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- [00:07]
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You're listening to the Hayek Program Podcast. This podcast includes audio from lectures, interviews and discussions from scholars and visitors of the FA Hayek Program for Advanced Study in Philosophy, Politics and Economics at the Mercatus center at George Mason University. To learn more about the Hayek Program, visit Hayek Mercatus. To learn about graduate student fellowship opportunities with the Mercatus center at George Mason University for students at Mason as well as at universities across the Globe, please visit students.mercatus.org to start us off with the conference, we have our own Dr. Paul Dragosh Alejika as our first keynote speaker. Paul is the KPMG professor of Governance at the University of Bucharest and a Senior Research Fellow with the Hayek Program at the Mercatus center at George Mason University. And last year he was elected as a member of the Academy of Europe. His thorough and extensive scholarship focuses on governance theory, institutional analysis and political philosophy. His most recent book, the Institutionalization of Indoctrination, An Exploratory Investigation based on the Romanian Case, is co authored with Simona Preta and published in 2022 with Lexington. He also recently worked on Public Governance and the Classical Liberal Perspective, the Political Economy Foundations with Pete Becky and Vlad Tarko, that's at Oxford University Press and was released in 2019. Paul is a nuanced scholar who cares deeply about bringing theory to practice in order for all of us to live better together. He is a patient and precise mentor and truly a delightful colleague. And you can say, and I think Paul encapsulates the curiosity and humility of his own teacher, Nobel Prize winning economist Eleanor Ostrom. Tonight he will discuss the importance of resilience. Please join me in welcoming Paul.
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Thank you, Stephanie. It's a real privilege. I know it's a common place, but it is a real privilege to be here with you tonight. And I'd like to thank the organizers of the event for giving me the chance to give the opening remarks for this conversation. It's an ongoing conversation. We have started it in this context two years ago. This is a third event and this is a conversation which is pivoting around an intellectual tradition and we are restructuring, reorganizing an intellectual community and a network of scholars around that intellectual tradition, which might have many labels, but substantially we are on the same page when it comes to the principles, values and approaches which are defining it. Now, one of our colleagues, somebody who is deeply associated with the Mercatos program with Hayek Program, Pete Bertke, has labeled recently in the new circumstances, intellectual circumstances and new ideological Circumstances, the tradition, mainline political economy. In my presentation tonight, I'm going to focus on a research frontier which within the mainline political economy. But again, that being said, keep in mind the following thing. This is an interdisciplinary tradition, an intellectual tradition, which is associated with names like Adam Smith, 19th century Tocqueville mill and in the 20th century. It is associated with three schools of thought, which it happened that they are at the core of the research program at Mercato center, at the Hayek Program, Austrian School of Economics, Public Choice and New Institutionalism, in the tradition of Elinor Ostrom and Vincent Ostrom. Already Stephanie has mentioned my association with that specific dimension of this research program. So we are an intellectual community and we are coming into this space of, let's call it, for now, mainline perspective from different disciplines, different angles. And we see each of us in function of the angle that we are approaching this space, this domain, as a series of concentric circles. So what I'm going to explore together with you tonight is a specific vision of this tradition, intellectual tradition, and reconstruction of that tradition at the end of the 20th century and indeed the beginning of the 21st century, around the space at the interface between three schools of thought, Austrians Public Choice and Austromian New Institutionalism. But I'm not just going to give an overview of the entire space, entire research frontier, which is inspired by the theoretical lenses and the approaches designed, redefined, at the interface of these three schools of thought. I'm going to do something even more focused and more precise. I'm going to take the lenses created by the interface, the analytical and methodological synthesis of these three schools of thought, and apply them to one of the most interesting and important phenomena or issues which are defining the current landscape of research, both in social sciences and in applied policy, administrative sciences. This is the issue of resilience. So on our agenda tonight, the first step, or let's say the first underlying logic of our approach, is to take the theoretical lenses in this space, from this space and apply them to the problem of resilience. At the same time, we are going to use the issue of resilience in order to get a better sense of the nature of the research agenda and the kind of insights that we could get when we put these three schools of thought or perspectives together in the larger context of the intellectual tradition which is uniting all of us. Again, in this case, we'll call it for our purposes, mainline political economy, though I know that some of you may have different ways of labeling it. So this is in a nutshell, our agenda and obviously the first step would be to get a better sense of what is this issue called resilience. And there are a lot of labels around, floating around when it comes to resilience. And I think that there are four ways of thinking about it. It's a family of concepts, but the most important thing is the kind of phenomenon or phenomena that they are designated. First, it's the idea that there is a shock and it's the ability to be able to respond this shock without deteriorating a system, an organization, a firm, a community. Second, it's bouncing back. Bouncing back. You get the shock, a little bit of a deformation, you bounce back. Third, you are not only able to bounce back, but you are able from now on to be better able to respond and withhold that specific type of shock. Finally, it is what is called antifragility, which is not only the ability to bounce back and be much better in the future in responding to that specific