I.S.S.N: 1885-6888

DEPARTAMENTO DE ANÁLISIS ECONÓMICO: TEORÍA ECONÓMICA E HISTORIA ECONÓMICA

Intentionality and technological and institutional

change: Implications for economic development

Félix-Fernando Muñoz, María-Isabel Encinar, and Nadia

Fernández-de-Pinedo

Working Paper 4/2014

ECONOMIC ANALYSIS

WORKING PAPER SERIES

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Intentionality and technological and institutional change: implications for

economic development

Félix-Fernando Muñoz, María-Isabel Encinar, Nadia Fernandez-de-Pinedo

Abstract: The interactive implementation of agents’ intentional actions generates new combinations that are

at the base of structural change and complexity and produce unexpected consequences. An interesting case of

study is provided by the absorption of new technology strategies for development. A common hypothesis is

that development requires an institutional arrangement that allows for the exploitation of imported

technology. However, historical examples (such as Cuba in the nineteenth century) show how the

technological choices of highly innovative entrepreneurial élites may generate a trap of development even

though institutions are conveniently adapted to accommodate new technology. To understand the nature of

this type of development trap, we introduce a micro-meso-macro analytical approach based on Dopfer & Potts

(2008). Institutions and technology are meso rule trajectories that coevolve in an emergence-dissemination-

retention process that interacts with both micro units (purposeful entrepreneurs) and the emergent macro

properties of the system (development). Within this framework, it is shown how such a strategy for

development may result in underdevelopment. The explanation is that, under special circumstances, the de-

coordination and re-coordination processes of meso trajectories may be unable to generate enough variety to

feed the evolutionary process, and they thereby catch agents in such a “techno-institutional trap”.

Keywords: intentionality, institutional change, techno-institutional traps, development

JEL: B52 – O10 – O33 – N16 – N26

Félix-Fernando Muñoz ()

Departamento de Análisis Económico: Teoría Económica e Historia Económica

Universidad Autónoma de Madrid

28049 - Madrid. (SPAIN)

E-mail: felix.munoz@uam.es

María-Isabel Encinar

Departamento de Análisis Económico: Teoría Económica e Historia Económica

Universidad Autónoma de Madrid

E-mail: maribel.encinar@uam

Nadia Fernandez-de-Pinedo

Departamento de Análisis Económico: Teoría Económica e Historia Económica

Universidad Autónoma de Madrid

E-mail: nadia.pinedo@uam.es

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1. Introduction

The simultaneous interactive implementation of agents’ intentional actions generates endless

new combinations (novelties) whose emergence, dissemination and retention are at the base

of evolutionary processes of structural change and the emergence of socio-economic adaptive

complex systems (Foster 2005; Muñoz et al. 2011). Agents’ actions are intentional because

they are goal-directed. Both goals and intentionality are key elements of the structure of

rational human action and are at the origin of emergent properties such as innovation

(Antonelli 2011) within economic complex systems (Muñoz and Encinar 2014). Intentional

action is encapsulated within action plans. Agents’ action plans are intentionally established

according to the objectives and targets that agents wish to achieve. These objectives and

targets guide the action and give it its meaning. An action plan consists of the intentional

projected sequence of actions that lead to the achievement of goals (Rubio de Urquía 2005)

in an imagined future time.1 These plans may include new goals, new connections (or re-

combinations) among existing goals and means, and new means, that is, new combinations

or novelties. These new combinations may result from a creative or adaptive response to

economic change (Schumpeter 1947b, 1947a; Antonelli 2007). Of course, novelty is not only

the result of the intentional action of each individual agent; it is also an endogenous product

of system dynamics. In this sense, novelty is an emergent property of the system because it

is not entirely determined on the micro or macro levels but is instead a result of the continuous

interaction between the two (Robert and Yoguel 2011). The economy is a creative system

(Koppl et al. 2014) where agents produce new choices (Shackle 1979; Lane et al. 1996) and

experiment with new courses of action as conjectures (Loasby 1999: 25ff).

The purposeful character of action2 is particularly clear in the case of entrepreneurs or

‘creator personalities’ (Schumpeter 1932, 1934) or ‘agents of change’ (Gerschlager 2012),

1 For more on the relationship between imagination and economic choice, see Day (2008a: 263) and Loasby

(1996). 2 There is strong criticism against the (folk) concept of intentionality in economics (see, for instance Hands,

2001). For us, the intentional/purposeful character of action is a fundamental hypothesis. The concept of

intentionality, which dates back to Brentano (1874), here employed is very close to that of Bratman (1999

[1987]) and Searle (1995, 1983).

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inventors (Arthur 2007), and organisations (Barnard 1938; Penrose 1959). Heterogeneity

across individuals is a critical feature of agents in evolutionary complex systems (Davis

2008). Individuals are not only different in their genetic, cognitive and wealth endowments;

they also differ in their beliefs, preferences, and expectations and in the goals they pursue

and incorporate into their plans. To the extent that the (historical) outcomes of economic

activities result from the interactive deployment of actions that incorporate intentionality, it

may be said that economic evolution is consequence of the interaction of agents’ action plans

(Wagner 2012; Lachmann 1976).3

Structural change4 is an emergent property (Harper and Endres 2012) of socio-economic

adaptive complex systems. When new courses of action are implemented, new knowledge is

created about what is possible and what courses or alternatives are precluded. It is not an

exaggeration to pose the economic problem as a problem of the generation, organisation,

diffusion and (effective) use of knowledge (Loasby 1999; Hayek 1937, 1945). At the same

time, continuous structural change is, among other factors,5 a main source of uncertainty

(Knight 1921). Uncertainty poses cognitive problems to economic agents. On one hand, the

growth of knowledge diminishes uncertainty and solves both practical and theoretical

problems. On the other hand, the growth of knowledge opens new (unheard-of) possibilities

that may be explored, generating structural change and giving rise to new sources of

uncertainty. Agents must address uncertainty when they face new plans, and planning itself

requires some elements of stability. Additionally, uncertainty also raises coordination

problems. Institutions have generic rules (Dopfer 2004) to manage uncertainty and

coordination problems; they “reduce uncertainty by providing structure to everyday life”

(North 1990: 3) and thus economise the scarcest resources: time and mental capacity. These

rules include (mental) habits, routines, shared beliefs and expectations (Hodgson 1988),

3 Of course, plans do not form in a vacuum; they depend on accumulated experience, institutions,

technologies and knowledge that exist at the time plans are formed. In that sense, innovations are generated as

a consequence of creative acts that require establishing new connections within adjacent states of the system

(Potts 2000). 4 Throughout the paper, we use structural change and development as synonyms (see Metcalfe and Foster

2004). Although we do not provide here for a precise definition of complexity, we use it as it is commonly

understand in the literature that relates evolutionary approaches with complexity. See, for example, Antonelli

(2011), Blume and Durlauf (2006), Foster and Hölzl (2004), Miller and Page (2007) and Rosser (2004). 5 Exogenous changes (such as an earthquake), the insufficiency of induction, the limits of human cognition,

and the interdependence of individual initiatives and conflicting ideas and purposes (Loasby 1999: 1-2)

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institutional arrangements, etc., and form a social system of production (Hollingsworth

2000).

Institutions interact in complex ways with technology. It is assumed that in modern

economies, technical progress is a key driver of economic development. Additionally,

mainstream institutional economics assumes that institutions (both formal and informal) play

a key role in understanding the different economic performance of nations. However, as

Nelson (2008b: 1) notes, “With few exceptions the exploration of the role of institutions has

not been connected with a coherent analysis of the relationships between institutions and

institutional change and technological advance”.6 To address this deficiency, he defines

institutions as “social technologies” in an attempt to make them comparable with “physical

technologies” (Nelson and Sampat 2001).

The results of combining intentionality, technological development, and institutional change,

in terms of economic development, can be very rich and surprising, and they are interesting

and significant for understanding the mechanisms that produce underdevelopment.7 An

interesting case of study where these complex interaction have unexpected consequences is

the absorption of technology strategies for development or catch-up. In this context, a typical

hypothesis is that development requires an institutional arrangement that allows for full

exploitation of the imported technology. The conformity of the institutional matrix with

technology and belief systems is considered a key determinant of economic development. If

this transfer of technology is not accompanied by an appropriate institutional change, it only

serves to reinforce the extractive power of élites and the dependence on foreign capital,

imported skilled labour, international markets, etc., generating structural socio-economic

retardation (Acemoglu and Robinson 2012). In this sense, institutions “capture”

technological and economic development.

