In order to stand up you must keep cycling: Change and coordination in complex evolving economies

ContentslistsavailableatScienceDirect

Structural

Change

and

Economic

Dynamics

jo u r n al hom e p a g e :w w w . e l s e v i e r . c o m / l o c a t e / s c e d

In

order

to

stand

up

you

must

keep

cycling:

Change

and

coordination

in

complex

evolving

economies

G.

Dosi

b,∗

_,

_M.E.

_Virgillito

a,b

a_{InstituteofEconomicPolicy,Universita’CattolicadelSacroCuoreViaLudovicoNecchi,520123,Milan,Italy}

b_{InstituteofEconomics,ScuolaSuperioreSant’Anna,PiazzaMartiridellaLiberta’33,I-56127,Pisa,Italy}

a

r

t

i

c

l

e

i

n

f

o

Articlehistory: Received23January2017 Accepted14June2017 Availableonlinexxx JELclassification: O1 O3 P1 Keywords: Change Coordination EvolutionaryEconomics Socio-economicsystems

a

b

s

t

r

a

c

t

Inthisworkwediscussthemainbuildingblocks,achievementsandchallengesofanevolutionary interpretationoftherelationbetweenmechanismsofcoordinationanddriversofchangeinmodern economies,seenascomplexevolvingsystems.Itisanevidentstylisedfactofmoderneconomicsystems thatthereareforcesatworkwhichkeepthemtogetherandmakethemgrowdespiterapidand pro-foundmodificationsoftheirindustrialstructures,socialrelations,techniquesofproduction,patternsof consumption.Wesuggestthatafruitfulinterpretationofthetwoprocessesrestsinwhatwecallthe “bicycleconjecture”:inordertostandupyoumustkeepcycling.However,changesandtransformationare bynature“disequilibrating”forces.Thustheremustbeotherfactorswhichmaintainrelativelyordered configurationsofthesystemandallowabroadconsistencybetweentheconditionsofmaterial repro-duction(includingincomedistributions,accumulation,availabletechniques)andthethreadofsocial relations.

©2017ElsevierB.V.Allrightsreserved.

1. Changeandcoordination:anintroduction

Inthisworkwediscussthemainbuildingblocks,achievements and challengesof anevolutionaryinterpretationoftherelation betweenmechanisms of coordination and drivers of change in economiesseenascomplex evolvingsystems.Certainly,in eco-nomicsystemsthereareforcesatworkwhichkeepthemtogether andmakethemgrowinrelativelyorderedmanners(oftenbutnot always)despiterapidandprofoundmodificationsoftheir indus-trialstructures,socialrelations,techniquesofproduction,patterns ofconsumption,whichassuch,are“disequilibrating”forces.Thus, theremustbefactorswhichmaintainrelativelyordered configu-rationsofthesystemandallowabroadconsistencybetweenthe conditionsof materialreproduction (including income distribu-tions,accumulation,availabletechniques)andthethreadofsocial relations.

Verydaringly,indeed,thearticleattemptstoaddressthetwo basicquestionsatthecoreofthewholeeconomicdisciplinesince itsinceptionwhichregard,first,thedriversandpatternsofchange ofthecapitalistmachineofproductionandinnovationand,second,

∗ Correspondingauthor.

E-mailaddresses:gdosi@santannapisa.it(G.Dosi),

mariaenrica.virgillito@unicatt.it(M.E.Virgillito).

themechanismsofcoordinationamongamultitudeofself-seeking economic agentsoften characterizedby conflictinginterests.Of course,ofcrucialimportancearetheanswerswhichdiverse the-ories offer to these two questions, but equally important, the relationspurportedbetweenthetwo.

Theinterplay betweenchangeandcoordination, wellbefore EvolutionaryEconomics,hasbeenatthecoreoftheanalysesof AdamSmithandlaterMarxandSchumpeter.Changeand trans-formationoftechnologies,industrialstructures,organizationsand socialrelationsshapetheevolutionofthecapitalistsystemwhich ischaracterizedbyprocessesofendogenousself-sustainedgrowth, punctuatedbysmallandbigcrises.Theprocessofeconomicgrowth isallbutsteady:

Industrialmutation–ifImayusethebiologicalterm–that incessantlyrevolutionisestheeconomicstructurefromwithin, incessantlydestroyingtheoldone,incessantlycreatinganew one.ThisprocessofCreativeDestructionistheessentialfact aboutcapitalism. [Schumpeter(1947),p.83]

Interestingly,AdamSmithbeginshisWealthofNationswitha detailedanalysisofthedriversofchange–inparticularthepositive feedbacksbetweendivisionoflabour,mechanisation,productivity growthanddemandgrowth,whileissuesofcoordinationare dis-cussedmuchlater,buildingonsuchadynamicbackground.Much laterand fromaquitedifferentangle,Keynestooneverdreamt

http://dx.doi.org/10.1016/j.strueco.2017.06.003

ofseparating“whatkeepsthesystemtogether”from“whatkeeps itgoing”:infact,thepropertiesofshortertermcoordinationwere derivedfromthepropertiesofcapitalaccumulationandtheanimal spiritsdrivingit.

Aswellknown,thecurrentdominanttheoreticalcreedisvery muchontheanalytical oppositetoSmithand Keynes.It builds ontheseparationbetween“coordination”and“dynamics”, start-ing from the former, and assuming away the latter in a first approximation.The “coordinationresearch program”,soon cul-minated into the Arrow-Debreu-McKenzie General Equilibrium model,hasbeenindeedanelegantandinstitutionallyvery parsimo-niousdemonstrationofthepossibilityofequilibriumcoordination amongstdecentralisedagents.However,subsequent,basically neg-ative,resultshaveshownthegeneralimpossibilityofmovingfrom existencetheoremstothatsortofimplicitdynamicscapturedby proofs of globalor local stability – loosely speaking,the prop-ertyofthesystem,whenscrambled,togetbacktoitsequilibrium state.Quitethecontrary,even empiricallyfar-fetchedprocesses suchastâtonnements(withtheomniscientWalrasianauctioneer proclaimingequilibriumvstransactionwhenheseesthem)in gen-eraldonotconverge.Evenmorepowerfully,someofthefounding fathersofGEthemselveshaveshownthatexistencedoesnotbear anyimplicationintermsoftheshapeofexcessdemandfunctions (thisiswhattheSonnenschein-Mantel-Debreutheoremimplies). Puttingitshortly,ingeneralevenforgetlocalstability!Conversely, anycareful lookatthetollrequirementswhich sheerexistence entails–intermsofinformationandrationality–highlightsthe extenttowhichGEisabeautifulbutextremelyfragilecreature, certainlyunabletowithholdtheweightofanyaccountofthe coor-dinationprocessesoftheeconomyasawholeandevenlessso, toofferanyseriousmicro-foundationtotransformingeconomies undergoingvariousformsofinnovation.Infact,iftheconditions– intermofrationality,characteristicsoftheexchange,etc.–required inrealitywereevenvaguelyasstringentasthoserequiredinGE models,probablynoonewouldbeeverobservedintherealworld! Here,weproposetoreverttotheoldSmithianstyleof interpre-tation,beginningwiththeunderstandingofthedriversofchange andonlynexttrytounderstandthe(imperfect)coordinating prop-erties of the economic systems. It is what we call the bicycle conjecture:inordertostandupyoumustkeepcycling.However,in ordertooperationalizetheconjecture,verytalltasksconcern,first, theidentificationof“whatistheretobeexplained”–thatisthe empiricalandhistoricalstylizedfactsatdifferentlevelof aggre-gationanddifferenttimescales–and,second,explore howwe theoreticallyaccountforthem.

In contemporaryeconomies oneobserves that technological knowledgeistoagoodextentincorporatedintocorporate organi-zations,intheformofsharedcognitiveframesandorganizational routines,evolvingovertimeasaresultoflearning,innovationand adaptation.Inturn,such(heterogeneous)firmsoperatein compet-itiveenvironmentswhichcontributetodeterminetheirrevealed performances–intermsofgrowth,profitabilityandsurvival prob-abilities – and collectivelythe evolution of thewhole industry towhichtheybelong.Indeed,theevolutionofdiverseindustries drivenbytechnologicalandorganizationallearningisalsoatthe heartoftheprocessofdevelopmentandmacroeconomicgrowth.

Howdoesthetheoryaccountsfortheforegoinghistorical pat-ternsandstylisedfacts?Undertheprevailingparadigm,itdoesthat tryingtorationaliseeachempiricalregularitywith“thecombined assumptionsofmaximizingbehaviour,marketequilibriumand sta-blepreferences,usedrelentlesslyandconsistently”(Becker,1976). Here,weproposeanalternativeviewlargelybasedonopposite buildingblocks,aimedatunderstandingtheeconomyasa com-plexevolvingsystem.Inanutshell,suchaperspectiveattemptsto understanda wide setofeconomicphenomena –rangingfrom microeconomicbehaviourstothefeaturesofindustrialstructures

anddynamics,allthewaytothepropertiesofaggregategrowth anddevelopment–asoutcomesoffar-from-equilibrium interac-tionsamongheterogeneousagents,characterizedbyendogenous preferences,most“oftenboundedlyrational”butalwayscapable oflearning,adaptingandinnovatingwithrespecttotheir under-standingsoftheworldinwhichtheyoperate,thetechnologiesthey master,theirorganizational forms and theirbehavioural reper-toires.