type of shock, but in general to improve your abilities to respond to those shocks. Again, this is just a preliminary stuff. I'm using it again as a vehicle in order to get a better understanding of the magnitude and the importance of the phenomenon of resilience. It's extraordinarily important for organizations, firms, communities, economic systems. Platforms create systems of artificial intelligence which are combined with technology and they are combined with institutions. Resilience is an extraordinary important thing in those circumstances. It's not just natural systems, it's not just social systems, but in the space of the artifactual, resilience is extremely important. Very interesting. And I'm using a quote from David Callender here, an author who has done a lot in exploring the interface between complexity sciences and resilience and institutional theory and economics. They look at the literature and they say, look, it's amazing. This phenomenon is extraordinarily important, and yet economics and policy sciences look like not interested in it. They don't. Simply, it's puzzling. If this phenomenon, in the ways the various facets that I have just described is so important, how come that people are not interested in it? I'm not going to respond to this question. My first step, and I'm going to go fast over this with you, was to simply look in the literature to double check if that is the case. So if you're interested in resilience, the place you are going to check whether or not what Callender says is correct is comparative economic systems. This is the discipline where over the years we have accumulated a lot of insights regarding institutional economic performance criteria or structural features. Of economic systems. So if there is a place where you could find stuff about resilience, that should be it. So I went and I looked at the textbooks, 70 years of textbooks in comparative economic systems. First thing that you find out there is that indeed in the very logic of comparative economic systems, there is a place for resilience. How is that? The Montias Kubba framework for comparative economic systems is pretty simple. It you have an economy, and the economy is a set consisting of a system, the economic policies within that system, the environment of that system, and the outputs. And the outputs are a function of the system, the policies and the environment within that structure, you could have a lot of norms to assess the the system and those norms. All of you are familiar. Static efficiency, dynamic efficiency, justice, equality, freedom. So structurally, resilience might be one of those. Simply input it in the basic Montiast framework of the analysis of economic systems and you have an entire research program which might be dedicated to resilience. Well, you go to the textbooks and to make a very long story short, you look at the evolution of comparative economic systems. Again, just to give a sense, I'm setting the stage for the moment where the three schools of thought and the research program that I like to explore together with you at its frontier, is entering the stage. So I'm preparing the stage for that. But just want to give you a sense of that. If you are looking at 70 years of textbooks of comparative economic systems, there is not much about resilience, despite the fact that if a system is not surviving, why should you talk about its efficiency or social justice or freedom, and so on and so forth. Indeed, there are some places in the literature which have something to do and they are relevant for the resilience issue. Economic calculation debate is one of them. You could make the economic calculation debate as a debate about the possibility of socialism, but then you could make it as a discussion about the feasibility and viability of socialism. So you could get insights about resilience from there. Business cycles and the viability of capitalism. Another source of insights regarding the issue of resilience, economic history, especially economic history on the institutionalist lines of Douglas north, when he's talking about structure and change, structure and change in economic history. Another source of insights about resilience. But none of this is amounting to an explicit discussion about the resilience similar or on the lines with the discussions that we have about static efficiency or dynamic efficiency, social justice, equality. This is the situation when in the last 10, 12 years or so we have an explosion of papers, studies Books, discussions where the concept of resilience is crucial. Where is the conceptualization coming from? Not from political economy, not from economics, mostly from. From environmental sciences, ecology, physics, mechanics, biological sciences and complexity theory. So I set up the stage for the moment where I stepping in and we are looking at mainline political economy and more specifically within mainline economy, at the Mercatus research program, which is developing, exploring and advancing the theoretical space and analytical space at the interface between the three schools of thought. Obviously, when you are thinking about this analytical structure, this construct of ours, obviously the first thing when I say resilience is Eleanor Ostrom and Bloomington School. Let me briefly give you an update on how I think the evolution of resilience thinking evolved from this angle. And then the rest of my presentation would be focused on these two and mostly on the third one, public choice. We are all familiar with the research program of Elinor Ostrom and we know very well that the research program was not about the commons. The research program was about self governance. The commons was just one branch of the research program. So we have this research program on self governance. At one point, this research program on self governance evolves in a discussion about commons, which is illustrating some points about collective action and self governance. And out of that, without intending, Elinor Ostrom stumbles upon the issue of resilience. How is that? Long established institutions that have been more resilient than other institutions when she is studying governing the commons research program. So this is the precise point where the commons agenda is transmuted, transformed into a resilience focused research agenda. Unfortunately, that was towards the end of her career. But this is precisely the point, the point where she is looking at the institutional design principles and the various factors which are determining the long enduring institutions. The resilience of institutional structures, dealing with the solutions to the problem, to the