Integral Manifesto Pt I(4): Three Cautionary Tales of Scale / Economies

Books Discussed in this Section

The IHDP working paper at

Elinor Ostrom (2005) Understanding Institutional Diversity. Princeton University Press


However outdated and irrelevant it may seem, Adam Smith’s metaphor of an “invisible hand” that shapes collective activity has become an embedded assumption in the notion of “individual agens” in the economic arena. These individual agents are assumed to be making decisions on very small scale bases — that of the idividual’s “enlightenend self interest” or perhaps the family group, for example– but in reality, the scope and scale of information that is available to people creates a feedback loop from the larger scale systems that inform and reshape their decision making processes. As the authors of the IHDP working paper write

… economics at its core tires to explain the various pathways through which millions of decisons made by individual human beings can give rise to emergent features of communities and societies. … however, … individual decisions at any given particular time period are affected by these emergent features (which in many instances are the result of individual decisions that happened very recently).

Much of the research sustained around the decisions of individuals with respect to consequences that scale to larger groups concern CPRs– common pool resources. Game theory and their resulting research scenarios associated with CPRs and the “crises of the commons” often fail to include either an actual or potential feedback loop that functions at all the same scales as the shared and unshared consequences. Thus, for example, in the infamous “prisoner’s dilemma”, the individuals in play are artificially sequestered from each other, eliminating the crucial component of feedback information. It may be true, and possible to prove, that individuals do align around common concerns (shared consequences) whenever and wherever it is possible for them to do so. However, when such alignment is restructured such that the “invisible hand” is no longer a metaphor, but a player, such as a corrupt official, a multi-national corporation, a central bank– a player that operates at a scale to whom the individuals have no access, then the very possibility of alignment is defeated by that cut across scales– the individuals are literally “taken out of the loop.” As the IHDP paper argues, individuals need to be able to participate at second level and higher order dilemmas– in order to create sustainable public goods.

Given our current understanding of “economics” — is ther a way to conceptualize an individual emerging at higher level scales? Most of the research that goes into questions of this sort focus on institutional relations at higher order scales, forgoing the individual. In the field of economics, individuals are studied with respect to their collective behavior — and institutions are designed to guide (reward, punish, facilitate, obstruct) momentum of this collective field into preferred directions. Economic strategies are designed in most cases to optimize the function of society around economic goals such as GDP and growth rate. Therefore the intra-intitutional processes are designed to be balancing acts– mitigating the flow of certain behaviors and increasing the flow of others, as deemed  necessary. Because these strategies are designed based on looking past individuals through the lens of the swarm-like behavior of the economic collective, the feedback loops that govern the institutional transfer of resources are unavailable to individuals at any level– they are “decoupled from their own consequences, as it were– and this pertains to those individuals who themselve make decisions at the institutional levels. They are, in the words of the IHDP article, simultaneously affected by the emergent features that result from their higher-order individual as well as collective decisions. In these kinds of scenarios, no one escapes — both winners and losers share the consequences “equally”– when viewed from the higher order (macroeconomic) scale, since from there all we “see” is the relevant behavior of the collective swarm.

According to Elinor Ostrom, such models of human behavior may work well with provate property and therefore map nicely onto the conceptual framework of a privatized market, whose conviction is to capitalize common goods and resources for private gains, but they may be inappropriate models to explain collective behavior in non-market action situations.

Explaining the diversity of outcomes in social dilemma situations is a puzzle that is ripe for further development. … It is also an important question to pursue if one preseumes that humans are capable of developing, transsmitting, and learning norms of trust, trustworthiness, reciprocity, and equity as well as learning how to govern themselves. Without further progress in developing our theories and models of human valuation in social dilemma situations, those convinced that human behavior can be explained using rational egoist models will continue to recommend leviathan-like remedies for overcoming all social dilemmas. Hopefull, mcuh of what we learn from focusing on behavior in social dilemmas will be useful in other puzzling nonmarket situations.

Economists strategize under the assumption that higher-level systems constrain and/or direct lower level systems (the collective swarm) in ways that by-pass the lower-order decisions made bewtween and among individuals. Those lower order processes are irrelevant to economists, since there is no space of appearnace of the individual subject at the scale of their research and analysis.

