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The strange suddenness of the transformation of global capitalism

By carstenherrmannpillath | October 15, 2008

The financial crisis takes a direction that makes observers stand in awe before the wonders of human history. Only a couple of weeks ago, nobody would have expected that currently we face a fundamental transformation of global capitalism: From now on, there will be heavy involvement of governments in the management of financial systems and, even more amazing, of financial organizations. There is a strong dose of micro-management mixed up with macro-regulation. In my native country, this transition, for example, implies that the government will even interfere with micro-managing the incentive structures in commercial banks.

This is really astounding. Until now, the average mainstream opinion in economics was to reject any kind of government ownership scheme as highly inefficient. In a recent blog entry, I wrote that China will become the vanguard of global capitalism. Well, right now the Western financial systems seem to converge into the direction of the Chinese one, in the sense that the latter is continuously increasing private ownership components (e.g. through share offereings). Thus, the two might end up somewhere in the middle. That’s why so many observers talk about the end of the era of unfettered free markets, the end of the era which was inaugurated by the iron lady and Ronald Reagan.

This is certainly a phenomenon that deserves close attention by cultural science, as it is mainly an abrupt change of perceptions and cognitive models. As an economist, I wonder why even this, albeit very serious crisis should have changed even some basic propositions of economics. What were the root causes of the financial crisis? Following up an earlier blog entry, I think just three. Firstly, a lack of personal liability on part of the central decision makers in the banking industry, in the sense that incentive schemes in the financial sector greatly rewarded success, but could not, in any serious sense, create personal liability for the losses, given the gigantic stakes involved, as we now see. Secondly, shareholder value thinking implies that leveraging is always the most profitable strategy in wealth maximization, because the higher the leverage, the higher the profits of equity capital invested. Thirdly, there were the paradoxa of rationality and coordination that I described in the earlier blog. Does increased government involvement solve any of these problems? The answer is, no.

This is because government involvement does not change the lack of personal liability in the financial sector at large. Government is nothing but a very limited liability organization. In Germany, the most troubled cases of financial distress were related with public banks. Government involvement even further enhances the problems with limited personal responsibility, unless the organization turns into a truly bureaucratic one. But precisely this were the socialist state banks of the past. Further, also the government, as a shareholder, will be attracted by the possible profits of increased leverage in the future. This is how capitalism works, in the sense of efficacy and growth.

That means, the amazing fact is that even the banking industry suddenly believes in the virtues of government intervention. This should avert a total collapse of the global financial system. But the crucial problem is lack of trust among banks, thus a drying up of liquidity. The real question is, why is the solution not taken within the financial sector, which, after all, includes the central banks? For the economist, government-funded rescue packages ultimately are the same as printing money. The explosion of government debt will affect interest rates, which will bring central banks into the dilemma to avoid recession by inflationary monetary expansion. The government will be happy, in the end, to get rid of the debt by taxing the citizens via the inflation tax. All this is just mainstream economics stuff, not at all cultural science and evolutionary economics. But why turned these arguments irrelevant within just a few weeks? Why is rescue expected from government intervention into the banking industry, and not from a coordinated action of central banks worldwide, under the auspices of the IMF, for example? The situation is catastrophic, yes, but don’t forget that there is no objective measure of the real mess in the financial system. The number of loans going bust is endogenous to the course of things. If a recession deepens, so will the state of the financial system worsen, and no government can change that.The same argument appiles in the reverse: The better the economic outlook, the more healthy will the balance sheets look like. I do not wish to base the entire argument on Mertonian self-fulfilling expectations, but I think that in this case collective action within the banking industry could have done the job as well.

So we are all Keynesians now? Or, another K-economist, Krugmanians? Does the Nobel award call for a new new deal, this time a global one, merging capitalism and socialism? (that’s the Bejing consensus, right?)

I think that the real story behind the crisis may end up to be a cultural one. American culture wars play a role in that story. The world was mentally prepared to see things different. China is challenging our established views about economy and society. There are other challenges, but the China challenge is central because it is a cultural challenge as well as an economic challenge, given China’s success. This kind of mental preparedness caused the sudden demise of free-market doctrines in applied policies, and it may have played a crucial role in the landslide changes at Wall Street industrial organization. Maybe it’s like the Emperor’s clothes. Everybody was tired of a system, and now everybody could come out with her or his true inclinations. It’s all fads and fashions, and some depressions and joys are the real thing.

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The financial crisis: a humble evolutionary economist’s perspective

By carstenherrmannpillath | September 17, 2008

The financial crisis is deepening, and no end is in sight. Yesterday John Hartley visited me at Frankfurt, and during our inspiring conversations, an evolutionary economics and cultural science approach came up in my mind, which might offer a precise explanation which differs somewhat from the mainstream view. In a nutshell, the argument is as follows.

1. The root of the crisis lies in the US mortgage business, as is well known. In particular, the instrument of interest-only or payment-option adjustable rate mortgage proved to be fatal, as they lead toward a rapid increase of indebtedness while housing prices fall. Why did the people conclude this kind of contract? The EE explanantion is straightforward and refers to the theory of hyperbolic time preferences which was crafted by psychologist Ainslie and went mainstream with the work of David Laibson, including neuroeconomic validation recently. This means: People discount the far away future much steeper than the close present, such that they often fall prey to the seduction of present oportunities, and do not properly weigh future costs. Thus, a shift of financial burdens resulting from mortages will lead towards an “irrational” expansion of demand.
2. The question is, why did lenders take the risk? If they also share hyperbolic time preferences, the same argument applies. However, most economists would argue that institutions and organizational routines support the emergence of rational benchmarks in behavior (after all, we all use a wake-up call to fight the seductions of longer sleep in the early morning). So, lenders should act rationally.  This is an interesting point, because the rational expectations issue enters.  If they are rational, they should know the hyperbolic time preferences of their clients. So they would have avoided the risk. The only argument would be that they had sufficient information to assume that housing prices would rise continuously, thus enabling their clients to pay back. But this leads into a contradiction, because given the hyperbolic time preferences, rational expectations would have precisely forecasted that there would be a sudden increase of housing sales by illiquid owners, thus resulting in a decline of prices. Thus, lenders would have acted irrationally by introducing the mortgage schemes.
3. The other possible explanation is that lenders faced a Prisoners’ dilemma, acting rationally. This means, they would have an incentive to free ride on other lenders’ behavior, if they avoid the risk. Then, offering the new mortgage scheme would lead to higher profits for the free-rider. In the end, all lenders offer the schemes, which is a Pareto-inferior Nash equilibrium. This is the classical justification for government regulation on financial innovations. However, this explanation is overly stylized and would only serve the goal to maintain the rationality assumption. Here cultural science comes into play.
4. As is well-known from evolutionary game theoretic analyses of the PD games, local interaction with correlated equilibria can maintain cooperation, as in multi-agent modelling. In our example: Just imagine clubs of lenders who interact frequently and would exchange information about the new mortgage schemes. They would possibly converge on a behavioral pattern that would block the transition to the new schemes. So, the major explanation results to be that the network structure of banking has changed in the recent decades. In particular, banking has become more standardized and automaticized, with less personal contacts and local networking. This implies that innovations will diffuse rapidly, possibly in scale-free networks.
5. This impact of changing network structures might also explain the second proximate cause of the crisis, the role of mortgage-backed securities.  In this case, the evolutionary economics perspective relates with the “market making” approach in recent financial sociology, such as the contributions by MacKenzie.  The simple point is that mathematical methods of risk transformation have been diffusing widely, which, however, might stay in an implicit contradiction with the observations in point one, because typically, those models presuppose rational agents.
6. The conclusion is that the interaction of hyperbolic time preferences and changing network structures in banking led towards a ’systemic misperception’ of risks, which is almost impossible to correct by the individual bank.