commons. This is the transition period. The very moment that Elinor Ostrom got into this space, immediately she restructured an agenda which is looking something like that. I'm going to go fast over it because like I said, I want to prepare the stage for the other two schools of thought. This one is. How should I put it? It's the cutting edge, the way this research program got into the space of resilience. First, Elinor Ostrom adopts the notion and the theoretical framework of socioecological systems. Within that she starts to develop and focus on the social side of it. It's a separated discussion and we might discuss it whether or not that was a fortunate move. But fact is that this is exactly what Eleanor Ostrom has done. She has embraced the already articulated socio ecological systems framework and started to work within it and improve it, especially building up its social sciences aside. Then she outlines the terms of the approach. First, it's an empirical approach. She says. We are going to look at the economic history of the west for economic performance, which means economic growth, economic development, and we are looking to the entire range of cases which somehow might be associated with the idea of resilient institutions for all kind of type of societies. Second, her approach is policy oriented. She encourages scholars to move away from the traditional command and control strategies. Even in the socio ecological systems resilience articles written by Ostrom, she is very explicit about that her concern is of an applied level. It's driven by a policy concern. Third, and very important, Eleanor Ostrom is focusing on the dominant mental models approach. She is not offering solutions or the solution. Her concern is that the dominant mental models assume that solutions to complex problem are best developed by scientifically trained analysts and implemented by centralized national level authorities. She's structuring her approach in this precise way, empirical, policy oriented and within the policy orientation, with a certain concern about changing the mind frames of people, not offering technical solutions, but changing the structure of perception and the conversation. Second, she argues for a need to streamline the technical vocabulary, a lot of words, concepts defining various facets of resilience. And she says, look, we need a better conceptualization. Then we need a better theoretical framework and we need better operationalization. She's starting to work on these lines. She starts to develop a theoretical framework in which she's trying to combine the institutional analysis framework and the kind that she has already developed together with her team in studying the commons and polycentricity to socioecological systems. Then five, she starts to operationalize key entities and links between them. As a result of that, you have in that literature all kind of such attempts to organize in a systematic way links and entities which are relevant for the resilience issue. This is where the agenda was when Eleanor passed away in 2009 with two directions to go. Both of them were already structured by the time. The first direction is to further elaborate the socioecological framework and moreover to elaborate it in an empirical direction by doing and building all kind of inventories of links and factors. And you could see here examples I simply picked up from the papers published in this tradition. So this is one direction, socioecological systems, links and factors. The second one is to focus on specific cases, cases and structure of functional analysis. And here you have specific focus on specific cases trying to understand better the structures and functions and mechanism Here already we have a contribution from the Mercatus perspective where we have a series of specific cases focusing on various facets of the multifaceted phenomenon of resilience. This is where we are at this point. Elaboration of socioecological system framework and the case studies are putting a pressure on us. The conceptual and theoretical apparatus is not sufficient. The theoretical apparatus should be further developed. We have to move the agenda to a second order, to a second level of conceptualization and theory building. And we have only two directions to go. Two sources, two streams are inspiring any possible theoretical development. The first one is complexity theory, theories of emergence, the basic theories that have inspired the socioecological systems framework, Holling, Adger, Falk, Gunderson are the key names here. The second source is mainline political economy. Now, this is not a speculation. So in the next 10 minutes or so I'm going to show that this is not just a statement of intention, this is as fact. The literature on socioecological systems and resilience acknowledges the following thing, that hauling and Hayek coming from two different directions, hauling and Hayek coming from two different directions are creating the foundation for resilience studies and complexity theory. Graham Rum, in what it is probably the best book on complexity institutions and public policy, says the following. Despite the contributions of Caldor, Keynes, Myrdal, cumulative causation, economics without equilibrium, past dependency lockings, increasing returns and so on, it has been with the tradition of Schumpeter and Hayek rather than Keynes and Calder, that these connections have predominantly been made. On the other side, the mainline political economy, we have authors like Koppel or Paul Lewis which are recognizing that the frontier of the research agenda of mainline is complexity theory. And I'm quoting them, and they have drawn their attention to this fact by the same time that on the other side, people are recognizing the duality of the theoretical influences. Now that was the good news. There is another news. And the other news was somehow reflected in this article published by a group of researchers on sustainability from European Large Research center on Sustainability, which they ask the following question, why resilience is not appealing to social sciences. So we see this situation and the question is why? They ask, okay, so things are happening, but we see resistance. And they say that in the end there is difficult to conceptualize and operationalize in social dimensions. In natural and environmental sciences, there is a clash of conceptualization. But let's take a closer look to see what is happening. Because if we take a closer look what is happening, we get an even better sense of how the current landscape is looking in the dimension. Look how they exemplify the problem. Concepts like emergence