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The Emergence of Organizations and Markets

Padgett, John F. and Powell, Walter W.
Princeton University Press: Princeton, NJ, 2012
ISBN 9780691148878 (pb)

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Reviewed by Ozge Dilaver Kalkan
British Institute at Ankara

Cover of book This important book is an edited volume written by twenty two authors and edited by John F. Padget and Walter W. Powell. The editors, who also contribute to the majority of the chapters, acknowledge the influence of Santa Fe Institute’s research programs on evolution of markets on the development of the studies covered in the volume. In line with the complexity science perspectives the institute has developed, the book combines insights from biochemical origins of life and social network analysis to study the emergence of organizational forms that have been important in the development of market societies. This unusual synthesis provides original perspectives to the fourteen case studies in the book. These studies make sense of detailed relational data through models of biological evolution. In addition to being informative on some of the major turning points in economic history, the case studies suggest new explanations for the background and origins of major organisational innovations. There are also modelling studies in the book, exploring the similarities and connections between evolution in biochemistry and learning and innovation in social networks.

The main thesis of the book in relation to formation and impact of social networks is that "in the short run, actors create relations; in the long run, relations create actors" (p. 2). This thesis is supported by the argument that there are more to social networks than what is covered in simplistic representations of nodes and ties. It argues that social networks are "congealed residues of history" (p. 3) and they "don’t just pass things; they do transformational work" (p. 8) on social entities. The book’s general focus on (and arguably the ontological position around) transformative processes is elaborated though an analogy between living organisms and social entities. In the short run, it is argued, biological as well as social objects appear fixed and stable, but in the long run they all evolve and transform. Thus, we perceive ourselves as solid and stable while "no single atom in our body has been there for more than a few years" (p. 3).

Among evolutionary concepts that are referred to in the book (in the second chapter, in particular), autocatalysis appears to be the most relevant to the core arguments of the book. Hence, the first of the four parts of the book addresses autocatalysis and defines it as "a set of nodes and transformations in which all nodes are reconstructed through transformations among nodes in the set" (p. 8). This definition relates autocatalysis to the abovementioned transformational aspect of social networks. Padget, McMahan and Zhong suggest in the third chapter, for example, that markets do not only facilitate the production and distribution of goods but also continuously transform the firms that these goods pass through.

The second part of the book, entitled "Early Capitalism and State Formation", covers four fascinating studies investigating the origins and development of commercial and financial institutions that are parts and parcels of modern societies. The case studies start from the early 1200’s and explain how the small partnerships of friends or brothers in the Champagne Fairs were gradually replaced by Tuscan corporate merchant-banks within a century. The emergence of financial innovations in Renaissance Florence, and of the joint-stock company, the stock market and the central bank in the Netherlands are studied in the following chapters. The last chapter in this part reviews construction of Germany through her connections to Prussia and the simultaneous existences of democracy and autocracy. Through detailed investigations of the forms and the subject matters of interactions, the studies in this part point out that inventions, such as the corporation that has a legal existence beyond the lifetimes of its constitutive members, were extensions of ideas developed in other spheres, such as the Church’s financial innovations to fund crusades- and the multiplicity of interconnected networks of religious, political, international trade and family connections enabled such extensions between these spheres.

The third part, entitled "Communist Transitions", covers organisational transformations in the former Communist bloc starting with the establishment of communist institutions. This analysis describes the existing structures and the extents and directions powerful actors such as Stalin and Mao were able to re-shape these structures through politically embedded economic networks and large-scale spatial and social mobility in the population. Next, privatisation models in Russia are compared to models of other countries and related to broader political contexts and power struggles in the country. The remaining two studies in this part investigate the emergence of mobile telecom market in Russia and the level of integration foreign direct investment has in local economic networks of Hungary.

The fourth part, entitled "Contemporary Capitalism and Science" covers six studies that investigate the development of science and technology based sectors. These studies highlight, once again, that organisational innovations are new combinations and interpretations of existing practices in different areas. In the case of the emergence and spread of market institutions in the academia, individuals that trespass institutional boundaries between entrepreneurial activities and research have been influential in the emergence of such innovative combinations. Studies in this part also refer to institutional settings beyond individual firms including the role of anchor tenants and cross-domain interactions between commercial and public organisations of different roles in the regional agglomerations observed in the biotechnology and information technology sectors.

Although the relevant arguments are distributed across chapters, the book challenges modernist science from several aspects. At the very general level, the book promotes "the biology, not the physics, view of science" (p. 2) which focuses on transformative processes rather than equilibrium or selection. Although the book refers to biology as the main source of inspiration, Padget and Powell are cautious about benefiting from models of natural and physical sciences in studying social phenomena. They argue against the glorification of mathematical models, as well as one particular interpretation of evolution that focuses on natural selection and ends up with Social Darwinism. The authors explain that their perspective that focuses on autocatalysis instead of selection emphasises "relational side of Darwin" (p. 37). Regarding more conventional social science, the authors are critical of disciplinary boundaries that limit research practise and of clear-cut, modernist distinctions such as the demarcation between the state and the market and the ideal-typing of political states.

Padget and Powell also criticise methodological individualism that blackboxes individual actors and assigns too much explanatory power on their blackboxed agency. While this criticism is clearly towards the negligence of social and history-dependent conditions that affect individual actions, the authors also argue that the main thesis of the book (that "in the short run, actors create relations; in the long run, relations create actors") simplifies the divergence between methodological individualism and social constructivism to a matter of time scale. Yet, while opening the lid of the black box with evolutionary leverage, this thesis chicken-and-eggs the issue of agency. Although at the empirical side, the book studies the impact of influential actors from Pope Urban IV and Edward I to Stalin and Mao in detail, it is not clear at the theoretical side if and to what extent the synthetic approach developed in the book allows room for the agency of created actors beyond realising what can be inferred from the limits and opportunities of their times and surroundings. This issue is particularly important in the context of the generation of innovations. For that, the authors explain that their aim in referring to autocatalysis is identifying processual mechanisms that generate and diffuse organisational innovations. Elsewhere, they also question if the "genius" that is commonly associated with creation of inventions is "just our celebratory label for a process that worked, which we do not understand?" (p. 168). In short, although Padget and Powell argue that "(i)mitation of biological science by the social sciences should never be slavish: social systems have no genes, and social systems have consciousness" (p. 167) they do not give many hints to how these differences between biological and social entities may limit the theoretical side of their synthesis between autocatalysis and social networks.


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