Spontaneous Orders: December 2012

We are seeing an emerging complexity paradigm in the social sciences, including economics. It is an emerging paradigm, but it has, as Eric Beinhocker observes regarding complexity economics in The Origin of Wealth,

a long and rich intellectual history. That history includes figures such as John von Neumann, the inventor of game theory and cellular automata; members of the "Austrian school" such as Friedrich Hayek; behavioral economists such as Herbert Simon and Daniel Kahneman; institutional economists such as Douglass North; evolutionary economists such as Richard Nelson and Sidney Winter; political scientists such as Robert Axelrod and Thomas Schelling; and computer scientists such as John Holland and Christopher Langton. (96)

This is no less true for the other areas of social science than for complexity economics.

Spontaneous Orders

The idea of spontaneous order is interchangeable with the idea of complex, adaptive, self-organizing scale-free networks with emergent properties. However, the idea of society as a spontaneous order, as developed by F. A. Hayek and M. Polanyi, was developed in parallel with the idea of self-organizing systems in the physical and biological sciences, and each has tended to retain the names associated with their development. This is particularly true of those influenced by the Austrian school of economics, while those not so influenced have tended to adopt the terms complex adaptive systems (CAS), self-organization, scale-free networks, and emergence imported from the physical and biological sciences. Whatever the terms used, we are essentially talking about the same thing for different levels of complexity. For a variety of reasons, we prefer the use of “spontaneous order” when discussing social processes, as it necessarily contains all of the concepts being imported from the other sciences, but itself has a long history. Further, it allows us to differentiate between social processes and biological (including psychological) processes.

A spontaneous order is, to quote the Scottish philosopher Adam Ferguson (1767), the “result of human action, but not the execution of any human design” (205). To have a spontaneous order, all the participants must have equality of status, and follow abstract rules. Thus spontaneous orders are to be contrasted with instrumental organizations, which are hierarchical and require people to follow more specific, concrete rules. Spontaneous orders have instrumental organizations as part of their structure, as instrumental organizations allow people to better achieve their goals within any given order, but the two have quite different network structures, and neither can be turned into the other (Camplin 2011).

Hayek and Polanyi’s work emphasized the economy (which Hayek preferred to call the catallaxy) and science, respectively, as spontaneous orders. Hayek also, however, discussed the possibility of money and common law as spontaneous orders (1979), and more recent developments in spontaneous order research have been applied to the processes of democracy (diZerega 2000), philanthropy (Conversations in Philanthropy, L. Ealy, ed.), and the arts (Camplin 2010). Certainly, more work needs to be done in these areas. Further, F. Turner (2005) argues that there are a variety of economies: the market, the gift, the political, and the divine (32-3), the combination of which constitute civil society. Each of these kinds of economies are themselves made up of a variety of spontaneous orders – the market economy incorporates the catallaxy and monetary order, the gift economy possesses the philanthropic, scientific, and artistic orders, the political economy has the democratic order and common law, and the divine economy possesses the philosophical and religious orders. Please note that each economy does not necessarily have to have a spontaneous order within it. We certainly know the political economy does not have to be democratic. The divine economy of Medieval Europe was dominated by the Catholic Church, a hierarchical organization. Yet it is when an economy contains a variety of spontaneous orders rather than hierarchies that that economy becomes the most creative, contributing to the creation of wealth – whether that wealth be measured in money, knowledge, wisdom, beauty, or something else.

Each of the economies measures success in different ways. In the market economy, it is profits. In the gift economy, it is reputation. In the political economy, it is power. In the divine economy, it is virtue. Each has different kinds of motivations driving them. In the market economy it is material gain. In the gift economy, it is love of the good, the true, or the beautiful. In the political economy, it is the love of power. In the divine economy, it is the love of wisdom/God. Each economy finally has different kinds of interactions. The market economy has mutual trade. The gift economy has unidirectional subject-object love. The political economy has the master-slave dialectic. And the divine economy has sacrifice. Understanding each of these interactions, motivations, and measures of success will help us to understand each of these economies, and each of the spontaneous orders which make them up. And understanding that we have a diversity of interactions, motivations, and measures of success will help us to understand how the spontaneous orders and economies interact to create civil society – and how our civil societies interact to give rise to our emerging global society.

