On this week’s episode of the Governance Podcast, our Director Prof. Mark Pennington interviews Dr. Erwin Dekker from the Mercatus Center at George Mason University.
This episode is titled “Governing Markets as Knowledge Commons”, which features Erwin’s recently co-edited volume with Cambridge University Press, Governing Markets as Knowledge Commons.
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Dr. Erwin Dekker is senior fellow with the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics and a senior research fellow at the Mercatus Center at George Mason University.
He has recently published two books, Jan Tinbergen (1903-1994) and the Rise of Economic Expertise (2021) and The Viennese Students of Civilization (2016), as well as the edited volume Governing Markets as Knowledge Commons (2021) all with Cambridge University Press.
He has published in professional journals regarding history of economics, methodology of economics, cultural economics and economic sociology.
He is currently working on a history of the intellectual descendants of the German Historical School as well as a project on markets at the margins of society, so-called grey zones.
He has previously worked as assistant professor of cultural economics at the Erasmus University of Rotterdam.
Mark Pennington 0:08
Welcome to the governance podcast from the Centre for the Study of governance assigned to you at King’s College London. My name is Mark Pennington, and I’m Director of the Centre. I’m very pleased to have with me today Erwin Dekker. Erwin is senior research fellow at the Mercatus Centre at George Mason University, as well as numerous articles, he’s published two books, Jan Tinbergen (1903-1994) and the Rise of Economic Expertise (2021) and The Viennese Students of Civilization (2016), both with Cambridge University Press. Today, we’re going to be talking about a new book he’s co-edited with our faculty member Pablo Kuchar, which is titled Governing Markets as Knowledge Commons. Erwin, it’s very good to have you here today.
The focus of this book is an exploration both in theory and in practice of the institutional infrastructure that supports commercial exchange. It uses the concept of ‘knowledge commons’, to explain how that infrastructure is provided and sustained. I wonder if we could start off the conversation with you just saying a little bit about what led you to focus on exploring this infrastructure within which markets operate? Is it something that you think has been sort of under-researched up to this point?
Erwin Dekker 1:24
Well, I think the governance of markets has received more and more attention, actually, in the past decade or so. I think the literature on neoliberalism has historically sort of refocused our attention to the construction of markets, both internationally, but also domestically.
And I think in the work on economic history and the idea that institutions are important in creating economic growth or facilitating the spread of markets have been well recognised. That’s a little bit different from what came before, which might perhaps be understood as a sort of market naturalism, where we feel that markets sort of arise, that whenever two people meet, they will start exchanging and we can start calling it a market from there on. But I don’t think that economists nowadays have a very institution-poor conception of markets. I do think that what we add to this debate is that if there is a kind of private governance of markets, right, where it’s individual parties that set up the infrastructure, or there’s public governance of markets where a third party has to come in to legislate a market, or to create the legal framework in which right of property rights and everything like that, to make the markets function, we say, well, we don’t want to deny that both of these are possibilities. But if we look at markets, how markets function, then we see a lot of community or a kind of social governance of markets. That happens both when groups of firms set up things or develop things, but it also happens frequently as a sort of unintended byproduct of repeated exchanges. Sometimes those structures get set up more deliberately, and sometimes they emerge as a side product of people exchanging in various ways.
Mark Pennington 3:15
Okay, that’s great. So what led you specifically to look at this idea of ‘knowledge commons’? Can you say a little bit more about that? Because I think it is quite a unique sort of interpretation in this this sort of debate.
Erwin Dekker 3:28
Yeah, yeah, that’s true. So I mean, I guess it’s, it’s, it’s, in some sense, a search for the right concepts. So how do we make make sense of this social governance? ‘Knowledge commons’ is one way and it has a benefit. And a drawback is that it actually has a sort of ambivalent meaning.
So the ‘knowledge commons’ refers to the pool of knowledge. Right? So as a set of shared knowledge, say, within an academic discipline, or amongst a set of producers, about what the market is like, and what’s the most likely coming developments will be. So that’s the pool of knowledge, right, that everybody draws on, and that people exchange information about that we debate also. Where are we going to go into in the next year? We don’t know. But all of that is the pool. And then there’s the governance question. This involves a kind of communal, or social governance of the pool of knowledge. And I think, analytically, one could keep these two apart. But it’s, it’s almost inevitable that when you start talking about knowledge, in some sense, these two meanings get tangled up. And what has happened in the volumes that came before us in the same series on the ‘knowledge commons’, is that Brett Frischmann and Mike Madison and Catherine Strandberg have really developed.
So what inspired us was that we drew on this network and this framework that they had adapted and thought, well, this can really work. We take it in a slightly different direction than they take it because they are, they come from mostly from law and from medicine. Right. And in medicine, there’s of course, a major debate over whether the knowledge to create medicine should be sort of open to society, or whether it should be privately governed by big pharma companies. And so we said that that is true. And that’s a very relevant debate about about the importance of IP (intellectual property), and all the rest of it. But if you look well, at markets, you will easily see that there’s a lot of other types of knowledge that are very important for its functioning. And that is when we return to what you described at the beginning, that these are market-supporting infrastructures, or shared pools of knowledge that facilitate market exchange, right, that allow us to agree on more than price, right?
So there’s a kind of shared knowledge that is actually required to make exchanges work that goes far beyond price. And that’s sort of what we analyse.
