Helix Network Theory: The Dynamic Structure and Evolution of Economy and Society 9811988021, 9789811988028

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Helix Network Theory: The Dynamic Structure and Evolution of Economy and Society
 9811988021, 9789811988028

Table of contents :
Foreword by Yew-Kwang NG
Foreword by Gong-Meng Chen
Foreword by Chun-Xue Yang
Preface (Revised Edition)
Preface (First Edition)
Contents
About the Author
List of Figures
List of Tables
1 The Limitations of Human Understanding of the World
1.1 Blind Men and the Elephant
1.2 Not See the Forest for the Trees
1.3 All-Rounder Versus Specialist
1.4 Will the Social Sciences Eventually Move Toward Unity?
2 The Evolution of the Thinking Paradigm and Its Philosophical Basis
2.1 The Evolution of the Space–Time View and the Great Revolution in Physics
2.2 A Revolution of the Thinking Paradigm: The Birth of Systems Science
2.2.1 What Is System?
2.2.2 Systems Science
2.2.3 Reductionism Method
2.2.4 System Theory Method
2.3 The Development of the Thought of Biological Evolution and Its Influence
2.3.1 Evolutionary Thought Before Darwin
2.3.2 Darwin’s Evolutionary Thought
2.3.3 New Development of Evolutionary Thought After Darwin
2.3.4 The Infiltration and Influence of Evolutionary Thought on Other Disciplines
2.4 New Understanding and Philosophical Enlightenments Obtained from the Theory of Biological Evolution
2.4.1 The Development of Evolution Theory Also Requires the Introduction of the System Theory Method
2.4.2 The Biosphere Is a Complex and Nested System, and Each Layer of Biological Systems Has Its Own Evolutionary Law
2.4.3 Every Biological Individual Has a Two-Layer Structure of Genotype and Phenotype
2.4.4 The Evolutionary Laws of Biological Individuals at All Levels Are Interrelated, Interacted and Interinfluenced
2.4.5 The Evolutionary Process of Biological Individuals Is the Unity of Contingency and Inevitability
2.4.6 The Mechanism of Biological Evolution Is Not Only a Survival Competition But Also Contains a Wealth of Content
2.4.7 Biological Diversity Originates From the Diversity of Biological Variation and Ecological Environment Combinations
2.4.8 Some New Understandings About the Dynamic Mechanism Behind the Evolution of Biological Systems
2.4.9 Philosophical Enlightenment on the Structure and Evolution of Things From the Theory of Biological Evolution
2.5 The Three Basic Principles of the Evolution of Complex Systems
2.5.1 The Principle of System-level Emergence
2.5.2 The Coupling Principle of Positive and Negative Feedback
2.5.3 The Principle of Circular Cumulative Causation
3 A Bird’s-Eye View of the Economic Society
3.1 The Basic Hierarchy from Natural System to Social System
3.1.1 The Basic Hierarchy of the Cosmic System
3.1.2 The Basic Hierarchy and Structure of the Human Social System
3.1.3 The Basic Hierarchy of the Socioeconomic System
3.2 The Four Laws that Human Society Follows in Evolution and Development
3.2.1 The Law of Bifurcation
3.2.2 The Law of Synergy
3.2.3 The Law of Fractal
3.2.4 The Law of Periodicity
3.3 Basic Classification of Resources and Their Forms
3.4 The Components of Social Reproduction
3.5 The Long-Term Transition of Relations of Distribution in Social Production
3.5.1 The Long-Term Evolution of Relations of Distribution in Social Production
3.5.2 The Relation Between Human Cognition Level and Social Distribution Result
3.6 A Brand New Economic Paradigm for the Twenty-First Century
4 The Micro-level of the Economic System: The Dynamic Structure and Evolution of the Firm
4.1 A Brief Introduction to the Theoretical Research on Corporate Evolution and Corporate Ecology
4.2 A Metaphor: Apple Tree and Firm
4.3 The Nature of the Firm
4.4 The Environment, Elements and Structure of the Firm
4.4.1 The Internal and External Environments of the Firm
4.4.2 The Constituent Elements and Organisational Structure of the Firm
4.4.3 The Deep Structure of the Firm System
4.5 The Production and Operation of the Firm
4.6 The Exchange and the Distribution Within the Firm
4.6.1 The Meaning of Distribution and the Related Theories
4.6.2 Distribution in the Firm System
4.7 Corporate Production Efficiency
4.7.1 On the Allocation of Resources
4.7.2 On the Allocation of Income
4.8 Overall Corporate Competence
4.9 Corporate Development Dynamics
4.9.1 The Dynamic Factors in Corporate Development
4.9.2 The Role of the Entrepreneur
4.10 Corporate Evolutionary Mechanism
4.10.1 The Division of Labour and Coordination
4.10.2 The Interaction between Internal and External Factors
4.10.3 Gradual and Disruptive Changes
4.11 Corporate Life Cycle
4.11.1 The Firm That Is Growing
4.11.2 The Firm That Remains the Status Quo
4.11.3 The Firm That Is Declining
4.12 Corporate Evolutionary Trajectory
5 The Meso-Level of the Economic System: The Dynamic Structure and Evolution of the Sector
5.1 Classic Theories on Economic Growth
5.2 Industry and Sector
5.3 The Internal and External Environments of the Sector
5.3.1 The External Environment of the Sector
5.3.2 The Internal Environment of the Sector
5.4 The Constituent Elements and General Structure of the Sector
5.4.1 The Constituent Elements of the Sector
5.4.2 The General Structure of the Sector
5.5 The Taxonomies of the Sector
5.5.1 Two Class Taxonomy
5.5.2 Three Classification of Sector
5.5.3 Four Sector Taxonomy
5.5.4 Standard Sector Taxonomy
5.5.5 Factor Intensity Taxonomy
5.6 The Differentiation Process of the Sector
5.6.1 The Differentiation of the Agricultural Sector
5.6.2 The Differentiation of the Industrial Sector
5.6.3 The Differentiation of the Service Sector
5.6.4 The Differentiation of the Information Sector
5.7 Sectoral Development Dynamics
5.7.1 The Dynamic Factors in Sectoral Development
5.7.2 The Primary Dynamics in Sectoral Development
5.7.3 The Role of the Core Firm
5.8 Sectoral Evolutionary Mechanism
5.8.1 The Division of Labour and Coordination
5.8.2 The Interaction Between Internal and External Factors
5.8.3 Competition and Cooperation
5.8.4 Intersectoral Interaction
5.9 Distribution in the Sector System
5.9.1 The Input‒Output Relations in the Sector System
5.9.2 Intersectoral Correlation Effect
5.9.3 The Distribution of Elements in the Sector System
5.10 Overall Sectoral Competence
5.11 Sectoral Life Cycle
5.11.1 Sectors that Grow Up
5.11.2 Stagnant Sectors
5.11.3 Decaying and Declining Sectors
5.12 Sectoral Evolutionary Trajectory
6 The Long-Term Evolution of Agriculture in China
6.1 The Long-Term Transition of Agriculture in Ancient China
6.1.1 Historical Stages and the Main Features of Agriculture in Ancient China
6.1.2 The Relations Between Crop Cultivation and Animal Husbandry in Ancient China
6.1.3 Market Transaction Network in Ancient China
6.1.4 Agricultural Books in Ancient China
6.1.5 Agricultural Policies in Ancient China
6.1.6 The Evolution of Agricultural Tools in Ancient China
6.2 The Evolution of Modern Agriculture in China
6.2.1 China Versus Japan: The Impact of Institutional Reform on Economic Development
6.2.2 Industrialisation in Modern China
6.2.3 The Impacts of Modern Industrials on the Commercialisation of Agriculture
6.2.4 Agricultural Mechanisation in Modern China
6.3 The Development of Contemporary Agriculture in China
6.3.1 Contemporary Agricultural Industrialisation
6.3.2 Contemporary Agricultural Technologies
6.3.3 The Impact of Contemporary Industrials on Agriculture
6.3.4 The Impact of Contemporary Services on Agriculture
6.3.5 The Impact of Contemporary Information Technology on Agriculture
7 The Macro-level of the Economic System: The Dynamic Structure and Evolution of the National Economy
7.1 Representative Theories on the Sectoral Structure
7.2 The Environment, Elements and Structure of the Economic System
7.2.1 The Internal and External Environments of the Economic System
7.2.2 The Constituent Elements and General Structure of the Economic System
7.3 The Dynamic Structure of the Economic System
7.3.1 The Dynamics Behind the Development of the Economic System
7.3.2 The Transmission of Demand in the Economic System
7.3.3 The Role of the Market and the Government in the Economic System
7.4 Distribution in the Macro-economy
7.4.1 Distribution within the National Economic System
7.4.2 Distribution within the State System
7.4.3 Institutions of Resource Distribution and Historical Choices of Social Practice
7.5 Evolution Trend of the Sectoral Structure and Its Adjustment
7.5.1 The Main Factors Affecting Sectoral Structural Evolution
7.5.2 The General Trend of Sectoral Structural Evolution
7.5.3 The Relation Between the Sectoral Input Structure and Sectoral Output Structure
7.5.4 The Adjustment Direction of the Sectoral Structure
7.6 The Openness and Inclusiveness of the Book’s Theoretical Framework
7.6.1 The Openness of the Book’s Theoretical Framework
7.6.2 The Inclusiveness of the Book’s Theoretical Framework
8 The Structure, Function and Evolution of the State and the Social System
8.1 The Concept of the State
8.2 The Birth of the Primitive State
8.3 The Environment, Elements and Structure of the State System
8.3.1 The Internal and External Environments of the State System
8.3.2 The Constituent Elements and General Structure of the State System
8.4 The Human-Culture Subsystem in the State System
8.4.1 The Concept of Human-Culture
8.4.2 The Internal and External Environments of the Human-Culture System
8.4.3 The Constituent Elements and General Structure of the Human-Culture System
8.4.4 The Main Function of the Human-Culture System
8.4.5 The Production Activities in the Human-Culture System
8.4.6 The Evolutionary Mechanism of the Human Culture System
8.5 The Observation of Social Progress from the Perspective of Social Reform
8.6 The Political System in the State System
8.6.1 The Concept of the Polity/Politics
8.6.2 The Internal and External Environment of the Political System
8.6.3 The Constituent Elements and General Structure of the Political System
8.7 The Dynamic Structure of the Social System
8.8 The Main Mechanisms Behind the Development of the Social System
8.8.1 The Mechanism of Division of Labour in Social Development
8.8.2 The Mechanism of Coordination in Social Development
8.8.3 The Mechanism of Differentiation and Stratification in Social Development
8.8.4 The Mechanism of Gradual Change and Disruptive Change in Social Development
8.9 The Evolutionary Trajectory of the Social System
8.10 The Book’s Historical Philosophy and Views of Social Evolution
9 The Main Dynamics and the Features of Social Development in Ancient China
9.1 The Structural Features of the Human-Culture System in Ancient China
9.2 The Rise and Fall of Market Economy in Ancient China
9.3 The Rise and Fall of Science and Technology in Ancient China
9.4 The Main Synergistic Factors of Society in Ancient China
9.5 The Impact of the Natural Environment on Social Historical Development
9.5.1 Relevant Thoughts About the Influence of the Natural Environment on Human Society
9.5.2 The Vital Impact of Climate on Human Society
9.5.3 The Connections Between Climate Change and Human Civilisation
9.5.4 The Impact of Climate Pulsation on Human Civilisation
9.5.5 The Long-Term Features of Climate Change in Chinese History
9.5.6 The Connection Between Climate Change and the Southward Migration of Northern Ethnic Group
9.5.7 The Connection Between Climate Change and Ancient Wars
9.5.8 The Impact of Climate Change on Demographics in Ancient China
9.5.9 The Impact of Climate Change on the Social Economy in Ancient China
9.5.10 Climate Change and the Rise and Fall of China
Appendix Relations Between the Book’s Theory and Marx’s Theory
Appendix Selected Book Reviews
A New Framework for Economic Theory: Helix Network Theory
A New Theoretical Framework for the New Economy
Fractal of Economic and Social Systems?
New Explorations in Economics
The Three Breakings and Three Buildings of the New Economy
A Book That Took 10 Years to Write: After Reading Gan Run-Yuan’s New Book Helix Network Theory
Systems Thinking, Systems Construction
Mainstream Economics has Fallen into a Misunderstanding and Crisis
Should Economists Not Be Moral?
Afterword
Bibliography
Name Index

