tl;dr: Form theory helps you envision a future for companies that enables them to create a convivial society beyond growth.
(This is an extended summary of an article published in March 2017 in a special issue on organizing for the post-growth economy in »ephemera: theory and politics in organizations«)
When you reflect about the future, especially if you want to go beyond coffeehouse level reasoning, some conceptual framework is necessary that can tolerate the future. Such a framework is given with the »Laws of Form« by British mathematician George Spencer Brown and its system-theoretical application by German sociologist Dirk Baecker. The »Laws of Form« are dealing with one question: how to inquire into anything? They are also giving the answer right away: through drawing a difference, through distinguishing the world in different parts, and the naming of these differences. The world is everything that is the case, according to Austrian philosopher Ludwig Wittgenstein; and the cases are active observations by observers. That does not imply that there is no reality without observers. »Reality« is out there; but in order to say anything meaningful about it, you have to observe, distinguish and name it. This is especially true for observations about a future that is, in Shakespeare’s words, the undiscovered country. The future is made through (pre-)observation, not just given. The future is imagined, narrated into existence; decisions are based upon it that, in turn, have their generative effects and unintended side effects; and in the end the future might be totally different than imagined, different than pre-observed.
How can such an abstract idea of the »Laws of Form«, of world creation through observing, distinguishing and naming, be applied to reflecting about the future? We start with what we already know: the form of the economy and the form of its firms that can be observed over the last decades. We can already use the »Laws« as a visual aid. Dirk Baecker has created his »Form of the Firm«, an observation into the workings of firms in the »Now Economy«, driven by capital intensity, hierarchical organizations, growth orientation, and dominated by large-scale, multinational corporations. Lets see how the story so far told in the language of the »Laws« unfolds.
In brief: a firm creates its product and the necessary technologies and procedures within a distinct organization including its decision rules and taking into account economic, societal and individual contexts. In the notation of the »Laws« and according to Baecker, the following form emerges:
How to read that? The distinction between product and technology – signified by the half open rectangle drawn around product, called »cross« – means: »product in the context of technology.« Every product is contextualized by a certain technology and certain procedures e.g. lean or agile manufacturing, nanotechnology etc. The hook under the cross around technology – in the language of Spencer Brown called »re-entry« – harks back to the product and means: »product and technology are related by work.« Through work different technologies are employed in away that enable the creation of a certain product. The cross therefore marks the context of something; the re-entry describes how that something and its context are related to each other. This Brownian notation enables us to describe the richness and complexity of the case of the firm in one elegant and economic diagram.
This form of the firm can thereby be understood as a mathematical equation of economic reality and its manifold contexts and interdependencies. Just like a mathematical equation, individual variables can be substituted by other variables or other equations, thus changing the form and bringing other aspects into focus. We continue with a four-step process: first we will substitute the variable »economy« within the form of the firm with an equation: the form of the economy; in a second step we acknowledge the changes in the inner environment of companies brought about by digitization; the third step introduces changes in the ecological and economic contexts like climate change and secular stagnation; finally, in the fourth step we allow these changes to influence each other and construct a new coherent narrative for a new form of the firm: the form of the firm in the next economy: light on capital and resources, social innovative, heterarchical, connected.
First Step: Expanding the Equation
Baecker himself has developed a »Form of the Economy« in which he depicted scarcity as the fundamental problem, money as the dominant medium of exchange, the market as central place for negotiations, and society as overarching context of the economy. It has to be noted however that this is the result of empirical observations of the economy we have known for the last few decades. It is a description of the »Now Economy«, not the next one that is unfolding, and we use this as a point of departure. If we take this equation as a substitute for the variable »economy« in the form of the firm, the following expanded form unfolds:
Scarcity, money and the market are replacing »economy« and allow a more detailed focus on the interdependencies between the workings within the organization and its external contexts. Together they constitute the reality of the firm. At the same time we get new re-entries. In order e.g. to turn a business into a business case, the firm needs a function that can calculate with scarcities. This function is accounting. Accounting relates scarcity signals to product and processes; it resolves the question when a business is truly a business. Its relating function also explains why accounting is so dominant within a firm and that even strategic decisions do not have any legitimation without accounting for their effects. Markets then are related to the product via returns. Returns on investment explain to what extent markets are willing to reward a business endeavor. The question of investment quality, if a company is a good investment opportunity, is of even higher importance than (internal) accounting. The Now Economy therefore transforms companies into investment vehicles for markets. Especially this aspect however makes the relation of society via corporate culture by Baecker questionable. Empirically it appears more reasonable to take growth in the form of the economic growth paradigm as the central thought figure here. Growth then becomes the dominant legitimation of the economy: growth in value added, in new products, in employment opportunities and, derived from that, income, taxes and social cohesion. If growth is inserted as re-entry, the relation between the individual and the product also changes. If one thing appears certain, then that growth requires consumer capitalism, which in turn is driving further growth. It is not an abstract philosophy, in the sense of all things non-economical in the background of the firm, that works as re-entry here, but full-blown consumerism and the idea of being a consumer: of products, of job opportunities, of careers, of lifestyles and so forth.
