Shirky makes the point that the power of this new media is not the additional spread of messages from centralized figures of power.  Instead, the low cost and wide availability of cell phones and computers has significantly lowered the “cost of coordination” in both economic and political spheres.  It is the ability of small, individual actors to produce and hear messages from each other.  And as he explains, it is the power of those individual messages which shapes beliefs and changes behavior.

Access to information is far less important, politically, than access to conversation. Moreover, a public sphere is more likely to emerge in a society as a result of people’s dissatisfaction with matters of economics or day-to-day governance than from their embrace of abstract political ideals (Shirky, 2010, p. 35).

It’s obviously not all about cell phone videos and Tweets, though.  This information began at least as far back as the middle of the last century:

In a famous study of political opinion after the 1948 U.S. presidential election, the sociologists Elihu Katz and Paul Lazarsfeld discovered that mass media alone do not change people’s minds; instead, there is a two-step process. Opinions are first transmitted by the media, and then they get echoed by friends, family members, and colleagues. It is in this second, social step that political opinions are formed. This is the step in which the Internet in general, and social media in particular, can make a difference (Shirky, 2010, p. 34).

There are still deeper issues at work here, and they have to do with some of the basic principles of social systems.  Referring back again, as in previous posts, to the work of Andras Angyal (1941), and beginning at the level of individuals:

One of the essential features of living organisms, whereby they differ from any other object in nature, is what we might call their autonomy.  By this is meant that the organism does not represent merely an inactive point, in which various causal chains intersect – as mechanistic philosophy assumes – but is, to a large extent, a self-governing entity…  The organism is, to a large extent, the cause of its functions, that is, it is endowed with spontaneity.  We could also say that the organism possesses a certain degree of “freedom”…  (pp. 32-33)

But…

The autonomy of the organism is not an absolute one.  Self-determination is restricted by outside influences which, with respect to the organism, are heteronomous…  Thus every single organismic part process, and also the life process as a whole, is always a resultant of two components, autonomy and heteronomy (pp. 37-38)…  In this study, by autonomy is meant “self-government” and by heteronomy “government from the outside” (p. 39)…  If one now considers the organismic total process with regard to the a [autonomy]: h [heteronomy] ratio, one discovers a definite trend in the organismic total process toward an increase of the relative value of a in this ratio, that is, a trend toward an increase of autonomy (p. 41).

While it sounds as though Angyal (1941) is referring to individual people, or at least to individual biological rather than social units, he later clarifies his scope quite clearly:

We regard the life process as a unitary happening, as an organized single process whereof the organism and the environment are only abstracted features.  Instead of studying the “organism” and the “environment” and their interaction, we propose to study life as a unitary whole and endeavor to describe the organization and dynamics of the biosphere.  The subject-matter of our conversations are not organismic processes and environmental influences, but biospheric occurrences in their integral reality (pp. 100-101)

There is always danger of misapplication of theories in different realms, and even at different scales of systems. It is worth at least considering, though, that the principles which Angyal proposes may apply to human social systems as well as to biological ones.  If so, then the propensity of systems to move towards autonomy is an important one.  This is reinforced by Ludwig von Bertalanffy’s concept of progressive mechanization, in which systems become less responsive to their environments by way of repetition of the same internal processes.  They become machine-like.  Niklas Luhmann referenced the same kinds of processes in his description of operationally closed systems.  In this case, he included the possibility of exchange of matter and energy with the environment, but made the distinction that the internal processes of such systems were governed or regulated only internally.

Angyal (1941) makes an absolutely critical distinction when he clarifies that “internal” and “external” are not spatial issues.  They are issues of governance and relationship.

With regard to the organism the terms “external” and “internal” have a specific meaning.  They do not refer to spatial relations…  “Belonging” or “being a part of” means that a certain factor is carrying out a partial function of the total system (p. 42)

The conception of organism and environment as morphological entities which are separable in space is inadequate for the description of biological phenomena.  They become fundamental biological concepts if we define them as dynamic factors.  Dynamically expressed, organism is self-government and environment is heteronomous influence.  Every concrete biological process is a resultant of these two factors.  The relationship of these two factors can be expressed theoretically in the ration of a:h in which the relative values of a and h vary from case to case (p. 97)

So to extend all of this to the realms of social systems and politics, telecommunications media have facilitated conversations between people, which have allowed new systems to emerge.  These new social systems are comprised of individuals who quit responding to environmental governance which they would no longer support, and began responding to new principles of governance with which they better identified or “resonated.”  They did not have to move from one physical space to another in order to leave the old system.  The old system began dying when they simply quit responding to its cues. These changes have not generally been the result of a new political theory broadcast through mass media.  In fact, most the new movements or systems have yet to be clearly identified.  (Some existing political influences hope to fill the vacuums in their own plays for power, but the outcomes remain to be seen.)  The new systems with the strongest and most consistent patterns are the most likely to survive.  They will define themselves and move towards further autonomy and self-regulation.

Angyal, A. (1941). Foundations for a science of personality. New York: The Commonwealth Fund.

This is actually only an extension of the more general question, “what is real?” While most people would agree that we experience a “real” world, it’s also true that we only experience it based upon our individual interpretations of the sensations that we have.  What we “see” is the result of how our brains interpret the neuronal impulses which our eyes produce in response to the light which stimulates them.  We assume that what we see is real (therefore the adage, “seeing is believing”) but we can easily be fooled through simple manipulations such as visual illusions. Similarly, we assume that our experience of the world is directly connected with the actuality of the world until we find ourselves in an altered state.  This can happen in dreams that seem so real that we don’t know whether they were dreams or not.  (At the neurological level, it was equally an “experience.”)  It can also occur as result of almost any alteration to our brain chemistry, be it from chemicals that we ingest (e.g. drugs), or injury, or excessive fatigue, or conditions such as dementia or schizophrenia.  It can even happen simply through suggestive states of consciousness such as from watching a really scary movie and becoming hypersensitive to “things that go bump in the night.”

One aim of science has been to overcome these problems by eliminating human bias from research.  Observations are made using tools and measurements which are to be verified by other observes, and ultimately through controlled experiments which can test the veracity of any claims.  For better or worse, though, science is a human activity which is always subject to human interpretation and understanding.

Because our experiences happen individually inside each of our brains, we can only compare and coordinate those with others.  We can never know for certain the actual experience of another.  At the same time, what we do – individually and collectively – affects the real, tangible world in which we live, just as we are a part of that world and are affected by it.

One aspect of the question in relation to systems is the choice of things on which to focus.  Ultimately, everything is connected in one way or another, even if just at the most elemental (e.g. quantum) levels.  And yet as humans there is no way by which we can focus on the entirety of the universe all at once.  We have to make choices.  As explained by Ashby (1956):

At this point, we must be clear about how a “system” is to be defined.  Our first impulse is to point at the pendulum and to say “the system is that thing there.”  This method, however, has a fundamental disadvantage: every material object contains no less than an infinity of variables, and therefore of possible systems.  The real pendulum, for instance, has not only length and position; it has also mass, temperature, electric conductivity, crystalline structure, chemical impurities, some radioactivity, velocity, reflecting power, tensile strength, a surface film of moisture, bacterial contamination, an optical absorption, elasticity, shape, specific gravity, and so on and on.  Any suggestion that we should study “all” the facts is unrealistic, and actually the attempt is never made.  What is necessary is that we should pick out and study the facts that are relevant to some main interest that is already given (p. 39-40).

What Ashby describes is what is often called the “system of interest.” It is that entity or phenomenon on which one focuses.  It is that part of reality that we separate from the rest in order to understand it independently, or “as it is.” In Gestalt work, it is what comes into the “foreground.”  In science it is the subject, and in engineering and other disciplines it is defined by what is included in a particular model.

From this perspective it’s easy to see why there is often confusion about the concept of systems.  The systems with which we work are bounded by choices of our interests or focus.  But that does not mean that they do not reflect aspects of reality.  (In fact, if they did not, there would be little value in having them at all.)  Robert Rosen made the distinction between formal systems (or models) and natural systems, or the entities in the real world which they represented.  As he explained it:  “Now the whole point of making models, i.e. of encoding natural systems into formal ones, is to enable us to make specific predictions (particularly temporal or dynamical predictions) about natural systems, utilizing the inferential structure of the model as an image of the processes occurring in the natural system itself ” (Rosen, 1985, p. 215).