Citation preview

Runyuan Gan

Helix Network Theory The Dynamic Structure and Evolution of Economy and Society

Helix Network Theory “It is a masterpiece that systematically reveals the structure of the modern social and economic system. The theory is novel and unique. The methods are diverse and coupled. It is worthy of careful study.” —Cheng En-Fu, Chief Professor, Member of the Faculty at the Chinese Academy of Social Sciences “This book, with the analytical vision of the broad social system, discusses the overall picture of the evolution and development of human society. It embodies luxuriant new viewpoints and theoretical innovations, which are worthy of reading and discussion in academia!” —Wei Sen, Professor of Economics at Fudan University “This book explores the dynamic structure of economy and society, depicts the overall picture of the evolution of human society, and summarises the social dynamics into a multi-dimensional intertwined “helix network”. It is a work that explores the relationship between nature and humans, penetrates the context of changes from the past to the present, and initiates a school of its own. Its ideological methods are conducive to promoting the transformation of the economic research paradigm, which is definitely worthy of the attention of academia!” —Yan Peng-Fei, Senior Professor at Wuhan University “This novel monograph on social economics is a masterpiece of evolutionary economics. It is not only rich in the spirit of humanism but also possesses a broad interdisciplinary vision. This book is a must-read!” —Jia Gen-Liang, Distinguished Professor at Renmin University of China

Runyuan Gan

Helix Network Theory The Dynamic Structure and Evolution of Economy and Society Interdisciplinary Integrated Economics Creating a Brand New “Micro-Meso-Macro” Paradigm

Runyuan Gan School of Economics and Management East China Jiaotong University Nanchang, China Translated by Huizhong Yu Shenzhen University Shenzhen, China

ISBN 978-981-19-8802-8 ISBN 978-981-19-8803-5 (eBook) https://doi.org/10.1007/978-981-19-8803-5 Jointly published with Fudan University Press The print edition is not for sale in China (Mainland). Customers from China (Mainland) please order the print book from: Fudan University Press. Translation from the Chinese language edition: “Helix Network Theory—The Dynamic Structure and Evolution of Economy and Society” by Runyuan Gan, © Gan Runyuan 2021. Published by Fudan University Press. All Rights Reserved. © Fudan University Press 2023 This work is subject to copyright. All rights are reserved by the Publishers, whether the whole or part of the material is concerned, specifically the rights of reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publishers, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publishers nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publishers remain neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Foreword by Yew-Kwang NG

I have known GAN Runyuan since July 2017 when he sent me his massive manuscript on his Helix Network Theory with some very favourable book reviews. Despite working in non-academic sectors, his academic achievements have by far surpassed that of an average Ph.D. graduate. This is very remarkable and reflects very favourably on his research abilities. I commenced my recent visit to the School of Economics at Fudan University in Shanghai at the end of July 2019 as a special chair professor. Runyuan came to see me in my office and we also had lunch together and a couple more meals after. He also sat in some of my classes at Fudan University and discussed his Helix Network Theory after class with me. Thus, I got to know him and his theory quite a fair bit. In his book Helix Network Theory, he uses the basic methods of System Theory and Structural Functionalism to construct his framework of economic analysis inclusive of the ‘micro-meso-macro’ elements. Thus, his basic ideas have some similarities with the mesoeconomic analysis that I have developed since 1977. My method basically combines elements of micro (including the marginal analysis of profit maximisation at the firm level), macro (including the influence of aggregate demand, aggregate output, and the average price level), and simplified general-equilibrium analysis based on a representative firm that need not be perfectly competitive. It focuses on equilibrium analysis with comparative statics, obtaining the results that both the Monetarist (absence of real effects of a change in nominal aggregate demand) and the Keynesian (possible real effects) are special cases, with additional possible cases including that of cumulative expansions/contractions that may partly explain events such as the Great Depression. In contrast to my analysis, Gan’s framework includes additional elements, such as large organisations between the micro and macro levels and social and political factors. In contrast to my focus on equilibrium and comparative statics, Gan emphasizes nonequilibrium evolutionary processes. In particular, he uses the idea of double structures (surface and deep structures) to construct his theoretical framework. Gan points out that ‘the forces affecting the development of societies are determined by human-culture, economic, political, scientific, legal, and educational

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elements jointly’. I fully agree with this. In the present book, Gan uses ten dimensions to draw the diagram of the locus of social-systemic evolution-development: the Helix Network Diagram. This is very unique and remarkable. Gan believes that we may use these ten dimensions to evaluate different societies or countries. However, how do we tradeoff between these dimensions? What are their separate measurable indicators? In my view, ultimately speaking, we should base our analysis on the effects on long-term aggregate happiness. These issues have to be further studied in detail. Helix Network Theory is very rich in content; apart from economics, it involves many other areas of study, including management theories, sociology, political theories, cultural theories, and history. I have very limited knowledge in these areas. Thus, my comments above are only my brief impression and simple evaluation upon reading this massive book. Although this book may have some inadequacies that are waiting for the author and other economists to supplement and perfect them, it also includes many forward-looking innovations and explorations (e.g., the micromeso-macro fractal structure). These ideas merit the attention and further studies of economists. Upon the publication of the revised Chinese version and the English version of this important book, I am happy to recommend it to interested readers. If we further develop the theoretical framework advanced in this book, we may help to significantly improve economic analysis, making it more suitable to analyze the development of human societies in the future. I also hope that the analytical framework advanced in the book may provide some useful guides for the making of public policies in many countries in the world. February 2021

Yew-Kwang NG Fellow, Academy of the Social Sciences in Australia Emeritus Professor Monash University Melbourne, VIC, Australia

Foreword by Gong-Meng Chen

I first met and started working with Gan Runyuan, the author of the book, around April and May of 2002. Back then, I had just established the China Accounting and Finance Research Centre at Hong Kong Polytechnic University in Shenzhen. Because the research centre was not long established, it was necessary to introduce various talents. Gan Runyuan was one of the first groups of personnel recruited into the research centre. By 2003, with the active support of Cheng Si-Wei, I and my colleagues had founded the China Venture Capital Research Institute. During that period of time, Gan Runyuan worked as my assistant and participated in many tasks at the China Accounting and Finance Research Centre and China Venture Capital Research Institute. He was easy-going, serious in working, and I was always impressed. Later, Gan Runyuan left Shenzhen to Shanghai. However, he still kept in touch with me and participated in several forums organised by the China Venture Capital Research Institute. At the end of March this year, Gan visited Shenzhen. I learned that he had written an economics monograph, Helix Network Theory, and he invited me to write a preface to this book. He said that this is the ten-year brainchild of his toil, blood, and sweat. I did not expect him after leaving Shenzhen for more than ten years, not only reading that many books on economics and sociology but also spending quite a few years writing an economics monograph of more than 400,000 words. What a gratifying thing! This book is an academic work at the intersection of economics and sociology, a theoretical achievement of the author’s comprehensive research on traditional economics and sociology using methods such as system theory and structural functionalism. From the subject and the content, this book incorporated some prototype theories in the field of social sciences, divided the social system into human-culture, economy, polity, science, law, education, and other subsystems in terms of system and structure, and explored the connection between these subsystems and their intricate relation with social progress. The book gave a comprehensive discussion of the hierarchy, structure, function, and operating process of the economic system within the social system and expounded on the dynamic structure and the evolutionary laws

