The Bioeconomics Of The Ehmg As Adaptive Units Morality And Group Selection Theory

4.1. Origins of Morality/Institutions and Group Selection Theory

Thus far, we have not addressed the question of the origins of institutions and how the origins of institutions is related to a theory of EHMG. Biologist Richard Alexander (1987, p. 1) has provided a biological theory of the origins of moral systems:

Moral systems are societies with rules. Rules are agreements or understanding about what is permitted and what is not, about what rewards and punishments are likely for specific acts, about what is right and wrong ... .I will argue that the concepts of moral and ethical arise because of the conflict of interest, and that - at least up to now - moral systems have been designed to assist group members and explicitly not to assist the members of other competing groups. (Emphasis mine).

Alexander (p. 79) argued that inter-group competition promotes in-group cooperation via the role of moral systems. "[Hjumans alone play competitive group against group on a large and complex scale.''

Economist Jack Hirshleifer (1982, p. 50), a founder of bioeconomics (the integration of economics with biology), emphasized the importance of social sanctions in facilitating in-group cooperation as a means of out-competing other groups:

[O]n all levels of life organisms have found it profitable to come together in patterns of cooperative association. But such cooperation is always secondary and contingent, in at least two respects: (1) in-group cooperation is only a means for more effectively and ruthlessly competing against outsiders, and (2) even within the group there will not be perfect parallelism of interests, hence cooperation must generally be supported by sanctions ... Efficiency, in this interpretation is meaningful only as a measure of group strength or advantage relative to competing groups struggle for life and resources . A totally universalistic measure of efficiency is pointless; we must draw the line somewhat, at the boundary of 'us' and 'them'.

The study of rules and their origins is also at the center of Hayek's (1973, 1979) work on the evolution of institutions. As Elias Khalil (1996, p. 184) pointed out, Hayek's theory of the evolution of institutions is Darwinian for two reasons: (1) groups that have rules that benefit the group will tend to prosper over those groups that have less adapted rules; ''the group'' being used as the unit of selection; and (b) that institutions emerged from unintended effects of individual actions, i.e. ''institutions have accident origins'' (Khalil, p. 184). Interpreted this way, Hayek's emphasis on the spontaneous origins of institutions differ from biologist Alexander's view that the origin of institutions (morality), is designed explicitly by members of the group in order to out-compete other groups. Alexander's view of the designed origins of morality is consistent with James Buchanan's (1975) public choice/constitutional economics of the emergence of institutions.

Despite the different theories of the origins of institutions (spontaneous/ accident vs. deliberate design), Alexander, Hirshleifer and Hayek share Darwin's (1871) group-selection theory of the role of morality/institutions: ''institutions as group competition.''

Group (multi-level) selection theory has a long and controversial history in the field of evolutionary biology (see Sober & Wilson, 1998). Since the 1960s most biologists rejected group selection theory on the theoretical grounds that non-cooperative/free-riding behavior of members within the group will eliminate the possibility of the group out-competing other groups. Biologist David Sloan Wilson (Sober & Wilson, 1994, 1998; Wilson, 2002a) has been spearheading the rehabilitating of group selection theory. Wilson's central argument is that groups have regulatory mechanisms such as social norms that serve to constrain free-riding and hence promote group-level adaptations in out-competing other groups; hence group selection is theoretical possible. But the litmus test for the possibility of group selection is empirical evidence.

4.2. Bioeconomics Theory and Evidence of EHMG as ''Adaptive Units'': Institutions as Group Competition

Chinese dominate middleman roles in the economies of Southeast Asia. What explains Chinese merchant success? Based on my empirical findings of

Chinese merchant success, I offered the following thesis of the reasons for Chinese appropriating and maintaining middleman roles (Landa, 1978, p. 227):

Chinese dominate middleman roles without special barriers to entry other than arising from the organizational efficiency of the EHMG-"club" organization in the provision of infrastructure/public good externalities, externalities that are external to firms in the Chinese middleman economy, but are internalized by Chinese middleman via the networks of mutual aid and cooperation among middleman. The result is the creation of an efficient (i.e. least cost) Chinese middleman economy. The organizational efficiency gives the Chinese a significant differential advantage in maintaining the monopoly of middleman roles.

My thesis (Landa, 1978) was developed when I was unaware of group selection theory. When I published my theory of Chinese middleman success more than two decades later (Landa, 1999), I placed my theory explicitly on group selection-bioeconomics foundations (Landa, 1999). Evolutionary biologist David Sloan Wilson (2002a) was in the process of completing his new book when he read my article. Wilson (2000b, pp. 271-272) wrote:

I read your paper (Landa, 1999) and enjoyed it. It fits very nicely with my new book on religion from a multilevel evolutionary perspective ... .If the Jews in medieval Europe, the Chinese in Southeast Asia, the East Indians in East Africa, etc. are all alike in some respects based on group-level adaptation to similar social environments, this is a very, very important example of convergent cultural evolution that needs to be showcased to demonstrate the power of the evolutionary perspective - both theory and empirical methods - for understanding religious groups in particular and all human groups in general. The question is, what can be done in the future that has not already been done in the past? For example, the paper by Carr and Landa (1983) that you cite already seems to make the basic comparative point. As with so many other major insights, it is clearly a matter of appreciating the relevance of known information rather than gathering new information. Of course, after the right conceptual framework organizes the known information, new questions arise that require new scholarship.