Andras Angyal (1941) offers a perspective which suggests that there are systems in the world, and that we can discover ways to study them with some accuracy.  As he describes this:

Some state that wholes, as such, cannot be studied since scientific investigation presupposes that analysis of the whole into parts, which then makes possible the study of the interrelationships among parts.

It is, however, a misconception that the holistic type of study excludes analysis.  Analysis consists in a concrete or abstractive division of an object into smaller units.  One can, however, make divisions in many different ways, depending upon the principle according to which the division is made.  It is true that such division may destroy the whole, but there is a method of analysis which is perfectly adapted to the study of wholes, a method which does not destroy the object studied but, on the contrary, brings its structure into clearer relief.  Let us clarify this point.

Suppose one wishes to study a given whole, be it an animal, a plant, or even an inanimate object which exhibits some of the characteristics of wholes, for example, a building.  One can divide such wholes in at least four different ways.  1) One can “cut” the object into pieces at random.  The result of such division will be a number of fragments.  2) One can divide the whole according to a certain previously fixed principle which does not take into account the intrinsic nature of that given whole but is extraneous to it.  An illustration of this type of division would be the division of a tree into cubes.  3) One can “divide” by abstraction, by which is meant the resolution of objects into a number of distinguishable properties, for example, color, weight, consistency, etc.  The result of such analysis will be a number of features.  4) One can divide the whole according to its structural articulation.  Wholes, in the technical sense of the word, are never entirely undifferentiated, but are always structured and articulated into parts.  This characteristic distinguishes them from homogenous masses and from chaotic aggregations.  The multiplicity of parts is just as characteristic of wholes as the unity which holds them together.  The whole is never structureless but is a true unitas multiplex, as the philosopher would say.  The division of the whole into smaller units can be made, therefore, in such a way that the line of division coincides with the structural articulation of the whole itself, and thus the lines of division are prescribed by the structure of the whole itself (pp. 12-13)

References:

Angyal, A. (1941). Foundations for a science of personality. New York: The Commonwealth Fund.

Ashby, W. R. (1956). An introduction to cybernetics. London, UK: Chapman and Hall Ltd.

Rosen, R. (1985). Anticipatory Systems.  Oxford: Pergamon Press.

Courtesy of my friends and colleagues, David Hawk (http://davidhawk.com/) and David Ing (http://coevolving.com/blogs/), I was recently led to the work of Andras Angyal, an anthropologist and psychiatrist.  His 1941 book, Foundations for a Science of Personality, lays out an organismic theory which complements Bertalanffy.

The work of another psychiatrist, John Bowlby, incorporated systems and cybernetic concepts in his development of Attachment Theory, but much less explicitly than others noted here (see http://isss.org/world/the-work-of-john-bowlby).

Bertalanffy referred back to the writings of Alfred North Whitehead, in his statement that, “An atom, a crystal, or a molecule are organizations, as Whitehead never failed to emphasize” (Bertalanffy, 1969, p. 47).  Whitehead was a mathematician, logician, and philosopher who developed what became known as “process philosophy.”  In Whitehead’s (1925/1967) own words: “Nature is a structure of evolving processes.  The reality is the process” (p. 72)

While all of these authors made significant contributions to their fields, all of them encountered opposition from “mainstream science.” All of them were well trained and respected in their fields of study, but all of them challenged basic tenants of ideas beyond what was acceptable or politically correct.  None was trying to undo or replace science, but all challenged its limitations.  In Whitehead’s case it was apparently his unwillingness to divorce science from spiritual beliefs:

“Whitehead’s ultimate attempt to develop a metaphysical unification of space, time, matter, events and teleology has proved to be controversial. In part, this may be because of the connections Whitehead saw between his metaphysics and traditional theism. According to Whitehead, religion is concerned with permanence amid change, and can be found in the ordering we find within nature, something he sometimes called the ‘primordial nature of God’… Thus although not especially influential among contemporary Anglo-American secular philosophers, his metaphysical ideas continue to have significant influence among many theologians and philosophers of religion” (http://plato.stanford.edu/entries/whitehead/).

With all of the recent talk about the value of innovation, the truth is that most people value security and stability more.  It’s OK to make improvements but not at the risk of heresy.

Science has done, and continues to do, incredible things.  But science is also based on its own system of beliefs and practices, and sees the world in particular ways.  Given the challenges of our current world, is science enough?  Is it the answer?  Or do we need to think again about other ways of understanding the world?

All four authors noted here died years ago.  It would be easy to dismiss their works as old and irrelevant.  But it is also possible that their insights have value for us, even if they turn out only to be partial truths; ideas on which we can build in new directions.  As Whitehead explained:

“We are told by logicians that a proposition must be either true or false, and that there is no middle term.  But in practice, we may know that a proposition expresses an important truth, but that it is subject to limitations and qualifications which at present remain undiscovered.  It is a general feature of our knowledge, that we are insistently aware of important truths; and yet that the only formulations of these truths which we are able to make presuppose a general standpoint of conceptions which may have to be modified (Whitehead, 1925/1967, p. 183).

More on these ideas in posts to come.

References:

Angyal, A. (1941). Foundations for a science of personality. New York: The Commonwealth Fund.

Bertalanffy, L. (1969). General system theory (Rev. ed.). New York: George Braziller.

Whitehead, A. N. (1967). Science and the modern world.  New York: The Free Press (Original work published 1925).

I had decided to install Linux on a new, unformatted hard drive which I had recently purchased (increasing the capacity from 80GB to 500GB), and leaving XP on the smaller drive as an alternative system. That sent me searching for information about what kind of format I should use to back up files for this conversion – for which I basically found nothing. Information about the installation was also extremely slanted towards those who planned to install Linux over XP, to create one dual-boot drive. That left me with the problem about formatting the new hard drive for Linux. The preferred format is ext3, but it seems to require Linux in order to do that – a double-bind.

I downloaded Ubuntu 10.04 and burned it onto a CD as the (limited) instructions described. What information I could find about the installation seemed straightforward, so I tried simply using the CD to install directly to the blank hard drive, in hopes that it would take care of formatting, too. I managed to get the CD to run and watched the drive spin for about an hour and a half. It seemed like a big hard drive – I had no way to guess what was happening or how long it should take. As it turned out, nothing was happening.

I eventually gave up, shut down the process, and checked again for more information. I found that the installation required getting the computer to boot from the Ubuntu CD, which for some reason was also not simple. (In my case, it required installing an extra piece of software from the CD to help with the boot process.) I got the installation started and – low and behold – not only did the Ubuntu disk take care of formatting the drive, it also installed Open Office, found drivers for my printers, and made a copy of all the files on my other C drive. (I’m still not sure how that happened.)

Over the next few days, using Ubuntu varied between wonderful and exasperating. Ubuntu starts up and shuts down in seconds – not minutes, like Windows. It is, in many ways, elegant in its simplicity. It’s actually difficult to find antivirus software for Ubuntu, apparently because it’s considered unnecessary. But it is clearly built and maintained by programmers and engineers, not designers.

Small things are only small if they are familiar. The image on an external monitor defaults to the same resolution settings as the laptop screen. Adjusting that seemed simple. You go to System: Preferences: Monitors, uncheck the box that says “same image in all monitors,” and then two monitor images appear with new choices for the external monitor. The only problem was that this caused the panels (like Toolbars in Windows) to disappear – so that there was no way to find or start any settings or programs on the screen. After forcing a shutdown, restarting, and doing some additional searching, it turns out that you have to turn off the laptop screen while using the external monitor, then everything works fine. But this kind of quirk seems to appear with regularity.

More critically, Linux represents many of the gaps between the ways that engineers think and operate in the world, and the way that “regular people” do. Average users simply do not work in DOS screens, or in lines of code found in root directories. Some of the help for small problems offered online seem to recognize this, as solutions are given in terms of “go to this place and paste in this line of code, then save…” But in general, Linux still exists in a world of engineers and programmers, and is not likely to gain large amounts of market share (despite being free) until that gap is narrowed.