and self organization are seen as non problematic in ecology or natural sciences. But social scientists, in the minds of many social scientists they are associated with Adam Smith's invisible hand and Hayek's spontaneous order or with rational choice of Ostrom type, therefore neoliberalism. Second, in ecology, natural sciences, function and functionalism are central. However, functionalism in social sciences is still associated with population Parsons and Merton. In the continuity and change structure they emphasize continuity and consensus, therefore conservatism. Finally, there is this misunderstanding that somehow the approach is geared towards homogeneity and consensus, which all we know that this is not the case. But anyway, to make a long story short. Oh, hold on, this is interesting. So these are. I'm going to give you some examples of titles. So this is intuitively neoliberal Towards a Critical Understanding of Resilience Governance. But I'm going to give you more such examples because we are going to the text. In looking at those examples, I'm not going to illustrate this point, but also I'm going to illustrate the magnitude of the influence of the mainstream mainline political economy on this field. So in criticizing. In criticizing or criticizing or discussing the resilience agenda and complexity system agenda, we have this observation. So owing to its emphasis on self organization, it appears that this agenda is aligned with a contemporary neoliberal economics paradigm. This entails a proliferation of market based instruments for ecosystem management. Therefore, bad resilience thinking shares Hayek idea fundamental nobility of the world and then has a radical quest for freedom into a celebration of local knowledge as the expression of ontological unknowability and so on. Another example, Osron. On the one hand we say that institutional lenses are very good because they could provide a linchpin to connect the social with the ecological environmental. But then in the next paragraph we draw attention to the fact that self organization is aligned with rational choice theory as seen in the works of Elinor Ostrom. This is guilty of being methodological individualists, seeing macro patterns as resulting from aggregation of decentralized choices and of seeing economic change as determined by factor costs, land, labor, capital and so on. Resilience is seen by many as an avatar of neoliberalism. The neoliberal discourse of Hayek and Friedman has been the main force driving resilience to its current omnipresence. Resilience is a quintessential neoliberal concept intellectual route situated in the works of Friedrich Hayek Resilience thus is perceived as dominant paradigm and dominated by mainline, what we call mainline political economy, what they call neoliberalism. I'm not taking a position in this outline that I'm given. I'm just illustrating how influential, how important the magnitude of the mainline political economy is currently on the current agenda on complex systems and resilience as an extension at the applied level of complexity and socioecological systems. When we are focusing on the public choice institutional in social processes theory, possible input into the second order theorizing on this research line, we are focusing on something which has already happened is happening. It's not like a wishful thought of ours that we like to advance the agenda into that direction. It is happening. Two observations and two elements for the agenda. The first observation is clear based on the intrinsic logic of socioecological systems agenda. Something pretty much similar with what we have called mainline political economy is required in order to make that theoretical and analytical apparatus work. On the other hand, the second observation is that the intrinsic logic of the main line, Ostrom, Buchanan and Hayek leads to complexity, adaptive system and knowledge and learning processes theoretical lenses. So once we have made those observations, the next step of the agenda is pretty clear. First of all, further advance the intrinsic logic of the main line and continue to develop conceptual structures and theories on that frontier. Second, once we have done that, or while we do that, to provide the missing social element in the socio ecological systems. So this is the agenda and the rest of my presentation, the second half of my presentation, I'm going to focus on the other two angles to the other two schools of thought, which is Austrian and the public choice. By now the Austrian perspective is clear, right? It was foundational through Hayek to this entire research domain, to this entire perspective. So our first step should be to revisit the Hayekian vision and Hayek's contribution as a precursor of the theory of complexity and complex adaptive systems. The very idea of spontaneous order so familiar with us is at the core of this perspective. So just revisiting, advancing that line of research is by itself a contribution to the resilience and complex systems agenda. Actually this is well recognized by the major figures in this field, like for instance, Axelrode draws our attention that the problem of emergent social order and rules, so the role of rules in emergent social orders has already been charted by Hayek. Bryan Arthur Increasing returns and path dependence in the economy draws attention. The fact that Hayek is the one who developed the idea of distributed knowledge and localized interactions that factors in generating path Dependent processes and increasing returns, nonlinear dynamics and emergent behavior. Paul Orman in Butterfly Economics is explicit regardless recognizing that contribution of Hayek. Hayek is a precursor of evolutionary adaptation in social system. Jeff Hudson in Evolution, one of the main evolutionary institutionalist theorists is recognizing and is advancing the Hayekian perspective. Emergence. John Holland in Emergence from Chaos to Order another recognition of a specific aspect of the complexity agenda, which has been inspired by Hayek and which is very important, crucial in this respect. In brief, Hayek has developed the critique and an alternative to rationalist scientific constructivism. And by that, in doing that he has become the foundational philosophical stance of modern complexity theory. And all of us, most of us, are familiar with his well known code, the curious task of economics, which is in a sense could be used as a motto for this approach. So we criticize the rationalist scientist, constructivist, and as a result of that, by implication we have a different agenda. And one of the most important things in that agenda is that an alternative