Richard E. Wagner on entangled political economy, degeneracy and robustness

Below are some words from Richard E. Wagner’s article ‘Retrogressive regime drift within a theory of emergent order’ published in the Review of Austrian Economics in 2006 (Rev Austrian Econ (2006) 19: 113–123). This is the earliest – indeed, the only! – work I have found on the link between degeneracy and robustness in political economic systems. The paper is very good, but even so, what is reproduced below is all there seems to be on this important topic – about 500 words – in the entire literature. Suffice to say, much more work is needed on this interesting topic.

In a nutshell, Wagner’s hypothesis is:

[…] robustness is facilitated through polycentric organizational arrangements that entail high degeneracy, while fragility and the emergence of decadence is facilitated in relatively hierarchical arrangements that possess low degeneracy.

Yes, of course! It is a point that has not been fully grasped in political economy. Many have talked about the inherent frailty of hierarchical, centralised government (indeed in private organisations, too) on the one hand and the adaptability and robustness of a competitive market order on the other. But most fall short of explicitly recognising the relationship between the complexity of these institutional structures and their evolutionary stability. (Or, I should say, they haven’t until now used the language of complexity theory.)

Wagner coins the terms ‘disjunctive’ and ‘conjunctive’ political economy to contrast two perspectives in political economy. Traditionally (disjunctive), the state is viewed as a separate actor that intervenes in the economy:

It is common in economic discourse to invoke the state as some outside agent that intervenes into an economy. Where the market is treated as a polycentric arrangement of economic relationships, the state is treated as an equilibrated, hierarchical entity that intervenes into the market. This treatment of the state as an outside agent of intervention is nearly universal, even though sharply varying claims are advanced about the qualities of that intervention. Where some claim that state intervention is necessary to correct market failure, others claim that it injects political failure into the system of political economy. Either way, this treatment of the state as an agent of intervention closes what would otherwise be an open model.

Conversely, a networked, connectionist approach recognises that the state and the economy are ‘entangled’. Markets are more often a polycentric order. The question is, how would you characterise comparative systems of government?

In [disjunctive political economy], the state enterprises are fully connected with one another, to indicate that those enterprises act as a single, equilibrated unit. The state is treated as a multi-branch organization that intervenes into the market order. In contrast, the enterprises within the market economy form an incompletely connected network, following Jason Potts’ (2000) formulation for modeling continuing processes of evolutionary development. Within this formulation, economic development or transformation is represented by change in the connective structure of economic relationships. […] Market relationships are polycentric in character, while the state sits hierarchically on top of the market. The state acts on the market and not in it.

The alternative to this model of disjunctive political economy is a model of conjunctive political economy. […] [In the] […] connective geometry of economic relationships for a conjunctive political economy […] [the] state acts within the market rather than imposing on the market; the state represents an order and not an organization. The political economy […] is polycentric […].

So Wagner sets up two examples: (1) the relatively centralised state, an image of disjunctive political economy; and (2) the decentralised, polycentric state, an image of conjunctive political economy. He then goes on to make the vital connection between the structure of organisation in each institutional system and what might be termed their ‘evolutionary outcomes’:

To describe a political economy by its connective geometry leaves open the properties of  those connections and the principles by which they form and change, as well as the implications of those principles for robustness.

In the pure market […] network of connections [there is] a high degree of degeneracy, which means that enterprises have wide latitude in replacing some connections with other connections in pursuing their plans (Tononi et al., 1999). […]

In [a centralized economy], the high degeneracy of the pure market arrangement of organizations is offset by the hierarchical presence of the unitary, equilibrated state. If all enterprise plans must run through the state and if the state acts as a single-minded agent, the resulting political economy displays zero degeneracy. […]

In any event, robustness is a quality of the emergent nexus of relationships […]. An important feature of that nexus is the degree of degeneracy that is present within the network of political-economic relationships. In this respect, degeneracy is lowered with increases in the share of market-based connections that run through particular political enterprises. […] Zero degeneracy would result if all market-based enterprises were connected to one particular political enterprise (or if all political enterprises were connected to one another, thereby forming a fully connected graph among that subset of enterprises […]).

As is beginning to be recognised by complexity theorists today, the structure of a complex system influences certain important properties of the system. A decentralised, functionally degenerate system displays high robustness and evolvability. A centralised system, on the other hand, is fragile, relatively less evolvable and prone to collapse. The connection to the age old debate in political economy is obvious. The complexity approach is an exciting new perspective and one needing to be fully explored.

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