Inthefollowingweshalldiscussthebuildingblocksofsucha perspective(Section2),someofitsdomainofapplications(Section 3),concludingwithsomechallengesahead(Section4).1

2. Theeconomyasacomplexevolvingsystem

Startwiththemostminimalistnotionofcomplexity:itstandsat theveryleastforthefactthattheeconomyiscomposedbymultiple interactingactors.AsH.Simon,alsocitedinKirman(2016),putsit: RoughlybyacomplexsystemImeanonemadeupofalarge numberofpartsthatinteractinanon-simpleway.Insuch sys-tems,thewholeismorethanthesumoftheparts,notinan ultimatemetaphysicalsense,butintheimportantpragmatic sensethat,given thepropertiesof theparts andthelawsof theirinteraction,itisnotatrivialmattertoinfertheproperties ofthewhole. [Simon(1969),p.267]

Indeed, the properties of the whole are generally emergent properties,that iscollectivepropertiesstemmingfromthelocal interaction among multiple agents, which however cannot be attributedtotheintentionalityofanyagentsorcollectionofthem (moreinLane,1993;NicolisandPrigogine,1977;Camazineetal., 2001).Notethatcomplexityandemergencedonotpreventatallthe searchforpossiblelawsofmotionofanysystem,buttheydorule outany“antropomorphization”oftheinterpretationofwhatever dynamics,sofamiliarincontemporarytheory.Moreover, evolu-tionentailsthatanyassumptionof“givenfundamentals”(including technologiesandpreferences)inmostcircumstancesimpliesa sig-nificantviolencetotheobjectofstudy.Ofcourseforanyanalysis ofacomplex andevolvingeconomyonehastogowellbeyond theSchumpeter/Samuelsonseparationbetweencoordinationand change.The(imperfect)coordinatingfeatures ofthesystemare fundamentallyshapedbyitsevolvingnature.Therelativelyorderly propertiesofcapitalisteconomiesderivefromitsbeinginmotion. Thisistherelativeorderof“restlesscapitalism”(Metcalfe,1998).So forexample,pricesmoveroughlyinlinewiththeaveragecostsof productionwhichinturndependontheunderlying (technology-specificandsector-specific)ratesofprocessinnovation.Demand patternsareshapedbytheensuingpricesand,possiblyevenmore importantly,bythetrajectoriesinproductinnovation.Grossand netlabourdemandareaffectedbythedoublenatureoftechnical progressasa“labour saver”and asa“demandcreator”.Among manyothers, theseareallfeatures ofimperfectcoordinationin evolvingsystems.Andsoarethedistributionalpropertiesof what-everstatisticsoneconomicvariableswhichstempreciselyfrom thefactthatthesystemischangingallthetimeinitsprocessand productinnovations,consumptionpatterns,organizationalforms.

2.1. Routines,rulesofthumb,heuristics

Thefirstquestiononeneedstoaddressis:howdoagentsbehave? InthetraditionofEvolutionaryEconomics,routines,rulesofthumb andheuristicsarethecorepillarsdescribingthebehaviourofagents.

1_{ComplementarydiscussionsareShaikh(2016),Pianta(2017)andseveral}

con-tributionsintheprospectiveofstructuralchangeandatheoreticalessayonthe

InCohenetal.(1996),S.Winterprovidesaconceptualclassification ofthethreelattercategories:(i)routinesareautomated,repetitive andunconsciousbehaviourswhichhoweverrequireahighlevel ofinformationprocessing(e.g.workinginanassemblylines, mak-ingairlinereservationorbanktransactions);(ii)rulesofthumb arerelativelysimpledecisionruleswhichrequirelowerlevelsof informationprocessinginvolvesomequantitativedecisions(e.g. theshareofR&Dovertotalsales,thefixedmark-up);(iii)heuristics areguidelinesandbehaviouralorientationsadoptedtoface prob-lemsolvingwhichdonotprovideanyready-to-usesolution,but onlybroadstrategies(e.g.indecisionmaking,“Dowhatwedidthe lasttimeasimilarproblemcameup”,inbargaining,“Askalways morethanwhatyoudesire”,intechnology,“Makeitsmaller/Make itfaster”).

Thesethreeelementsarethetraitsoforganizationsandthey entailboth (i) problem-solving action patternsand (ii) mecha-nismsofcontrolandgovernance.Theconflictingnatureofinterests, knowledge,andpreferencesinsideorganizations,likefirms,iswell summarizedinMarch(1962):ratherthanmaximizingunits,firms arebetterrepresentedintermsofpoliticalstructuresdisplaying(i) thetoleranceofinconsistenciesinbothgoalsanddecisionsover timeandinsidetheorganization,(ii)decentralisedgoalsand deci-sionswithloosecross-connections,(iii)slowlyshiftsovertimein responsetoshiftsinthecoalitionButgivensuchanatureofthe firmhowcanwemodelitsbehaviour?

Conversely,intherecentyears,theintroductionofthe com-puterandthecomputerprogrammodeltotherepertoireofthe theoristhaschangeddramaticallythetheoreticalpotentialof processdescriptionmodelsofconflictsystems.Complex pro-cessdescriptionmodelsoforganizationalbehaviourpermita developmentofamicro-economictheoryofthefirm. [March (1962)pp.674–675]

In tracing the Agenda for Evolutionary Economics, Winter (2017)emphasizeshowtheuseofthemaximization procedure isintrinsicallyinappropriatetostudythebehaviourofthefirms. March(1962)sharedlongagothesameconcern:

Generallyspeaking,profitmaximizationcanbemadeperfectly meaningful(withsomequalifications);butwhenmade mean-ingful, it usually turns out to beinvalid as a description of firmbehaviour.[...]Withfewexceptions,modernobserversof actualfirmbehaviourreportpersistentandsignificant contra-dictionsbetweenfirmbehaviourandtheclassicalassumptions. [March(1962)p.670]

Theprofit-seekingmaximizingbehaviouroffirmsiscarefully debunkedinWinter(1964)whopointsattwolinesofcriticism: first, even though it is reasonable to conceive firms as having goals, isnot appropriateto assumethat theoperationalgoalis profitmaximization.Rather,organizationstrytosatisfysome objec-tivesoperationallydifferentfromprofitmaximization.Second,ina worldcharacterizedbycontinuouschangeitisimpossibletopursue anyprofitmaximizationforthelackofanythoroughunderstanding ofthedetailedstructuresofever-changingworlds.

InhisNobelMemorialLectureSimon(1979)stresseshowthe failureofomniscienceare“failuresofknowingallofthepossible alternatives,uncertaintyaboutexogenousevents,andinabilityto calculateconsequences”(p.502).Resultsfromavastliteraturein experimentaleconomicsshowthat:

itisnot thatpeopledonot gothroughthecalculationsthat wouldberequiredbythesubjectiveexpectedutilitydecision– neoclassicalthoughthasneverclaimedthattheydid.Whathas beenshownisthattheydonotevenbehaveasiftheyhave car-riedoutthosecalculations,andthatresultisadirectrefutation oftheneoclassicalassumptions. [Simon(1979),p.507]

There are good reasons why agents in such evolutionary environment adopt robust and rather information-independent heuristics.which

[is]astrategythatignorespartoftheinformation,withthegoal ofmakingdecisionsmorequickly,frugally,and/oraccurately than more complex methods. [Gigerenzer and Gaissmaier (2011),p.454]

Note that, heuristics are not “biases” yielding sub-optimal behaviours(asonewouldgatherfromKahneman,2002,orfromthe bulkofbehaviouraleconomics),butmightbe“locallyex-post opti-malstrategies”thatoutperformpurportedly“rational”choicesin largeworldscharacterizedbysubstantiveandproceduraluncertainty (DosiandEgidi,1991),aswellasdriversofmajorcontagion-fuelled disasters.

Aclearcutexampleoftheuseofheuristicsintradingbehaviours is highlightedin finance.As DeMiguel etal. (2009) show,over a sample of seven datasets, the simple 1/N rule outperforms theMarkowitz Portfolio strategy infourteenalternative portfo-liospecifications.“Rational”allocationstrategiesyieldveryhigh estimationerrorsinthevariance-covariancematrices.Infact,in changinganddistributionalvariantworlds,thesimple1/Nstrategy happenstobemuchmorerobustandlesserrorprone.