Mark Pennington 6:20
So just to go into that a little bit more. So this is not directly about or maybe it’s partly about the knowledge that’s actually communicated within a market. It’s you’re actually referring to the knowledge about the the institutional structures that actually create those markets, in part. And I guess those are not mutually exclusive. The knowledge that’s communicated within the market can’t completely be separated from the knowledge about the way the market is actually structured or governed. Is that is that the right way of thinking?
Erwin Dekker 6:59
Yeah, yeah, that’s a very helpful way of thinking about it. So sometimes we refer to it as the informal rules of proper conduct. So what that might entail what can and cannot be exchanged in the markets. But it also entails what employers expect of their employee. Right? We all know that there’s a big literature on incomplete contracts, right. And you could think of ‘knowledge commons’ as facilitating what those incomplete contracts leave unspecified. So I think in that way, it’s also quite directly related to how people think about the importance of trust on markets, right? If there is a shared knowledge, there’s a shared shared set of expectations and facilitates market exchanges, you could conceptualise that as trust and we we pulled the attention a bit more towards the shared knowledge. And that’s in part because we’re also interested, and especially my my co-editor, Pavel Kuchar has been very good in in constantly asking this question. So how, where do markets come from? Like, what is it that makes them come about right? And then you cannot rely simply on preconceived notions of trust or so the trust was already there.
But then there needs to be an act of entrepreneurship in order to create either a new and new good and all the rules that come with it, or a kind of redefinition of what we previously believed not to be tradable, or previously,
Mark Pennington 8:25
So you actually need in a sense, just before you can have a market, you need to have some sense that something might actually be exchanged. People actually have to conceptualise this as possible.
Erwin Dekker 8:36
Yeah. And those debates continue on, right. So even about work, right? There’s been long debates within within economics about precisely what you can sell when you engage in a labour contract. And at what point that becomes slavery and unborn stuff becomes exploitative. Right. And so, it relates to that, but various works have also looked at the emergence of the market for surrogate mothers, surrogate motherhood. And that’s a wonderful example, because before the changed meanings and interpretations, a lot of people treat the practice of surrogate motherhood as a version of baby selling. And nobody or hardly anybody in society is probably in favour of baby selling.
So what the entrepreneurs needed to do and including the lawmakers was they needed to reconceptualize even the concept of motherhood, which, interestingly enough, in most law books is not specified, because it’s, yeah, completely, sort of shared concept that we take for granted. And then the reconceptualisation suggested that what surrogate mothers do is they rent their womb out or that they provide a service. This relates to the extent to which parts of your body can be alienated and can be donated to somebody else. What does it mean when the baby is born?
Does that mean that it is the child of the mother who gave birth to it or could that mean that the child always belonged to this other couple and was only in temporary possession or something of the sort? So you have to define a lot of the concepts before this market can function at all.
Mark Pennington 10:23
Yeah, so it’s a case where I guess, you know, the, the extent of the market isn’t sort of just determined by some sort of basic features of things. It is actually about the way people conceptualise things in the first place.
Erwin Dekker 10:39
Yeah. And it intersects with technology, very often, right before in vitro fertilisation, probably nobody had really thought of this, then, right, you have a different conceptualization, you might adopt a child. But that’s a very different concept. But now because of the technological change, right, that then generates new, new meanings. But I myself have done a lot of work in cultural economics.
And for works of art is very often contested, to what extent they can be precisely traded. And even if you own them, it’s not perfectly obvious what one can do with it. A very famous instance is of a Japanese art collector who wanted to take a Van Gogh painting with him into the grave. And this created a major outrage. Now normally, if you own something, it’s not a problem at all, if you take it with you in in your coffin. Right? That’s, that’s the way the children might object to a piece of jewelry should be given to them. But right, it’s a perfectly legitimate use of your own property, but apparently, part of this artwork because it goes off, and it was believed to be part of the art canon, or in some sense, still part of the public domain, it was considered illegitimate. And ultimately, no collector was barred from taking it, taking the painting into his grave.
So there you see. In the art world, you see that lots of these exchanges are contested exchanges about what can and cannot be traded.
Mark Pennington 12:14
But I think it’d be important to emphasise that this is not when you talk about the old technology, though, it’s not a sort of deterministic type view here where the technology sort of leads you automatically towards a market, it’s more of technology creating the possibility that there could be a market but then people may or may not sort of take advantage of, working through these changing cultural constructions that they put on things.
Erwin Dekker 12:37
Yeah. So it’s not technological determinism at all. It’s in fact, the culture that mediates what sort of products then come out of that.
Mark Pennington 12:46
Yeah. Okay, great. So, I mean, you mentioned in the earlier remarks about Elinor Ostrom and some of her ideas related to this night, certainly reading the book, I felt there were a lot of parallels that you think about her work on Natural Resource Commons, sort of attacks, the idea that the only way that you can address various collective action or common pool problems is either to privatise the asset to create some kind of private ownership right, or to have an external state agency manage the asset. And she’s arguing that actually, no, there are lots of these bottom up governance mechanisms.
Likewise, you seem to be saying in the context of these forms of market governance that the market is natural, which I guess would be an analogue to the privatisation case. But equally, the governance structure within which the market operates, isn’t necessarily provided by what we think of as public authority or the state. There are both these kind of bottom up but also sometimes hybrid structures. So could you say a little bit more about how this argument about knowledge commons relates to the sort of arguments about Natural Resource Commons?
