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Kenneth Boulding's theories of evolutionary economics

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Kenneth Boulding's Theories

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Reconstruction
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Vladislav Valentinov
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Leibniz Institute of Agricultural Development in
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 JOURNAL OF ECONOMIC ISSUES
Vol. XLIX No. 1 March 2015
DOI 10.1080/00213624.2015.1013880

Kenneth Boulding’s Theories of Evolutionary Economics

and Organizational Change: A Reconstruction

Vladislav Valentinov

Abstract: I identify a discrepancy between Kenneth Boulding’s wide-ranging

contributions to evolutionary economics and his professed ecological approach to
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it. I argue that Boulding has undersold his true contributions to evolutionary
economics by trying to embed them into the ecological approach. I endeavor to
overcome this discrepancy by differentiating between two types of evolutionary
change analyzed in Boulding’s writings: ecological change and civilizational change.
In contrast to ecological change, civilizational change entails the possibility for the
evolving system to overstrain the carrying capacity of the environment, thus
suggesting the precarious relationship between civilizational complexity and
sustainability. This argument sheds new light on Boulding’s theory of “social
organizers,” such as exchange, threat, and the integrative system. Boulding’s
understanding of civilizational change envisages the key role of threat and exchange
in enabling civilizational complexity, while the integrative system is called upon to
make this complexity sustainable.

Keywords: capitalism, evolution, institutions, Kenneth Boulding, markets, open

systems

JEL Classification Codes: B31, B52, Q01

Kenneth Boulding is a paradoxical figure in the history of evolutionary economics.

His Ecodynamics and Evolutionary Economics are sprinkled with references to typical
evolutionary concepts, such as open and complex systems, cumulative causation,
positive feedback, Darwinian principles, self-organization, entropy, irreversibility, and
indeterminacy (cf. Elsner, Heinrich and Schwardt 2014). His outstanding posture in
the field of evolutionary economics, as well as in other economic, sociological, and
interdisciplinary fields, is beyond all doubt (cf. Mott 2000; Silk 1978; Solo 1994;
Troub 1978; Waters 2006). Indeed, Kurt Dopfer (1994) defined him as a founder of
evolutionary economics. And yet, despite the publication of a programmatic article

Vladislav Valentinov is a research associate at the Leibniz Institute of Agricultural Development in Transition
Economies. The author is grateful to Christopher Brown and the anonymous reviewers for their helpful comments. This
research is supported by the Volkswagen Foundation.

71

©2015, Journal of Economic Issues / Association for Evolutionary Economics

 72 Vladislav Valentinov

(Boulding 1991), Boulding’s contributions to evolutionary economics have apparently

failed to gain a foothold in the current evolutionary economics scholarship (cf.
Waters 2013; Wray 1994). One possible reason for this state of affairs is that
Boulding’s professed ecological approach to evolutionary economics is not perceived
as truly evolutionary (Khalil 1996). According to Elias L. Khalil (1996, 96), the
ecological “type of change is about fluctuations around a trend, while the evolutionary
type is about the trend itself.”
My main argument is that Boulding’s actual evolutionary economics program is
more encompassing than can be captured by the ecological and ecodynamic
perspective, which Boulding explicitly emphasized. A key evolutionary interest of
Boulding’s was the history and prospects of human civilization. This is evidenced by
Boulding’s wide-ranging explorations into the ecological and societal sustainability of
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capitalism. I argue that Boulding developed a distinct evolutionary understanding of

capitalism’s sustainability problems in ways that (while consistent with it) go beyond
his avowed ecological approach. Moreover, I contend that a key component of the
respective theoretical argument is found in his book, which Boulding associated more
with ethics than with evolutionary theory, The Organizational Revolution: A Study in the
Ethics of Economic Organization (Boulding 1984).
More specifically, I argue that Boulding was concerned with two types of
evolutionary change that can be called ecological and civilizational, between which he
did not seem to clearly differentiate. The ecological type of change takes center stage
in his main publications on evolutionary economics, and broadly falls in line with
what is known today as generalized Darwinism (cf. Hodgson and Knudsen 2010),
even though Boulding rejected the crude varieties of social Darwinism. The
civilizational type of change is directly concerned with the global problems of societal
and ecological sustainability, such as socio-economic underdevelopment, global
financial crises, ecological degradation, and climate change. Given that ecological
change, in line with generalized Darwinism, can occur at multiple levels, civilizational
change can be thought of as occurring at the highest possible level of societal
evolution — i.e., “one single world society,” in Niklas Luhmann’s words (1982, 135).
The main difference between Darwinian ecological change and civilizational change is
in the nature of the environmental control experienced by the evolving system. It is
natural selection for the former type of change and sustainability problems for the
latter type. The importance of natural selection in this regard has been acutely
discerned by George Liagouras (2009, 1061) in a paper exploring the non-Darwinian
elements in Veblenian evolutionary economics. “Natural selection mechanisms could
be more or less relevant at the micro level of competition between different individual
institutions or organizations. They could not explain, however, the emergent
properties of an entire socio-economic system.” In other words, this is “the
macroscopic level of human history” (Liagouras 2009, 1061).
The main research issue in the analysis of the civilizational type of evolutionary
change is the ambivalent relationship between complexity and sustainability. Much of
evolutionary economics literature is concerned with the mechanisms of the growth of
complexity, embodied in knowledge, technology, routines, and program-based
 Kenneth Boulding’s Theories of Evolutionary Economics 73