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‘My media studies’ - the history and future of ideas

By JohnHartley | August 4, 2008

‘My Media Studies’

Various people have been invited by the journal Television & New Media (TVNM) to write a short piece on the topic of “My Media Studies.” Contributors include: Manuel Alvarado, Sarah Berry, Charlotte Brunsdon, Milly Buonanno, Nick Couldry, Stuart Cunningham, Allen Feldman, Larry Gross, Heather Hendershot, Joke Hermes, Richard Maxwell, Vicki Mayer, Inka Moring, Horace Newcomb, Rune Ottosen, Arvind Rajagopal, Andrew Ross, Dan Schiller, Graeme Turner, Helen Wood and Barbie Zelizer.

The briefing from Toby Miller, editor of TVNM, is to write about: ‘What you are doing or intend to do; where you think the field of media studies is heading; where it should be heading; and what the key intellectual/political questions are, and are likely to be.’

I think media studies should be heading towards cultural science, so here is a draft of my contribution.

The history and future of ideas

My media studies started out in the 1970s, on the trail of the ‘active audience’ – an idea that sometimes seemed perverse during the broadcast era, when media audiences were widely thought to be passive couch potatoes exhibiting behavioural responses to psychological stimuli coming from powerful commercial and political agencies whose motives were far from pure. It was even more perverse because I had no training in ‘audience studies,’ if by that was meant ethnographic description, sociological survey or psychological experiment on the bodies of members of the public. I was trained in literary history and textual analysis – just as empirical and realist, but focused on discourse not agent. I had a very different model of the active audience in my head, based on early modern popular culture in both of the major spheres of representation – imaginative and political.

My imaginative audience was modelled on Shakespeare’s own, the question being what Elizabethan popular drama could tell us about the ideas of its time. There was little talk of couch potatoes here. My political audience was the first mass ‘reading public,’ produced by the ‘pauper press’ and bottom-up representation of the French and Industrial Revolutions. These audiences were ‘active’ to the point of insurrection. It seemed to me that television extended imaginative and political representation to whole populations. So my media studies says that the most popular media, from Shakespeare to Big Brother – not to mention Edge of Darkness, Dead Like Me, and Skins – are open, generative resources for growing popular self-realisation and emancipation.

Once you set off down this path you will quickly be intercepted by those who say that the media are owned and controlled by vested interests in a power structure, with programming designed to keep the potatoes on the couch, watching the ads for neo-liberalism. OK; but is culture confined to the intentions of producers, or are unintended consequences more important long-term? For instance, do we remember Charles-Joseph Panckoucke, or do we remember the ideas of the Enlightenment and Revolutionary France? Panckoucke was the first media mogul, but few remember him now. At this distance of time, the speed, efficiency and scale of his operations and his success in taking ideas to the far corners of the country are more impressive than his influence or fortune.

As for audiences, treating them as lacking in the mental resources to deal with their own entertainment is not only demeaning but also a case of academic bad faith. For if all these experiments and surveys do reveal an audience characterised by vulnerability to media effects, then what are ‘we’ doing to help them to become independent? Teaching students to blame the media may produce the very thing we rail against – disempowerment, disengagement, passivity and risk-aversion. ‘My media studies’ teaches both knowledge and action – true digital literacy. Its educative role does not pathologise the object of study. Instead, it propagates astute reading, adept navigation, contextual understanding and creative productivity.

Throughout modernity, the overall importance of the media has far outweighed their scale as a sector of the economy. They are an ‘enabling social technology’ – like the law, science, and markets. We rarely assess the law or science by reference to their scale as ‘industries,’ or markets by reference to the cost of maintaining them as markets. Their importance is that they coordinate intercourse and regulate trade in large-scale economies. They enable the growth of knowledge – as do the media.

The emergent ‘creative industries’ are taking over in this century the position that ‘the media’ held in the last. However there is a major difference. The media were conceptualised as the ‘enabling social technology’ of ideological control for a mass society. But the creative sector may be regarded as the social technology of distributed innovation. As productivity migrates out of firms, organisations and expert systems, into the homes and heads of the population at large, media studies will need to attend to new sources of creative innovation and productivity. ‘Ordinary’ people pursue and publish their own imaginative, intellectual or political emancipation; driving growth and change as they go.

Whatever one’s own politics, scholarship must be about facts, not values. It is in the realm of facts that we find the most compelling imperatives to change media studies. The ‘active audience’ tradition has been given a powerful boost by the emergence of the internet, Web 2.0 and consumer-created content, during the development of which ‘the audience’ has transmogrified into ‘the user,’ and industrial-era, one-way mass communication has added a dialogic, demotic, DIY/DIWO mode.

This means the ‘active’ audience’s own actions (not their behavioural reactions) are now an empirical field for the investigation of dynamic change (not negative effects). The mediated enterprise of self-directed creative interaction among all the agents in a system – e.g. in social network markets – can be investigated empirically. The tools required to model and measure dynamic change in systems come from mathematics, complexity theory, evolutionary economics and game theory. Media studies needs to develop expertise collaboratively with these fields.

Thus, just as media content begins to drift from a regime of expert representation towards one of direct participation and productivity, so ‘my media studies’ is drifting away from the ‘values’ end of humanities towards the sciences, specifically towards cultural science. Here – as cultural and economic ‘values’ converge – both consumer productivity and firm-based enterprise in complex adaptive systems are analysed to understand the growth of knowledge. As Jason Potts has put it, in a post on PopperJuice:

Cultural Science is the study of economic dynamics as caused by cultural dynamics, and of cultural dynamics as caused by economic dynamics, and, ultimately, of how both effect and drive each other. … The key point remains the explanation of cultural structure and change. (July 28 2008)

‘My media studies’ investigates the population-wide propagation of ideas and the future possibilities of knowledge in the context of cultural and economic dynamic systems – the ‘active audience’ as agent of the media’s unintended consequences.