Erwin Dekker 13:57
Yeah, the way we frame it in in the preface of the book is that on a basic conceptual level, there’s a lot more cooperation, then, rather than just competition, yeah. And so that cooperation often is indeed aimed at collective action problems. But I think in most rural problems, the collective action problems and the private action problems, if you want to put it that way, are very much entangled, right, and the development of a market, in fact, we quote her sort of saying that the market itself is a public good.
And we use that as a sort of starting point, because I think her own way of thinking would actually run against the idea that the market itself in the sense of the the sort of institutional infrastructure itself is a public good. And so yeah, our work is very much inspired by that way of thinking and inspired by the idea that where you see competition, you often also see forms of cooperation.
So this might be a bit of a silly example. But I was always fascinated when I worked in industry that there was Friday afternoon drinks. And just on my way in here, I walk through the financial district and right, all these people work in separate office buildings. But if you would look well, and if you would do anthropological work, you would see that there’s an enormous amount of exchange that goes on between these people, they share intimate knowledge about career planning with each other, despite the fact that on paper that they will be competitors, they still share extensive knowledge about what’s going on in their firm, perhaps a kind of in a different setting would be called sort of industrial espionage, or something of the sort. But there’s also – and that is what some of the chapters in the book show – actually deliberate institutions that are being set up by firms in the same industry in order to exchange knowledge, and to govern that community. And I think all of those are wonderful examples of where if you look at how markets actually function, rather than rely on it sort of textbook idea that the firms are competing, or that individuals are competing with each other, we see a lot more forms of cooperation.
One thing that follows from that for us, but I think that’s something that we should explore more even in future work, is that this cooperation is actually essential to make to make it happen, because otherwise you have individual exchanges, but in order to actually get the institutional structure that that may turn something into a market that can spread and that other people can imitate. A lot more is required, including solving some collective action.
Mark Pennington 16:43
When I was reading those sections, and always very much thinking that, in a sense, it just doesn’t. If you think in these terms, it doesn’t make sense to separate out cooperation from competition, because essentially, what’s happening in these cases is that people are cooperating to compete on another dimension. So if they haven’t had these kinds of networks, where they can share information or knowledge over drink, or whatever it might be, they wouldn’t actually be in a position to compete on some other level. So it actually makes sense as part of a competitive strategy, if you think in those terms to be involved in these networks, even if I guess, I suppose if you took an evolutionary view, even if people didn’t actually know that’s what they were doing. That would be the kind of effect that it might have. Is that a fair way of thinking about it?
Erwin Dekker 17:26
Yeah. And I think the not being aware of solving the collective action problem, I think, is a very important part of it. So some of the chapters in the book certainly do look at deliberate institutional arrangements, to share knowledge that also become solidified and institutionalised in various ways. But one of the chapters that that I like very much discuss how creative cities work, and why young creative workers are so incredibly attracted to cities, right and willing to pay an enormous premium to live to live there. And so that suggests that there must be some kind of value that they’re getting from it right.
Now, that could be purely in the social sphere, right? There’s Richard Florida’s famous argument that people like to live close to theatres and nightclubs that allow them to be themselves. That’s undoubtedly correct. But I think there’s also something in which form of cooperation which this chapter tries to capture to use this sort of big data methodology to figure out what people are talking about when they’re meeting each other in these creative cities. And the arguments from that, that follows from that is that the city itself, in some sense, is a form of cooperation, in which a whole lot of matching is going on. But also a whole lot of cooperation is going on, and without which markets couldn’t exist. So I think the people being in in the same place, right? They’re generating a lot of things, which they might do out of purely selfish motives, right to get ahead to start a career to get a more interesting job. But that as a side effect has effect, right? They create networks, and those networks themselves, become very valuable foundations for a market. One other way of thinking about this.
I think, Jason Potts has done that wonderfully. In his book on the ‘Innovation Commons’, he says, well, if we look at a lot of technological innovations, we actually find small communities of amateurs experimenting with each other, playing almost. And then all of a sudden they stumble upon something. And that might be a moment in which one of the people that is part of this community steps out and starts to become an entrepreneur. So he talks about the the origins of Silicon Valley as essentially amateurs playing around with computers and playing around with software that they were mostly sharing amongst each other. But then, unbeknownst to them, in some sense, it kick started this enormous market, which we now know.
Mark Pennington 19:57
I think we can come back to this a little bit later on. It’s a good opportunity for me to pose this question about what you just said there, which is that I mean, if you take the example of like a creative city as exhibiting these sorts of properties, then a lot of it seems to take place by accident, people really don’t know what’s going on. And these things just happen to arise. What are the sort of policy implications that flow from that? Do we just have to sort of make room for accidents to happen? Or is there anything that policymakers can do, knowing that this is the kind of process that operates here to sort of facilitate it? Or at least not to stop it from happening? Or can they? Can they plan it in any sense? What does it imply for the role of policy in this area?
