, have evolved throughout history, with new organizational forms emerging and transforming in various settings: new types of banks and banking in the history of capitalism; new types of research organizations and research in the history of science; new types of political organizations and nations in the history of state formation. All of these examples are discussed in this book. The histories of economies and polities are littered with new organizational forms that never existed before. In biological language, this emergence of new organizational forms is the puzzle of speciation.

We economists, political scientists, and sociologists have many theories about how to choose alternatives, once these swim into our field of vision. But our theories have little to say about the invention of new alternatives in the first place. New ideas, new practices, new organizational forms, new people must enter from off the stage of our imaginary before our analyses can begin. Darwin asked the fundamental question, but our concepts are like those of Darwin before Mendel and Watson and Crick. We understand selection and equilibrium, but we do not understand the emergence of what we choose or of who we are. Our analytical shears are sharp, but the life forces pushing things up to be trimmed elude us.

Novelty almost by definition is hard to understand. Something is not genuinely new if it already exists in our current practice or imagination. The terms innovation and invention, as we use them in this book, mean the construction of something neither present nor anticipated by anyone in the population. We do not mean that planned incremental improvement on what already exists is not possible—quite the opposite. This type of learning occurs far more often than does the production of genuine novelty. The conundrum for both researchers and participants is that logical cognition, no matter how useful for refinement and improvement, is unlikely to be a fundamental process for generating novelty, because logic can only use axioms that are already there.

The literature on “organizational innovation” is voluminous, but that literature largely focuses on learning,¹ search,² and diffusion³ and often uses patents as indicators.⁴ The term innovation in organization theory refers to products and ideas, never to the emergence of organizational actors per se.⁵ Social science studies processes of innovation, so defined, but mainly by abstracting from the content of innovation itself.⁶ Lest this limitation be mistaken for criticism, it is important to remember that Darwin himself never truly answered his own question about the origin of species. He “only” analyzed the natural selection of populations of organisms within species, once species existed. Some parts of social science with an evolutionary sympathy have absorbed Darwin,⁷ but natural (or artificial) selection alone does not solve his puzzle of speciation.

Besides this introductory chapter and a coda, this book contains fourteen historical case studies of the emergence of organizations and markets, plus three modeling chapters that apply concepts from biochemistry to social evolution. The case studies are divided into three clusters: four case studies on the European co-evolution of early capitalism and state formation, four case studies on Communist economic reform and transition, and six chapters about technologically advanced capitalism and science. These case studies, discussed below, were selected because all of them contain instances of the historical emergence of organizational novelty. Some chapters also discuss failed emergence as a control group. Not all of the chapters involve speciation in the radical sense of new to human history, but nearly half of them do. All involve speciation in the sense of organizational novelty in the context of the population under study.

The three modeling chapters in part 1 extract the foundational concept of autocatalysis from the existing chemistry literature on the origins of life and then apply this concept, through agent-based computer models, first to the self-organization of economic production and second to the evolution of primitive language and communication. These simple, biochemically inspired models are in no way rich enough to capture the phenomena or the array of emergence mechanisms observed in the historical case studies.⁸ But they do provide an analytical framework for specifying with some precision the social science problem of emergence. In this volume, inductive histories and deductive models are viewed as complementary (not competitive) research strategies, both being dedicated to the discovery of social processes of organizational genesis and emergence.

Organizational genesis does not mean virgin birth. All new organizational forms, no matter how radically new, are combinations and permutations of what was there before. Transformations are what make them novel. Evolution, therefore, is not teleological progress toward some ahistorical (and often egocentric) ideal. It is a thick and tangled bush of branchings, recombinations, transformations, and sequential path-dependent trajectories, just as Darwin said it was. Invention “in the wild” cannot be understood through abstracting away from concrete social context, because inventions are permutations of that context.

Historical path dependency does not imply that there are no transformational principles at the base of endless open-ended generation. Scientific prediction in open-ended, creative systems such as life is not the specification of a fixed-point equilibrium. It is the description of processual mechanisms of genesis and selection in sufficient detail to be capable, in the rich interactive context of the study system, of specifying a limited number of possible histories. This is the biology, not the physics, view of science.

A barrier, however, inhibits social science investigation into processes of organizational emergence or speciation. Most social science proceeds according to the logic of methodological individualism. That is, the analyst takes as given some constitutive features of the hypothesized individual or actor (typically preferences, beliefs, and resources) and then derives aggregate or behavioral conclusions from them. “Actors” are objects imbued with boundaries, purposes, and choices whose teleological behavior is explained thereby. Useful as this approach is for many purposes, it creates in our understanding a black hole of genesis. To assume axiomatically that real people are actors makes them logically impenetrable to the theories built upon them. No theory can derive its own axioms. The problem is not that the social science concept of actor is not useful. The problem is that the atomic conception of actor precludes investigation into the construction and emergence of the real people and organizations that we refer to by that abstraction. The whole question of where novelty in actors comes from, so central to any theory of evolution, never arises in the first place.