behaviors. At the same time, it is becoming increasingly clear that societal and
ecological sustainability presents another type of major problem critically requiring an
evolutionary understanding (e.g., Adkisson 2009; Hayden 2006). Boulding’s
contribution to disentangling the nature of civilizational change is in suggesting that
the evolutionary trajectories of civilizational complexity, on one hand, and
sustainability challenges, on the other, are inherently interconnected. This is a point
that he forcefully makes in The Organizational Revolution, placing particular emphasis
on the societal sustainability of business. The book presents a discerning analysis of
the way in which the rise of large-scale organizations, spurred by technological
progress, overstrains the societal tissue and thus gives rise to what Boulding called
“corrective” organizations (such as those of the labor movement and the farm
movement). This argument lays a foundation for an evolutionary theory of
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sustainability-oriented institutions aimed at overcoming the disruptive effects of the

rapidly growing complexity. This theory, in turn, potentially leads to new insights
about the societal significance of the nonprofit sector, a very modern theme that
Boulding presciently and famously addressed in his contributions on grants
economics (cf. Boulding 1981).

Economy: Embeddedness, Complexity, Sustainability

As a cofounder of the Society for General Systems Research, Boulding entertained an

inherently holistic and evolutionary vision of the economy as a complex system
embedded in societal and natural environments. According to him, an economy
presents “a product of the larger process of societal evolution … The boundaries
between an economy and the rest of society are not wholly clear. We generally think
of an economy as consisting of activities and institutions which are organized
primarily through exchange, and the production and consumption of human
artifacts, which enter into some sort of accounting systems and are evaluated by some
measure of value, usually money” (Boulding 1991, 9; Pluta 2013). The explicit
recognition of the societal and natural embeddedness of economy led Boulding to
stress the importance of cumulative causation and disequilibrating positive feedbacks,
even though his ecological perspective allowed him to discover evolutionary
implications even in the Walrasian general equilibrium model (cf. Valentinov
forthcoming; Valentinov 2012a).
The processes of evolution in the universe exhibit the time arrow pointing in the
direction of increasing complexity (e.g., Boulding 1981a, 32; 1991, 13). In the area of
economic development, this arrow involves “the increase of human know-how,” with
materials and energy being the “limiting factors which may prevent the
transformation of know-how into the product which the know-how knows how to
make. The increase in know-how, however, has continually pushed back the
boundaries at which these limiting factors come into play; for instance, in the
discovery of fossil fuels, especially oil and natural gas, and in the discovery of new
materials” (Boulding 1981b, 28-29). The growing know-how, in turn, results in the
phenomenon that Boulding (e.g., Boulding 1981a, 17) characterized as the expansion
 74 Vladislav Valentinov

of human niche through the production of artifacts, and it is this expansion that
ultimately leads to global sustainability problems. “In terms of their own evolution
humans have been well adjusted to expansion for probably 100,000 years and very
well adjusted to it for the last 10,000 years. The habits and institutions, and
technologies and ideologies that have had survival value have been those well adapted
to an age of expansion. Now that the age of expansion is coming to a close, a whole
set of new ideas and institutions that have not previously adapted well to survival will
become necessary for survival, and man’s whole future depends on whether he can
make this adjustment rapidly enough” (Boulding 1981c, 131). The concomitant
sustainability problems manifest themselves in “evolutionary traps” related to wars,
failure of economic development, population growth, and entropy (Boulding 1964).
The growing complexity of human civilization must be maintained by adequate
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institutional pillars which Boulding referred to as “social organizers,” such as threat,

exchange, and the integrative system, with each of these capturing a distinct form of
the societal embeddedness of modern economies (cf. Adkisson 2014). While all three
of these social organizers are interrelated and crucial, they differ in regard to their
ability to accommodate the civilizational complexity. For example, threat relationships
that underpin slavery-based societies accommodate less “evolutionary potential” than
exchange relationships that open up the prospects for the development of the social
division of labor (Boulding 1988, 10). However, exchange relationships, while
accommodating substantial complexity, fail to “create community, identity, and
commitment ... This, indeed, is one of the great weaknesses of capitalism, which is
organized principally through exchange. It may not be able to attract through its
institutions that minimum of loyalty, devotion, and affection necessary to maintain
them. Joseph A. Schumpeter was perhaps the first economist to point this
out” (Boulding 1981c, 33). The role of the integrative system is in delivering precisely
this type of legitimacy through “community, identity, and commitment” that was of
concern to Schumpeter (1993). Thus, ensuring the sustainability of the growing
civilizational complexity calls for an increasing reliance on exchange relative to threat,
and on the integrative system relative to exchange (cf. Underwood, Friesner and Cross
2014; Russo 2014).