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The inner life of individuals - and cultural science

By JohnHartley | August 2, 2008

John Banks sent me an email following a chat we’d had about the difference between science-based and humanities-based approaches to the consciousness & experience. This was in the context of a visit to our Centre by Baroness Susan Greenfield the brain scientist (you can see her talk on our “Events” page). I’m pasting John Banks’s question below; and my reply: comments welcome!

John Banks: ‘In recent discussion you mentioned that what we humanities, literary types bring to the table of Cultural Science is our knowledge of “inner life” – after all, isn’t this what the novel is about or Shakespeare’s plays, or Big Brother?

‘OK; this has got me thinking – so with this proposition, if I’m interpreting you correctly, do you mean a distinction between something like a state of mind and being that we could call consciousness that is distinct from although perhaps related to a narrow functionalism of the brain and/or behaviour. I.e. – the proposition is that you cannot reduce consciousness to functional brain, cognitive science or even evolutionary psych explanations. Consciousness and the inner-experience that it refers to is of a different order. This is the problem with Susan Greenfield for example trying to reduce playing computer games to a brain/behavioural based explanation. It ignores the mediation of that “inner life”.

‘Am I with you so far?

‘If so does this end up with a kind of dualism between consciousness and brain? This seems to be the position advanced by David Chalmers in debates with leading cognitive scientists, philosophers of mind, evolutionary psychologists such as Dennett, John Searle etc. His argument is that what he calls “experience” (something like inner-life), is an independent phenomenon that cannot be sufficiently explained or reduced to categories such as behaviour or brain activity outcomes etc. Chalmers appears to be a well respected and leading international thinker on these questions of consciousness, mind and their relationship to recent advances in neuro and brain sciences. Point is, he resolutely refuses to reduce these phenomenon to functional outcomes of the brain etc. He is arguing that a rigidly materialist and functionalist brain sciences approach still cannot answer or explain the “hard problem” of consciousness and experience.

‘What do you think?’

John Hartley: Consciousness and experience: those two terms still seem to be based on what I think of as untutored self-awareness (consciousness) and unmediated receptiveness to the external environment (experience).

Instead, as you would expect, I would want to insist on the intervention of elaborated systems – language, media, and then “literature” (taking this to include oral as well as written modes of elaborated imaginative language, to include “learning” as well as self-expression, to include popular as well as elite forms and new technologies as well as old) – and to argue that “the brain” doesn’t make much sense without including these.

As a species we seem to spend most of our waking effort (actually much of our sleeping effort too) dealing with representations in the brain (imagination), inner speech (Vygotsky), and relationships with others (isn’t that why our frontal lobes are so big?), all of which require both an external network of interlocutors and various exosomatic codes (language, media, literature) which both shape how and what we imagine internally and allow individuals to make new perfomances (i.e. works of the imagination, whether science, journalism or “literature”/art) that can be communicated to others.

In short, “inner life of the imagination” is not SELF-consciousness (awareness) but LANGUAGE-consciousness (dialogue).

And “literature” (as expanded above) is important because it teaches new selves how to shape the chaotic inner speech that characterises childhood, cumulatively (i.e. this is a dynamic process not a set of “hard wires”) allowing individuals to deal with things like fear of death, desire, ambition, intended action (& what have you) by integrating sole “experience” (e.g. terror, abandonment) with the collective wisdom of others, for instance via proverbial speech, song, story, visualisation etc.

Maybe quite a bit of psychological turmoil arises from not being able to organise self into story; craziness is not knowing if (and how) the self is tragedy or comedy?

So what we cultural folk bring to the Cultural Science table is a long history of attention to the elaborated codes through which “psychological individualism” (parent of “methodological individualism”) is “experienced” dialogically.

Oh and by the way it isn’t experienced as a permanent hard-wired human capability but as an evolved adaptation, changing (perhaps in a process of population-wide knowledge-growth that takes the form of a power-law exponential curve over say 15 millennia).

Taking seriously the idea of evolution in the growth of knowledge, we may conveniently pinpoint the human invention of “psychological individualism” at about the time of Shakespeare (this is what Harold Bloom is all about). Even though such milestones are multi-origined and unevenly distributed, it is still a viable “bold hypothesis” to claim that humanity (as a population) achieved sufficiently robust language/knowledge systems by the early modern period to allow not only for the growth of science, journalism and the novel in the external environment but also for the concept of the individual as the source, bearer and destination of meaning in the inner environment of the individual imagination (consciousness + language; soliloquy + stichomythia).

That this was new and revolutionary is indeed clear from Shakespeare, whose “individualists” tended to be villains (e.g. Edmund in Lear), but whose work as a whole marks a decisive break with divine explanations of selfhood, allowing the ascendancy of humanist models of meaningfulness/causation. That is, “methodological individualism” comes AFTER “psychological individualism” – the Scottish Enlightenment after Shakespeare, Michelangelo etc.

The present period is probably a point at which the evolution of knowledge is taking a further, “post-human” step, which is why bioscientists and brain-scientists want to reduce us to animals, a de-centring in biology that apes (as it were) the one performed by Galileo in physics at about the time of Shakespeare, and to show how our brain is fully animal.

OK, but it is also different in this one respect – we have language (the phenomenal form taken by consciousness), and with it can share both “consciousness” and “experience” – fear of death, ambivalent feelings about mothers, social networks, ambition, and all those other things that (we think) cattle don’t tend to “experience.”

If “the brain” is evolving by means of and to make use of exosomatic codes like language, literature, etc., then we cannot work with a version of “methodological individualism” that reduces causation to individual brain function, ignoring the social (language) network. But on the other hand, the inner life of the imagination is irreducibly individual, especially since we “invented” (and cannot now uninvent) “psychological individualism” which is a sort of de-feudalisation of the inner self.

So I’m a “methodological individualist” in the sense that I still want to concentrate our research and interpretive firepower on the works of the individual imagination (understood as complexly networked and dialogic); but I’m an anti-methodological individualist if the goal of such attention is to “prove” that individuals (”the brain”) are the cause of their own actions (or to put it another way their actions are a function of their brain-evolution), which can be explained by rationalist motivation of the self rather than complex intersubjectivity via language, media, “literature”.