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of the economy and society. The author broke down the barriers of different disciplines, integrated the research results of economists, sociologists, historians, cultural scientists, and anthropologists, and concluded that the long-term evolutionary mechanism of the entire human social system follows two major laws: the bifurcation law and the synergy law. The most remarkable innovation of this book was mainly reflected in revealing the fractal features such as self-similarity, hierarchy, and recursiveness in the general structure of the firm, the industry, the sector, and the national economic system. The book also clarified the two-tiered structure and the basic elements that exist in the human-culture system, the economic system, the political system, and other social subsystems. The author’s exposition on the dynamic structure of the firm system, the sector system, and the national economic system was an organic integration of the economic thoughts of the major schools of western economics since Adam Smith, which also incorporated part of the basic ideas of Marxist political economy. Readers should place this book in the category of social economics. In the past, social economics works were more concerned with social and economic phenomena since the Industrial Revolution, but this book took agricultural society before the Industrial Revolution into the field of discussion. The theoretical framework proposed by the author can accommodate the basic ideas of many typical social economic theories. From this point of view, the theoretical framework proposed in this book is more inclusive and explanatory. The author fully absorbs the theoretical essence of traditional economics and distills these economic thoughts into this research of social economics at a whole new level. I personally believe that the innovative value of this monograph is mainly reflected in three aspects: One is the change in the paradigm of economic thinking; the second is the redivision of the basic framework of sociology; and the third is the organic coordination of public policies and public institutions. In economics, the static equilibrium thinking paradigm has always predominated the traditional mainstream economic research. Compared with the thinking paradigm of traditional economics, this book establishes the theoretical framework of a dynamic nonequilibrium thinking paradigm. On the basis of this thinking paradigm, the author can logically integrate micro-, meso-, and macro-economics into a unified theoretical framework, which is of great significance for the reform and development of economic theories. For a long time, the research of economics and sociology has been in a state of isolation, but in fact, these two disciplines are closely connected. The author regards the economic system as a subsystem of the social system and divides the social system into a surface structure consisting of the human-culture system, the economic system, the political system, and other subsystems and a deep structure composed of the science system, the legal system, the education system, and other subsystems. This theoretical summary of the structure of modern society is concise and realistic. The author’s division of the structure and the function of the modern social system not only helps to clarify the basic theoretical framework of sociology but is also valuable for studying the relation between sociology and other adjacent disciplines.

Foreword by Gong-Meng Chen

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The systematic, holistic, and connected concepts advocated in this book can assist Social Science theorists in eliminating disciplinary barriers and school prejudices, clarifying the interrelations among the subsystems in the social system, and eliminating or resolving the state’s policy conflicts and institutional contradictions in culture, economy, and polity, which is conducive to promoting the development and operation of the entire society. The social economic thoughts contained in this book are an important inspiration for China’s current social reforms and institutional innovations, especially in the field of policy making and institutional construction. On May 17th, Chinese President Xi Jin-Ping advocated at a symposium on philosophy and social sciences held in Beijing that the philosophical and social science community should encourage knowledge innovation, bold exploration, and the courage to construct new theories with original ideas. In this book, the author structured a brand new theory with original ideas, which is fully in line with the spirit of President Xi’s speech. Although the book had its imperfections, there is no doubt that the author’s courage to create and his spirit of exploration are worthy of our affirmation! I believe that the timely publication and distribution of this book has important theoretical value and practical significance in eliminating the one-sided understanding of economic determinism; encouraging the coordinated development of the entire society in terms of culture, economy, and polity; reshaping the human-culture system; establishing a belief and moral system; promoting the healthy functioning of society; implementing the scientific outlook on development; formulating scientific policies and institutions; and building a harmonious society. May 2016

Gong-Meng Chen President of the China Institute of Educational Innovation Professor of Finance, Doctoral Supervisor Shanghai Jiaotong University Shanghai, China

Foreword by Chun-Xue Yang

The author of this book, Gan Runyuan, discussed a difficult academic issue in this book. The social economy is an extremely complex organic system. Specific economic phenomena are the result of various factors, including polity, law, cultural traditions, and other factors. The interaction of these factors endows the social economy with a feature of systemicity, which means that the components of the social economy are organically integrated. No social scientists (including economists) will deny this fact. The interpretation of the mystery of this organism has always been the ambition of scholars. However, there are great differences among scholars on how to understand and explain this objective fact. The theoretical challenges are as follows: First, how do the components of this organism coordinate and operate? Second, how does this organism evolve in operation? How can these theoretical problems be solved? Economics can be roughly divided into two ways of thinking: methodological individualism and methodological holism. In the history of economic thought, these two methodologies began to become clear in the famous methodological debate between Menger1 and the German historical school. The key question is how to understand the relation between individual economic behaviour and the social economy. Methodological individualism holds that all true economic theories can be reduced to a theory of individual behaviour plus boundary conditions that describe the circumstances of the individual behaviour. Why is that? A typical answer from Hayek is that in the social sciences, terms such as market and society are merely theoretical concepts used to describe human action, instead of the entity that one can directly observe. The only feasible way to understand such phenomena is to comprehend the collective unity of society through the analysis of individual behaviour. In other words, economists can only understand market behaviour as a totality on the basis of individual economic behaviour.

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Carl Menger (1840–1921) was one of the representatives and main founders of the Austrian school of economics. xi

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Methodological holism considers the social economy as a collective unity in which its internal components are interrelated. There are various forms of specific analysis methods. One perspective is to use the concept of biology to compare the social economy to an organism and to explore the laws of its development and evolution. The German historical school is a typical representative in this regard. Another perspective is to view the social economy as a complex machine-like system. The typical representative is economic control theory. Although these studies have contributed to our understanding of the social economy to varying degrees, they have generally been out of the mainstream in economics. Methodological individualism is the mainstream. Neoclassical economics takes the rational economic man as the basis of analysis and gradually expands the scope to the overall analysis of the market economy. The core of the theory is to demonstrate that guided by an invisible hand (i.e., the price mechanism); every individual’s pursuit of maximising his/her interests will unconsciously lead the economy to a general equilibrium. In this equilibrium, the output and the price of all commodities form an optimal combination. Furthermore, neoclassical macroeconomics uses the general equilibrium model of random dynamics to extend this analysis to the explanation of macroeconomic phenomena, which are apparently subject to various disputes. However, it is certain that economic neo-classicalism and its mathematical tools are not able to interpret social economic organisms. As the Austrian economist Friedrich von Wieser (1851–1926) put it, “an investigation confining itself to this narrowest group of theoretical problems, a group open to extreme idealisation, may resort to mathematical expression as the most exact instrument for formulating results. However, an investigation passing by decreasing abstraction to the remaining problems of theory will find itself compelled to discard, in its further advance, the mathematical formula. None of the great truths of economic theory, none of their important moral and political applications, has been justified by mathematical means.”2 Although studies on economic phenomena are becoming more detailed and the research field is becoming increasingly specialised, the current economic interpretation of the entire social economy is still in an unsatisfactory state, no matter from which perspective. As the author described in the opening part, it is slightly like a blind person identifying an elephant. Why cannot the existing theoretical achievements be used to provide a comprehensive explanation of the social economic phenomena, since economics and other social sciences have made great progress? Most economists do not have the courage to have the ambition of comprehensively interpreting socioeconomic phenomena in their entirety but can only aim to discover a small part of them. I would not draw a rash conclusion, but it must be directly related to the academic environment where the division of labour is increasingly refined. Gan is passionate about academic studies but does not work in an academy or a research institute. Although this makes his argument seems to be not entirely in

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Weiser, F. (1927). Social Economics (Hinrichs, A. F., trans.). New York: Adelphi. p. 13.

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line with the allegedly stringent norms of neo-classicalism in modern economics, it allows him to have no scruples and the courage to explore this grand question. The most unique and impressive part of this book is the author’s attempt to discuss the fractal features such as self-similarity, hierarchy, and recursiveness in the general structure of the firm system, the sector system, and the national economic system and the clarification of the two-tiered structure and the basic elements that exist in the subsystems of human-culture, economy, and polity. On the basis of the structure model of the social system put forward by the American sociologist Parsons and the Chinese system philosopher Min Jia-Yin, the author divided the social system into a surface structure consisting of the human-culture system, the economic system, the political system, and other subsystems and a deep structure composed of the science system, the legal system, the education system and other subsystems, which is obviously a theoretical summary of the structure of modern society and is very close to the actual functional division of contemporary society. To borrow the concept of embeddedness by the British economic historian Karl Polanyi (1886–1964), the author described to the readers a panoramic view of the economic system in which a firm is embedded in the structure of an industry, an industry is embedded in the structure of a sector, a sector is embedded in the structure of an economic system, and an economic system is embedded in the structure of a social system. If the general structure of the firm system, the sector system, the economic system, the state system, and the social system pictured by the author are combined, a geometry (or a fractal geometry) similar to the Mandelbrot Set pattern3 (Fig. 3.5) will be obtained. This set of well-structured and nested geometries forms the theoretical framework of the book, which is exactly the law of fractals that exists in the social system, as revealed by the author. This group of fractal diagrams together with the evolutionary trajectory of the social system sketched by Chap. 74 (Fig. 8.14, also known as the Helix Network), reveals a geometric beauty with a unique structure. Undoubtedly the theoretical framework constructed by the author does exude the structural beauty of the social sciences, although it is only a basic outline! Almost all academics have a conception that they have basically solved their chosen problem. I could not judge whether Gan has a similar mentality. However, within my limited range of knowledge, I believe that Gan’s introduction of some concepts of the philosophical thinking of systems science and evolution theory will at least help the readers to further think about the abovementioned issues. As to the extent to which Gan’s book advances the study of this issue, it is left to the readers to

3

A typical fractal geometry, in which all its relatively independent minute unit is similar in shape to their collective unity. 4 Referring to Chap. 7 in the first edition, or Chap. 8 in the revised edition.