Since individuals are seen as lower order parts in an optimizable higher-order feeedback and control system, new reserarch has turned to the work of ecologists who are beginning to challenge the notion of optimizability by integrating processes across scales. In addition, while economists, on the other hand, conventionally rely almost exclusively on absolute measures (monetary systems, GDP’s, growth rates and the like) these new researchers suggest thay they have ignored processes that contribute to revolution, transformation, and creative destruction, that the new ecologists see as necessary components of overall sustainability. This is most certainly the case where higher-order systems are deisgned to constrain or control (set rules and boundaries on) lower order levels. However, recent work from ecologists alsoe suggests that even systems that are conceptualized hierarchically must be construed to have discontinuous action levels, where the forces of optimization tend to be top-down, but the forces of revolution and transformation that are crucial to sustainability, tend to be bottom up. As the IHDP paper reports:

The central idea of hierarchy theory is that to understand any complex system depends on understanding the constraints prsent at the higher and lower levels of spatio-temporal resolution. It is assumed that levels lower than -1 [the level of the individual] producechanges that are either too small or too fast to be much more than background noise in measurements of processes at level 0 [the level of the collective swarm]. Similarly, levels above +1 [levels of institutions] are presumed to be too large and too slow to affect measurement and understanding at level 0. The levels immediately above and below the referent level provide … constraints. These constraints produce a constraint “envelope” in which the process or phenomenon must remain.

Within this kind of “constraint envelope” as the authors illustrate, level -1 is thelevel of reductionist compnents– corresponding to the reduction of the individuals to background noise; level 0 is the level of focus, that is the swarm itself; and level +1 are the institutional players that create and maintain constraints. Hierarchy theory of this type is conceptually appealing when the study is predisposed to a framework based on an absolute scale such as the standard economic measures, and the desire toward optmization. But optimization of what?

Again, from the IHDP paper:

While conceptually appealing, hierarchy theory demands a great deal of knowledge in order to be useful To characterize a constraint envelope accurately, the analust must (1) clearly identify the scale and level of the study and their appropriateness for the phenomenon, (2) know the important parameters impacting on the phenomeon at different scales and levels, (2) know when one is translating levels or scales and to recognize issues involved in top-down or bottom-up thinking, and (4) sample and experiment across scales and levels.

What the transdisciplanary analysts discovered is that a key issue related to scale in dynamic systems is the notion of resilience– “the speed in which a system returns to a stable equilibrium or a steady state upon being disturbed.” Furthermore, according to the IHDP paper, when the focus of the inquiry is changed from engineering solutions to maintaining a stable state, such asoptimizing economic goals within existing power structures, to notions of ecological resilience, they begin to “examine thepossibility of multible stable states and how systems transform from one to another of these states.” In these ecological-type systems, resilience entails the ability of the system to redefine its structures “by changing the variables and processes that control behavior.” In other words, the scalar relations conceptualized as robust dynamical systems are bi-directional — upper level structures that upon first anaysis are seen to control behavior at the lower levels are themselves subject to and products of activities at those lower levels that are responsible for them in the first place, and that continually shape, configure and transform them.

When viewed from a top-down analysis, the “controls” of systems are exclusively top-down and external to the system; whereas when viewed from an ecological analysis, the “controls” are internal to the system and are therefore relativized with respect to the system’s “story” — its temporal narrative or history. Quoting Buzz Holland, the IHDP paper suggests that the history of such processes involve four key processes or cycles: exploitation, conservation, release and reorganization:

In an exploitation process, species that are rapid colonizers move into recently disturbed aresas. In a conservation phase, energy is stored and there is a slow accumulation of species and material. When biomass and nutrient have become so tightl connected that they are highly susceptible to external disturbance … one can enter a release phase. Reorganization processes involve new restructuring of capital and elements into a new system. The time spent in each of these processes may vary dramatically. From exploitation to conservation may involve a long period of time with only small changes, but the shift from conservation to relase may be very rapid. Under some conditions, reorganization and exploitation may then take place rapidly.

The authors illustrate these dynamic cycles in ecological systems as follows:


However, if we look at these processes not in terms of ecological categories, but merely in terms of scalar relations, we can draw some general conclusions about complex dynamics involved. First, the direction of “stored capital” is in the direction of the emergence of higher-order organization and consolidation; while the lack of stored capital tends to favor the agentic aspect of the individual “opportunist or disturbance agent.” In other words, as capital increases we tend to “see” higher order systems emerge irrespective of individual agents, and when capital is scarce, we tend to “see” the latent of suppressed potencies of agents emerge. Secondly, this relationship between individual agency and higher-order consolidation, scales along with the perceived “connectedness” of the individuals and other units within the system, such that in the exploitation phase connections increase and therefore, presumably range of influence of individuals give way to collective (connected) outcomes, climaxing in the conservatin phase of consolidation; while connectivity within the system is shattered in the release phase, after which, presumably, entirely new connections arise to accomplish reorgnization.

This model and theory of resilience has important implications for designing governance for human action, and will be addressed in future posts.