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Ibn Khaldun on the Rise and Decline of Corporate Empires

Paul Krugman has written two blogs about Ibn Khaldun this weekend (and also said some kind words about my research). Readers of this blog know that I hold Ibn Khaldun in great esteem (see this blog, for example).

Ibn Khaldun’s greatest contribution is the development of a theory of collective solidarity/social cooperation, for which he uses the Arabic term `asabiyyah (which I usually simplify to asabiya). In this he is very different from such great European thinkers as Machiavelli, Hobbs, Hume, and Adam Smith, whose great contributions eventually led to the Rational Choice Theory (and the dead end of homo economicus in its most primitive form). Yes, I know that those political philosophers were much more subtle than they are often given credit for; yet the fact is that by the second half of the twentieth century a very flawed model of human nature reigned supreme in economics. Economists and many other social scientists seemingly took to heart David Hume’s famous pronouncement:

Political writers established it as a maxim, that, in contriving any system of government … every man ought to be supposed to be a knave and to have no other end, in all his actions, than his private interest.

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This is very wrong. It is, in fact, impossible to build a working society if all its members are selfish rational agents (or “knaves” in Hume’s wonderful characterization). Selfish agents will not cohere in a functional society – this I believe can be elevated to the First Law of Sociology.

Ibn Khaldun knew this and he devoted his book to developing a theory of the origins of social cooperation/asabiya, and mechanisms responsible for its loss. I won’t repeat myself here, because I devoted a big chunk of my popular book War and Peace and War to discussing Ibn Khaldun’s theory. In other writings I have modeled the dynamics of asabiya waxing and waning, loosely based on the ideas of Ibn Khaldun.

My models were focused on understanding the rise and fall of states and empires. What is interesting is that a very similar kind of model can be developed for the rise and fall of business firms. (In particular, Rob Axtell, with whom I have periodically interacted in Santa Fe and elsewhere, developed such models that are very similar in spirit to my models on political cycles). In fact, I believe Paul Krugman is completely right in bringing up Ibn Khaldun when thinking about the decline of Microsoft. However, I would develop this idea a bit further.

Both states and corporations are, at some fundamental level, cooperative enterprises. Yes, political elites and corporate managers are motivated by personal gain, power, status, and prestige. And that even can be the majority of their motivations. But in addition there has to be something else, at least some of these elites (whether political or economic) some of the time must behave in a cooperative prosocial manner, that is, putting the common interest of their state or corporation above their private interests. When they stop doing that, states crumble and corporations go bankrupt.

So here is a simple model that I have in mind for explaining the rise and fall of mighty corporations, which is heavily influenced by the ideas of Ibn Khaldun, Rob Axtell, and Pete Richerson (on institutions) and mine own on the empires. (Also, Rob’s model, which he has published, is well worth checking out).

In the beginning we start with small groups of entrepreneurs randomly thrown together by chance. The vast majority of these incipient firms fail. Most of these groups will contain uncooperative selfish knaves. All such groups will fail with 100% probability; only groups consisting entirely of cooperators have a chance. However, the majority of such potentially cooperative groups will still fail because they will be unable to hit upon the right combination of social norms and institutions to enable them to cooperate effectively. As an example, people coming from different ethnic backgrounds often find it difficult to concert a cooperative action, simply because different cultures evolved different ways of cooperating, and these may not work well when thrown together.

In the next step, the majority of even those groups that consist of cooperators and have acquired effective cooperative institutions will fail – because they don’t have the right product, or perhaps because they are simply unlucky. But at least they have a chance, whereas groups with knaves and lacking the right institutions have no chance at all.

This is a typical cultural evolution scenario. At this stage we have a lot of variation, with all kinds of incipient firms churned out, and a selection mechanism that weeds the ones that don’t cut the mustard. This is completely analogous to the Ibn Khaldun situation of the stateless ‘desert’ where groups that can’t cooperate together in defense (and predation on other groups!) are rapidly eliminated.

Only those Bedouin groups that wield a lot of asabiya survive and thrive in the competitive desert. Analogously, only those start-ups that have a lot of – well, asabiya – survive and thrive in the competitive markets.

So that’s how high asabiya firms are generated. What happens next? Next they need to expand without losing asabiya. That means that they need to be very picky about accepting new members (keep those knaves out) and have another set of institutions that would allow them to assimilate newbies to the firm’s social norms of cooperation. If they surmount this challenge, they will expand and become a huge corporation.

