The Competitiveness of Nations
in a Global Knowledge-Based Economy
May 2004
Ekkehart Schlicht
On Custom in the Economy
Oxford Clarendon Press, 1998, 1-8
Introduction
Index
1.3 The Nature of the
Argument
Writing
about custom makes me feel like a fish reasoning how water rules the life of
fish. It is a staggering task.
Custom
is ubiquitous in all spheres of life. It
shapes habits and convictions, sways emotions and cognitions, and influences
motivation and action. Through all these
channels, custom pervades social and economic interaction. The many individual effects of custom diffuse
and interact throughout the social system. This renders it difficult to isolate single
causal chains. Moreover, custom affects
motivation, conviction, and behaviour in such a
perfectly ‘natural’ way that the customary undergirdings
of social and economic processes appear hardly discernible, and sometimes even
invisible. In spite of this imperspicuity, custom exerts, in Alfred Marshall’s words, a
‘deep and controlling influence over the history of the world.’ [1]
Custom
eases economic and social interaction in some dimensions while constraining it in
others. The advantages of custom for
social coordination have been stressed by sociologists in observing that
‘effective norms can constitute a powerful form of social capital’. [2] By way of contrast, economists
depict the ‘yoke of custom’ as ‘hindering the method of production and the
character of producers from developing themselves freely’. [3] These observations point
to important aspects of custom. A deeper
understanding,
1. Marshall (1890: 465).
2. Coleman (1990: 311).
3.Marshall (1890: 73, 465).
1
however,
requires an analysis of how customs form, and how they affect behaviour.
This
book proposes a theory of custom which centres on
individual cognition, emotion, and action. In this, the theory deviates from prevailing
approaches which identify customs with routines that are maintained because of
their competitive or instrumental advantage. Such an instrumentalist conception falls short
of rendering important non-instrumental aspects of custom comprehensible. It is, of course, sensible to drive on the
right-hand side of the road if everybody else does the same. The spread of right-hand driving, so induced,
may render right-hand driving customary. This is the easy case. The argument will not explain why people stick
to certain rules which are individually costly to observe, like keeping
promises, respecting property, or giving gratuities. Such behaviours are
maintained by custom. They provide the
foundation for all kinds of social and economic institutions. The problem of customary rule obedience requires
more than simple instrumental arguments like those accounting for the custom of
right-hand driving.
The
theory of custom pursued in this book emphasizes the motivational force that
arises from the individual’s striving for coherence and justification. Custom is portrayed as emerging from the
individual’s desire to align behaviour, conviction,
and emotion tightly with one another. Individuals have a preference for patterned behaviour, for acting according to their convictions, and
for forming their convictions in accordance with what they are experiencing. The alignment of behaviour,
conviction, and emotion is engendered by processes taking place in the human
mind.
These psychological processes - termed ‘clarification’ processes - are not confined to cognition but structure psychological organization through and through. Pattern recognition, which is largely automatic, can be interpreted in terms of clarification processes. Similarly, routine and habit build on spontaneously perceived regularities which escape our regular deliberation. The emotional dispositions that stabilize routine and habit are engendered by a desire to integrate habit, emotion, and conviction. The
2
phenomenon
of custom arises from the intermeshing of behavioural,
emotional, and cognitive elements. All
this is epitomized in the ‘clarity’ view which will be developed as the
argument unfolds.
Custom
is a fundamental constituent of culture, but the subsequent chapters will not
take such a broad perspective. Rather,
the theory will be developed by building on everyday experience. It is, however,
appropriate to sketch the underlying position regarding some important
background issues before entering the main argument.
Viewed
in very broad terms, current social theory is dominated by two opposing views
concerning the interrelation between culture and economics. One of them, the ‘economistic’
view, conceives culture as an epiphenomenon generated by more fundamental
processes of economic and evolutionary competition; the other, the ‘culturalist’ or ‘post-modernist’ approach, posits that
social reality is, in any society, a thoroughly social construct - the economic
sphere is portrayed as being determined by culture, rather than as determining
culture.
The
theory of custom proposed here deviates from economistic
and culturalist conceptions in denying exclusive
superiority either to cultural processes or to functional and competitive
considerations alone. Both cultural and
economic phenomena are conceived as epiphenomena brought about by the way in
which humans think, feel, and act. Customs
arise from these psychological regularities in the process of social
interaction. Rather than postulating an
autonomy of either economic or social processes vis-à-vis the
individual, as entailed by culturalist or economistic views, the question is raised of how such
autonomy may emerge from interaction. This
problem is analysed with regard to the formation of
custom.
In one sense the approach is individualistic, because it takes the
3
individual
as the unit of analysis. In another
sense it is not, because it does not deny the reality and (partial) autonomy of
groups, customs, and other collective phenomena, and does not assume that the
individuals remain unaffected by social processes. Rather, the approach seeks to explain how
collective phenomena may attain autonomy up to the point of controlling and
even enslaving the very individuals who generated these collective phenomena by
their interaction.
Further,
the theoretical perspective pursued here deviates from currently prevailing
positions regarding questions of ethics. In spite of their antagonism, economistic and culturalist
conceptions share the conviction that ethical valuations are basically
arbitrary and culture-specific, whereas the present approach suggests a quite
different stance. Economistic
interpretations reduce social values to individual preferences. These are taken as givens, or as having been
brought about by blind evolutionary processes without any moral connotation. In brief, social valuations are taken as arbitrary.
The same position flows directly from a culturalist perspective, where everything is conceived as
being culturally determined. Both
strands of thought depict ethical values as valid only within a given culture. More fundamental ethical judgements
(like those concerning human rights) may emerge from universal consensus and
cross-cultural agreement, but no further and deeper foundation is available.