So - in the end, surely what we have here is a straightforward “toggle” switch (a bit like Lanham’s style/substance toggle), where you must look with full concentration at both individual agents (inner life of the imagination) and network/systems (language in all its forms), possibly one at a time, but never to propose one as cause and the other as effect. Hence my recent work on the bardic function, by the way - seeking to investigate the outward evidential traces of the inner life of individuals (that is, poetry/narrative) while understanding that these are both a system (”language speaks us”) and a dynamically changing one (medieval bardism differs from what we might see happening now, with the internet & Beinhocker to guide our thoughts).

It’s quite simple despite the over-elaborate way I have written this (trying to clarify my own thoughts … just as the model requires, using inner imagination coupled with language resource to think/communicate adaptively/reflexively). We must look at individual imaginative works and we must look at population-wide communicative systems, and we must try to understand – this being Cultural Science! – how they interrelate, and how innovations and copyings at the individual scale are reproduced at system scale as part of adaptive/reflexive change species wide.

N’est ce pas?

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Happy Birthday Karl Popper!

By elikoger | July 28, 2008

Sir Karl Raimund Popper was born on this day in 1902. Happy Birthday from all of us here at Popper Juice!

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A Companion to Cultural Science

By jasonpotts | July 28, 2008

John Hartley, John Banks and I have had the idea of developing an edited volume setting out the ‘foundations’ of cultural science. We are currently in discussion with an esteemed Publishing House on this matter. However, before that particular cart, we need to first be clear about our horse. What actually is Cultural Science in our view: that is, what is it specifically and why? What topics and methods are acceptable, what are unacceptable? Who is in and who is out? What works would count as part of the prequel canon?

Below are my thoughts on this topic. Not the final word by any means, but a comment of lists and tentative boundaries for further discussion.

First: CS is an evolutionary science that seeks to explain how things came to be the way they are and the forces that shape ongoing change. It is not classical physics seeking Platonic ideal categories or universal laws that govern all things. It is not ordered as subject to isotropic and universal invariants. It is not a mechanics, but a science of process. However, it is not history. It does not run to the other extreme of viewing everything as unique and special and equally probable. It is an evolutionary science in that it allows that special and novel things can happen for general reasons. It seeks generality in process dynamics and self-organizing structure (e.g. principles of variety, selection, replication, complexity, self-organization, self-ordering, etc).

Second: CS is a science of interacting elements and systems. It is not the study of these elements per se. This means that its methods are not driven by reductionism. It is in this sense both a populations science and a systems science concerned with culture as a product of human interaction. However, it does not then treat the elements (humans) as ‘black-boxes’ but rather seeks to apply the same open system evolutionary method to their analysis. It is this simultaneous toggling between the human in society and the society in the human that distinguishes CS from methodological transfer modes of evolutionary or population analysis.

Third: the purpose of CS is to provide a better analytic foundation to the study of cultural structures and dynamics by integrating cultural analysis with evolutionary analysis. CS is thus not a new science ab nihlo. It is not like nano-science or radio-cosmology or some such that explores new previously uncharted domains. It indeed seeks a new perspective on a very crowded and long standing domain of analysis – humans, culture, and what it is and how it changes – but from a new synthetic perspective. In this sense, it aims to select aspects of many existing domains of analysis (literary, historical, mathematical and computational, economic, population and systems analysis, etc) and to synthesize these into a coherent analytic perspective that is complete within itself and that in turn stands in distinct relation to other humanities analysis, to other economic and sociological analysis, to other biological or statistical analysis, etc.

The purpose of the cultural science companion is to make clear what this synthetic core is, and how it stands in relation to others, indicating what aspects are embraced, and what aspects are excluded, what past insights and models are to be built upon, what questions are to be asked, what standards of analysis constitute new knowledge.

To this end, these are my initial thoughts on what’s in and out and why. (Note these are sketchy indications with only a few representative references. Also, some categories are vast, yet the intension is not to create CS as a study ‘of everything, with everything’. What is not on the list is as significant as what is).

Philosophy

Two main concerns: (1) social ontology; (2) epistemology.

Ontology concerns the status (and dynamics) of the components of the world of ideas (what Popper called World 3) that constitute the existences subject to evolutionary dynamics in socio-cultural evolution. An example of this is Dopfer and Potts (2004) ‘Evolutionary Realism’. This connects with other analysis of Realisms (Bhakshar, Lawson, etc). Questions: what are these components, and what are the properties of this set? What connects all ideas? What are the principles of their dynamics in relation to carriers of ideas? What is the meaning of novelty?

Epistemology concerns the status of knowledge in relation to the knowing subject. Analysis of claims to knowledge, and processes by which ideas attain the status of knowledge, or lose it. Connection between thinking and sensing. Social structures and processes involved in this process.

Moral philosophy may also enter into CS, but from the deontological perspective combined with social network analysis. That is, how does morality connect to the growth of knowledge. Main point of this is not in relation to individual action, but collective action and public goods and sanctions. CS of collective belief structures (i.e. religions, including environmentalism, socialism, nationalism, etc) a prime topic for study.

Logic is less important here (this is taken up instead by simulation modelling). However causality is an important aspect of the philosophy of CS with respect to open system processes and the effects of novelty. This then connects to modelling, historical analysis, statistical analysis, experimentation, etc.

Biology

Main point: Homo Sapiens is an animal that, like all life, is a product of evolutionary selection forces operating over long periods of time. Yet CS is not socio-biology. Is does not seek to trace and extract all such instincts and features and connect them to modern conditions and problems. Rather, almost the opposite. Instead, it starts with this biological recognition, but then seeks to find all the ways that this has been left-behind or in which such aspects have been overtaken by more powerful forces of selection and development in the cultural domains.

This is a subtle but important point. It does not mean ‘in the beginning was X [ancestral man], but then came Y [culture, society, history]’ yet X came first, so let’s still only talk about X’ (sociobiology). Nor does it mean ‘…now that there’s Y, X doesn’t matter anymore, so lets only talk about Y’ (religion, humanities). Rather the CS perspective emphasises that X and Y continue to affect each other, as they always did. Yet the fous is on Y, but in terms of how it is structured and changes, which always involves consideration of X and of the ideas that have made Y possible and create distance from atavistic X.

So CS is not the biology of culture. Yet it does not ever lose sight of the fact that evolved human biology underpins evolved human culture. It just does not seek to reduce it to that as the only explanation permissible. It is expedient when it does, as in the study of violence, for example, or the preference for certain sized groups, etc. But these sorts of answers to not shape the set of permissible questions.

A further point is that evolutionary biology does serve as a kind of model of cultural evolution, in the Darwinian sense of mechanisms of variation, selection and retention and developed in terms of memetics. However, this is best viewed as a form of analytic scaffolding or even conceptual drawing, rather than a set of building block foundations. Indeed, one of the central questions in CS is the open system nature of the process of cultural change: the Darwinian hypothesis is only that, a hypothesis. Yet it is a useful one because it is analytically worked out to a high degree.

