WP – Co-evolution of Institutions as Complementing Change Management

Change management in emerging markets is best done through the co-evolution of institutions with appropriate technologies derived through innovation systems that are germane to the Philippines

(Updated 8.3.11)

Working Abstract.

Co-evolution of institutions is a key component of the SYNTHESiST development framework.

A complementing co-evolution of institutions supports the innovation systems among firms and sectors of the local ecosystem to capture the expected higher value-adding potential …

Placeholder for an abstract to be completed soon.

Defining the right and realizable goal for the whole nation, selecting priority milestones and designing a change process that gets every citizen to participate in attaining the goal is a real challenge.

This working paper focuses on co-evolution of institutions as the necessary complement to innovation systems in any push for development.

As work-in-progress, my working findings indicate that social enterprise is the emerging vessel for that complementary techné delivered by innovation systems.

SYNTHESiST case studies of social enterprises in the Philippines.

• Rags2Riches – Reese Fernandez Creates Value from Creativity – June 21, 2010. Subsequently, Reese Fernandez won as one of the Ten Outstanding Women in the Philippines for 2010 and married Mark Ruiz.
• Hapinoy – Mark Ruiz Retails Sari Sari Happiness to Filipinos – June 28, 2010. Bam Aquino, Chairman of Microventures, Inc that manages Hapinoy was one of the 2010 Ten Outstanding Young Filipinos.
• CARD MRI Fosters an Army of Entrepreneurs with Microfinance - November 21, 2010. CARD MRI is a winner of the Ramon Magsaysay Award in 2008.
• Appropriate Technology by Jim Ayala and HYBRID Empowers the Poor – March 7, 2011

Meta-institutions helping the development of social enterprise.

• Institute for Social Entrepreneurship in Asia (ISEA) – June 23, 2009
• Ashoka: Innovators for the Public – January 17, 2010. Reese Fernandez used to be associated with Ashoka. Jim Ayala has links with Ashoka through McKinsey from which they share experiences as alumni. Ashoka requires that funds must be generated locally and has been more active in other countries than in the Philippines.
• Ateneo School of Government
• Philippine Rural Reconstruction Movement

Selected readings from SYNTHESiST posts.

• Nestle Embeds Sustainability into Strategy through CSV – Creating Shared Value – March 30, 2010. CSV is a pioneering idea from Michael Porter from 2005.
• Subsidiarity as a 120-Year old Innovation from Rerum Novarum – November 29, 2009. Subsidiarity survives as a core concept behind the European Union that gives comfort to member-nations who join and give up partial sovereignty in monetary policy.

I have written this page on co-evolution of institutions as complementary change for development in emerging markets to frame and link blog entries written in the past 22 months (from the starting point of the Philippines’ case).

In a blog like SYNTHESiST, posts contain time-sensitive entries and are logged as in a diary while a page like this for Change is more constant over time and is lodged, with its companion Innovation Systems, in the Navigation line above.

Change Defined. Not surprisingly, Change is a complex word with many meanings and uses. Between its transitive and intransitive sense in grammar alone, it already takes a varied texture. So, rather than give an explicit definition, I prefer to let the page and the posts referred therein that I have done over the past year to define Change.

The intriguing picture of the Romanesco broccoli (Brassica oleracea) above and its growth through naturally occurring fractals seem a proper illustration of disciplined and path-dependent yet chaotic change in innovation space.

Bookends. Karl Popper’s two books, The Open Society and its Enemies (1945) and The Logic of scientific Discovery (1934) seem like fitting bookends for this essay on Change.

The two books cover the full range from (a) innovation derived from or based on technology to (b) change in purposed systems like institutions in the political economy that I have denoted as the domain of SYNTHESiST.

As bookends, the books provide a skeleton that supports, positively or in opposition, the ideas I am developing in SYNTHESiST. Being an engineer rather than a scientist, my inclination is for what works rather than only accepting inputs and outputs that can be positively observed by the senses.