Entrepreneurship

There are a variety of kinds of entrepreneurs. When we think of entrepreneurship, we think primarily of market entrepreneurs. However, there is also public entrepreneurship (P. Klein, et al. 2010), which includes political entrepreneurs and social entrepreneurs, such as philanthropists. Artists and scientists are in a very real sense entrepreneurs. Social entrepreneurs, artists, and scientists would be the entrepreneurs of the gift economy. In the divine economy we would find philosophers and religious entrepreneurs. We need to broaden our understanding of entrepreneurship, and understand what kinds of products and services each kind creates. Further, we need to understand the ways in which culture affects entrepreneurship. As Klein et al. observe, “three characterizations of the entrepreneurial function have been identified in the literature: alertness to opportunities (Kirzner, 1973), judgmental decision making about investments under uncertainty (Knight, 1921), and product, process, and market innovation (Schumpeter, 1934)” (2010, 2). All of these are found in the kinds of entrepreneurship mentioned above. And culture is going to affect which kinds dominate, what opportunities a person is even going to be alert to, what constitutes uncertainty, and the kinds of innovations which will take place. As Sobel et al. observe, “Entrepreneurship necessarily takes place within culture, it is utterly shaped by culture, and it fundamentally consists in interpreting and influencing culture” (2010, 269). Thus, each economy’s entrepreneurs are responding to the culture, the spontaneous orders, the economies, and the civil society. But let us focus now on the kinds of entrepreneurs, starting with the most familiar kind, market entrepreneurs.

Without market entrepreneurship, economic wealth cannot be created. It is the market entrepreneur who is alert to profitable situations, who makes judgments under uncertainty, who creates new products or ways of doing things that create waves of creative destruction, destroying the old ways of doing things as new, better ways are invented and made available. Each can result in either profit or loss, but because of natural selection within the market, those that profit provide signals to others about what works, where future profits will be made, etc., thus increasing knowledge and increasing wealth. Without market entrepreneurship, wealth can at best be maintained, as the same old products are produced the same old ways to ensure everyone continues to have those same products at the same price. There may be certainty, but certainty doesn’t create wealth-creating opportunities.

Political entrepreneurship can include innovations in the way government works, but also includes lobbying and rent-seeking. In the latter case, political entrepreneurship, particularly when engaged in by market actors directing energy toward rent-seeking rather than market innovations, can and often is wealth-destroying (C. Coyne, et al. 2010). Even when political entrepreneurship is not wealth-destroying, lack of market prices can make it difficult to determine how well something is working, if it creates more benefit than cost, etc. Nevertheless, we need to be aware of this kind of entrepreneurship, which can be quite common – and, in rent-seeking and corruption, costly – throughout the world.

The kind of social entrepreneurship identified with philanthropy also faces some of the same problems regarding price signals, even as their solutions are clearly influenced by market principles. Nevertheless, these kinds of transfers of money can create considerable social benefit, creating the conditions for increasing information, opportunity, and wealth throughout a society. Other kinds of gift economy entrepreneurship, such as scientists and artists, are able to work around price signals due to feedback from peers who are able to provide judgments of truth and beauty, respectively.

Entrepreneurs in the divine economy – religious reformers, religious innovators, and philosophers – can create the conditions to strengthen or weaken societies. They affect culture at a variety of levels, including tolerance toward differences and diversity. More inclusive, tolerant religions can create the conditions for both greater diversity and greater wealth. More exclusive, intolerant religions can create the conditions for monocultures and poverty. Naturally, every religion has elements of inclusiveness and exclusiveness, tolerance and intolerance. When the conditions are good for divine economy entrepreneurship, new ideas in religion and philosophy can transform a culture, pushing it in a variety of directions simultaneously (R. Collins 1998). Philosophers such as Marx have had a profound impact on a variety of cultures and societies. Such complex interactions deserve greater understanding, particularly the conditions for divine economy entrepreneurship, and whether these conditions are the same for market, gift, and political entrepreneurship as well.