In response to Wilson's comments, I wrote a paper in which I re-interpreted the case studies of successful homogeneous middleman groups (HMGs) in my earlier paper (Landa, 1988) from the perspective of multi-level selection theory (Landa, 2002b).4 I showed that although these merchant groups originated in societies with very different cultures, all of them have adapted to the same environment of underdevelopment (lacking basic infrastructure) of their host countries in the same way. First, they form tightly knit homogeneous merchant groups whose members cooperate among themselves by providing club goods such as contract enforcement, capital, credit information, etc. Second, the various HMGs all have social/religious norms that regulate members' behavior, as well as sanctions (including ostracism)

for punishing those who violate the norms of the group by non-cooperation, including free riding on the benefits of the HMG (Landa, 2002b). My empirical findings that these HMGs functioned as "adaptive units'' provide rare and important evidence that supports group selection theory in human society. Hayek is right about group selection theory after all.5


I began this paper by noting that the Austrian theory of entrepreneurship as developed by Kirzner, while providing an important starting point for understanding the role of entrepreneurs in a market economy, is inadequate for understanding middleman entrepreneurship in less-developed economies. If "alertness" in perceiving profit opportunities is the key attribute of the Kirznerian entrepreneur, then as Glade pointed out, middleman entrepreneurs operating in less-developed economies would be randomly drawn from the different populations, which is clearly not the case since middleman-entrepreneurs are drawn from well-defined ethnically homogenous groups, the classic examples being the Chinese middlemen in Southeast Asia and the Jewish merchants in medieval Europe.

Merchants operating in less-developed economies need more than the alertness trait: they must function as "N-entrepreneurs" (Leibenstein, 1968) performing "gap-filling" and "input-competing" roles such as enforcing contracts, mobilizing information and capital because of the lack of basic infrastructure in less-developed economies. This for instance, explains the importance of culture and informal institutions: middleman's alertness to the rational choice of trading partners along kinship and ethnic lines because of the social norms of mutual aid and reciprocity embedded in these particularistic relations which promote mutual cooperation in the provision of club goods/infrastructure. The aggregate result of many traders' choice of trading partners along kinship/ethnic lines is the spontaneous emergence of a decentralized complex ethnic trade network, with social norms embedded in the network. "Culture and identity matters'' for entrepreneurs operating in less-developed economies.

The concept of culture, a core concept in anthropology, is very difficult for economists to incorporate into their work, especially since there are so many different definitions of culture in the anthropological literature. However, if we take anthropologist Barth's (1969) concept of culture as rules of the game embedded in an ethnic group, then it is possible to translate the anthropological concept of culture into the NIE and bioeconomics' (Hir-shelifer, 1982) concept of institutions as rules/constraints embedded in an ethnic group (Landa, 1991). In my work on the EHMG, spanning over twenty-five years, four concepts of institutions have emerged:

(a) Institutions as rules/constraints (NIE; anthropology: Barth, 1969);

(b) Institutions as identity signaling devices (anthropology: Barth, 1969);

(c) Institutions as classification (anthropology: Douglas, 1986); and

(d) Institutions as group competition (bioeconomics: Hirshleifer, 1982; Alexander, 1987).

These four concepts of an expanded concept of institutions correspond to four attributes/traits of the historical (Chinese) middleman:

(a) ''Homo economicus'', rule-following, rule-enforcing humans;

(b) ''Homo symbolicus'' - to denote that humans belong to the ''Symbolic Species'' (Deacon, 1997) par excellence;

(d) ''Homo sociologicus'', the group goal-oriented social man who cooperates with coethnics in order to out-complete other groups.

Although I started off in this paper by saying that Austrian theory of entrepreneurship as developed by Kirzner is inadequate for understanding middleman-entrepreneurship and the phenomenon of the EHMGs in developing economies, I realize that I will have to return full circle to Austrian economics to integrate Hayek's (1952, 1973, 1979) work on culture, cognition, classification and institutions, with my interdisciplinary work on the EHMG, where these concepts have played major roles across the social sciences and beyond to evolutionary biology.

One line of future research would be to use the McQuade and Butos (2005) Hayekian cognitive ''map-model'' conceptual framework of the mind/brain - which they used to analyze the spontaneous emergence of markets, science, neighborhoods and firms as alternative ''adaptive classifying systems'' - to analyze the spontaneous emergence of decentralized ethnic trading networks (Landa, McQuade and Butos collaborative project). This collaborative project would expand my law-and-economics/NIE theory of the EHMG into the domain of neuroeconomics (Zak, 2004), a subfield in bioeconomics which emerged in the 1990s.

Speaking of the expanding domain of economics Jack Hirshleifer (1985, p. 53) said:

There is only one social science ... .While scientific work in anthropology and political science and the like will become increasingly indistinguishable from economics, economists will reciprocally have o become aware of how constraining has been their tunnel vision about the nature of man and social interactions. Ultimately, good economics will also have to be good anthropology and sociology and political science and psychology.

As a founder of bioeconomics, Hirshleifer would surely have added bio-economics. Nowhere is the need to do ''good economics'' more urgent than doing the social science and bioeconomics of the EHMG which by its very nature is interdisciplinary in nature, comprising of all of the social sciences and beyond to biology/bioeconomics: exchange theory in economics, ethnic and culture studies in anthropology, network studies in sociology, ''Social Identity Theory'' in social psychology literature6 and the comparative study of different political systems in political science. In the process of developing aspects of my empirically grounded theory of ethnic trade networks/EHMG spanning a period of twenty-five years, I have contributed in some small way to the integration of the social sciences with evolutionary biology via an expanded notion of ''institution''. This interdisciplinary approach has provided me with understanding the bases of foreign middleman success in many less-developed economies and the ethnic conflicts that occurred in many of these countries where foreign immigrants dominated middleman-entrepreneurial roles. We need to use all the knowledge at our disposal so that we can understand and deal with urgent problems such as how to facilitate indigenous entrepreneurship in less-developed economies, how to deal with racial discrimination, racial profiling and in the 21st century the ''clash of civilizations" (Huntington, 1996) in the wake of 9/11 international terrorism.

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