Methodological Individualism at the DRUID Conference

19 June 2007 at 12:14 pm 5 comments

| Nicolai Foss |

Today is the second day of the annual conference of the Danish Research Unit for Industrial Economics.  In order to stimulate controversy, and entertain conference delegates between less interesting paper sessions, DRUID organizes debates on motions. 

I participated along with Sid Winter of the Wharton School, Peter Abell of the London School of Economics, and Thorbjørn Knudsen of Southern Denmark University in today’s “DRUID Debate on Methodological Individualism versus Scientific Progress” (sic!!!!!) which involved the following motion:

Let it be resolved that this conference believes that the lack of methodological individualism applied in strategy research seriously limits scientific progress in the field.

Speaking for the motion were Peter and I, speaking against were Sid and Thorbjorn. A vote was taken before the debate.  There were about as many pro as contra votes.  After the debate, which had its rather heated moments, another vote was taken.  And again there about as many pro as contra votes.  Apparently, the debate had — perhaps not surprisingly — not managed to change any beliefs.  The debate was streamed, and should be available on the DRUID site within a couple of weeks.

Entry filed under: - Foss -, Evolutionary Economics, Management Theory, Methods/Methodology/Theory of Science.

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5 Comments Add your own

  • 1. David Hoopes  |  21 June 2007 at 10:54 pm

    I’d certainly be interested to see why Sid voted against it. I can testify that my attempts at “methodological individualism” have been met with pretty cruel and mean-spirited reviews. I think one problem with methods in strategy is that a lot of people learn the methods by rote but do not understand the underpinnings. I often get the impression that some have trouble examining any event outside the realm of inferential statistics (using a sample to make generalizations about a population).

  • 2. Nicolai Foss  |  23 June 2007 at 11:05 am

    David, I have much the same experience. “Methodological individualism” is simply a no-no word in most of management, including strategic management.
    One possible explanation is that sociology is probably the dominant disciplinary underpinning of management, and sociology are almost defined in terms of its opposition to methodological individualism.
    MI also has a bad press because many people still believe that it entails a naive summation of individuals, atomism, denial of society, and all sorts of other nonsense.
    A possible strategy if one wants to sell papers with a MI message is to talk about “micro-foundations” rather than MI. Who can deny that e.g. strategic management is in need of micro-foundations?

  • 3. spostrel  |  23 June 2007 at 6:20 pm

    People are really confused by the distinction between reductionism as imposing constraints (or necessary conditions) on macro-theory versus reductionism being sufficient to explain all macro phenomena. The second position seems to me to be wrong in most interesting strategy contexts, but it’s hard to see how the first position could fail to hold. Isn’t that the whole idea of studying bounded rationality, for example?

  • 4. John Mathews  |  1 July 2007 at 4:16 am

    Who can deny that e.g. strategic management is in need of micro-foundations?

    Indeed, Nicolai, who could?

    It is a precept of the social sciences that methodological individualism should prevail, in the sense that explanations of behaviour should be reducible to the motivations and behaviour of individuals. For Weber, as for Schumpeter, this was taken as one of the starting points for the social sciences, and distinguished them from the natural sciences. (Popper clouded this distinction – but that is another matter.) When Schumpeter introduced the term ‘methodological individualism’ in 1908, he was doing so as a student of Weber and as providing a defensible foundation for neoclassical economics, as opposed to the old-fashioned holism of the German historical school. In a few short quips, he alluded to the need to be able to ground the behaviour of the consumer in an explanatory framework that divorced action (behaviour) from institutions. As for the firm, neither the neoclassical school nor Austrian economics has, to the best of my knowledge, been able to rise above the level of behaviour of the firm as a whole, responding to profit opportunities and maximising these subject to firm-level budget constraints. The individuals making up the firm tend to get lost at this point.

    So this is where the contrast between economics, as the social science with a commitment to MI par excellence, and strategy, starts to get interesting. Does strategy really need a foundation in MI (‘micro-foundations’) if its categories are those of the firm and the elements of the firm that are subject to choice and entrepreneurial decision? I am thinking of categories such as procurement, or sales, or even ‘R&D’ – categories that are clearly subject to ‘strategic choice’ but cannot meaningfully be reduced to the level of the individual. They can be reduced to the level of the individual firm, certainly – but is that what you have in mind, Nicolai, when you say the micro-foundations of strategy? I don’t think so.

    In my recent book ( I drew out the contrast between economic reasoning and strategic reasoning precisely on these grounds. My point is that a ‘strategic’ theory of the firm needs to engage with categories that are neither individualistic (in the strict sense of pertaining to an individual) nor holistic (in the sense of being society-wide). Instead, a strategic theory of the firm needs to engage with categories such as resources, and activities, and routines, that lie somewhere in-between these two levels of analysis. Perhaps we have here a conceptual analogue of the ‘discovery’ of many forms of business organization lying between the Williamsonian extremes of the ‘market’ and the ‘hierarchy’ — as in various kinds of networks (JVs, consortia, etc etc). At the level of the firm, we have the individuals with their individual motivations (get the next contract, fire a lazy worker, kill the boss) and the collective (all proprietary firms or corporates, or all SMEs, or R&D as a proportion of GDP) and in between a series of categories (rent, profit, income, costs, depreciation) that apply at the level of the firm and are partially strategic and others that I hold are purely strategic (resources, activities and routines).

  • 5. Nicolai Foss  |  2 July 2007 at 3:37 am

    John, Adopting the MI stance does NOT imply a denial of collective constructs. The notion of the “firm” has indeed served economics and strategic management very well. So have notions of “capabilities,” “routines,” etc. The argument is different.
    When I and Teppo Felin in a string of recent papers have argued that strategic management would be furthered by paying more attention to micro-foundations it is because a number of strategic management issues are really only understandable in terms of an account of individual actions and interactions. Here are a few examples:
    * Appropriation — firms do not appropriate; capabilities most certainly don’t. Individuals appropriate.
    * Entrepreneurship. While there may be something to be said for notions of team entrepreneurship, a proper account of entrepreneurial behavior just can’t neglect individuals.
    * Imprint of founders on firm evolution.
    * How capabilities/routines/etc. emerge from individual action and interaction.
    * The role played by key personnel, e.g., star scientists.
    * How capabilities are changed.
    * Etc.

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
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Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
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Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
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