Two Types of Evolutionary Change

In the preceding section, I showed that Boulding did have a macroevolutionary vision,
which encompasses a number of secular trends, such as that of the growing
civilizational complexity. Contrary to Khalil’s (1996, 96) remark, this vision is by no
means limited to fluctuations around trends, even though Khalil is right in pointing
out that the ecological perspective advocated by Boulding is more concerned with
fluctuations rather than with trends themselves. It seems, therefore, that there is a
discrepancy between Boulding’s macroevolutionary vision and his ecological
perspective. To help disentangle this discrepancy, in the following subsections I
reconstruct Boulding’s understanding of the ecological perspective and discuss the
way in which this perspective has to be extended in order to accommodate his
macroevolutionary vision.
 Kenneth Boulding’s Theories of Evolutionary Economics 75

Ecological Change

As mentioned above, Boulding’s central vision of the evolutionary perspective is

that of ecological interaction (e.g., Boulding 1981b, 11; Khalil 1996) occurring
essentially through the general Darwinian forces of mutation and selection. Its
fundamental principle is “the bathtub theorem,” boiling down to a very
uncontroversial statement that “the increase in the quantity of anything is equal to
the additions minus the subtractions” (Boulding 1981b, 11). Ecological interaction
occurs between “populations of species of all kinds which affect each other, under
conditions of constantly changing parameters” (Boulding 1981b, 23). Furthermore,
populations interact “with each other and with their environment in such a way that
each species has a growth function; its rate of growth is a function of its own
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population and the population of each of the other species with which it
interacts” (Boulding 1991, 10). The ecological interaction led Boulding to
conceptualize “the ecological equilibrium” as “a situation in which the population of
each of the interacting species occupies a niche. That is, it is neither rising nor
falling,” even though he explicitly acknowledged that any real-world evolution “never
exhibits a true equilibrium but is always subject to constant change” (Boulding 1981b,
100).
Given the possibility of interpreting the ecological interaction in terms of
equilibrium-seeking forces, it is not surprising that Boulding regarded this interaction
to be essentially consistent with the neoclassical theory of market equilibrium. “The
connecting link here is that the relative price structure under given conditions of
demand is a function of the relative stocks of the different commodities” (Boulding
1981b, 35). This led Boulding to see the relative price structure as the mediator of the
ecological interaction between “commodity species” (1981b, 56) and to identifying the
biological equivalents of the price structure, such as food shortages, housing
shortages, predation, and maternal care (1981b, 88). Along these lines, Boulding
developed a generic evolutionary and systems-theoretic interpretation of the central
neoclassical concepts, such as opportunity costs, terms of trade, and supply price. For
example, he argued that systems, regardless of their specific nature, might withdraw
their performance if they do not receive adequate “supply prices” from their
environment, or, in other words, if their terms of trade become too unfavorable
(Boulding 1988, 20).
The central implication of the ecological perspective for any evolving system is
that the external environment of that system is bound to constrain its development
beyond a certain point (Boulding 1981c, 131), with space being the ultimate
environmental constraining factor (Boulding 1992). Illustrations of this central
implication include “the law of diminishing returns in economics” (Boulding 1981b,
11) and “the principle of increasingly unfavorable environment” for formal
organizations (Boulding 1984, 22). It seems, however, that the validity of this
implication extends beyond the ecological perspective itself. It is undoubtedly true
that the environment may constrain the ongoing expansion of the system through the
mediating mechanisms, such as the price structure or its functional equivalents.
 76 Vladislav Valentinov

However, it is evident that the environment may constrain the development of

systems also if it does not consist of other comparable systems, as the ecological
perspective posits. Indeed, in Boulding’s conception of ecological interaction,
populations are constrained by their environment which consists, among other things,
of other populations. At the same time, in analyzing the evolution of human society
as a whole, Boulding likewise referred to environmental constraints, even though the
environment in this case has a very different nature.
For example, in viewing economic development as “a process in the increase of
human know-how,” Boulding (1981b, 28-29) argued that its relevant environmental
constraint factors include materials and energy, the nature of which is clearly different
from that of the know-how. The same distinction applies to the case of the
continually expanding human niche that is limited by the natural environment
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through resource depletion and ecological degradation. Both examples are similar in
that the evolving system is defined in such a generic way that no more than one
system of the respective kind is conceivable. A good illustration of such a generic
definition is provided by Luhmann’s concept of world society. “[I]f all social systems
today belong to one single world society, the theory of evolution faces a new kind of
problem: the level of sociocultural evolution is presented by one system
only” (Luhmann 1982, 135). To emphasize its difference from ecological evolution,
the evolution of “one system only” will be referred to as civilizational. The next section
summarizes Boulding’s insights into the nature of civilizational evolution and its
major differences from ecological evolution.

Civilizational Change

The idea of the civilizational evolution critically hinges on the above mentioned
difference in the material nature of evolving systems and their environments. In the
ecological perspective, systems and environments have the same nature, and it must
be for this reason that systems continually experience the environmental pressure to
evolve toward “ecological equilibrium.” Civilizational evolution is similar to ecological
one in that the carrying capacity of the environment remains limited. Yet, in contrast
to ecological evolution, civilizational evolution is not necessarily guided by forces that
seek to bring it into the state of what could be called “civilizational equilibrium.”
Civilizational evolution does presuppose that evolving systems face environmental
constraints, but it does not presuppose that systems are sensitive to these. While
ecological evolution is effectively governed by the structure of alternative costs, which
is “an important property of all ecosystems” (Boulding 1981b, 58), there seems to be
no comparable self-regulation mechanism for civilizational evolution.
As a result, the main problem of civilizational evolution is markedly different
from that faced by ecological evolution. This problem no longer consists of reaching
equilibrium. Rather, it is about attaining sustainability, simply understood as the
prospect for an indefinitely long existence of the all-encompassing system in a given
environment (cf. Valentinov 2014a, 2014b). In order to be sustainable, the all-
encompassing system must not overstrain the carrying capacity of its environment,
which does not necessarily impose “preventive checks” on the system, as would likely
 Kenneth Boulding’s Theories of Evolutionary Economics 77