However, the causal mechanism does not always operate this way. Some historical examples

show how the choices of highly innovative entrepreneurial élites may generate a development

6 Main exceptions are Freeman and Louça (2001) and Freeman and Pérez (1988). 7 And, eventually, for a review of the historiography of the causes of underdevelopment

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trap (Easterly 2001) even though institutions are conveniently adapted to accommodate the

new (imported) technology. In particular, this seems to be the case when there are sudden

changes in the economic environment—for example, radical technological change in core

economies (Heymann 2010). An example that will be discussed below is Cuba in the

nineteenth century (see Pretel and Fernandez-de-Pinedo 2014). The modernisation of the

Cuban sugar industry illustrates how the structure of capital generated by the imported

leading technology may capture the evolutionary process of institutional change in such a

way that, once it produces technological change, it leads to an “institutional capture”. The

consequence is what we call a “techno-institutional trap”, i.e., a lock-in effect (Arthur 1989).8

To understand the nature of this type of result, it is necessary to introduce an analytical

framework that locates and integrates, in an evolutionary framework, intentionality,

institutions, technology and development and has an analytical framework that has both a

theoretical use (to discover the results of different combinations of these concepts) and a

historiographical use for explaining, in the sense of understanding (Verstehen),9 some

perhaps not so unusual cases.

The evolutionary micro-meso-macro analytical approach developed by Dopfer et al. (2004)

and Dopfer and Potts (2008) is particularly suitable for this task. In this framework,

institutions and technology are meso generic (and operational) rules that coevolve in an

emergence/dissemination/retention process that interact with both micro units (purposeful

agents) and the emergent macro properties of the system (development). An intentional

strategy for development based on import of technology and a priori coherent institutional

adjustments may result in underdevelopment. The explanation is that the de-coordination/re-

coordination processes that new meso trajectories generate may not be adequately integrated

among them; thus, as an unintended consequence, development may not appear to anchor the

agents in such a techno-institutional trap.

8 Although this term suggests similarities with the techno-economic paradigm (Pérez 2002), to our

knowledge, it has not been previously used. For a recent account on institutional and technological traps, see

Balatsky (2013) and Polterovich (2008). 9 Mises (1957)

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This paper is not about intentionality, institutions, technology or development as such but

about how these different concepts are integrated together and what types of consequences

for development may result –in particular, new types of poverty traps.

The structure of the paper is as follows. Section 2 summarises the evolutionary micro-meso-

macro approach that allows for the localisation of intentionality, technology, institutions and

development within a micro-meso-macro analytical framework and focuses on the role of

meso units to explain the emergent properties of economic systems (mainly development).

In section 3, we briefly discuss the commonalities between technology and institutions. Both

are generic meso-rules that coevolve as meso-trajectories. Combining agents’ intentionality

and the coevolution of technology and institutions (micro-meso analysis), we arrive at

interesting new results (section 4), one of which we call the techno-institutional trap, a meso-

macro effect. An historical illustration of such a trap (Cuba in the nineteenth century) is

offered in section 5. We finish with conclusions.

2. An evolutionary analytical framework: micro-meso-macro

2.1 Generic rules as an evolutionary unit of analysis

A key issue in any evolutionary model refers to what evolves; in other words, what is the unit

of selection in evolutionary generation-selection-retention processes.10 For reasons that will

be apparent later, in this paper, we employ generic rules as the unit of selection. This choice

is consistent with Dopfer and Potts (2014b: iii), who claim that “[i]n evolutionary economics,

the economy is ‘made of’ knowledge, or generic rules. Economic evolution is the process of

change of this knowledge base through the origination of new ideas (‘novel generic rules’)

and their subsequent adoption and retention into the economic order”.

10 The selection of this unit is a determining factor for the theoretical explanation of the evolutionary process

to the extent that this analytical decision confers a specific character to the analysis. In some cases, the units

of selection are routines (Becker 2004), institutions (Hodgson 1993; North 2005), knowledge (Boulding 1981;

Hayek 1945, 1952; Loasby 1999, 2007), capabilities (Dosi et al. 2000), plans (Muñoz et al. 2011) or rules

(Dopfer and Potts 2008; Dopfer 2011).

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A rule “is the idea that organises action or resources into operations” (Dopfer and Potts 2008:

6).11 As far as evolutionary economics deploys its analysis on a generic analytical level and

not a purely operational one (Dopfer and Potts 2009: 24), we are primarily interested in the

set of “generic rules” defined as procedures for the execution of economic operations, that

is, transactions and transformations of resources. A generic rule is a deductive procedure

about how economic operations must be carried out. It specifies what to do and how to

combine things, and it is this knowledge, combined with the available resources, that

produces value. These rules are supported by populations of carriers, which include both

agents (persons) and agencies, i.e., socially and technically organised carriers such as

businesses, households, and micro networks (Dopfer, 2004, 2005). However, unlike what

happens with innate genetic capabilities, all rules that an agent supports must be acquired.12

From this perspective, it can be said that the economic order at the generic level is “made of

rules”.

Generic rules allow their carriers to direct operations of resources to create value. This may

happen in different ways, i.e., by incorporating ideas into capital goods (technology), socially

in the form of networks, internally as habits of action, mental or organisational routines, etc.

Furthermore, there may be many carriers of each rule, which leads to the formation of

populations of carriers of rules. Issues of the utmost interest have to do, on one hand, with

the origin, diffusion and adoption by (populations of) carriers of the rules and, on the other

hand, with the transformation of those rules over time and the dynamical fitting among

them—in particular between the institutional and technical rules. From these general

considerations, Dopfer and Potts claim that “evolution is the process of the adoption and

embodiment of ideas into new carriers” (2008: 5) and that “[e]volution is a change in generic

rules” (2008: 6).

11 From an action plan perspective, a rule is a regulative mechanism implemented within an action plan, a

piece of knowledge that informs the actor how to achieve certain (perhaps subordinate) goals, how to behave

in a particular circumstance, etc. 12 This generic level, that of ideas and knowledge, is in contrast with the purely operational level, which is the

application of the rules, i.e., operations based on rules (Dopfer 2011: 344). The operational level is typical of

neoclassical economics, for example, that does not ask for the origin (and transformation) of the rules, but by

the consequences of their application to activities of production, consumption, etc.

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Thus, the building blocks of the evolutionary analytical framework are: (1) rules (or ideas at

the generic level); (2) carriers (populations of individuals and organisations that carry the

rule); and (3) trajectories (dynamical character of the rules).

2.2 Generic rules and evolution

“The central tenet of evolutionary economics (…) is that economic systems evolve as generic

rules change” (Dopfer and Potts 2008: 8). At the origin of evolution is the generation of

novelties. In general, a novelty consists of a new (re-)combination of existing elements

(Loasby 2001). Novelties do not fall from heaven; usually they are the consequence of re-

combinations (new connections) in adjacent states of the space of representations (Potts

2000; Loasby 2005).13 These novelties are intentionally introduced by a carrier14 or emerge

as (unintended) consequences of interactions between agents and rules. The constant

generation of novelties is a source of dynamism of the evolving socio-economic system. For

this reason, whenever a novelty arises in a set of rules, there is a de-coordination with respect

to the previous state of the system, and the “equilibrium” breaks down the coherence of the

system. However, because of the adaptive nature of socio-economic systems (Foster 2005),

this situation of disequilibrium triggers processes of generic re-coordination and qualitative

change, that is, economic evolution. Generic and operational change interact through a

process of self-organisation, which is reinforced: Generic rules change, causing operational

change (new activities), which in turn produce changes in relative prices. This results in new

structures of incentives, etc., which eventually induce additional generic changes.

13 “The relationship between knowledge (as representations of reality) and the emergence of complexity

question may also be posed in this way: how do [agents] know that their models of complex systems are

adequate representations of the systems to which they are applied? To this question also, Hayek’s

Impossibility Theorem (Hayek 1952: 185) supplies the answer: they cannot know.” Moreover, “for a system

of any complexity there are many adjacent states; moreover, what is adjacent tends to differ between people

because of the heterogeneity of their experience, and which of these possibilities is perceived also tends to

differ. So at any time there are many margins of knowledge, and therefore the potential for a great deal of

variation” (Loasby 2005: 61-63). Variety is possible because connectivity is always incomplete (Earl and

Wakeley 2010). 14 Although we will illustrate later a development trap as a consequence of entrepreneurial activity, we will

not extensively address this important issue in this paper. However, the introduction of new combinations in

the system as a result of deliberate (intentional) action constitutes an act of entrepreneurship, as Earl (2003)

has shown. For more on the limits of intentionality and its relationship with action, see Schmitz (2013).

