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Domain shift

from Peter Radford

Brian Arthur tells us that technology most often advances in the form of domain shifts.  In his narrative technologies cluster in related groups he calls domains.  So individual technologies might advance through a tweak here or there, but the economy advances through a shift from one cluster of technologies to another.

I like this idea.  Especially when we then broaden the topic to use technology as a background against which we view a particular slice of history.  Thus we can think, legitimately about the “steam era” and such.  Adding insight to this, Arthur situates all technologies as extensions of natural phenomena.  So he characterizes a technology as a phenomenon being “captured and put to use”.

All good.  This gives us a practical definition of technology and helps map its evolution onto the changes of society itself as it became more and more infused by technology.

Arthur also tries to make us embrace a very broad notion of technology.  He insists that a great number of social structures can also be defined as technologies.  So a modern business organization is a technology, as is any other institution.  I agree.  When we go further and identify that most, if not all, technologies can be segmented into sub-technologies we start to see commonalities that might elude us in a more holistic analysis.  This does not imply we can predict the higher level organization from the sum of the component parts, but it does allow us to see common ancestors to many of our contemporary technologies: they are rooted in lineages in the same way that the natural world is.

Let’s stay with this.

If a modern business corporation is an instance of a technology and is comprised of sub-technologies drawn from a common domain then we can identify the notion of shareholder value as one such component.  It is a technology.  That it has come to play such a prominent role in the overall construct of the corporation needs explanation.  How come other components didn’t reach the same dominance?

I was prompted tom ponder this by a short article by Daron Acemoglu in which he discusses the emergence and issues of what he calls our supply chain mess.

Extensive supply chains became the norm during the past few decades.  Corporations after corporation disaggregated it’s various processes and distributed them along these chains of activity.  Sometimes the chains were simply logical.  Most often they were expressed physically, and we ended up with a vast logistical network drawn across the globe each node of which depended on the operation of a multitude of others.  Just in time became the rallying cry of consultants and managers intent on squeezing what Acemoglu calls efficiency from the disaggregation of business activities.

Acemoglu sticks close to the standard explanation economists apply to this disaggregation.  By taking a business process apart and shifting some of it outside of the original firm’s boundaries so that it now occurs in a market context we are told efficiency rises.  This is taken as axiomatic.  Trade, in the standard telling, always increases efficiency.  The two sides both benefit in some way, so there is an aggregate gain.  Society is better off.

In the world of business management theory this breaking apart of business processes and the subsequent movement of pieces into the market is a consequence of the idea of core competencies first promulgated by Prahalad and Hamel back in the late 1980s and early 1990s.  I remember the emergence of this idea well: it caused quite a stir and was quickly taken up by all manner of firms intent on removing activities from their internal control that were not specific to their “mission”.

It is clear from this apparent coincidence between the standard ideas of economics as referred to by Acemoglu and of business as presented by Prahalad and Hamel that the notion of efficiency had jumped from economics into business practice.  Business theorists had adopted a key idea from economics and then turned into a practical measure to be applied by managers who wanted to be seen as cutting edge.  Our theories of the firm coalesced around this centrality of efficiency.  This is despite the controversial nature of what, exactly, we mean by efficiency.  More to the point: how do we even measure it in the face of endemic uncertainty?  Just what is an efficient firm?  How do we know when we hit that mark?

Of course, Prahalad and Hamel were riding a wave.  Their ideas were another indication of the invasion of business thinking by neoclassical theory.  Perhaps so-called agency theory is an even better instance.  It sprang to prominence during those same decades.  Its core idea was that there was an agent acting on behalf of a principal in many economic circumstances, and it then subjected that relationship to all the usual somewhat cynical  views of human relationships that populate standard theory.  Managers were suddenly agents of someone else rather than being administrators of an organization that was, itself, an independent being. And, given the neoclassical turn in economics at the time, they were agents of capital providers rather than anyone else.  Capital suddenly owned things rather than simply financing them.  Managers had to pay attention only to capital in the way described by Milton Friedman.

This brings us back to Arthur.  All these neoclassical ideas moving from economics into business practice represented a domain shift.  The previous set of technologies defining a business firm, its intentions, its social role, and the best methods for management, were all replaced by a new set drawn from the same root as neoclassical economics.  The underlying objectives of economics became the underlying objectives of business.  Instead of economics being the study of what goes on in the real world it became the source for what goes on.  It went from being a study to being an active agent in the landscape it sought to describe.  It became performative.  Economics, in this form, thus lost its independence.  It was designing the economy according to its current notions, no matter how controversial those notions might be.  Efficiency being one such.