In this book, we take the following as our mantra: In the short run, actors create relations; in the long run, relations create actors. The difference between methodological individualism and social constructivism is not for us a matter of religion; it is a matter of time scale. In the short run, all objects—physical, biological, or social—appear fixed, atomic.⁹ But in the long run, all objects evolve, that is, emerge, transform, and disappear. To understand the genesis of objects, we argue, requires a relational and historical turn of mind. On longer time frames, transformational relations come first, and actors congeal out of iterations of such constitutive relations. If actors—organizations, people, or states—are not to be assumed as given, then one must search for some deeper transformational dynamic out of which they emerge. In any application domain, without a theory of the dynamics of actor construction, the scientific problem of where novelty comes from remains unsolvable.

The example of the human body may help to fix the idea. Viewed from the perspective of ourselves, we seem solid enough: well bounded and autonomous. But viewed from the perspective of chemistry, we are just a complex set of chemical reactions. Chemicals come into us; chemicals go out of us; chemicals move around and are transformed within us. Solid as we may appear from the outside, no single atom in our body has been there for more than a few years. It is possible (and flattering) to see our physical selves as autonomous bodies exchanging food and other nutrients, but it is also possible to see ourselves as an ensemble of chemicals that flow, interpenetrate, and interact. Stability of the human body through time does not mean mechanical fixity of parts; it means organic reproduction of parts in flux. Viewed as chemical reactions, we are vortexes in the communicating material of life that wends through us all.

To explain the emergence of new organizational actors, we take as our starting inspiration—but not as our final model—biochemical insights about the emergence of life. At the theoretical level, our approach is a merger of social network analysis with autocatalysis models from biochemistry.¹⁰ From social network analysis we appropriate an empirical commitment to fine-grained relational data on social and economic interactions through time. For us, emergence of organizations is grounded in transformations in social networks, which wend through organizations, bringing them to life. From autocatalysis we appropriate a commitment to discovering and formalizing processual mechanisms of genesis and catalysis, which generate self-organization in highly interactive systems. For us, nodes and ties in social networks are not reified dots and lines; they are the congealed residues of history—in particular, the history of iterated production rules and communication protocols in interaction. Learning at the human level is equivalent to co-evolution of rules and protocols at the “chemical” level. Actors thereby become vehicles through which autocatalytic life self-organizes.

We regard our infrastructural work of synthesizing social science with biochemistry as essential to defining rigorously the topic of organizational novelty (or more generally novelty of actors) in the first place. Through this, we hope to point the way toward a new path in new social science—namely, toward a theory of the co-evolution of social networks.¹¹ Actors fall out as derivations of that theory, but they are not the axiomatic starting points. In the rest of our introduction, after a brief overview of the book, we elaborate on this approach and show its empirical relevance.

In our empirical case studies, we find that novelty in new organizational form often emerges through spillover across multiple, intertwined social networks. Hence not autocatalysis within one network but interaction among autocatalytic networks is the key to generating novelty. The empirical chapters in this volume cover a wide sample of historical cases about the emergence of new forms of economic organizations and markets. Generally, throughout the volume, actors refers to organizations and relations to markets. With our emphasis on multiple networks, however, a central finding about the production of novelty in the economic realm will be that other types of social relations—for example, politics, kinship, and science—structure the “topology of the possible,” that is, the specific ways and trajectories through which old economic organizational forms can evolve into new ones.

The empirical case studies of emergence in this volume illustrate and develop our central insight about constructive feedbacks across multiple networks. Part 2, comprising four chapters by Padgett, analyzes the emergence of four organizational inventions in the history of early financial capitalism and state formation—namely, the medieval corporation in thirteenth-century Tuscany, the partnership system in fourteenth-century Florence, the joint-stock company and federalism in seventeenth-century Netherlands, and the Reichstag and political parties in nineteenth-century Germany. Padgett, along with Jonathan Obert in the German case, demonstrates that these organizational inventions in early capitalism and state formation emerged from dynamic feedback among economic, political, religious, and kinship networks.

The four empirical chapters of part 3 analyze organizational emergence, sometimes perverse, in the postsocialist transitions in Russia, China, and Eastern Europe. Padgett compares the political logics of economic reform under Stalin, Khrushchev, and Gorbachev in the Soviet Union and under Mao and Deng Xiaoping in China, documenting in each of these five cases the path-dependent co-evolution between political mobilization and economic reform. Andrew Spicer carries the Russian reform story forward in his case study of the unexpected developments in the history of banking under Yeltsin. Valery Yakubovich and Stanislav Shekshnia examine a more successful case of market emergence in post-Soviet Russia: the telecom industry. David Stark and Balázs Vedres trace the development and reproduction over time of business groups in Hungary, with close attention to their interactions with domestic politics and foreign multinationals.

Part 4, made up of six chapters, focuses on contemporary science and technology sectors. Four chapters by Powell and colleagues apply our theoretical framework to the ...

Table of contents

• Cover
• Half title
• Title
• Copyright
• Dedication
• Contents
• Contributors
• List of Illustrations
• List of Tables
• Acknowledgments
• Chapter 1 ▪ The Problem of Emergence
• Part I Autocatalysis
• Part II Early Capitalism and State Formation
• Part III Communist Transitions
• Part IV Contemporary Capitalism and Science
• Coda: Reflections on the Study of Multiple Networks
• Index of Authors
• Index of Subjects