(2012-04-30) Aligica Tarko Polycentricity: From Polanyi to Ostrom, and Beyond

Paul Aligica and Vlad Tarko: Polycentricity: From Polanyi to Ostrom, and Beyond. The article overviews and elaborates the concept of polycentricity, defined as a structural feature of social systems of many decision centers having limited and autonomous prerogatives and operating under an overarching set of rules. The article starts by introducing the concept as it was advanced by Michael Polanyi and developed by Elinor Ostrom and Vincent Ostrom. It continues introducing possible instances of polycentricity as well as related notions, as part of an attempt to further elaborate the concept through a concept design approach that systematically applies the logic of necessary and sufficient conditions. The article concludes by arguing that the polycentricity conceptual framework is not only a robust analytical structure for the study of complex social phenomena, but is also a challenging method of drawing nonad hoc analogies between different types of selforganizing complex social systems. (polycentric governance)

FIGURE 1 Logical Structure of Polycentricity (Concept map tree)

The concept of polycentricity (tentatively defined as a social system of many decision centers having limited and autonomous prerogatives and operating under an overarching set of rules) was first envisaged by Michael Polanyi (1951) in his book The Logic of Liberty.

governance studies, thanks to Vincent and Elinor Ostrom and the Bloomington School of institutional analysis (Aligica and Boettke 2009).

Initial Developments

Michael Polanyi’s original development of the concept of polycentricity was the outcome of his interest in the social conditions preserving the freedom of expression and the rule of law.

he based his social analysis on an analogy to the organization of the scientific community.

Polanyi argued that the success of science was mainly due to its “polycentric organization.” In such organizational systems, participants enjoy the freedom to make individual and personal contributions, and to structure their research activities in the best way they considered fit.

Researchers’ efforts do not usually dissipate in unproductive directions because they share a common ideal; that is, their freedom is utilized to search for an abstract end goal (objective truth). (shared value) ...progress is the outcome of a trial-and-error evolutionary process of many agents interacting freely. Polanyi argued that the same applies to art, religion, or the law as it applies to science because these other activities are also polycentric in nature and are driven by certain ideals (beauty, transcendent truth, and justice).

He used the concept of polycentricity as a particularly well-suited tool for addressing the wellknown socialist calculation (central planning) problem

The market, he wrote, should be seen as a polycentric system involving a web of many agents that constantly adjust their behavior to the decisions made by others. Socialism implies the transformation of the system into a monocentric one

In some sense, the market can also be said to have an ideal, namely, to deliver the optimal distribution of goods and the optimal production processes (i.e., to reach a Pareto equilibrium), and real markets always fall short of this ideal as agents lack perfect information and human activities often involve externalities

centralized socialism was expected to work better than the free market and to deliver faster economic growth. However, the Pareto equilibrium ideal is not exactly easy to operational

in a monocentricsocialist system, the economic ideal can neither be derived nor imposed by central authorities. The system has to be allowed to move toward the “optimum” (ideal) in a trialanderror fashion. In the same way as scientific progress cannot be guided by an authority (or by some rigid method), economic growth cannot be delivered using a commandandcontrol strategy

Polanyi argued that socialism was in fact not so much an economic theory but a moral system, and the claims to scientific status were merely a rhetorical device meant to facilitate the spread of the system

to the economic critique of socialism, Polanyi added the argument of moral relativism, that is, the idea that justice itself is an ideal one can only hope to approach by means of a gradual trialanderror process

Lon Fuller (1978) remarked that many problems that judges are called to settle are polycentric

when problems appear in polycentric systems, many of the affected parties are often not called to express their point of view in court.

Which issues should be settled in court, which should be settled by political means, and which should be left to the market? As a general rule of thumb, Fuller argued that when there are many parties affected by an issue, the probability of judicial error increases because of the impossibility of avoiding generating unintended consequences. As such, there should be a threshold defined by the level of polycentricity in a system, beyond which courts should not rule but instead leave the matter either to markets or to the political process. Polycentric nonjuridical processes could offer better solutions

The Ostroms and the Polycentric Perspective in Institutional Theory

their work transcended the “metropolitan governance” debate and evolved in two directions: The first was foundationala social theory or social philosophy of social order built around the concept of polycentricism; the second was empirical and applied, focusing on a variety of case studies that acquired new relevance once seen through the lenses of a polycentric paradigm.