happen in many instances of ecological evolution. Boulding’s major concern was that
attaining this sustainability presents a major practical challenge of utmost importance
for the mankind. Indeed, he argued that “at the moment the economic system is what
may be described as a throughput economy. We extract ores and fossil-fuels; we
process these into commodities and in doing so produce negative outputs of
pollutants, that is, undesirable products of human activity with a negative value.
These we dispose of in pollutable reservoirs, which might almost be called negative
mines. This one-way street of the economic system clearly cannot maintain traffic
forever” (Boulding 1988, 42).
The very fact that this traffic has already been maintained for a considerable
length of time, and could be continued in the future with catastrophic consequences,
highlights the basic difference in the ecological and civilizational types of evolution.
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The concepts of both “throughput economy” and its opposite “spaceship economy”
are conceivable only at the civilizational level. To revert to an earlier example,
Boulding argued that in an ecological setting individual populations might withdraw
their performance if they do not receive an adequate “supply price” — that is, if they
perceive themselves as exploited by their environment. By contrast, civilization
evolution entails a probability that exploitation happens the other way around:
Systems may exploit the environment and pay the price in terms of their lacking
sustainability. The stabilizing effect of alternative costs at the ecological level
(Boulding 1981b, 58) gives way to the continual accumulation of “social costs,” in
Karl William Kapp’s (1977, 2011) sense, at the civilizational level, without effective
preventive checks.
Is there any positive chance that the current trajectory of societal evolution
would be effectively reoriented toward the goal of sustainability? According to
Boulding, if there is any, there are no automatic equilibrium-seeking forces that could
be relied upon to use it. “[T]he achievement of a society compatible with the human
race’s evolutionary potential is not something that will come automatically of itself
but something that will demand an intellectual and moral effort of an intensity of
which the human race is undoubtedly capable but has not yet achieved” (Boulding
1981c, 136). It is evident that among the three types of social organizers discussed by
Boulding — exchange, threat, and the integrative system — this effort is undertaken
within the integrative system. Backed by the threat system, exchange continually
generates civilizational complexity that, as Boulding argued, is not necessarily
sustainable. It is up to the integrative system to secure this sustainability in regard to
both societal and natural environments. In the next section, I reconstruct the way
Boulding’s theory of “organizational revolution” illuminates this effect of the
integrative system.

The Mechanism of Civilizational Change:

The Case of Organizational Revolution

Boulding’s (1984) book, The Organizational Revolution, develops an evolutionary

argument that is evidently civilizational rather than ecological in nature. Boulding
 78 Vladislav Valentinov

referred to several secular societal trends which, according to Khalil (1996), cannot be
accommodated into the ecological perspective. One of these trends is captured by the
book’s title. The organizational revolution “consists in a great rise in the number, size,
and power of organizations of many different kinds, and especially of economic
organizations” (Boulding 1984, xi). Boulding attributed this revolution to another
secular trend — that of the technological progress, particularly the tremendous
advance in the transportation technology which resulted in “the immense reduction
in the limitation imposed on man by space” (1984, 25). Another trend is the
progressive marginalization of a number of social groups other than those occupying
positions of power in large organizations. The last trend regards the members of these
groups that create nonprofit organizations and protest movements to suppress the
emerging power imbalances. All in all, these trends fit well into the overall scheme of
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civilizational change. Evolution of civilizational complexity is followed by evolution of

the integrative system seeking to make this complexity sustainable. In the next
subsections, I reconstruct the mechanism of organizational revolution along the lines
of this scheme.

Evolution of Complexity

Technological advance, which Boulding defined as the main driving force

behind the organizational revolution, evidently presents a specific manifestation of
what he elsewhere called the time arrow pointing in the direction of increasing
complexity (see above; cf. Boulding 1981a, 32; 1991, 13). Accordingly, he looked “for
the major part of the explanation of the ‘organizational revolution’ from the side of
supply rather than from the side of demand; that is to say, in the improvement of the
skills of organization and in the ability of organizations to grow rather than in any
great increase in the demand for the special needs which organizations as such
serve” (Boulding 1984, 21). Alternatively, to the extent that technological progress
happens, it must do so in no other way than within organizations which provide a
necessary protective shell for the development of technology (cf. Galbraith 1967;
Hodgson 1988; Schumpeter 1993).
How do organizations manage to practically deal with substantial technological
complexity both within and outside themselves? Boulding made several highly
insightful suggestions. First, organizations may be effective processors of complexity by
virtue of their hierarchical nature. Echoing Herbert A. Simon (1996) and Ervin
Laszlo’s (1972) analyses of hierarchical order, Boulding (1984, pp. xxxvi ff.) referred to
the ability of organizations to economize on the “limited powers of the human
individual … to receive information, to assess its relevance to the role which he is
playing, and to interpret the information in the form of orders … The hierarchy,
therefore, acts as a sieve for information and as an analyzer of orders, preventing
unnecessary information from reaching the top, transforming at each level some
information into some orders, and expanding the general orders which come down
from the higher levels into particular orders at the level of execution.” Second,
organizations contain and process complexity by virtue of their open system character
 Kenneth Boulding’s Theories of Evolutionary Economics 79