Now on to actually using the system..

He also corrected some of my misunderstandings about the system:

First, payment instructions from Quicken and QuickBooks do not go to Intuit, as I was told by one of the online reps.  They in fact go to Fiserv (see previous post), who acts as both the front and the back end of the process for PNC.  This is different than National City’s system, where they had their own OFX servers for processing Quicken and QuickBooks information almost instantaneously.  (Getting a similar system up and going for PNC is apparently in discussion.)

The easiest workaround, the tech rep confirmed, is to use PNC’s online web payment interface, which can then be downloaded to Quicken or QuickBooks for archiving, and for my end of year accounting.

The immediate question is whether to continue setting up accounts with USAA, which functions as something approaching an open source alternative for finance.  They maintain a large, low-cost system which relies on infrastructure set up by others.  (USAA customers can access most any other bank’s ATM’s, and have the charges for using them reimbursed by USAA.)  On a practical basis, using USAA requires still having a local bank account for deposits and transfer to USAA accounts.  There are apparently ways to scan checks directly to USAA, once you have been approved for a credit card (?) – or just to mail checks to them in San Antonio, but that obviously incurs days of delay for access to the money.

This all begins to feed into my other recent journey of moving from Windows to Linux (Ubuntu)… in the next post.

I had multiple accounts with the bank, including savings, personal checking, my small business account and a business credit card.  Right out of the box, PNC merged all of the accounts into one online space, therefore also merging and scrambling the online payees for the personal and business accounts in their website.  It seems like that should have been an easy fix.  Six months later, apparently it’s not.  More importantly, the hidden problems behind this were more than I could have guessed.

The first set of transactions from PNC’s online system sent three payments to American Electric Power.  One of those was for the electric bill, as was scheduled.  The second was for our water and sewer bill, which should have gone to the city utilities.  The third was a fairly large credit card payment.  By the time I discovered the error, of course, the credit card payment was overdue, creating problems there.

I contacted the local head of the bank to explain the problem.  The first thing that I discovered was that he had no clue as to how the online banking system worked.  In fact, he admitted, his wife paid their bills at home.  He did try to help, but it took three weeks to get this first problem resolved.  AEP understood the problem (sort of) but their accounting system was not set up to give money back to customers.  That required certified letters from the bank, and time to process.

Long story made short, it required many phone calls over a couple of months before I finally found someone who could even explain the different actors involved.

I use Quicken for our personal accounts and Quickbooks for the business.  What I learned, though, was that when I set up a payment in Quicken or Quickbooks it was separate from the online payment website.  My payment instructions went first to Intuit (the maker of Quicken and Quickbooks) and was sent in batch to PNC the next day.  The important point is that the list of payees in Quicken and Quickbooks is also separate from PNC’s online system.  I could manage the payee information in PNC’s system.  I could not, though, even see the payee information that PNC received from Intuit.  So in this case, I could verify that my payee information in my copy of Quicken was correct for the credit card company, but I could not see what PNC received from Intuit (wrong address, wrong account numbers, etc.), much less correct the information.  Nor, apparently, could PNC’s online assistants.

The next piece of information was that PNC does not directly transmit money from my accounts to the vendors I am trying to pay.  That is done by third-party called Fiserv (http://www.fiserv.com/).  (Fiserv acquired Checkfree, which was an electronic bill payment service that I used in the early 1990s, before banks had their own online systems.)  So it was actually Fiserv that transmitted my credit card payment to the power company, based on information or reasoning that I did not have access to.  (PNC online banking would not give me a direct number to talk to them, though at one point they did conference a representative in on a call in yet another failed attempt to resolve one of the problems.)

Since I could not access or correct any information from Intuit (if that was the problem) inside PNC’s system, the solution seemed to be to quit using both Quicken and Quickbooks and work directly through PNC’s website, entering my intended payments there.  That would have been OK, except for the original problem of merging all of my accounts together.  When I went to the Pay Bills tab in PNC’s site, the only account linked there was my business checking.  I was unable to schedule payments from our personal checking account for our personal bills.  Without the gory details, it took until the end of August to get the personal account linked.

In the mean time, payments continued to get misdirected.  I got up one morning to find no water coming from the faucets in the house.  I eventually discovered that the city had turned it off for non-payment, for which I had to drive to the city offices to pay by check, including a reconnection fee.  This time, the local bank head didn’t even bother to return my call.

The latest episode involved yet another payment made from the wrong account while I was traveling on business, overdrawing the account and locking me out of the electronic payment system.  This time, the number that showed up in the message was directly to Fiserv.  The representative there explained that Fiserv actually makes payments from its own accounts, then recoups the money from my accounts at PNC.  In this case, they had been unable to get the money for some of my payments because PNC said that they did not recognize my account numbers.  They were within moments of bouncing yet another payment, asking the vendor for their money back since they could not get it from my account at PNC.

The Fiserv rep guessed that there was a problem with the account numbers (though many payments in the past had gone through, obviously).  He advised me to go to PNC’s system and correct the account numbers, which I explained was absolutely impossible.  He seemed unable to believe this, and took the extra effort to conference in a PNC online banking rep.  The woman there verified that not only could I not correct the account numbers, neither could she.  She had no idea who Fiserv was, nor what the problems might be with the payments.  She forwarded the call to a higher level tech office for PNC, who is also not accessible from outside lines.  The rep there verified that he could see the entire log of problems and calls over the last six months, and apologized – but with no resolution.  When the Fiserv rep said that he had done all he could, he hung up, disconnecting the call with PNC as well – and needless to say, there was no call back from them.

If there was an easy banking alternative where I live, I would obviously have switched months ago.  Living in small, rural areas comes at price, though.  Bank of America gets great reviews, but does not operate in Kentucky.  No other large, national bank is close by, either.  Since I travel internationally with some frequency, I need to have dependable access there as well.

I have just set up an account at USAA (http://www.usaa.com), an online banking system originally set up for US military personnel, which now allows other members as well – for some services.  Unfortunately, you really need a local bank account as well for making deposits, etc., so this is only an interim solution.  More as the saga unfolds…

I am currently less than 200 miles from my home, in Louisville, for a few days.  When I tried to use my Visa card at a Kroger grocery store (a large, regional chain) it was denied – because my location was recognized by the fraud department as “out of the ordinary.”  When I called the credit card’s customer service number I was first put through a long series of questions to verify my identity (as usual), and then told that several things had triggered the denial, but most importantly it was the location.

The customer service rep’s suggestion was that I should call them at the time that a denial occurs and they could let the transaction go through.  I explained that doing so while I was standing at the checkout register in a grocery store with a line of people behind me wasn’t all that convenient for anyone.  She apologized, but the only solution seemed to be that I needed to alert them in advance before every trip.  So much for international financial systems…

This morning I tried to log on to Facebook.  Same issue.  Their system recognized that I was logging on through an unfamiliar connection and therefore sent me through a series of security steps.  In this case, in order to log in, I was supposed to identify friends who had been tagged in photos, and missing any of them would keep me locked out I was warned.  I’m not a big user of Facebook, and many of the people that I have “friended” are casual acquaintances or people I have known for only brief periods of time (e.g. students in classes of 50 or more in Bangalore, India; work colleagues in corporations of 30,000 employees, etc.)  After six or seven correct guesses identifying people, the final photo I was given was a black and white picture of maybe second or third grade classroom, taken at some unknown time in history, at a distance in which I couldn’t have recognized myself if I had been in it.  Come on Facebook!  Was this a joke?

I gave up in frustration and went to read the Wall Street Journal online.  Two stories jumped out.  The first was the unveiling of Facebook’s new location service called Places (http://online.wsj.com/article/SB10001424052748703649004575438243433457782.html?mod=WSJ_hps_LEFTWhatsNews; and http://online.wsj.com/article/SB10001424052748703649004575437533304450888.html?mod=WSJ_hps_LEFTWhatsNews

The idea is that I will be able to share my location real-time with other Facebook users (and oh, maybe an advertiser or two wanting to send me coupons or sell me things, eventually.)  Sense any irony here?