Cultural differences create the conditions for a wide range of spontaneous orders, economies, and civil societies, from perverse orders such as racism and mob behavior (discussed below) to the Smithian/Hayekian Great Society. Some, like the arts and the divine economy, are commonly identified with being part of the culture. Stories and other art forms, myths and other cultural narratives all contribute to the kinds of spontaneous orders and, thus, economies which emerge, in turn influencing that culture. Further, different societies have different levels of complexity, larger societies have subcultures of differing complexity, and each of these have different mixtures of psychological complexity as well. All of these contribute to the kinds of entrepreneurship which will dominate in a culture, and how those entrepreneurs will act, what they will be alert to, what uncertainties will exist, and what will be available to be used to innovate.

Science and Technology

A primary driver of economic growth and wealth-creation is the invention of new technologies. But the creation and evolution of technology, including its use in wealth creation, requires having the right kind of culture. When gunpowder was invented in China, it was used to invent fireworks; when it was introduced to Europe, it was used to invent cannons and guns. The ancient Greeks or Egyptians around the time of Archimedes actually invented a steam engine, but considered it a toy (Thurston 1883/2010). Cultural differences affected the direction these inventions took – including the loss of the technology in the case of the steam engine.

The relationship between science and technology is a complex one. We typically think of technology emerging from scientific discoveries, but in fact the opposite has more typically been true. The (re)invention of the steam engine led to the development of the science of thermodynamics, not the other way around. This typifies the history of the development of the physical sciences. However, more complex sciences like biology have demonstrated a more complex coevolution of science and technology, where the basic science has led to technological advances that have helped us understand scientific principles. A good example of this is molecular biology. We had to understand the basic molecular biology to do genetic engineering. Based on what we thought we understood about genetics, it was thought that adding another purple gene to a petunia plant would result in darker purple petunias. Instead, white and white-purple striped petunias were produced – a puzzle which led to the discovery of interference RNA (A. Eamens et al. 2008). Given this fact, it is increasingly important that people have the freedom to pursue both science and technology as they see fit, able to use their own local and tacit knowledge.

As noted above, science is a spontaneous order. Technology emerges on the borderlands of both the scientific order and the catallaxy. Too often people consider technological innovations to be outside the economy when in fact economic growth is not possible without it, meaning technological innovation is, as Schumpeter correctly identified, a part of the economy properly understood. Developing this understanding, and understanding how culture affects the directions taken in both science and technology are important directions for future research.

Diversity

The term “diversity” is one fraught with problems. What does one mean by “diversity”? Is it diversity of race and ethnicity? Diversity of culture? Diversity of gender? Diversity in ways of thinking? Diversity of beliefs? Diversity of actions? In short, the answer to all of these questions is, “yes.” We could then ask a variety of quite similar questions for each of these examples of diversity, but for the sake of simplicity, let us consider the issue of culture. In the case of culture, does diversity mean radical separation, where different cultures are incapable of communicating with each other? Does it mean one cannot understand another culture? Does it mean rejecting cultural universals? Does it mean one cannot be influenced by another culture without inauthentically, and perhaps unethically, appropriating that culture? Does it mean uncritically accepting anything and everything done by people within another culture – such as female circumcision, prohibiting women from going to school, and racism – as simply part of the rich tapestry of human expression? No. In the latter case, we must admit that we cannot take a metacultural perspective, being thoroughly embedded in our own cultures, meaning we are always necessarily judging another culture from the perspective of our own. But this should mean we should be aware of this fact, and aware of the dangers that will necessarily arise in making such judgments – not that we shouldn’t make the judgments at all. This modesty should also point to the fact that we should always try to understand more thoroughly what it is we are criticizing. What may seem strange from the outside may make perfect sense from the inside. Further, one may be able to make a criticism from within the context of the culture itself – which would make the criticism far more effective.

A good example of the kind of criticism I am talking about comes from the paper on perverse spontaneous orders by Nona Martin and Virgil Storr (2008) in their discussion of “negative belief systems” (74). In this paper, the authors analyze how the B’ Rabby folktale in the Bahamas undermines commercial culture:

Rabbyism refers to the set of ideas and values which are transmitted through Bahamian folklore and more recent Bahamian cultural products. Cunning is not only how the successful get ahead but is an admirable quality. It is much higher on the totem pole than honesty and hard work. Greed is not only a character flaw. Rather, greed is also a dangerous vice that can place you in jeopardy. During slavery and under colonialism, the trickster hero at the center of the B’ Rabby tales who used his wits to “get one over” on those stronger than him was a useful model for a people who were denied their agency and independence. In a post-slavery, post-colonial context, however, B’ Rabby is arguably not a positive role model. (85)

What was culturally beneficial in one context is no longer culturally beneficial in another. But these kinds of stories take on a life of their own, contributing to the culture, and to attitudes toward the different kinds of spontaneous orders. In this particular case, Rabbyism contributes to the continued poverty of those who are most influenced by it. There is much work that can be done in how stories affect the attitudes within a culture and, as a consequence, affect the kinds of spontaneous orders that emerge.