One Bookend. The Open Society and its Enemies (1945), set in Greece around the time of Peloponnesian War in late 400 BC, describes the transition many emerging markets like the Philippines, are still undertaking today. That is about 2,400 years after Plato saw the risks to his cohort from Open Society, the same risks present national elites see in opening up domestic economies to competition and change.

Plato justified, through the Dialogues, a return to his ideal of a Republican aristocracy – also Popper’s closed society, the tribe. Plato’s justification – against degeneration, i.e. corruption, rather than positive action to external changes – is similar to that used at present by reactionary national elites of all stripes and colors in the Philippines to defend the status quo from the effects of liberalization and structural change.

When maintaining the status quo benefits these elite more than they do the nation, then these elites action is akin to lack of patriotism, an absence of love for and an injustice against the fatherland.

This delay in correcting a clear injustice, measured against a more modern concept of happiness, speaks more about the weakness of institutions in the country – than a damaged culture, as some foreign writers claim without proof – albeit a weakness fomented by the enemies of Open Society that survive, to this day, in the Philippines.

Happiness for Plato. Karl Popper closed his book with a chapter on the Open Society by writing about how Plato (through the Socrates dialogues) treated happiness as the goal of any society.

Popper writes that Plato uses happiness, in a technical way as a “plan for building of a perfect state in which every citizen is really happy.”

Unfortunately, Plato defines happiness differently from you and me.

According to Popper, and I quote lengthily:

Plato’s treatment of happiness is exactly analogous to his treatment of justice; and especially that it is based upon the same belief that society is ‘by nature’ divided into classes and castes. True happiness (Cp. Republic 419a), Plato insists, is achieved only by justice, i.e. by keeping one’s place. The ruler must find happiness in ruling, the warrior in warring, and, we may infer the slave in slaving.

My Definition of Happiness. In today’s world of enabling science and technology, increasing returns from network effects and dominance threats from economic rather than military hegemony, happiness involves being able to do what one wants or having the opportunity to work towards that want without impinging on other people’s right to also do what they want for themselves and without being burdened unnecessarily by an inefficient and free-loading political machinery of often a dysfunctional government.

In modern times, dynamism is key even among communities and nations. From a combination of competition and collaboration, whole nations need to sprint just to stay in place. Plato’s return to the tribe and an aristocracy from inheritance or connection is obsolete.

The success of China after 1978 when Deng Xiaoping innovated on socialism with Chinese characteristics and embarked on a future path as “crossing the stream by feeling the rocks (摸着石頭過河) and the fall if the Berlin Wall eleven years later, in 1989, with West Germany and its social market economy (Soziale Marktwirtschaft) as the surviving state reinforces the modern idea that nations must balance social objectives with the need to provide diversity and incentives for innovation and entrepreneurship to achieve this goal of happiness for its citizens.

With patriotism as a motive force for a strong nation, Japan, South Korea, Taiwan and Singapore have also delivered to its people.

For Filipinos today, I translate a minimum definition of happiness – the questions do not ask about political freedoms but assume a level consistent with constructive diversity for successful development – through a set of Socratic questions (as our milieu in this page is ancient Greece) among others that demand an emphatic yes for an answer:

• Is the Filipino able to find gainful work close to the bosom of his family, the basic unit of society as enshrined in the Constitution?
• Is he able to send his children to good schools so that they are able to compete in the work marketplace of the future?
• Does he have the right to attain good health, if he chooses, and healthcare if he gets sick?
• Is he able to save his peso so that it is protected from loss of value by inflation or from devaluation, the boom and bust, against the currencies of the world?
• Does he get full value in terms of infrastructure and public services from the tax pesos that he pays?
• Does the public space given enough incentive for private innovation and entrepreneurship to succeed based on hard work and excellence or is it stifled by the burden of free-loaders and blodgers who make a living by kotong on others?
• et cetera…

In Plato’s time, some Athenians, actually connived with their enemy, the Spartans, to work for a return to a closed society, its Form and Idea – a Republican aristocracy.