The second article was about Intel’s plans to buy McAfee, the security software company (http://online.wsj.com/article/SB10001424052748704476104575439180665843938.html?mod=WSJ_hps_MIDDLESecondNews.) According to the article, “The deal, the largest in Intel’s 42-year history, was described by the companies as evidence that security is becoming one of the fundamental pillars of computing.” Apparently Intel plans to begin integrating security features more directly into computer chips and hardware.

There will always be inherent tensions between service and security, as there are more fundamentally between freedom and risk.  The question in each case is the balance – who benefits the most based on the decisions made?  In the case of credit cards, under the current system the issuers are on the hook for most of the losses, and they seem to be weighing in on the side of minimizing those (i.e. focusing on their own benefits rather my ease of use.) Highly understandable, but with the risk of customers gravitating to alternatives that are more convenient and less troublesome.

Facebook seems to be working towards total incoherence in its approach at the moment, stuck between expectations for privacy and the use of individual data for generating revenue.

It all seems to point to a need to get clearer about just what service is, and how it should work.

Fundamentally, we want growth and not decline.  We want things to keep getting better.  We want our incomes and savings to increase.  We want medical technologies and healthcare in general to get better.  Doctors want their practices and incomes to grow.  Hospitals want greater use of patient beds and facilities.  Insurance companies want increased premiums and profits.  Pharmaceutical companies and medical technology firms want more business and better returns on their investments.  We want the care that we need when we need it, and we want that care to be covered so that it costs us individually as little as possible at the time.

The critics of reform seem to operating from one of two assumptions.  First, that doing nothing will maintain things as they are.  If we do nothing, nothing will change.  Or second, that large-scale systems are inherently self-regulating.  The law of the invisible hand and free market competition will drive more innovation at greater efficiencies and bring down costs over time.

While this works in theory, health care is not retail.  If you can’t afford a new computer or the cell phone that you want, you might have to wait for prices to come down.  If you have a heart attack, you probably won’t wait for a sale at your local hospital – and the emergency room at the hospital can’t just turn down your lack of credit.  Uninsured people still get care and still create costs for the system – they just get punished in time and levels of service.  Rationing of care has been happening for decades, we just call it other things.

Functionally, we already have a national health care system – we just don’t manage it as one.  We choose to focus instead on the individual parts of the system, because those represent the constituents and lobbies.  Managing the system at that level, though, is like asking the organs of your body to vote on who you should be as a person.  It’s not just an addition problem.

For those who still adamantly believe that government should stay out of health care altogether, the simplest answer is to do away with Medicare and Medicaid.  After all, they represent almost the same amount in the proposed 2011 US Federal budget as defense and social security (over $1.4 trillion), and projections are that those costs will continue to rise well above inflation for the foreseeable future.  (Then see how that plays out in the next round of elections.)

Taking on something as large as the health care system of the US is audacious.  Either we address the system as whole, though, and come to terms with managing the way that it works – altogether, in reality – or we just wait and hope that it takes care of itself.  It’s kind of like that noise in your car, though.  It might just go away, or it might leave you stranded on the side of the highway someday, if things don’t just blow up completely.

It would actually be good if health care were the only big problem to address.  As noted in a Wall Street Journal article today, though, it’s probably not even close.  According to David Weidner:   “Financial reform has clear similarities to health care reform: a bold plan, an entrenched political opposition and a powerful lobby bent on tamping down or eliminating reform altogether. And it’s an equal, if not bigger, part of the economy. Health care represents one sixth of the nation’s gross domestic product, financial services represents nearly one fifth according to a 2004 study by Carnegie Mellon” (http://online.wsj.com/article/SB10001424052748703312504575142592543970162.html?mod=WSJ_hps_RIGHTTopCarousel).

It seems likely that we are going to have to learn to manage at scales that we haven’t been used to, and expect that to be the norm.

Let’s start with the fact that there are layers of assumptions that usually stay behind the scenes.  For instance, while government is supposed to stay out of business, it is also expected to create an environment in which free markets can thrive.  An unstable political environment creates greater risk for business.  Businesses rely on stable currencies, educational systems to provide workers, legal systems to enforce contracts, transportation and communications infrastructures, and so on – all those things that are funded by taxes.  When the two systems are in balance, they work well together.  But keeping them in balance is a constantly moving target.

A major shift in balance occurred in the last administration, when President Bush, as the first “MBA president,” brought with him a strong set of assumptions which essentially said that government is inherently wasteful and inefficient, and business is inherently good.  That makes sense if you measure everything with the same scale, which is essentially what his administration did.  Every operation in government which could be outsourced was.  Even education was supposed to be measured as if it were a production facility, where students become components to be measured for quality at the end of the line.  (And then there was the defense budget, but that’s another story.)  If you measure government like business it assumes that government should function like business – that they do not have separate roles.

Compounding the confusion is the ever-present possibility for government intervention.  Historically, the agreed role has been to prevent monopolies, which kill competition.  Then there are the crises deemed large enough to require exceptional intervention, such as unfair trade practices by other countries.  And then came the era where select companies were deemed so critical to the overall economy that they were considered “too big to fail.”  And now we have the threatened collapse of the financial system itself (or at least the players considered too big to fail).

There seems to be no disagreement that government had to step in and do something.  The question is, and continues to be, what?

The first priority has been to get money flowing again.  If you stimulate the economy, theoretically, people spend money, jobs get created, families can pay their rent and mortgages, businesses make money, and eventually the system self-corrects.  So the initial response was a flooding the system with dollars.  Put a trillion or so dollars into the system and things are bound to start flowing, kind of like flooding the city drainage system.  Unfortunately, the analogy turns out to be more like air-lifting megatons of food into a starving nation.  You count on the existing institutions to distribute what’s been provided (in this case, banks) but it shouldn’t be a surprise if the people in those institutions feed themselves and their families in the process.  It doesn’t make sense to think that they will starve while they distribute provisions to others.

That brings us to the immediate debate.  There seems to have been an expectation that the bailout money would support the economy without necessarily supporting the banks as businesses themselves – that the money would flow to potential consumers without touching the debt that the banks showed on their own balance sheets.  It’s really just part of the same, big question.  If you look only at the function of banks as part of the economy, it makes a little sense.  From inside the banks, though, it’s pretty hard to understand.  So, how does government intervene in the economy without getting involved in business?

The problem will keep coming back to a balance of the roles, functions, and responsibilities between government and business.  They are not the same things, but they are interdependent.  Politicians should not be running corporations.  It doesn’t matter how good they are as business people, they are separate roles, and mixing them doesn’t seem to have worked out well anywhere.  Business, though, cannot continue to operate under some assumption of vicarious imminent domain – that the government exists only to give it access to resources to be exploited.  You can teach all the ethics courses that you want.  Until we reconnect leadership with a larger sense of responsibility, we will continue to have executives who believe that their only true goal is the creation of their own wealth.

The really hard questions, though, are at a higher scale.  What economy do we want to create?  Are we just trying to revive the one that we’ve had?

There are clearly short-term issues to be dealt with.  There are individuals and families in the US who are experiencing homelessness for the first time in their lives.  There are honest, hard-working people who have been pushed down into the ranks of the destitute.  Simply passing tax cuts and hoping that jobs trickle down to them in a few years is not adequate.

More importantly, though, if we did just revive the economy as it was (and it’s not clear that would even be possible) where would it take us in ten years?  Our role as the world’s consumers is not sustainable, economically or environmentally.  We can plan for change, or we can just let it happen to us, but it seems pretty clear that it’s coming.  And that, then, throws us into to the complexity of the debates that are occurring on top of the economic ones.  How do we put people back to work, but also prepare them for the future?  (Some 70% of US jobs, and 80% of our GDP, are already tied to services, but that is not how we train or educate students.)  How do we get healthcare and retirement benefits off the books of corporations, so that we level that part of the playing field with the rest of the world?

