Abstract
We are currently witnessing a major transformation of twentieth-century institutions. It is not that the sovereign state, the business corporation or the other major institutions of national and international life are going away, but they are experiencing substantial ‘unravelling’. Driving this process are two underlying dynamics: the dramatic expansion of information and communication technology and a pervasive expansion of human capacity caused by wider access to education. The unravelling of institutions which results from these dynamics has three key elements. The first is globalization—a fundamental change in time–distance relationships and in the impact of physical and political boundaries. The second is the increased ability of single individuals or informally organized, non-hierarchic groups to solve complex problems, resulting in a ‘flattening’ of effective organizations. The third transformation is the ‘unbundling’ of services, as the ability of organizations to control information and markets declines. These transformations promise to change the relative competitiveness of various institutions.
Introduction
As scholars and teachers of management, it is easy for us to become focused on the knowledge and skills that our students and clients need, and on the practical questions of how best to teach this knowledge and these skills, or of how best to communicate our information effectively to those business, government or labour leaders most in need of this information. I would like to take a step back, however, from these ‘what’ and ‘how’ questions to consider the setting in which our students and our clients are operating, and to look at the profound institutional transformation that faces them.
That we are in a period of substantial institutional change is an obvious truism, an observation so often made as now to be trite. What I would like to suggest, however, is that there are important elements in this institutional change that we are overlooking, elements with profound implications.
What we are currently witnessing is an ‘unravelling’—not the destruction or disappearance—of our primary twentieth-century institutions. The sovereign state and the corporation, both in national and transnational forms, are not going away. They are, however, going to be substantially unravelled. They are going to come apart, in some very basic ways.
My vantage point in observing this unravelling reflects two elements in my own personal background. First, I am a scholar of national and international security, with a particular focus on the American state, on what the American state is afraid of and on how the American state (arguably the world’s biggest corporation) goes about its business and addresses the challenges it faces. What I see is profound change over the last 35 years. What I see is an unravelling, both of the American state and of the institutions with which it interacts. In the activities of the American state, location and boundaries matter less; hierarchically organized institutions, such as the state, dominate the landscape and agenda less; and the ability of the American state, other states and large corporations to compete with other providers in the full range of services they historically provided is less.
My second vantage point is that I am an academic administrator at an American university. Here, too, I see profound change—again an unravelling. In this case the unravelling promises to be much faster and much more sweeping, but perhaps even easier to understand and describe. The traditional model of a university as a physically located, bureaucratically organized, integrated provider of a complete package of educational services is fundamentally challenged, and may be unlikely to survive to mid-century.
What I see, however, when I look up from the institutions I know best—the US state and the modern university—is similar processes of change taking place across all sectors of our lives and all around the world. While this is occurring at varying paces and to varying degrees, I nonetheless see the same general pattern.
Underlying Dynamics of Change
The Information Revolution
There are two underlying dynamics that are driving this institutional transformation—that are leading to the unravelling of the state, the modern corporation and many of our social institutions. These have been widely described by researchers, perhaps most eloquently by the late James Rosenau in his brilliant 1990 work, Turbulence in World Politics (Rosenau, 1990). The first, of course, has been the technological revolution that has transformed and that continues to transform how we deal with information. This is, in fact, two revolutions in one: first, a revolution in our ability to analyze information; and second, a revolution in our ability to communicate information.
Statistical analyses that would have taken thousands of individuals working for months with slide rulers, or that would have taken banks of trained technicians running vast, and vastly expensive, mainframe computers for hours, can now be performed nearly instantaneously by a bored first-year student with an inexpensive laptop. This is not simply a change in the scope or speed of activity. It is a profound challenge to the organization of institutions. It is not simply that the slide rule is now a primitive tool, and the 1970s’ mainframe a dinosaur. It is that the institutions that were designed around these are also primitive or dinosaurs.
We see a similar picture when it comes to information retrieval. The vast libraries, housed expensively, and staffed by vast numbers of individuals who knew the arcane and magic codes for finding the books on the shelves, or for finding the data in the appendices of the books, are going away. And the institutions that were built around the control of these libraries, or the ability to maintain them, are going away as well. I am not speaking simply of universities of course. I am speaking also of large corporations with their control over data relevant to their activities and production, and with the ability to maintain and store this information.
And we see a similar change in terms of communication. It is not simply that the mass communication technologies and media that I grew up with—television, radio, newspapers—are quaintly old-fashioned and as irrelevant as a horse-drawn carriage for my son, it is that the institutions—such as the twentieth-century state—that were built around their ability to produce and control these media are also increasingly irrelevant. The ability to control the dissemination of ideas yields power. The geographic constraints of the old communication media dictated that certain types of institutions would be privileged, as did the complexity of maintaining the media and producing content in a form in which it could be used, and as did the economies of scale in production that effectively limited the number of competing outlets and enhanced the market power of a handful of institutions.