Erwin Dekker 20:49
I think that’s a very good question. I think your Hayekian phrase, right, ‘maximising the opportunity for accidents to happen’ is one way of looking at it. But I’m here, again, a little bit inspired by Jason Potts also writes in his book, and he says, well, policymakers are going to make policy and letting accidents happen is probably not what they can describe as policy. So one instance in or one example, in relation to the idea of ‘Creative Cities’, is a turn towards what is sometimes called placemaking. And placemaking, is essentially setting up spaces where people can rent an office, but there are also a lot of shared amenities. So they’re, in some sense, forced to use the same kitchen or they’re stimulated to exchange information every now and then, at certain occasions.
I think, at least thinking in that way, you realise that what is important in generating innovations or generating new types of activities, or perhaps, possibly even new markets is that we need things that allow for the making of connections between different people. And I think that just changes from a focus on particular firms or particular industries, to thinking about connections. And I think that’s still very much on the conceptual level. And I don’t think our book offers very detailed policy suggestions.
But I think even shifting the way we think about what’s really valuable in the economy towards a focus on ideas, work connections and places allow for interaction, you’ll already be a big step forward.
Mark Pennington 22:44
Its actually interesting you say that, because I don’t know if you’re aware, but certainly in this country, at the moment in the UK, the government has this focus on this, what it calls the ‘Levelling Up’ agenda, which is really about those parts of the country, which are significantly perceived to be behind the southeast on the London area, in economic performance terms, you know, what can be done to actually raise the standard. They’re not looking at sort of traditional industrial or regional policies, it seems a lot of the discussion has been around how you facilitate connections within these areas, that actually places that are often quite close together, have got very little movement between them. So that people aren’t interacting. So just listening to what you were saying about that. It’s very much in tune with the notion of facilitating the connections, rather than actually pre determining an outcome. Maybe that is the way to think about some of this.
Erwin Dekker 23:41
Yeah. If you think about connections, you really start to think about movements. Of course, a big part of movements is allowing for people to move. Right. And I think internationally, that’s important, but also nationally, that might be very important. And I think in some sense, right? I don’t think this is always expressed this way, but the worry about gentrification, right, in this sense, is quite real, because if a certain class of people is pushed out of the city, it’s in some sense, also denying them the connections to these very valuable networks. And so you might think that there is a real question also about equity, about who gets to live in the city or who can afford to live in a city?
Obviously, a very important moment of making connections is education. Right? So I think it would also make you look at education somewhat differently in the sense that it’s very much about making connections rather than only about acquiring knowledge whether you develop human capital.
Erwin Dekker 24:54
Sometimes I describe cities as just major matching markets, right. There are a lot of individual’s and they’re trying to match. They’re they’re trying to do that, of course in terms of relationships and finding a partner. But they also do that in terms of finding other people with like-minded interests, and those like-minded interests might turn into shared practices and those shared practices might eventually give rise to commercial ventures or markets or something of the sort.
Mark Pennington 25:22
So there’s an interesting chapter in the in the book by Martin Ricketts, and Terence Kealey, whom we’ve actually had come here to present to our group, where they talk about the importance of what we call ‘contribution goods’ in the context of scientific knowledge, which they claim underpin the industrial revolution. So they’re basically saying that arguments around the notion that knowledge is a sort of quasi-public good that people will want to keep private. Because if they reveal knowledge that they’ve secured, somehow other people can free ride off it. They argue that that’s the wrong way of thinking about it. Can you say a little bit more about what they mean by this notion of a ‘contribution good’ and how it relates to those kinds of questions.
Erwin Dekker 26:12
Yeah, so I think they have they have a wonderful chapter, which discusses, I wouldn’t necessarily call it scientific knowledge, because I think a lot of the arguments in the book are in fact about kind of practical know how, the ‘knowledge commons’ that exists around around markets. I don’t think these are necessarily scientific knowledge as they are almost trade knowledge. Indeed, its about knowing how to make make exchanges, knowing how to make connections, and so it’s a kind of more more practically oriented knowledge.
One another good example thatI think has in the book is that crafts have developed very much in this way, right, and transmitting sort of practical know how, from a monster to an apprentice, and the like. But that to get back to, what they’re saying is that they’re saying that what was unique about this period, especially in England was that a lot of societies came about, which facilitated the exchange of knowledge, often including both scientists as well as entrepreneurs. And they contributed. And this notion of the contribution we think, is a pivotal importance to understand how knowledge commons function, because in some sense, right, it is a genuine collective action problem. And that means that the problem lies in the fact that nobody has or would have a private incentive to contribute, because making the contribution is costly. And so you, we somehow have to find a way to incentivize people to want to contribute.
Now, again, my thinking here is a bit inspired by cultural scenes. A lively cultural scene makes people want to be part of that scene. Well, in order to be part of the scene, you often have to be something of an artist yourself or something of a creator yourself, you have to have something to offer, otherwise, you will be excluded from the party, so to say, and I think they make the same argument there for scientific clubs, or these book clubs or others, where membership is sort of dependent on you being an interesting conversation partner, are you having something to add? Are you doing some experiments at home about what you can tell? Right? So in some sense, you have to become a practitioner, they develop that even into the idea that knowledge has to be activated. So sometimes economists like to think about knowledge as a public good. Well, it’s written down in books, so everybody has access to it. But I think a good look at actual scientific practice means that you have to engage with it quite often, and often in conversation with others to really understand what’s what’s in those books and why that is a value and why that’s relevant. So I think they do a really good job of describing that. And I think one of the key points in their theory is that there needs to be something of a critical mass. Because there’s a critical mass of other people contributing, it becomes interesting enough for you to also join the group.