vision of governance is emerging. So I'm going to dedicate a couple of minutes of that because this is crucial. The standard approach to governance is to look at the issues of uncertainty, then try to convert those in risk, convert that into point predictions, and then develop a planning strategy to deal with those. Hayek has denied us, or has denied everybody that path because he is questioning the ability, the knowledge that we have the limits of knowledge, emphasize the limits of knowledge for such strategies. He's pointing out to pattern predictions. But if we are able to do pattern predictions, therefore the way we are thinking about governance structures should be defined by the limits of point predictions and the abilities also limited to generate pattern predictions. Hence, a new approach to governance. What does it mean? It means to make a step back and instead of trying to plan things, try to build up within the system institutional capabilities able to adapt, learn, evolve within the system in order to respond to those challenges. So this is in a sense what at the beginning you remember, we have defined as an antifragility form of resilience. Instead of looking at optimality as the key concept, and we'll see later, Buchanan criticizing this as a means and rationality over defining and restraining our understanding of systems, we should look at resilience. We should look at resilience as a concept reflecting a skeptical view about prediction and control necessary for optimization. Resilience in this approach, aim for institutionalized adaptive epistemic process which is at the core of complex adaptive systems built up for governance purposes. Again, let me say this, we may not like the label this is the phenomenon that we are dealing with irrespective of the labor, the properties of systems or subsystems of structures which are responding to challenges. When those terms is what is at. Say we don't want this language. We may use shackle kaleidic or non erdoic word terminology of Dag north. And there are ways of framing the problem. Okay, so I have offered here a couple of different ways of framing the problem, but the problem is and the solution are pretty clear defined by Hayek. So now we have a better understanding of the second dimension angle of the contribution within mainline political economy and what we have called the Mercatus research agenda and its frontier, the Austria, which is in a sense foundational to the entire, as we have seen to the entire field of socioecological systems complexity and by implication resilience. Now, question is, what is the public choice contribution in this potential public choice contribution to this perspective? Looks like Paul Lewis is here, Roger is here. Looks like that Ostrom and Hayek converge on complexity issues, but we are a little bit reluctant, right, to think in terms of public choice so easily converge on those lines. So the rest of my presentation, and actually the focus, main focus of my presentation is to try to offer you a possible approach or interpretation of the public choice contribution to this research frontier. I have identified four dimensions or four areas. The first is simply to go back to the basics of public choice, apply economic reasoning to non market settings. Resilience is a non market setting. The second is to populate the social and socioecological systems with models, theories, insights, social mechanisms that we have identified and explored in public choice theory over the last 50 years or so. Again, intuitively clear. Third is to draw your attention to a very important concept, symbiotics, developed by Buchanan in the context of him investigating and questioning what should the economists do? Already you are seeing how symbiotics. Those of you who remember that, I'll go back and I'll explain, but you see how things are structured. Finally, constitutional political economy as a project is crucial in this respect. And the relationship between the realm of the artificial or the artifactual and evolutionary processes negotiating between those two is constitutional political economy. Let's take them one by one. Like I said, this is the core of my presentation because I think that this is a low hanging fruit and this is where the frontier, currently the hot things on the frontier is application of basic economic reasoning to resilience. One of the easiest things is to simply go back to the comparative economic systems textbooks. You see those people in comparative economic Systems has tried to develop the idea of, let's say, static efficiency, dynamic efficiency and so on. We could simply look there and see what they have done for those concepts as institutional or economic performance criteria or structural features and to do the same thing for resilience. For instance, all of us, we are familiar with Schumpeterian and Krishnarian entrepreneurship tendency towards equilibrium, breaking an equilibrium kitchenary entrepreneurship tendency towards an equilibrium. Right. Schumpeterian breaking an equilibrium and redefining the production possibility frontier to a new level. Well, this sounds familiar. When you're thinking about resilience, it's bouncing back and it's anti fragility. There should be something there in terms of using analogical thinking to further develop by simply extending our understanding of other institutional performance criteria or structural criteria to resilience. But this is just the beginning. Public choice and the application of economic reasoning is about trade offs, right? Basic trade offs, comparative institutional analysis and trade offs. One of the most striking things in the last 10 years or so. But yeah, even is the trade off between resilience and efficiency. The trade off between resilience and efficiency was for instance striking during the COVID crisis when we have discovered that we try to optimize for efficiency supply chains and in doing that we have made them very vulnerable, non resilient. And the list could go on and on. So we have this trade off space which is basic public choice in which we could investigate sometimes under the logic and pathologies of interventionism, the various trade offs between resilience and efficiency. But that being said, we could make a step even further. What happens if the relationship between resilience and efficiency might be defined structure under different functions, like for instance in this case, pick up this case of inverted U curve in which efficiency and resilience go together up to a point and then increases in efficiency might lead to a collapse in resilience. Very interesting applied question, very interesting to