Real-World Economics Today:The New Complexity, Co-ordination and Policy

Abstract

More realistic economics has to start out from the most basic socio-economic phenomena and processes, i.e. dilemma-prone interdependencies and strong uncertainty among agents that have become ubiquitous phenomena in the world today. In the reality of the “new” economy these are represented by functional and spatial fragmentation of value-added chains, global de-regulation and disembedding of the most powerful economic agents, on one hand, and increasing complexity and high integration of goods and services and net-based tele-IC-technologies on the other hand. All these rather new phenomena entail ubiquitous actual or potential co-ordination failure, either in the form of conventional “market failure”, with a complete mutual blockage of action, or of “wrong” co-ordination, or technological “lock-in”. Both forms are indicative of an insufficient capacity of the co-ordinated action required. In contrast, capability of sustainable innovative action in a broad sense requires new forms of co-ordination beyond “market” and “hierarchy”. Economics thus has to be defined more than ever as a science of effective co-ordination and the generation of innovative and sustainable collective action capacity. The global corporate economy has developed individualist arrangements to cope with that new co-ordination problem, such as local clusters and hub&spoke networks, which all have severe shortcomings. Against this background, the paper develops a setting with ubiquitous direct interdependencies, net-externalities, “strategic” strong uncertainty and ubiquitous (latent) social-dilemma problems. It discusses the possibility of an ideal decentralized and spontaneous co-ordination through emergent institutionalized collective action, specifically of “well-governed” network co-operation. In conclusion, it is argued that only a hybrid system of networks together with a new public policy role, supporting collective learning and emergent institutional co-ordination, i.e. an “interactive” and “institutional” policy approach, is capable of solving the co-ordination problems of the “new” economy.complexity, co-ordination, co-operation, evolution, governance, information, information society, interaction, institutions, “interactive policy”, local clustering, networks, “new economy”, Prisoners' Dilemma,

Why Meso? On “Aggregation” and “Emergence”, and Why and How the Meso Level is Essential in Social Economics

“…More visible are the "stage-front" institutionalized everyday solutions, however locked-in or ceremonially encapsulated (Elsner 2005(Elsner , p. 2006.…”

Simplistic vs. Complex Organization: Markets, Hierarchies, and Networks in an Organizational Triangle

“…Along these lines, we have argued elsewhere that any production, information, and innovation system, under conditions of fragmented value-added chains, net-technologies, and the collective-good character of information, can be modeled as a system of mutual externalities, collectivities, and cumulativity, such that it can be reconstructed as a social dilemma in which any transaction or simple coordination problem is embedded (Elsner 2005). …”

“…In times of de-regulation and 'dis-embedding' of the 'markets', of global spatial and functional fragmentation of value-added chains in the face of complex products, and, thus, required technological interoperability and net-technologies, interdependent decision-making and coordination and cooperation problems have come to dominate the economy (see, e.g., Ruigrok, van Tulder 1995;Rycroft, Kash 1999;Pratt 1997;Elsner 2005). Instances of informally institutionalized cooperative forms to overcome uncertainty and opportunism are local clusters with their historically learned, largely priceindependent, stable and long-run interrelations as well as more or less formal strategic networks (see, e.g., Elsner 2000Elsner , 2009b.…”

“…Thus the reputation mechanism seems to be an indicator of a long-run rationality in the theoretical framework of a prisoners' dilemma supergame, specifically in a stochastic population approach where active partner selection is possible and will be based on monitoring and reputation chains (cf., e.g., Elsner 2005Elsner , 2009a). …”

“…Hub&spoke networks that, in reality, have come to dominate the global corporate economy, where big corporate hierarchies command many suppliers and service providers, are the prototype of a hybrid between 'ideal hierarchy' and an informal 'ideal network'. They are to be located 'halfway' between ideal hierarchy and ideal institutionalized cooperation (see Figure 2; for a definition of networks and a two-stage model of cluster-network development, see, e.g., Elsner 2000Elsner , 2005Elsner , 2009b.…”