That means that there’s a kind of an initial first mover problem, like who sets up the first pool. And so that might be a genuine collective action problem that might even be under supplied. I don’t know that we’d have to analyse in specific instances, but it’s not obvious that it would get off the ground, because the first three people are basically putting in too much work. And then through the 20th person that comes in gets the benefit from what the first 10 have already developed, while making only marginal additional contributions. But once it’s off the ground, I think it explains very well, why people would want to continue contributing to that. As long as it’s lively, and as long as other people are continuing to contribute. One of the other chapters actually develops this notion of willingness to contribute next to willingness to pay. So to say that willingness to pay is how markets function, whereas how knowledge pools function and sometimes also other cultural activities is by generating a willingness to contribute.
Mark Pennington 30:04
I very much enjoyed that chapter, it sort of opened my eyes to certain things. It’s actually they were saying that you have to be contributing before you are even in a position to talk about free-rider problem. In fact, there isn’t a free rider problem in a way that people traditionally talk about, except as he’s saying, the initial sense that there needs to be this critical number of people involved in a field in the first place, which I think they describe more as a sort of coordination problem where you need to get enough people, you know, in the same way that enough people have to drive on the right or the left hand side of the road for it to me, it made sense for others to do the same, you need a similar sort of process. I mean, that’s the way I read what they were saying about that.
Erwin Dekker 30:43
But I think I mean, if you think about, right, go back to the creative city, I think that on some level, the different industries are competing with each other for talent, and you would like, of course, the most talented people to contribute to whatever practice you have going on. So they so there is competition between these knowledge clubs, if you will, between these, these social practices to attract interesting young talents to to join them.
Mark Pennington 31:12
I mean, you mentioned at the beginning of the conversation that you know, it’s a bit of a caricature these days, perhaps to say that economists don’t take into account the institutions within which markets function. But how would you say that the way they understand the role of those institutions is different to the kind of emphasis that you’re placing in terms of how you understand the institutions, I mean, you are emphasising very much essentially, these kinds of cultural phenomena within which markets are embedded. Can you say a bit more about why you think that is very distinct? And I think it is very distinct from from the way, you know, even the more institutionally sensitive economists understand what institutions actually do.
Erwin Dekker 32:06
I think the standard view of institutions is that they are in some sense, external constraints. So they’re very important to the function of the market, but they have an origin outside of the market. And they operate as external constraints. In the same way that we might be constrained in a certain resource or, or something of that sort. And I think what our perspective suggests, right, is that institutional rules are themselves endogenous outcomes. They are endogenously generated.
So I think, I have worked on on the Austrian School of Economics before but if you think, look back at how Carl Menger talks about the evolution of money, he talks about that as an endogenous evolution of different types of money that can grow alongside markets, and that allow for different types of exchanges. And I think that process is ongoing, right? The euro is only 20 years old, which was meant to be a new stage of money, because the national money’s in some sense felt as a genuine constraint on inter country trade within the European continent. And now we see with cryptocurrencies we find, again, new ways of money, that aren’t seen specifically geared toward facilitating digital exchanges, right? That might be of a global nature. And that might be quite anonymous, compared to money changing hands beforehand, right? Where cash was a wonderful thing to have, right? You see it, you can touch it, and it facilitates interpersonal exchange. But that’s, of course, not how the digital economy works at all right? You’re typically 1000s of miles away from the person that you’re trading with. So you need a different type of money to facilitate that exchange.
And I think that evolution you can see in, in many other types of institutions, and we tried to pinpoint them. And that might be occasionally a bit vague, and I think we’re still very much looking for. So what are the other key areas but I just on a basic level, Menger was interested in the evolution of language and coming up with language concepts, or justifications for certain practices, is he’s very much he’s very much part of that part of that process. But it might develop much more, I think, the way we have now developed very sophisticated technology technologies alongside with institutions for sharing that knowledge, or sometimes restricting access to that knowledge, because that’s something we haven’t talked about. Right? That sort of governance has very much emerged alongside markets, and it’s still constantly being challenged, right. So I mentioned IP before but if you think about intellectual property and in relation to say music or movies over the past 2030 years, we see that that has evolved enormously. And all of those institutions have have have had to evolve alongside these markets. And then they make new new markets such as currently streaming platforms possible.
Mark Pennington 35:19
So on the point about restriction, and this is a question I was going to ask, which is that, when you speak about what are these arrangements for cooperation and sharing, a lot of people would see those, and you do sometimes see this in the discussion about cryptocurrencies as sort of conspiracy theories, as an attempt to restrict competition in certain ways, because people are doing these sort of deals amongst themselves. Is that just because people have a faulty understanding of the way competition works in these contexts? You know, that they’ve not recognised that cooperation, is part of competition to go up to what go back to what we were saying before? Or are there genuinely issues in these areas where some of these sort of knowledge sharing activities can also lead to sort of cartelistic behaviour that blocks markets and makes them quite exclusive in certain situations?