So here we are in this tangled supply chain mess that Acemoglu describes but does not get to the heart of.  The mess is largely a consequence of the failure to account for uncertainty.  Which is an error of standard economics.  When, towards the end of his article, Acemoglu describes shareholder value as an ideology, he misses the opportunity to collapse standard economics into that same bucket.  After all the two occupy the same domain.  They co-exist as components within the same cluster of technologies.  If one is ideological, so is the other. The supply chain mess is a wonderful real world example of how economics fails in its relevancy to the problems that exist there.  The efficacy of global networks is subject to the uncertainties that all business faces.  The problem is that economics denies the importance of this uncertainty.  In its effort to simplify the world for tractable analysis it ignored real world features that turn out to be extremely important.  And when it then exported that simplification back into the real world in the form of business management theory it exported its naivety and led business astray.

Yes,  Arthur is correct.  Technologies are best thought of as clusters with common ancestors.  Shareholder value and neoclassical economics belong in the same family.  I just wish Acemoglu had been more clear in saying that.

One last thing. Talking of domain shifts: I wonder whether Arthur’s taxonomy needs a higher order or layer.  I agree that technological domains are a good analytical tool for studying the evolution of the economy.  But what of the larger scale?  What about a shift from a predominantly material economy towards a predominantly digital one?  If our institutions are technologies conceived to solve particular problems  and draw on a lineage of older technologies, what happens when a whole new lineage becomes possible?  What about the possibility of a technological Cambrian explosion?  One of the problems we face is that the opportunity to redraw our institutions based upon a strictly digital basis is being missed because we are over-invested in the older physical lineage.  The entire industrial era can be taken as one “epoch” manifested in all manner of social, political, and economic constructs.  Is the digital future a similar epoch?  Does it need new institutions?

Now that would be a domain shift to watch out for!

  1. Gerald Holtham
    December 8, 2021 at 10:53 pm

    Peter Radford is right that fashions in business management have sometimes been derived from economic theory and applied to excess. After such fashions lead to fiascos there is usually a revulsion in business practice and the fashion swings the other way. Unfortunately while the lessons may be taken on board by practitioners in business they seldom find their way back into economic theory, which sails on uninfluenced by outcomes in the real world.

  2. bruceolsen
    December 9, 2021 at 3:04 pm

    I’m reading Arthur’s 2009 book now, prompted by your post.

    I’m about halfway through and it seems to me to be a good start on the topic, though so far too focused on complex tech hardware projects (jet planes seem to be his go-to example).

    There are a number of counterexamples I can offer from my own professional experience in software development. Although software systems can be viewed as something like hardware systems from Arthur’s relatively high level of abstraction the details of the “invention” process and even of the analog to “standard engineering” are different enough to require separate treatment.

    That’s to be expected because they’re different things. I’ve known many skilled hardware engineers who could view software only through the lens of hardware, and were not especially effective in software work.

  3. Ken Zimmerman
    December 20, 2021 at 10:45 am

    V. Gordon Childe (Man Makes Himself) points out. To the general public and to scholars alike, history is tending to become cultural history. This sort of history can naturally be linked up with what is termed prehistory. The archaeologist collects, classifies, and compares the tools and weapons of our ancestors and forerunners, examines the houses they built, the fields they tilled, the food they ate (or rather discarded). These are the tools and instruments of production, characteristic of economic systems that no written document describes. Like any modern machine or construction, these ancient relics and monuments are applications of contemporary knowledge or science existing when they were fashioned. In a liner results of geology (oil, metal-ores), botany (timbers), chemistry (alloys, oil-refining), and physics (electrical equipment, engines, etc.) are combined, applied, and crystallized. That is equally true of the dugout canoe fashioned by Stone Age man from a single tree trunk. Again, the ship and the tools employed in its production symbolize a whole economic and social system [a culture].

    David Graeber and David Wengrow (Dawn of Everything: A New History of Humanity)
    describe the relations more clearly. Why does it seem so odd, even counter-intuitive, to imagine people of the remote past as making their own history (even if not under conditions of their own choosing)? Part of the answer no doubt lies in how we have come to define science itself, and social science in particular.

    Social science has been largely a study of the ways in which human beings are not free: the way that our actions and understandings might be said to be determined by forces outside our control. Any account which appears to show human beings collectively shaping their own destiny, or even expressing freedom for its own sake, will likely be written off as illusory, awaiting ‘real’ scientific explanation; or if none is forthcoming (why do people dance?), as outside the scope of social theory entirely. This is one reason why most ‘big histories’ place such a strong focus on technology. Dividing up the human past according to the primary material from which tools and weapons were made (Stone Age, Bronze Age, Iron Age) or else describing it as a series of revolutionary breakthroughs (Agricultural Revolution, Urban Revolution, Industrial Revolution), they then assume that the technologies themselves largely determine the shape that human societies will take for centuries to come – or at least until the next abrupt and unexpected breakthrough comes along to change everything again.

