The Evolution of Productive Organizations

Abstract

Organizations devoted to the production of goods and services, such as guilds, partnerships and modern corporations, have dominated the economic landscape in our species’ history. We develop an explanation for their evolution drawing from cultural evolution theory. A basic tenet of this theory is that social learning allows for the diffusion of innovations in society, and therefore, the accumulation of culture. However, the well-known Rogers’ paradox shows that specific conditions are required for social learning to fulfill this role. Using a workhorse cultural evolution model, we show that productive organizations (POs) can provide such conditions if they possess two characteristics: exclusivity of membership –that is, entry is restricted– and more effective social learning within their boundaries than outside. With exclusivity, the benefit of better social learning is not eliminated by the expansion of social learners; instead, these improvements allow for higher adaptiveness, benefiting society. We illuminate three aspects of POs which have eluded mainstream economic theories of POs. First, we focus on culture, a central part of POs; in contrast, current theories assume a pre-existing cultural pool in order to focus on governance. Second, these theories explain how POs work, a proximate explanation; instead, we provide an ultimate explanation that provides a precise mechanisms for their origin and evolution. Third, while our theory parsimoniously produces specialization of POs, current theories require the addition of trade and comparative advantage. The model also illuminates issues regarding organizational rigidity and the locus of innovation.