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2.3 Generic rules, carriers and trajectories

The generic rule and its population of carriers form the fundamental analytical unit of

evolutionary economics: the meso unit. The structure of the knowledge base of an economy

is formed by meso units. In the social domain, the stable meso unit over time is an institution;

in the domain of physical and natural phenomena, the stable meso unit over time is a

technology.15 When we later address the consequences of the coevolution of technology and

institutions in general, this commonality of institutions and technologies as meso units will

be essential. Through historical analyses, it is interesting to identify the originators of

technologies and institutions, the people who end up adopting them (dissemination and

retention) and the way they alter the economic order (consequences for development). From

a synchronic point of view, it is essential to examine the consistency of the “weft” of meso

units that constitute the building blocks of the economic order (macro) and which are, at the

same time, a consequence of the interactive deployment of the agents’ action plans (micro

units).

However, from a dynamical point of view, economic development is the process of change

of the meso structure through a meso trajectory. Thus, a meso trajectory is the process by

which a meso unit emerges and is shaped and stabilised, a three-phase process called the

trajectory of a rule. Originally, the meso units are consequence of the dynamics at the micro

level. In this micro-level, a micro trajectory is the process by which a new idea or generic

rule is:

micro_1 : originated, as result of creativity (Koppl et al. 2014; Day 2008b: 314) or an

entrepreneurial act;

micro_2 : adopted, by means of learning; and

micro_3 : retained, and embodied in routines, habits, beliefs, etc.

It is at this level where the role of intentionality is quite obvious; it deploys all its creative

logic, often generating unexpected consequences, but not blind processes, it is necessary to

15 The main advantage of Nelson’s approach, which defines technology as “physical technology” and

institutions as “social technology” (see Nelson 2008b; Nelson and Sampat 2001), is that it allows for the

comparison of both terms as a general and common concept: that of rules.

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examine interaction at the meso level (Dopfer 2012; Elsner 2009; Elsner and Schwardt 2014).

Thus, the micro units and micro trajectories form the basis of meso units and meso

trajectories. Insofar as micro trajectories take place in multiple carriers, the meso units

emerge and evolve through a meso trajectory in three phases:

meso_1 : emergence of the meso unit, as an entrepreneurial act;

meso_2 : adoption by a population of carriers, as a phase of diffusion; and

meso_3 : retention.

It is in this last phase where, depending on the case, the population of the generic rule

stabilises in the form of an institution or technology.

The coevolution of meso units shapes the building blocks of the macro level. Thus, following

a logic parallel to the previous one, at the macro level, we have macro trajectories, which

consist of the following succession of phases:

macro_1 : de-coordination: corresponding to the rupture of coherence (among meso

units) caused by the origin of a new meso unit;

macro_2 : re-coordination: the adaptation of and adjustment to other meso units

(through the meso-2 phase of adoption); and

macro_3 : incorporation in the macro knowledge base, i.e., into the (new) economic

order.

Obviously, the relationships between the different analytical levels take place in multiple

ways. Thus, while the micro units have their own logic that can be easily characterised

according to the scheme of micro units and micro trajectories, the origin of new ideas to

operate (generic rules) takes place in a context of interaction with other micro units (agents

and organisations) in a particular institutional and technological setting and in a particular

state of expectations about the evolution of the general economic order.16 Micro units mould

the micro and meso and, through the meso, the macro level, and they are simultaneously

16 This order embeds the culture, beliefs, etc. of the agents and certain macro phenomena, as is the case of

money.

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shaped by the evolution of the micro, meso and macro trajectories of the system.17 Figure 1

shows these different levels of interaction.

Figure 1: The micro-meso-macro levels and trajectories. Based on Dopfer et al. (2004).

The outcomes of these dynamics are the records of history, both at the micro (business

history), meso (history of technology, institutions, etc.) and macro level (evolution of the

economic orders). Finally, it can be said that this dynamical process is subject to both a

generic and an operational drift due to variations that may be “random” but also intentional,

in knowledgebase and resource availability.18

17 Although in the treatment of some issues (such as the role of intentionality in the qualitative transformation

of economic systems), our approach may seem to be methodological individualism, this is not the case,

because we frame the action of agents in a context in which the micro, meso and macro levels of the system

and its evolution basically depend on the interaction of agents. An economy (a society) composed of isolated

individuals (such as in General Equilibrium Theory models) is an analytical fiction that can work only by

stealing the essentially dynamical nature of reality. 18 It is important to distinguish carefully between randomness and the unintentional result of agents’

interaction. An earthquake, the fall of a meteorite, etc. may happen at random. However, although the

consequences of the interaction of agents may not be (fully) anticipated (producing genuine novelties), it does

not mean they are “random”, unless by this term we want to express our ignorance about the multiplicity of

causal mechanisms that operate in complex systems.

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3. The intentional and evolutionary character of technology and institutions

3.1 Intentionality as a trigger of evolutionary processes

A sufficient condition for economic development is the emergence of novelties in the set of

rules, either as a result of intentional action or as a result of the interaction between agents

(and rules), as en emergent and unintended consequence of interaction. Indeed, novelties that

arise at the generic level could be due to random variations, but they are mainly due to

variations in knowledge due to the interaction of agents’ action plans: Where neither chance

nor necessity is an explanation, intentionality manifests as a catalyst for socio-economic

change. Moreover, as mentioned before, the introduction of new combinations within the

system as a result of deliberate and intentional actions constitutes the very nature of

entrepreneurship (Metcalfe 2004; Earl 2003).

To show how the dynamics of interactive deployment of agents’ action plans (plans that

incorporate intention) is a source of dynamism and complexity, capable therefore of

generating new connections (combinations) within the system, it is convenient to locate the

analytical place of intentionality.19 Consider again the concept of generic rule as a deductive

procedure about how economic operations should be run; we have also said that whenever

there is a novelty in a set of rules, there is de-coordination with respect to the previous state

of the system. The adaptive nature of the economic system triggers generic re-coordination

and qualitative change (structural change) processes–that is, economic evolution. Generic

rules, the base of economic order, are vehicles of knowledge; they express what to do, how

to combine things, and how to produce value. These rules, carried out by agents and agencies

within a social milieu, are not innate but generated and acquired.20 Thus, personal intentional

action is at the base of the production of novelty in generic rules and of the complex character

of economic processes: Novelty depends mainly, but not solely, on the objective intention of

the agents (Muñoz and Encinar 2014). This is so irrespective that the interaction of these

19 ‘Locate’ within an economic analytical framework. For more on ‘localisation’ within psychology and

neuroscience, see, for instance, Morsella et al. (2009); Moskowitz and Grant (2009); Fuster (2008). 20 The same happens with the concept of intentionality. See, for example, Metzinger and Gallese (2003).

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intentional dynamics leads to something not intended. In evolutionary complex socio-

economic processes are always present the intentional actions of agents; therefore, economic

processes are not “blind” in a strict sense.21 For this disequilibrium to trigger generic re-

coordination and qualitative change processes, there must be new combinations within the

system as a result of agents’ eminently deliberate actions.

Ultimately, a spontaneous or complex order (such as economic order), although not

intentional in itself, is dependent on the intention of agents, and this is so despite the fact that

what finally happens is not necessarily the intended state of affairs.22 The interactive

deployment of intentional action is essential in the economic process, independent of the

particular outcomes. Moreover, that real final outcomes do not correspond with what was

intended at the time that actions were projected does not mean that intentionality is not

present in the analytical structure of the action of the agents feeding change or novelty in the

generic rules (Muñoz and Encinar 2014: 329). On the other hand, that difference is precisely

the condition of possibility of true learning processes. Agents require that generic rules are

sufficiently tested to be able to guide their action, experience new possibilities (new

connections) and, depending on the difference between what was expected and what was

actually achieved, enabling learning processes. The main generic rules in relation to the

physical, natural, and social environment are, respectively, technology and institutions.