Erwin Dekker 36:09
No, I think the the worry about cartel-like problems are very real. I think one of the, one of the best chapters in in the book is by Michelle Vachris and it talks about the emergence of the market for single malt scotch whiskey. So now this was, despite what they will have you make believe that this was already done in the 18th century, in this way, is actually a quite recent invention. That this was the proper way to do it, which comes from a single type of grain, I believe, and has other restrictions do it. And this was a kind of new exclusive market category that was developed by one of the market leaders, but ultimately, in cooperation with other Scotch producers, right. And he became a very successful market category, that for which consumers, they have accepted it, right, they’re willing to pay a premium for this type of product, and they will, of course, a sparkling about the taste. But yeah, I think if if you analyse status markets, well, you understand that sometimes you’re also buying into status, so that that’s undoubtedly, part of what people are willing to pay for here. So they succeeded very well, but in generating a shared knowledge pool in having consumers be willing to believe in it. So in some sense, it was a convincing proposition. It was a successful ‘knowledge commons’.
And then they started protecting the Scotch industry. Because producers in both Australia and Japan and other countries sought to imitate it. They also wanted to sell single malt scotch, they were excluded from doing so. So they were denied access to the market category. The Scotch industry sought to team up with legislators in order to effectively protect their market. Right, and even though and then I think the dynamic is interesting, because in some sense, it’s there’s a class that just becomes a classic rent seeking story, which I think economists can analyse really well. But I would again, point us to the social side of the issue, and that is, why do consumers keep believing that single malt scotch is the thing they should buy? Even though blind taste tests and whiskey magazines human me unanimously agree that Japanese whiskey or Japanese Scotch is just as good, and perhaps they won’t, right. And then the previous understanding of what this product is, and what its essential properties are will be altered, and it will be much more referred to perhaps the production process, rather than the location, it might refer more to taste, brought it into the way it was produced. And we’ll see how that develops. But I think it’s important to see there that part of why it works as a rent seeking gig is not merely a legislative question, but it’s also a cultural story about why consumers want to buy only scotch, or want to buy only French wines.
Mark Pennington 39:18
That’s an interesting point, isn’t it? Because you’re talking here about very much in this whole discussion about markets as cultural phenomenon. And in one sense, you know, one might want to take a sort of cosmopolitan view that you know, you have multiple sort of cultures interacting. But at the same time, that seems to be I certainly perceived as in the world at the moment, I’ve pushed towards a kind of cultural protectionism as well, where people want to preserve what they see as the Scottish whiskey or the champagne or whatever it, and this is now happening on multiple dimensions, and it gets wrapped in with all kinds of other arguments. How do you explain that sort of phenomenon? Is it part of this process of, you know, addressing what might be a collective action problem? Or is it some evidence that people seem to have a need for all sorts of attachment to particular places or brands or whatever it might be? That just seems to arise wherever, wherever markets happened, but people do form these attachments that actually not that easy then to break down?
Erwin Dekker 40:35
I mean, it’s a very good question and one that in some sense, I think, is far beyond the scope of what I fully know. But I think this does allow us to speculate, right? I think, we suggest that markets are culturally grounded. So even if the products are sold, sold worldwide, the production process and the ‘knowledge commons’ associated with that might be quite local, say, in a global film industry, such as Hollywood, which stands still, yeah, it is protection is already in its production phase is very local and gone concentrated.
But isn’t it also true that consumers seem to be more and more interested in not buying an anonymous commodity, but in buying a product that is tied to a particular time and place. I think you see it much more broadly. So there’s also talk of the new craft industry. So if you think about what happened to the craft beer revolution, or even to the way barbershops look, right, they’re trying to recreate an authentic barbershop feeling that they locate somewhere in the past about, about a real grooming experience that that that one might have in there. You see it with the rise of modern cuisine, or a sort of desire for authenticity of various cuisines around the world. And I think, in part that shows that consumers are motivated by identity concerns, and that they’re buying into the meaning and the story of the product as much as they are buying into sort of the functional, functional specifics of a particular product. And I think our book has something to say about that, because I think, whereas the production might rely on a shared knowledge commons between the producers, I think in order to get the consumers interested in the product, there also needs to be a kind of ‘cultural appropriation’.
So people that understand the meanings that are attached to it. And this is not at all obvious, right? My, my former supervisor always told the example about the $200 pair of scissors that you could buy in Japan, because it was produced according to traditional craft methods. And now, of course, we could talk about the functional specifics of this pair of scissors and say, well, it’s much sharper, last longer or whatever. But probably, we’re not going to quite be able to explain why it’s 40 times more expensive than a pair of pair of scissors that you might buy around the corner. So what you’re embarked buying into is the story. And that story has to be told and shared and believed in that it has to be bought into almost. And when people buy that, right, they, they might also feel that they’re contributing to keeping a kind of practice and culture alive, right. So they’re buying a craft product and thinking that, in part, the transaction is not merely the willingness to pay for food, but it’s actually a form of a contribution.
And this might get much more active, right? There’s a famous analysis of say, fan cultures, and fan fiction, right? Consumers that actually start reducing and adding to the product or come up with new ways of using the product that has been produced by others. And so there, it’s very obvious that they’re adding something. But I think even the act of purchase and the fact that they’re doing that locally, or that they’re supporting somebody who produce it in a sort of authentic manner, date, understanding part as, as a contribution rather than merely a payment.