Biology also matters in the sense of population biology and ecology. This is considered below, but the crucial point to allow immediately is that human culture is an ‘artificial environment’ that intersects, sometimes deeply, with natural biological environments. Yet the evolutionary principle is always that of adaptation. Neither controls the other, but each adapt to the other.

Neuroscience, Cognitive Science and Psychology

The issue here is the role of reduction of analysis to the general characteristics and properties of the human mind, and the extent to which this can then inform analysis of cultural structures and evolutionary dynamics. In a sense, this is exactly the same issue as with biology (e.g. genetics), namely to what extent can a lower level explanation inform a higher level explanation. The answer for CS is the same as above. This matters, and profoundly, but that is not the point of analysis, nor is it the definition of what counts as an explanation. CS is not about the nature of the generic individual mind. That domain is properly left to neuroscience, evolutionary psychology and other related domains.

As a general point, CS is not concerned directly with analysis of individual actions, behaviour and decision making (a point that also extends to economics) but rather with the way in which such actions and choices are shaped and contextualized by a social context. However, it is then concerned with the aspects of the evolved human neurological architecture and endocrine and somatic feedback mechanisms that shape such social contextualization and actions. Again, this is a subtle but important distinction. The human animal is an extremely social animal, and the evolved human brain is highly specialised in social actions. The point simply is not to study these in themselves, but rather what they imply about constrains on possible spaces of cultural evolution and preferential directions of interactive dynamics. As such, the role of brain sciences and psychology in CS is not to understand the social nature of human being, but only to mark out the parameters of plausible action spaces.

Secondly, CS does not then fall back on social psychology as the study of groups of human action, although this is an important input into CS analysis. The objective is not to explain how social groups function with the ‘psychology’ of groups, but rather again to use this as an input into marking the boundaries of what is possible.

In this respect, the CS components of neuroscience, psychology etc, refer to not whole schools of analysis, or not, but rather to specific aspects of their conclusions and inferences. These define the parameters of hypothesis generation within CS.

Example of the connection between neuroscience and CS is for example work that seeks to examine the cultural origins of human cognition, or, as it were, the boundaries of cognition. This also applies to issues such as the relation between individual and socially situated creativity. At issue here is the extent to which ‘we’ think and the dynamic relationship between the individual mind and the mass culture. Big, broad, rangy question, this. But one that is at the core of CS.

Anthropology, Ethnography, Ethology, Sociology and Geography

Big set of analytic and scholarly categories here; and in many respects the core of CS. Yet they all speak to the same analytic principle. Anthropology, Sociology, etc, are all domains of analysis that study what social structures and dynamics have emerged. They combine often highly rigorous empirical and methodological approaches with a generally open theoretic inquiry as to how to explain this. There is, thus, a sense in which CS is just Anth, Eth, Soc and Geog all boiled up into a generalised evolutionary model, baked with self-organization and historical dynamics, coated with a sweet crust of emergent cultural focus and served with synthetic accompaniments.

Sounds nice, but masks a larger issue that CS aims to address directly, namely the role of human agency in cultural dynamics and the emergent mechanisms, structures, technologies and institutions that develop this. In short, the Anthro et al perspective often lacks an account of human agency and its emergent dynamics. This is of course an interesting and perhaps contentious critique to make in this context, as it implies that the problem with these sciences is that they are too scientific. Of course not. Rather, the problem is that they fail to address the full gamut of factors driving cultural dynamics. This is not a criticism of these domains, but rather recognition that they do not seek to account for emergent social dynamics. Simple evidence of this is the lack of connection between these domains and the study of economic and technological evolution. It is into this space that CS seeks to go.

That is why this is not anthropology and ethology, although it will involves aspects of both. It is why it is not spatial geography nor cultural geography, but will seek to both integrate aspects of this as well as to explain aspects of this. As with neuroscience and psychology, it is the conclusions of these studies that matter more than their premises and hypotheses.

Sociology is the tricky one here. In one sense, all of sociology falls within the domain of CS (the study of social structures and behaviours with respect to these). In another sense, little of it does (CS has a prime focus on dynamics, not statics). The main issue is that sociology is unusually laden with ideology (a change also levelled against economics) in the sense that it is concerned often too explicitly with normative outcomes rather than positive analysis. I do not want to debate this here. However, the simple but general point is that it is positive sociology that serves as a basis for CS, not normative sociology. This is of course a fuzzy boundary, but, in different words, CS seeks to use empirical sociological analysis, not normative sociological theory. Within this set, the sociology of networks is a prime candidate for inclusion into CS.

However, there are some important concepts that a CS may seek to reconstruct. A central one is identity, which is a prime sociological concept (and also ontological, neurological and political). The sociological dimension of this is with respect to the creation of groups with shared identity. CS differs in its analytic mode not by taking these as analytic Platonic elements (e.g. class), but rather by focusing on how they arrive, solidify and change. This relates then to phenomena such as social networks, fashion, and social ‘games’.

Cultural Studies & Humanities

This is an area in which I am spectacularly non-expert and there are other members of our posse [can you say ‘our posse’, or only ‘my posse’? Is ‘posse’ a culturally gendered dominance word?] who can provide better, clearer, more environmentally friendly answers here. They will say things, for example relating to CS in the humanities in relation to literary textual analysis, narratology, semiotics, Russian formalists such as Bakhtin, work of Lotman, etc.

What I understand that all to mean is that these are studies of processes of meaning-making, and in which such made meanings enter back into the production process for more made meanings. This makes sense to me, although it also sounds also like engineering, or economics. These are production functions we are talking about, yet a special sort of recursive ongoing one.

The issue then is not with content or intension, for we are all on the same page on that, but rather with analytic methodology. While everyone agrees that empirical data is important (empiricism is to science what democracy is to politics: a synonym for good), the main issue is the status of modelling. In short, cultural studies doesn’t believe in its efficacy or veracity, whereas most ‘sciences’ do. Big difference. And thereby big distinction between cultural studies and cultural science. No easy solutions, but this is the issue that JH and JB, for example, are exhibiting particular boldness in embracing and fighting the good fight against sceptical colleagues who fear barbarians at the gates [two stale metaphors: sorry Orwell]. CS is an opportunity for renewal of cultural studies and the humanities.

Economics

The economics of CS is complex (or perhaps only seems that way to me as an economist). The main issues are the status of rational choice, methodological individualism, price incentives, and the relation between the economic actions of the individual agent and the aggregate and emergent systemic consequences on the ‘economy’. I do not want to over-analyse this here, only to highlight the main issues.

