Centre
for Research on Innovation and CompetitionCentre
for Research on Innovation and CompetitionArchive
Arising from the CRIC emphasis on the comparative contexts of innovation, a new theoretical approach to varieties of capitalism is being developed in relation to a number of different empirical studies of innovation and competition. This approach, embryonically and suggestively sketched by Karl Polanyi, is that of 'instituted economic process', emphasising a focus of analysis as being both 'economic' and 'processual'. As such its empirical domain includes central features of the economy: the interaction between supply and demand, processes of price formation, competition, market formation, economic motives, strategies and rationalities, and innovation. The perspective that all such processes are fundamentally 'instituted' and therefore the result of processes of institutionalisation and de-institutionalisation, underpins a central theoretical perspective of comparative and historical variability. Indeed, the focus of theoretical interest becomes one of dynamics of variation, how processes are formed differently, rather than a taxonomic interest in resultant 'types' of capitalism. There is a compelling complementarity here with our work on evolutionary processes. (See Patent Analysis of Trajectories of Innovation: The Chemical Sector and Evolutionary Theory Underpinnings of Innovation Systems and Policy)
This approach reflects a shift in the centre of gravity of contemporary economic sociology, which redraws if not dissolves disciplinary boundaries. As Swedberg has put it 'In deliberate opposition to yesterday's economic sociology, …economic sociology and economics should address the same problems, namely those problems situated at the centre of the economy, such as prices and different types of markets.' (Swedberg, 1998).
From a theoretical standpoint, therefore, it is important to disentangle this concept from the 'old' economic sociology which has derived much from the better known Polanyan idea of 'embeddedness' This had led to an emphasis on the significance of all the social contexts of economic processes on those economic processes (networks of actors, cultures, regulatory frameworks, political and civic institutions) (Granovetter, 1985). The key point is that by contrast, for an instituted economic process approach, 'The study of the shifting place occupied by the economy in society is..no other than the study of the manner in which economic process is instituted at different times and places.' (Polanyi, 1957). So, on the one hand, the specificity of instituted economic processes can be analysed in their own right, and on the other the ways they may articulate with legal, political and civic institutions can be treated as a distinct and additional empirical and theoretical question. This enables us to analyse some central questions of both innovation and competitive processes which occur in the public sector, or in interactions between public and private sectors, where market forms of co-ordinating economic activity combine with 'non-market' forms sustained by economic resources derived from taxation (Nelson, 2000). Equally, it suggests interesting ways of analysing processes of institution of public versus private knowledge in innovation processes, for example, in biotechnology and genomics.
Processes of institutionalisation can be seen as ranging from formal institutionalisation in the sense commonly understood in terms of legal, regulatory, status through to stabilised patterns of activity or co-ordination over more or less lengthy periods of time. Thus, norms of competition have been diversely instituted at the formal level in the US, Japan, the UK, or European Union. But there are also norms of competition that relate to the establishment of particular types of markets over the course of their historical existence, from the medieval fair to NASDAQ.
An IEP approach opens up the possibility of running through from micro- to macro-, from the motive for gain to the Gold Standard, and the articulation between different scales of instituted process. Both the motive for gain and the Gold Standard are prime example of instituted economic process, the former very likely being articulated with all kinds of networks of interdependencies at the micro-social level (in the manner of Granovetter); the latter being a transnational, trans-societal instituted economic process, relatively dis-embedded from such micro-social networks. This theoretical move thus assists in integrating levels of analysis to include Bordieuvian notions of habitus and the role of norms and rules in economic behaviour (Hodgson, 1997).
At the same time, rather than viewing scale as something pre-given within which economic activity occurs, scale formation is itself seen as a result of processes of institution. Derivatives markets have thus recently witnessed a process of scale formation as different national or regional stock markets have been integrated. At the opposite end, LETS can be seen as a localisation of the scale of exchange, using strictly particularistic currencies. Moreover, many economic processes are multi-scalar: for a given firm, competition can occur within it at a micro-scale; and at firm to firm level within a local scale of market; and as one of cluster of firms in international or regional markets; and as a constituent of a national economy.
The theoretical approach has been developed in relation to a number of research projects within CRIC. It is clear that processes of price formation, standard and quality norms, exchange relations, supply, demand and competition, are instituted very differently in labour, product, and capital markets, and indeed these three broad categories of market are themselves the result of long and varied historical evolution.
Comparative work on labour markets suggested that there are fundamental differences in forms of exchange; the relation between price and qualification or skill; employment relations; and the number and relationship of parties to the exchange. This leads to the conclusion that, in the absence of cross- or supra-national markets for labour (which is a different issue from labour migration), there is lack of commensurability between the 'commodity of labour' traded in different national labour markets. Thus, the way competition occurs within national labour markets is a norm for that labour market: it might, for example focus on price of labour inputs in the case the UK or on productive organisation or composition of those inputs in the absence of price competition in the French case. Norms of competition can thus be seen to be intra-systemic. Inter-systemic competition, in this case, occurs only indirectly through product markets which are trans-national. This led to an understanding of norms of competition, and, by contrast, conflicts between labour market institutional arrangements (tax, legal, social security arrangements) which impel regulatory adjustments, and alterations of formal institutional labour market frameworks (Harvey 2000b). This also serves to emphasise that the forms of competition between nations, in terms, for example of national systems of innovation (including science, education, and labour market frameworks) are very different from forms of competition between firms in well established markets.
However, the principal empirical focus, given the pre-dominant nature of innovation research, has been in relation to product (including service) markets. Two main 'gains' from an IEP perspective can be highlighted in relation to styles of innovation and competition in the UK food and retail industry.