2.2. Coordinationvis-à-visequilibrium

ThetermEvolutionaryrecallsthefieldofBiologywhereinthe processesofmutationandselectionamongspeciesareatthecore ofevolution.AlreadyintheMarshalliandefinitionofEconomics,the latterwasconceivedtobemuchmoreclosertoBiologyratherthan MechanicalPhysics:

TheMecca oftheeconomistliesin economicbiology rather thanineconomicdynamics.Butbiologicalconceptionsaremore complexthanthose ofmechanics;a volumeonFoundations mustthereforegivearelativelylargeplacetomechanical analo-gies;andfrequentuseismadeoftheterm“equilibrium,”which suggestssomethingofstaticalanalogy.Thisfact,combinedwith thepredominantattentionpaidinthepresentvolumetothe normalconditionsoflifeinthemodernage,hassuggestedthe notionthatitscentralideais“statical”,ratherthan “dynami-cal”.Butinfactitisconcernedthroughoutwiththeforcesthat causemovement:anditskey-noteisthatofdynamics,rather thanstatics. [Marshall(1890),vol.1,p.xiv]

Nonetheless, the goal of neoclassical economic analysis has beenconfinedtostudymarketcoordinationasanequilibrium out-come. Coordinationis not aneasy task: after all theeconomic processesaretheresultsofindividualdecisionsmaking charac-terizedbyex-antepossibleinconsistencies.But,economicagents coordinatethemselvesinsideorganizations,institutions,societies. Whydoweobservesuchemergenceoforder(wherethe mean-ingofordershouldbeaccuratelydistinguishedfromthenotionof equilibrium)?

Aswell known,theneoclassical response totheproblemof coordinationhasbeenbymeansofprices:exchangeamong decen-tralised agents, whoare pursuingtheirown utilitymaximizing transactions,aresupposedtoyieldequilibriumoutcomes(thatis anequilibriumsystemofpricesandquantities):marketsclearafter alldesiredtransactionshaveoccurred,sothatnobodydesiresmore thanwhatsheobtainedaftertheexchange.Apartfromtheeasy criticismontherealismofthisapproach,andparticularlyonthe validity of theassumptions of perfectcompetition and rational expectations,whichhavealsobeentakenupintheneoclassical analysisitself(takingonboard,tovaryingdegrees,imperfect com-petitionandasymmetricinformation),theprocessesofinteractions andevolutionofbehavioursisremarkablyneglected.

Ifdynamics and interactions count,the conceptequilibrium oughttobere-thoughtandsubstitutedbysomenotionof coor-dinationpatterns(moreinDosiandOrsenigo,1988).Infact,the usualconcernforequilibriumdoesnotfindmuchplaceinsidethe evolutionarytheorizing.Withoutpostulatinganyex-antemarket clearingcondition,necessarytoendogenouslydetermineaclosed solution for the unknown variables (e.g. prices and quantities), evolutionaryeconomic modelsare meantat understandingthe coordinationpatternsthatresultoutoftheinteractionof heteroge-neousagents.Theanalysisisnotinterestedinfindinganydeducted equilibriumsolution,butratherinidentifyingemergentproperties. AccordingtoLane(1993),emergentpropertiesare:

[...]afeatureofahistorythat(i)canbedescribedintermsof aggregate-levelconstructs,withoutreferencetotheattributes ofspecificMEs(MicrolevelEntities);(ii)persistsfortime peri-odsmuchgraterthanthetimescaleappropriatefordescribing theunderlingmicro-interactions;and(iii)defiesexplanationby reductiontothesuperpositionof“built-in”micro-propertiesof theAW[ArtificialWorlds]. [Lane(1993),pp.90–91]

So,forexample,inThe‘SchumpetermeetingKeynes’models (buildingonDosietal.,2010),webuildanartificialworldpopulated bymachine-producerswhomakenewcapitalgoodsand machine-buyerswhoorderthelattertoproducehomogeneousgoodsold totheworkers.Thedynamicsofaggregateoutput,consumption andinvestmentwhichtypicallyexhibitsustainedlongrungrowth andfluctuationsareemergentpropertiesnotdirectlylinkedtothe attributesofthemicrolevelentities.

The emergent properties are conceived to be meta-stable andnot uniqueor stableequilibria: whenever attributesatthe microlevel are changed also the emergent properties can be fairlydifferent.Artificialeconomiesaremainlyhigh-dimensional stochasticmodels,hardlytreatableanalytically.Then,asymptotic convergencesomesteady-statestabilityaregenerallyimpossible toobtain.Rather,theconditionsunderwhichorderedpatternsor trajectoriesemergearetherelevantquestions addressedbythe analysis.

2.3. Heterogeneityandinteraction

Heterogeneity is a general feature of complex evolving economiesinalldomainsofobservation. Itconcerns productiv-itydispersionsatalllevelsofaggregation,organizational forms, personalandfunctionalincomedistributions.

Inturn,theseheterogeneousagentsinteract, contrarytothe standardmodelswherethereisnosignofsuchinteractions.The absenceofanyexplicitcoordinationprocessinthelattermodels isdiscussedinKirman (1992),in hisdevastating critiqueofthe representativeagent(RA):

Paradoxically,thesortofmacroeconomicmodelswhichclaim togiveapictureofeconomicreality(albeitasimplifiedpicture) havealmostnoactivitywhichneedssuchcoordination.Thisis becausetypicallytheyassumethatthechoicesofallthediverse agentsinonesectorconsumersforexamplecanbeconsidered asthechoices ofone“representative”standardutility maxi-mizingindividualwhosechoicescoincidewiththeaggregate choicesoftheheterogeneousindividuals. [Kirman(1992),p. 117]

AsKirman(1992)shows,theRAapparatusisnotsimply unre-alisticbutwrong becausenot well-suitedtostudyproblems of emergence and particularly of lack of coordination like unem-ployment,income inequality,and in generalaggregatedemand externalities. Related, intrinsic, theoretical flaws of the repre-sentativeagentconcern(i)thesymmetry ofbehaviourbetween individualandaggregatesrationality;(ii)thereactionoftheRAto

policychangesmaybequitedifferentfromtheaggregatereaction oftheindividuals;(iii)theorderedofchoicesoftheRAmaynot guaranteetheindividualpreferencerankingorders;(iv)whenever onedoeshypothesistesting,tryingtocomparethemodelwiththe data,themodellerdoesnotknowif,incaseofrejection,onehasto rejectspecificallytheRAorsomeotherbehaviouralhypotheses.

If theobjective of theneoclassical modelleris to reachthe exactmicrofoundations,ensured bytheoptimizationprocedure performedbytheRA,thelatterprocedureintrinsicallycontradicts theinnermeaningofmicrofoundation.Allinall,adirect conse-quenceoftheRAisthatthetradeconundrum,accordingtowhich noexchangeshouldpersistentlyoccurinequilibrium.Transactions areonlymildturbulencesaroundtheequilibriumpoint.

ResultsfromtheGeneralEquilibriumscholarsthemselves high-lightedbytheSonnenschein–Mantel–Debreutheoremsshowthat assumedmicroproperties,liketransitivityofpreferences,which ifviolatedcouldleadtomultiplicityofequilibria,arenot guaran-teedbytheaggregationprocess(unlessfurtherrestrictionssuch ashomotheticutilityfunctionsetc.ofallmicroagentsare postu-lated).Theonlyviableset-upexploredintheneoclassicalmodelsto overcometheaggregationproblemhasbeenreducingthe dimen-sionalityfromnpotentiallyheterogeneousindividuals(atleasttwo intheoriginalGeneralEquilibriumprogram)toone.Inthislatter case,theexcessdemandfunctionwillobviouslysatisfyallthe reg-ularityconditionsrequiredtogetuniquenessandstabilityofthe equilibrium.

Inanalternativeperspective,Kirman (1992)discussesunder whichcircumstancesaggregationamongheterogeneousagentsis sufficienttohaveawellbehavedaggregatedemandfunction:

Onceoneallowsfordifferentmicro-behaviorandforthefact that different agents face differing and independent micro-variablesthen[...]complexaggregatedynamicsmayarisefrom simple,[...],individualbehavior. [Kirman(1992)p.127] Becker(1962)intheearlysixtiesalreadyemphasizedhow“the lawofdemand”maybejust theeffectthat pricechangesexert onthebudgetconstraint,andnotberelatedtoanydecisionrules: thenegativedemandslopeisindependentfromtherationalor irra-tionalcontentofthedecisionrules.Asimilartheoreticaldiscussion isinGrandmont(1991),whoshowstherelativelyunimportance ofthemaximizationofautilityfunction,andconverselythe rele-vanceofthesimplesatisfactionofthebudgetconstrainttoobtain well-behavedaggregatedemandfunctions.Theconditionsunder whichaggregationyields“wellbehaved”aggregatedemand func-tionsindependentlyofthefinespecificationofmicrobehaviours areshowedinHildenbrand(1994).

Moregenerally,theinteractionamongheterogeneousagents, byitself,allowsfortheemergenceofdynamicssuchasendogenous cyclesandfluctuations,withouttheneedofexternalshockshitting thesystem(seeDosietal.,2010amongothers).