These are not decisions for the faint of heart.  Every bad decision only compounds the problems further.  The right ones will have to touch leverage points in the system where a little effort creates a lot of change.  We will have to address the debt left on balance sheets and reestablish basic property values.  We will also have to reestablish trust in the basic financial systems, and in the businesses that provide jobs that make it possible for people to buy what they need.  Immediately, though, in Washington, we are going to have to get clear about the roles and the responsibilities between government and business, and how they have to support each other.

Some of those models are much larger, and more pervasive, than others, though.  They guide decisions that affect what is taught at universities, how businesses are run, governmental policies, etc.  Science and religion both have views of “how the world is” – the nature of reality and how things work (or should work.)  The US Declaration of Independence, and the Constitution, reflect beliefs about human nature, governance, and how we should relate to each other.  Formal, mathematical models of all kinds purport to describe and predict phenomena.

The most critical models are probably those that remain invisible to us – those that we never think to question, or may not even recognize that we hold.  The current world-wide financial crisis – now apparently an official recession – has brought many of those models into view, and into question.  In recent testimony before the House Oversight Committee, Alan Greenspan explained that “he had made a ‘mistake’ in believing that banks in operating in their self-interest would be sufficient to protect the their shareholders and the equity in their institutions.  Greenspan called this ‘a flaw in the model that I perceived is the critical functioning structure that defines how the world works.’”

This is a profound insight and admission from the person who directly affected world financial markets for 18 years, and until recently was considered to be incredibly successful in his approach.

The point here is not to denigrate Alan Greenspan.  It is to point out the nature and importance of our models of the world.

The reason for using Mr. Greenspan’s example is primarily to contrast the models involved – the many formal economic models employed by economists, based on gigabytes of data, and the mental models that lay behind them.

Every model involves a selection of data, of what is considered to be pertinent to the issue at hand.  It is a description of something thought to exist, and how it works – what matters, what makes a difference.  It is based, then, on a set of beliefs about the “something” that comes prior to the model.

In the case of Mr. Greenspan, he was rather famous for being secretive, or at least less than transparent, about his personal model of the economic system.  As explained in a January 27, 1997 Wall street Journal article (Fed Chief Sets Monetary Policy By Seat-of-the-Pants Approach):

“Mr. Greenspan relies not on computerized econometric models, but on old-fashioned judgment. He doesn’t invoke economists’ sophisticated rules of thumb, such as a link between low unemployment and future inflation, but instead watches gauges, such as how fast suppliers fill orders from factories, that usually signal a buildup of inflationary pressures.

“In making the forecasts essential to setting monetary policy, he views the data through a lens of his own design, one that changes with circumstances. Essentially, he searches for the one significant factor that distinguishes the current business cycle from previous ones. Once he finds it, he looks at all the data with it in mind.”

The current financial crisis will not be solved by finding the right person or persons to blame.  There were certainly mistakes made, and actions by individuals that we do not want to encourage or repeat.  But the critical question for the moment is, if the world (especially the economic world) does not work the way that Alan Greenspan believed, how does it actually work?  What should we affect in order to re-correct the system?

An article in the October 27 issue of BusinessWeek magazine (Engardio, p. 22) questions fundamental economic principles:

“The Bush Administration, by committing $250 billion to buy equity stakes in a huge swath of the U.S. banking system and extending all manner of financial guarantees to depositors and money-market investors, has just violated some enshrined principles of American-style, free-market capitalism… The significance, not to mention irony, of a Republican Administration partially nationalizing the U.S. banking system cannot be overstated.  It could well go down as an important turning point in postwar American economic history, the beginning of a fundamental rethink of the proper boundaries between the public and private sectors.”

In the end, what makes the economic system work is whatever gives us the confidence to continue interacting and engaging in exchange with each other. The importance of the model that we use is what it tells us about what is important.  If the economic system is a self-organizing entity (like a living organism) and is fundamentally guided by an “invisible hand” then attempting to fully regulate it would be like trying to make a living robot, i.e. making a mechanical version of something that was fundamentally not mechanical. If it is something different, then we must understand it differently.

Alan Greenspan’s revelation questions the nature of economic systems at their foundation, all the way back to Adam Smith.  If individual entities working towards their own self-interest is not the key to the success of the economy, then what is?   If external regulation is important, then of what kind?  Do we understand it best by analogy, like the circulatory system needing the respiratory system, or do we understand it “as it is” – as a unique entity comprised of its own elements and interactions?

The debates occurring in financial and political centers around the world are mostly based on long-standing assumptions.  For some, economic fundamental remain intact and markets are only self-correcting (though pretty dramatically.)  For others, the present turmoil is an indication that unfettered capitalism is not sustainable.  The coming days and weeks will likely evidence a series of responses to trial-and-error remedies based on the models that are held.  With luck, something will work.

Questioning models at a deeper level is not something that we seem to do well.  As Americans, especially, we seem to assume that pragmatic trial-and-error is more efficient than philosophical reflection.  Rebuilding models on which we can rely, though, will require studied consideration, and matching the models to the actuality of the system will be critical if we are going to make effective corrections.

The question of the “reality” of systems can quickly devolve into a philosophical battle about the nature of reality itself.  Much of the answer for systems research depends upon how you define the system – as to whether it refers to the things that you are trying to learn about, or the process that you are using to investigate.

The position that I have taken is that “Systems are real for us, as humans, to the extent that we enact them.” As noted in a previous posting, both pigeons and fear are “real” in the sense that each can be examined as a phenomenon.  Both may affect us in different ways, but though fear is more ephemeral, it is also real in its effect on human lives.

What, then, about something like money?  The economic meltdown of the last week or so will continue to be analyzed by experts and pundits for a long time – and may yet have more consequences than we know.  More importantly, whatever decisions are made in Washington, they are likely to affect all of us in very real ways.  So to the degree that we participate in the economy, it is real.

The debate that has stalled decisions is largely philosophical.  What is it that actually makes the economy function (i.e. what is the nature of the system)?  Some see it from Adam Smith’s perspective, that left unhindered it functions as a self-organizing, self-balancing system.  Others see it as a very human institution, controlled by powerful people and driven by greed and hubris.  If you believe the former you simply try to rebalance it with as little intervention as possible.  If you believe the latter you are inclined towards more regulation.  In truth, we are likely to end up with some of both remedies, but only if they address the actual functioning of the system will they do any good.

At the risk of being just one more voice in the noise expressing half-informed opinions, let me try to use this as an example to sort through questions about systems.

My own approach is to start with the largest picture that (potentially) puts the rest in perspective.  An economy is based on an exchange of goods and services.  In what I think of as hunter-gatherer tribes, there was undoubtedly some division of labor, but resources were shared communally rather than exchanged.  Once true exchange begins, there is a need to establish value of goods and services, even if it is for barter.  (I need to believe that the day I spent pulling weeds from your farm is equal the repair that you did to my wagon, etc.)  Bringing currency (e.g. paper money and coins) into the system just makes it more flexible, and less cumbersome to keep track of all of the actual exchanges and values in a barter system.  I can take the money I receive as a promise of value, and exchange it for any number of other goods or services unrelated to my original work.

The pattern of action that creates an economy, as a system, is exchange.  If the exchange stops the economy dies.  Much of the incentive that keeps exchange flowing is the need for goods and services that you cannot produce for yourself.  If we returned to living in communal tribes we could theoretically do away with economies – but we would have to get rid of most of the humans on the Earth in order to do that.  In the mean time, purified water and electricity and fuel and food and clothing mostly come from centralized production sources, and people need money to exchange for those, and many other things.

Moving from a simple economy of exchange, though, to the world of finance, complicates matters.  Systems of credit and debt let economies expand much faster than simple, direct exchange.  If I run a farm that produces grain, I could spend a significant portion of my time finding buyers and transporting grain to them.  If, though, I can count on you to sell my grain I can focus just on growing it.  Assuming that you don’t have the money to buy all of my grain outright I could decide to let you take it on good faith (credit) and pay me for it after it’s sold.  Alternatively, you could borrow the money from someone else (e.g. a bank), pay me now, and pay them after the grain is sold.  In that case, of course, you would have to pay them back not only what you had borrowed, but also an additional amount (interest) for the use of their money.  With the introduction of finance you have a whole new system – one that is related to the exchange of goods and services, but one on which money is used to make money.