Mark Pennington 44:17
I think that’s interesting. I think the reason I asked the question, and maybe it’s unfair to ask you this, because it’s not really a topic of your book, but it’s just something that fascinates me at the moment, which is that I mean, if you think of this from a sort of Austrian economics type point of view, a lot of people within that tradition emphasise the value of sort of creative destruction within markets. If you think on on economic dimensions, the value that is placed on that you’re talking about cultural phenomena here and the fact that markets are always embedded in cultures. But it seems if we look around the world at the moment, people don’t like cultural creative destruction. I think it’s a good thing, but a lot of people seem to think it isn’t. And it fascinates me why? Why is that? You know, I don’t quite understand it myself. And it’s something that I’m just looking for others to tell me what’s going on in the world.
Erwin Dekker 45:17
I worked in a field that we always called cultural economics. And a natural outgrowth of that is the idea that we’re going to have a cultural economy that’s value driven, and, and the like. But I must say that what’s currently happening, I think, is that we’re seeing a value driven economy. I think a prominent example that we’ve seen recently is a lot of companies withdrew from the Russian market to express a value that they believe that most of their customers share, namely that Russia’s war in Ukraine or Russians invasion is illegal or morally wrong. And so these companies are expressing value. And I do think that this actually runs against what a lot of people, including myself find most attractive about markets, if we don’t have to agree on everything, it’s hard to still stay engaged and exchanges. But I think, right, these are, in some sense, two different, different discussions.
On the one hand, we can just observe how markets work, which we attempt to do in the book. And then we see that markets actually function better or, in some sense depend on agreeing more about how extensive that agreement should be, or it’s desirable, to have agreement to a very large extent. And it’s not so obvious. A lot of the authentic things that are currently being sold are also, like I said, quite recent invention. So they’re, in fact, innovations rather than traditions. So in some sense, they might satisfy your desire for a kind of sculptural, creative destruction, because people are rediscovering or reimagining what the 19th century cuisine is somewhere look like. And they’re putting on their 21st century version of that, and we all get to enjoy it. Which in some sense, you might also call a form of cultural exchange. Yeah, yeah.
Mark Pennington 47:17
Okay, I just had to ask that question. So all right, well, I wonder if we could move on to just I’ve sort of hinted at this a little bit. Earlier on in the conversation, I wonder if we just try and connect maybe some of the themes and in this book on knowledge commons.
So you have this, I think it’s a wonderful book on the, the students of civilization. And, you know, you address a range of thinkers there, most of whom, I guess, we would say, are within what sometimes called the Austrian tradition, but not exclusively. So. And the theme that comes out from that book is that this was, this was a group of people who saw the role of social science not to be one of sort of generating social engineering type solutions to social problems with a much more modest task of just trying to understand essentially, what kind of social processes operate. And you can interpret that in some ways as being quite, I mean, some people I guess, would say, it’s quite a negative or a conservative vision in the sense that you’re, you’re not putting forward grand proposals for how society should be reformulated. You’re just saying, you know, you have to accept that these kinds of processes unfold, we don’t know a lot about them, we can only know about a very broad outline. And that’s pretty well it. I wonder if you could sort of reflect on on how that vision connects, if it does at all to what you’re saying in this book. And I guess it goes back to the point I was making earlier about, is there anything policy can do to facilitate the emergence of the kind of structures that you’ve been talking about here that govern markets effectively?
Erwin Dekker 49:02
So I do think there are connections, but there’s also an important difference, I think, what I emphasise in that book, and I do that through the notion of students. Yeah, but I argued that the students even had almost a pre modern sensibility in the sense that they wondered at the world or marveled at the world. And that indeed, can sound very conservative in the way that you pointed out.
So I myself grew a little bit impatient with it, in some sense, because it allows almost for no change, not even quite clearly social change, though. The second half of the book, does try to argue how they reconceived their own role more as a sort of vendor or guardian of certain cultural traditions. But what I’ve I’ve done in more recent work is extent there that’s sensibility into the idea of an emancipatory role for students of society. I think this is very obvious or very clear in the work of Elinor Ostrom, if you read it is that you can work with communities to help them solve their own problems. And that is an emancipatory role in the sense that right, these are genuine problems that they’re struggling with. And it’s the community itself, or the society that comes up with solutions to its own problems. And in some part that’s, that can simply be studied, which is what a lot of our work did. But she wasn’t condemned to really study it in some well, sometimes we also encounter situations that are genuinely dysfunctional and are perceived by the people we study as dysfunctional. So we have to work with them in order to improve them. And that working with them, I think, is a very important difference, which I’m trying to explore in in a sort of philosophy of science manner. So how does that differ? What type of different attitudes does that require? What type of even different methodology because I think it requires a lot of sensitivity to the subjectiveness of problems?
Because I think a lot of social science proceeds from external problem definitions. We stand outside and we say, oh, populism is on the rise. That’s a problem. And therefore we have to do something about it rather than saying that maybe, populism is on the rise means that there is a subjective experience somewhere of people either favouring populism or being very set, fed up with the status quo and finding something very wrong with the status quo and opting for a different set of political leaders. Right. So it requires working with communities to solve their own problems must really be that we’re working with their problem definitions and problem definitions that arise somehow from our own academic concerns or something of the sort, but then I do think that there’s a role for some of this knowledge to emancipate others. It’s also it might become a bit more cancer mystic in the sense that, right, we look at how knowledge commons operate in different markets. And it’s kind of practical endeavour. And practical problems are very various and heterogeneity is at your genius. But there can certainly be learning between different sorts of practices and what, what makes some of them stale, and how we can revive them.
