SFI Bulletin Articles

The Primordial Goulash

Report on the Panel Discussion ``Social, Political, and Economic Changes in Central and Eastern Europe,'' Fall 1998 SFI Symposium

by Cosma Rohilla Shalizi

Published, tweaked, as ``What Can Emergence Tell Us About Today's Eastern Europe?'' in the Santa Fe Institute Bulletin, vol. 14, no. 1 (Winter 1999), pp. 8--10.
Perhaps I am unduly suspicious, but my first thought on hearing of a Business Network panel on ``Emergence in Eastern European Economies'' was that someone had confused emerging markets with emergent phenomena. Emerging markets are, of course, those newly opened to western investors, while emergent phenomena are, by contrast --- well, nobody is really sure what they are, though we're all agreed they happen and they're important, and that they're something like those things which aggregates do but the individuals which form the aggregates don't. When forced, some of us will even talk about wholes being more than the sums of their parts, and hope nobody asks us to explain what that means. But part of the premise of SFI is that emergence is important in the real world, and part of the premise of the Business Network is that our ideas about it can be worth money --- say, to those considering whether or not to invest in particular emerging markets.

The panel was split into two parts. One part was John Holland of the University of Michigan, who probably knows more about emergence than anyone else (that is, as the old joke has it, he's perplexed on a higher and more significant level), but modestly disclaimed knowing anything about eastern Europe. The other panelists (David Stark, Columbia University; Esther dyson, SFI trustee and general cyber-pundit; Anne Goldfeld, director of the American Refugee Committee) knew a great deal about eastern Europe, and one of them --- Lorand Ambrus-Lakatos, of the Central European University in Budapest --- was an actual eastern European, but were not conventional researchers into emergence.

There was an obvious point of intersection, of course, between these two sets of interest and expertise. The countries of eastern Europe and the former Soviet Union had a decidedly non-emergent, non-self-organized state socialism imposed upon them, first in 1917 and then in 1945. Starting in the early 1990s, they again were forced into a new form of social organization, this time what David Stark called a ``designer capitalism.'' Neither form of utopian social engineering met with success. It is scarcely an exaggeration to say that to the extent that any part of these economies works, it was not consciously designed, either by the apparatchiks of Gosplan or by the professors from Harvard, but grew without anyone really wanting it or realizing what they were doing. In many of these countries, for instance, ``inter-enterprise'' networks have been formed as, essentially, a new kind of property relation --- firms bought into each other, daisy-chain fashion, for want of private individuals with the capital to do so. It is just this kind of self-organization which the theory of emergent phenomena is supposed to help us understand --- so what can that theory tell us about things like the emergence of new forms of property?

To begin with, it must be confessed, as John Holland did most forthrightly, that there isn't really a theory of emergence, not in the way that physicists have a theory of fluids, or biologists a theory of natural selection. We don't have the right concepts yet --- we're not even agreed, all of us, on what counts as emergence --- and we certainly can't predict when it will happen, or why, or what form it will take. With respect to what emergence is, we are in the position of the Supreme Court justice who couldn't define obscenity, but knew it when he saw it. Holland says that it has to do with the way agents interact with each other. Morever, emergent phenomena only occur when the interactions are such that we can't just average the behavior of all the separate individuals to see what they're doing in aggregate. But, as Holland points out in his book Emergence, these are necessary but not sufficient conditions. What must be added for sufficiency, for a proper definition of emergence, nobody really knows.

On the other hand, we do know quite a bit about specific emergent phenomena. One of the lessons of the theory of natural selection (really, of evolutionary game theory) is that a degree of isolation, or ``buffering,'' can be great help to a new strategy, a new form of behavior, in gaining a foot-hold. In the Prisoners' Dilemma game, for instance, if the new behavior is cooperation, it helps greatly if the cooperators can recognize each other, and deal preferentially with each other. Then they can even, sometimes, reach a kind of critical mass, at which point others start cooperating out of sheer self-interest. And it may well be that the same thing is true if the game is not Prisoners' Dilemma but doing business in a newly marketized economy, and the new behavior is not ``cooperation'' in the senses of the game, but fulfilling your end of a contract. There's even some evidence that those countries which, like Poland, privatized and marketized in stages for internal political reasons, rather than submitting to the ``shock therapy'' of the capitalist international, ended up with more vibrant and successful private sectors, because they effectively created such buffered situations --- without, having any inkling that that was what they were doing. In time, the expectation that people will cooperate, or honor contracts, can emerge as a benign self-fulfilling prophecy, an established and reliable fact of social life --- in a word, a convention.