The Human Capacity
The second change is in human capacity. I have recently seen conflicting studies suggesting both that human beings of our generation are smarter than human beings 100 or 500 years ago and that we are more stupid. This is not a debate that I am going to enter into. But what is clear is that individuals are now more educated than they were 50 or 100 years ago. Literacy, and perhaps equally importantly, the educational and conceptual framework that permits the questioning of authority, is now the norm. Note that I am not suggesting that the elite are necessarily better educated. But a much larger proportion of the world’s population now has communication and analytical skills that in the past were the property only of the elite. We may or may not be biologically different than we were 100 or 500 years ago. But socially and culturally we are different. What this change in human capacity implies is a vastly increased ability of humans to understand their world and to impose meaning on what they experience without the direct mediation, intervention, interpretation of elites. Hierarchy in social organization and all social institutions is profoundly challenged. Obviously, I do not mean to suggest that social and cultural hierarchies will cease to exist—that children will cease to honour their parents, or that individuals will stop seeking advice from their priests, their doctors, their lawyers and their tax accountants. But there is clearly a levelling. My son is able to find answers for himself to many of the questions that I would have needed to ask a teacher about, and he or she would have needed to consult a librarian, who would have had to request institutional permission to get the necessary books from a central library, that would have required central government funding to operate and whose existence depended on the whim of elected officials. For better and for worse, he can form judgements without the mediating impact of members of the elite or dominant social institutions.
The Transformations
Globalization
The combined, interactive impact of these two changes, in information technology and human capacity, is profound and can be seen in three ways.
The first is the most obvious and the most widely discussed. It is the declining importance of location and of physical and human geographic boundaries. The time–space relationship has changed and is changing. The popular term for this is ‘globalization’.
Before going on to discuss the other two, less widely noted impacts, let me spend a moment to note that ‘globalization’ is not as simple as we usually make it seem. It is not that all distances matter less and that all boundaries are less important in all aspects of our activities. What makes globalization interesting is that some distances and some boundaries still matter for some purposes, and this has important impact on which institutions are able to continue to function effectively and which are ceasing to be competitive.
The key observation is that for the most part, unless one is worrying about the spoilage of fresh fruit, it is relative times and relative distances that matter, not absolute times and distances. What we are witnessing are extraordinary changes in the relative speeds and relative ease with which movement happens.
Let me offer two quick examples of what I mean. Even into the first half of the nineteenth century, things, people and ideas moved at essentially the same speed. It took roughly the same amount of time for my cargo, for me and for my information to get from the east coast of America to India. Now, however, I can get my ideas here essentially instantaneously; I can get here in a day and my cargo, if it is bulky, still takes weeks. Similarly, international borders pose no obstacle at all to the movement of my ideas from the United States to India; I still need a visa to make the journey; and my cargo still needs extensive permission and is potentially subject to taxation and restriction. Much the same can be said about physical borders as well as about political ones: the Himalaya Mountains pose no obstacle to the transmission of ideas via satellite, only modest obstacles to the movement of people via airplanes, but a substantial obstacle to a truckload of coal. Obviously, the relative speed with which things, people and ideas travel, and the relative permeability of borders to each of these, has changed dramatically—and this has implications for institutions which derive power from their control over things, over people or over ideas.
A second example: when my grandfather went from America to Europe in 1926, it took him half an hour to get to the port, a few minutes to board his ocean liner, and a week to get across the ocean. When I go from America to Europe today, it takes me two hours to get across the metropolitan area to the airport, two hours to get through security and board the airplane, and six hours to get across the ocean. Short, local distances now take relatively longer, and in many cases absolutely longer, than they did in the past. Again, institutions that derived their power from the fact that short distances were quick and easy to travel, and that long distances were relatively slow and hard to travel, find themselves uncompetitive.
Flattening and Networking
The second transformation is, I think, even more interesting and more profound than globalization. This is the increased ability of individuals, or small, relatively non-hierarchic, informally organized groups of individuals, to solve complex problems.
The flip side of this, of course, is the declining effectiveness, efficiency, and ultimately importance of large, hierarchic, formally organized institutions. Again, I am not going to make the claim that the sovereign state or the business corporation is going to go away. But I do think that they will change enormously to survive.
Both the state and the business corporation are based on bureaucracy. They are based on hierarchic structuring of control over functionally arranged units and individuals, organized to solve specified tasks. Max Weber saw all this. These organizations are necessary because finding solutions and implementing solutions were beyond the capacity of any single individual, or any small network of individuals bound together by bonds of trust or kinship.
Let me offer an example from my own sphere of research, national security. In the past, if a group wanted the tools of violence that would allow one to protect oneself (or to deter attack or to take what one believed rightly belonged to one), one needed a disciplined regiment of soldiers, or a fleet of battleships, or a squadron of aircraft. Constructing these required a vast organization, to design and build the weapons, train the combatants, keep the combatants fed and paid. In other words, it required a modern, hierarchic, bureaucratic state.
I am not going to claim that weapons of mass destruction—nuclear, biological, or chemical—are easy to make or use. But they do not require a state. An informal network of individuals can construct and use these. What do sovereign states now see as the principal threat to themselves? Increasingly, it is not other sovereign states, or even large transnational corporations with their vast economic power. It is networks of individuals, able to launch terrorist attacks or to hack into vital cyber systems.