(cf. von Bertalanffy 1968). As open systems, organizations maintain a complex

structure “in the midst of some kind of throughput of materials” (Boulding 1988, 5),
and they do so in large part by developing self-regulation mechanisms that presents
“defensive machinery” protecting them from random changes in the environment
(Boulding 1988, 7).
Boulding’s emphasis on “defensive machinery,” which isolates the intra-
organizational maintenance of technology from disruptive environmental influences,
evidently parallels the Galbraithian and Schumpeterian arguments about the
association of technological advance with market power of corporations. However, he
seemed to have identified a generic systems-theoretic justification for this “defensive
machinery.” It is straightforward that the intra-organizational maintenance and
development of technology requires the respective organizations to be stable.
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Boulding’s interesting systems-theoretic insight is that ensuring the organizational

stability may require limiting the organizational responsiveness to the environment.
“Response is an important aspect of human behavior in all fields and is always
important in determining the general dynamics of the social system. Systems which
are responsive, that is, systems in which a given perceived change in the environment
produces a large change in behavior, are apt to be much more dynamically unstable
than systems which are unresponsive” (Boulding 1988, 73). The overall systems-
theoretic argument that can be surmised from the above ideas is that the systemic
responsiveness to the environment is, broadly speaking, inversely proportional to the
systemic ability to maintain internal (e.g., technological) complexity. As a prominent
systems theorist, Luhmann (1998, 68) adhered to a rather similar argument
stipulating that systems become able to develop their internal complexity in no other
way than by becoming insensitive to the complexity of the environment. The
suggested similarity to Luhmann is particularly visible in the way Boulding contrasts
information and knowledge. “It is a very fundamental principle indeed that
knowledge is always gained by the orderly loss of information, that is, by condensing
and abstracting and indexing the great buzzing confusion of information that comes
from the world around us into a form which we can appreciate and
comprehend” (Boulding 1988, 2).
Suppressing the organizational responsiveness to the environment and
organizing “the orderly loss of information” (Boulding 1988, 2) lead to ethical issues
which are of central concern in Boulding’s organizational revolution. Broadly speaking,
these issues emerge out of the tendency of organizations to disregard their
environment and grow exponentially as they (the organizations) gain power. Boulding
referred to the “two-sidedness of organizations,” which is a concept sufficiently
important to justify an extended clarifying quotation:

Many of the dilemmas are created by the fact that organization is on the
one hand an expression of solidarity within the organized group, and on
the other hand an expression of a lack of solidarity with those outside the
organization. Organization, in other words, may tend to accentuate the
division between an “in-group” and an “out-group.” Almost every
 80 Vladislav Valentinov

organization, therefore, exhibits two faces — a smiling face which it turns

toward its members and a frowning face which it turns to the world
outside. (Boulding 1984, 10)

A characteristic illustration of this two-sidedness can be found in the national

state. Referring to the benefits that the state may confer on its citizens, Boulding
argued that “internally, the national state is a genuine expression of that concern for
the welfare of others which is the essence of Christian love. Externally, however, it
often presents a shockingly different picture. The state which protects and cherishes
the children of its citizens ruthlessly bombs the children of its enemies. Viewed from
the outside, every state is a potential monster, willing to sacrifice in its own defense
every consideration of mercy, love, tenderness, or concern” (Boulding 1984, 10).
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Boulding does identify a number of additional ethical problems, such as the

tendency of organizations to impose on their members their own laws, “which may
not be consistent with the purposes of these members” (1984, 10), or to persist long
after they have ceased to meet members’ needs (1984, 74). The main ethical problem,
however, regards the two-sidedness that ultimately boils down to the impossibility for
an organization (or system) to encompass its whole environment. In this vein,
Boulding notes that the group-specific ethical motivation, “by the very intensity of its
association with a group which is less than the whole, comes to stop all the more
sharply at the boundaries of the group … there is no carryover beyond the organized
group into society at large” (1984, 215). To summarize, if complexity is to evolve, it
must be contained within organizations (or, more generally, systems) which must
disregard at least some parts of their environment, and this disregard is the key ethical
problem addressed by Boulding’s theory of organizational revolution (Valentinov
2013a, 2013b). The ethical significance of the organizational revolution reflects its
adverse impact on the civilizational imperative of sustainability in ways discussed in
the next subsection.