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judge. Nevertheless, I believe that no matter what the readers decide, they can gain something out of the book. May 2016

Chun-Xue Yang Associate Director, Researcher, Professor, Doctoral Mentor, Institute of Economics, Chinese Academy of Social Sciences Beijing, China

Preface (Revised Edition)

The first edition of Helix Network Theory was published by Fudan University Press in September 2016. It received a good response shortly after its publication. Economic experts and scholars in China soon gave high praise, and a series of reviews and recommendations were given by the publication houses, such as The China Reading Weekly, The China Economic Herald, The Hong Kong Economic Herald, The New Economy, and The Scientific Consult. In October 2017, the book was selected to participate in the Frankfurt International Book Fair in Germany. Fudan University and the Shanghai Academy of Social Sciences successively held seminars on Helix Network Theory in March and April of 2018. Its traditional Chinese version was published and distributed in Taiwan in June of that year. In December 2019, I received the winner Golden Man Award of the 2019 International Entrepreneurship, Creativity and Innovation Awards for my contribution to the innovation of economic theory. At present, the book was collected by more than 30 world-renowned universities, including Harvard, Cambridge, Oxford, Princeton, Yale, Stanford, and Columbia University, in the United States, the United Kingdom, Germany, France, Japan, and other countries. The most exciting thing was that Springer, an internationally renowned academic press house, was going to launch the English version in Europe and the United States. It’s hard to imagine that a thick theoretical book could receive such attention and treatment, which for me was completely unexpected. Whenever I recollect the joys and sorrows of writing and publishing this book, I am filled with gratitude, in addition to satisfaction and accomplishment. I am grateful to all the professors, experts, and scholars in economics, education, and academia for their affirmation that encourages me to explore and innovate. I also want to thank my friends from the publishing industry, the media, and the business community, whose support and recognition made this book successfully distributed! I am thankful to my tutors and fellows from high school and college for their help to keep me forging ahead. I want to especially thank the readers who may or may not know me. Your support gave this book a pair of flying wings, enabling it to be known by the many!

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To be worthy of the love from my friends and the readers, I want to take this special opportunity of staging this English version to make necessary additions and revisions to make it more complete. Compared with the first edition of this book, this revision has been updated and revised in three parts. First, this version added two brand new chapters (Chaps. 6 and 9) and an appendix. Second, new contents were added to some chapters of the original version. The addition includes Sects. 1.4, 2.5, 3.6, and 4.4.3. Third, errors in the first version were corrected, several sentences were polished, and a small number of comments and references were added, for instance, the revision of Sect. 3.1. Among the newly added content, Chap. 6, The Long-Term Evolution of Agriculture in China and Chap. 9, The Main Dynamics and the Features of Social Development in Ancient China, which were originally used as historical empirical facts to support the theoretical framework of this book, were not included in the first edition due to space restrictions and will show up in this edition to make up for the regret. The appendix contains two new book reviews to help readers understand the value of this book. On the occasion of unveiling this revision, I would like to express my heartfelt gratitude to the following people: Many thanks to Chen Gong-Meng, Yang Chun-Xue, and Yew-Kwang NG for writing the preface to this book; Lin Jian-Fu, Huang Chun-Xing, Wei Sen, Jia GenLiang, Cheng En-Fu, Yan Peng-Fei, Lu Ding, Xia Bin, and other professors for recommending this book to academia; Niu Long-Fei, Zhu Min, Jiang Jiang, Qiu Yang-Lin, Cao Wei, Chen Jun-Chang, Liang Jie, Sun Jian-Ling, and other scholars for their beautifully written book reviews; Zhang Hui-Ming, Wang Chao-Ke, Ju LiXin, Yu Hong-Yuan, Chen Ya-Bin, Zhou Zhen-Hua, Yang Jian-Wen, Li Chao-Min, Shen Gui-Long, Li Zheng-Tu, Deng Li-Li, Cai Jian-Na, and other professors and experts for their comments on the seminar; Xu Hui-Ping, Wang Lian-He, Lu Jun-Jie, Ma Yon-, Chen Wen, Cai Jing-Xian, Song Zheng-Kun, Zheng Yi-Ting, and the others from the publishing industry; Liu Sheng-Quan, Yan An-Sheng, Yang Jian-Min, Li Zhan-Hui, Zhang Qia-Tang, Jiang Hai-Jun, Wang Jian-Feng, Wang Huan-Xiang, Xu Ming, Duan Gang, Zha Jian-Guo, Xia Li, Wang Duo, Zhao Sang-Yu, and the others from the media; Yu Li-Fu, Zhao Zhen, Wu Yu-Hua, Han Guo-Gang, Sun Xiao-Kang, Shen Li-Juan, and Liu Fang-Sheng, and other friends for their help in promoting the book overseas and copyright consulting; Zhao Shun-Xing, Mao Ling-Yun, Ma Xiang-Jun, Ma Xin-Hong, Yan Wei, and other friends for their help in organising reading parties and publishing; Jia Li-Jun, Ge Xiao-Cheng, Xu Jiang-Ping, Quan Jun, and Chen Yuan-Zhe for their active roles in expanding the social influence of Helix Network Theory. In particular, Professor Zhang Hui-Ming from the School of Economics of Fudan University organised the Helix Network Theory-themed symposium at Fudan University on March 30, 2018; Researcher Li Zheng-Tu from the Institute of Economics of the Shanghai Academy of Social Sciences initiated the same themed symposium on April 13, 2018; Dr. Aqeel Ahmed, an international friend and vice president of the Pakistan Chamber of Commerce, sponsored the gifts for the symposium at Fudan

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University; Zhao Zhen, the director of the Marketing Department of China International Book Trade Group Export Centre, provided critical support and assistance in the copyright and the international promotion of Helix Network Theory. In the process of revising this book, Lü Jin-Hua, a physicist and cosmologist, gave me invaluable advice on the contents of Sect. 2.1, especially the parts on the history of physics and the space-time view of the universe. Zhang Ren-He, a meteorologist and a member of the Chinese Academy of Science, carefully reviewed the contents of the climate and natural environment in Sect. 9.5. Here, I would like to express my sincere appreciation to them in particular! During reading, if readers find anything mistakes or have any suggestions, please write to the executive editor so that the book can be corrected once it is reprinted. Shanghai, China December 2020

Runyuan Gan

Preface (First Edition)

After the idea of Reductionism was first introduced by the renowned French philosopher Descartes in 1637, this approach of knowing things had been widely adopted in Europe. Since then, the complete world has been sliced into increasingly small pieces. The human knowledge system was also divided into different disciplines, such as physics, chemistry, biology, psychology, economics, sociology, ecology, geology, and astronomy. Especially after the Nobel Prize in Science was awarded in 1901, scientists launched competitions for scientific studies by using the Reductionism Method, leading Reductionism to become a principal methodology in scientific studies. However, in modern science after three centuries of development, under the domination of Reductionism, scientists and scholars in different disciplines, who had long been confined to their limited professions, trapped their understanding to a one-sided, isolated, and illiberal world that they heard the part instead of the totality, considered a singular tree the one and only truth but ignored the vast forest of truth in all its totality. This cognition defect made the connected world fragmented, incomplete and chaotic. In 1937, American biologist Bertalanffy proposed General System Theory. A revolution of the thinking paradigm emerged in modern science. This paradigm revolution was characterised by interdisciplines, mutual catalysis, and grand synthesis, which not only linked different disciplines but also created a number of new interdisciplines. The impact of this revolution was unprecedentedly extensive and profound, which not only reshaped the previous knowledge system of human beings and constructed a new world picture but also greatly changed their way of thinking. The main achievement brought about by this thinking paradigm revolution was the creation of systems science, which contains new disciplines such as system theory, information theory, cybernetics, dissipative structure theory, synergetics, hypercycle theory, catastrophe theory, and chaos theory. Systems science has provided new ideas and methodologies for people to understand and transform the objective world and has played a crucial role in both scientific and technological progress and social development.