investigate the this specific system, that specific system and the various functions and various relationships. Again, we have a huge list of possible relationships between the two. Not only that, what we have just done for resilience and efficiency might be done for other institutional performance criteria or structure criteria like equality, like we like it or not, freedom or liberty. What is the relationship? What are the trade offs? What is comparative analysis in the context of this type of approach is public choice. It's pure public choice at its best when you are situating it in the context of analysis. But things could get even more interesting. Up to this point we have looked at the resilience on the one hand and different efficiency, social justice, other criteria of institutional performance. We could unpack resilience and to discover something fascinating. If we look at the resilience and take a closer look analytically at resilience, we discover that under the definition of resilience, we have two hidden aspects, the disruption and the persistence criterion within the system. This is huge because all of a sudden, if we introduce that nuance, we discover that there is nothing like universal resilience. The definition of resilience should be always calibrated to a specific disturbance and to a specific persistence criteria. In other words, there are multiple resilience metrics, there are multiple resilience dimensions and even one system. Okay, resilience is context dependent under these specific definitions and two major implications. To compare resilience between systems is not just to compare resilience in general. If you want to make a systematic comparison, you look at resilience in system A under specific persistence criteria and on a specific disturbance and resilience in system B under the same specific criterion and disturbance. Even more interesting is the fact that there are trade offs between different types of resilience. It's not just trade offs between resilience and other different systemic criteria, but trade offs between resilience. Now, example depends very much on how the disturbance, the nature of the disturbance, is located in the social or natural space. If it is located under a normal distribution, then you have a specific type of resilience and response to resilience, which is very close to the average, to the mean. If you have on the other hand, a power load distribution which entails a long tail with major events, rare but major events, different major events which undermine the system, then you have to think in terms of power law resilience. And that has implications for what it is called the highly optimized tolerance. In other words, you have to think about how you calibrate your approach to making the system resilient in terms of either going in the direction of a normal distribution and much more predictable, or in the direction of the long tail. So again, trade offs, this is public choice. This is about how you organize the institutional structure. We can make a step further. So far we have seen two things. First, that we applied the basic economic logic in non market settings, and then that we could do that by looking simply at trade offs and the logic of trade offs in comparative analysis between resilience and structures related to resilience. But we could add another layer, and this is also related to the strategy of populating the social space in socio ecological systems. Which means to take the entire theoretical apparatus of public choice and use it and inject it into sociological. I think that. And again, this is a proposition, this is a suggestion. One of the best ways to do this is to take polycentricity, which comes not just with a vision but with the entire theoretical apparatus, public goods trade offs, TIBU effects, the transaction cost and so on, and use it as main vehicle socio ecological systems. That I think was the direction that Elinor Ostrom was going to. Why she didn't take from the very beginning polycentricity as a structure and inject it straightforward in socioecological systems and try to use for instance, the concept of panarchy used by the complexity people in order to create a sort of hybrid structure. I don't know, we could speculate about that. But I want to take the story from that counterfactual and show you how I think that this could be done. In order to do that, I'm going to introduce a concept, interoperability. Getting closer to one of the main points that I would like to make during this presentation. How do we think about interoperability? Think about two systems. This case, let's say railroad system in Russia or Soviet Union, with this specific infrastructure governance and a specific distance between the gauges and the railroad system in Romania, which has different gauges, different infrastructure, different regulation. Those systems become interoperable when at the boundary between the systems, the two governance system, in this case Russia and Romania are organizing an interoperability point which makes the transfer easy. This is a dyad. Think of a triad. Bulgaria, the same problem, the same difference. Romania makes the interoperability point at the boundary between Bulgaria and Romania. By implication, that means that now Russia is interoperable with Bulgaria. So interoperability captures the logic of transitivity in complex systems. We could generalize and we have there the formula with its implications. In a network of N systems, transitivity allows for the emergence of a complex, comprehensive interoperability framework. And this is a bottom up approach. The implications are formidable, I think, for the way we are thinking about polycentricity. Why is that the case? First, all of you at this point being good political economists, already started to think in terms of okay, so everything depends on how much it costs to create the interoperability interfaces between the systems. And this is exactly the case. We have a structure of interoperability costs which is determining the structure, intensity and complexity of a polycentric system. You see? So interoperability costs go up, interoperability goes down, polycentricity goes goes down. But we are all familiar with this logic. This is the logic of transaction costs. So all we have to do now is to apply from the structure of the market, the basic moves and approaches that we have learned in transaction cost economics, to governance systems in polycentric structures. And we have already a structure which is based on cost and choices for analyzing polycentric systems. So we have a new key, a new way of understanding polycentricity, which I