But eventually the rot sets in. More and more knaves weasel their way in. The institutions that sustained cooperation begin to be undermined by the selfish behavior of freeriders. Moralistic cooperators, in response, withdraw their cooperation, because they don’t want to be taken advantage of. Prosocial founders and early joiners leave the company and join more cooperative ones, or start new businesses.

Eventually knaves reign and the company is really moribund. However, it’s big and has a lot of inertia and so it survives – for a while. Then, however, a particularly greedy set of executives, or a market downturn, exposes its inherent weakness and the corporation goes under. You can substitute ‘executives’ with the ‘elites’ and ‘corporation’ with ‘empire’ and you have the gist of my theory of why empires collapse (however, the time scale on which firms rise and fall is much faster than that for empires).

And that’s how I see the fall and decline of imperial corporations, when looked though the lens of Ibn Khaldun’s theory. I won’t name names, but I am sure we all can think of a number of examples of such moribund corporations.

21 Comments

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21 Comments

  1. T. Greer says:

    Several years ago I hollowed out some time in my schedule to hole myself up in the local library and read all three volumes of the (Franz Rosenthal translation of) Muqaddihmah.. I am glad I did. Ibn Khaldun has impacted my thoughts in a way few theorists have. I am glad to see him get mainstream attention.

    The asabiyah-driven switch from a business of knights to a company of knaves you talk about fits closely with what historian Carol Quigly called the “institutional imperative.” I once summarized:

    “historian Carroll Quigley’s theory of institutional decay, termed in this discussion as the “institutional imperative.” According to this imperative, organizations are formed as a means to accomplishing a stated goal. These organizations are thus instruments whose role is limited to the function they were designed to perform. Over time these instruments tend to denigrate into institutions – organizations who exist for their own sake, devoting resources to protecting their position instead of directing resources towards the fulfillment of their designed role.”

    In the case of businesses, snazzy start ups with a clearly defined visions and strong corporate culture denigrate to over bloated, over bureaucratized, behemoths whose leaders are more focused on quarterly reports than customers.

    What I find most interesting about tying the institutional imperative directly to asabiyah is cycles – or rather, the cycles within cycles. In the case of American business, you have the larger asabiyah cycle of American society as a whole (visible among our top executives today – they are far less ‘pro-social’ than their counterparts in the 60s), but then smaller cycles of specific organizations within American society itself (in this case individual firms).

    The neat thing about free markets is that is allows “moribund corporations” to break apart without the dreadful consequences we usually associate with the collapse of nations and states. Indeed, because these corporations are usually replaced by their more instrumental peers, the business asabiyah cycle is a great boon to larger society.

    I imagine similar cycles are present in all human organizations, including most bureaucracies. The lean, can-do OSS of the Second World War slowly morphs into the moribund CIA of today, and so forth. Only difference is that there are no Bendouin rival bureaucracies to push them out.

    A thought provoking post, Peter.

    P.S. Readers might be interested in my earlier essay on businesses, bureaucracies, and the institutional imperative. They can find that here:

    Institutions, Instruments, and the Innovators Dilemma.”
    T. Greer. The Scholar’s Stage. 1 March 2013.

  2. T. Greer says:

    Several years ago I hollowed out some time in my schedule to hole myself up in the local library and read all three volumes of the (Franz Rosenthal translation of) Muqaddihmah.. I am glad I did. Ibn Khaldun has impacted my thoughts in a way few theorists have. I am glad to see him get mainstream attention.

    The asabiyah-driven switch from a business of knights to a company of knaves you talk about fits closely with what historian Carol Quigly called the “institutional imperative.” I once summarized:

    “historian Carroll Quigley’s theory of institutional decay, termed in this discussion as the “institutional imperative.” According to this imperative, organizations are formed as a means to accomplishing a stated goal. These organizations are thus instruments whose role is limited to the function they were designed to perform. Over time these instruments tend to denigrate into institutions – organizations who exist for their own sake, devoting resources to protecting their position instead of directing resources towards the fulfillment of their designed role.”

    In the case of businesses, snazzy start ups with a clearly defined visions and strong corporate culture denigrate to over bloated, over bureaucratized, behemoths whose leaders are more focused on quarterly reports than customers.

    What I find most interesting about tying the institutional imperative directly to asabiyah is cycles – or rather, the cycles within cycles. In the case of American business, you have the larger asabiyah cycle of American society as a whole (visible among our top executives today – they are far less ‘pro-social’ than their counterparts in the 60s), but then smaller cycles of specific organizations within American society itself (in this case individual firms).