The Emerging Sustainability Challenge

The concurrence between Boulding and Luhmann in acknowledging the

limitation of systemic responsiveness to the environment as a prerequisite for intra-
systemic complexity can be continued further. Luhmann explicitly stresses that
systems, which develop their own complexity at the cost of ignoring the complexity of
the environment, end up becoming unsustainable in the environment concerned. “[T]
hrough operational closure, systems develop own degrees of freedom, which they can
exhaust as long as it is possible, that is, as long as the environment can tolerate it …
The overall effect [of operational closure] however is … not adaptation, but
amplification of deviations” (Luhmann 1998, 133, own translation).
It appears that, in The Organizational Revolution, Boulding (1984) developed a
broadly comparable argument. By gaining considerable power, private profit-seeking
corporations overstrain the societal environment in much the same way in which the
Luhmannian society overstrains the natural environment. Boulding illustrated this
 Kenneth Boulding’s Theories of Evolutionary Economics 81

overstraining with the example of lowering the relative status of workers and farmers,
who respectively seek redress through the labor- and farm organization movements.
This worker example is particularly instructive. “The rise of the labor movement is
closely related to the fact that business enterprises by their very nature cannot provide
the worker with adequate status in them” (Boulding 1984, 19). Just as Luhmann
believes people to be in the environment of social systems, Boulding argued that
“workers are part of the environment of the enterprise rather than part of the
enterprise itself … Their relationship with the enterprise is continually limited by the
fact that they can quit at any time and try to get a job in some other
enterprise” (Boulding 1984, 19).
At the same time, the relegation of the workers to a lower environment is just a
specific manifestation of how corporations achieve their (technological) complexity by
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practicing two-sidedness (which involves restricting the organizational sensitivity to the

environment into which the workers have thus been placed). To Boulding (1984, 91),
the demotion of workers in the environment enables an “economy in personal
relationships” that is necessary for preventing the organization from “break[ing] down
through its sheer inability to run its switchboard of communications.” The
organizational capacity for maintaining internal (technological) complexity is present
only when “the enterprise can get on with its business, limiting its relations with the
workers solely to what is essential to the conduct of the business, and not trying to be
a ‘family’ in which complete and therefore complex personal relationships are
maintained among all the members” (1984, 90). Incidentally, this is how Boulding
explained the continual failures of cooperative organizations that have focused on the
social relationships among members (1984, 91).
Boulding (1984, 109) considered both the labor- and farm organization
movements “as different aspects of a larger movement, which in its social aspect is a
movement for equality of status and mutual improvement on the part of the lower
status groups and in its economic aspect is a ‘revolt against the market’.” The
emergence of the lower status groups, or the marginalization process, is a
manifestation of the societal sustainability problems resulting from the power
imbalances induced by the tendency of technological progress to enhance the power
of private profit-seeking firms (cf. Navarra and Tortia 2014). By seeking to restore
these imbalances and to improve the status of disadvantaged groups, both movements
contribute to societal sustainability of business activities practiced within the private
for-profit sector. It appears, however, that Boulding’s understanding of the labor- and
farm organization movements is applicable to the modern nonprofit sector more
generally. As Helmut K. Anheier and Lester M. Salamon (2006) have found out, the
most important activity areas of nonprofit organizations worldwide are social services,
education, healthcare, culture, professional representation, civic advocacy, and
environmental protection. This finding can be readily interpreted along the lines of
the Boulding’s theory of organizational revolution. The activity areas of nonprofit
organizations indicate societal problems that are perceived to be marginalized by
evolution of the for-profit sector. In John K. Galbraith’s (1967) terminology, these
problems refer to life dimensions neglected by the industrial system, such as social
 82 Vladislav Valentinov

welfare, aesthetic achievement, and freedom. Marginalization lowers the status of

stakeholders who are affected by these problems. Just like the labor- and farm
organization movements restore the relative status of workers and farmers, diverse
nonprofit organizations serve to restore the relative status of people affected by the
state of development of social care, education, healthcare, culture, professional
representation, civic advocacy, environmental protection, and other relevant areas.
An implication of the above argument is that the concept of civilizational
change opens up new prospects for evolutionary theorizing about the role of both
nonprofit organizations and for-profit firms (cf. Stecker 2014; Valentinov and
Chatalova 2014; Valentinov 2012b, 2012c, 2012d). While organizational change has
long been important part of the modern field of nonprofit studies, it seems to have
been primarily limited to an ecological understanding of evolution (cf. Galaskiewicz
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and Bielefeld 1998). In a civilizational understanding, the evolutionary role of

nonprofit organizations is evidently in lessening the strain exercised by the for-profit
sector on society, and thus in making civilizational complexity more sustainable. In
the proposed understanding, the nonprofit sector evolved as a functional equivalent
of the price system as it performs the same self-regulating function for society as the
price system does for the for-profit sector (cf. Atkinson 2013, 365). Conversely, the
main implication of civilizational change for the evolutionary understanding of the
for-profit firm is the need to extend this understanding by including sustainability.
Evolutionary theorists have developed diverse ways of demonstrating that the for-
profit firm is a carrier of complexity codified in knowledge and routines, with
Darwinian principles reflecting a major mechanism of how that complexity grows (cf.
Hodgson and Knudsen 2010). However, while effectively explaining complexity,
Darwinian principles do not provide a straightforward answer as to why complexity at
some point exercises a strain on sustainability. It remains a task for further
evolutionary research to explore the ways in which the for-profit firm — and the
private for-profit sector as a whole — evolve toward both increasing complexity and
sustainability ideal (cf. Elsner 2012).