The financial system, like the exchange of goods and services, has to remain in motion in order to survive.  If everyone went back to paying cash for all transactions, banks (if they existed) would become nothing more than centralized safes, for which people might pay a small fee.  If that were the case, though, very few people would ever have the kinds of houses in which they now live.  Most would find it impossible to save the money needed to pay cash for a house because they would have been paying rent every month in the mean time.  Likewise, businesses would have to accumulate cash in order to pay for materials and labor before goods and services could be sold, which would drastically limit their growth and the products they had to offer.  So the financial system became the lifeblood of the economic system, so to speak.

Loaning money to other people, though, is a double-edged sword.  It creates an income stream in the form of principle and interest that get repaid.  A $200,000 mortgage, for instance, repaid at 6.25% over 30 years creates over $243,000 in interest payments.  It also brings the risk that the borrower will not, for any number of reasons, repay the loan.  To offset that risk, lenders rely on legal contracts, binding borrowers to their obligations, and on collateral that lenders can theoretically repossess and sell if necessary.  On home mortgages, the houses themselves acted as the collateral, on the theory that they would be worth at least as much as the remaining principle of a loan if it went into default – a theory that got violated in the current financial meltdown.

Risk and reward became key principles in the financial system, and then turned into drivers of it.  The greater the risk that a loan will not get repaid, the more costly it will be for a borrower to get a loan.  This is not just a matter of poor character.  It also has to do with things like the political stability of the place in which a borrower lives.  Borrowers also become ill or die; businesses fail; buildings getting flooded or burn down, etc.  In a stable and predictable environment, the probability of such occurrences can be calculated with some accuracy.

One way to offset risk is through insurance.  In essence, insurers bet against the statistical odds.  Knowing that only a certain number of calamities are likely to happen in a given, average year, they could charge relatively small premiums to large pools of people and expect to pay out less than they collected.  In the mean time, the money that they held could be invested in other ways, allowing yet another income stream from it.  Being a regulated industry, though, they are required to keep substantial sums of money safe in order to assure that they could cover even extreme years of disasters.

Financial systems also involve many areas that are not protected against losses, such as shares (stocks) of publicly traded companies.  This has been the greatest pool of investments for businesses for generations, and also the central source of wealth for individual investors.  But here the risks and rewards multiply.  A good investment can multiply the money put into it many times over; a poor one can lose its entire value.  Theoretically, the value of publicly traded companies fluctuates according to their performance in free market systems.

Throughout the economic system as a whole there remains a basic principle – that the value of what is owned and traded has some rationality, even if it is exceptionally relative and fluid.  There are, for instance, formulas for calculating the intrinsic or fundamental values of an asset.  These values get forgotten when markets heat up at times, but only relative to the amount of excess capacity in the market (e.g. savings, business profits, etc.), or speculation.  When that capacity lessens, prices drop.  I may choose to speculate on a piece of artwork at an auction and find myself caught up in a bidding frenzy against another fanatic.  If I choose to pay an outrageous price to win the bidding I can hope that the artist gains popularity and favor with collectors, in case I decide to sell at some point.  But the price I can get at any particular point in time will be a factor of the desires of other buyers in the market – and of their ability to pay.

By some reports, at the height of the mania about tulip bulbs in Holland in the 1630s, one bulb cost the equivalent of $76,000.  Six weeks later, after the market crashed, it was worth $1.  This was the bidding frenzy and the reality of the market.  The ultimate price, though, was not a reflection of the financial capacity even of the very wealthy.  It was the result of speculation amongst those who saw the opportunity to make money.  Seeing prices rise, speculators with no interest in tulips per se took advantage of buying and selling, just as day-traders in stocks do today.  The extent of the mania in Holland has been questioned by later research, including the idea that it represented a “bubble” like the one that preceded the stock market drop in the US in 2000.  “For tulip mania to have qualified as an economic bubble, the price of tulip bulbs would need to have become unhinged from the intrinsic value of the bulbs” (http://en.wikipedia.org/wiki/Tulip_mania).  Apparently some research said that it did not.

There are aspects of speculation that seem to make sense.  If I know that I will need fuel for a fleet of vehicles in the future and I expect that the price of fuel will rise, it makes sense to pay less for it now.  If I don’t have any place to store it, it makes even more sense to pay a supplier for the rights to buy it at an agreed price in the future.  The supplier gets some money now and a known price for it then.  (This is what Southwest Airlines did, which gave it a great advantage over other airlines in recent years.)  The future price is a bet, and either I or the supplier will come out better on it, but it makes my future costs of business more predictable.

The point, though, at which trading becomes purely speculative, and unhinged from any intrinsic value, is the point at which the lines between investing and gambling blur to almost no distinction.  While many might argue otherwise, this is one interpretation of what happened with the development of derivatives.  Here’s a quick and simple definition:

Derivatives are financial instruments that derive their value from the value of another security or object. Futures contracts on pork bellies, crude oil, sugar, or copper, options on Wal-Mart or the S&P 500, and a bewildering array of securities linked to the movement of currencies, interest rates, housing prices, or even events—like the likelihood of a company defaulting on its credit. All these are derivatives (http://www.slate.com/id/2142158/)

Why would anyone take the risk of investing in something like that when they could own stock in a solid, blue-chip company?

The volume and investor interest in derivatives have soared in recent years for a variety of reasons, in part because stocks of big companies have been boring and less volatile. It’s difficult for professional traders to find much of an edge in the trading of Wal-Mart or General Electric when they simply move sideways over a several-year period. Meanwhile, commodities such as oil, natural gas, gold, platinum, copper, and ethanol have become highly volatile. The main way to play these markets is through derivatives. And the explosion of government and corporate debt in recent years has led to the development of new products that allow investors to assume or hedge interest-rate risk (http://www.slate.com/id/2142158/)

There seem to be two areas of significant concern and impact at the moment, which also converge in the middle of the problem.  One is the failure of major financial institutions, and the other is the collapse in value of individual homes.

AIG was the first of the public financial institutions considered too big to be allowed to collapse.   It actually operates as two separate entities – one a regulated insurance company, and the other a financial conglomerate.  In all, it held over $1 trillion of assets through operations in 130 countries.

What do you do with $1 trillion in assets?  Actually, you do two things at once.  You use it to make more money, and you try to protect what you have.  If you can do both simultaneously, you’ve done a great thing.  The common strategy for protecting assets is hedging – essentially betting for and against the same thing at once.  If you’re lucky, your wins pay off more than your losses.  As derivatives got more and more complicated, though, all of this got more risky.  The type of hedge that is blamed for a huge part of the latest problems is credit-default swaps.  These are:

…private contracts that let firms trade bets on whether a borrower is going to default. When a default occurs, one party pays off the other. The value of the swaps rise and fall as the market reassesses the risk that a company won’t be able to honor its obligations. Firms use these instruments both as insurance — to hedge their exposures to risk — and to wager on the health of other companies. There are now credit-default swaps on more than $62 trillion in debt, up from about $144 billion a decade ago.  One of the big new players in the swaps game was AIG, the world’s largest insurer and a major seller of credit-default swaps to financial institutions and companies (http://online.wsj.com/article/SB122169431617549947.html)

On the housing side, speculation had taken over as well.  Buying a house is the largest investment that most families ever make, and for a long time represented the greatest source of assets.  When real estate prices started rising rapidly, though, especially in places like California and Florida, both buyers and lenders began speculating – and we were back to tulips.  On the lender side, though, it got more complicated.   Mortgage companies apparently lost sight of any fundamental value at multiple levels.  They lent far more money to people than their incomes and assets would justify, and they lent it on houses that were priced well beyond what could be justified – except by “exuberance.” They then offset their risks by bundling and selling packages of debt to other investors (after all, they were long-term, steady income streams, right?)  This spread the risk, and later the damage, far into the economy as a whole.