3.2 Technology

In general, technology is a stable meso unit over time in the domain of physical and natural

phenomena. In particular, we can define individual technologies as the means (devices,

methods, processes…) to accomplish human purposes (Arthur 2013: 14); in this sense,

21 Witt and others (e.g. Levit et al. 2011) find inappropriate the special emphasis that a Darwinian approach

places on the ‘blindness’ of variation applied to the socio-economic or cultural realm where intelligent human

beings act on insight and pre-meditated plans. However, Hodgson (2004: 175) claims that “at the core of

Darwinism are presuppositions concerning causality and causal explanations” and “contrary to widespread

belief, these presuppositions do not downgrade or ignore human intentionality.” For more on this controversy,

see also Hodgson (2010); Hodgson and Knudsen (2006c, 2006b, 2006a, 2007); Nelson (2006, 2007), Vromen

(2008); Hanappi (2008) and Muñoz et al. (2011). 22 “Complexity, in other words, asks how individual behaviours might react to the pattern they together create,

and how that pattern would alter itself as a result. This is often a difficult question; we are asking how a

process is created from the purposed actions of multiple agents” (Arthur 2013: 2).

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technology always incorporates intentionality.23 A technology is always based on some

natural phenomenon (which is scientific or simply experiential knowledge) that can be

exploited or used for some purpose. A technology incorporates a set of operations (software)

as well as physical equipment capable of running them (hardware). If we focus on software,

we see technologies as processes; if we focus on hardware, we see it as a physical device.

Technology consists of both things at the same time.

From another point of view, technologies are structures. The key issue is the concept or

principle based on “the method of the thing” (Arthur, 2009: 33). For example, the principle

of the combustion engine is the possibility of transforming chemical energy into mechanical

energy. To have real effects, that principle must express itself in the form of physical

components—an engine, in our example. Therefore, a technology is composed of various

physical devices that incorporate the necessary principles to help it achieve a purpose: It

consists of main assemblies that operate subordinate assemblies, etc. All these modules form

an architecture that should work. “In its essence, a technology consists of certain phenomena

programmed for some purpose. I use the term ‘programmed’ … to signify that the phenomena

that make a technology work are organised in a planned way; they are orchestrated for use”

(Arthur, 2009: 51).

In view of what has been said above, the result of the introduction of a new technology (meso

unit) occurs at the level meso_1, ultimately an invention at the micro_1 level; this

introduction has diffused among the population of carriers (users) of this technology (level

meso_2), which implies that they have learned it (micro_2) and retained it (micro_3). Modern

economies are increasingly more generative: The focus is moving from the optimisation of

fixed operations towards the creation of new combinations, or rather, the creation of

novelties, according to Schumpeter (1934). The modern economy is largely moulded by

technological change, which is at the base of economic development.

The emergence of new technologies sometimes causes an abrupt break in the previous ones,

reconfiguring the elements that were more central to the network in the previous state; this is

23 On the difference between (scientific) knowledge and technique see Mokyr (2002).

15

the case of radical innovations. This process of removal or replacement of old technology

with a new is one of the fundamental mechanisms of technological development. However,

more often, the technological development consists of cumulative improvements, both in

products and processes and existing organisational forms. The emergence of new

technologies produces niches of opportunity and, eventually, displaces the previous ones

(giving rise to the de-coordination and re-coordination of macro_1 and 2) and in the case of

a radical innovation, by modifying their own economic order (macro_3). This sequential

process, which occurs everywhere and at various levels of interaction within the network of

available technologies, is at the basis of structural change. This structural change is a

consequence and a cause of the constant generation of new combinations at the technological

level and of social (institutional) and economic arrangements. Obviously, technological

change requires, and on numerous occasions generates, specific institutions to fully exploit

the new opportunities.24

3.3 Institutions

Some authors define institutions as the “basic rules of the game” (North 1990), “governing

structures” (Williamson 1985), customs, and standard and expected patterns of behaviour in

particular contexts (Veblen 1899; Hodgson 1988, 2006); in the literature on innovation

systems, as national, regional, and sectorial (Freeman 1987; Lundvall 1992; Cooke et al.

1997; Malerba 2004) to refer to relatively concrete entities such as firms, universities,

government agencies, patent systems, etc.; as “social technologies” (Nelson and Sampat

2001); as patterns and conjectures, more or less successful, that solve knowledge problems

(Loasby 1999); as a “recurrent pattern of conduct” that helps an individual plan by reducing

the volatility in the plans of others (Lachmann 1971: 75); or as shared understandings about

actions that are obligatory, permitted, or forbidden (Ostrom 2000). It seems that no consensus

on the definition or the very character of institutions has been reached; indeed, this is a real

challenge when we try to integrate institutions within economic discourse.

24 Two classical examples are the rise of the organic chemical product industry in Germany (Murmann 2003)

and the story of the rise of mass production by Chandler (1977). On the other hand, Christopher Freeman and

Pérez (1988) claim that the key technologies and industries of different eras generally require different sets of

supporting institutions. In any case, these examples involve, in an essential way, the coevolution of

technology, firm and industry structures, and a variety of market and non-market institutions (more details in

Nelson 2008a).

16

The main advantage of the approach adopted in this article is that somehow all the definitions

above of institutions (with the proper qualifications) share two common features: They are

generic rules and are intended to reduce the radical uncertainty of human interaction in

evolutionary complex systems. Institutions (retained generic rules) release an enormous

amount of cognitive resources that can be used to test, experiment with and evaluate (and

learn) new courses of action, draw attention to other processes, etc. Institutions also help to

reduce transaction costs (Coase 1937, 1960) associated with the need to control the quality

of products and services, control the processes of production, etc. Institutions operate at very

different levels, from a constitutional setting that guarantees property rights to the modes of

interaction within a company, greeting friends, and burying our dead (North 1990: 4).25

It is always interesting inquire into the origin of adopted generic rules. We may use the above

analytical framework to address this issue. Thus, the emergency of the meso unit could be

explained as a genuine act of intentionality at the micro_1 level (first adoption by the agent)

and understood as a new idea or purpose or new way to attain a goal (old, new, or

hierarchically rearranged by the agent). The first adoption is incorporated at the micro level

into agents’ action plans, and it involves conjectures about what is desired and deemed

possible by agents and how to achieve it by ordering the means/actions to achieve the goals.26

Secondly, those successful action plans, once disseminated and adopted (by imitation, for

example) by a population of agents, would extend to the meso_1 level (meso-unit) that

emerge and are adopted as meso trajectories. Finally, at the macro_1 level, and depending on

the position and importance of the meso trajectory in the institutional framework, there is

first the de-coordination first and later an attempt at re-coordination later of generic rules, a

source dynamic generator of new connections (combinations) in the system. Analytically,

these micro-meso-macro level_1 successful patterns of action are, of course, the precondition

of analytic adoption/retention that happens at levels 2 and 3 of the diffusion/stabilisation of

25 For an understanding of the role and influence on an economic system of institutions that operate at

different analytical levels, see Hollingsworth (2000). 26 “In the beginning there was a plan” (Loasby 1999: 112).

17

generic rules (in particular, institutions, technologies, etc.).27 At the micro_2 level, for

example, agents would adopt the successful plan by learning–by-selecting it among other

possible plans of action that could have been undertaken, prior to the retention and

routinisation of that plan (micro_3). This “horizontal” sequence micro_1_2_3, in the

perspective of conjectured/successful action plan, shows the analytical role of intentionality.

Transcending levels, it can be said that both the adoption of the generic rule by a population

of carriers (i.e., the phase of dissemination required for its eventual “social” stability) and the

retention phase (where the rule is definitely stabilised in the form of an institution or a

technology) are phenomena based on the intention of agents—among other reasons,

obviously. Agents’ intentionality emerges in the deployment of agents’ action plans in

interaction and effects economic change. Economic systems are open because of the novelties

introduced consciously by economic agents. Moreover, in our analytical framework,

economic systems are open and creative (Koppl et al. 2014); this is so precisely because

micro_1 level intentionality operates as a genuine source of complexity.

3.3 The coevolution of technology and institutions

Coevolution is primarily a biological concept that has been applied analogously to

economics, among other scientific fields. In biology, coevolution refers to “the change of a

biological object triggered by the change of a related object” (Yip et al. 2007). Institutions

and technology are, in an economic context, related objects that interact as structures and

coevolve as meso trajectories. By definition, an institution is “constant during a certain period

of time. In this way it contributes to the stability of the social system to which it belongs. Yet

sooner or later it changes, in response to the decisions and actions of individuals” (Bergh and

Stagl 2003: 289) that, at the same time, are changing technologies, introducing and

experimenting with new forms of organisation, new governance structures, new policies and

instruments, and shifting norms and preferences.

