Showing posts with label North. Show all posts
Showing posts with label North. Show all posts

Wednesday, May 26, 2010

Douglas North Chapter 1

Taking a short break from our review of Professor Langlois. I noticed that a new and interesting book has been published. The book is "Understanding the Process of Economic Change" by Nobel Prize winning economist Professor Douglass North. I took the opportunity to download the first chapter and I highly recommend the entire book, however, at this time we will only be covering this first chapter in our review.

If there is one word to summarize what People, Ideas & Objects is about, it's change. Moving from the bureaucracies that control the industry today. To a newer more innovative footing as represented in identifying and supporting the Joint Operating Committee. Brings about a significant scope of change in the oil and gas marketplace. How this change is implemented is of great concern to me. Making sure this process is focused on the new innovative footing, and not on the bureaucracies needs is a difficult dynamic to manage. Specifically we can't be concerned with the day-to-day of the industry. These day-to-day concerns are for the bureaucracy to manage for the time being. We can not be constrained by the difficulties that constrain the bureaucracy. People need to approach this project with fresh thinking that is free to be as it should be. This unfortunately makes my life infinitely more difficult, however, we are close to securing some funding. And that funding will be from the appropriate resource, the oil and gas investors and shareholders. Selling out to the bureaucrats at this point would be very destructive in terms of ensuring that we are not constrained by the bureaucrats.

We have also been mindful of how individuals approach People, Ideas & Objects. Mindful to ensure that there is a strong break from the day-to-day to ensure they don't bring their cognitive and motivational paradoxes with them from their day jobs. These paradox defined in 1998 by Carroll and Rosson were spelled out in an appendix to the Preliminary Research Report and are noted for the following.

The “motivational paradox” arises from the production bias. That is, users lack the time to learn new applications due to the overwhelming concern for through put. Their work is hampered by this lack of learning, and consequently productivity suffers.
The “cognitive paradox” has its root in the assimilation bias. People tend to apply what they already know in coping with new situations, and can be bound by the irrelevant and misleading similarities between the old and new situations. This can prevent people from learning and applying new and more effective solutions.
In the first paragraph North provides us with an understanding of where we are and the significance of the times at which we live.
UNDERSTANDING economic change including everything from the rise of the Western world to the demise of the Soviet Union requires that we cast a net much broader than purely economic change because it is a result of changes (1) in the quantity and quality of human beings; (2) in the stock of human knowledge particularly as applied to the human command over nature; and (3) in the institutional framework that defines the deliberate incentive structure of a society. A complete theory of economic change would therefore integrate theories of demographic, stock of knowledge, and institutional change. We are far from having good theories of any one of these three, much less of the three together, but we are making progress. The central focus of this study, and the key to improving economic performance, is the deliberate effort of human beings to control their environment. Therefore, priority is given here to institutional change, with the consequent incentive implications for demographic and stock of knowledge changes; but there is no implication that such an approach deals adequately with the latter two. p. 1
Clearly we have much to learn in terms of how best to approach the development of these systems. The other day I noted that we risk becoming blind sleep-walking experts in the hands of whoever wants to feed us. (Habermas) And this is reiterated by North. To "improve the economic performance" of the oil and gas industry requires that we deliberately exert effort to control our environment. I believe, if we continue in the fashion of the bureaucracy, that the world oil production will begin a serious decline in deliverability. Then we will realize, that some of the tasks that we need to occupy ourselves with are beyond those that are parsed out by managements budgets. North details the impact that existing constraints can have.
The structure we impose on our lives to reduce uncertainty is an accumulation of prescriptions and proscriptions together with the artifacts that have evolved as a part of this accumulation. The result is a complex mix of formal and informal constraints. These constraints are imbedded in language, physical artifacts, and beliefs that together define the patterns of human interaction. If our focus is narrowly on economics, then our concern is with scarcity and, hence, competition for resources. The structure of constraints we impose to order that competition shapes the way the game is played. Because various kinds of markets (political as well as economic) have different margins at which competition can be played out, the consequence of the structure we impose will be to determine whether the competitive structure induces increasing economic efficiency or stagnation. Thus well-developed property rights that encourage productivity will increase market efficiency. The evolving structure of political and economic markets is the key to explaining performance. pp. 1 - 2
If well developed property rights that encourage productivity will increase market efficiency, I think People, Ideas & Objects achieves the appropriate institution of those rights. Here I am talking about the Intellectual Property (IP) rights of the people that are associated with this project. I as the copyright holder to the ideas expressed here and in the Draft Specification license those participants in this project with unencumbered use of this IP. In turn, the derivative ideas generated in the development of the applications is essentially sold back to me, where in turn they become available to everyone in the community that has signed the license. This maintains the IP in its pristine condition and is available to all that need it. The license also provides members of the Community of Independent Service Providers with the rights to build a service based offering that is associated with the People, Ideas & Objects software applications.

North provides us with an understanding that we need to be ever vigilant in terms of these concerns.
While the uncertainty that pervades our existence may be reduced by the structure we impose, it is not eliminated. The constraints that we impose have, themselves, uncertain outcomes reflecting both our imperfect understanding of our environment and the equally imperfect nature of both the formal rules and the informal mechanisms we use to enforce those constraints. p. 2
I am unsure at this point if there will be a second post on this chapter. I have downloaded a number of Professor North's papers and we will review those for applicable content. I have also set up a "North" label so these posts can eventually be aggregated.
This book is a study about the ceaseless efforts of humans to gain greater control over their lives and in the course of that effort continually confronting new and novel problems to solve. It is a study of the perceptions that induce institutional innovation intended to reduce uncertainty or convert uncertainty into risk. It is also a study of a continually changing human landscape. This landscape poses new challenges, as a consequence of which policies emanating from “non-rational” explanations frequently play a part in the structures we create. p. 2
Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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