Second Step: Digitization and Collaboration
We can now play empirically informed games with this expanded form of the firm. To do this we take into account the changes brought about digitization and collaboration for the firm (in general, not just for one specific company or an industry). The inner part of the form then changes into the following direction:
The organization of the firm in the Now Economy was and is more or less hierarchically structured, with more or less clear decision procedures. In the Next Economy the organization of the firm is reconstructed as a heterarchical and co-creative network. Decisions are not taken within one specific, clear and pre-defined place but are diffused across the network, demand balanced coordination and negotiation, and are often accompanied by conflicts that cannot be solved by command and control types of management. At the same time you cannot clearly attribute the value creating actors to a single organizational context anymore. Value creation becomes more open, inclusive, and draws on organizationally external actors including customers: it becomes co-creative and can only be realized in such collaborative networks. If you continue to frame value creation in a purely organizational reality, you will fail to create any value at all. This heterarchical and co-creative network is then related to the product via problem solving, not just business. The answer to a problem itself is what motivates participation and value creation, and thus co-creation of a final product. First you have to make clear what problem will be solved, for whom and who will benefit from that solution – and who will be excited about it and contribute to the solution. Work in networks is a collaborative undertaking shaped not just by technologies and procedures, but by innovations of both technological as well as social nature. Social innovation here means novel social practices, the destruction of old practices and the creation of new routines, new ways of doing things – with each other, with products and with technology. The whole notion of sharing is one contemporary basis for a whole range of social innovations. These changes within the form can be used in a pathological sense for comparing companies embracing the challenges of digitization and collaboration and those who reject them.
Third Step: Changing Ecological and Economic Contexts
The global challenge of climate change introduces a theme into economic and political debate that has been often discarded or ignored: the limitations of the natural environment towards cooping with the »damage creation« of economic activities. Limits to the economy, limits to growth are thereby not just ecological issues; in the light of negative interest rates in Europe and Japan, a continuation of the sluggish economic development almost a decade after the great financial and economic crisis for 2008/2009, declining productivity growth, and the specter of secular stagnation, the economic limits to growth become more and more visible. At the same time the perception of what kind of value companies have to contribute to society is shifting. The »license to operate« is no longer just depending on the economic performance expressed in monetary terms. Multiple values in the sense of a polyvalence of economical, ecological, and societal value contribution – the well known »triple bottom line« – are not replacing money but expand it into a new context and makes life tough for accounting. A new form of the firm can be depicted as follows:
We introduce nature as a context and relate it to the product via limits. From the perspective of the product this implies questions as regard its ecological sustainability in relation to planetary carrying capacities, but also as regards the economic carrying capacities of saturated or stagnating markets. The boom of the sharing economy can be interpreted in two ways here: first as an answer to the ecological sustainability of products via better utilization of physical assets and a reduction in material use for production; second as reduction of financial burdens for consumers from product ownership i.e. the creation of new carrying capacities of markets. Interestingly these two interpretations can amplify each other: the more sharing becomes dominant, the less markets are ready to accept non-sharing products. Multiple values as an expansion of money as an exchange medium, depicted here as »Multi Value«, demand a polyvalent form of accounting: the calculation of ecological and societal effects of business activity e.g. via social accounting. Multi Value also implies that prices cannot work as a relational mechanism anymore but instead require a certain normative standpoint, a certain ethics. With ethics as re-entry the excluded normative level of the firm – which Baecker depicted as corporate culture – is re-introduced. But in this new form of the firm, ethics is not just a normative question but a decisively strategic question and at the heart of strategic thinking and reasoning: what values are underlying our problem solving promises for customers and co-creators in our value creating networks? Strategic management turns into strategizing as ethics. If you examine this form closely you cannot fail to notice how unfinished, how incoherent it appears. How on Earth can you bring consumption, limits, growth and ethics into a reasonable narrative? That is exactly the question emanating from the (empirically!) observable tensions between all these contexts and relations. It is the central tension, the central confusion companies have to face in the transitional phase between Now and Next Economy.
Fourth Step: The Form of the Firm in the Next Economy
Until now all steps were more or less based in an empirical reality, in real changes and with a view to the prospects of unfolding trends. This last step undertakes something that the American philosopher Charles Sanders Peirce has called »abductive reasoning«: we are guessing the future – on the basis of an informed model of the form of the firm. Our intention is to resolve the incoherence narratively and arrive at a new form that can be used as a navigator in the transition from the Now to the Next.
The market as internal environment of the economy and immediate external context of companies transforms into cross-sectoral market places«: market places of the economy, of politics, of science, of education, of religion, of love and many more. Baecker himself argued in his »Studies on the Next Society« from 2007 that this polyphony of »vindication arenas« is the new reality for companies in the society that follows modernity. The Next Society then is the new context referring to connected actors across many sectors that cannot be reduced to one specific part of society like »the economy« or »the civil society«. Between various actors on many different market places, reciprocity emerges as the central relation, the central re-entry. Reciprocity here refers to the promise of mutual trust and conscious admitting of interdependencies. This fits the heterarchical and co-creative mode of production as problem solving. Crucial are the contextual change from scarcity to abundance and the new relation beyond growth, towards enough. The Now Economy tried to overcome scarcity via growth but has only achieved to replace one scarcity with another one, building a vicious cycle without end and no way out. The Next Economy is not interested in scarcity; if something is scarce it can be shared. It just needs a platform in order to create a better social organization of resource and product use. This relates directly to the idea of the commons economy formulated by American economic Nobel laureate Elinor Ostrom. Instead of scarcity, companies in the Next Economy will deal with abundance: how organize, how to manage this abundance of opportunities, this abundance of problem solutions? Growth as a thought figure is not helpful here, there is enough anyway. And therefore enoughness in the Daoist sense is so important: if you know what is enough for you, you will always have enough. This new thought figure of enoughness relieves the firm, the economy and the individual in a dramatic way. Instead of consumerism and consumptions, a new re-entry becomes possible: conviviality. Ivan Illich introduced the term as individual autonomy realized in interdependence with others and our natural environment. Products and solutions that enable convivial living for all are the driving force of the Next Economy that will be a Postgrowth Economy. All strategic reasoning aims at conviviality and creates novelty, multivalues and a form of abundance that allow the old dream of British economist John Maynard Keynes to come true: the end of the economic problem and the liberation of humankind.
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