Cultural narratives are not the only things that can contribute to the creation of perverse spontaneous orders. Martin and Storr also point out that “negative belief systems,” like racism, and mob behavior are both perverse spontaneous orders (2008: 74). In a mob you have a group of people acting as a single entity, as a collective; in racism, you have an attempt to create a racial monoculture. In both cases, you have homogeneity preferred over heterogeneity, or diversity. It would seem, then that perverse spontaneous orders tend toward homogeneity, while healthy spontaneous orders tend toward heterogeneity. Yet, even so, it is not as simple as that. There is strong evidence from anthropology, evolutionary psychology, cognitive psychology, etc., that humans have cultural universals and instincts, which are expressed in a variety of ways. Thus, there is a kind of universality which gives rise to diversity. More, those diverse expressions have to learn to get along in an increasingly globalized context. To use a biological metaphor, in a healthy body, you have the same DNA giving rise to a diversity of cells that interact in tissues and organs – all of which have to work together to create a healthy body. An attempt to create cellular homogeneity in the body is known as cancer. Pure heterogeneity, on the other hand, would be equivalent to having an autoimmune disease, where the body attacks itself – or to a pond of single-celled organisms whose only interest is their own, and in devouring others.

Thus there are healthy and perverse individualisms and group dynamics. Hayek’s essay “Individualism: True and False” is an excellent discussion of these distinctions. Within the context of diversity, Martin and Storr’s work contributes to this understanding, as does D. Lavoie and E. Chamlee-Wright’s Culture and Enterprise (2000), and R. Sobel et al’s (2010) essay “Does cultural diversity increase the rate of entrepreneurship?” The issue of diversity is a tricky one. As Sobel et al. point out,

In previous literature, ethnic diversity has been repeatedly shown to result in inferior economic and social outcomes due to tensions and clashes within a society. Easterly and Levine (1997) show that high levels of ethnic fragmentation are a root cause of underperformance of African nations. They find that ethnic diversity results in worse government performance, worse infrastructure, and education systems. Alesina et al. (1999) show that spending on public goods is adversely affected by the extent of ethnic fragmentation in an economy. Provision of basic infrastructure like number of phones per 1,000 population, number of roads and highways has been typically found to be low in highly polarized societies (Easterly and Levine 1997; Alesina et al. 1999). The main explanation for these findings is that fractionalized societies have a more difficult time co-ordinating on the type and quantity of public goods. (272)

Much of the literature, then, suggests that diversity is bad for economic growth, positive political outcomes, and civil society as a whole. Sobel et al., however, challenge this in their study of levels of diversity within the United States, finding that the more diverse a state or city, the greater its wealth. Indeed, in “developed countries, the most vibrant major cities, like New York City or San Francisco, have in common a large diversity of cultures,” while “many of the poorest areas of the USA have the least range of cultural diversity. In West Virginia, for example, 94.5% of the population is Caucasian, and foreign-born individuals make up only 1.1% of the state’s population” (270). This suggests that “diversity can be both detrimental to, as well as beneficial to, economic growth and development. The key determinant we argue is the institutional structure within which these cross-cultural interactions occur” (270). With the right institutions, cultural differences can become cultural capital, creating entrepreneurial opportunities. Clearly, much more work needs to be done in this area.

There are other aspects of diversity which need to be investigated. One such aspect involves what N. Wenzel (2010) calls “constitutional culture,” changes in which can create conflict within the political economy, including respect for rule of law. Thus, different elements affecting the way people thinking, ranging from culture to gender to complexity of thinking giving rise to emergent new levels of psychology and social structures, as demonstrated by Clare Graves (D. Beck and C. Cowan 2005). Gravesean psychology goes a long way toward explaining much of the diversity within and among societies, as well as the changes individuals go through throughout their lives, and deserves much more investigation, particularly in its role as mediator between culture and the spontaneous orders. People at different psychological levels are going to notice different things, which will affect the kinds of entrepreneurs they will be. People with different psychological levels can also come into conflict, or find ways of positively interacting with each other. Again, it is institutions with will matter most in which comes into play.