A Systems-Theoretic Note

The final point that seems worth mentioning is that Boulding considered his
ecological approach not just an approach to evolutionary economics. In a
foundational article on the general systems theory, he argued that concepts, such as
populations and ecosystems, cut across a wide variety of scientific disciplines, thus
holding substantial promise for their unification (which Boulding saw as a central task
for the general systems theory to address) (Boulding 1956). Very likely, it is precisely
the systems-theoretic significance of these concepts that led Boulding to use them in a
way that is much more encompassing and abstract than what the concept of ecology
would normally allow. More specifically, Boulding’s ecological approach is by no
means limited to studying the relations of organisms or living things with their
environment. Rather, he stated that “the most fundamental concept of the universe is
that of a species or a population [which is] a set of individuals or objects each of
 Kenneth Boulding’s Theories of Evolutionary Economics 83

which conforms to a common definition” (Boulding 1981a, 11), with ecosystem being
a “system of interrelated populations” (Boulding 1988, 23).
The systems-theoretic significance and value of Boulding’s ecological approach
are well illuminated by Luhmann’s distinction between the two philosophical
traditions of systems thinking — the part-whole paradigm and the system-environment
paradigm (cf. Luhmann 1991, 37; 1999a, 171ff; 1999b, 23). Simply put, the part-
whole paradigm, which Luhmann finds deficient, seeks to show in what ways the
whole is more complex than the part, without being concerned with the whole’s
environment. The system-environment paradigm, which Luhmann endorses,
underscores the potentially precarious relations between the whole and its
environment (without disagreeing that the whole may be indeed more complex than
the part). It is evident that Boulding’s ecological approach falls in line with the part-
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whole paradigm as this approach is geared toward analyzing the patterns of complex
interaction among individual populations within an ecosystem, and does not have
clear conceptual tools for investigating the potentially precarious relations between
the ecosystem itself and its encompassing environment. Indeed, some of Boulding’s
statements seem to consciously relativize the very concept of environment. “There is
no such thing as an ‘environment,’ if by this we mean a surrounding system that is
independent of what goes on inside it … Everything is the environment of everything
else” (Boulding 1981a, 31).
The proposed distinction between ecological change and civilizational change
corresponds to a rethinking of Boulding’s ecological approach in terms of the system-
environment paradigm. This paradigm assumes the relevant ecosystems to exhibit
operational closure — i.e., the qualitative difference between the nature of inputs and
outputs, on one hand, and the nature of intra-systemic operations, on the other (cf.
Valentinov 2014a, 2014b). Ecological change reflects the dynamics of interaction
patterns of individual populations within the relevant ecosystem. Civilizational
change encompasses the repercussions of ecological change on the ecosystem’s
environment, as well as any environmental happenings that might affect the dynamics
of interaction patterns of individual populations within the ecosystem. The condition
of operational closure logically holds because the environmental effects and
determinants of ecological change are qualitatively distinct from ecological change.
The substantive effect of operational closure is that the ecosystem may not have the
channels or organs for registering environmental happenings, and thus may fail to
react to these happenings in a way that ensures its own sustainability.
The divergence between ecological change and civilizational change can be seen
to arise from the combination of the condition of operational closure with the
condition of the causal interdependence between the ecosystem and its environment
(cf. Luhmann 1999a, 195). For example, in the case of ecological interaction between
Boulding’s “commodity species,” ecological change takes the form of these species’
allocation and circulation, whereas civilizational change includes the effects of this
allocation on the societal and natural environment. These effects may include socio-
economic deprivation, climate change, and depletion of natural resources. Or, in the
example of Boulding’s “organizational revolution,” the relevant ecological change is
 84 Vladislav Valentinov

the rise of business corporations. The related civilizational changes include

technological progress, socio-economic marginalization, and the emergence of protest
movements and institutions.
Furthermore, reorienting Boulding’s ecological approach toward the system-
environment paradigm throws important sidelights on the complementarity of the
concepts of equilibrium and sustainability. Boulding (1981b, 100) defined the
ecological equilibrium as a situation in which the population of each of the
interacting species is neither rising nor falling (i.e., a situation in which a given state
of the ecosystem is not subject to any forces leading to change). This definition can be
qualified and extended along the lines of the system-environment paradigm. In this
view, both equilibrium and sustainability present situations where the ecosystem is
not subject to any forces leading to change, with the understanding that these forces
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can be intra-systemic and environmental. It is evident that the concept of equilibrium

