The Emergence of Organizations and Markets

The Emergence of Organizations and Markets

John F. Padgett
Walter W. Powell
Copyright Date: 2012
Pages: 560
https://www.jstor.org/stable/j.ctt1r2fmz
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  • Book Info
    The Emergence of Organizations and Markets
    Book Description:

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

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

    eISBN: 978-1-4008-4555-2
    Subjects: Sociology, Business, Management & Organizational Behavior, Economics, Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Contributors
    (pp. ix-xii)
  4. List of Illustrations
    (pp. xiii-xvi)
  5. List of Tables
    (pp. xvii-xviii)
  6. Acknowledgments
    (pp. xix-xxiv)
  7. 1 The Problem of Emergence
    (pp. 1-30)
    John F. Padgett and Walter W. Powell

    Darwin’s question about the origin of species is worth posing and exploring as much in the social sciences as it was in biology. Human organizations, like living organisms, have evolved throughout history, with new organizational forms emerging and transforming in various settings: new types of banks and banking in the history of capitalism; new types of research organizations and research in the history of science; new types of political organizations and nations in the history of state formation. All of these examples are discussed in this book. The histories of economies and polities are littered with new organizational forms that...

  8. Part I Autocatalysis
    • [Part I Introduction]
      (pp. 31-32)

      The three chapters on autocatalysis are foundational for the rest of the volume. This does not mean that the principles and mechanisms of organizational genesis and evolution discovered in the empirical case studies can be derived from these chapters on autocatalysis. Our empirical case studies of evolutionary dynamics in multiple networks contain their own discoveries, which can stand on their own. But “foundational” does mean that these three chapters on autocatalysis explain why there are organizations in the first place, capable of evolving as described in the case studies. Our answer is that organizations are one form of life. Human...

    • 2 Autocatalysis in Chemistry and the Origin of Life
      (pp. 33-69)
      John F. Padgett

      The purpose of this chapter is to provide background to social scientists on the concept of autocatalysis, drawn from chemistry and the literature on the origins of life. More comprehensive, though less focused, reviews of the early history of life from different theoretical perspectives are provided in Eigen, in Maynard Smith and Szathmáry, and in Margulis and Sagan.¹ The literature on the origin of life is tumultuous, much like the history of biological life itself. The placid and comforting image of Darwin’s warm tidal pool as the physical locus for the first emergence of chemical life has been partly replaced...

    • 3 Economic Production as Chemistry II
      (pp. 70-91)
      John F. Padgett, Peter McMahan and Xing Zhong

      The production and distribution of goods by firms are only half of what is accomplished in markets. Firms also are produced and transformed through goods passing through them. This transformation is not just a matter of profits. Skills and the core competencies that define firms are developed and maintained through “learning by doing” and other learning processes that are triggered by exchange among firms. In periods of decentralization and outsourcing, like today, it is more evident than ever that linked chains of skills are distributed across firms. In this context especially, evolution in and learning of distributed skill sets reverberates...

    • 4 From Chemical to Social Networks
      (pp. 92-114)
      John F. Padgett

      The goal of this chapter is to sketch the quasievolutionary stages necessary to move step-by-step from the chemical autocatalysis (a.k.a. “life”) of the last chapter to a social autocatalysis that bears at least minimal resemblance to human interaction. I do not regard “complexity” or even “intelligence” as the crucial feature distinguishing chemical from social autocatalysis for the simple reason that the complexity and intelligence of biochemical systems are overwhelming to anyone who has looked into them. I am committed in this section of the book to understanding how the social builds out of and on top of, rather than displaces,...

  9. Part II Early Capitalism and State Formation
    • [Part II Introduction]
      (pp. 115-120)

      This introduction provides a cursory overview of the four chapters contained in the historically oriented segment of the book—just enough to enable the reader to compare the global structures of the emergence analyses. Historical details of course differ dramatically across the four cases because the time periods analyzed are so distinct: medieval, Renaissance, early modern, and industrial age. Taken in ensemble, these four chapters are snapshots of the historical coevolution of state and market in Europe. In each chapter I argue that foundational organizational inventions in early capitalism and in European state formation were intimately related. Such inventions often...

