The Co-evolution of Diversity in Property and Economic Development: Evolutionary Economics and the Vertical Dimension (Part 2)

Having laid out the horizontal dimensions of diversity in property in Part 1, I here offer a critique of the assumption in mainstream economics that all kinds of property institutions need to be or will be transformed into private property to promote economic development. I also reflect on my previous work that applies and develops Darwinian mechanisms of variation, inheritance, and selection—which has been extensively discussed in evolutionary biology and evolutionary economics—to study property regime transformation in China.

While working on our co-authored paper, Professor Erik Reinert introduced me to two very important books and encouraged me to think about the relevance of the work of Darwin and Veblen to study property regime transformation in China: Full House: The Spread of Excellence from Plato to Darwin by Stephen Jay Gould (1941-2002), Harvard biologist and historian of science; Thorstein Veblen: Economics for an Age of Crises edited by Erik himself and Francesca Viano. Erik also introduced me to the work of evolutionary economists including Professor Richard Nelson of Columbia University.

In On the Origin of Species (1859), Darwin specified three mechanisms of evolutionary change—variation, inheritance, and selection. It should be noted that Darwin never liked the word evolution due to ‘his denial of progress as a predictable outcome’ (Gould 1996/2011:137). Gould (1996/2011: 41) argued that ‘Darwin’s revolution should be epitomized as the substitution of variation for essence as the central category of natural reality.’ He further argued:

…in Plato’s world, variation is accidental, while essences record a higher reality; in Darwin’s reversal, we value variation as a defining (and concrete earthly) reality, while averages (our closest operational approach to “essences”) become mental abstractions.

In Thorstein Veblen: The Father of Evolutionary and Institutional Economics,  Hodgson (2012: 287) argued that Veblen had contributed to evolutionary and institutional economics by bringing ‘Darwinian ideas into the economic arena’.

Veblen’s (1899/2007: 126-127) definition of institution is dynamic:

Institutions are, in substance, prevalent habits of thought with respect to particular relations and particular functions of the individual and of the community […] The situation of today shapes the institutions of tomorrow through a selective, coercive process, by acting upon men’s habitual view of things, and so altering or fortifying a point of view or a mental attitude handed down from the past. […] The evolution of society is substantially a process of mental adaptation on the part of individuals under the stress of circumstances which will no longer tolerate habits of thought formed under and conforming to a different set of circumstances in the past.

Changing socio-economic contexts may shift and reframe ‘perceptions and dispositions within individuals’ and give rise to new ‘habits of thought and behaviour’ (Hodgson 2012: 287) and thus new forms of institution. Veblen (1899/2007) termed this phenomenon ‘selection’ as ‘selective adaptation’. Although Veblen ‘did not make the context, criteria or mechanisms of selection entirely clear’, he ‘generally saw institutions as units of selection in a process of economic evolution’ (Hodgson 2012: 291).

In terms of ‘co-evolution’, it is the ‘signature term’ of Richard Nelson. His 1982 book with Sidney Winter An Evolutionary Theory of Economic Change represented the start of the neo-Schumpeterian wave. Most evolutionary economists use the term ‘co-evolution’. Further, the Darwinian mechanisms have been extensively discussed by biologists, institutional and evolutionary economists, for example Parker 1980 (discussing creation, selection and variation) and Luksha 2008 (discussing variation, selection, and niche construction).

Bringing Darwinian ideas and Veblenian institutions to the analysis of property regime transformation, I completed a working paper in 2015 and argued that the works of Darwin and Veblen also contribute to studies of property. The (Darwinian) transformation of property can be elucidated not only by drawing analogies to the Darwinian mechanisms of variation, inheritance, and selection, but also by broadening the scope of the Darwinian framework, from the biological world to human interactions in society.

There are key mechanisms for understanding and analysing the co-evolution of diversity in property and economic development:

  1. Variation: the existence of diversity in property in accordance with dynamic socio-economic conditions.
  2. Inheritance: the persistence and continuity of the old property regime despite legal and political changes.
  3. Selection: the formation of new forms of property more adapted to socio-economic contexts.

Institutions are created or modified to selectively adapt to the changes in socio-economic contexts. But institutions which enable economic development are often brought about by emulation and innovation beyond adaptation. I will leave the discussion of emulation to my next blog posts and focus on innovation here.

To further illustrate the importance of innovation for economic development, we need to bring in Schumpeterian institutions, which are concerned with the importance of innovation in generating new knowledge and modes of production, which helps move the economic activities to the next ‘stage’ or ‘paradigm’ (Reinert 2000: 11). The relevant discussion of Schumpeterian institutions can be found in my previous blog post on ‘Institutions, Economic Development, and China’s Development Policy for Escaping Poverty’.

When we bring in Schumpeterian institutions to Darwinian mechanisms and Veblenian institutions discussed above, the third mechanism can be developed as selection: the formation of new forms of property more adapted to socio-economic contexts; for economic development, selection need to be prompted by emulation and innovation.

All the three mechanisms can be found in China’s long-term property (in rural land) regime transformation (see Part 1).

Variation (diversity) existed in all four periods. The introduction of collective ownership to rural China (1956-1978) by political forces did result in the decrease of diversity in property, therefore reducing the degree of resilience of the property regime in instances of natural disasters and economic and political crises.

The attempt to eliminate diversity in property, however, only lasted for a relatively short span of time, as the political programmes could not change the mode of agricultural production, which still relied on household-based productions. Fundamental aspects of the old property regime persisted and continued, despite alterations, if the economic conditions have not been fundamentally changed (inheritance).

The household responsibility systema development-promoting institution—was introduced in the late 1970s. This rural land management system was adapted to household-based agricultural productions (selection). Once farmers had discharged their duty to meet the grain quota imposed by the state, they could retain their additional production—the grain produced over and above the required quota.

Further, beyond being a property institution formed through selection adaptation, the household responsibility system was also an innovative property institution in the period between the late 1970s and 1980s, which gave incentives to individual farmers and their households to engage in farming within collective ownership of rural land (innovation).

In the 1990s techno-economic development in agricultural production, however, began to require a new mode of production for promoting cooperation and consolidated/industrialised farming. The household responsibility system, which was once an innovative initiative that promoted economic development, had come to function as a roadblock to further development. New development-promoting property institutions were created in the 1990s and further developed to promote the new mode of production, initiating a process of creative destruction.

In my 2017 paper, I further clarified three interrelated terms: property regime transformation; innovative property transformation; and property evolution.

Property regime transformation in the broad sense does not indicate either a clear trend or a foreseeable outcome; it need not be progressive. By contrast, innovative property transformation with reference to Schumpeterian institutions conveys a positive connotation of enabling economic development and structural change, which may not be a smooth process. Property evolution in the broad sense conveys a positive connotation (it may even contain a teleological element), but not necessarily the identical form of connotation found in innovative property transformation.

In conclusion, the transformation of property is neither a spontaneous process nor a process solely prompted by external factors; it does not move towards a predictable outcome. Diversity in property and economic development co-evolve. We need to examine changing contexts, in particular techno-economic change over time rather than a linear, normative series of changes such as from communal property to private property, as the inevitable result of property regime transformation.

Ting Xu is Professor of Law at Essex Law School, University of Essex. Her research focuses on comparative property law; Chinese law; law, governance and development; and political economy. She tweets at @TingXu7.

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