    The neat thing about free markets is that is allows “moribund corporations” to break apart without the dreadful consequences we usually associate with the collapse of nations and states. Indeed, because these corporations are usually replaced by their more instrumental peers, the business asabiyah cycle is a great boon to larger society.

    I imagine similar cycles are present in all human organizations, including most bureaucracies. The lean, can-do OSS of the Second World War slowly morphs into the moribund CIA of today, and so forth. Only difference is that there are no Bendouin rival bureaucracies to push them out.

    P.S. Readers might be interested in my earlier essay on businesses, bureaucracies, and the institutional imperative. They can find that here:

    Institutions, Instruments, and the Innovators Dilemma.”
    T. Greer. The Scholar’s Stage. 1 March 2013.

    • Peter Turchin says:

      Yes, reading Ibn Khaldun was an eye opener for me too. I did not read through all three volumes. In places he is remarkably modern, it is hard to imagine that he wrote >600 years ago. But there are also long stretches where he talks about magic and I now forget what, which I did not slog through. Not to diminish his achievement, we are all children of our ages, after all.

  3. Extremely well said…as you know, I too am a big fan of Ibn Khaldun. One might add that asabiya doesn’t just happen; in IK’s theory, it requires a leader with charisma, concerted ability to manage force, and generosity, who emerges in a competitive situation where the best leader unites the biggest force and therefore wins. Then when an established, mature government appears, charisma, generosity and whatever aren’t so much use–establishment sets in, dull gray figures take over, and things unwind. IK figured about 100 years per cycle.

    • Peter Turchin says:

      That’s right. In fact the best possible combination for collective action might be a Machiavellian leader and completely prosocial followers. 😉

      However, in my theory of history individuals do not play a big role. To give an example, Boris Godunov was probably a brilliant leader, but he couldn’t carry the whole state by himself. An example closer to home, Bill Gates is clearly a remarkable individual, and I don’t want to diminish his achievement, but he was in the right place in the right time. What I am trying to say is that the social milieu of a genius is responsible for 90% of his achievements.

  4. M Gélinas says:

    You spoke well. On PK.

    If it had not been for Paul Krugman’s kind words, I may never have read your blog or questioned Popper’s perspective on historicism – which I viewed as a minor essay compared to Logik der Forschung or The Open Society and its Enemies.

    I have spent the better part of the week-end going through your work. As an ex-diplomat, I find that a cliodynamic Gesamptkonzept sheds more light on failed and failing states. And adds immensely to the contributions of Joseph Tainter, Thomas Homer-Dixon and, more recently, Acemoglu and Robinson.

    I have learned a lot. And I’m glad that you have picked up where others left. Remarkable work.

    Footnote: I appreciate both Asimov and Frank. The late John Brunner may have punched harder overall with his Stand on Zanzibar – inasmuch as “we are rapidly approaching a historical cusp”. (Turchin P., Return of the oppressed).

    • Peter Turchin says:

      Thanks for the kind words!

      What kind of a diplomat were you?

      • M Gélinas says:

        Kinda young, idealistic and adventurous. Served in the world described by Józef Konrad Korzeniowski’s Heart of Darkness, under the régime of Mobutu Sese Seko. Visited Kongo-Brazza, Eastern Kongo, Burundi and Rwanda on several occasions. Have seen my fair share of nominal states, in Africa then and elsewhere since.

        Life regularly takes a turn for the worst in Central Africa. Have not kept scores, but the body count seems to be in the vicinity of the absolutely insane numbers estimated for Belarus, China, Dutch East Indies, India, Germany, Poland and Ukraine during and around WW-II. Russian numbers would be abominable, but this is where the region is going.

  5. David Bofinger says:

    The basis of _homo economicus_ is not so much that we *must* be selfish, but that the society must function even though we are selfish. Of course, our society couldn’t function if everyone was completely selfish, but it’s better able to tolerate high levels of selfishness than, say, the Soviet Union, which performed well only when it had foreign invaders increasing everyone’s cooperativeness.

    I’m interested you were positive about Bill Gates. I would have seen his rise as the prime tech example of successful selfishness, much more so than Jobs, or Hewlett and Packard, or Noyce and Moore. Of course, later he became an epitome of unselfishness with the Gates Foundation, but it’s hard to see that in his early career.

    • The way I would put it, we should design society in such a way that as many people as possible are ‘primed’ to behave in a cooperative fashion (there has been a lot of research on how external cues can make people behave either more, or less cooperatively). The we need institutions that will coordinate coopeartive action in the most effective ways. And we need to control the inevitable knaves. But the overall goal is not to design a society that work best with almost everybody as a knave, but to increase the number of people who are ‘knights’ – in T. Greer terminology above.

