This review was written by Eugene Kernes
“Evolutionary economics assumes that most of the information useful in economic processes is possessed by individuals in a form that makes it impossible to communicate it accurately to others. In other words, it is impossible to provide it fully and/or in a timely manner.” – Kazimierz Z. Poznański, Introduction, Page x
“Economic systems within which organizations operate have the same general (rather than specific) purpose as organizational routines – namely to provide for cost-effective information processing.” – Kazimierz Z. Poznański, Introduction, Page xi
“The inversion reflects the simple fact that economic organizations, seen as sets of routines, can be productive only if their internal – mostly informal rules are not damaged. Organization memory, which is usually retained through routines, can be overloaded with signals and damaged by excessive change.” – Kazimierz Z. Poznański, Introduction, Page xiv
The general purpose of organizations within economic systems is to provide for cost-effective information processing. Economic processes depend on making use of information possessed by individuals. Information that is difficult to communicate accurately, fully, or in a timely manner. This tacit information means that proper utilization and implementation is best left to the individuals themselves. Information by individuals is used to reduce uncertainty within decision making. Problems within economic life come about through scarcity of information.
Economic organizations are productive through a set of routines that maintain the information needed for production. Damaging those routines leads to a decline in productivity. Too much change damages the routines, as individuals cannot readily adept their knowledge to the different informational signals. Too much change is counterproductive to developing alternative behaviors. To maintain productive capacity, change needs to be gradual rather than drastic.
During the 20th century, there were nations transitioning from socialist economic systems to capitalism. Many economic failures during the transitional phase occurred because there were too many changes and reductions of existing institutions and policies.
This book utilizes evolutionary economics. Under the evolutionary economics approach, economic systems are judged to be more or less efficient given their informational costs. Lower costs tend to be under voluntary market systems, but even under such systems there are huge costs. The evolutionary approach sees the state as opposing markets, a source of market failures, and that the state does not have a monopoly to remedies for market failures. Regulations shifts the bargaining power towards less efficient decision makers.
The evolutionary approach is contrasted with the neoclassical approach. The neoclassical perspectives see change happening quickly, without problems as the rational agents can adept to their new situations. The neoclassical problem is how to set prices right to enable optimal choices using the complete and cost-free information.
This book is generally difficult to read. Some economic assumptions, and their policy consequences are inappropriate. The authors favor market over state decision makers, and therefore do not see the value in government institutions.