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Carl Henning Reschke
University of Witten Herdecke, Germany.
This is the fundamental question that the book aims to tackle. For those not acquainted with Evolutionary Economics, it provides an evolutionary description of economic phenomena dealing particularly with situations of change, open systems and innovation processes. (For an overview see Fagerberg 2003, Nelson 1995 and Nelson's contribution to the volume under review.) This exciting school of thought is located at the intersection of various disciplines (economics, sociology, systems science and complexity science) and communities (technology studies, innovation studies and organisation theory). Therefore it has the potential to play an important integrative role within social science.
The book gives an overview of debates in evolutionary economics (including the neo-institutionalist approach) in 11 contributions by notable scholars in the field. The book is arranged in three parts apart from the introduction: Foundational Issues, Evolutionary Macroeconomics and Evolutionary Microeconomics. The last two parts are each divided into subsections dealing with dynamics and statics respectively.
In his introductory chapter Dopfer gives an overview of the topics covered by the papers and aims to build an integrative framework linking them. In the Foundations section we find Witt's interpretative survey of evolutionary economics (which has been circulating as grey literature for some years) and a paper by Herrmann-Pillath on the ontological foundations of evolutionary economics. In the macroeconomics dynamics section, Metcalfe discusses the "Problem of Growth and Development" from the perspective of population thinking and Richard Nelson investigates "Evolutionary Perspectives on Economic Growth". In the statics section, Bush and Tool describe the "Evolutionary Principles of American Neo-Institutional Economics" and Langlois and Sabooglu explore "Knowledge and Meliorism in the Evolutionary Theory of F. A. Hayek". In the microeconomics dynamics section Loasby deals with selection processes and Day describes distinctions between "Adapting, Learning and Economising". In the corresponding statics section Lesourne detects the "Early Signs of a Revolution in Microeconomics" and Foss deals with the relationship between evolutionary and contractual theories of the firm.
The book put me off at first owing to its bold typeface and narrow print not to mention language which might indicate the need for further editorial work on some contributions. In practice it proved to be a lot more readable than I thought initially. However, if there is a second edition, there is still room for improvement. Nevertheless most of the contributions were actually fun to read. The volume presents a very good selection of interesting essays. These show the diversity of opinion amongst researchers taking an evolutionary approach to economics. Unfortunately the publication process seems to have taken a long time since most essays do not cover literature beyond the mid-nineties.
The fourfold classification of papers along dimensions of macro/micro and static/dynamic could be argued for, but leaves me with an uneasy feeling. For instance, Lesourne's contribution is dynamic in the sense of having a development flavour as well as being dynamic in the usual way that self-organisation models tend to be. Although Metcalfe and Nelson discuss economic growth, they do so more at the meso- and micro-levels than at the aggregate level which would justify a macro- label in the traditional sense. Contributions by Bush and Tool and by Langlois and Sabooglu discuss their subject matter on a general (societal) level but could also have been put into the microeconomics category. In an evolutionary context it makes a lot more sense to turn the order around and start with the micro- level, building up the aggregate picture from individual processes and their dynamic interaction.
This all shows that evolutionary economics cannot necessarily be subsumed under the traditional categories operating in economics. Evolutionary economics has a strong focus on meso-level elements but also extends into both traditional micro- and macro-economic areas. The contribution of the tools and theories developed in evolutionary economics to date lies not necessarily in replacing traditional economic theories, but rather in:
a) (potentially) putting the glue between micro- and macro-levels as well as
b) providing the links to other disciplines such as sociology, anthropology and psychology, and
c) adding to standard models in the areas of innovation and technical change, partly (and deliberately) in a complementary rather than competitive fashion.
In the future its contribution will possibly lie in making economic models more general by showing that the standard models are special cases within the evolutionary framework but this is another matter. (The book spuriously hints in this direction but fails to deliver on its promise to make this demonstration.)
Since I am reviewing a printed book for an electronic journal, it may be appropriate to make pedagogic use of this fact to illustrate the nature of evolutionary economics for those unacquainted with it. In the light of the criticism presented above, this book raises some questions about the value of book publishing to the scientific community. If libraries (and therefore ultimately taxpayers or students) are expected to pay for such books - then there must be added value to print publication beyond the value of versions that might be found on the internet, in journals or circulated within the scientific community informally.