In contrast, the position adopted here is universalist. Cultural phenomena, including ethical convictions, are conceived as flowing from fundamental cognitive, emotional, and behavioural dispositions of human beings. These dispositions are shared across cultures and are themselves independent of culture. Ethical convictions, therefore, are not arbitrary tastes, but are systematically linked to the prevailing world-view. The ‘social construction of reality’ which brought about a given world-view is not an erratic process, but is shaped by experience and the laws that govern our thinking. The non-arbitrariness of ethical judgements is entailed by the non-arbitrariness of human nature and the non-arbitrariness of culture.
4
The
broad topics of cultural and ethical relativism and of culturalism
versus economism do not, however, provide the central
characters of the subsequent account, and the discussion will not elaborate
them any further. The broad issues have
been mentioned only in order to sketch the background and set the stage for an
argument that portrays the formation of custom commencing from everyday
settings. However, the appendices at the
end of the book offer some additional material on individualism and on cultural
and ethical relativism.
The
first four chapters elaborate on the nature of custom. Custom is depicted as comprising habitual,
cognitive, and emotional aspects. These
aspects may be conceived as distinct components, but in practice they are
closely interlinked. It is argued that market
transactions must rely on customary entitlements and obligations. Such entitlements and obligations form the
bedrock of property and exchange. Furthermore,
it is explained that customs may change smoothly or abruptly in several
dimensions.
The
idea of adaptive custom is then advanced in Chapter 5. The view
follows Alfred Marshall’s exposition of custom. Custom is portrayed as an inertial force
adapting tardily to new circumstances. While
very helpful in elucidating various changes in custom, the adaptive view falls
short of accounting for some important characteristics of custom such as its
rigidity and partial autonomy. Hence
Chapters 6-10 develop the ‘clarity’ view of custom. Customary regularities relate to rule
perception and learning. The motivational
force of custom is conceived as emerging from a preference for regularity and a
desire for coherence that tie cognition, emotion, and action together. The force of custom, as well as its rigidity
and partial autonomy, derive from this contextual reinforcement.
The second part of the book applies this proposed view of
5
custom
to the theory of property, the theory of the law, and the theory of the firm
and the market.
The
argument on property follows David Hume’s theory of property closely. Property is portrayed as grounded in the same
traits of human motivation that shape custom, but the particular forms that
property takes emerge from social and economic interaction. The motivational and functional aspects of
property are largely running in parallel, mutually reinforcing each other. This parallelism resembles the interplay of
theme and counterpoint in a piece of music. Each voice supports the other, but sometimes
the interplay occasions dissonance and tension. Similarly, and upon certain occasions, motivational
and functional requirements point in different directions. This gives rise to conflict and may occasion
severe inefficiencies. The
‘counterpoint’ argument complements the modern theory of property rights in
several ways. It accounts for the persistent
inefficiencies that withstand evolutionary pressure and helps to constrain the
set of institutional solutions that compete at a time, thus sharpening ideas
about institutional competition.
The
approach can be generalized to many aspects of jurisprudence. It offers a fresh view of the antagonism
between natural and positive law by delineating the way in which psychological
and instrumental demands interact. The
law is depicted as a kind of systematized custom that aligns behavioural patterns with perceived regularities and thus
influences behaviour in the same way as custom. While older legal theorizing stressed the
‘organic’ nature of legal evolution, modern evolutionary thinking emphasizes
almost exclusively external functional and instrumental aspects. The clarity view emphasizes the ‘counterpoint’
pattern: both internal ‘organic’ and external instrumental forces work together
in shaping the law
The firm provides another realm in which the workings of custom can be studied. Firms can be envisaged as islands of specialized customs emerging in the market. Competition weeds out inefficient organizational forms and inefficient customary formations. In this way, custom is confined to those tasks where
6
it
is superior to other forms of coordination. In a competitive environment, the sluggishness
of custom thus establishes limits to integration and to the size of the firm. Further, the clarity view offers new vistas of
the firm by focusing not so much on single and separate organizational features
as on the pervasive coherence and internal balance of the entire set of
routines, control structures, and firm-specific norms.
Custom
serves to organize the division of labour within the
firm and in society at large. In this,
direct coordination by custom provides an alternative to market coordination,
which rests more indirectly on custom. While
Adam Smith maintains that it is the size of the market that limits the division
of labour, the clarity view entails that the nature
of the task delimits the division of labour in
another important way. Certain tasks - like
writing a block of computer code, or a piece of music
- cannot usefully be subdivided any further, irrespective of the size of the
market. This suggests a fundamental
reformulation of Smith’s theorem, and a new view about how the division of labour is organized within firms and across the market.
Thus, the forces of custom surface, in various ways and at various
places. They provide the
foundation for many economic and social institutions. The concluding chapter stresses the overall
pattern of the workings of custom, its pervasiveness, and the way in which it influences
social evolution.
1.3 The Nature of the Argument
A book such as this may be compared to a building. A building is erected by combining various materials in certain ways, and a book is composed of arguments and observations. In both cases, the product is characterized mainly by the overall structure of its composition, somewhat independently of the materials used. The architectural idea embodied in the building could have been realized by using other materials instead of those actually used - other types of stones and mortar, for instance. Similarly, a book
7
develops a thesis which could be explained by using other building blocks - other arguments, observations, or examples. Just as the design of a building is not reducible to the materials used, and is even somewhat independent of these materials, the main message of this book rests in the overall vision it seeks to communicate.
8
The Competitiveness of Nations
in a Global Knowledge-Based Economy
May 2004