First, the central economic connection to CS is via ‘evolutionary’ or Schumpeterian economics. This is the study of the economic system as a complex evolving system that is ‘made of’ ideas or technologies or rules that constitute the deep structure of the economic system. These elements of knowledge, which are all human created, then interact with scarce natural resources via the price system. The outcome is the economic system. CS is geared not so much to analysis of this evolutionary economic system per se (Dopfer and Potts 2008) but more to the broader embedding of the evolutionary economic system in the evolutionary cultural system. It thus concerns the co-evolution of the economic system with the socio-cultural system. CS is thus the study of evolutionary economic effect on cultural structure and dynamics, the study of evolutionary cultural effect on economic structure dynamics, and the study of how these two evolutionary CS systems co-evolve. Note that at no point does this analysis collapse to reduction to ‘economic man’ or ‘cultural man’; rather, the focus is at the level of interaction between these domains. This is a central characteristic of CS analysis.

The economics of CS thus centres on open system evolutionary analysis. This includes in particular the work of the Austrian school of analysis as centred about the work of Ludwig Mises (1945 ‘Human action’) and FA Hayek (multiple works, from ‘the use of knowledge in society’ to ‘the constitution of liberty’). This is in contrast to the dominant neoclassical school of economic analysis because the CS approach to economics largely rejects equilibrium closed system modelling. Instead, it favours open system dynamic modelling of processes and self-organization. It understands the value of markets (and prices) as mechanisms of such self-organization.

However, CS also includes economic analysis of strategic behaviour and institutional structure, and thus includes game theoretic analysis, behavioural economics, experimental economics, and even neuroeconomics to the extent that these domains are concerned with the question of dynamics. Not all of them are, and thus in fact most of these domains are not included in CS, but only some of them when they turn to implications for open system dynamics. CS thus offers a filter that can pass through modern microeconomics to separate analysis of open system cultural dynamics from closed system assumptions. CS is only interested in the former. Yet there are many aspects of modern economics that fit this domain.

History

History is the study of what happened specifically. It occasional weakness tinged with great wisdom, in the form of its pre-eminent pretension, is to speak to generalities. Yet history and CS connect in this analytic moment. The role of history in CS is first and foremost as a source of ‘stories’. This consists of deep analysis of the many connections at any particular juncture in time. History provides data, and examples, and context for the search for generalities in the evolution of culture. Anthropology is thus just as valid an input here as recent history or various histories of places, or times.

However, a CS approach to history (as compared to historical foundations for and of CS) will tend to emphasise the history of ideas (rather than of people, places or times). It will be a technological history of the growth of knowledge, and will encompass the many ways that ideas and knowledge represent. Some of these will be cultural ideas, others technical ideas, others ideas about social organization. Other ideas will relate to shared ideas, others to idiosyncratic ideas over about themes, some will be business ideas, others scientific ideas, others practical ideas, others imaginative ideas, others moral ideas, and so on. The history that matters for CS is not the history of the world, or the history of a people, or the history of a place, but the history of ideas and knowledge.

Examples of CS centric history are to be found widely in historical analysis, but particularly in the modern history of innovation, technology, fashion, business, politics and religion. Strange mix, to be sure. But again, it is not the method of the domain that maters, but the specific focus on dynamics. The historical analysis of dynamic subject matter is the historical foundation of CS.

Political Studies

This is a difficult one. At first pass, there is little in this domain that is relevant to CS, given that most political analysis is not about open system evolutionary dynamics, but rather its opposite, namely the resolution of intractable closed system otherwise stale-mated problems: zero-sum games, in the language of game theory. (See Rubin 2002, ‘Darwinian politics’ for an argument that certain politics are evolutionary innate.) Politics, as the resolution of conflict given and entrenched between groups through population based mechanisms, is a static study par excellence. Yet the connection to CS is not these mechanisms and outcomes, but rather the dynamics of what ends up ‘political’ and how this changes. That is, the CS dimension of politics is the analysis of what things end up political. In this immediate sense, this is the connection to economics and culture, both of which mediate and redirect such forces.

Still, what value political analysis to CS: in general, not much. The exceptions, however, are instructive. First, analysis of cultural-political interfaces as population dynamics are key contributions to CS. Second, analysis of how political preferences change and diffuse over social networks are a key aspect of CS. Third, analysis of the social choice underlying ‘social’ power is an excellent CS domain as a source of analysis of incentives in cultural dynamics.

Ecology

These days, to be polite, we all talk loosely about ecology and global catastrophe among friends, but we also do so strategically in writing when seeking public support or funding. Does CS do the same? Of course it does. What is its justification, though?

CS is the study of an artificial environment that has grown exponentially in the past few millennia or centuries or even decades or even years, depending upon your sense of scale, how old you are, and how much history you have read. This evolving knowledge based but materially construed artificial environment interacts with the natural environment. And, in most interactions, the natural environment loses (although it does fight back slowly, of course). Yet this once biological definition of conflict has now been replaced with a political definition. And this makes ecology actually an aspect of CS. Interestingly, 50 years ago this would not have been the case, but when knowledge grows, so do institutions. What has changed is that the environment has been politically internalised in the form of an identity that some agents hold. Anthropologists would call these Shamans, or some such. What is different is that this has become a secular religion, and in some aspects a fundamentalist religion. CS is of course agnostic, but rather is concerned to understand what this is and how it arose and how it will develop.

[Personally, I have never actually seen a polar bear, nor pushed one off an iceberg myself. It will thus be sad (for me) if I never do see a polar bear.]

Am I being flippant about ecological dimensions? No. One of the major domains of relevance of CS study is ecology, but not ecology as the study of support of currently dominant religo-political positions with respect to charismatic mega-fauna and moral positions with respect to ‘the environment’ (read: secular morality), but rather of analysis of this emergent state and how it arrived and what might follow. The most interesting thing about ecology for CS is that it provides an ideal case study of the process by which new ideas become aspects of personal identity, society, culture and politics, and then reconstruct economic incentives and systems. A deep explanation of the ecological movement could be the lode-star of CS.

That said ecology matters to CS because of its population dynamic and systems theory basis. Yet CS is concerned with cultural ecology, not biological ecology.

Complex systems theory and modelling: towards the new pancom animals

I have left this till last, yet complexity theory is the single most important definition of CS, and that which distinguishes it from other domains by their foundation in equilibrium methods. The CS dimension of economics is the domain of economics that addresses complexity theory, and not otherwise. The same point is true of sociology, anthropology, psychology, and other domains. The central idea is that complex systems theory seeks to study the effect of interactions. It does so by seeking, as all good models do, to reduce this to essentials, namely that of elements and connections and the rules that connect them in time. This is not the place for an explanation of or history of complexity theory: google it.