27 Note that we use the term ‘patterns of action’ instead of ‘patterns of behaviour’. This is due to the central

role of intentionality in our approach.

18

Institutions and technologies coevolve at the same level in the sense that both are meso rules

that have emerged by means of meso trajectories that operate at three stages: (1) emergence

of the meso unit, –most likely linked to a genuine act of intentionality; (2) adoption of the

rule by a population of carriers; and (3) retention of the rule, where the population of the rule

stabilises finally in the form of an institution or technology.

Institutions and technology, retained in meso_3, are mechanisms that stabilise the system,

providing a specific knowledgebase that allows for agents to calculate, plan, and test new

combinations, etc., to the extent that they reduce uncertainty, that is, to solve problems of

knowledge. The selective development of new connections over time is the necessary result

of fallible human action that unfolds in historical time (Loasby 2001). New connections are

at the base of the process of growth of knowledge that continually breaks down the symmetry

of the system, making it evolve and dissolving the coherence of many of the old relationships

between (populations of) rules.

Rules appear at two levels: one, a more shallow one, concerns the actualisation of the rules

(in social or physical objects); and other, a deeper level, refers to the strict generic level or

ideas.28 Economic agents are bound to operate in deeply structured environments; thus, they

must adopt the requirements of particular rule relations prevalent in the subdomain of the

structure of which they are part. In this context, a new selective criterion arises, namely

structural adaptation, and the individual behaviour called for may be captured by the term

‘efficacious’. Efficacious behaviour must be clearly distinguished from ‘efficient’ behaviour.

Unlike efficacy, efficiency is a criterion that works at the level of actualisation, that is, at the

surface. (In this sense, it can be said that a mechanical device or type of organisation is more

efficient than another.) Efficiency presumes that the behaviour is adopted at the deep rule

level (taken it as ‘given’), that is, meeting the demands for structural efficacy. Selection is

effective at the meso level as relative efficiency and at the macro level as the absolute

standard of efficacy. There is a double contingency in the selective environment, calling for

the combined behavioural efforts of efficiency and efficacy (see Dopfer 2011: 348-49).

Coevolution demands not only efficiency in rules but efficacy to recover the coherence of

28 This distinction is important because a generic rule can have multiple updates.

19

the entire system. All of the above is clearly illustrated in the case of coevolution between

technology and funding regime.29

4. Evolution, development and the emergence of techno-institutional traps

4.1 The meso-macro and development30

The macroeconomic order is, from an evolutionary perspective, an emergent complex system

of meso units (Dopfer and Potts 2014a: xi). Its main property is structural change. Structural

change is a consequence (and simultaneously a cause) of the endless process of generation

of new combinations at the technological and institutional levels as well as the

reconfiguration of the spaces of representations of agents modulated by beliefs, knowledge

bases, preferences, expectations, etc.). Macro coordination and the process of de-

coordination and re-coordination as a consequence of a meso trajectory constitute the

building block of a macroeconomic system.

Moreover, a meso trajectory, along with its micro generic transformations and total macro

effect, constitute a new analytical unit, namely, a regime, that may constitute a building block

of evolutionary macro analysis. A regime is defined as the complete meso unit of the rule,

the structure of the carrier population as the re-coordination of the trajectory that affects the

entire economy. The regime combines the structural connection of the rule to other rules

(which involve coherence and efficacy at a deep level) as well as the population of other rules

with the population dynamics of the rule in historical times. A regime, then, refers to a

complete meso trajectory that forms a structural and process component of the macro order.

From a dynamical perspective, what is even more significant is how a regime changes.

Specifically, a regime transition occurs when the logic and conditions of meso-macro_3

(technologies an institution retains together within the economic order) effect a new

meso_1—that is, the introduction of new meso rules. Thus, regime transitions—a central

29 For more on coevolution between university, firms, venture capital, and patent laws in biotech, see Nelson

(2008b). See more examples in Elsner and Heinrich (2011). 30 This subsection is a partial summary of Dopfer and Potts (2008) chapter 6.

20

aspect of meso-macro analysis from the perspective of economic progress—describe how

one thing leads to another.

The conditions for economic evolution to occur in the form of a regime transition are

complex. On the hand, systems need sufficient stability in the rule population for a

meaningful assessment of the novel rule’s prospect in terms of the existing structures and

markets that exist. Novelty only makes sense against a background of unchanged things, and

the more stable the environment, the easier it is to assess and value the prospect of generic

novelty. On the other hand, too much stability can engender conservatism and strong

resistance to change, lowering the prospect of any novelty.31 There must be ability of the

system to generate and accommodate variety32 but also the necessary stability against which

a selection process of differential replication/retention of new rules can occur.

For economic evolution, a regime must end with the complex conditions necessary for a

regime transition. However, there are generic causes of failure. The following is an

inexhaustive list of causes of such failure:

1) Novelty may fail to regenerate because of the absence of variety in the rules at

meso_3.

2) Inappropriate institutional circumstances at the end of meso_3.

3) A loss of second order rules (namely, rules for changing rules) for innovation;

for example, this may be the consequence of a meso trajectory that operates over

a long period of time such that the original entrepreneurs and innovators are no

longer connected to the meso_3 state that is now dominated by second order

retention rules and habitual behaviours.

4) An inappropriate balance of cognitive, behavioural, social and technical rules.

For example, in meso_3, a rule may be operationally functional in social and

technical rules, but with cognitive and behavioural rules, it is poorly adapted and

31 At the other extreme, an environment with nothing but change is also a poor evolutionary environment. 32 Two fundamental hypotheses that link variety to development are: “Growth in variety is a necessary

requirement for long-term economic development” and “Variety growth leading to new sectors, and

productivity growth in pre-existing sectors, are complementary and not independent aspects of economic

development” (Saviotti and Pyka 2004: 269).

21

retained. While such a disconnect between subject and object rules may have

little immediate effect on the continuing viability and replication of the rule, it

may significantly hamper any further development

In summary, stability and variety must be balanced such that the benefits of carrying variety

and maintaining experimentation are in proportion to their cost, which is, in turn, configured

with respect to the continual need to create variety to maintain any competitive position. The

necessary condition for ongoing economic evolution, therefore, is the maintenance of

complexity in all structural components of the system.

Economic evolution is not just a (meso) population of dynamics of variation and selection

but also involves systematic micro changes in the rules that agents and agencies carry out as

well as self-organising changes in the generic structure of the macro order. As has been

shown, evolution begins with the novel idea of a single agent that then is diffused and retained

as a meso rule and evolves as a meso trajectory. Such a meso trajectory disturbs (i.e., de-

coordinates) the macro order and engenders a process of re-coordination that, over a macro

trajectory results, in a new macro order. This process occurs in parallel, where multiple meso

trajectory processes unfold at once, and in series, where one meso trajectory leads to the next.

These meso-macro processes are defined, respectively, as the coevolution of many meso

processes and the process of regime transitions from one trajectory to the next.

As has been said, technologies depend on the institutional structures that support and mould

economic activity and the extent to which they facilitate productive change. Institutions and

technologies (meso trajectories) provide a minimum of stability that allows agents to plan,

choose and act in the presence of uncertainty in a complex environment -i.e. gives agents the

stability needed to be able to form their expectations and action plans, anticipating

mechanisms of coordination between agents. However, the question of stability generates a

certain tension that seems at first glance a paradox: On one hand stability, is needed to test

the efficacy of new courses of action, new possibilities, etc., but the success of new

combinations (novelty as such) breaks the stability, which, in turn, is the condition for change

and requires new stability to continue rehearsing. However, to deploy all its potential, new

22

technologies demand domains and technological and organisational standards that are

sufficiently stable and consistent and, at the same time, flexible enough not to endanger the

constant regeneration of variety necessary to feed the dynamism of the system (Saviotti and

Pyka 2008; Andersen and Holm 2014). It is not always possible to harmoniously combine

stability, flexibility, coherence and dynamism.33 This lack of harmony does not imply de-

coordination in a static sense (in fact, it implies a dynamical de-coordination at the moment

in which the introduction of new generic rules breaks the previous “equilibrium”) but a

coordination that may be associated with rationing in the action of the agents in terms of both

the availability of means and the degree to which goals are attained.34

4.2 Development traps

Development is an emergent property of an evolutionary system. “Economic development

can be considered as resulting from two processes, leading on the one hand to efficiency

growth and on the other hand, to variety growth and qualitative change (Saviotti and Pyka