think is avoiding the dead end in which most of us went by following the Vincent Ostrom definition, which used the overarching system of rules as the safety net and the backup for our explanations of the functionality of polycentricity. So what is sports centricity? We learn by Harda, it's an overlapping competing system which is operating under an overarching system of rules. And then we stop thinking. But if we are instead of looking at the rules and are looking at interoperability, we have a totally different understanding of this. The overarching system of rules is just the extreme formula of interoperability, where interoperability has been totally systematized and synchronized for all the units in the system, you see. So with that we avoid the most important trap of polycentricity analysis, which is to be considered just one version of overlapping consensus approaches. Overlapping consensus, like the Rollssian perspective, the perspectives which assume that there is an over convergence vision on rules and values in order to make a system operational. Interoperability is demonstrating that you could do a bottom up approach in complex systems which remain heterogeneous, and yet you could have polycentricity in such systems. This vision converges with James Buchanan Agenda on Increasing Returns. That was one of his last projects focusing on increasing returns. Buchanan says something like this. Look guys, for all its major analytical achievements of neoclassical economics, they abandoned the central principle of Adam Smithy's wealth of Nation, which stressed the importance of division of labor and its relationship to market size as primary determinant of economic well being. The neoclassical approach put a static framework and left no room for direct linkage between policy action on the size of economic nexus and the rate of growth. So his goal was to revive the Smithian approach on these lines, which meant a theory of increasing returns. And actually he called it a generalized increasing returns theory. But now we see it. So once we have introduced the increasing returns perspective with interoperability and the transitivity, we have a unified perspective both on market processes, division of labor, specialization, size of the market, intensity of exchanges and polycentricity. Now we have a unified framework, we could see how they are operating under the increasing returns and under the transitivity principles and everything that is implied under that framework. Obviously market settings, non market settings, but the structure is unified. Why? Because the phenomena have something in common. Polycentricity has this aspect of increasing returns and network effects. Market has those structures. We have an explanation of bottom up emergence of patterns of orders, which is not just hand waving, but it's operational in terms of looking at the structure of costs and trade offs and incentives which are determining the two. And finally we have a structure which is explaining adaptive scaling, division of labor, specialization, polycentricity, scale. We have a common structure for that. So also this structure allows us to look at something that we should be putting on the table in our conversation, because we are talking about interdependence and we have already mentioned the trade off between resilience and efficiency and the supply chains and so on. There are some aspects which are creating vulnerability in interdependent systems. But now we have an instrument to analyze that and we are able to make the junction with organizational sociology studies, like for instance, Pero's study of normal accidents, just briefly, to remind you what is happening. So Pero creates a structure of analysis in which it says, look, it's a two by two matrix, a space. Define on the one hand the complexity of the system, linear relationships, nonlinear, complex. Then systems on the other dimension could be tight coupled or loose coupled. When you have complex systems strongly tied up in an interdependent structure, you have a problem. You have a problem because there might be cascading failure which is generated in the system. But also you might have a problem because you might have what he calls normal accidents, which is accidents happening not because of a failure or a shock from outside, but because in the normal functioning of a complex tied system, statistically speaking, a combination of variables might combine in a certain way in which it's generating a failure in the system. Again, now we have an analytical tool looking at interoperability and the structures of polycentricity and the public choice, technical apparatus, looking at public goods, looking at asymmetric information, looking at rent seeking, if you want, in order to explore these kind of things, both the positive and the gains of functional interdependence and the negative, the drawbacks of interdependence. You see now that the concept, once we put on the table the issue of interdependence, the notion of symbiotics developed and advanced by Buchanan makes sense. And what should the economist do? He says, look, I don't like. He's criticizing the means, hence rationality, the optimization stuff. And so on and said, look, I don't even like the name of economics. If I were for me, I would give up economics. I would given up even political economy, even if this term is better. Instead I should use catalactics or even better symbiotics association, defined as association between dissimilar organism in the idea that they are mutually beneficial to all parties. Unique sort of relationships between structures, organizations, individuals, entities which have different interests. So catalytics from Buchanan, from Hayek is resonating with this. So it's convergent with the main line in terms of symbiotics, cataracty, polycentricity seems to be concepts to try to capture the same reality. As you could see at the core, but also at the margin of this approach, when you have entangled political economy, Dick Wagner or robust political economy, Pennington. These ideas emerge in a natural way within this research framework, within tradition, within this perspective, we have an approach emphasizing complexity amidst interdependence. It's very reluctant to embrace optimization and efficiency 100% other than from instrumental reasons. All of them are very reluctant to do that. Also they are thinking about the relationship between evolving social artifacts, constitutional structures, institutional structure and evolutionary processes. In addition to that, there are two other properties or features of this convergence of this space, which is they highlight the