Managing 21st Century Companies
With Stone Age minds.
I have a number of other work projects going on, which have impinged on the frequency of letters here. Through the summer I will be making only one letter a week for unpaid subscribers and two or more only for paying customers. I hope this incents more to subscribe, so I am offering a summer special of 20% off for an annual subscription.
Last October, I read a breakthrough article, basically a unified evolutionary theory of deep work culture: A naturalistic theory of economic organization by J.W. Stoelhorst and Peter J. Richerson. Since then I have read it several times.
The authors open with this:
We develop a theory of economic organization grounded in the naturalistic paradigm currently emerging at the intersection of biology and the behavioral and social sciences. The crux of this approach is the recognition that an understanding of the evolutionary origins of human organizational capabilities can inform theories of contemporary economic organization. Modern firms sustain large scale cooperation by applying cultural ‘work-arounds’ to tribal instincts that evolved from simultaneous within-group and between-group competition on a much smaller scale. We translate this insight into ten principles of economic organization.
Here is a table showing the ten principles, which I will expand upon, below:
The key question of economic organizations:
Why do humans cooperate on a large-scale with non-kin? This paper develops a theory of human economic organization that is grounded in the naturalistic paradigm currently emerging at the intersection of the biological, behavioral, and social sciences.
In this and the next paywalled newsletter, I will dig into that question with the help of Stoelhorst and Richerson.
The authors lay out their reasoning for this path:
Humans are ‘the only species that has evolved to sustain large-scale cooperation among individuals that are not closely related genetically using the mechanism of cultural transmitted norms and institutions’, so we must look for an evolutionary explanation, although genes alone do not explain this or other aspects of human behavior.
The ethnologist Nikolaas Tinbergen is famous for his Four Questions, which are the rightmost two columns in table 1 above.
‘We argue that modern organizations can be understood in terms of the interaction between the ‘tribal instincts’ that underlie human cooperative dispositions and the cultural ‘work-arounds’ that have evolved to build organizations on a very different scale than that for which our social instincts originally evolved. We subsequently develop the ethical implications of a naturalistic understanding of human organization.’
Critically, the authors argue that humans operate on a pro-social predisposition, that runs counter to ‘the standard assumption in economic theory that humans are self-regarding.’
Two ethical problems arise in this analysis:
‘within-group exploitation of members of the organization by their leaders’
‘between-group hostility toward members of other organizations.’
Four Universal Principles of Human Organization
1 | Humans are social animals with cooperative dispositions derived from a long history of living in tribal scale groups in which culturally transmitted norms and institutions favored cooperation. The authors point out that the ‘specific puzzle’ of human cooperation is its large scale, and how it arises among individuals not related closely. At some distant time, humans developed the ability to develop culture, genetically. Once that emerged, culture formed an addition means to pass on adaptive behaviors that reinforced group selection. Therefore, cultures that supported cooperation would out-compete other groups, and then cooperative culture would spread, as these groups were reproductively more successful.
2 | There are advantages to large scale cooperation, although these advantages are easily undermined by within group competition. The social welfare of large groups is maximized by general cooperation, however individuals can benefit by ‘free-riding’ and avoiding individual investment in cooperation while gaining the benefits. ‘The central problem human organizations need to solve is overcoming the tension that results from instincts that favor pursuing our self-interest and instincts that favor maintaining group cohesion’.
3 | Humans display a universal mix of cooperative dispositions that both enables and constrains our ability to sustain large-scale cooperation. This relies on ‘strong reciprocators’ who are ‘willing to sacrifice resources to reward those who cooperate (strong positive reciprocity) and to punish those who are uncooperative (strong negative reciprocity)’ and ‘even when punishing comes at a personal cost’. Three archtypes of cooperation: ‘individualists’ who operate for personal gain without regard for others, ‘cooperators’ who maximize joint payoffs, and ‘competitors’ who maximize the difference between themselves and others even when that leads to lower payoff for themselves:
The crucial insight for a naturalistic theory of economic organization is that the majority of individuals are cooperative animals, who are inclined to maximize joint returns when interacting with others. At the same time, there is also a substantial minority of individuals who are inclined to only pursue their own self-interest in absolute terms, as traditional economic theory would have it. And there is a small, but non-negligible, percentage of people who are willing to destroy general welfare to increase their own relative payoffs. The fundamental problem of human organization, then, is to evolve organizational arrangements that allow us to sustain large-scale cooperation in the face of this behavioral heterogeneity.