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This book is a theoretical result of a comprehensive study of traditional economics using the system theory method advocated by systems science. The book advocates viewing the whole world and human society from a systematic, holistic, and connected perspective and is committed to building a complete, comprehensive, and orderly picture of the evolution of human society. Based on the philosophical thinking of systems science and the basic paradigm of evolution theory, this book, by applying the basic method of structural functionalism, discovers through the overall study of the structure and function of the social systems that from the macroscopic scale of time and space, the long-term evolutionary mechanism of the entire human social system follows two basic laws of the bifurcation law and the synergy law, while the social system embodies the remarkable characteristics of collective complexity, operational periodicity, and structural fractality at the same time. The evolution of human society is an interweaving and spiral helix network consisting of multidimensional dynamics, which is also where the title Helix Network Theory comes from. In terms of specific content, starting from the actual production and the operation of the firm, this book systematically analyses the organic connection and complex operating process of different links of social reproduction in modern society from the micro, meso, and macro levels. It elaborates the features of the structure, function, and operation of the firm system, the sector system, the national economic system, and the state and social system and reveals the dynamic structure and evolutionary laws of the social economic system, thus depicting the historical trajectory of the long-term evolution of the human social system. Regarding the development momentum of human society, this book opposes any one-sided, linear, or simplified interpretation of the development of human society by the illiberal use of economic determinism, political determinism, technological determinism, or environmental determinism. The major viewpoint is that the development momentum of human society is determined by the joint force of human-culture, economy, polity, science, law, and education, among which the predominant factor (or force) is not fixed but is always in a dynamic change in different historical stages of social development. Two main theoretical innovations are proposed in this book. First, it reveals the fractal features such as self-similarity, hierarchy, and recursiveness in the general structure of the firm system, the sector system, and the national economic system by absorbing the basics of the economics, thereby integrating micro-, meso-, and macro-economics into a unified theoretical framework. Second, it expounds the twotiered structure and the basic elements that exist in the human-culture system, the economic system, the political system, and other social subsystems on the basis of analysing the structure and the functions of the human social system. The framework of the economic and social system proposed in this book can accommodate many traditional economic theories. To explain the dynamics of social development, this book steps out economics and extends to sociology. The structural framework of the firm system, the sector system, the national economic system, and the state and social system suggested in this book can contain some typical theoretical frameworks of dynamic economics (i.e., Marx’s theory of social reproduction, Kalecki’s theory of effective demand, Keynes’s theory of money, etc.). The author

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introduces typical economic and social theories (i.e., Adam Smith’s theory of the division of labour and market theory, Petty-Clark’s law, Leontief’s input–output model, Chenery’s theory of sectoral structure, Yang Xiao-Kai’s new classical economic framework, Malthus’s population theory, Marx, Weber, Parsons, and Luhmann’s sociological theories, etc.), and analyses the factors influencing the long-term transition of social development and their related histories. Therefore, this book is more comprehensive, inclusive, and explanatory than other economic treatises that only analysed the social economy from a micro-, meso-, or macro-part, -aspect, or -level. The author reorganises and restructures the Eastern and Western ideas of different disciplines, as well as the separate schools of one discipline in humanities and social sciences. By absorbing the ideas and theories of many thinkers, the author integrates culture theories, economics, politics, and other disciplines of humanities and social sciences into one unified theoretical framework. It is in this sense that this book can be described as a grand theoretical synthesis of the humanities and social sciences. If this book is considered innovative or contributive to the social sciences, there is no doubt that it is achieved on the basis of the previous and contemporary generations of scholars. To help readers accurately understand the ideological connotation of this book, the author specially prepares 67 figures and 12 tables to vividly illustrate the characteristics of the structure and operation of the social economic system. Graphic images are an important narration method adopted in this book. To make it easier for readers to understand the ideas discussed in this book, this book abandons the formula derivation, logical deduction, mathematical analysis, and other specialised narration methods commonly used in economics in the past and uses clear, concise, and fluent language to express various profound ideas and theories as clearly, plainly, and easily as possible. The complexity of human society, however, is similar to a sea of smoke. It is not an easy task to sort out the key factors affecting social development or to clarify and organically integrate the ideological essence of different disciplines. The author can only stand on the shoulders of many former sages and look into the distance and trek forward in the ideological forest filled with clouds and mists, thorns, and divergent paths! This book is built up by broad vision, creative ideas, rich knowledge, fluent language, clear logic, and plenty of figures and illustrations, which not only applies the basic ideas of systems science to the analysis and discussions of social sciences but also integrates the main ideas of humanities and social sciences such as economics, sociology, anthropology, culture theories, and political science. It describes the features and historical development laws of the long-term evolution of human society! The first draft of this book was completed in mid-December 2013. The author then spent nearly two years consulting relevant scholars and literature to reduce possible errors before it was finally completed. The author would like to use this opportunity to express sincere gratitude to Wang Chao-Ke, professor of political economy at Shanghai University of International Trade, Hu Xiao-Peng, researcher at the Economics Institute of Shanghai Academy of Social Sciences, Zhao Jing, professor of political economy at Shanghai Normal University, Zhao Ke, professor

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of Zhejiang University, and Dang Hai-Peng from China Financial and Economical Publishing House for their pertinent opinions during the revision. This book is recommended for readers such as economists, sociologists, and tutors at the faculty of Economics and Management, undergraduate and postgraduate students, middle and senior managers in business, industrial researchers, senior government leaders, policy researchers, and policymakers. Due to the limitation of the author’s profession and knowledge, errors may be inevitable, and any suggestions or critics are more than welcome! Shanghai, China May 2016

Runyuan Gan

Contents

1 The Limitations of Human Understanding of the World . . . . . . . . . . . . 1.1 Blind Men and the Elephant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Not See the Forest for the Trees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 All-Rounder Versus Specialist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Will the Social Sciences Eventually Move Toward Unity? . . . . . . . 2 The Evolution of the Thinking Paradigm and Its Philosophical Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 The Evolution of the Space–Time View and the Great Revolution in Physics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 A Revolution of the Thinking Paradigm: The Birth of Systems Science . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 What Is System? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.2 Systems Science . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.3 Reductionism Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.4 System Theory Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 The Development of the Thought of Biological Evolution and Its Influence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.1 Evolutionary Thought Before Darwin . . . . . . . . . . . . . . . . . 2.3.2 Darwin’s Evolutionary Thought . . . . . . . . . . . . . . . . . . . . . . 2.3.3 New Development of Evolutionary Thought After Darwin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.4 The Infiltration and Influence of Evolutionary Thought on Other Disciplines . . . . . . . . . . . . . . . . . . . . . . . . 2.4 New Understanding and Philosophical Enlightenments Obtained from the Theory of Biological Evolution . . . . . . . . . . . . . 2.4.1 The Development of Evolution Theory Also Requires the Introduction of the System Theory Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 2 4 8 13 14 22 22 23 25 27 29 29 32 34 43 49

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2.4.2

2.5

The Biosphere Is a Complex and Nested System, and Each Layer of Biological Systems Has Its Own Evolutionary Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4.3 Every Biological Individual Has a Two-Layer Structure of Genotype and Phenotype . . . . . . . . . . . . . . . . . 2.4.4 The Evolutionary Laws of Biological Individuals at All Levels Are Interrelated, Interacted and Interinfluenced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4.5 The Evolutionary Process of Biological Individuals Is the Unity of Contingency and Inevitability . . . . . . . . . . . 2.4.6 The Mechanism of Biological Evolution Is Not Only a Survival Competition But Also Contains a Wealth of Content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4.7 Biological Diversity Originates From the Diversity of Biological Variation and Ecological Environment Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4.8 Some New Understandings About the Dynamic Mechanism Behind the Evolution of Biological Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4.9 Philosophical Enlightenment on the Structure and Evolution of Things From the Theory of Biological Evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Three Basic Principles of the Evolution of Complex Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5.1 The Principle of System-level Emergence . . . . . . . . . . . . . 2.5.2 The Coupling Principle of Positive and Negative Feedback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5.3 The Principle of Circular Cumulative Causation . . . . . . . .

3 A Bird’s-Eye View of the Economic Society . . . . . . . . . . . . . . . . . . . . . . . 3.1 The Basic Hierarchy from Natural System to Social System . . . . . 3.1.1 The Basic Hierarchy of the Cosmic System . . . . . . . . . . . . 3.1.2 The Basic Hierarchy and Structure of the Human Social System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.3 The Basic Hierarchy of the Socioeconomic System . . . . . 3.2 The Four Laws that Human Society Follows in Evolution and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.1 The Law of Bifurcation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.2 The Law of Synergy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.3 The Law of Fractal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.4 The Law of Periodicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Basic Classification of Resources and Their Forms . . . . . . . . . . . . . 3.4 The Components of Social Reproduction . . . . . . . . . . . . . . . . . . . . . 3.5 The Long-Term Transition of Relations of Distribution in Social Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

50 51

51 52

53

54

54

55 58 58 60 66 69 71 71 72 76 76 77 79 83 85 88 91 97

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3.6

The Long-Term Evolution of Relations of Distribution in Social Production . . . . . . . . . . . . . . . . . . 98 3.5.2 The Relation Between Human Cognition Level and Social Distribution Result . . . . . . . . . . . . . . . . . . . . . . . 100 A Brand New Economic Paradigm for the Twenty-First Century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

4 The Micro-level of the Economic System: The Dynamic Structure and Evolution of the Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 A Brief Introduction to the Theoretical Research on Corporate Evolution and Corporate Ecology . . . . . . . . . . . . . . . . 4.2 A Metaphor: Apple Tree and Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 The Nature of the Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 The Environment, Elements and Structure of the Firm . . . . . . . . . . 4.4.1 The Internal and External Environments of the Firm . . . . 4.4.2 The Constituent Elements and Organisational Structure of the Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.3 The Deep Structure of the Firm System . . . . . . . . . . . . . . . 4.5 The Production and Operation of the Firm . . . . . . . . . . . . . . . . . . . . 4.6 The Exchange and the Distribution Within the Firm . . . . . . . . . . . . 4.6.1 The Meaning of Distribution and the Related Theories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6.2 Distribution in the Firm System . . . . . . . . . . . . . . . . . . . . . . 4.7 Corporate Production Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7.1 On the Allocation of Resources . . . . . . . . . . . . . . . . . . . . . . 4.7.2 On the Allocation of Income . . . . . . . . . . . . . . . . . . . . . . . . 4.8 Overall Corporate Competence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 Corporate Development Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9.1 The Dynamic Factors in Corporate Development . . . . . . . 4.9.2 The Role of the Entrepreneur . . . . . . . . . . . . . . . . . . . . . . . . 4.10 Corporate Evolutionary Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10.1 The Division of Labour and Coordination . . . . . . . . . . . . . 4.10.2 The Interaction between Internal and External Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10.3 Gradual and Disruptive Changes . . . . . . . . . . . . . . . . . . . . . 4.11 Corporate Life Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11.1 The Firm That Is Growing . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11.2 The Firm That Remains the Status Quo . . . . . . . . . . . . . . . 4.11.3 The Firm That Is Declining . . . . . . . . . . . . . . . . . . . . . . . . . . 4.12 Corporate Evolutionary Trajectory . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 The Meso-Level of the Economic System: The Dynamic Structure and Evolution of the Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Classic Theories on Economic Growth . . . . . . . . . . . . . . . . . . . . . . . 5.2 Industry and Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 The Internal and External Environments of the Sector . . . . . . . . . . .