significance of belief systems, of values, mental models and shaping social order. And they all of them incorporate normative analysis. And this is the very idea of constitutional political economy, science of the artifactual or constitution of liberty. A strong position on normative issues implied in the approach is not just the analysis of the institutional architecture with the constitutional level, operational level, public choice level, but also the problem of values and norms. Obviously positivism is rejected in this getting close to wrapping up, we go back to the socio ecological system. Remember that we started here, this point we need to elaborate the framework and we need to elaborate case studies. That puts us a pressure to develop a second order conceptualization. And that puts us in the position to delve deeper into this tradition, complexity theory, panarchy and so on, and mainline political economy and try to build up a synthesis between those. I've seen that resilience leads to a paradigm, to a paradigm in which we are focused on this tension, on the one hand between the domain of the artifactual, it's Herbert Simon science of the artificial and the domain of the evolutionary processes. This is exactly what these people are saying. I picked up two quotes. You would expect that Hayek obviously is on the evolutionary side. You would expect that Ostrom, Vincent Ostrom is More on the artifactual side. But look at them, what they are saying. So Hayek is saying that while the rules on which spontaneous order rests, they might be of spontaneous origin. This need not always be the case. People gradually learn to improve those rules. And it is at least conceivable that the formation of a spontaneous order relies entirely on rules that were deliberately made. This is Haik. On the other hand, you would expect that Buchanan that the Ostrom is would be more on the artificial side. But in this code here he is actually articulating an argument for co evolution between the space of the institutional artifactual and the evolutionary processes. Let me finish going back to the normative vision, because I think that it is very important. People doing socioecological systems, people doing resilience are always convinced. Or maybe I'm overdoing it. Not always convinced, but many of them seem to be convinced that they're able to unlock a positive science of resilience and systems which somehow is able to overpass the normative dimension. But this is not the case if we are taking seriously the mainline perspective. So picked up, for instance, Hayek drawing our attention that the argument for liberty, which is a normative position right. Is not an argument against organization, but it is against a specific type of organization which is based on coercion. Picked up this code from Buchanan, which is a position on the primacy voluntary. He says, I don't care how people are going to organize, as long as they are going to organize on a voluntary basis. They might decide to do things collectively, they might decide to do the other way. So the analysis as such is neutral in respect to the public private structure of organization. Elinor Ostrom is expressing this normative position when she is overviewing the workshop history and what the workshop Bloomington workshop has done. She says, look, complex adaptive systems involve learning. The role of knowledge is fundamental in this respect. What we are doing at the workshop is deeply rooted in the central tradition of human and social sciences. How can failable human beings achieve and sustain self governance entities and self governing ways of life? Similar questions were asked by Aristotle, by Madison, Hamilton and Tocqueville. Our greatest priority, she says at the workshop was precisely to produce this kind of knowledge and to impart it in the scholarly community to entrepreneurs, decision makers. If we failed in this, all other investigations and theoretical efforts are useless. And I'm going to end up with a code form the person which I think saw the best this space that I have just described, which is Vincent Ostrom, who reminds us what is at stake and what is at stake is something which has already been captured by the Founding fathers in the Federalist Papers, a quote very dear to Vincent. The question actually whether societies of men are really capable or not of establishing good government from reflection and choice. And Vincent says, look, it remains to be seen if people are able to use such methods of discussion, reflection and choice to fashion the future course of human civilization. So what is at stake? The future course of human civilization. And it remains to be seen if we are able to do that. But Vincent says it might be a moment when new patterns of communication and interactions will emerge and spread. With the emergence and spread of those new patterns of communication and interaction, new opportunities for reflection and choice will emerge. And as a result of that, the institutional possibility frontier will shift. And then he says, you know what? There is always the potential of failure. But at the same time, precisely because of this possibility, there is a chance to actually advance the frontier of a society or a civilization which is based on reflection of choice, which will not be confined only to the exigencies of accident and force. So I think that a lot is on the table when we are talking about the mainline political economy and the agenda based on resilience. We have seen in our journey, in our overview of this field, how resilience may be a vehicle. Resilience might be a new theory of governance, resilience might be a systemic feature, resilience might be a new paradigm. Whatever the perspective that we are taking, we are discovering the importance of this concept. And not so much the concept, but the kind of phenomena and the challenges that are captured by it. So this, I think, is one of the most interesting and important frontiers of mainline political economy and of the research agenda that we are developing at Mercatus. In our opening conversation for this event, which, as I have mentioned, is a meeting of an intellectual community, of a network of scholars exploring these issues from different fields. The organizers have thought that maybe it is one best ways of opening the conversation by simply sharing with you the research frontier that we are trying to advance here and to ask you to join us to further advance it in the intellectual division of labor. Let me stop here now that we have question and answer section, and let me take it from there. Thank you.
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