      On Bill Gates: perhaps I was beeing too generous, but from what I know about the early Microsfot (which is adimttedly not a lot) Gates and early joiners created a highly cooperative environment.

  6. chekov says:

    On bill gates – he always insisted on keeping enough cash in the bank to pay a year’s salary for the entire workforce, against all financial advice, on the basis that he had hired his friends and he was going to make sure that he didn’t lose them if everything failed and he couldn’t pay them off.

    I think the mapping of asabiya to industry works well. It is also the case that there is a definite lifecycle which corresponds closely with the imperial one. To be stable institutions, corporations need a stable cash flow and once they have one, lots of energy is spent in protecting it against competitors. If that is successful, the external pressure reduces and there is little disincentive for the anti-social from concentrating on internal maneouvers (you can coast for a very long time on a well protected cashflow) much like the effect that the borders being moved back from the core has on an empire.

  7. Anthony says:

    John Walker, the founder of Autodesk, describes the beginnings of the firm here:
    link to fourmilab.ch . It’s an interesting case study in asabiya.
    There’s a blogger who has been doing research into cousin marriage patterns across time and space; one conclusion she’s reached is that very clannish societies where most marriage are between cousins or similarly close relatives, don’t do well at maintaining modern states.

    Generosity to near relatives, or potential relatives (potential in-laws) seems like a good base to start building asabiya. So clannish groups might do better defending themselves from invaders, but might also be more successful as invaders if they can incorporate some or all of the subjected people into their original kin networks.

  8. This is an interesting application of the asabiya concept but I think it’s not needed to explain the problems of big companies.

    It’s true that small-ish companies, as they are making the transition to larger ones, often have plenty of knaves weaseling their way in. (If you’ve ever been present during this transition you have no doubt seen it firsthand.) But you can still explain this in terms of the behavior of Homo economicus. The founders and the next few people who come after them understand what is needed for the company’s success, act in plain view of all the other (few) employees with the risk of termination and a damaged reputation, and understand that their own behavior has a big impact on that success. That is to say, when even a rational low-asabiya individual comes into a small company, they know that if they free-ride, it will hurt the company badly and soon (and therefore their own wallet), plus everyone will know it. But as the company gets bigger, it gets easier for free-riders to hide, and their free-riding hurts the company less and over a longer-term.

    It’s also worth asking how there could be asabiya in an organization that just appeared? The closest thing to this is the camaraderie that emerges at small companies, but that camaraderie is less about some abstract idea of the company and more to the founding few individuals. And asabiya to the founders in place of the company as a whole can and does end up damaging the quality of decisions and therefore the fortunes of the company as a whole.

    • Jukka Aakula says:

      I highly disagree.

      Having worked 1988-2007 at Nokia corporation, following intensively since that through my former colleages and seeing the rise and fall and collapse of the once clorous company, I would say big part of the rise and fall really was the rice of fall of cohesion, trust, asabiyyah.

  9. T. Greer says:

    I highlighted this on twitter, but wanted to repost it here: Peter Richardson has done some research on the role of social cooperation in the creation of new firms, and it meshes nicely with the asabiyah hypothesis Dr. Turchin suggests here:

    Christian Cordes, Peter J. Richerson, and Georg Schwesinger. “A Corporation’s Culture as an Impetus for Spinoffs and a Driving Force of Industry Evolution” Papers on Economics ad Evolution. August 2011.

  10. Jukka Aakula says:

    Today Nokia boss Jorma Ollila says in the Finnish Newspaper Heslingin Sanomat Nokia problems where much due to loss of trust. The bosses could no more trust what the organization was saying.

    Reminds me of the old article by Pete Richerson on moral enterprice.

  11. Peter Turchin says:

    Thanks, Jukka, for your (former) insider insight. It’s one thing to talk about these issues theoretically and another to see how the abstract principles work out in actual companies! Like you, I am convinced that cohesion, trust, asabiya are key to the survival and flowering of both firms and whole societies.

    • Jukka Aakula says:

      One interesting thing in the Nokia boss’ new book was how the loss of trust or assabiyyah materialized in Nokia.

      Ollila said he and the other leadership no more got right information from the organization. So for example when they asked “can Symbian compete with iPad” they got the wrong answer “Yes” from the organization. I make the interpretation the employees has missed the motivation to tell the truth. The motivation to save their jobs was higher.