    • 5 The Emergence of Corporate Merchant-Banks in Dugento Tuscany
      (pp. 121-167)
      John F. Padgett

      The idea of the corporation in its modern sense of a joint-stock company with limited liability did not exist in the Middle Ages. Then there was no limited liability, no stock market, no Industrial Revolution with factory production. Still, economic historians do speak of a Commercial Revolution in the “long 1200s” of the late 1100s into the early 1300s.¹ Along with the formation of the internationally oriented Champagne fairs in France, the rise of the large unitary merchant-bank in Tuscany ranks among the most important features of this Commercial Revolution.² Instead of mobile merchants from many nations traveling with their...

    • 6 Transposition and Refunctionality: The Birth of Partnership Systems in Renaissance Florence
      (pp. 168-207)
      John F. Padgett

      Inventions of any sort are hard to understand. They seem to come out of the blue, a rupture with the past, yet close investigation always reveals historical roots. Individual geniuses sometimes create them, but is “genius” just our celebratory label for a process that worked, which we do not understand? To proffer a tentative distinction: innovations improve on existing ways (i.e, activities, conceptions, and purposes) of doing things, while inventions change the ways things are done. Under this definition, the key to classifying something as an invention is the degree to which it reverberates out to alter the interacting system...

    • 7 Country as Global Market: Netherlands, Calvinism, and the Joint-Stock Company
      (pp. 208-234)
      John F. Padgett

      In this chapter I address the multifaceted organizational puzzle that is the Dutch Revolt. During these tumultuous events, which I bracket between 1560 and 1610, many transformative organizational inventions were produced in short order, almost like a cascade. In the domain of states, cities in the northern half of the Spanish Netherlands assembled themselves into the new organizational form of a federation, which called itself the United Provinces of the Netherlands. In the domain of religion, Calvinism emerged from Reformation rebellion into an official state church, the Dutch Reformed Church. In the domain of economics, the joint-stock company—so influential...

    • 8 Conflict Displacement and Dual Inclusion in the Construction of Germany
      (pp. 235-266)
      Jonathan Obert and John F. Padgett

      In classifying regimes, political scientists often think in terms of archetypes—democracy, autocracy, oligarchy, republic, empire, dictatorship, totalitarianism. Such ideal-typing of political states leads to primitive understandings of evolutionary dynamics, little more than “transition” from one purported archetype to another. Most real states, however, are amalgams of multiple organizational principles, sometimes in tension, sometimes in compromise, sometimes in outright contradiction. Historians and area specialists are well aware of this complexity, but theoretically oriented social scientists have not provided many conceptual tools for analyzing hybridity.¹

      On the topic of multiplicity of principles, Bismarck can teach us. As a person, Bismarck was...

  10. Part III Communist Transitions
    • [Part III Introduction]
      (pp. 267-270)

      In world historical perspective, the collapse of the Soviet Union and the changes in China are the most significant organizational transformations of our time. Organizational developments in Europe and America are fascinating and revealing in their own right, but those events are incremental compared to what has happened in the former Communist bloc. If organizational innovations are recombinations of networks of skills and relational protocols into something new, and organizational inventions are the spillover of innovations into tipping the multiple domains in which they are embedded, then Communist transitions are an obvious contemporary place to look to study processes of...

    • 9 The Politics of Communist Economic Reform: Soviet Union and China
      (pp. 271-315)
      John F. Padgett

      In 1983, two years before Mikhail Gorbachev came to power, Joseph Berliner, that doyen of Western research on Soviet industrial relations, wrote a remarkably prescient article that outlined the constrained options for reforming the Soviet economy and then evaluated the likelihood of political success for each strategy.¹ Berliner foresaw four realistic approaches to communist economic reform: the “conservative model,” which tinkered “scientifically” with new techniques of central planning; the “reactionary model,” which restored the alleged discipline and top-down control of the Stalinist period; the “radical model,” which decentralized central planning to allow for Hungarian-style enterprise autonomy; and the “liberal model,”...