113 118 124 129 131 131 141 144 148 151 152 156 163 165 166 167 171 171 178 181 182 183 187 191 192 193 195 197 203 207 210 212

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5.3.1 The External Environment of the Sector . . . . . . . . . . . . . . . 5.3.2 The Internal Environment of the Sector . . . . . . . . . . . . . . . 5.4 The Constituent Elements and General Structure of the Sector . . . 5.4.1 The Constituent Elements of the Sector . . . . . . . . . . . . . . . 5.4.2 The General Structure of the Sector . . . . . . . . . . . . . . . . . . . 5.5 The Taxonomies of the Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.1 Two Class Taxonomy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.2 Three Classification of Sector . . . . . . . . . . . . . . . . . . . . . . . . 5.5.3 Four Sector Taxonomy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.4 Standard Sector Taxonomy . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.5 Factor Intensity Taxonomy . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 The Differentiation Process of the Sector . . . . . . . . . . . . . . . . . . . . . 5.6.1 The Differentiation of the Agricultural Sector . . . . . . . . . . 5.6.2 The Differentiation of the Industrial Sector . . . . . . . . . . . . 5.6.3 The Differentiation of the Service Sector . . . . . . . . . . . . . . 5.6.4 The Differentiation of the Information Sector . . . . . . . . . . 5.7 Sectoral Development Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.1 The Dynamic Factors in Sectoral Development . . . . . . . . . 5.7.2 The Primary Dynamics in Sectoral Development . . . . . . . 5.7.3 The Role of the Core Firm . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 Sectoral Evolutionary Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8.1 The Division of Labour and Coordination . . . . . . . . . . . . . 5.8.2 The Interaction Between Internal and External Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8.3 Competition and Cooperation . . . . . . . . . . . . . . . . . . . . . . . . 5.8.4 Intersectoral Interaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9 Distribution in the Sector System . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9.1 The Input–Output Relations in the Sector System . . . . . . . 5.9.2 Intersectoral Correlation Effect . . . . . . . . . . . . . . . . . . . . . . 5.9.3 The Distribution of Elements in the Sector System . . . . . . 5.10 Overall Sectoral Competence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11 Sectoral Life Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11.1 Sectors that Grow Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11.2 Stagnant Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11.3 Decaying and Declining Sectors . . . . . . . . . . . . . . . . . . . . . 5.12 Sectoral Evolutionary Trajectory . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

212 215 221 221 222 223 224 224 225 225 226 226 226 227 229 234 236 236 238 241 246 246

6 The Long-Term Evolution of Agriculture in China . . . . . . . . . . . . . . . . 6.1 The Long-Term Transition of Agriculture in Ancient China . . . . . . 6.1.1 Historical Stages and the Main Features of Agriculture in Ancient China . . . . . . . . . . . . . . . . . . . . . . 6.1.2 The Relations Between Crop Cultivation and Animal Husbandry in Ancient China . . . . . . . . . . . . . . 6.1.3 Market Transaction Network in Ancient China . . . . . . . . . 6.1.4 Agricultural Books in Ancient China . . . . . . . . . . . . . . . . .

289 290

255 256 259 264 266 269 272 278 280 281 282 283 284

292 298 302 304

Contents

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6.1.5 6.1.6 6.2

6.3

Agricultural Policies in Ancient China . . . . . . . . . . . . . . . . The Evolution of Agricultural Tools in Ancient China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Evolution of Modern Agriculture in China . . . . . . . . . . . . . . . . 6.2.1 China Versus Japan: The Impact of Institutional Reform on Economic Development . . . . . . . . . . . . . . . . . . . 6.2.2 Industrialisation in Modern China . . . . . . . . . . . . . . . . . . . . 6.2.3 The Impacts of Modern Industrials on the Commercialisation of Agriculture . . . . . . . . . . . . . . . . . . . . 6.2.4 Agricultural Mechanisation in Modern China . . . . . . . . . . The Development of Contemporary Agriculture in China . . . . . . . . 6.3.1 Contemporary Agricultural Industrialisation . . . . . . . . . . . 6.3.2 Contemporary Agricultural Technologies . . . . . . . . . . . . . . 6.3.3 The Impact of Contemporary Industrials on Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.4 The Impact of Contemporary Services on Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.5 The Impact of Contemporary Information Technology on Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . .

7 The Macro-level of the Economic System: The Dynamic Structure and Evolution of the National Economy . . . . . . . . . . . . . . . . . 7.1 Representative Theories on the Sectoral Structure . . . . . . . . . . . . . . 7.2 The Environment, Elements and Structure of the Economic System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.1 The Internal and External Environments of the Economic System . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.2 The Constituent Elements and General Structure of the Economic System . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 The Dynamic Structure of the Economic System . . . . . . . . . . . . . . . 7.3.1 The Dynamics Behind the Development of the Economic System . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3.2 The Transmission of Demand in the Economic System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3.3 The Role of the Market and the Government in the Economic System . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 Distribution in the Macro-economy . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4.1 Distribution within the National Economic System . . . . . 7.4.2 Distribution within the State System . . . . . . . . . . . . . . . . . . 7.4.3 Institutions of Resource Distribution and Historical Choices of Social Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 Evolution Trend of the Sectoral Structure and Its Adjustment . . . . 7.5.1 The Main Factors Affecting Sectoral Structural Evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5.2 The General Trend of Sectoral Structural Evolution . . . . .

312 316 319 321 322 328 331 333 335 337 339 340 341 347 353 365 365 371 375 376 380 383 385 386 387 390 394 394 407

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Contents

7.5.3

7.6

The Relation Between the Sectoral Input Structure and Sectoral Output Structure . . . . . . . . . . . . . . . . . . . . . . . . 7.5.4 The Adjustment Direction of the Sectoral Structure . . . . . The Openness and Inclusiveness of the Book’s Theoretical Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6.1 The Openness of the Book’s Theoretical Framework . . . . 7.6.2 The Inclusiveness of the Book’s Theoretical Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8 The Structure, Function and Evolution of the State and the Social System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 The Concept of the State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 The Birth of the Primitive State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3 The Environment, Elements and Structure of the State System . . . 8.3.1 The Internal and External Environments of the State System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3.2 The Constituent Elements and General Structure of the State System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 The Human-Culture Subsystem in the State System . . . . . . . . . . . . 8.4.1 The Concept of Human-Culture . . . . . . . . . . . . . . . . . . . . . . 8.4.2 The Internal and External Environments of the Human-Culture System . . . . . . . . . . . . . . . . . . . . . . . 8.4.3 The Constituent Elements and General Structure of the Human-Culture System . . . . . . . . . . . . . . . . . . . . . . . 8.4.4 The Main Function of the Human-Culture System . . . . . . 8.4.5 The Production Activities in the Human-Culture System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4.6 The Evolutionary Mechanism of the Human Culture System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 The Observation of Social Progress from the Perspective of Social Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6 The Political System in the State System . . . . . . . . . . . . . . . . . . . . . . 8.6.1 The Concept of the Polity/Politics . . . . . . . . . . . . . . . . . . . . 8.6.2 The Internal and External Environment of the Political System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6.3 The Constituent Elements and General Structure of the Political System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.7 The Dynamic Structure of the Social System . . . . . . . . . . . . . . . . . . 8.8 The Main Mechanisms Behind the Development of the Social System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8.1 The Mechanism of Division of Labour in Social Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8.2 The Mechanism of Coordination in Social Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

413 420 424 424 425 431 439 442 453 453 457 461 461 465 470 473 479 484 493 501 501 507 510 515 519 519 530

Contents

xxix

8.8.3

The Mechanism of Differentiation and Stratification in Social Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8.4 The Mechanism of Gradual Change and Disruptive Change in Social Development . . . . . . . . . . . . . . . . . . . . . . 8.9 The Evolutionary Trajectory of the Social System . . . . . . . . . . . . . . 8.10 The Book’s Historical Philosophy and Views of Social Evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 The Main Dynamics and the Features of Social Development in Ancient China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 The Structural Features of the Human-Culture System in Ancient China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 The Rise and Fall of Market Economy in Ancient China . . . . . . . . 9.3 The Rise and Fall of Science and Technology in Ancient China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4 The Main Synergistic Factors of Society in Ancient China . . . . . . . 9.5 The Impact of the Natural Environment on Social Historical Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.1 Relevant Thoughts About the Influence of the Natural Environment on Human Society . . . . . . . . . 9.5.2 The Vital Impact of Climate on Human Society . . . . . . . . 9.5.3 The Connections Between Climate Change and Human Civilisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.4 The Impact of Climate Pulsation on Human Civilisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.5 The Long-Term Features of Climate Change in Chinese History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.6 The Connection Between Climate Change and the Southward Migration of Northern Ethnic Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.7 The Connection Between Climate Change and Ancient Wars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.8 The Impact of Climate Change on Demographics in Ancient China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.9 The Impact of Climate Change on the Social Economy in Ancient China . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.10 Climate Change and the Rise and Fall of China . . . . . . . . .