As we can see, then, there is a diversity of kinds of diversity. There are diversities of cultures, diversities of races, diversities of genders, diversities of psychologies, diversities of spontaneous orders, diversities of economies, and diversities of civil societies. All are important, and we need to spend more time studying each of these, both individually and in their diverse interactions, if we are going to come to a complete understanding of our global civil society. The research possibilities in this area are endless.

Globalization

Increasingly, the world is evolving toward a global society, constituted of global spontaneous orders and a variety of civil societies and their spontaneous orders. We have institutions and organizations with global reach, firms and NGO’s with a presence in a variety of countries with a variety of governments, economic structures, and cultures. With increasing globalization, new kinds of conflicts are emerging and are going to emerge. Yet, as we have seen, destructive conflicts do not have to take place. With the proper institutions, destructive conflicts such as ethnic strife can be transformed into creative conflicts such as economic competition (Fraser 1999) – and when this happens, poverty becomes transformed into wealth. It behooves us to then come to understand the varieties of institutions, and how they interact with different cultures, as what works in one situation may not work in another.

With globalization, economies are becoming increasingly interconnected, political decisions in one place affect not just their immediate neighbors, but the world as a whole, and ideologies spread across the globe, transformed along the way. Ideas, art, and products have been moving around the world for a long time now – perhaps for the entire time humans have been on earth. What differs now is the speed – in some cases, immediacy – with which they can move. With the internet, my ideas can become immediately available to everyone who has an internet connection. Those ideas can even spread to those without the internet – more slowly, true, but much faster than at any time pre-internet. Tribes previously unknown to Western scientists are found wearing t-shirts advertising products produced by Western companies, gained by trade.

And yet, despite what would appear to be a homogenizing force in globalization, we continue to see local expressions of these ideas and products. In some ways, local cultures are perhaps becoming stronger as they attract those with an interest in that culture beyond those born into it. Globalization gives people far more choices – not just in choice of goods, but in choice of ideas, of culture, of religion. We need to come to understand these emerging patterns, these emerging networks, these emerging opportunities.

Empowerment

Thus, globalization in fact creates the opportunities for greater empowerment. Good institutions empower people to make the best lives for themselves. Greater economic wealth empowers people to make more kinds of choices. The arts and sciences, philosophy and religion all are strengthened in free, wealthy societies. The more options people have, the more empowered they are. If I am poor, I have few life options. I may be stuck engaging in subsistence farming just to survive. If I am relatively wealthy, though, I may choose to continue to farm, or I may go off and become a scientist, a doctor, or a poet. With enough wealth, one can choose the gift economy; without it, the gift economy may not even be able to emerge in any real fashion.

Empowerment is then connected to having the right institutions, giving rise to individual-empowering spontaneous orders. Information must flow freely, and the channels for that flow made wider and more complex, for good information it itself empowering. People must be allowed to make their own decisions, for themselves and their own, and not be forced to live as others see fit.

And people need to be empowered at every level, in every economy and spontaneous order. Democracy empowers people politically. The catallaxy empowers people economically. Decentralized political and economic power contributes to the conditions for the emergence of healthy gift and divine economies, in which people can pursue their loves of the good, the true, and the beautiful, of wisdom and virtue. Empowerment consists of letting people live their own lives, succeeding and failing on their own such that they can learn from those experiences and become even more empowered as the learn what works and what doesn’t. This is how one becomes self-sufficient, self-confident, and self-supporting. One is not empowered by protecting people from failure – in that lies the road to disempowerment, dependence, and despair. The role of the social scientist is to learn the effects of institutions, laws and legislation, and actions on the creation of our social systems, to learn which are personally empowering and which are disempowering. It is then up to others to decide what to do with this knowledge.

Conclusion

In an increasingly globalized world, we are facing more and more issues of globalization and diversity. How is it the world is becoming integrated? Are there ways that integration can be facilitated within the framework of creative conflict? How can the conflicts inherent in the world be made creative rather than destructive? What is the role of science and technology in these developments? These are but a few of the issues we will be investigating here.

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Spontaneous Orders

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