2.4. Innovationandgrowth

Theprocessofeconomicchangeasbeenatthecoreofthe“Grand EvolutionaryProject”atleastsincetheseminalworkbyNelsonand Winter(1982).Theearlygrowthneoclassicalmodelshavebeen identifyinginthesocalledSolowresidualor,usingthefelicitous expressionbyAbramovitz (1956),themeasure ofourignorance, theunaccountedsourceofeconomicgrowth.Rathersurprisingly, theearlyscholarsofgrowththeorydecidedtoshelvetheenquiry exactlyonthesourceofeconomicgrowth,treating“technological changeasaresidualneutrino”:

Theneutrinoisafamousexampleinphysicsofalabellingof anerrortermthatprovedfruitful.Physicistsultimatelyfound neutrinos,andthepropertiestheyturnedouttohavewere

con-sistentwithpreservation ofthebasictheoryasamendedby acknowledgementoftheexistenceofneutrinos.Amajor por-tionoftheresearchbyeconomistsonprocessesofeconomic growthsincethelate1950shasbeenconcernedwithmore accu-ratelyidentifyingandmeasuringtheresidualcalledtechnical change,andbetterspecifyinghowphenomenarelatedto tech-nicaladvancefitintogrowththeorymoregenerally.[Nelsonand Winter(1982),p.198]

Aftertheearlygrowthmodelsofexogenoustechnicalchangeá laSolow,the1990ssawtheflourishingofthesocalled“endogenous growththeory”attemptingtoincorporateinherently Schumpete-rianthemes intomainstream models.Nonetheless, endogenous growthmodelsdo notseemabletoaccountforsomeelements typicallycharacterizingtheprocessesofinnovationandgrowth.

Asoneoftheearlyevolutionarymodelsoftechnologicalchange (Silverberg and Verspagen,1994) puts it, requirementsneeded to genuinely model endogenous growth are (i) coexistence of manytechnologiesandtechniquesofproductionatanygiventime period;(ii)nouniqueproductionfunction(coexistenceof multi-pletechniquesofproductionevenatthefrontier);(iii)dependence oftheaggregaterateoftechnicalchangeondiffusionof innova-tion,notsimplyontheinstantaneousinnovationrate;(iv)ifthe innovativeeffortisrepresentedbyastochasticdrawfrom proba-bilitydistributions,theparametersofthedistributionshavetobe unknowntotheagents.

Infact,suchrequirementsappropriatelymapintoaseriesof attributesoftechnology(seealsobelow):searchanddiscoveryof innovationareprocessesintrinsicallycharacterizedbyKnigthian uncertainty whereinthereis noexact correspondence between ex-anteeffortandex-postperformance;thereisnoconvergence towardanoptimalcapital/labourratiowhichdefinestheunique techniqueadoptedbytheusers,butratheraconstellationsof tech-niquesofproductionareemployedbydifferentfirms.

In our evolutionary perspective it is the contribution of knowledge, transferred into the innovative activities which is “responsible”fortheneutrino.Andknowledgeis avery special entitywhichis notcharacterizedbyscarcityandbydiminishing returns,overturning theoldperceptionofeconomicsasthe sci-enceofallocationofscarceresources.Ifknowledgeandinnovation becomethemaindeterminantsofeconomicgrowth,then abun-danceand dynamicincreasing returnsaretheruleand notthe exception:worlds withendogenousinnovationareubiquitously characterizedbydynamicincreasingreturns.Ifanything, innova-tionandknowledgeaccumulationarepreciselythedomainswhere thedismalprinciplesofscarcityandconservationaremassively violated:onecansystematicallygetmoreoutofless,and increas-ingreturnsarethegeneralrule.Thetheoreticalconsequencesare far-reaching.

Theknownpropertiesofinformation(itsnon-rivaluse, non-perishability, scale-freenessin its application etc.),when taken seriously,implythattheusualGeneralEquilibriumpropertiescan beruledout.InfactasdiscussedinRadnerandStiglitz(1984),it issufficienttoassumenonconvexitiesintheproductionfunction, duee.g.tothefixedcostofacquiringinformation.Givensuch non-convexities,theexistenceofequilibrium isnot guaranteed(see RothschildandStiglitz,1976anditsmanual-level acknowledge-mentinMas-Colelletal.,1995).Undernonconvextechnologies, thesupplycurveisnotequivalenttothemarginalcostfunction andtheintersectionwiththedemandcurveisnotensured.Arrow (1996)putsitbluntly:

[c]ompetitiveequilibriumisviableonlyifproduction possibil-itiesareconvexsets,thatisdonotdisplayincreasingreturn [...]withinformationconstantreturnsareimpossible.[...]The sameinformation[canbe]usedregardlessofthescaleof

pro-duction.Hencethereisanextremeformofincreasingreturns. [Arrow(1996)pp.647–648]

Infact,theexistenceofaconventionalGeneralEquilibriumis underminedinpresenceofinnovationevenneglectingthe increas-ingreturnspropertiesofinnovationitself:seeWinter(1971).In turn,increasingreturnsarelikelytodisplayasanorm,divergence ine.g.technologicalcapabilitiesandincomes.

2.5. History

Historyandpathdependencyareatthecenterstagein evo-lutionarytheorizing.So,forexample,inordertounderstandthe processof evolutionofa giventechnology, itisfundamental to understanditshistoricalorigin.David(1985)inhisseminal contri-butionemphasisestheimportanceofthesequenceofpastevents tointerpreteconomicsasanevolutionaryprocess:

Cicerodemandsofhistorians,first,thatwetelltruestories.I intendfullytoperformmydutyonthisoccasion,bygivingyoua homelypieceofnarrativeeconomichistoryinwhich“onedamn thingfollowsanother”.Themainpointofthestorywillbecome plainenough:itissometimesnotpossibletouncoverthelogic (orillogic) ofthe worldaroundus exceptby understanding howitgotthatway.Apath-dependentsequenceofeconomic changesisoneofwhichimportantinfluencesupontheeventual outcomecanbeexertedbytemporallyremoteevents,including happenings dominated bychance elementsrather than sys-tematicforces.Stochasticprocesseslikethatdonotconverge automaticallytoafixed-pointdistributionofoutcomes,andare callednon-ergodic.Insuchcircumstances“historicalaccidents” canneitherbeignored,norneatlyquarantinedforthepurpose ofeconomicanalysis;thedynamicprocessitselftakesonan essentiallyhistoricalcharacter. [David(1985),p.332] Inthisrespect,itistruethatNewEconomicHistoryhasbrought neoclassical economics to economic history (Fogel, 1965), but this hasbeen donein ourviewat an unreasonably highprice. Cliometrics,andlater,the“NewPoliticalEconomy”focusonthe quantitativeassessmentsofsociologicalandinstitutionalvariables whichareoftenthenbroughtintotheestimationoflong-run pro-ductionfunctions.Thepriceisthegeneralassumptionthatthere isafunctionallyinvariantgeneratingprocessandaninvariant eco-nomicrationalityapplicablefromStoneAgetribestoSpaceAge societies.

FreemanandLouc¸ã(2001)provideanenticing discussionon cliometrics.Aseriesofunsatisfyingoutputsofthisresearchstream culminatedwiththedescriptionofslaveryconditionasarational optimizingbehaviourforbothpartiesofthecontract:theowners werepraisedforthesuperiorityof theirmanagerialcapabilities andtheslavesforthesuperiorqualityofblacklabour.Cliometrics, apartfromabruptlyimportingthehomoeconomicus,carriedalso thenotionthatsheerrandomnesscouldadequatelycapture histori-calevents:first,someofthemareconsideredasrandom,exogenous eventsalteringtheregular(equilibrium)dynamics;second, histor-icaltimeseriesthemselvesareconsideredequivalenttoasample fromauniverseofalternativerealizationsofthesamestochastic process.Itisbasicallyanergodicworldwhere“deephistory”does notcount.

Landes(1994)emphasisestheinappropriatenessofthe fore-going research agenda in providing exhaustive explanation of historicalphenomena:

Iamconvincedthat thevery complexityoflargesystematic changesrequirescomplexexplanation:multiplecausesof shift-ingrelativeimportance,combinativedependency,...temporal dependency. [Landes(1994),p.653]

Complexevolvingsystemsaretypicallynon-ergodic,thus dis-playingpath-dependencies:whereyougodependsonwhereyou comefrom.

2.6. Institutions

Inabsenceofrational,profit-seekingmaximizingagents,what does it shape the behaviour of individuals and organizations? Howtherelativelyorderedpatternsabovementionedareableto emerge?Isitalltheoutcomeofself-organization?

Wehavebeenemphasizingabovehow(imperfect)coordination and(relatively)orderedchangecanbeinterpretedasphenomena ofself-organizationamongmultipleinteractingagents.However, suchprocessesareembeddedintoinstitutionswhichshape and constrainbehavioursandmodesofinteraction.Theyinclude mar-kets, but even more important, other non-market institutions rangingfromfamiliestofirms,fromunionstouniversitiestopublic agencies.

Inturn,“good-matchings”or “mismatchings”among institu-tionalformsareat thecoreofwell-tuned andfragile phasesof capitalism development.This is what has beenstudied by the (mainlyFrench)RegulationSchoolwhichidentifiedthesocalled RegimesofRegulation(seeBoyer,1988).