Instead, the key point about complexity theory is that it links together all domains of analysis of emergent complex systems into a single coherent framework. Economic dynamics are complex. So are social dynamics. So are cultural dynamics. And so are all the dynamic interstices that link and extend these domains. Complexity theory is the governing theory of cultural science. It is so as a theory of elements and connections, and a theory of structures and dynamics.

Importantly, this means that there is a distinct and definite mathematical foundation to complexity theory and therefore to CS. This is mathematical and computer based simulation modelling (numerical analysis in the old-school terminology.) This is a regular and increasingly normal mode of analysis in economic analysis and also computational versions of political science, anthropology, etc, but it is far from normal in cultural studies. This, then, marks an important boundary between cultural studies and cultural science. Cultural science seeks to develop numerical and simulation based analysis.

This means that it seeks to support the general analysis upon which this is based (computational dynamics of simulation) and also the modes of analysis that go in this direction (e.g. computational political economy, or computational sociology). CS supports a computational turn in the modelling of cultural structure and dynamics.

This also implies that computational science techniques are a valuable addition to CS analysis. This is a more contentious point, as these skills have in the past been rather esoteric. Yet the new generation of young scholars coming through are well versed in these techniques, often whether they realise it or not, given their cultural immersion in ‘games’ and ‘messages’.

Call this past-post-modern: maybe neomodern or, better, pancom. It means that they take universal communication for granted, the first animals in the history of the universe to do so.

Conclusion

CS then is complex and subtle, which is present code for not really having a good ultimate definition. But we think that this state is a good sense of present reality and a good description of the current state of the science. The purpose of scientific investigation in CS is to reduce this complexity and subtlety by systematic means.

CS is the study of economic dynamics as caused by cultural dynamics, and of cultural dynamics as caused by economic dynamics, and, ultimately, of how both effect and drive each other. In forming this analysis they both entrain many other evolutionary and complex systems domains of analysis, both from above and below. Yet these additional dimensions are not the core or point of CS, but its feedstock and feedback. The key point remains the explanation of cultural structure and change.

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methodological individualism: what are the questions?

By jasonpotts | July 14, 2008

A debate on the status and relevance of MI in relation to cultural science is certainly worth having and the logical place to start because of the need to establish the relation between theory (abstractions, hypotheses) and methodology (analysis, methods). But as CHP has insightfully pointed out, theory is not a foundation in itself, but builds upon ontology and epistemology. However, the relation between ontology and methodology is far from direct. This means that discussion of MI is first of all about the ‘nature’ of the subject of analysis. And it is here that I think we first need to be clear. What is the subject of analysis in cultural science?

In economics, the central place of MI (and it has been central ever since the marginal revolution in the learly 20th century) is due to the definition of the subject of analysis as choice. This definition was first clearly stated by Lionel Robbins in 1931 in his famous methodological essay defining the subject of economics as the study (science?) of the allocation of scare resources. This was then subsequently interpreted and developed by Hicks, Sameulson, et al, as microeconomics by focusing on the choices of the individual agent. Hence methodological individualism in theory. What was argued to exist was the agent with preferences in a context of scarce (given, known) resources and the action avavilable to the agent was to choose over those resources. It is agents who make choices, and therefor economics centres about the context of that choice (scarcity) and the mechanisms by which choice occurs (rationality, preferences, maximizing a utility function). All else, as it were, is not relevant. This is the methodology of individualism: that individuals make choices, and that the subject of economics is the study of those choices. Theory then serves to define that context and to analyse it.

Is this the correct basis for other human and social sciences? If we are concerned with the explanation of (rational) choice (cultural choice, social choice, etc) then it is.   However, the reason that i think MI is wrong for cultural science is that cultural science is not the study of ‘cultural choice’ but rather of the growth of knowledge in the context of cultural evolution. That is, cultural science is a study of knowledge (and how it is created, coordinated and changes, etc). The theory of such a study then recognises elements or units of knowledge as the subject (or object) of analysis, and the role of the individual in this is as a carrier of such knowledge. The individual agent enters as an operator on knowledge, but these actions are not the basic subject of analysis (cf. choice), but rather the various mechanisms that operate on the subject, which is knowledge.

The purpose of a methodology is to focus analysis on theoretical building blocks. The building blocks of cultural science are not agent choice, but knowledge structure and process. (This is common to all evolutionary analysis.) In this sense, there are multiple methodological foundations for cultural science depending upon the level at which knowledge is viewed. We may focus on knowledge ‘in the mind’, on knowledge relating the interior mind to the external world, on knowledge between two or more minds, on populations of knowledge, etc. This takes us from neuroscience to institutions. This is not methodological individualism, but nor is it anti-reductionism. It simply argues that the subject of analysis is not human choice but rather the growth of knowledge. This then focuses the question on the units of knowledge and how they are created, coordinated, change, etc.

The MI debate is interesting because it forces us to confront the question of the units of analysis. The power of MI is that it centres these on choice (by individual agents). However, the point is not to argue against MI, but rather to ask what actually is the unit of analysis? I think it is knowledge (or generic rules, in the language of Dopfer and Potts 2008). The appropriate methdology for cultural science, then, is one that centres knowledge in relation to the many levels at which it exists (in the brain, in behaviour, in institutions, in artefacts, etc). This is where we must start.

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The Paradox of Methodological Individualism, or: Why It Fails As a Foundation for Economics and the Social Sciences

By carstenherrmannpillath | July 9, 2008

Recently, methodological individualism (MI) is being undermined by neuro-, behavioral and experimental neuroeconomics (abbreviated as NEBE) in its role as a foundational principle of the methodology of the social sciences and economics.

The reasons are:

• There is mounting evidence that the human brain operates as a fragmented system of modules, that is, there is no such thing as a “general purpose rationality”.
• The principle of rationality is paired with the crucial role of emotions in human decision making, especially in the context of social interaction: emotions, not rationality, integrate fragmented decision modules.
• Human individuals appear to be socially oriented in a principled way, in particular, they are weakly altruistic.

These observations meet many strategies of defense on part of MI. These are experimental (e.g. proving a general utility mechanism in brain research, e.g. Glimcher), theoretical (inserting the concept of frames into experimental economics arguments, e.g. Gintis) or mathematical (proving the possibility of deducing seemingly modular decision mechanisms like hyperbolic time preferences from general utility functions, e.g. Pesendorfer).

I think that there is a fundamental argument that explodes MI, because it appears to be paradoxical, given the new insights into human behavior. This argument follows up recent contributions by Don Ross on the relation between economics and cognitive science. The point is that MI will succeed as an empirically meaningful approach only in the context of an externalist approach to human mind, which, however, at the same time contradicts the theoretical, in particular the ontological premises of MI.