This added value may lie in a superior selection of papers, in shorter search time for the student or researcher and perhaps in better preservation of documents for the generations to come. None of these benefits are absent in the volume under review. Nevertheless, I doubt that most buyers will want to pay for it if book prices either stay high or if the subject matter of evolutionary economics is reflected poorly in the book.
Therefore, I want to hint at a Schumpeterian theme, which is touched upon in Nelson's contribution: the creative destruction of businesses. Using the example of the very book reviewed here, we can demonstrate the usefulness of approaches to economic issues inspired by evolution. As we all know there is a certain tension between scientists (favouring free flow of information) and publishers (interested in maintenance of their profit levels). In addition, there is increasing competition between publishing media with initiatives such as the Open Archive Initiative (OAI). Therefore a range of questions arise. Will paper-based scientific book publishing remain as important and profitable as it was in the past? Internet technology is said to lower costs of publishing and distribution, which should favour it. Additionally, such electronic publishing involves extra expense, reorganisation and (presumably) a different mindset in traditional publishers willing to engage in both activities. Will Internet publishing therefore carve out a smaller or larger niche from the traditional market? These consequences might arise as a result of concerted effort by scientists or as a side effect of economic activity. The latter activity might in turn be carried out by traditional publishing houses or alternatively by third parties entering the market. If online versions of books or journals are favoured, maintenance of IT equipment and guaranteeing accessibility of articles for decades becomes an issue and is not cheap either.
The answer depends (amongst other factors) on the interplay of economic conditions (prices for publishing, required resource inputs to the publishing process), the perceptions of actors (appropriate profit margins, effort to be put into book versus internet publishing, the technical properties of each medium, the relative reputations of publications in the two media) and social institutions (resources that can be legally set aside or acquired by scientists for internet publishing, contracts on copyrights and remuneration - as far as it applies - between publishers and scientists) that shape the future course of the publishing/science community nexus.
Mainstream economics would consider the costs of technology and organisation (along with transaction and legal issues), derive the economically favoured solutions, possibly depending on specific conditions, and assume that this result will play out in reality - ceteris paribus of course. Evolutionary economics would principally do the same but put more emphasis on the conditions (and vagaries) that characterise the process of reaching the solution, leading to a more open set of possible developments. This provides for some a less satisfactory answer than that of mainstream economics. But, given knowledge about the social and cultural context, an evolutionary perspective should already (and even more so in the future) be able to give answers about paths of development. It might even be able to define the attractors of the system under study, based on a detailed knowledge of interactions in social systems that are presently described in separate disciplines. It could then go on to describe how the social system runs sequentially through several attractors depending on the conditions and developments in a social system.
If the contributors are, as Brunner says in his review of the book (Brunner 2001), masters of the field (which I don't dare to doubt) then the masters haven't seen all of the light yet. This is not surprising, as science is an ongoing process. In addition, it results from the "pre-paradigmatic" stage of the field, which is reflected in contributor diversity in the matter of what constitutes an evolutionary system and how such systems should be analysed. I shall make some appropriate comments about this in due course. But in contrast to many earlier works, there are signs that an agreement is forming about relevant issues and about the basis for integration. The set of papers thus shows many interrelations that could be welded into a firm foundation for evolutionary economics.
As mentioned, Dopfer gives an overview of the contributions, picking out the most important aspects and integrating them. He discusses the notion of an "economic gene" but should in my opinion have pointed out the analogous character of the gene term more explicitly. A better conceptualisation might have been to use Hull's concept of interactors (humans, organisations) and replicators (rules, routines and biological genes). His distinction between epistemic and poiesic rules is interesting nevertheless. Likewise his approach to dealing with nested hierarchies and feedback effects through a fractal approach to entities and relationships as well as by distinguishing between explicate and implicate path dependence is a useful starting point for further thought. The same difficulty with conceptualising evolutionary processes in terms of problems with epistemic issues, problems with separating system levels and problems with understanding mutual influences have been dealt with in systemic evolutionary thought (see e.g. Riedl 2000). This literature could provide further useful and more elaborate concepts. The concept of second-order cybernetics (as developed by von Foerster and co-workers) might prove a useful tool to cope with feedback processes between the individual and collective level.