Political Economy, Polycentricity, and the Metropolitan Reform Debate

The conventional wisdom in the 1960s was that a metropolitan region should be one large community, functionally integrated by economic and social relationships. However, its functional unity was artificially divided administratively by ad hoc, governmental units

the optimum scale of production is not the same for all urban public goods and services. Some services may be produced “more efficiently on a large scale while other services may be produced more efficiently on a small scale”

The Ostroms explained that the variety of relationships between governmental units, public agencies, and private businesses coexisting and functioning in a public economy “can be coordinated through patterns of interorganizational arrangements.”

Once stripped from their ideological and theoretical mantle and formulated in empirical form, the claims implicit in the metropolitan reform literature became very plain. Empirical analysis was possible

one key theme of the metropolitan debate was focused on how the size of the governmental unit affects the output and efficiency of service provision - that is, the impact of the size of a government producing a service. Ostroms’ team decided that instead of speculating, they should simply get out in the field and try to collect the data needed to measure the relationship

The studies on police services are, in that respect, exemplary. Studies started in Indianapolis with a comparative analysis of independent, small police departments that were serving neighborhoods next to and very similar to the neighborhoods served by the larger Indianapolis City Police Department

The findings challenged the notion that larger urban governments would always produce superior public services: “The presumption that economies of scale were prevalent was wrong; the presumption that you needed a single police department was wrong; and the presumption that individual departments wouldn’t be smart enough to work out ways of coordinating was wrong,” Ostrom says. On the whole, “polycentric arrangements with small, medium, and large departmental systems generally outperformed cities that had only one or two large departments”

By conceptualizing metropolitan areas as polycentric political systems, we were suggesting that a system of ordered relationships underlies the fragmentation of authority and overlapping jurisdictions that had frequently been identified as “chaotic” and as the principal source of institutional failure in the government of metropolitan areas. We identified a polycentric political system as having many centers of decision making that were formally independent of each other. A “system” was viewed as a set of ordered relationships that persists through time

polycentricity raises fundamental challenges to political theory that have broader ramifications that go beyond the issue of the governance of metropolitan areas.

Specifying the Concept: The Ostrom Perspective

the issue of the monopoly over the legitimate exercise of coercive capabilities

a polycentric political system is one where “many officials and decision structures are assigned limited and relatively autonomous prerogatives to determine, enforce and alter legal relationships” (Ostrom 1972 in McGinnis 1999, 55­56). In a polycentric political system, no one has an ultimate monopoly over the legitimate use of force and the “rulers” are constrained and limited under a “rule of law.”

polycentric arrangement

has a built-in mechanism of self-correction

While all institutions are subject to takeover by opportunistic individuals and to the potential for perverse dynamics, a political system that has multiple centers of power at differing scales provides more opportunity for citizens and their officials to innovate and to intervene so as to correct maldistributions of authority and outcomes

if polycentric systems depend on the value and culture of the individuals creating them, then whether or not a significant number of individuals share or aspire to those values is critical for the operation of the system

Polanyi’s use of the term “spontaneous” as synonymous with “polycentric” implied that the attribute of spontaneity is in a deeper sense an additional defining characteristic of polycentricity

Spontaneity means that “patterns of organization within a polycentric system will be self-generating or self-organizing” in the sense that “individuals acting at all levels will have the incentives to create or institute appropriate patterns of ordered relationships

The first condition is the freedom of entry and exit in a particular system

The second condition is related to the enforcement of general rules of conduct that provide the legal framework for a polycentric order. “If individuals or units operating in a polycentric order have incentives to take actions to enforce general rules of conduct, then polycentricity will become an increasingly viable form of organization”

The idea is that individuals should be free not only to play the game or have the incentives to selfenforce the rules of the game but also to change those rules in an orderly way

Understanding and learning from experience are in fact the vectors of an ongoing process of knowledge integration in the institutional system and the prerequisites of subsequent adaptations to the changing environment. Institutional design, the application of our understanding of rules and consequences and the conditions that determine their interplay, is part and parcel of spontaneous order and not inimical to it. That is to say that design and spontaneous order are not irreconcilable. Design is possible within the overarching rules and within the broader process of the everevolving spontaneous order. The link between the two is given by the notion of knowledge and its correlate concepts such as learning

one of Ostrom’s most interesting conjectures was that the structure and dynamics of a polycentric system is a function of the presence of polycentrism in the governance of the other related and adjoined systems. The basic social functions or institutional arenas of a society could be organized in various degrees under a polycentric order: polycentricity in the structure of governmental arrangements, polycentricity in economic affairs, polycentricity in political processes and the formation of political coalitions, polycentricity in judicial affairs, and polycentricity in constitutional rule

the monocentric vision dominated political sciences for such an extended time had left their mark. Not only that a proper language and concepts needed to map, describe, and analyze polycentric systems were lacking, but even worse, the existent language in political science was deeply contaminated by the monocentric vision.