    • 10 Deviations from Design: The Emergence of New Financial Markets and Organizations in Yeltsin’s Russia
      (pp. 316-333)
      Andrew Spicer

      Russian post-communist reform efforts began with a large and concerted effort to design new forms of markets and organizations. By the end of Russia’s mass privatization program in June 1994, over seventeen thousand midsized and state-owned enterprises had transformed into joint-stock companies; forty million Russians had became shareholders in newly privatized firms; dozens of new stock markets had been created; and thousands of new financial organizations had entered the new marketplace (Kogut and Spicer 2002). By many measures—whether it is the number of participants or the amount of resources in the market—Russian financial markets could be considered to...

    • 11 The Emergence of the Russian Mobile Telecom Market: Local Technical Leadership and Global Investors in a Shadow of the State
      (pp. 334-346)
      Valery Yakubovich and Stanislav Shekshnia

      Although Benjamin Franklin’s statement in the epigraph warns of the perils of political office, it perfectly summarizes the experience of some of the Russian entrepreneurs of the early 1990s who dared to launch new businesses in the industries perceived to be the natural domain of Soviet monopolies. Cellular telephony is an illustrative case in this regard.

      In the 1990s the cellular industry emerged from scratch and grew at an annual rate of 100 percent to serve about thirty-one million customers or roughly one-fifth of the Russian population by the early 2000s (Handbook “Russia 2004”). In the same period, the Russian...

    • 12 Social Sequence Analysis: Ownership Networks, Political Ties, and Foreign Investment in Hungary
      (pp. 347-374)
      David Stark and Balázs Vedres

      Can high levels of foreign investment be compatible with interenterprise ownership networks in a developing economy? In addressing this question, this chapter¹ poses a new agenda for the field of economic development: In place of the earlier question of how a national economy is integrated into the global economy, the new agenda asks whether and how foreign investment is integrated into the local networks of host economies. Sustainable growth is more likely, research suggests, where the subsidiaries of foreign companies are embedded in network ties within the host economy, as locals and foreigners alike recognize that business networks can be...

  11. Part IV Contemporary Capitalism and Science
    • [Part IV Introduction]
      (pp. 375-378)

      The sextet of chapters in part 4 examines the emergence and development of contemporary science- and technology-based sectors. The first four chapters examine the commercial field of the life sciences and its consequences for biomedical research, corporate organization, and venture finance. Breakthrough discoveries in genetic engineering in the 1970s helped spawn a new field, which in time had profound, wide-ranging effects. Indeed, some analysts depict this sea change as a major technological discontinuity that triggered a “classic” wave of creative destruction. To be sure, the changes that emerged were far-reaching in terms of new business models, the repurposing of university...

    • 13 Chance, Nécessité, et Naïveté: Ingredients to Create a New Organizational Form
      (pp. 379-433)
      Walter W. Powell and Kurt Sandholtz

      Where do new practices and models of organization come from? Of course, nothing is entirely new, so the obvious answer is that new things trace their lineages back through earlier incarnations and to the careers of individuals involved in their construction. Such tracing is indeed useful, but it can lead to either a frustrating, infinite regress, with scant analytical purchase, or undue attention paid to the “heroic” role of inventors, without sufficient consideration of the surrounding context in which their creations occurred.

      We pursue a different tack, focusing on components of new things and identifying the sources of separable parts,...

    • 14 Organizational and Institutional Genesis: The Emergence of High-Tech Clusters in the Life Sciences
      (pp. 434-465)
      Walter W. Powell, Kelley Packalen and Kjersten Whittington

      Much of the social science literature on institutions resembles a play that begins with the second act, taking both plot and narrative as an accomplished fact. Very little research asks how a play comes to be performed, or why this particular story is being staged instead of some other one.¹ Young (1998, 4) has observed that most social scientists go about their work only after the dust has settled. We thus miss out on seeing where the dust came from or how it settled. Even more important, we may not notice that things are continually moving about, being reshuffled to...