2004: 266). It is possible that magnitudes such as GDP grow because of the mere

accumulation of productive factors in an environment of no qualitative change, as is the case

in neo-classical growth models.35 A real economic system is, essentially, evolutionary, and

develops consequently. However, development may come to a halt. This is the case in so-

called development traps. A system may enter into a basin of attraction from which it cannot

escape: The dynamics system becomes path dependent and the system experiences a lock-in

effect.36 Typically associated with this type of situation is a purely technological explanation

or the notion that the lock-in is caused by an “institutional capture”. Moreover, it is customary

to claim that a regime of path dependence depends on a contingent event or a situation that

is modelled as a stochastic shock. However, the causes can be even more varied. In particular,

as we illustrate with a historical case below, the loss of the dynamism of a system, to the

point of compromising its development, can be caused by the intentional dynamics of agents

33 “In our view the central problem of the institutional order hinges on the contrast between coherence and

flexibility, between the necessarily durable nature of the institutional order as a whole and the requisite

flexibility of the individual institution” (Lachmann 1971). 34 Benassy (1986). For rationed goals, see Sen (1993). 35 This is especially clear in recent endogenous growth literature. For a recent review of this literature, see

Acemoglu (2009). 36 Although they are very close concepts, it is important to distinguish between lock-in and path dependence

(David 2001). Different types of path dependence may be found in Martin and Sunley (2010).

23

who seek to modernise the system by incorporating the most advanced technology and

adapting organisations and institutions in the most dynamical sector of the economy.

Let us consider the case in which mechanisms of technological development, the replacement

of old technology with new technology and the improvements of existing technology, operate

throughout the lifespan (trajectory) of a technology. At the very beginning, technology

develops in a consciously and experimental way and is subsequently applied increasingly to

different purposes: It begins, then, to be a part of an engineering standard. A selection

mechanism operates throughout the trajectory, selecting the best solutions from the set of

possible technological improvements. When the technology matures, neither the replacement

of components nor the deepening of the technology can do much more to its improvement.

From a technological point of view, a new principle is necessary to replace this mature

technology with a new one. However, the principles do not arrive when desired, especially

if that technology is not produced endogenously, and it must then, so to speak, be imported.

Technical principles have their own dynamics of invention (Arthur 2007); thus, the old

principle tends to block the old technology, whose trajectory falls into an attraction basin

from which it can hardly escape. Even if new solutions appear, their incipient nature is a clear

weakness in the face of an established technology: The nascent technologies cannot compete

on equal terms with established ones due to possible economies of scale and scope or barriers

to entry. The structure of capital formed during the period of validity of the previous

technology is a serious burden to change, especially when the sunk costs and the cost

structure associated with economies of scale that no longer exist (due to a change in

preferences, sources of supply, etc. in the markets) add a heavy indebtedness and a strong

interdependence with the financial system. Thus, old technology and the institutional

arrangement linked to its development persist much further than it should. Sometimes, the

cause of this is purely economic: Adopting new technology often requires changing the

structures that supported the old technologies and the institutional and organisational forms

suited to it. How to enforce “exogenously” a lock-out is a challenge that has been noted by

Nelson (2008a) who asks, precisely, what are (how they must be) the institutions we need to

promote technological progress.

24

5. Intentionality and techno-institutional traps: the case of Cuba in the nineteenth

century

While recent studies such as that conducted by Acemoglu and Robinson (2012) have a

reductionist tendency and propose a dichotomy between extractive and inclusive institutions

as the only way to explain long-term national economic development, there is undoubtedly

no single explanation for success or failure in economic development. No two countries have

identical factor endowments, geographic positions, or cultural backgrounds. Nevertheless,

all regions in the nineteenth century shared a common characteristic at the global level:

indirect or direct repercussions from the industrial revolution on their economies (Mokyr

2002). The manner in which each region became hooked into this process was vital to its

later economic development. While it may be obvious, the past is important (David 2001).

The nineteenth century was the century of the Great Transition, including the transition from

the pre-industrial to the industrial world and from the first industrial revolution to the second,

which also resulted in an institutional revolution (Allen 2011).37 Each stage of transformation

brought breakage, reconfiguration, and restructuring in which decisions—especially those

referring to technology, but also the institutional framework that had to maintain them—were

vital to economic development during both the nineteenth century and for a large portion of

the twentieth. The case of Cuba shows how the very decisions taken within the institutional-

technological framework that allowed the country to position itself in a privileged location

in the world sugar market were the same decisions that deepened the country’s inability to

break with this specialisation and mortgaged its long-term development.

Cuba based its economy on the export of agricultural goods and on the re-export of precious

metals, certain colonial products, and a range of manufactured goods (Fernandez-de-Pinedo

2002: 74). Between 1805 and 1864, sugar represented between 62% and 85.4% of the value

of all colonial exports, distantly followed by tobacco, molasses, and coffee. However, Cuba

was also completely dependent on imports of food and manufactured items for its

37 For a critique, see Langlois (2013).

25

subsistence. The industrial revolution in Cuba -steam, coal, iron, and chemicals- particularly

affected the sugar industry and its derivatives (Higman 2000) and further deepened the

specialisation of the economy.

The sugar production process has two highly differentiated phases: the cultivation and

harvest of sugarcane and the industrial phase, where the semi-produced and refined sugar

gained an early start in Cuba. Technical advances in sugar cane mills were already being

implemented from neighbouring sugar cane colonies before a Royal Order in 1796 allowed

the island to build refineries38. Throughout the nineteenth century, the advances in beet sugar

refining in Europe are going to be adopted in Cuba. Moreover, the sugar industry sector also

had an enormous influence on other sectors such as the chemicals sector and especially on

land (railroad) and maritime transport (steam boat, coasting trade) in the island. Cuba’s sugar

industry was certainly far ahead of the country’s metropolitan development throughout the

entire eighteenth and nineteenth centuries. The technological changes that brought about the

industrial revolution gave rise to different techniques on sugar plantations throughout the

nineteenth century. Rebello's (1860) analysis indicated the coexistence of different

technologies: traditional sugar mills, what were known as semi-mechanised mills, which

were much more abundant39, and completely mechanised mills which represented 15% of

production. Sugar production became a dual system that was typical of many industrialisation

processes, where traditional organisational and productive systems coexisted with more

modern processes (Hobsbawm 1962). In fact, the Cuban sugar industry was itself a dual

system per se in that the agricultural phase did not require skilled but rather abundant labour,

while the industrial phase relied on skilled labour that had at least some knowledge of

chemistry and mechanics.

5.1. Institutional Capture

The élite sugar planters had a clear objective: to adapt to the international market. Growing

demand and a market governed by changing tariffs, new competitors, and substitute products

such as beet sugar made technical changes to increase productivity a necessity. This strategy

38 See Guerra (1976), Appendix 1: 201-233. 39 Representing 75% of ingenios in 1860. Rebello (1860).

26

was seen in the assimilation of techniques that improved milling output, created savings in

labour, increased access to land, and enhanced the volume of sugar exports (Fernandez-de-

Pinedo 2006).

The planters’ action plan consisted of controlling certain decision-making institutions and

bodies and creating new organisations to adopt the new technologies. The success of the

planters was first based on their ability to manoeuvre within the intricacies of governmental

administrations to achieve changes in colonial and local policies to suit their interests.

Second, Cuban planters took advantage of Spain’s fiscal needs, which coincided with the

arrival of the Bourbon dynasty. The agents of change were undoubtedly the Cuban oligarchy

during the second half of the eighteenth and the beginning of the nineteenth century, along

with the arrival of a Spanish group of businessmen and entrepreneurs in Cuba early in the

nineteenth century.40

The aim of these planters was clear: to establish a sufficient institutional framework to

eliminate the barriers that limited sugar expansion. This objective would first require changes

in the system of land ownership. Balboa (2014) studied how institutional capture was

developed by the elite sugar planters with the aim of taking control of property through a

process that lasted several centuries. This appropriation led to many consequences from an

economic perspective and in terms of the productive structure (Balboa 2013). The greatest

impact was what Funes (2012) called the cattle and sugar counterpoint, whereby sugar

production was favoured over other sectors, with serious consequences. Increased imports of

staple foods such as meat and jerky (usually consumed by slaves) and guano to fertilise the

soil demonstrated some of these negative effects. In 1815, the process of land appropriation

led the Crown to give permission to planters to cut down forests on their property; up to that

point, this right had been reserved to the Crown and the Royal Navy.