Witt discusses how novelty and endogenous change can be captured by evolutionary concepts and illustrates evolutionary modelling approaches by two effects taken from biological theory: logistic frequency-dependency and the occupancy effect. His discussion might be improved by considering the quasi-species concept developed by Eigen and co-workers (see e.g. Eigen and Schuster 1979).
Herrmann-Pillath discusses the differences between a realist and instrumentalist approach to economics. Having a background in legal and biological thinking, I found in the paper by Herrmann-Pillath the conceptual precision, consideration of philosophical issues and evolutionary taxonomic thinking that I have almost always found lacking in the usual economic texts. He shows how the problems of mainstream economic theory can be traced to its basic (and limited) focus on an instrumentalist approach. Although Herrmann-Pillath mentions Popper's "three worlds" ontology, he sticks to a bimodal ontology reflecting mind and real processes. Second order cybernetics might again prove another useful conceptualisation in this area.
Metcalfe discusses economic growth based on new knowledge in the context of evolutionary population thinking. Using the Fisher equation he shows how selection and development can be integrated in a formal treatment. Nelson's contribution is based on Nelson (1995) but it seems gentler on the reader in assuming less knowledge about what evolutionary economic theory entails. He discusses models of technical change (including his own work) and research from a management perspective in a way that serves as a good introduction to the field, providing a useful larger picture.
Bush and Tool introduce the foundations of neo-institutional methodology, its characteristics being rooted in the view "that paths of inquiry should remain open and accessible" leading to a perspective that incorporates the contextual character of knowledge and social influences on the scientific process. This leads to a discussion of the principles of neo-institutional analysis and their evolutionary character. The authors could have mentioned pragmatist philosophy (and Charles S. Peirce) more prominently as this would have made the evolutionary roots of Veblenian institutional economics in an evolutionary flavoured philosophy that has some connections to evolutionary epistemology more explicit.
Langlois and Sabooglu discuss Hayek's concept of spontaneous order, detecting in the unresolved tensions between his evolutionary agnosticism and liberal rationalism the basis for an evolutionary research program. The tension between reason and evolution they stress could indeed be resolved by an evolutionary view, but whether this necessitates a whole program is doubtful. Again systemic evolutionary theory of the kind developed by Riedl (2000) posits a circular process of knowledge growth whereby the process of new variety generation builds on past successes and new knowledge is created by selection of variation of these past successes. This evolutionary view (inspired by epistemological thinking) would easily allow us to reconcile evolution and reason by positing that they interact in a circular fashion: the evolutionary process taking reason as its "variety-fuel" and generating new rules of conduct from that, with these new rules again both subject to and the basis for human reason.
Loasby discusses selection processes in economics along the lines of the marginalist debate in economics to which Alchian (1950) was an important contribution eventually triggering Nelson and Winter's well known book (Nelson and Winter 1982). His aim in this paper is to argue that economics should not be constrained too closely by an orientation towards biological theory. Day discusses adaptation and (stimulus-response) learning and how they are (not) reflected in the neo-classical version of the adjustment processes that take place in economics. His contribution implies that the mainstream economic view is also only an abstraction of an adjustment process bringing information and knowledge held by individuals into line. Stimulus-response learning is only one form of learning that was favoured by the behaviourist school some decades ago. It has be criticised for its neglect of real conditions and should therefore not necessarily be taken as quintessential form of learning to be modelled.
Lesourne discusses the self-organisation approach as a conceptual bridge that might allow us to integrate mainstream and evolutionary thought on microeconomics. To illustrate his argument, he sketches a set of simple, but increasingly "complexified" model labour markets with jobs differing in qualification and a (sub-)population of job searching agents. He shows thus how neo-classical economics telescopes the difficulties of the search process into its assumptions while these are considered in depth in evolutionary approaches. Foss discusses the relationship between evolutionary and contractual theories of the firm. After laying out the standard form and resulting criticism of neo-classical accounts concerning how firms interact in a market, he identifies the domains of application for evolutionary and contractual theories in terms of internal organisation, existence and boundaries of firms, their knowledge accumulation strategies and their representation in industry-level analysis.