MI is empirically naive because it just takes it for granted that the boundaries of the human decision system (’agency’) coincide with the boundaries of the body. Precisely for this reason brain research causes troubles for MI, as it concentrates on processes within the body, substituting for mere introspection. If brain research demonstrated that there is no unified decision system in the brain, MI would be refuted empirically. The only way out of this conundrum would be to treat parts of the brain as ‘rational agents’, which is actually already done in most recent principal-agent models of the brain. Needless to say, this is not the kind of solution that really fits into the framework of established economics.

However, there is a straightforward argument that might come to the rescue of MI. It runs as follows. The human brain may be fragmented, but the emergence of systems of interactions, the growth of institutions, the evolution of culture, to name but a few central phenomena, all contribute towards an increasing homogeneity and integration of the human mind. Further, in the more narrow context of markets, competitive forces will weed out ‘irrational behavior’. Thus, mind becomes embedded into larger systems, which ultimately impose patterns of rationality on its workings. If this were true, MI would retain its explanatory value even though NEBE seems to refute it. MI would be wrong in empirical terms, but would remain valid as a theory about economic systems (and not about individuals).

According to my understanding, this argument is paradoxical. It ultimately adopts an externalist stance in cognitive theory, as the crucial capacities underlying human agency are partly externalized to systemic components that transcend the body. This might not be a problem for cognitive scientists, but certainly it is for standard economics. For example, externalism might include other human beings in the “extended mind” that emerges from this analysis. The externalist notion of agency attributes causal powers to both bodies and, let us say, institutions, with the same weight. But this ends up as a classical sociological hypothesis, such as in Max Weber’s account of the rise of ‘rationality’ in Western civilization.

So, there we have the paradox: Given the results of NEBE, MI can only be maintained if it is transformed into an externalist theory of mind, contradicting its ontological premises, which claim that only individuals in terms of the physical units (bodies) exist in society, nothing else. Either economics sticks to this individualist ontology, which implies that it has to eschew formal utility theory in favour of a naturalistic approach to brain/mind, or it continues to work with MI, which means that it turns into a branch of sociology plus cognitive science (i.e. social cognition).

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Methodological Individualism: The Great Debate

By johnbanks | July 8, 2008

Hi all,

To spark some activity and discussion on the blog I’ve invited Carsten Herrmann-Pillath and Jason Potts to debate and discuss the problem of methodological individualism and identity in the context of Cultural Science. I hope this will open discussion about our different understandings of agents, agency and behaviour. My thinking on this topic has been challenged by recent work by both Jason and Carsten on identity.

Working from an extended mind approach, Carsten ends up I think with a quite radical critique of methodological individualism and the rational agent of much mainstream economic theory, if not also of behaviouralism generally.  Jason’s approach to identity seems to retain a connection with methodological individualism.

Over to Carsten and Jason. Please join in the discussion, hopefully we can use this as an opportunity to unpack and explore many of the assumptions about agency and behaviour.

Cheers,
John Banks

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Why Communist China is Becoming the Vanguard of Global Capitalism

By carstenherrmannpillath | June 11, 2008

On my way to Brussels, where I give a talk about “Creative China” at the Ludwig-von-Mises Institute, I remember my career as a China watcher. Over more than a decade, I failed to realize the true potential of China, even though I was trained as an economist and sinologist. Why? Between 1985 and 1995, I was stuck with a particular interpretive frame, as many others. This is, among economists, basically what in the US context has been called the „Washington consensus“, that is, fundamental assumptions about workable markets and their political conditions. China did not fit into these categorizations, and the Tiananmen tragedy seemed to confirm all the expectations. China would collapse like almost all other socialist states in Eastern Europe, just within a few years.

Nothing of this happened. So I wondered why. How is that possible, that the most competitive economy in the world emerged under Communist rule? How could this become reality, that in the most recent McKinsey analysis of China the trumpet call sounds: Win in China – or lose everywhere? The first theory that I developed in the mid 1990s was about political competition among local governments. I think that this is a major explanation for the astounding fact that China effectively discovered a smooth way to privatize her economy without major disruptions. China established an evolutionary model, without explicitely designing it. From the viewpoint of the standard economic theory, this is a major deviation, because most models just assume a monolithic government with interest politics and rent seeking. Chinese politics mutated into a discovery procedure in the realm of policies. I think that this fact is of major significance also for the Western discussion about the role of democracy in transition.

The second important insight is just emerging in my mind, following up my previous blog on intellectual property rights. This is that China succeded so much because there was a lack of clear and safe property rights in certain areas.

This is the most fundamental clash between a “China theory” and standard economics, it seems. We economists are all trained in the belief that without a clearly defined and enforcable system of property rights, growth is not feasible. This point has been proven wrong by the most advanced research in the area of intellectual property rights. As far as the creation and diffusion of knowledge is concerned, the social benefits will be the largest if this special good can be used by a maximum number of people. In China, this came together with the culturally embedded high propensity to learn, and so you have the result: A veritable explosion of new ideas, products, and procedures all across the country. Her Western trade partners called that “piracy”. Well, that need not be what you regard to be new! But for a Chinese the introduction of a Hong Kong Mini Bus system, or of green standards in hotels, or of rap is a novelty, and the speed by which all this has been adopted is the really remarkable thing about China. These might be superficial observations, but just have a look at car manufacturing. Within 10 years of their existence, and within just five years the private car manufacturers in China have managed to transform themselves fom copycats to future hotbeds of innovation in energy-saving cars. There is an increasing probability that cheap electric cars might first emerge into marketable products in China, developed by maverick entrepreneurs, with high manufacturing efficiency and very low costs. That would revolutionize the global car industry, indeed! And all that began with piracy, too.

China is especially apt to adopt the emerging new business models in the web, currently labeled as enterprise 2.0. The traditional Chinese business model is networking among SME, which was also in the centre of attention when economic geographers launched their research into learning regions in the 1980s and 1990s, especially in Italy. Indeed, these cases are other examples where knowledge was not protected in the sense of IPR, but free exchange of knowledge was embedded into social systems of reciprocity. Thus, we do have manufacturing examples that are structurally similar to the commons in the web. China’s traditional business model is currently being further developed in so-called „locally modularized production systems“, in which suppliers assume independent roles as innovators. Add enterprise 2.0, and here you are: China as the vanguard of global capitalism, which is undergoing a fundamental evolution towards a new property rights regime in the creative economy. In other words, I think that Chinese traditional culture is “exapted” to the most advanced business models and forms of economic organization in the world. Well, that will depend how fast China will adopt these most recent innovations, but her past record of copying turns me optimistic about that.

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