And now the vicious cycles of feedback have begun.  Those once-attractive adjustable mortgages ballooned so that homeowners couldn’t pay them.  Banks started repossessing homes which no one wanted or could afford, starting the fall in the value of real estate.  Banks and pension funds and investors who bought the debt lost large portions of their investments, driving down stock prices and the markets as a whole.  Until the whole system begins to stabilize there is no way to value what remains, and therefore to calculate losses.  Until that happens, banks are reluctant even to lend to each other, much less to small businesses or individuals.  Even consumers who still have jobs and savings are reluctant to spend, slowing sales and growth of businesses, which will eventually result in job losses and less spending capacity in total.

And this is obviously not just an American problem.  Markets around the world have been suffering significant losses, waiting to hear how this is going to get resolved.  The numbers involved are amazing.  As of 2005, there were $140 trillion worth of stocks, bonds and other financial assets, worldwide.  Over $47 trillion of that was invested through institutions in the US.  Moreover, the US has been the engine of consumption for a large part of the goods produced around the world.  We are drowning in oceans of debt which there may be no one to pay.

As if we needed more, bigger dangers may loom in the future.  With baby boomers starting to retire, there is a $53 trillion debt for Social Security (there are no savings – it gets funded by deductions from current workers) and that debt rises $2-3 trillion per year.  It is not a pretty picture.

So where do you begin to target what is “real” – what will actually cause effective change – around all of the immense complexities and vested interests, in order to keep things afloat?

If the fundamental basis of the economy is exchange then that is what must take place.  The Bush administration seems to have believed that by encouraging citizens to “spend the country out” of recent economic slowdowns (prior to this actual collapse.)  That was the rationale for giving most Americans a special tax refund in the spring – increasing the national debt even further, of course.  The theory would seem to be that debt doesn’t matter, you just have to keep the economy active until it recovers on its own.  (That seems to be much akin to the idea that if you gamble long enough you’ll eventually win big and cover your debts, but I’m no economist.)

Ultimately, the economy survives on human activity.  So there would seem to be some essentials about the functioning of the system related to that.

The first and most essential function is captured in economics as risk – but in human terms is about trust.  Trust is fundamentally about the fulfillment of expectations.  Promises and agreements that get made are kept.  Information that is important gets disclosed.  A value that is asserted gets confirmed (e.g. “yes, it’s really gold”).  If I get cheated there is recourse, and so on.

At one level, people are not going to stop participating in exchange anyway.  At least half of the world lives in cities, and few people still know how to hunt, farm, or weave cloth for making clothes.  But the way that they approach exchange, even for basic needs, can be affected.

Much more at stake are the trillions of dollars of investments that have flowed through US banks and financial institutions.  They have been at the heart of an international financial system which created trust that a fundamental value for assets could be established, and that despite periodic fluctuations in markets, sound investments over time would grow.  That has been further evidenced by the importance of the US dollar as a key international currency, and the willingness of other countries to invest in it.

There is an aspect of “games” about economic systems.  They are an ever-emerging pattern of interactions between humans.  They exist because we participate in them.  But our trust in them requires that there be some basis of rules – of acknowledged patterns – by which they function.  Otherwise, there is no reason for people to save and invest for a time in the future when they are too old to work.

The danger of recent events is the perception that there is much more to be gained by manipulating the rules than by playing by them – that numbers in accounts have a reality unto themselves, with no need for a connection to the mundane things of life like sweat and soil.  That is an expression of ignorance or hubris, or both.  Left unchecked it could undermine the patterns of exchange in which people have been willing to participate, and tear at the very reality of economic systems.

How do you choose what you want to study – or learn more about, or better understand, or solve?  In systems work, this entails the drawing of a boundary.  The boundary separates what is to be examined from what is to be excluded.  It defines the question or the problem.  While this may seem patently simple, it is both the most fundamental step in a learning process, and the most complicated.

If you were a beginning student in science you might to study something like the food-gathering behaviors of pigeons as a project.  Then you would have to decide where to find pigeons to observe.  Pigeons seem to gather in parks in many cities, so that might be a convenient place to start.  But when you get there and find pigeons eating bread from discarded hamburger buns, or popcorn tossed at them by children, what does that tell you about pigeons in general?  You assume that you can generalize what you found to other birds like the ones you studied, but does that represent all pigeons?  When do more research you find that pigeons and doves actually share the classification Family: Columbidae, and that there are 300 species within this one category, in locations all over the world.  Most likely, the ones you saw in the park were feral Rock Pigeons, but even the terms pigeon and dove are not always used consistently.  Since this particular project has no significant consequences, you just describe what you observed and predict that it applies to most pigeons like the ones you saw.

But what if you chose to study something much larger in concept, but less tangible?  What if you chose to study fear?  How would you begin to think about drawing a boundary?

Traditional researchers would probably react in a number of ways.  First, they might tell you that you were crazy – that you can’t study things so large and nebulous.  Then they might suggest that you narrow your study to some extremely small focus, like the fear response in rats subjected to unfamiliar stimuli, or whether fear can be detected by scent through hormonal changes in humans, or how fear affects perceptions of market conditions by stock brokers.  You would then have to operationalize your definitions in order to have variables which could be observed and measured.  In this case, the approach itself largely determines the boundary.  If you’re going to do scientific research you have to do research that fits science.

You might decide to take this approach out of expediency (so that you could pass a class or complete a dissertation or get a grant.)  But is studying finite aspects of fear the same as studying fear as a phenomenon?  Frankly, no.

Then is it feasible to study fear as a phenomenon?  It is theoretically possible.  It clearly would not be easy, and there would be many, many disagreements about definitions and distinctions and approaches or methods.

The point is that if you want to study a particular thing, you need to be clear about what that is and draw the boundary appropriately.  Most people don’t question this because it seems so obvious.  I want to study pigeons so the boundary is around pigeons, right?  Yes, until you learn that you need to distinguish between pigeons and doves and 300 species of them.  Fortunately, science is filled with taxonomies for classifying almost everything, so you could just rely on those for making distinctions about pigeons (probably.)

If I want to study fear, is it any less “real” than pigeons?  I doubt that many people would question the reality of fear, but still find it hard to compare to something they could see and touch.  Whatever fear is, it seems to occur in animals as well as in humans.   In fact, it seems to play a very crucial role in the behavior of most species above a certain level of anatomy and functioning.  In order to study fear, though, I need to be as clear as I can about what that phenomenon is so that when I try to describe it I am describing it, not other things that may be related.

Drawing boundaries only gets more complicated when you begin to consider the many factors that can go into it.  If the research or learning process is done simply on my own, for my own benefit, with no implication for any other people, then my decisions about boundaries can be fairly arbitrary.  The way I define the subject may or may not make sense to other people, but I can just decide and deal with any consequences or complications.  That rarely happens, though.  Most research is carried out for some purpose in cooperation with other people, or at least with the intent that the findings will be accepted and understood by other people. In that case the boundary choices make more difference.

Systems theorists such as West Churchman, Werner Ulrich, Gerald Midgley, Mike Jackson, et al. have stressed the need for boundary critique – a process of questioning the choice of boundaries based both on philosophical and ethical considerations.  Historically this was left to the Scientific Community or groups of professional experts to decide.  The problem was that the drawing of every boundary involved a process of decision-making, and whoever was involved in that brought with them an existing pool of knowledge, ignorance and biases.  In addition, many outcomes of affected people who were not a part of the process.

The discussions behind all of this got deeply into questions about the nature of knowledge and reality.  If we can ultimately only understand the world through our senses and tools, as interpreted in our brains and through the languages that have evolved within our cultures, what is it that we really know?  This is a critical question, but it’s been at the heart of debates for decades and is not going to get resolved here.

The result of these discussions led, in systems, to the links with participatory processes.  If there was no absolute, fixed “truth” about the universe – if every way of understanding was limited, and involved some levels of interpretation – then you needed to think carefully about who was involved.  If you omitted an important way of understanding, you might well miss important factors.  From an ethical standpoint, people who are to be affected by decisions should have a chance to be involved in the information on which the decision is made.  (From a practical standpoint, including stakeholders often garners support and reduces resistance when it comes time to implement a decision.)