ThreemaindomainsoftheRegimesofRegulationareespecially relevantto studythe capitalistdynamics, namely:(i) the accu-mulationregimewhichentailstherelationsamongtechnological progress,incomedistributionandaggregatedemand,(ii)the insti-tutionalformswhichencompassthewage-labournexusandnature oftheState,and(iii)themodeofregulationcomprisesthe mech-anisms bywhich the former two domains evolve, develop and interact.Themodesofregulationcapturethespecificitiesofthe processofadjustmentsintheaccumulationpatternsandinthe coordinationamongdifferenttypesofactors.Suchdynamicsyields phasesof“smooth”coordination,mismatches,cyclesandcrises.

Themajorquestionis,then,thecoherenceandcompatibility of a given technicalsystemwith a patternof accumulation, itself definedby acomplex setofeconomic regularities and mechanismsaffectingcompetition,demand,thelabourmarket, creditandstateintervention.Themajorfindingisthefollowing: thereareseveraldifferentmodesofdevelopmentand regula-tionobservedinhistory–there isnosingleuniversalmode. [Boyer(1988)p.68]

The notion of mode of regulation disposes of the standard equilibrium-basedideaofcollectivecoordination.Itismadeofaset ofnorms,rules,behaviourscollectivelyconsistententailingsome distinctivefeatures:(i)decentraliseddecisionsaretakenwithout theneedfor each individual ororganization tounderstandthe wholesystem;(ii)itshapestheaccumulationregime;(iii)it repro-ducesasystemofsocialrelationships.

Therole of the industrialrelations, the mechanism of wage determination,therelativepowerofconflictingclasses,the indus-trialandlabourpoliciesarealsoimportantelementsinshaping thenational systemsof innovation (Nelson, 1993)and produc-tion.Non-marketinstitutionsarecrucialfortheunderstandingof theprocessofinnovativesearchandmoregenerallyofeconomic dynamics:

[...]thereisalotmoretotheinstitutionalstructureofmodern economiesthanfor-profitfirmsandmarkets.Firmsand mar-ketsdoplayaroleinalmostallarenasofeconomicactivity,but inmosttheysharethestagewithotherinstitutions.Inmany sectorsfirmsandmarketsclearlyarethedominantinstitutions, butinsometheyplayasubsidiaryrole.Nationalsecurity, edu-cation,criminaljusticeandpolicingaregoodexamples.Some sectors,likemedicalcare,areextremely“mixed”,andone can-notunderstandtheactivitygoingoninthem,orthewaysin

whichtheirstructure,waysofdoingthings,andperformance haveevolved,ifonepaysattentiononlytofirmsandmarkets. [Nelson(2016),p.18]

2.7. Methodology:whycomputersimulation

Giventheforegoinginterpretationofeconomicdynamics,the choiceoftherightinstrumentsofanalysisisofparamount impor-tance(inthefollowing,weshalljustaddressthemodellingdomain, even ifwellaware of thecomplementarity withstatistical and historical analyses). To overcome the straitjacket imposed by the standard tools, we advocate an extensive useof computer simulation, concerning both individual action and system-level interactions.

Itwouldappear,therefore,thatamodelofprocessisan essen-tialcomponentinanypositivetheoryofdecisionmakingthat purportstodescribetherealworld,andthattheneoclassical ambitionofavoidingthenecessityforsuchamodelis unrealiz-able. [Simon(1979),p.507]

Thechoiceofcomputersimulation modelsis notbychance: itallowstodescribetheeconomicagentsasbehavingaccording toproceduralroutines,whichareexecutedundertheformof algo-rithms,whereinsequenceofactionsandeventsindiscretetimecan beexplicitlyinsertedanddescribed,andheterogeneityisexplicitly modelled.Simulations,inthisrespect,arenotsimplyusedtomimic buttotesthypotheses.

Byconvertingempiricalevidenceaboutadecision-making pro-cessintoacomputerprogram,apathisopenedbothfortesting theadequacyoftheprogrammechanismsforexplainingthe data,andfordiscoveringthekeyfeaturesoftheprogramthat account,qualitatively,fortheinterestingandimportant char-acteristicsofitsbehavior. [Simon(1979),p.508]

Manycriticismshavebeenaddressedtocomputersimulation models,orastheyarenowadayslabelled, AgentBasedModels, particularly,(i)lackofrigorousspecificationsofthebehavioural equations;(ii)lackofparameterestimation;and(iii)lackof robust-ness.

ThefirstcritiqueinfactisrathersuperficialinsofarasABMsare amethodologywhichleavesroomofmanoeuvretothemodeller, allowingthechoiceamongdifferentspecificationsofbehavioural rules.Conversely,intheneoclassicalmodelsonlyoneruleis admis-sible,themaximizingbehaviour.However,thegreaterdiscipline ofthelatterisdeceiving.Themainstreammodellerisallowedfull freedomonthechoiceoftheargumentsofthefunction,the func-tionalformandtheconstraints,withoutanyexternalconsistency check(“whatdoactuallyagentsdothat?”).

Conversely, ABMsundertake a thorough externalconsistency checkonthebehaviouralrules,modesofinteractionandtimelineof events,whichdefinethechronologicalorderaccordingtowhichthe proceduresareundertaken.Thus,themodelisaskedtobe coher-entandascloseaspossibletoempiricaldata.Onlyabandoning thedeductive-normativeapproachofthemaximization endeav-our,themodellerisabletotestthevalidityofbehaviouralrules andalgorithmsvis-à-visthecorrespondingevidence.

Thesecondcritiqueconcernsthelackofparameterestimation. However,itisanothermisleadingpoint.AsBrock(1999) empha-sizes,regularitiesorscalinglawswhichareparticularwidespread ineconomicsare:

[...] ‘unconditionalobjects’,i.e. theyonlygiveproperties of stationarydistributions, e.g. ‘invariant measures’,and hence cannotsay much aboutthedynamics of thestochastic pro-cesswhichgeneratedthem.Toputitanotherway,theyhave littlepowertodiscriminateacrossbroadclassesofstochastic processes. [Brock(1999),p.410]

Buttheemergenceofthesescalinglaw,evenifdoesnotallow todiscriminateamongalternativestochasticprocessesallequally abletoreplicatethesameunconditionalobjects,areusefulto iden-tifyacceptableandnonacceptabletheories:

Nevertheless,ifarobustscalinglawappearsindata,thisdoes restricttheacceptableclassofconditionalpredictive distribu-tionssomewhat.Hence,Ishallarguethatscalinglawstudiescan beofuseineconomicscienceprovidedtheyarehandledand interpretedproperly[...]scalinglawscanhelptheory forma-tionbyprovisionofdisciplineontheshapeofthe‘invariant mea-sure’predictedbyacandidatetheory. [Brock(1999),p.411] Brock (1999) advocates both the analysis of unconditional objectsandtheestimationofconditionalones.ABMs,wesuggest, arethebestart-formsofaravailabletoundertakebothexercises. Suchmodelscanbeusedforboth thoughtexperimentsandalso aslaboratoriesforpolicyexperiments.Insteadofperformingthe usualmethodsofcausalitydetectionproposedbythetoolboxof econometrics,whatABMsallowistomodel“artificial”worlds.

WhenABMsareimplemented,theprotocolonefollowsimplies: (i)usingunconditionalobjectstorejecttheoriesunabletomatch statisticalregularities,(ii)performingpolicyexperimentswhich allowtounderstandthereactionofthesystemwhenhitbyboth external shocks, including policy changes, and, equally impor-tant,endogenoustechnological,organizationalones,andstructural changesaswell.

Theabilitytomatchstatisticalregularities,andparticularlylarge ensemble of statisticalregularities at the micro level, attempts to meet the external consistency criteria mentioned above. In accordancewithBrock(1999),onesdoesnotsimplytrytofind unconditionalobjects,buttobuildmodelsabletoprovideasound explanationofthestatisticalregularitiesatdifferentlevelsof obser-vation. Not all statistical objectsare equivalent litmus teststo accept/rejectatheory.Replicatingbusinesscycleco-movementsis difficultbutnottoodifficult.ObtainingParetodistributionsor simi-larlyskewedonesinwhatevermeasureofmicrointeractingagents isrelativelyeasy:infact,theyarealllikelyasignatureofcomplexity assuch.Gettingthetwotogetherismuchmoredifficult,andeven moreismatchingtheempiricalregularitiesconcerningtherelative magnitudeofthehighermomentsofdifferentvariables.

Finally,thelastcritiqueregardsthelackofrobustness,according towhichtheresultsinABMstendtobelocalandpotentiallyvalid onlyforasmallsetoftheparameterspace,withthevalueofthese parametersoftennotestimated.Notably,ABMsarenonlinear,high dimensional,complexmodelswherein,torepeat,inputsstrongly differfromoutputs.Conversely,standardneoclassicalmodelsare linearisedmodelsaroundthesteady-state.Hence,thetwo mod-ellingapproachesarepolesapartinthe“epistemologicalweight” theyattributetotheappropriatenessoftheunderlying assump-tionsaboutbehaviourandinteractionmechanismsvs.purported predictingabilities.InABMs,thevaluesoftheparametersareset ascloseaspossibletoempiricaldata,wheneveravailable,evenif admittedlyoftenwithoutanydirectestimationoftheir distribu-tions,astheyarenotgenerallyavailable.