is defined in relation to intra-systemic forces, whereas the concept of sustainability —
in regard to environmental forces. Sustainability thus presents a state of the ecosystem
that will not be violated by environmental forces for an indefinitely long time. As
mentioned above, Boulding (1981b, 100) did not believe that any real-world evolution
would end up in a stable equilibrium. Nor are there any reasons to believe in the
stability of sustainability states of the real-world ecosystems. In the real world, both
equilibria and sustainability states are continually disturbed, primarily by the trends of
know-how increase and the expansion of human niches, both of which involve
processes of positive feedback. Individual ecosystems may likewise exhibit positive
feedback (Khalil 1996, 97ff.) as well as overshooting patterns (Boulding 1992) that
explain why equilibrium states can be approached in a cyclical fashion, or even be
fully replaced by cyclical patterns.
In light of the suggested complementarity between the concepts of equilibrium
and sustainability, civilizational change can be taken to mean the evolution of the
concerned ecosystem’s sustainability as a result of ecological change. The concept of
civilizational change thus opens the door to social criticism implicit in the case when
this change involves the deterioration of sustainability. Studying ecological change on
its own would not generate such a criticism. George Liagouras (2009) must be given
full credit for recognizing this point in his penetrating analysis of Thorstein Veblen’s
evolutionary economics. He aptly notes that the Veblenian dichotomy, for example,
cannot be deduced from the Darwinian population thinking, in spite of Veblen’s own
endorsement of Darwinism. Rather, the social criticism generated by this dichotomy
is predicated on the vision of society at “the macroscopic level of the totality of
human history” (Liagouras 2009, 1056) rather than its vision as an ecosystem of
interacting populations. Therefore, it does not seem far-fetched to relate the critical
connotations of the Veblenian dichotomy to those of the Luhmannian concept of
world society which Luhmann sees as having been historically constituted by the
regime of functional differentiation. This regime is far superior to earlier forms of
societal differentiation (such as segmentary and stratificatory) in accommodating
civilizational complexity. Yet, it makes society inherently unpredictable, ungovernable,
and thus largely helpless against ongoing ecological degradation.
 Kenneth Boulding’s Theories of Evolutionary Economics 85

It is possible to distinguish between two broad types of civilizational change.

One type involves the deterioration of sustainability and occurs when the ecosystem
in question develops complexity that overstrains the environment carrying capacity. In
Boulding’s work, this type can be associated primarily with the threat and exchange
institutions. The other type of civilizational change denotes an improvement of
sustainability. This type is exemplified by the rise of institutions of the integrative
system, such as the nonprofit sector. Given that the deterioration of sustainability is
attributable to the operational closure of the ecosystem relative to the environment,
the systems-theoretic meaning of Boulding’s integrative system is in enhancing the
ecosystem’s sensitivity to environmental feedback. Enhancing the ecosystem’s
sensitivity forestalls the disruptive effects of its internal operations on the
environment, and thus broadly corresponds to what Karl Polanyi (2001) understood
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to be “the protective response” to the market system. “The protective response,” — i.e.
public regulations aimed at limiting the extent of market self-regulation — does not
interfere with the ability of the market system “to ensure the freedom of the
consumer, to indicate the shifting of demand, to influence producers’ income, and to
serve as an instrument of accountancy.” However, it does prevent this system from
being “an organ of economic self-regulation” (Polanyi 2001, 260). Paraphrasing
Boulding, the enhanced sensitivity of the ecosystem does not interfere with its
internal self-regulation, but it does expand the range of this self-regulation by making
it more receptive to its environmental consequences.

Concluding Remarks

My overall conclusion in this paper is that Boulding likely undersold his eminent
contributions to evolutionary economics by trying to embed them into the ecological
perspective. While this perspective is undoubtedly valuable in explaining the
dynamics of the interaction between populations, it can hardly incorporate
macroevolutionary scenarios, particularly the scenario of declining natural and
societal sustainability which was of major concern to Boulding. I identified the
specific gap between Boulding’s actual evolutionary story and his ecological
perspective as the concept of civilizational change which differs from ecological
change in several respects. Civilizational change is experienced by one all-
encompassing system (comparable to Luhmann’s “world society”) that differs from the
environment in its material nature, and it is not exposed to “preventive checks” that
would automatically prevent it from overstraining the carrying capacity of the
environment. As a result, the time arrow of the increasing civilizational complexity
(Boulding 1981a, 32) potentially transforms into the time arrow of the deteriorating
natural and societal sustainability of human civilization. The main contribution of
civilizational change is in pointing out the precarious relationship between complexity
and sustainability.
This contribution certainly has important precursors. Boulding himself
repeatedly refered to Joseph A. Schumpeter’s (1993) theory of societal unsustainability
of capitalism. In various ways, Galbraith (1967) and Kapp (1977, 2011) drew
 86 Vladislav Valentinov

attention to the problems of societal and ecological unsustainability of civilizational

complexity, embodied particularly in the operation of private profit-seeking firms.
Luhmann’s theory of social systems, and more specifically his theory of ecological
communication, comes probably closest to the proposed civilizational change concept,
since Luhmann directly explains the ecological predicament of modern, functionally
differentiated society in terms of a superior ability to process civilizational complexity.
Furthermore, Luhmann (1998) emphasizes that the “world society,” like other
autopoietic systems, is operationally closed and has no operational contacts with the
natural environment. The absence of these contacts is probably a good point of
departure in explaining why the “world society” may be overstraining the carrying
capacity of the natural environment without being immediately affected by this
overstraining. Boulding enriched these arguments, particularly by his theory of social
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organizers, such as exchange, threat, and the integrative system. He made it clear that
ensuring the sustainability of civilizational complexity is the central task of the
integrative system, while exchange and threat serve primarily to bring the complexity
into existence. He went to great lengths to demonstrate the importance of nonprofit
organizations in the integrative system. The challenge for further research will be to
explore the feedback mechanisms, which could transform “social costs” (reflecting the
overstraining of the societal and natural environment in the course of civilizational
change) into “alternative costs,” thereby guiding the effective adjustment of
populations to their environment in the ecological change framework.

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