Of course, ``emergent'' does not mean ``good''. Corruption can become pervasive and conventional in exactly the same way as cooperation, or honest contracting, to the point where even if most people would prefer not to be corrupt, they have to assume that everyone else is, and will take advantage of them if they are not. Which brings us to one of the most important points on which the panel was agreed: markets do not make capitalism. Even capital markets don't make successful capitalism. The fantasy of a frictionless, completely market-driven society is just a fantasy, because successful capitalism depends on non-market institutions --- schools, police, courts, and all the rest --- which are not long along capitalist lines. (Judges who take bribes, for instance, are contracting their services to the highest bidder, and so maximizing their personal profits.) A whole vast ecology of things which aren't for-profit companies and aren't parts of the government either --- the fabled ``civil society'' --- are also very desirable. These, too, can emerge, can form spontaneously, but they haven't, not as much as they're needed; they may even have shrunk from the days of communism, simply because now so much more effort must go into staying afloat. All this is true and very important, but not at all well-understood, and doesn't even seem to have an clear analog among our stock of models of emergence; maybe something like mutualism or symbiosis would fit.

At this point we should introduce two ghosts which haunted the proceedings, the ghosts, aptly enough, of a pair of Central European economists, explorers of emergent and evolutionary phenomena, and of the way market economies fit into the larger society: Joseph Schumpter and Freidrich Hayek, both originally of Vienna, later of Harvard and Chicago, respectively. They wrote their great works more than half a century ago, but it's not at all clear that, in a practical way, we know anything more about these matters than they did. Schumpeter explained how capitalism requires (and supports) a larger society, many of whose institutions are run on quite antithetical lines. Hayek explained how markets work as distributed computing mechanisms, adaptively optimizing the allocation of scarce resources, and how society itself is held together by conventions, and the shared expectations they produce. (Admittedly, he spoke of ``spontaneous order'' rather than ``self-organization.'') We have, of course, a much better body of abstract theory about emergence, and a wonderful assortment of models, and they make very nice analogies to what Hayek and Schumpeter talked about; Hayek even lived long enough to appreciate some of them. On a good day, we can cobble a common language for sociologists and scientists out of those analogies live on stage. But it's not clear that we can say anything to a legislator in Warsaw (or an entreprenuer in Kazan or a housewife in Bucharest) which would help them make any more sense of their world than Hayek and Schumpeter could have.

The panel noticably zoomed in from ``Eastern Europe'' or the ``transition economies'' to four countries in particular: Hungary, Poland, the Czech Republic and Russia. A little was said about what used to be Yugoslavia, and about Slovakia; the rest was silence. The first three of those countries seem to be on their way to rejoining Europe; Russia seems as though it may drag itself into the eighteenth century, with a little luck. But what was happening in Rumania, or Georgia, or Kyrgyzstan? We hear little, and less that is good. It was implicit in most of the speakers' remarks that success, for these countries, means looking more and more like America, or perhaps the slightly-imaginary America of an Econ. 1 textbook. Of course, everyone worried about the danger of their sinking into the ``swamp'' of political and economic collapse, of their winding up like (say) Afghanistan. Only one speaker, and that just once, contemplated a third possibility, that something new and strange might crawl out of the swamp. It was, David Stark said, possible that some ``genuinely new'' form of social organization would be produced by the current ferment, something which didn't look much like a liberal capitalist democracy but still, in some fashion, worked. That could be an emergent phenomenon on a very large scale indeed, and it will be a long time before the intellectual descendents of Hayek and Schumpeter and Holland can do anything more to answer such questions than guess, and hope for the best.