Onthecontrary,neoclassicalmacroeconomicmodelslikeDSGE, beinglinearisedintheneighbourhoodoftheequilibriumvalues,to exhibitalowabilityingeneratingoutputswhicharedifferentfrom theinputsthemselves.Here,theepistemologicalstrategyisexactly theopposite.Thestructuralmodelisassumedtobeaxiomatically true,andonthegroundofsuch“truth”,thevalueoftheparameters arecalibratedinordertomatchtheempirics,bye.g.minimizingthe distancebetweentheseriesproducedbythemodelandthe empir-icalones.Followingacalibrationprocedure,themodellerdoesnot performanytestingontheinherentmodelstructure,butsimply imputesestimatedvaluesoftheparameters.

Inanutshell,whilestandardmacroeconomicmodelfocuson parameter estimations, ABMs entail a sort of theory corrobora-tion.Wheneveramodelisabletorobustlyreplicateanumberof stylisedfacts,withoutimposingspecificvaluesfortheparameters, themechanismsinsidethemodelitselfarereliableexplanationsof thefactsempiricallyobserved.

Oneopenchallengeaheadisthecomparabilitybetween high-dimensionalABMsandlow-dimensionalaggregatelawofmotions. Canwedramaticallyreducehigh-dimensionality,bothintermsof heterogeneityandintermsofvariablesandparameterspace,and stillcapturesomefundamentaldynamicsofthesystem?Orputting itananotherway,whatarethecomplementarity,ifany,between ABMsandgenuinelyclassicalnon-microfoundedmodelsuchthose inthetradition ofKaldor(1940),Goodwin(1951)and Pasinetti (1960)?

3. Domains

Thesearepartsofthebuildingblocksofa“grandevolutionary program”(discussedatgreaterlengthinDosiandWinter,2002)to putatworkwithrespecttotheformalizationoffourmaindomainof analyses:(i)technologies;(ii)organizations;(iii)corporate learn-ing,competitionandindustrialdynamics;and(iv)coordinationand growthfromthemicrotothemacroeconomicpatterns.

3.1. Technologies

Technologicalinnovation,paraphrasingLandes(1969),hasbeen andisacentraldriveroftheUnboundPrometheusfuelling eco-nomicgrowthatleastsincetheindustrialrevolution.Theclassics –andinparticularAdamSmith–werewellawareofit,butfor almosttwocenturiesthereafter,notmuchprogresshadbeenmade inourunderstandingofthewaysnewtechnicalknowledgeis gen-erated,andhowitsimpactworksthroughtheeconomy(KarlMarx andJosephSchumpeterstandoutasmajorexceptions).The impor-tanceof technologicalchangereappeared,almostby default,in RobertSolow’sgrowthanalysisinthe50’s,butitisonlyoverthe lasthalfcenturythatonehassystematicallystartedlookinginside theblackboxoftechnology(Rosenberg,1982).

Fundamentalcontributionstosuchade-blackboxinghavecome, first,fromtheanalysisoftheeconomicpropertiesofinformation assuch,including,asalreadymentioned,itsnon-rivalness; indi-visibility;andscalefreenessinitsuse;andthe(related)increasing returnspropertybothinitsutilizationanditsaccumulationover time.However,second,atleastequallyfundamentalcontributions havecomefromtheappreciationofthedifferencesbetween tech-nologicalknowledgeandsheerinformation–includingitsvarying degreesoftacitness,itsorganizationalembodiment,thedifficulties ofinter-andintra-organizationalreplication,anditscrucial depen-denceuponthecharacteristicsofparticulartechnologicalbases.

Intheopeningupofthetechnologicalblackbox,theaccountof technologiesintermsofpiecesofknowledge,theircombinations, andtheirchangeshastobecomplementedbyamoreoperational representationoftechnologyinaction.Theconception,designand completion of whatever artefact,generally involves(oftenvery long)sequencesofcognitiveandphysicalacts.Hence,itisusefulto thinkofatechnologyalsolikearecipeentailingadesignforafinal product,wheneverthereisafinalphysicalartefact,togetherwith asetofproceduresforachievingit.

AmajoradvancementandcontributionintheEconomicsof Inno-vationisthenotionthateachtechnologyneedstobeunderstoodas comprising(a)aspecificbodyofknowledgeandpractice–inthe formofprocessesforachievingparticularends–togetherwithan ensembleofrequiredartifacts,ontheinputside;and(b)quiteoften somesharednotionofadesignofadesiredoutputartefact.These elements,together,canbeusefullyconsideredasconstituentparts

ofatechnologicalparadigm(Dosi,1982,1988).Aparadigm embod-iesanoutlook,adefinitionoftherelevantproblemstobeaddressed andthepatternsofenquiryinordertoaddressthem.Itentails spe-cifictemplatesforthesolutiontoensemblesoftechno-economic problemsbasedonhighlyselectedprinciplesderivedfromnatural sciences,jointlywithspecificrulesaimedatacquiringrelatednew knowledge.Finally,technologicalparadigmsidentifytheoperative constraintsonprevailingbestpractice,andtheproblemsolving heuristicsdeemedpromisingforpushingbackthoseconstraints. Moreover,technologicalparadigmsbothprovideafocusforefforts toadvanceatechnologyandchannelthemalongdistinct techno-logicaltrajectories,withadvances(madebymanydifferentagents) proceedingover significantperiodsoftime in certainrelatively invariantdirections,inthespaceoftechno-economic character-isticsofartefactsandproductionprocesses.

Thetechnologiesasknowledgeandasrecipeperspectiveoffers anenormousprogressintheunderstandingofwhattechnological knowledgeisallaboutascomparedtotheblackboxingentailed bythetraditional representationoftechnologyasoutput=f(list of ingredients). Moreover,the recipe perspective offers promis-ingvenuesalsototheformalrepresentationofthedynamicsof problem-solvingproceduresinvolvedinanytechnologicalactivity, withinorganizationsinparticular.Insuchaproceduralview,the orientingfocusisnotimmediatelythelistofinputsandequipment usedtoproduce,say,asemiconductorofcertainproperties,but ratheritrestsinthedesignofthedevicesandtheproceduresused inthetransformationoftherawsiliconintoamicroprocessor.

Concerning technologicaladvance, modifications and refine-mentsof proceduresand designs arewherethe action is,while changesininput/outputrelations(theproductionfunctions)are inawaytheby-productofsuccessfulattemptstoachieveeffective proceduresanddesignswithcertainperformances,andtochange theminthedesireddirections.Thus,whatcomesundertheheading ofproductionfunctionsofwhateverkind,isbasicallyjustthe ex-postdescriptionofwhatappearsinthequantitypartoftherecipes. Notealsothat,dynamically,inmostcaseseffortstochangerecipes directlyentailchangesininputcharacteristicsandintensitiesand, conversely,attemptstosubstituteoneinputforanotherinvolve changesinproductionprocedures.Symmetrically,attemptsto sub-stitutethemoreexpensiveinputs–soeasywhenseenfromthe angleofsomestandard productionfunction– oftenrequirethe painstakingsearchofnewrecipesandeffectiveprocedures.

Grantedthat,aquestionwithcrucialramificationforanytheory ofproductionregardspreciselythemappingsbetween procedure-centredandinput/outputcentredrepresentationsoftechnologies. Supposeonehasametric intheinput/outputspace,and oneis alsoabletodevelop,a(albeitinevitablefuzzy)metricinthehigh dimensionalproblem-solvingspace.Next,howdothelattermap intotheformer?

Issuesofthesamekindregardtherelationshipbetweenchanges intherecipes,ontheonehand,andchangesintherelative intensi-tiesintheuseofthevariousinputs,ontheother.Dosmallchanges inprocedurescorrespondtosmallchangesininput/output rela-tions?And,viceversa,domajortechnologicalrevolutionsaffecting thewayofdoingthingsimplyalsomajorchangesinthe propor-tionsinwhichdifferentartefactsandtypesoflabourenterintothe recipesforwhateveroutput?Thatis,basically,whatarethe rela-tionshipsbetweenchanges intechnologicalprocedures andthe characteristicsoftechnologicaltrajectories,bothinthespacesof productcharacteristicsandofinputcoefficients?

3.2. Organizations

Agooddealofinnovationsaregeneratedwithincorporate orga-nizations,whiletechnologicalandorganizationalinnovationsare often intertwined. Thus, it is crucial to progress in the formal

explorationofthepropertiesofeconomicorganizationsseenas problem-solvingentities.Itispromisingtorepresenttheminterms ofexplicitsequencesofactivitiesandproceduresnestedinto spe-cificorganizationalarrangementsprescribingwhosendwhichsignal towhom,andwhodoeswhatandinwhichconsequence.