Again, at differential rates in different places and in different spheres of activity, we are seeing profound changes in the qualities that are valuable. The postmodern twenty-first century state seeks to be nimbler and less hierarchic than the modern twentieth-century state was. We see many of the same pressures in corporations. The organization of Nike shoes or Google, with regard to the number of employees and how they are organized, is profoundly different than the organization of Ford Motor Company or the New York Times or the BBC. In terms of how they organize internally, and in terms of how much of their production process they seek to keep under direct ‘corporate’ control, competitive institutions of today are very different from competitive institutions of a generation ago. They are ‘flattened’ organizationally, and they increasingly ‘outsource’. In other words, both corporations and states increasingly reduce the formality of relationships, hierarchy and size.
Unbundling
The third change is perhaps the most interesting part of the unravelling I see of twentieth-century institutions. This is the ‘unbundling’ of services. Empowered individuals—empowered by their education and by the information technology at their disposal—are able to make more choices unmediated by large institutions.
Again, an example: when my parents first travelled to Europe in the 1960s, they went to a travel agent, who relied on a few major providers to offer packages of services. Today, when I travel to Europe, I buy air travel from one provider, hotel services from another, ground transportation from a third, meals from a fourth, and so on. I pick and choose in a way that was not possible for my parents. To get an affordable airfare, they stayed in a hotel they disliked, or had to buy as well a city tour they did not need. Their choice was only between competing bundles of services.
Obviously this is a trivial example. But it is easy to find more profound ones.
One of the great ‘bundling’ institutions is one that we are all familiar with: the modern university. The university bundles various courses (some well-taught and useful, some less so), accreditation of knowledge acquired (that is, a recognized degree or certificate), and provision of life-long alumni networks, and perhaps room and board, gyms, health services, and counselling services. The university loses money on some of these services; makes up the loss on others. What we are seeing in America, however, is that this ability to bundle is coming apart quickly. Students now pick and choose: they take courses at multiple institutions, earn ‘badges’ instead of degrees, build a social network online rather than at school, live off-campus (perhaps even in a different city or country) and buy other services on the open market.
This has a profound impact on students’ relationships—undercutting social hierarchies for example. But it will also put out of business many institutions that can survive only by bundling services.
Now think about the biggest ‘bundler’ of all: the modern state. The modern state provides a bundle of services—security, education, health, transportation, and so on—and charges a price in terms of taxes, obedience to laws and mandatory military service. This is the essence of the corporate, bureaucratic, state institution that took the world by storm beginning in the seventeenth century. But the state’s ability to bundle is coming apart.
It is not simply that states are outsourcing services that they used to produce or provide themselves. It is also that (at least in democracies, where individuals have the ability to make such choices) individuals increasingly turn to lower cost providers for particular services, and refuse to pay the higher price the state would charge. Many Americans would rather rely on private security firms than pay the taxes necessary to have sufficient public police protection. Many Americans would rather rely on private schools than pay the taxes sufficient to have adequate quality public schools. New highways are increasingly financed and owned by private corporations rather than by the state. Reform of the retirement system creates increased reliance on the private market. Because individuals prefer the flexibility that this unbundling provides, institutions that rely on selling a bundled of unrelated, or separable, goods find themselves challenged.
Conclusions and Implications
I want to make two final observations in closing. The first is that we can rail against globalization, flattening-and-networking, and unbundling. And we can fight against them. But we need to understand the two dynamics that are driving them: information technology and education. In other words: knowledge.
The second is that while what I have been describing is the partial unravelling of twentieth-century institutions, particularly the state and large corporation, I could equally well describe my topic as the creation of the new twenty-first–century institutions. We are observing a process of creative destruction, not simply destruction. We are not moving into a world without institutions, or possessing only weakened institutions. New institutions, better suited to globalized, flattened, unbundled conditions, are emerging. Looking at the corporations, the organizations and the governance bodies that are doing well in today’s world, we get a clear picture of some of the institution-building going on.
But one, perhaps less obvious, likely institutional ‘winner’ also needs to be noted. One of the key elements in the functioning of an unravelled, globalized, networked, unbundled world is the dramatic strengthening of a very different type of institution: the rule of law. The new twenty-first–century institutions require enormous levels of trust in order to function. This will require substantial expansion of shared trust in formal legal frameworks. It requires confidence that laws will be made (and not un-made). It requires confidence that judgments on whether the laws and agreements have been broken will be made fairly. And it requires confidence that there will be reliable enforcement mechanisms.
But note, too, that tomorrow’s rule of law will be different from yesterday’s. These rule-of-law institutions will not be created and maintained centrally. These new rule-of-law institutions will themselves also be globalized, flattened-and-networked, and unbundled, for precisely the same reasons that states and corporations will be.
It is a strange new world that our students and clients will be operating in. Finding ways to prepare them for this unravelled world is our challenge—and challenge not made any less profound by the fact that our own educational institutions will simultaneously be unravelling.