The point in relation to boundaries is about how we decide to draw them.  If things in the world are “real” then the boundaries that we use simply follow the natural boundaries in the world.  If feral Rock Pigeons are an absolutely distinct species, then there should be no question whether one is or is not.  (Not being a biologist, I’m sure what all the distinguishing characteristics are at the level of species.)

The messier question this leads to is whether systems are real.  This is also a long-standing debate.

My Proposition: Systems are real for us, as humans, to the extent that we enact them.

This is not, for me, a matter of verbal or intellectual agreement.  It is the extent to which we live as though things are real.

If this is skirting the issue about the nature of reality, I probably fall into a middle ground, so let me add just this much.  If I slam my head down onto my desk, I expect that it will hurt – and I expect that it will hurt every time that I do it (until I lose consciousness.)  Moreover, if we all slam our heads down onto our desks, I suspect that our reports of the experience will be fairly similar.  Our heads and our desks are likely to seem quite real.

Not everything is quite that clear, though.  When I was working in mental health in the 1980s, homosexuality was removed from the Diagnostic and Statistical Manual (classification of mental disorders) as a mental illness.  Between the 1950s and the 1980s, depression was added to the DSM, with specific criteria to differentiate it from other disorders.  Psychiatrists and other mental health care practitioners felt the need for a way to name a pattern of activity that they frequently encountered in practice.  Benefits providers, on the other hand, strongly resisted this, since it codified the disorder as a medical malady that would need to be covered by insurance.  Today, there is a debate about whether apathy should be included as a disorder in the upcoming revision, DSM-V.

My proposition is not intended to mean that systems are arbitrary human constructions.  To the degree that we enact them, we endow them with real characteristics.

I’ll address that more in the next posting.

I have been struggling for years now with issues about systems.  First, how do you introduce the basic principles of systems to students, or other people who are interested but have no previous background?  There have been many different books and articles written at different levels, for different audiences, but (for me) all of them still leave questions or create additional confusion about what is really different about understanding things in terms of systems.

The most basic writings tend to use simple examples, explaining that a system is a collection of parts that creates a “whole” entity.  You can have a box full of tires, spokes, chains, sprockets, metal tubing, etc.  Only when those parts are assembled in a certain way, though, do they make a bicycle, which then has functionality as a means of transportation.  The relationship of the parts to each other matters.  But this is still a simple, mechanical system and often leaves the question, “so what – how does this explain anything new?”

Other common examples include the fact that there is nothing about the “wetness” of water that can be explained by the properties of oxygen or hydrogen molecules.  It is only their formation into a system that allows this new property to emerge. The usual question is again, “so what?  Isn’t this just like evolution?  Over time, some things combined with others to form new, more complicated things?”

The more complex writings about systems start at the other end of the spectrum.  Most quickly delve into philosophy and questions about the nature of human knowledge.  Most also question traditional approaches and assumptions in science, while at the same time attempting to build on what is already known.  In addition, many of the founding theorists and writers in systems were trained as scientists, and as such used mathematical formulas as the description and justification for their findings.

All of this only became more complicated as I tried to work with students in using systems as an approach for research.  While there are a number of systems methods that make use of quantitative, computer-based models, they do not necessarily change the basic research approach.  Agent-based modeling, for instance, is considered by many to be a systemic method, but there are many people using agent-based modeling that have no orientation to systems, as such, at all.  So even in research and articles published in systems journals, or at systems conferences, there is often a looming question:  is this particular piece of research systemic, and if so, is it because of the particular approach or methodology (and is that obvious), or is it only because of the orientation of the researcher (the user of the tool) or is there no necessary difference?

My own orientation to systems is much more basic and pragmatic, and that might be a helpful place to begin.  (I have clearly drawn on and learned from many, many other theorists and writers; teachers and colleagues, but at this point is it much clearer for me to present my amalgamation of those ideas than to try to trace and credit every thread.)

Systems is for me a way of seeing and understanding; it is a way of framing or defining an issue.

For me, systems are patterns of activity.

This does not necessarily separate systems from traditional science.  In physics and chemistry there is dynamic equilibrium.  Atoms and molecules remain ever in motion, even within the most solid-looking substances, like granite.  They just remain in a well-enough constrained pattern that they appear to us not to change.  Most gasses, on the other hand, appear to have no substance at all.  (Experiencing a gale or a hurricane or tornado changes that perception, of course.)

The things that we experience in life are all patterns of activity of one sort or another, held in dynamic equilibrium to different extents.  Some are physical objects made of material elements; the chair that I sit in and the house in which I live.  The chair lasts for a time; the house I expect to last longer.  The water that I drink appears to be “gone,” but is only changed.

Many of the important things in our lives have strong psychological components.  The stability of my home is more important than the structure of my house.  I need for the people I love to remain “who they are” rather than becoming strangers.

This is where understanding – and research – become difficult.  What are these things that I find so important, and how do I really come to know them?  This is also where the break with traditional science often occurs.

I can understand many material objects by understanding the underlying components.  I can take a watch apart and see what makes it “tick.” I can dissect a frog in science class and see the organs, but they only give me a limited amount of information in that state.  (I can put the watch – a mechanical object – back together and it will work.  I have to let other frogs make new frogs – a very different kind of system.)

Students in organizational studies often want to understand very complex things.  Traditional scientific approaches normally imply either that (1) you can take it apart to see what makes it work, or (2) you can observe it like a culture in a Petri dish – and then in both cases you can measure and explain your observations with mathematical accuracy.  Social science approaches sometimes limit the accuracy that can be expected by working only towards measures of correlation rather than causality, but still with a goal of being able to say something about the phenomenon in general (i.e. how it applies to the larger population) not just about the subjects of the study.

In the first case, identifying the parts of an organization almost inevitably results in the idea that “organizations are made up of people.” That is somewhat correct, but mostly not.  All human social systems of every kind are comprised in some way of people, and the attributes and activities of people.  Saying that people constitute organizations is like saying that gears and springs constitute watches.  They sometimes do, but there are gears and springs in lots of things other than watches.  And when you take some watches apart there are no gears and springs – there are parts that look more like the workings of cell phones or computers.  The most unique and most common characteristic of a watch is its being an instrument for measuring time.  There are many other instruments added onto watches today (e.g., altimeters, thermometers, heart monitors, global positioning systems, etc.) but if the basic instrument LACKS the ability to measure time, it is probably not going to qualify as a watch.

Complexity often leaves us in a quandary about identifying exactly what something is, and therefore explaining and predicting how it will work or behave.  In that case, the best that we can often do is to explain what it’s like.  It can be helpful, but it also sometimes comes at a price because the way that we understand something greatly affects what we expect of it.  Gareth Morgan’s classic book, Images of Organizations, for instance, offers eight metaphors through which organizations might be seen (as a machine, as an organism, as a brain, etc.)  Fortunately, he is careful to point out that “any theory or perspective we bring to the study of organization and management, while capable of creating valuable insights, is also incomplete, biased, and potentially misleading” (p. 5).  Studying neural networks inside of Lehmann Brothers may provide useful insights, but it may not tell you anything about why it just filed for bankruptcy.

Most students, of course, don’t attempt to study an organization as a whole entity.  Many attempt to study attributes or characteristics which they believe significantly affect organizations – for instance, transformational leadership.  From a research standpoint, this still raises the same questions.  What is this thing, this phenomenon, and how should you go about studying it?  Most research courses throw students back to the approach of defining the variables of the phenomenon (taking it apart) and measuring them, with the hope that the measurements will add back up to the phenomenon.  Not surprisingly, there is an instrument (the Multifactor Leadership Questionnaire) which breaks down the attributes and supposedly will “determine the degree to which leaders exhibited transformational and transactional leadership and the degree to which their followers were satisfied with their leader and their leader’s effectiveness.” Personally, I think that this puts us back at the watch analogy.  The characteristics that get measured show up in lots of places (like gears and springs.)  Gears and springs are one way to make a timepiece, but they aren’t the essence of it.  You can make time devices with sand dropping through an hourglass, or using a sundial.  So if you want to study leadership, what is IT, and then what difference does it make?

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