    Now, we are hardly about to deny that technologies play an important role in shaping society. Obviously, technologies are important: each new invention opens up social possibilities that had not existed before. At the same time, it’s very easy to overstate the importance of new technologies in setting the overall direction of social change. To take an obvious example, the fact that Teotihuacanos or Tlaxcalteca employed stone tools to build and maintain their cities, while the inhabitants of Mohenjo-daro or Knossos used metal, seems to have made surprisingly little difference to those cities’ internal organization or even size. Nor does our evidence support the notion that major innovations always occur in sudden, revolutionary bursts, transforming everything in their wake. (This, as you’ll recall, was one of the main points to emerge from the two chapters we devoted to the origins of farming.)

    Nobody, of course, claims that the beginnings of agriculture were anything quite like, say, the invention of the steam-powered loom or the electric light bulb. We can be fairly certain there was no Neolithic equivalent of Edmund Cartwright or Thomas Edison, who came up with the conceptual breakthrough that set everything in motion. Still, it often seems difficult for contemporary writers to resist the idea that some sort of similarly dramatic break with the past must have occurred. In fact, as we’ve seen, what actually took place was nothing like that. Instead of some male genius realizing his solitary vision, innovation in Neolithic societies was based on a collective body of knowledge accumulated over centuries, largely by women, in an endless series of apparently humble but in fact enormously significant discoveries. Many of those Neolithic discoveries had the cumulative effect of reshaping everyday life every bit as profoundly as the automatic loom or lightbulb.

    Every time we sit down to breakfast, we are likely to be benefiting from a dozen such prehistoric inventions. Who was the first person to figure out that you could make bread rise by the addition of those microorganisms we call yeasts? We have no idea, but we can be almost certain she was a woman and would most likely not be considered ‘white’ if she tried to immigrate to a European country today; and we definitely know her achievement continues to enrich the lives of billions of people. What we also know is that such discoveries were, again, based on centuries of accumulated knowledge and experimentation – recall how the basic principles of agriculture were known long before anyone applied them systematically – and that the results of such experiments were often preserved and transmitted through ritual, games and forms of play (or even more, perhaps, at the point where ritual, games and play shade into each other).

    ‘Gardens of Adonis’ are a fitting symbol here. Knowledge about the nutritious properties and growth cycles of what would later become staple crops, feeding vast populations – wheat, rice, corn – was initially maintained through ritual play farming of exactly this sort. Nor was this pattern of discovery limited to crops. Ceramics were first invented, long before the Neolithic, to make figurines, miniature models of animals and other subjects, and only later cooking and storage vessels. Mining is first attested as a way of obtaining minerals to be used as pigments, with the extraction of metals for industrial use coming only much later. Mesoamerican societies never employed wheeled transport; but we know they were familiar with spokes, wheels and axles since they made toy versions of them for children. Greek scientists famously came up with the principle of the steam engine, but only employed it to make temple doors that appeared to open of their own accord, or similar theatrical illusions. Chinese scientists, equally famously, first employed gunpowder for fireworks.

    For most of history, then, the zone of ritual play constituted both a scientific laboratory and, for any given society, a repertory of knowledge and techniques which might or might not be applied to pragmatic problems. Recall, for example, the ‘Little Old Men’ of the Osage and how they combined research and speculation on the principles of nature with the management and periodic reform of their constitutional order; how they saw these as ultimately the same project and kept careful (oral) records of their deliberations. Did the Neolithic town of Çatalhöyük or the Tripolye mega-sites host similar colleges of ‘Little Old Women’? We cannot know for certain, but it strikes us as quite likely, given the shared rhythms of social and technical innovation that we observe in each case and the attention to female themes in their art and ritual. If we are trying to frame more interesting questions to ask of history, this might be one: is there a positive correlation between what is usually called ‘gender equality’ (which might better be termed, simply, ‘women’s freedom’) and the degree of innovation in a given society?

    Choosing to describe history the other way round, as a series of abrupt technological revolutions, each followed by long periods when we were prisoners of our own creations, has consequences. Ultimately it is a way of representing our species as decidedly less thoughtful, less creative, less free than we actually turn out to have been. It means not describing history as a continual series of new ideas and innovations, technical or otherwise, during which different communities made collective decisions about which technologies they saw fit to apply to everyday purposes, and which to keep confined to the domain of experimentation or ritual play. What is true of technological creativity is, of course, even more true of social creativity. One of the most striking patterns we discovered while researching this book – indeed, one of the patterns that felt most like a genuine breakthrough to us – was how, time and again in human history, that zone of ritual play has also acted as a site of social experimentation – even, in some ways, as an encyclopedia of social possibilities.

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