According to Popper, Plato believed, well before the synergies and increasing returns of the present, that societies were on a one way route to degeneration from the first Form and Idea of a Republican aristocracy.

The bottom for Plato’s concept of degeneration was reached only in 1610, about two thousand years after the Dialogues was written, when Galileo Galilei invented a working telescope. Galileo was able to prove the Copernican theory that the Earth revolved around the Sun.

For his efforts, Galileo was excommunicated and placed under house arrest until his death at age 77 in 1642. The tribal aristocracy so feared the effect of his ‘heresy’ on their leading status. And they were right to fear as the advent of science did upend so many traditions.

Galileo’s books were banned from reprinting until 1741, about a hundred years after he died, when incontrovertible evidence proved that, indeed, the Earth revolved around the sun.

A trivia from Wikipedia: “In March 2008, the Vatican proposed to complete its rehabilitation of Galileo by erecting a statue of him inside the Vatican walls.”

From Galileo, science and technology led to the Renaissance and the Industrial Revolution. Eventually, starting with railroads and the telegraph, networks and new science and technology allowed for synergy and increasing returns through the present day.

A final Socratic question for the candidates in the 2010 automated elections: Does any candidate answer the questions above in his platform of government? If not, then they are among those who wish for a return to a closed society.

The Emerging Markets Change Process. With the appropriate goal for change above, the next step is to decide on the process of change.

Below is a placeholder for a framework of topics and posts in SYNTHESiST that comprise the process of attaining the goal of happiness above. At the moment, what I ave presented are options. It is still a work-in-progress that will take revisions in the near future. Tough choices need to be made.

[This is a placeholder for relevant Change topics as below.]

Approaches.

• Bengt Ake Lundvall describes a National Innovation Systems as the continuous interaction between learnings from science and technology (STI) and competence-building from doing-using-interacting (DUI). The technologies identified and implemented are specific and appropriate to each emerging market.
• New Institutional Economics – Ronald Coase, Douglass North, Oliver Williamson, Elinor Ostrom – provides the corpus for social innovation.

  Professor North has a different take on social innovation as evolutionary change – not the physics-modeled path-dependence of electrons like billiard balls nor the environmentally-selective mutations of DNA. The intentionality behind human social behavior dictates a different framework of institutional evolution that is not inconsistent with co-evolution as described by Nelson and Winter (1982). I take his adaptive efficiency for institutions as the equivalent of co-evolution.

• Richard Nelson. Co-evolution of institutions and industry/firm structure is social innovation characterized by interactive that occurs with technological changes and innovations. In his appreciative theorizing, it is apparent that social change in institutions and structure are as much to account for successful innovation as movement along the technological trajectory contributes.
• Kurt Lewin. Field theory and the traditional change process of Defreeze-Change-Freeze. Defreeze reminds me of the hectic first three months in my two year MBA at the Asian Institute of Management in 1986.
• John Kotter. Social engineering from above with strong leadership and a sense of urgency. Typically, a useful tool for unconstrained and generic improvements, growth or efficiency programs.
• Pascale and Sternin. Positive Deviance and indigenous change from the ground up. A great technique for resource-minimal, last-three-percent social change or when one is painted to a corner.
• Peter Senge. Archetypes in systems thinking for a learning organization.
• Benedict Anderson. Creating national momentum for change with imagined communities.

Methodologies.

• Kathleen Eisenhardt. An inductive approach from clinical cases to scientific theory
• Paul Romer. Folding endogenous technological change into mainstream economics
• Arrow, Rosenberg, Lundvall. Learning by doing, using and interacting for competence-building
• Genichi Taguchi. Points are not of equal value within the average range. Experimental design and Taoist wuwei
• SYNTHESiST’s Proposal. Appropriate technology from Scan-Adapt-Diffuse technique
• Counterfactuals and randomized controlled trials (RCT)

Models and Frameworks.