To give just one example, again, from sort of cultural policy is that when they first started protecting, protecting heritage, the stuff that we just talked about, they very much thought about heritage in terms of built heritage. So it was churches and monuments and other sorts of things that you could touch, and that clearly could be protected and restored and whatever else not. And I think now increasingly, they realise that what they in fact, should seek to keep alive is an engagement with this heritage. So in classical music, this is is very clear, right? You can preserve the original compositions as written down by by Beethoven or handle or whoever else. But of course, what you need to keep the heritage alive is you need to keep re performing it and the performers don’t quite agree whether we should that should do that in the most traditional way, with a period instruments or whether we should do that in modern ways to draw new audiences in. But it does show that but he’s really a value here. Right is the is the living heritage and after built heritage in sort of steel buildings. And I think that’s another way in which policy could be improved, or at least, right, this thinking about social activity gives us a different different angle on on, on traditional questions of policy.
Mark Pennington 53:47
What I’m getting at is a sense that a lot of academics, in my experience, and it’s probably true myself is that they’re not actually content to be students of civilisation. They actually want to get involved in things in a way that actually ends up with them. even if it’s not always explicit, imposing their particular frame. I’m not saying that happened with with someone like Ostrom, but arguably even people who do talk about, you know, the sort of bottom up processes sometimes can go in with a frame about how something should be grasped. And she herself was very keen. One of the things I like about her work as you talked about the importance of avoiding panacea traps. I guess it’s how, if you’re thinking about how this interact, this framework interacts with policy, how you can sort of get academics or policymakers or whoever to recognise that there are no one size fits all solutions to these sorts of issues.
Erwin Dekker 54:52
The world itself is of course always gonna have different set of sensibilities in them, right. So and there’s always going to be a lot of people who want to solve problems. But I think one of the things I try to emphasise in the students of civilization book is that one of the major goals that they solve themselves was to warn against certain types of solutions or certain ways of thinking, I think I was warning against fantasy, as is a good instance of that. The Austrian economists had a lot more to write about the dangers of trying to design large, large scale solutions to do problems. We can think about scale, right?
Yeah, Elinor Ostrom’s work is very good about scale. So it can lead to a bunch of cautionary tales. I think one cautionary tale that would follow from the social governance of markets is that don’t think that because there is no public governance, there is no governance at all.
Right, and we do this all the time in political sciences, where there is a very common idea that if there’s a failed state, there must be no governance at all. This is not at all true. There are all types of governance, you might not always like them. But I mean, it’s at least one very important cautionary tale is that there’s all sorts of governance structures that have emerged to govern these knowledge commons. And if we are going to improve something or build on them, we must first be able to recognise them and not think that they’re, they’re not there simply because there is not yet a public agency that’s concerned with it.
Mark Pennington 56:26
Okay, so what’s next for you? What’s the next project beyond this, this excellent book, which I strongly recommend everybody should read?
Erwin Dekker 56:39
Well, a bunch of things. But the first book that I’m currently working on, talks about realising the values of art. And it touches on a number of the things that we implicitly discussed here. But I think the main point of that book is that traditionally, when economists look at markets, and value creation, more generally, they look at the moment of transaction. This is best captured in our famous GDP measure, which is essentially adding up all the transactions that happen within a given calendar year, and then say, that’s the size of the economy. But it happens more generally. Because even when we don’t want to do GDP, we look at the size of markets, or you look at prices, and we think that the moment of interaction itself is where the value is being generated, or where we can read it off. And we want to show that, if we look well, at the arts, we see that a lot of value is being generated, even before things get to the market, because a lot of things don’t get through market, arches for a very important part and amateur and never, never reaches the market there were only reached the market, right? When your friends sinks in, acquire and then gets run performance a year, okay, but at one performance, you will buy a ticket and you will join him. But the most of the value that he gets out of it is in all the practice that he does throughout the year. And it’s that that activity itself that that’s the value. And then, so that’s before the transaction. And then after the transaction, there’s a whole process in which cultural objects get what is sometimes called valorized. So they become meaningful, or there, people attribute meaning to them, or they are contested, which is even more interesting, the value of them is contested. And all of that happens after the transaction, but is a very important process of, or very important part of the value process that we we seek to lay out in the book.
And then in line with my students of civilization book, I keep doing history of economics. So one of the things that I’m working on at the moment is with my co author, Stefan Kolev. We want to look at the German historical School, which is very, very sort of institutionally and historically oriented school, more hated than loved, I think, by nearly all schools of modern economics, including the Austrians, who famously clashed with them. But we want to suggest that their version of historical institutionalism was actually quite important in shaping economics in the first part of the 20th century. And there might actually be a lot of interesting ways of framing, thinking about the economy in their work that have been sort of fallen by the wayside because they don’t have a lot of friends in, in modern academia. So we are going to look at some of them. The working title is ‘The Children and the Bastards of the the German Historical School’.
Mark Pennington 59:41
Oh, that’s a wonderful title. And I can’t think of a better title.
Thank you very much for joining us today. And it’s been very good to talk to you and hope to talk to you again in the future.
Erwin Dekker 59:55
Thank you. Thank you so much. It was a pleasure.