537 544 550 553 559 560 570 577 589 593 594 597 602 606 608

610 614 619 621 622

Appendix: Relations Between the Book’s Theory and Marx’s Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627 Appendix: Selected Book Reviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639 Afterword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651

xxx

Contents

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 655 Name Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665

About the Author

Runyuan Gan born in 1969, is a cultural economist and writer. He has received the winner Golden Man Award of the 2019 International Entrepreneurship, Creativity and Innovation Awards. He used to work at the China Venture Capital Research Institute, is currently a professor and graduate research supervisor of Economics and Management at East China Jiaotong University, and is a visiting professor of Economics and Management at Dalian Jiaotong University, Yingsheng Network Business School, etc. His most recent publications are Helix Network Theory: The Dynamic Structure and Evolution of Economy and Society, a monograph on social economics, The Lonely Picture of Spiritual Life: A 100-Year Map of the Nobel Laureates in Literature, a biographical commentary, and The Wings of Spring, a literary collection. He also participated in the compilation of Creative Economics, Personal Financial Planning, Operational Practices of International Academic Journal, and eight other books.

xxxi

List of Figures

Fig. 3.1 Fig. 3.2 Fig. 3.3 Fig. 3.4 Fig. 3.5 Fig. 3.6 Fig. 3.7 Fig. 3.8 Fig. 3.9 Fig. 3.10 Fig. 3.11 Fig. 4.1 Fig. 4.2 Fig. 4.3 Fig. 4.4 Fig. 4.5 Fig. 4.6 Fig. 4.7 Fig. 4.8 Fig. 4.9 Fig. 4.10 Fig. 4.11 Fig. 4.12 Fig. 4.13 Fig. 4.14

Spheres of the cosmic system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spheres of the human social system . . . . . . . . . . . . . . . . . . . . . . . Branching of trees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Synergistic phenomena when fluid bypasses a cylinder . . . . . . . . Mandelbrot Set pattern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Social reproduction in the early stage of primitive society . . . . . . Social reproduction in the middle stage of primitive society . . . . Social reproduction in the agricultural age . . . . . . . . . . . . . . . . . . Social reproduction in the industrial age . . . . . . . . . . . . . . . . . . . . Social reproduction in modern society . . . . . . . . . . . . . . . . . . . . . Interaction between human cognition level and social distribution result . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Apple trees in four seasons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spheres of the corporate external environment . . . . . . . . . . . . . . . Spheres of the corporate internal environment . . . . . . . . . . . . . . . Internal structure of graphite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Internal structure of diamond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General operational structure of the firm system . . . . . . . . . . . . . Interaction between relations of factors of production and relations of factors of distribution . . . . . . . . . . . . . . . . . . . . . . Potential energy diagram of corporate competence . . . . . . . . . . . Theoretical model of the corporate behaviour process . . . . . . . . . Supply–demand relation inside and outside the firm . . . . . . . . . . Relations between the dynamics behind corporate development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Positive interactions between entrepreneur, organisation team and firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evolutionary trajectories of entrepreneur, organisation team, and firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interactions between factors inside and outside the firm . . . . . . .

72 75 79 81 85 92 93 94 95 96 101 128 132 140 143 143 149 163 169 172 173 175 180 181 184

xxxiii

xxxiv

Fig. 4.15 Fig. 4.16 Fig. 4.17 Fig. 4.18 Fig. 4.19 Fig. 5.1 Fig. 5.2 Fig. 5.3 Fig. 5.4 Fig. 5.5 Fig. 5.6 Fig. 5.7 Fig. 5.8 Fig. 5.9 Fig. 5.10 Fig. 5.11 Fig. 5.12 Fig. 5.13 Fig. 5.14 Fig. 5.15 Fig. 7.1 Fig. 7.2 Fig. 7.3 Fig. 7.4 Fig. 7.5 Fig. 7.6 Fig. 7.7 Fig. 8.1 Fig. 8.2

List of Figures

Process of gradual change and disruptive change in corporate development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potential energy diagram of the growth of corporate competence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potential energy diagram of the evolution of corporate competence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potential energy diagram of the decline of corporate competence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate evolutionary trajectory . . . . . . . . . . . . . . . . . . . . . . . . . Composition of the sectoral internal environment . . . . . . . . . . . . General operational structure of the sector system . . . . . . . . . . . . Relations between the dynamics behind sectoral development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interaction between social demand and its effect . . . . . . . . . . . . . Evolution of social demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Positive interaction between core firms, related firms and the entire industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evolutionary trajectories of core firms, related firms and the entire industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interactions between core firms, related firms, the industrial market and the entire industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cobweb model formed by sectoral chains . . . . . . . . . . . . . . . . . . . Coevolution of the division of labour and market synergy . . . . . . Interinfluences between leading sectors . . . . . . . . . . . . . . . . . . . . Supply–demand chain of major products between the industries in bread production . . . . . . . . . . . . . . . . . . Potential energy diagram of sectoral competence . . . . . . . . . . . . Potential energy diagram of the growth of sectoral competence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potential energy diagram of the decline of sectoral competence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General operational structure of the national economic system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Relations between the dynamics behind the development of the economic system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect process of human demand in the economic system . . . . . . Evolution of human demand transmission in the economic system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evolutionary trajectory of the sectoral structure . . . . . . . . . . . . . . Interaction between sectoral input relation and sectoral distribution relation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dynamic mechanism behind the evolution of the sectoral structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General operational structure of the state and social system . . . . General operational structure of the human-culture system . . . . .

190 193 194 195 200 219 222 237 239 240 243 243 244 249 252 263 270 279 282 284 373 378 381 381 411 417 418 459 471

List of Figures

Fig. 8.3 Fig. 8.4 Fig. 8.5 Fig. 8.6 Fig. 8.7 Fig. 8.8 Fig. 8.9 Fig. 8.10 Fig. 8.11 Fig. 8.12 Fig. 8.13 Fig. 8.14 Fig. 9.1 Fig. 9.2 Fig. 9.3 Fig. A1

Model of the positive–negative feedback reciprocating cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General model of the progression of the physical world . . . . . . . Evolutionary mechanism of the human-culture system . . . . . . . . Endless cycle of Tai Chi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evolution direction of the critical state system . . . . . . . . . . . . . . . Historical development trajectory drawn by Huang Ren-Yu . . . . Relations between individual right and public organisation right at all levels in the state system . . . . . . . . . . . . . . . . . . . . . . . . General operational structure of the political system . . . . . . . . . . Relation between the dynamics behind social development . . . . Self-similarity of things constantly bifurcating . . . . . . . . . . . . . . . Process of gradual change and disruptive change in the development of the social system . . . . . . . . . . . . . . . . . . . . Evolutionary trajectory of the social system (Helix Network) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net growth of ancient Chinese science and technology (in 50 years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sequence of temperature changes in the winter half-year in eastern China in A.D. 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Curve of winter temperature change in different historical periods in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration of Marx’s theory model of social dynamics . . . . . . . .

xxxv

485 486 487 497 497 500 512 513 516 529 549 551 584 601 609 630

List of Tables

Table 1.1 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 5.1 Table 5.2 Table 5.3 Table 6.1 Table 6.2 Table 6.3 Table 7.1 Table 7.2 Table 7.3 Table 7.4 Table 8.1

Basic types of social science theories . . . . . . . . . . . . . . . . . . . . . . Historical evolution of the value structure of factor input and result distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rules and carriers in several domains . . . . . . . . . . . . . . . . . . . . . . Structural factors at each level of the socioeconomic system . . . Niches at each level of the socioeconomic system . . . . . . . . . . . . Sources of apple tree niche factors . . . . . . . . . . . . . . . . . . . . . . . . External influencing factors of the firms . . . . . . . . . . . . . . . . . . . . Taxonomic dimensions of knowledge assets . . . . . . . . . . . . . . . . Two typical patterns of deep corporate factors . . . . . . . . . . . . . . . Time required for each staff member to complete different tasks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic hierarchy and deep factors of the sector system . . . . . . . . . Hierarchy of the bifurcation and synergy mechanism of the economic system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Knowledge, technology and institutions corresponding to leading sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . History of China’s agricultural development . . . . . . . . . . . . . . . . Output of major agricultural products in China . . . . . . . . . . . . . . Proportional changes in the output value structure of China’s major agricultural industries . . . . . . . . . . . . . . . . . . . . Classification of factors involved in the national economic system and economic growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Internal mechanism behind the evolution of sectoral structure caused by demand and supply . . . . . . . . . . . . . . . . . . . . General trend of the position occupied by the three sectors in different periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General evolutionary trend of the sectoral structure within the three major sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mechanism of bifurcation and synergy . . . . . . . . . . . . . . . . . . . . .

10 103 109 111 112 126 133 136 145 165 220 254 260 291 334 334 364 396 412 413 534

xxxvii

xxxviii

Table 9.1 Table 9.2 Table 9.3 Table 9.4 Table A1

List of Tables

Proportion of theory, experiment and technology in the total score of Chinese dynasties (%) . . . . . . . . . . . . . . . . . . Scientific and technological achievements in ancient Chinese agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quantity of scientific and technological achievements in ancient Chinese arable farming (crop cultivation) . . . . . . . . . . Latitude changes of the southern boundary of the nomadic regimes in the past dynasties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Connotation comparison of productive forces and the relations of production . . . . . . . . . . . . . . . . . . . . . . . . . . .