If one reads Lesourne in conjunction with Day's contribution and keeps Herrmann-Pillath's arguments in mind, it becomes clear that neo-classical and evolutionary economists in a variety of flavours all use a model-based analogy to cope with the unknown real nature of the adjustment process takingplace in economic systems. While neo-classical economics tends to define adjustment processes so they can be seen as auctions, economists favouring self-organisation see the process though the lens of a specific class of mathematical models. By contrast, evolutionary economists tend to focus on the vagaries of dynamic adaptation under continual injection of novelty. This again suggests that economists should differentiate between the characteristics of a real process and the metaphor, analogy or mathematical tool which is used to cope with the process conceptually.
I regretted that the book contained no contributions on the relationship between behavioural perspectives and evolutionary economics. Bush and Tool touch on this area but from a perspective that mainstream economists will find "sociological". With respect to the micro-foundations of economics presented in behavioural approaches, the contributions to the book remain on an excessively aggregated level. It would therefore have been useful to include a piece that integrated economics and behavioural research or discussed experimental economics from an evolutionary point of view. For instance, there is a lot of interesting research at the intersections between anthropology, psychology and economics by people like Fehr, Gächter, Gintis, Bowles and Robson. This research links quite naturally to an evolutionary perspective.
Generally, I think the perspectives presented here could also profit from a dialogue with the systemic evolutionary school in biology, such as the kind of work presented in Riedl (2000). This field has the same aim as evolutionary economics: detecting the laws of order in the evolutionary process and coping with the associated problems of epistemology.
The significance of the book for the social systems modelling community lies on two levels.
Firstly, there is a debate about the (possibly) evolutionary character of social systems and about the modelling of such systems. This evolutionary character is argued for in all the contributions, with somewhat differing rationales and points of view. The distinction between our perception of the world and the real processes comes to the fore particularly in the contributions by Herrmann-Pillath, Day, and Lesourne.
The article by Herrmann-Pillath contains good methodological points that should also be reflected in modelling. If social systems require (at least I should say) a bimodal ontology distinguishing between our mental processes and the "real" processes, then we need a reflection of this in our models. Models may reflect this in two ways:
a) either focusing entirely on the real process but always keeping in mind that the model is not reality but an abstraction.
Every modeller will subscribe to this, but seldom distinguishes between the wording of the description for a model, its system characteristics and the real process it tries to capture. This is due to the fact that our models are also tools that help us come to terms with the nature of the underlying process we wish to model.
b) if we take the importance of mind in social systems evolution serious, we should pay far more attention to modelling mental processes as well.
The relevance to researchers primarily interested in social simulation lies particularly in the articles of Metcalfe, Witt, Day, and Lesourne, which describe evolutionary processes or models.
Since the essays give a good overview of evolutionary economics, I can very well imagine graduate students among the readers. The texts are partly self-explanatory, but some would definitely profit from background knowledge supplied by a teacher and/or secondary texts. The nature of these papers probably requires a discursive approach focusing on understanding, but they usually prove to be a gentle introduction to methodological and philosophical questions with an eye to their application in the context of the question at hand - fitting well into university education in humanities and social sciences including economics.
Researchers interested in connections between evolutionary views of social processes and philosophical questions will benefit from the book. Mainstream researchers can learn a lot about the benefits of the evolutionary approach from it. Simulators may be inspired by (or find new ideas in) the formal parts of the papers or in the general world-view of evolution. To sum up, I think the book makes for a good read despite the lacunae mentioned. It could serve as interesting introduction for (graduate) students and gives food for thought to existing researchers in the field.
ALCHIAN A. A. 1950. Uncertainty, evolution and economic theory. Journal of Political Economy, 58:211-221.
BRUNNER H.-P. 2001. Review of Evolutionary Economics: Program and Scope edited by Kurt Dopfer. Journal of Evolutionary Economics, 11:581-584.
EIGEN M. and P. Schuster 1979. The Hypercycle: A Principle of Natural Self-Organisation. Springer, Berlin.
FAGERBERG J. 2003. Schumpeter and the revival of evolutionary economics: An appraisal of the literature. Journal of Evolutionary Economics, 13:125-159. [Longer Online Version in PDF Format]
NELSON R. 1995. Recent evolutionary theorising about economic change. Journal of Economic Literature, 33:48-90.
NELSON R. and S. Winter 1982. An Evolutionary Theory of Economic Change. Harvard University Press, Cambridge, MA.
RIEDL R. 2000. Strukturen der Komplexität: Eine Morphologie des Erkennens und Erklärens. Springer, Berlin.
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