• Thomas Kuhn. Paradigm shift in scientific revolutions
• W. Brian Arthur. A taxonomy for technology evolution
• Everett Rogers. Change in the diffusion of innovation
• Nelson and Winters. Appreciative theory to path dependence
• Elinor Ostrom. Collaborative management of common pooled resources (and public goods?)
• Lundvall and Freeman. National innovation systems (and for small learning economies)

Exemplars.

• Yoshida Shoin. Choshu samurai and the Meiji Restoration (T. Huber)
• Wang Yang Ming. Instructions for Practical Living (Wing T.C.)
• Apolinario Mabini. Pragmatic idealism (C.A. Majul)
• Steve Jobs. Apple’s products as cases for grounded theory on path creation.
• J. Craig Ventner. His basic research on molecular biology as cases for grounded theory on path creation.

Case Studies.

• The Communist Experiment
• Deng Hsiao Peng. China is crossing the river while groping for stones
• E.F. Schumacher. Appropriate technology where small is beautiful.
• Ludwig Erhard. Social market economy balances social goals with freedom and incentives technical progress
• Implementing change. Lessons from the 2010 Philippines automated elections.
• Learning from small, developed countries. Singapore, Taiwan, South Korea, Denmark, Israel and New Zealand
• Learning from other emerging markets like China, India, Malaysia, Thailand, Indonesia and Vietnam.

The posts noted above address the complexity of managing change from the identification of the appropriate goal of happiness to the process that will take us there.

Technological innovations and in purposed systems, to be appropriate, must lead to this happiness by whatever means.

The Other Bookend. In this book, Karl Popper introduced the idea of falsifiability to segregate scientific statements from non-scientific ones.

Falsifiability, does not mean in error, it merely means that a scientific statement can be proven false. This concept is different from logical positivism that requires a test of the senses as proof.

The concept is harsh and sets too high a bar as many philosophers noted.

I guess Popper’s book is concerned more about epistemology than application. It may apply to basic science research that lies at the root of innovation in the developed world.

As I have implied before the first bookend, I do not mind a first stringent screen of falsifiability but, as an engineer concerned with the techne of the real world, I can tolerate the test of, “What works?”

While popper has said he does not agree with positivism, his standard of falsifiability implies, to me,that no truth can really be established by either inductive or deductive methods.

By my test of “What Works?” therefore, technology innovation in emerging markets, as learning or as tool, is good if in the space that it is applied it is useful; the important thing is constant improvement to approach the truth. Note: Inductive methods are often more appropriate for social innovation.

Hence, having been pressed for a label, I flippantly said, “practical positivist!” whatever that means.

Cyclical play between basic and material science. Typically, progress in scientific knowledge moves cyclically together with material science, i.e. the development of instruments to properly measure experimental results as in our Kuhn and Galison post on March 5, 2009.

In a subsequent post on January 5, 2010, I proposed an innovation strategy for emerging markets based on the above constraint as to level of scientific knowledge on hand and of sophisticated material science. Together with such constraints as financial resources and closeness to market, I propose an approach that suits emerging markets.

The change process to be adopted in emerging markets must consider these constraints.

Change in the Emerging Market. For us in the emerging markets, the appropriate focus is the adaptation and diffusion of proven science and technology including the co-evolution of politico-economic institutions germane to the change in technology.

In a sense, Newtonian physics or chemical reactions are all that we can measure and (shades of positivism) all that we can implement. We are not at the edge with the Hadron collider or even have a machine to measure enzyme activity in the whole country.

Of course, we are aware that standards concepts like falsifiability exists but we limit our rejection of science and technology metrics in Euclidian or laboratory measurable space – a practical positivism and falsifiability. Not science but adapted technology.

There is a big enough room for the technique of scan-adapt-diffuse and for technology enabling. Paradoxically, as we in the emerging markets have more people at the bottom of the pyramid, we have the laboratory on the ground to mash-up proven technologies and path create in areas like mobile phone banking where, indeed, the Philippines is a global leader.

Having a modest technology goal and managing the corresponding change via co-evolution of institutions and industry/firm structure to achieve the highest happiness for the most people, that is the mantra for change management in emerging markets.

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