The fiscal system bent to the planters’ interests, including an exemption from tithing for their

landed estates in 1804 and a prohibition on seizing mills as debt payments until 1834.

40 The first wave of Spaniards was led by Arango y Parreño, Montalvo, Duarte, Cárdenas, O’Reilly, Peñalver

and Zulueta, and the second included Barcardí, Aldama, Diago, Baró, and Terry, among others (Knight 1977:

249).

27

Moreover, abundant labour was needed, and in the absence of an indigenous population, the

labour was supplied by African slaves, thus consolidating the plantation system in the

eighteenth century. The free trade of slaves was permitted beginning in 1789. The arrival of

Asian settlers in 1847 and the Yucatec indigenous people in 1848 represented initiatives to

transition to mixed labour, that is, servant labour with free or semi-servile workers (Bosma

and Knight 2004).

It was just as important to produce sugar as it was to facilitate the export of this production.

After 1765, Cuban planters supported economic policies that eliminated mercantile barriers

to liberalise trade. In 1818, this process culminated with a decree allowing free trade with

foreigners in all authorised ports on the island (Jimeno 1885-87). Cuban planters were present

in all governmental bodies until the middle of the nineteenth century, where they were able

to influence tariff policies. Thus, in various ways, they captured institutions for their benefit

(Fernandez-de-Pinedo et al. 2011).

Once the issues with agriculture and trade were resolved, it was necessary to create a dynamic

system that was open to imports and the creation of new technologies. Planters had to make

a series of decisions regarding which new technologies they would adopt and which were the

most appropriate to compete in the world market. Reducing uncertainty required being

informed about every advance. How could the planters not lag behind in technological

advances? Different institutions were created to access technical innovations and share

knowledge. These were the agents (micro-units) charged with organising the meso units,

including the Real Consulate (1795) and especially the Economic Society of La Habana

(1793) (Cuartero 2000). This last example organised the primary Cuban producers together

in a forum for debate, discussion, and sharing for all types of projects (Suero 2010: 299)

related to economic activities on the island through a Promotional Board and the publications

it sponsored. The Society was later supplemented by the creation of the Botanical Garden,

the Chemistry School (1820), the Agronomy Institute (1831), the Chemical Research

Institute (1848), and the Central Vaccination Board. Promoting institutions on the island was

undoubtedly a local, Cuban strategy, making it independent of Spain and other foreign

institutions and demonstrating the planters’ interest in responding and adapting to changes.

28

The planters favoured the importation of foreign technologies free of duty, and many island

residents—including some planters—requested the rights to apparatus, equipment, or

improvements on their own inventions as well as loans to help them implement imported

equipment or those of their own invention in their production processes. They did not always

succeed in achieving their aims, but it is clear that the mill owners cooperated among

themselves by not competing with each other, but rather with the international market.41

The interests of the planters and a certain portion of the political class such as agronomists

and botanists were similar to those in other islands such as Martinique. There, a group of

planters founded La Société d’Agriculture et d’Economie Rural to study and promote

technical knowledge in the French colonies (Tomich 1989). However, this effort was led with

less intensity because the Cuban planters were able to influence tariff policies to their benefit,

which did not occur on the French isles because they were subject unfavourable legislation

from the continental blockage.

The main consequence of the adopted strategy was a more technologically advanced colony

than what existed in its colonial metropolis. Technology transfers did not come from Spain

but primarily from England, France, and the USA, and technical knowledge was even

transferred in the opposite direction in some cases.42 The Cuban railroad was a pioneer in

Latin America and was the seventh in the world; a railroad would not be established in Spain

until a decade later (Zanetti and García 1987). Still, the consequences of modernisation were

devastating to Cuba’s economic development in the long term. The greater the effort devoted

to modernising the sugar sector, the less that was dedicated to agriculture and livestock,

which would have reduced the need for certain imports (Funes 2012). This process eventually

had a negative impact on the trade balance, the socioeconomic structure (slavery), and the

environment. As the second technological revolution moved forward, the sugar refining

process depended more and more on skilled labour—mechanical engineers, chemists, and

machinists—to whom higher salaries had to be paid and upon whom the planters depended

41 Japanese multinationals also took such actions in the 1960s and 1970s (Ozawa 2005). 42 This was the case for the Derosne apparatus, which was brought to Spain by Ramon de la Sagra to the

Peninsular Sugar Society in Almuñécar in 1845. It was the first modern sugar factory in Spain that used the

Derosne mill train.

29

completely. This migratory flow of technicians was not limited to Cuba; the same problem

occurred on Réunion Island.43 The technological network was complemented by a financial

network because sugar mill mechanisation required a higher investment of capital, which the

planters did not always have at their disposal (Roberts 1992: 54; Roldán de Montaud 2004;

Ely 2001). Once a collective decision was made to bet on the sugar sector, the trap of

globalisation for these producers was already woven, and the opportunities to disentangle

themselves dwindled.

5.2. Adaptation to changes and problems in the new period

At the end of the eighteenth century, Cuba had a similar GDP per capita to that of Spain, its

metropolis. By the middle of the nineteenth century, Cuba’s economic growth was substantial

(Coatsworth and Tortella 2002: 47), having become the world’s leading sugar producer.

Institutions and technology went hand and hand during the first half of the nineteenth century.

Still, while the appearance of new technologies produced niches for opportunity as they

displaced previous technologies, they also brought a series of bottlenecks. In Java, the

establishment of new technologies favoured the division of labour that already existed under

the semi-servile administrative system of the Dutch; in the case of Cuba, the creation of the

modern plantation system in the 1840s consolidated the slave system by demanding greater

quantities of sugarcane and thus more cultivated land and more slaves. Planters overcame

obstacles in the political and economic spheres, but despite attempts to modernise the sugar

sector, there was no miracle of economic development over the long term similar to what

occurred in Japan after the Meiji revolution (Robinson 1972: 121). The problem was not

access to technology networks, as Cuba was completely integrated on the international level.

It was also not the fact that Cuba was a colony, given that its metropolis was interested in

reaping the benefits of this agrarian specialisation through tariff policies and therefore did

not block technology imports. The problem was the economic structure created by the sugar

sector itself.

43 “[M]anquaient aussi les techniciens capables de monter ces machines, de les agencer dans l’espace de l’usine

et la ligne de fabrication, de les entretenir.” Géraud (2002).

30

While there were attempts to introduce other crops such as indigo, cotton, silkworms, cacao,

etc. (La Sagra 1831), these attempts at diversification did not succeed, and all administrative

decisions were directed toward eliminating barriers to sugar and favoured cane above all

other sectors, as the trade balance structure during this period attests (Fernandez-de-Pinedo

2002). What Cuba did not count on was the country’s enormous dependence on the

international market implied by this specialisation. The sugar mill owners did not realise that

the necessary mechanical skills no longer transferred from master to apprentice because

training was no longer possible within the mills. As noted by Mokyr (2014), the institutional

framework must accompany economic changes because “adaptiveness requires meta-

institutions that can change the rules when beliefs and/or circumstances change.” Although

planters who were aware of the increasing dependence on skilled foreign machinists and

engineers tried to create a machinist school, it did not achieve the expected success. The

planters also did not expect the repercussions of the Ten Years’ War (1868-1878), the crisis

of the 1880s, or the tariff war that occurred during the second half of the nineteenth century

that made them rely on the single market of the United States. In 1875, approximately 65%

of Cuban sugar went to the North American coast, while this amount increased to

approximately 90% by 1898 (Céspedes del Castillo 1983 [2009]: 496). The arrival of the Ten

Years’ War, beyond redirecting capital toward other activities for safekeeping outside of

Cuba (Rodrigo y Alharilla 2008: 146-147), favoured speculation and changed the credit

circuits from earlier stages. After the 1870s, Cuba arrived in a period of restructuring and

change in the political and socioeconomic spheres (Piqueras 2003). On the one hand, new

technological changes allowed the consolidation of the Sugar Central, which brought an end

to the plantation system. The Sugar Central required a real division between the agricultural

and the industrial phases, which favoured not only the process of mill concentration,

requiring more capital and increased efficiency, but also the abolition of slavery (through the

Moret Law of 1870 and definitive abolition in 1886). These changes also required technical

and organisational changes on the part of the old slaver elite, who needed to be reconverted.

