Complexity

As has been shown, current Australian public policy debate is constrained heavily by a belief on the part of many participants that there is some acceptable theoretical basis for determining the role of the government, or that such a basis is attainable. The very language of the discussion contains this belief. An artificial dichotomy has been envisaged between the market and the State, which fails to recognise the interdependencies within our economic system and the role of the State and the social system more generally in underpinning economic activity. It is a dichotomy based on an idealised conception of markets that is grounded neither in fact nor in credible economic theory.

The claims of neoclassical economics to intellectual rigour are also subject to innumerable challenges at a more detailed level. In response to these detailed attacks, many economists have insisted that critics provide an alternative theory. In doing so, they have not realised that metaphors play the key role in theory formation. Consequently, they have not understood the extent to which their economic thinking has been bounded by the Newtonian metaphor, and by their search for natural laws of the economy analogous with those of mechanics. They have assumed that economic phenomena can be treated as if they are natural phenomena, caused by natural forces, and not social phenomena, the result of social invention and institutions. Running through the history of this economic thought is a persistent effort to evade responsibility for the outcomes of the economic system—a responsibility that would have to be faced were the idea of natural law to be abandoned. In the process, economic theory has been emptied of its historical and social elements. Nor has economics faced up to the normative judgements involved in the choice of metaphors and the extent to which they can serve to legitimate the existing social order and the privilege of the commercial and policy elites.

Since the Enlightenment, the physical sciences and the reductionist method have established priority over other ways of knowing because of their ability to produce reproducible results, accurate predictions and plausible explanations. This form of mastery is, however, unlikely to be achieved of systems as complex as the social and the economic. In any event, given human freedom of action, there is no prior reason to believe that society will exhibit the types of natural regularities seen in the physical sciences.

Part of a search for a better understanding must be the recognition that we are part of an indivisible totality that we—in all our complexity and diversity—have a share in creating, in partnership with our ancestors. Important support is given to a new holistic approach to economic speculation by the new science of complexity. Complexity is not simply a new reductionist model, but a new way of looking at the world, which attempts to deal with the interconnectedness, interdependence and non-linearity of systems.[39] Such a complex system cannot be understood through reductionism, as the whole is greater than the sum of its parts. Real complex systems cannot be modelled successfully mathematically because of the extraordinary difficulty of the mathematics involved, and the radical differences that small differences in initial states can make. Furthermore, there is a mismatch between the ontology assumed by mathematics and the ontology of social systems. The way ahead is not through the reductionist approach and a more refined Newtonian model. There is a fundamental mismatch between our predominant ways of thinking about reality derived from the Enlightenment’s scientific tradition and the nature of reality in a complex social system.[40]

Arthur has argued that the alternative to the Newtonian model is Taoist. It involves the recognition that there is no inherent order underlying economic phenomena. Consequently, our economic institutions are matters for social choice; and we have to learn to live with the relativism and circularity that this involves. As Arthur explains, ‘The world is a matter of patterns that change, that partly repeat, but never quite repeat, that are always new and different.’[41] There is no perfect system to be discovered, no magic word that will remove our responsibility for each other and ourselves. This involves abandoning the idealisation of THE MARKET that is at the heart of economic fundamentalism.

What this means for policy is that there is no one correct approach to policy or to organisational arrangements. Just as biological organisms have evolved a bewildering variety of systems, it is reasonable to expect a wide variety of approaches in social organisations. Such variety is not to be despised; rather it is to be valued as it could reflect subtle or even coarse differences in the environment or a degree of ‘indifference’ between approaches. Secondly, complexity in environmental circumstances could be so great as to defy analysis. It is not possible in principle to list in order of importance the influences affecting a complex system. History cannot be ignored. It shapes the evolution of a complex system and, consequently, a complex system cannot be understood in isolation from its history. Similarly, the state of ‘fitness’ of an organisation cannot be determined by reference to crude reductionist criteria, but could, perhaps, be reflected in broad measures of confidence and happiness, which reflect some common judgement.

The ‘organisational capital’ of such a system is not primarily in its physical endowments but in the complex network of relationships formed within that system and the knowledge held within that network. Our evolved institutional arrangements—ethical rules, legal rules, conventional ways of behaving and popular culture—are all part of the organisational capital of our system, are critical to the effectiveness of the system, cannot be ignored and need constantly to be renewed. Such values assume critical importance. One of the features of complex systems is that they emerge at the edge of order and chaos. Consequently, they can be highly unstable. Fundamental changes in the values and rules that underpin our society—of the type advocated by economic fundamentalists and, to some extent, implemented in Australia in recent times—could therefore have unforeseen and radical implications that we will all regret.

An inability to deduce an appropriate theoretical framework does not, however, reduce us to impotence. It does mean that there is no alternative to experimentation. Nor are the criteria to be applied in assessing those experiments written in the heavens. Therefore, a balanced approach would not be one that rules some classes of government action as inadmissible on theoretical grounds, nor would it suggest that all possible government action would be beneficial. The experiments need not be all ours. Rather the way ahead should be characterised by a more careful examination of the models and approaches used elsewhere, and a more careful examination of the policy problem. Effective policy design has often been seriously inhibited by too much ideology, with too little attention to the practical problems of policy implementation and behavioural change.

In framing practical policy, the important question is ‘What works?’ The question cannot, however, be asked in isolation from our moral, religious and political traditions. The answer is to be found more in experimentation backed by empirical investigation of the consequences than in theoretical knowledge, a priori reasoning and high-level abstraction. It involves substantive moral judgements and moral sensitivity, not formal logic. It follows that the policy development process should properly be seen as pragmatic, eclectic and political. We should acknowledge that public policy decisions legitimately involve balanced judgements involving potentially conflicting criteria—not a departure from a postulated market ideal for ‘illegitimate’ social and political reasons. It should encourage a much closer examination of the environment, a much closer examination of policy approaches that others have employed along with an assessment of their impacts and a willingness to engage in careful experimentation in the full knowledge that we will, from time to time, make mistakes. We also need to recognise the limitations of past policy development processes and to commit ourselves to changing those processes.

While structures are very important, their effectiveness—and the effectiveness of public and private networks—depends ultimately on trust. Economic fundamentalism has neglected the essential contribution that moral conduct makes to the capitalist system and to our governance structures. Many economists have no concept of history and of the delicately constructed social fabric, which makes the difference between workable and unworkable market economies. Nor do they have an adequate understanding of the complex motivations that bind individuals into functioning organisations and effective economies. Sound business ethics—and moral conduct more generally—are an essential part of the social infrastructure. That moral conduct cannot, however, be reduced simply to compliance with rules; rather it requires an aspiration towards virtue. The codified law established the minimum standards of behaviour required of citizens before social sanctions were applied, not the optimal standards for the good life.