Notwithstanding promising inroads (see Marengo and Dosi, 2005;Dosietal.,2003;DosiandMarengo,2015),modelsstillfall shortofanexplicitformalaccountof(i)theemergenceand dynam-icsoforganizationalroutines;(ii)therelatedroleorganizational memory;andfinally,(iii)thelinksbetweenorganizational archi-tectures,knowledgedistributionandperformances.

Theknowledgeofanorganizationregards,first,itscognitive memory – the structure of beliefs, interpretative frameworks, codes,culturesbywhichtheorganizationinterpretsthestateof theenvironmentanditsown“internalstates”(LevittandMarch, 1988).Second,organizationalknowledgeincludesroutines– com-prisingstandardoperatingprocedures,rulesandotherpatterned actions. Both,cognitive modelsand operational repertoires are theoutcomesoflearningprocessesandthusevolveovertimein responsetoexperimentationandfeedbacksfromtheenvironment. However,theymightoftenbearquitehighdegreesofinertiaand path-dependentreproduction,asinfact,byitsnature, organiza-tional memoryreproducesover time what an organization has learnedthroughoutitshistory.

Signalsfromtheenvironments,aswellasfromotherpartsof theorganization,elicitparticularcognitiveresponses,conditional uponthecollectivementalmodelsthattheorganizationholds. Cog-nitivememorymapssignalsfromanotherwiseunknownworld intocognitivestates(thisyearthestateofthemarketissuchthatit willbeprofitabletoproduceX).Conversely,theoperational mem-oryelicitsoperatingroutinesinresponsetocognitivestates(“this yearweshouldproduceX”),internalstatesoftheorganization(“the machinesarereadytostartproducingpieceP”)andalso environ-mentalfeedbacks(“afterallXisnotsellingtoowell”).

Cognitiveandoperationalmemoriesentailanif_→then struc-ture.Apromisingcandidatetomodelthemfindsitsrootsintothe formalismofClassifierSystems(Holland,1975,1986):apioneering applicationdevelopedinMarengo(1992)andsubsequent refine-mentsareinDosietal.(2017a,b).Onthegroundofsuchformal apparatusonecanfirstanalyzetheeffectsintermsofperformances ofdifferentdistributionsofknowledgeandoftherelated mem-oryelementswithintheorganization(e.g.whetherhierarchically versushorizontallydistributed,etc....)conditionalupondifferent characteristicsoftheenvironment.Second,thistypeofmodelsmay helptoexploretheconjecture–wellgroundedinseveral empir-icalstudies–thatamemorystructurewell“fit”foraparticular environmentmayturnouttobeperniciousunderdifferent techno-logicalormarketconditions(cf.amongothersTripsasandGavetti, 2000andBresnahanetal.,2011).Infact,inmanyrespects,much workhasstilltobedonein theexplorationof theoutcomesof themappings betweentypes ofknowledge, memory character-istics,organizationalarchitecturesandpatternsofenvironmental change.

3.3. Corporatelearning,competitionandindustrialevolution

Inmoderncapitalism,businessfirmsareacentrallocusofthe effortstoadvancetechnologies,developnewproductsandoperate newproductionprocesses.Thustheknowledgeandtheprocedures underlyingeachtechnology,discussedintheprevioussection,are toa goodextentembodiedin organizationalroutinesandother “quasigeneticactionpatterns”oforganizations(WinterinCohen etal.,1996).Indeed,anemergingcapability-basedtheoryofthe firm(cf.Dosietal.,2001,2008amongothers)placesthe “prim-itives” ofthe natureof businessfirms intheirproblem-solving features,thatistheirabilitiestoaddresspracticaland cognitive

problems,rangingfrom,say,theproductionofacartothe identi-ficationofamalaria-curingmolecules.

Theapproach,whichfindsitsrootsintheworksofH.Simon,J. March,A.ChandlerandS.Winter–fullyacknowledgingubiquitous formsofhumanboundedrationality,grosslyimperfectprocesses oflearninganddiversesocialdistributionsofcognitivelabour– attempts toidentifythedistinctive capabilitiesoforganizations as emergent fromtheirdistinctive ensembles of organizational routines.And,dynamically,theapproachtriestoaccountforthe processesbywhichorganizationalknowledgeisacquired, main-tained,augmentedandsometimeslost–partlyasaresultofthe dynamiccapabilitiesoforganizationthemselves(Teeceetal.,1997; Helfat,2007).

Idiosyncraticcapabilitiesand, dynamically,idiosyncratic pat-terns of learning by firms are the general rule. In turn, such persistentlyheterogeneousfirmsarenestedincompetitive envi-ronments, which shape their individual economic fate and, collectively,theevolutionoftheformsofindustrialorganization. Differencesinproductsandinprocessesofproduction–andasa consequencecostsandprices–arecentralfeaturesofthe com-petitive process in which firms are involved in different ways. LetuscallSchumpeteriancompetitiontheprocessthroughwhich heterogeneousfirms competeonthebasis of theproductsand servicesthey offerand obviously their prices, and getselected –withsomefirmsgrowing, somedeclining,somegoingout of business,somenewonesalwaysentering.Suchprocessesof com-petition andselection arecontinuouslyfuelledbytheactivities ofinnovation,adaptation,imitation byincumbentfirms andby entrants.Inturn,theprocessesofindustrialevolutionleaves statis-ticalfootprintsintermsofindustrialstructuresandfirmdynamics. Thankstomassiveinfusionsofmicro-dataoverthelast20years, onehasbeguntoidentifyafewrobuststatisticalproperties char-acterizingindustrial structures,theirchanges, and performance indicators.

Ingeneral,evolutionaryinterpretationsaregroundedontwo basicbuildingblocks.Thefirstisalearningpartwherein individ-ualagents(firms),massivelyboundedlyrationalbutalwaysable toinnovate, search for new techniquesand newproducts and thesecondisaselectionpartwherebymarketinteractions deter-mineex-postprofitabilities,survivalprobabilitiesandfirmratesof growth.Moreonthestructureofevolutionarymodelsofindustrial dynamicsinSilverbergetal.(1988),SilverbergandLehnert(1994), Metcalfe(1998)andDosietal.(1995,2017b).

The(idiosyncratic)learningpartofthedynamicsisoften repre-sentedasastochasticsearchforinnovationandimitationinthe neighbourhoodof theincumbenttechniquesof eachfirm. Con-versely,theselectionpartoftheprocessisbasicallycapturedby differentinstantiationsofsomereplicationdynamics.Thebottom lineis a relation betweensome corporate characters – that is, technological,organizational,orbehaviouraltraits–whichthe par-ticularinteractiveenvironmentfavours,ontheonehand,andthe rateofvariationofthefrequenciesinthecarriersofsuchcharacters intherelevantpopulationsontheother.

Onehasonlybeguntosystematicallylinkevolutionarymodels withthestylizedfactsofindustrialdynamicsdiscussedabove.Here thebigchallengeregardstheabilityofthemodelsofgenerating –andinthatsenseexplaining–therichensemblesofobserved empiricalregularities,boththosethataregeneric,holdingacross sectors,countriesandphasesoftheindustrylifecycles,andthose thatareregime-specific.Inthatthephenomenatobeexplained– rangingfromsizedistributionsandothermeasuresofindustrial structuressuchasconcentration,tothedistributionsofcorporate growthratesallthewaytothedeterminantsofgrowthitself– oughttobeunderstood,again,asemergentpropertiesstemming fromtheout-of-equilibriainteractionofheterogeneous,farfrom omniscient,butpotentiallyinnovative,agents.

In particular, to date, thegenerality of evolutionary models hasassumed some monotonicity in therelations between fun-damentaldeterminants ofcompetitiveness/revealedfitness, and subsequentrelativegrowth.However,theevidenceonthese selec-tiveprocessessuggeststhatselectionforcesareweakerthanthose theorised.In turn,this maywellbetheconsequenceofvarious formsofmarketimperfections –includinginformationalones– which,togetherwithendemicsatisfyingbehaviours,allowfirms characterizedbydiversedegreesofefficiencyandproductqualities toco-existwithouttoomuchrelativepressure.Onthemodelling sidesuchevidencedemandsanaccountofevolutionoccurringover multidimensionalfitnesslandscapes–explicitlycapturingthe mul-tidimensionaldifferencesinproductcharacteristics–rugged,thus allowingformultiplemetastablestates, butalsointertwinedby ampleflatareas–wherebyselectivepressuresarerelativelylow.

3.4. Frommicrotomacrocoordinationandgrowth

We have already discussed above that the interpretation of macroeconomic dynamics must have, in our view, micro-foundations explicitly resting on multiplicity of heterogeneous interactingagents. Granted that, there aretwo complementary modellingperspectives.