    • 15 An Open Elite: Arbiters, Catalysts, or Gatekeepers in the Dynamics of Industry Evolution?
      (pp. 466-495)
      Walter W. Powell and Jason Owen-Smith

      Most explanations of institutional change paint organizations as pliant in response to exogenous shocks, whose effects appear to radiate outward like a tsunami toppling those in its path. Whether in the form of a technological discontinuity that undercuts incumbents, political events that disrupt the balance of power, unanticipated demographic processes, or sharp resource or environment challenges, external crises can produce unsettled times or critical junctures that render extant routines brittle and open prospects for change.¹ After such moments of possibility, things eventually settle down and a more stable order returns. Unfortunately, such punctuated accounts of economic, political, or social change...

    • 16 Academic Laboratories and the Reproduction of Proprietary Science: Modeling Organizational Rules through Autocatalytic Networks
      (pp. 496-519)
      Jeannette A. Colyvas and Spiro Maroulis

      The introduction to this volume emphasizes the origins and emergence of new forms as a collective blind spot in the social sciences. Few analyses capture the relationship among all three features of social and economic life—the origin of new practices, their emergence as broader self-reproducing structures, and the form that they take as a result of this process. Our approach to this question examines how disparate elements of the social organization of academic science-were assembled, transposed, and recombined to define a new regime of public and proprietary knowledge production.

      Our aim is to illuminate the feedback dynamics of crossing...

    • 17 Why the Valley Went First: Aggregation and Emergence in Regional Inventor Networks
      (pp. 520-544)
      Lee Fleming, Lyra Colfer, Alexandra Marin and Jonathan McPhie

      It has become increasingly fashionable to identify social networks as crucial contributors to regional innovative capacity (Marshall 1920; Piore and Sabel 1984; Krugman 1991; Stern and Porter 2001). Networks have been argued to offer improved customer-supplier relations, more efficient venture capital and legal infrastructure, and increased knowledge spillovers between firms and regional institutions. Knowledge spillovers are thought to be particularly crucial to fastdeveloping technologies such as semiconductors and, more recently, biotechnology. Spillovers correlate with increased labor mobility (Angel 1989), relaxed enforcement of non-compete covenants (Gilson 1999), and increased labor mobility and brain drain (Marx et al. 2009, 2011). Saxenian (1994)...

    • 18 Managing the Boundaries of an “Open” Project
      (pp. 545-565)
      Fabrizio Ferraro and Siobhán O'Mahony

      Both scholars and observers of the rise of Wikipedia and open source software projects such as Linux often wonder how collectively managed projects that are open to any and all manage the production of complex knowledge goods. If the boundaries of public collective projects are open to any volunteer, how can the quality of complex knowledge goods be sustained? Without the credentialing of knowledge, appropriate organizational controls, and adequate financial incentives, surely such settings are ripe for malfeasance, co-optation, or just inferior work products. Yet empirical studies demonstrate modest discrepancies between encyclopedia texts produced by credentialed experts and those of...

  12. Coda: Reflections on the Study of Multiple Networks
    (pp. 566-570)
    Walter W. Powell and John F. Padgett

    The early origins of this book date back to June 2000 when a working group was formed by Padgett at the Santa Fe Institute (SFI).¹ The working group later evolved into a funded project by Padgett and Powell, The Co-Evolution of States and Markets. Over the years we met annually at SFI, and many different colleagues participated in our sessions. We invited colleagues who were our peers and younger scholars who were students or kindred spirits, and SFI fellows and visitors also joined in. It was through careful comparison of the biographies of medieval Florentine families and twentieth-century life scientists...

  13. Index of Authors
    (pp. 571-572)
  14. Index of Subjects
    (pp. 573-583)