The UK food retailing sector has a uniquely high level of national integration and domination by a small number of major players, which has resulted in the development of own-label food products both more significant in terms of market share and wider in terms of product range and variety. An historical analysis and comparison of the conditions for emergence of branded food products and own-label food products revealed quite different forms of inter-firm relationship, particularly of course manufacturer-retailer relationships; different styles of innovation; and different forms of competition. Thus, branded manufacturers without secure access to end markets invest to create demand through advertising and marketing. Typically, in such circumstances, rate of new product innovation is slow at four to five per year, time from development to market lengthy (2 to 3 years) and large branded manufacturers expect relatively long product life. Own-label manufacturers, by contrast, with relatively secure access to market, with high levels of co-operation and product planning with their respective retailers, have high rates of product innovation (one to two thousand per annum), short periods from concept to supermarket shelf (4 to 8 weeks), and are thus able to follow fashion and demand trends generated by current TV chefs or restaurants. At the same time, as 'novelty' innovation, they have also been able to develop radical process innovation, so one can draw a contrast between branded manufacturers as 'conservative radicals' and own label as 'variable geometry' innovators.
As for competition, three forms of competition process can be distinguished, between branded food manufacturers; between own-label manufacturers; and between branded and own-label manufacturers. However, given the different styles of innovation and often ranges of product, these three forms of competition only directly occur over that segment of the market where there is head-to-head competition between similar products, the so-called copycat own-label.
An IEP approach thus sees the emergence of new (distributed) innovation processes as dependent on new instituted forms of consumer-retailer-manufacturer relationship, and the conflict between different forms as being central to the dynamic of variation.
The second highlight concerns the changing norms of competition more directly, by analysing the way in which UK supermarkets have
Two main interesting observations arose from this analysis. Firstly, the new non-formal norms of competition came into conflict with the formal norms of competition regulation on the occasion of a Competition Commission inquiry. Thus, the existence of catchment areas which constitute the basis of superstore operation was considered as being monopolistic according to a model of consumer choice which relates to an anachronistic situation of multiple smaller, alternative, and proximate retail outlets, giving the consumer a different kind of 'choice'. Additionally, the assumption of the firm as the unit of competition ill reflects the nature of competition when the unit of competition is the supply chain and leads to inappropriate questions of monopolistic or non-monopolistic means of distributing added value along the value chain.
Secondly, and as a consequence of the above, a particular norm of instituted competitive process is the outcome of this multidimensional restructuration, rather than the outcome of competition itself. A process of competition is the historical result of transformations of markets, formation of new units of competition, formation of new scales of markets, re-shaping and creating new classes of economic agents with new asymmetries of power and mutual dependency, and an interaction between formal and non-formal norms of competition, rather than an independent, sui generis, dynamic force. This has important implications both for theory and policy in the understanding of competition as a market phenomenon, and counsels for a broader vision of economic change and growth.
Significance of Results and Outcomes
An Instituted Economic Process approach is still very much in its early stages of development, with much still to do. The next phase of the CRIC agenda presents a number of avenues posing significant questions both empirical and theoretical. We shall be focusing on formation of markets and competition, with major projects on Genetic Modification in agribusiness, food, and knowledge markets, and further comparative work on food retail markets in Europe. Developments in e-commerce, medical technologies, complex systems also provide rich material for further analysis, and in particular to explore the relationship between IEP and evolutionary approaches. Questions relating to the relation between instituted demand and consumption routines also promise to stimulate and break new ground between economic sociology and sociology of consumption. The thread linking all these together is the problematic of processes and dynamics of variation which requires a strongly comparative and historical approach.
Harvey, M. 1999. Innovation and Competition in UK Supermarkets. CRIC Briefing Paper No. 3.
Harvey, M. 2000a. 'Competition as Instituted Economic Process' Paper to the CRIC International Workshop, Markets and Competition. May
Harvey, M. 2000b. 'Systemic competition between high and low 'social cost' labour: a case study of the UK construction industry.' In Clarke, L., de Gijsel, P., and Janssen, J. The Dynamics of Wage Relations in the New Europe. Kluwer Academic Publishers. Boston.
Harvey, M. 2001. 'Markets, supermarkets and the macro-social shaping of demand. An instituted economic process approach.' In McMeekin, A., Green, K, Walsh, V., and Tomlinson, M. Innovation by Demand. CRIC MUP Series I. Manchester.
Harvey, M., Beynon, H. and Quilley, S. (forthcoming). 'Processes of variation: How capitalism appropriated the tomato' in Harvey, M. and Beynon, H. Capitalism or capitalisms? Approaches to Varieties of Capitalism. Manchester University Press.
Nelson, R.R. 2000. 'On the complexities and limits of market organisation' Paper to the CRIC International Workshop, Markets and Competition. May.
[Back to projects]
CRIC has combined with PREST to form the Manchester Institute of Innovation Research (MIoIR).
New book: Trust in Food, A Comparative and Institutional Analysis by Unni Kjaernes, Mark Harvey & Alan Warde.
CRIC Final Report to ESRC:"Main Report" and "CRIC Performance Indicators 1997-2006".
'Instituted Or Embedded? Legal, Fiscal and Economic Institutionalisation of Markets' by Mark Harvey
'Beyond Efficiency and Market Shares: Competition within the Finnish Games Industry' by Mirva Peltoniemi
'Accounting for Economic Evolution: Fitness and the Population Method' by Stan Metcalfe
'Innovation and Final Consumption: Social Practices, Instituted Modes of Provision and Intermediation' by Andrew McMeekin & Dale Southerton
'Alfred Marshall’s Mecca: Reconciling the Theories of Value and Development' by Stan Metcalfe