Inafirstone,whichwecouldcallcoordinationwithoutevolution, onemaystudytheconditionunderwhichcoordinationemerges, intertwinedbymajorphasechanges,inmarkets,andother inter-actingenvironments,whereinagentsinteractandadjustlocally. Thefundamentalsofsuchenvironmentsmightwellbestationary (hence,strictlyspeaking,noevolution),butthethreadof inter-actionsandadjustmentstypicallyyieldsnonlinearmacroscopic effectscharacterizedbydiversepatternsofcoordination(orlack ofit).Alotofworkhasbeendoneinthisperspective(forsurveys, seeTesfatsionandJudd,2006andLeBaronandTesfatsion,2008) offeringtheoreticaltalesonself-organizingpatterns.Still,oneis quitefarfromathoroughunderstandingofe.g.howmarketswork, conditionalontheirdifferentnetworkstructures,asconvincingly advocatedbyKirman(2011).

Together,letusstronglyurgetheinvestigationofcoordination withevolutiononthegroundofhigherdimensional, phenomeno-logically much richer Agent Based Models. Within a growing ensembleof ABMefforts(see FagioloandRoventini, 2016fora recentsurvey),theauthorsofthisnoteadvocaterefinementsand developmentsuponthefamilyof“SchumpetermeetingKeynes” models(Dosietal.,2010,2013,2015,2016,2017c).Theyclearly meetSolow(2008)’spleaformicroheterogeneity:amultiplicityof agentsinteractwithoutanyexantecommitmenttothereciprocal consistencyoftheiractions.

Thisfamilyof modelsbridges Keynesiantheoriesof demand generationandSchumpeteriantheoriesoftechnology-fuelled eco-nomicgrowth.Agentsalwaysfaceopportunitiesofinnovationsand imitation,whichtheytrytotapwithexpensivesearchefforts,under conditionsofgenuineuncertainty(sotheyareunabletoformany accurateexpectationsontherelationbetweensearchinvestment and probabilities of successful outcomes). Hence (endogenous) technological shocks (the innovations themselves) are unpre-dictableandidiosyncratic.

Thisfamilyofmodelsbuildsonevolutionaryroots,butisalsoin tunewithgenuineKeynesianinsights.Ittriestoexplorethe feed-backsbetweenthefactorsinfluencingaggregatedemandandthose drivingtechnologicalchange.By doingthat, itbegins tooffera unifiedframeworkjointlyaccountingforlong-termdynamicsand higherfrequenciesfluctuations. Themodel is“structural”in the sensethatitexplicitlybuildsonarepresentationofwhatagentsdo, howtheyadjust,interactandrespondtopolicychanges.Indeed, themodelhasalready provedtobeabletogeneratejointly,as emergentproperties,awide setof stylizedfactsregardingboth

micro/meso phenomenaand macro stylizedfacts.They include (i)endogenousgrowth;(ii)persistentfluctuations;(iii)recurrent involuntaryunemployment;(iv)pro-cyclicalconsumption, invest-ment,productivity,employmentandchangesininventories;(v) fat-taileddistributions ofaggregategrowthrates;togetherwith persistent asymmetries in productivity across firms; (vi) spiky investment patterns; (vii) skewed firm size distributions; (viii) fat-tailedfirmgrowthrates,and (ix)onthelabourmarket side Beveridge,Wage(orPhillips),andOkuncurves,(x)separationand hiringrates volatility, (xi)matching function,(xii)productivity, unemploymentandvacancyratesvolatility,(xiii)unemployment andinequalitycorrelation(cf.Dosietal.,2017c).Torepeat,the fore-goingrobuststatisticalregularitiesandrelativelystablerelations amongstaggregatevariablesdoindeedemergeoutofturbulent, disequilibrium,microeconomicinteractions. Assuch, themodel canbeusedalsoassortof“laboratory”forpolicyexperiments.We havebeguntodoit,showing,forexample,thecomplementarity betweenKeynesianandSchumpeterianpolicies.

4. Somechallengesahead,bywayofaconclusion

Inthesenoteswehavetriedtoofferanevolutionaryviewon, possibly,thetwomajorquestionswhichcutacrossthewholehistory ofeconomicsasadiscipline,namelythedriversofchangeandthe coordinatingpropertiesofasystemcomposedbymultiple inter-actingagents.Inmanyways,theyareasortofadvocacyof“back totheClassics”,especiallySmith,MalthusandMarx,albeitwith muchmoresophisticatedformalandcomputationalinstruments. Thebasicinterpretativeconjecturehereisthatthepropertieswe observestemfromthefactthatthecapitalisteconomiesarethefirst onesinhumanhistorywhichincessantly“changefromwithin”. Anditisthisveryfeaturewhichaccountsfortherelativelyorderly interactionswhichoneoftenobserves.

Thereisalotthatistheretobedoneonthetheoryside.And evenmoreso,ithastobedoneonsidesofstatisticsandof theory-informed,qualitative,historicalinterpretation,whatNelsonand Winter(1982)call“appreciativetheorizing”.Justtonamea few domains.

Some challenges were already there in the largely unfilled “SantaFecomplexityprogramme”(seetheintroductionbyPinesto Andersonetal.,1988).Forexample,firsthowdoagentsbehaveand learnin complexevolvingenvironments?Economics, especially over thelast half a century,hasput anoverwhelming empha-sisonexpectationsintheinterpretationofbehaviour,uniquein alldisciplines,whichmaturedbeyond“Aristotelian”finalcauses. Butthat,in turns, implies universally transparentpresents and futures,whichishardlyintunewithinnovation-ridden evolution-aryworlds.

Second,howdoesoneformallyaccountsforevolutionary pro-cesseswhereinthedimensionalityofthestate-spaceprogressively evolve?

Third,even shortofthat currenteconometrictechniquesare postulateduponuniqueequilibriumstatesshockedbyexogenous disturbances.But,whatiftherearee.g.non-lineardynamicswith multiplelocalattractors,persistentlyperturbedbyendogenously generatedshocks,howdoweaccountforthem?

Fourth,andwellbeyondtheSantaFeprogramme,whatisthe theoryofvalueandincome distributioninknowledgeintensive worlds,generallycharacterizedbyincreasingreturns?Note,inthis respect,thatifoneloosesconvexityinproductionplans,onelooses alsothelinkbetweenthetheoryofproductionandthetheoryof incomedistribution.Inourview,thisisjustagoodnews,butit posesaproblemalsoforclassical,cost-basedtheories:whenever thecostofreplicationisminor,likeinthecaseofthereproduction ofasoftwareoradrug,isitjustproportionaltothecostofengineers andscientistswhoundertooktheR&D?

Thelistisfarfrombeingexhaustive.Andthisismatchedby equallyimportant(orevenmoreimportant)interpretativeissues whichhavetodowiththecontemporarydynamicsofcapitalist economies.

Afirstoneconcernslabourmarket,wagesandemployment.The innovation-employment nexusdeservesoverridingattention.In thewakeofapotentialfourthIndustrialRevolution,ofadebate onproductivitydecline,“secularstagnation”andfuture robotiza-tion,researchaddressingtheeffectsonboththequantityandthe qualityofemploymentisneeded,aswellasthebalancebetween productandprocessinnovationintermsofemployment creation-destruction.

Asecond related oneis inequality.It isand willbethe core topic, together with unemployment, of the next many years. Eventhoughthepost-crisisperiodhasbeenmarkedbyan over-whelmingandblossomingliteratureoninequality,detailedstudies lookinginsidethetransformationatshop-floor, thewage deter-minationprocesses, theorganization oftheindustrial relations, the process of de-unionisation are partly missing and badly needed.Besidethat,what dowe knowaboutthepotentiallink betweenproductivityandwagedispersion,aspossible determin-ingmechanismscausingwage inequality,ascompared toother mechanismssuchasglobalizationandthefinancializationofthe economies?

Onthemodellingside,theSchumpetermeetingKeynesmodel leavesscopeformanypotentialavenuesforfurtherresearch:(i) theanalysisof theeffectof long-termversusshort-termlabour contractsonfirm productivity,exploringtheimpactofcontract durationontheprocessofworkersskillsaccumulation,and con-sequentlyonproductivity;(ii)anorth-southversiondirectedat studyingtheeffectofflowsofcapitalgoods,consumptiongoods andworkersamongtwocountries, aleadinganda laggingone, analysingtheemergenceofpatternsofproductspecialization vis-à-visdiversification,cost-competitivenessvis-à-vistechnological competitiveness, growthconvergence vis-à-vis divergence; (iii) theeffectofproductvis-à-visprocessinnovationintermsof cre-ation/destructionoflabourdemand.

Andlastbutnotleast,policyanalysesinvolveafundamental paradigmaticchange:thecentralconcernforpoliciesoughttoshift awayfromefficientallocationissues,tothe(imperfect)governance ofcoordination(Kirman,2011),and ofgenuinelyuncertain pro-cessesofchange.

Acknowledgements

ThisworkdrawsuponDosi(1984),DosiandWinter(2002),Dosi (2014)andDosiandVirgillito(2018).Wegratefullyacknowledge theparticipantsandtheorganizersof theworkshop“Economic Change and Evolution” held at theAcademia dei Lincei,10–11 November2014andthesupportbytheEuropeanUnion’sHorizon 2020researchandinnovationprogrammeundergrantagreement No.649186–ISIGrowth.

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