“Polycentricity,” as developed by the Bloomington researchers, is not anymore a mere mixture of intuitions and functionalist descriptions. Ostroms’ work offers us today a clearly articulated building block or reference point for further developments. The rest of this article will take as a starting point the notion as developed by them and will try to make several steps further in exploring the conceptual space of polycentricity.

Related Concepts and Further Elaborations

we also need to look at some references that, although do not use the term “polycentricity,” do illuminate or emphasize phenomena akin to polycentricity

representative constitutional democracy (Ostrom 1972), free market (Polanyi 1951), and common law

in some cases the decision centers are nonterritorial (they have overlapping jurisdiction), in some cases they are territorially delimitated, and some cases can be in both ways.

notions that, once defined and elaborated, display many features that are associated to polycentricity (but also some significant differences): polyarchy(Dahl1971), multiplism(Lindblom and Woodhouse 1993), market-preserving federalism (Weingast 1995), and federation of liberty

A final element of the list of phenomena and related notions that are or could be associated to the themes of polycentricity and that deserves special note is anarchy as a social phenomenon

The most well-known literature on anarchism (from Godwin to Rothbard) is normative. These normative theories have been accused of being impossible to put into practice

The field of positive anarchy (as opposed to the normative strand) emerged with the goal of testing scientifically the validity of Nozick­Buchananlike intuitions and, consequently, gauge the general importance of institutional enforcement for the creation and maintenance of social order in large groups of quasi-strangers, as opposed to the culturally mediated spontaneous order (Boettke 2005).

there are also many varieties of possible anarchic systems, based on different rules and modes of enforcement of those rules, and these varieties are widely divergent in terms of peacefulness and security.

Second, there are cases in which Hobbes­Buchanan’s pessimism about peaceful anarchy is unjustified as the emergent social order is preserved in the absence of a monopoly of force or even, in certain cases, despite the existence of a monopoly of force acting contrary to the preservation of peace and failing to promote prosperity

Third, not all anarchic organizations are peaceful and promote prosperity; in certain cases, Hobbes­Buchanan’s intuition proves entirely correct.

Positive anarchy studies overlap to a certain extent with the literature on polycentricity, as anarchism involves, by definition, multiple centers of decision making

It is important to hold in mind that polycentricity involves the existence of multiple centers of decision making within an accepted set of rules.

one can see positive anarchy studies as studies of the most fundamental aspects of polycentricity, namely of how emergent social order originally arises out of the interactions of individuals

Polycentricity: Conceptual Structure and Boundaries

The following set of features summarizes the Bloomington school perspective on polycentricity: many centers of decision making, ordered relationships that persist in time; many legitimate rules enforcers, single system of rules, centers of power at different organizational levels, spontaneous order resulting from free entry and exit, the alignment between rules and incentives (rules are considered useful), and the public involvement in rule design (rules about changing rules, connection between rules and consequences relatively transparent).

tentatively define the necessary conditions for polycentricity, that is, those indicators that are found in all cases

Active exercise of diverse opinions and preferences

Incentives compatibility-alignment between rules and incentives

we suggest that the autonomous decision-making layers aspect is also part of the essential attributes of polycentricity: · Autonomous decision-making layers (P2): The different overlapping decision centers make operational decisions autonomously from the higher level.

allows for 288 different possible types of polycentric systems (there are 288 possible combinations of the basic indicators permitted by the above logical formula)

One of the most interesting implications of this analysis is that one could explore not only the nature and structure of polycentric systems but also their pathologies and breakdown. If one accepts our approach, there are nine fundamental ways in which polycentricity may break down:

The breakdown of polycentricity may give way either to a monocentric system (authoritarian or not), or to chaotic violent anarchy

The implications of an analysis along the lines defined above could go even further. Proposed reforms of existing polycentric systems often involve changing the value of one of the six non-necessary attributes

To sum up, the framework provided by a conceptualization and analysis on the lines introduced above has the potential to illuminate an entire set of issues related not only to the way we understand polycentric systems but also to the design and policy change in social systems in general

Conclusions

The concept of polycentricity, as developed and defined in the Polanyi­ Ostrom tradition and as elaborated earlier, is not only useful as an analytical framework but also for making analogies between different complex systems.

It provides a method for drawing non-ad-hoc analogies between different forms of self-organizing complex social systems as well as a means to challenge and bolster our institutional imagination.