4 | There are universal mechanisms by which cooperation can emerge and be sustained.
Humans are predisposed to learn from others because this saves on learning costs.
One of the hallmarks of social organization is status hierarchies. […] Two types of status hierarchies need to be distinguished: dominance hierarchies and prestige hierarchies. While dominance hierarchies operate on the principle of coercion, prestige hierarchies turn on so-called freely conferred deference. Human social organization is unusual if not unique in making extensive use of the latter type.
Implications for Modern Organizations
We essentially run our modern organizations with Stone Age minds.
| J.W. Stoelhorst and Peter J. Richerson
The authors move from the rationale for the evolution of social behavior to the implications.
5 | Organizations sustain cooperation on the basis of local and contested norms. The evolution of the docile and deferential dispositions discussed above helps explain why humans tend to be norm regarding. […] In essence, organizational cultures are complexes of local norms that govern social interactions. Norms are social ‘what-if’ rules that help individuals coordinate their actions. […] The corollary of the local and contested nature of social norms is that one of the hallmarks of human organization is that organizational cultures continuously evolve in response to changes in local circumstances.
6 | Modern forms of organization use cultural ‘work-arounds’ to sustain large- scale cooperation. The social psychology that underlies our organizational capabilities is the result of instincts that evolved in a tribal context. In other words, we essentially run our modern organizations with Stone Age minds. […] Our tribal social instincts are adapted to small-scale, egalitarian societies with little coercion and much autonomy. The large-scale organizations of modern complex societies with their deep hierarchies and social stratification are therefore likely to conflict with our tribal social instincts. We can expect social demands that go against our tribal instincts to generate painful psychological conflicts and resistance and rebellion. This leads to the prediction that organizational arrangements that can reap the benefits of large-scale cooperation in ways that preserve or recreate the sense of operating in a small-scale society will lead to more effective organizations. […] Modern organizations should be structured to reflect the size of the social units for which our social psychology originally evolved and managed in ways that minimize coercion and maximize autonomy.
7 | Successful organizations channel within-group competition in ways that enhance their success in between group competition. Successful organizations need to simultaneously solve the problems of the efficient creation and fair distribution of wealth. The relevance of this principle for a theory of economic organization is that it points to the need to always consider organizations as both social and economic systems. […] A naturalistic theory insists on seeing human organizations simultaneously as social entities that sustain cooperation among their members and as economic entities that compete with other organizations for scarce resources.
8 | Specific cooperative solutions are historically and culturally contingent. Modern organizations, then, are the result of a long process of cumulative development of informal norms and formal institutions that allow us to sustain large-scale cooperation among non-kin on the basis of social instincts that were shaped by a long evolutionary history of living in tribal scale societies. […] It is difficult to develop the norms and institutions that engender the trust that is necessary to sustain large scale cooperation on the basis of social instincts that originally evolved to sustain cooperation on a much smaller scale.
As the authors point out, ‘there is nothing is nothing inherently ‘progressive’ about evolutionary processes’ and ‘even when cooperation is sustained, it need not result in outcomes that are ethically desirable’. They identify two moral problems that ‘endemic’ to human organizations:
9 | Human organizations are susceptible to exploitation by their leaders. [Staus hierarchies] can increase the stability of a group by reducing within group conflict. […] On the other hand, status differences also easily can lead to exploitation of the group by the dominant members. […] However, a central role for power relationships re-emerged as the scale of human organization increased in the wake of the transition to a sedentary agricultural economy some 10,000 years ago. […] In large scale organizations, a combination of freely conferred deference and docility can easily lead to organizational cultures where individuals are taxed for the benefit of their leaders, rather than the benefit of the group as a whole.
We were banished from the Garden of Eden in the Bronze Age.
10 | Within-group cooperation goes hand in hand with a tendency toward between-group hostility. Our morality evolved at least in part as the result of a long history of between-group selection. We should therefore expect that our pro-social behavioral dispositions are primarily triggered in interactions with those to whom we feel culturally or genetically related. […] Our cooperative behaviors are much attenuated, or even reversed, when interacting with those who we perceive as out-group individuals.
Now That We Know All That, What Do We Do?
That is exactly what I plan to take up in the next newsletter.