They could both centre their efforts and capital on the industrial phase and undertake a new

modernisation process, or they could focus on sugarcane cultivation, which for many must

have been an agonising decision (Piqueras 1998). The international market also reflected a

change in demand for sugar at this time. The great advantage that Cuba had in the

31

international market until the last third of the nineteenth century was that it exported high-

quality refined sugar, while its cane growing competitors lacked refineries. This installation

in situ was different than what took place in England or France. The technology imported to

Cuba in the 1840s and 1850s was directed toward improving not only productivity but also

the quality of refined, or white, sugar. Thus, technologies that were established in the beet

sugar refineries in Europe and the USA were imported to Cuba. Still, changing tariff policies

in Europe and especially pressure from New York’s refineries after the Sugar Law of 1861

changed the demand for sugar. The priority shifted to non-refined or muscovado sugar, “and

the final and great effort of the Cuban sugarocracy to modernise its factories with expensive

machinery went down and led to great losses” (Céspedes del Castillo 1983 [2009]: 496). The

North American market demanded raw sugar, while Cuban producers were subject to the

whims of tariff policies and had to produce great quantities at low cost to overcome

production costs, tariffs, and costs of freight and insurance (Piqueras 1998). Thus, the techno-

institutional trap and globalisation joined together.

Cuban planters were able to create an adaptive, complex socioeconomic system during the

first half of the nineteenth century, but only in the sugar sector. Moreover, this system

reinforced specialisation in so-called colonial products but was not designed for a more

diversified economy. The system’s benefits were not reinvested into structural changes in the

Cuban economy. In fact, the changes after the 1870s were too fast for the Cuban sugar

industry to react and adapt in the short term, and the system’s weaknesses were revealed.

Technical and organisational changes inevitably arrived, but it would not be until the War

for Independence that Cuban production would recover as a single market. The efforts of the

first half of the nineteenth century only deepened the classic colony-metropolis model that

was directed toward underdevelopment in the long term.

5.3 Discussion

Importing, adapting, or promoting technologically dynamical sectors tends to be a common

strategy in regard to catching up the levels of development and welfare of developed

economies. On many occasions, momentum tends to be given by the state in a more or less

32

planned way (as in the cases of Japan, South Korea and China) or result from the impulse of

a particularly dynamical business élite. However, the success of such strategies in any way

is assured. Socio-economic systems are complex, evolutionary, and open systems where the

interactions between subsystems and elements that compose it interact in complex ways

between different levels and where the different processes of change coevolve.

The Cuban sugar industry case shows how the structure of capital generated by imported

leading technology captures the evolutionary process of institutional change in such a way

that, once it produces technological change—promoted by very active entrepreneurs—it

leads to an institutional trap. However, the consequence was a techno-institutional trap. In

our case, the carriers (planters) promoted the technological transition that ended slave labour

in favour of wage labour and the arrival of modern sugar centrals at the end of the century.

Moreover, the trajectories, institutions and technologies were consistent with the serious

attempt to modernise the sugar sector: Cuba was fully integrated at the international level in

technological networks. The unintended element was the enormous dependence on the

international market involving that specialisation. The tariff war was not in favour of the

sector because Cuba would depend on a single market, the United States.

As Nelson (2008a: 7) notes, “For countries aiming to catch up, the basic challenge is to learn

to master new ways of doing things. In most cases, there are models in advanced countries

that can serve as targets for emulation, and in many cases active assistance is available in

developing the new capability. In some cases, important aspects of the model can simply be

imported. However, bringing into operation practices that are new in the context involves an

essential break from Schumpeter’s circular flow of customary activity. The record is clear

that there is considerable learning that needs to be done to enable the new modes of operation

to be got under effective control, and a high chance of failure.”

The techno-institutional trap raised a path-dependent process that ended in an institutional

lock-in. The explanation is that the de-coordination/re-coordination processes that meso level

institutional trajectories generate were not adequately integrated among them; as an

unintended consequence, development does not appear to anchor the agents into such techno-

33

institutional traps. The key element is the set of actions carried out by planters who

significantly modernised the sugar industry but simultaneously gave rise, through their

intentional actions, to unintended consequences that resulted in an inescapable

underdevelopment and a techno-institutional trap—a main claim of this paper. All the

decisions took at the politico-economic level and aimed to remove barriers to sugar and to

promote this industrial sector. Paradoxically, the Cuban technological trajectory had

enormous repercussions in the long run, and in twentieth century Cuba, continued to bet on

sugar, having learned almost nothing from the past. The excessive concentration on

technological success (via importing technologies) without producing technologies (direct

and indirect) beyond partial improvements or cumulative innovations reduced the necessary

variety; in that circumstance, the evolutionary selection process could hardly give rise to

sustained development. It is a success that generates a “genetic weakness” typical of certain

artificial animal breeds. “Successful catch-up involves much more than simply gaining

mastery over new technologies and building up a technologically sophisticated workforce to

work with them” (Ibid: 17). “[C]atch-up will be impossible unless a country builds up its

education system, from bottom to top” (Ibid: 16). “Achieving the reforms needed in

economic structure may well be a more difficult task than gaining the scientific and

engineering knowledge needed to operate the new technologies. There are several reasons.

One is the political power of old firms and industries, and the difficulties they may have in

transforming themselves. For comfortable, politically well-connected old firms, creative

destruction is not a welcome thing. Achieving the reforms needed in economic structure may

well be a more difficult task than gaining the scientific and engineering knowledge needed

to operate the new technologies” (Ibid: 17).44 As a consequence, the system does not produce

enough variety, and evolution comes to a halt.

44 Some institutions are absolutely key to the catch-up process, and “the structure of the financial system

obviously is pivotal. Since the catch-up process involves a significant shifting of resources away from old

firms and industries, the financial system must enable this transfer; and in the present era, the education

system is of vital importance” (Nelson 2008a: 18).

34

6. Conclusion

The radical uncertainty surrounding human action is a key element—a cause and result of

processes of experimentation and learning, generation, dissemination and acquisition of

knowledge, institutional arrangements, and the development of technology standards, etc.—

that results in agents’ endless experimentation with new combinations. “Complex,

evolutionary systems work on the basis of on-going, continuous internal processes of

exploration, experimentation and innovation at their underlying levels. This is acted upon by

the level above, leading to a selection process on the lower levels and a probing of the stability

of the level above. […] Systems without strong mechanisms of repression and conformity

will evolve, innovate and change, creating new emergent structures, capabilities and

characteristics. Systems with no individual freedom at their lower levels will have predictable

behaviour in the short term—but will not survive in the long term. Creative, innovative,

evolving systems, on the other hand, will probably survive over longer times, but will not

have predictable characteristics or behaviour” (Allen 2014).

Economic processes and technological development incorporate, by their very nature, the

intentionality of agents and the demand for relatively stable frameworks (institutions and

technological domains) that reduce the radical uncertainty that surrounds the contexts within

which agents must plan and deploy their action and are consistent enough to promote their

progressive development. On the other hand, the interactive deployment of agents’ actions,

which incorporate intentionality and novelty, requires flexibility and dynamical coherence.

The tension between stability (static coordination) and continuous generation of variety (due

to the intentionality and creativity of agents) assumes that the complex coevolution of meso

trajectories can generate surprising results, such as techno-institutional traps.

Which institutions are needed to promote true (and sustainable) development in the long run?

The deployment of the interactive action of agents, which incorporates intentionality and

novelty, requires flexibility and precise dynamical coherence. The tension between stability

(static coordination) and continuous generation of variety (the fruit of the intentionality and

35

creativity of agents) assumes that the complex coevolution of meso trajectories can generate

surprising results, such as techno-institutional traps. The answer to this question is banned

by the complex and dynamical nature of the processes of interaction that are deployed by

purposeful (and creative) economic agents. As Allen notes in the paragraph above, it is

impossible to predict which institutions will be susceptible to or avoid a lock-in in the future.

To understand the outcomes that the socio-economic (non-ergodic and historical) processes

have produced is a task for the historians; but, it is also a task for the theorists, who may

abstract these process categories.

An economic science understood as historical social science (David 2001) in which time

plays a real role (Shackle 1977) is possible. In the science of human action within history,

the role of generic rules (technology and institutions) and their dynamics are central.

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