583 585 586 612 633

Chapter 1

The Limitations of Human Understanding of the World

This chapter begins with the story of six blind men trying to depict an elephant by touching, which reveals the limitations and the one-sidedness of human understanding of the world. Due to the overly specialised division of labour and disciplinary differentiation, most people in modern society become visually impaired in that they can only see a singular tree instead of the vast forest. The number of specialists trained in modern society is far more than that of all-rounders, which makes allrounders with interdisciplinary abilities needed more than ever. The superfluous social division of labour and specialised education in modern society has led human civilisation to a serious crisis. The solution lies in the unification of natural sciences, social sciences, and humanities to build a complete and unified world. Strong results from some scholars proved that different paradigms of the social sciences are not only compatible but also feasible for their organic synthesis. The theoretical framework constructed in the book provides a preliminary roadmap for a more organically integrated social science.

1.1 Blind Men and the Elephant It was six of men who went to see the elephant, although all of them were blind. That each by observation might satisfy his mind. The First, a chubby one, feeling of the tusk. Cried, “Ho! what have we here. To me this is mighty clear, this wonder of an Elephant is very like a spear!”. The Second, a beanpole, approached the animal and took the squirming trunk within his hands. Thus, boldly up and spake, “I see,” quoth he, “the Elephant Is very like a snake!”. The Third, quite tall, who chanced to touch the ear. So he argued, “No, no, the elephant is clearly like a thin big fan!”. The Fourth, rather short, reached out an eager hand and felt about the knee: “You are all talking nonsense, this is clear enough the Elephant is very like a tree!”. © Fudan University Press 2023 R. Gan, Helix Network Theory, https://doi.org/10.1007/978-981-19-8803-5_1

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The Fifth, average height, approached the Elephant, and happening to fall against his broad and sturdy side, at once began to bawl: “God bless me! but the Elephant is very like a wall! You were all wrong!”. The Sixth, an elderly, no sooner had begun about the beast to grope. Then, seizing on the swinging tail that fell within his scope. “I see,” quoth he, “the Elephant is very like a rope!”. So these men disputed loud and long, each in his own opinion, exceeding stiff and strong, although each was partly in the right, and all were in the wrong. This is the well-known story of Blind Man and the Elephant. After reading the story, the behaviour of blind people is often laughed at. However, such a phenomenon reflected in this story is not only common in our daily life but also exists in some academies and research institutions. Many theories often show a part or a side of the objective truth, but the professors, the scholars or the scientists who put forward these theories often get themselves into endless argument because of their blind insistence on their own perspectives. Compared to the story of Blind Men and the Elephant, how different are their behaviours from that of blind men? Why is there only one answer to the truth of a complex thing? Why cannot the colour of an item be red, yellow, blue, or even black simultaneously? Why cannot a building be both square and round? Why cannot one thing have different features at the same time? How can each of us not be a blind person if we realise that all people can only exist in one period of history and can only see one small part of the world?

1.2 Not See the Forest for the Trees After more than 240 years of development, mankind has made great achievements in the study of economic science since the British classical economist Adam Smith (1723–1790) published The Wealth of Nations in 1776 and laid the foundation of economics. After two centuries of exploration by scholars worldwide, the foliage of the economy grows lush similar to a tree that keeps forking. With the extensive and in-depth development of human social and economic activities, whether in theoretical economics or in applied economics, today’s economics has bred luxuriant branches of subdisciplines. Only classified in a less rigorous way, Economics roughly includes branches such as Political Economy, the Economics of Development, Institutional Economics, the Economics of Welfare, Demographic Economics, Resource Economics, Environmental Economics, Agricultural Economics, Industrial Economics, the Economics of Services, Information Economics, Business Economics, the Economics of Planning, Market Economics, the Economics of Distribution, Supply Economics, Investment Economics, the Economics of Consumption, Behavioural Economics, Public Economics, National Economics, Regional Economics, Urban Economics, the Economics of Sector, Financial Economics, Insurance Economics, Fiscal Economics, the Economics of Taxation, International

1.2 Not See the Forest for the Trees

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Economics, Labour Economics, Statistical Economics, Quantitative Economics, the Economics of Defence, the Economics of Security, Property Economics, the Economics of Technology, Education Economics, Cultural Economics, Creative Economics, Media Economics, Real Estate Economics, Transportation Economics, Accounting, Auditing, and Marketing. New interdisciplinary branches of economics such as Comparative Economics, Comparative Commerce, Comparative Finance, Comparative Taxation, Comparative Auditing, Finance, Innovation Economics, Managerial Economics, Legal Economics, Structural Economics, Geographical Economics, Social Economics and Family Economics. are still emerging. Their differences in focus, research methods, and academic philosophies have also divided economists around the world into different academic schools. A glance at the history of economic thought will reveal that economists have naturally formed different schools of thought, including the Physiocrats, the Mercantile, the Classical, the Historical, the Austrian, the Lausanne, the Cambridge, the Swedish, the Institutional, the Chicago, the Marxist, the Keynesian, the Currency and the Supply. This is just a rough enumeration, not including some of the more nuanced schools or genres. The birth of the subdisciplines of the social sciences (including economics) is determined by the continuous development of the social division of labour and the specialisation of human beings in the exploration of knowledge. Just as no physicist can be proficient in all fields of physics, with the expansion of the scope of human social and economic activities, it is impossible for an excellent and knowledgeable economist to conduct in-depth research on all economic disciplines. Today, the breadth of human social and economic activities and the limitations of personal energy determine that every specialised economist can only be an expert in a particular professional field or a few subdisciplines. As a result, economists often focus on knowledge exploration in one branch, which will greatly limit the vision, academic thinking, and interdisciplinary capabilities of experts and scholars over time. This is like being in a forest, where some people are only focusing on analysing one branch, some people are investigating the flowers on the branch, and some people are looking closely with a magnifying glass at a few leaves, while very few people are actually studying the complete structure and the growth mechanism of the entire tree, and even fewer people are paying attention to the operating principles of the entire forest ecosystem. In modern society, the overly specialised division of labour and disciplinary differentiation has in fact restricted people’s awareness and behaviour of constructing a complete knowledge system, causing many scientists (including natural scientists and social scientists) to unknowingly suffer from the blindness that they could only see a singular tree instead of the vast forest and their version of reality to be a limited touch of truth.

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1.3 All-Rounder Versus Specialist In the history of human culture for thousands of years, there are always all-round talents who are erudite and knowledgeable, good at humanities, arts and sciences, and who have made important contributions to the progress and development of human civilisation. For instance, the great ancient Greek thinker, scientist and educator Aristotle (384 BC–322 BC) was engaged in academic research involving philosophy, logic, rhetoric, physics, biology, psychology, politics, economics, natural history, ethics, education, law, poetry, customs, and theology. Shen Kuo (1031–1095), a Chinese scientist in the Northern Song Dynasty, was knowledgeable and versatile, proficient in astronomy, mathematics, physics, chemistry, geology, geography, meteorology, agriculture, biology and medicine, and was also an outstanding hydraulician and diplomat. Leonardo da Vinci (1452–1519), the Italian polymath, was not only a world-famous painter but also a sculptor, architect, musician, and writer, as well as a mathematician, anatomist, geologist, botanist, inventor, mechanical engineer and cartographer. Chinese thinker Wang Yang-Ming (1472–1529) in the Ming Dynasty was not only a philosopher who was proficient in Confucianism, Buddhism, and Taoism but also a famous educator, poet and calligrapher, and a military strategist who was able to lead the army. The giant of the European Renaissance, Nicolaus Copernicus (Mikołaj Kopernik, 1473–1543), an astronomer, mathematician, jurist, and doctor, changed the view of the human universe with his heliocentric theory; he was known as a Polish astronomer, but he was also an important economic thinker who expounded the Quantity Theory of Money as early as the 1620s.1 The French philosopher René Descartes (1596–1650) was a mathematician and physicist. The British scientist Isaac Newton (1643–1727) was a physicist, mathematician, astronomer, and natural philosopher. The German scientist Gottfried Wilhelm Leibniz (1646– 1716) was a mathematician, philosopher, logician and lawyer who had left plenty of writings in physics, philosophy, history, linguistics, political science, law, moral philosophy, and theology. American scientist Benjamin Franklin (1706–1790) was a renowned American politician, diplomat, philosopher, inventor, writer and publisher. Russian scientist Lomonosov (Mixail Bacilbeviq Lomonocov, 1711–1765) was a chemist, physicist, astronomer, geologist, educator, linguist, philosopher and poet. French Enlightenment thinker Jean-Jacques Rousseau (1712–1778) was a philosopher, political theorist, educator, writer, composer and botanist. Thomas Jefferson (1743–1826), the third president of the United States, was a politician, thinker, philosopher, scientist, and educator. He was also an expert in agriculture, horticulture, architecture, etymology, archaeology, mathematics, cryptography, surveying, and palaeontology, as well as a writer, lawyer and violinist. The German thinker Karl Heinrich Marx (1818–1883) was a philosopher, sociologist, economist and political scientist. American physicist Nikola Tesla (1856–1943) was an inventor and mechanical and electrical engineer. The famous British philosopher Bertrand 1

Spiegel, H. W. (1991). The Growth of Economic Thought. Duke University Press. Social Sciences Press. pp. 87–88.

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Russell (1872–1970) was a mathematician, logician, historian and writer. Liang Qi-Chao (1873–1929), a modern Chinese Enlightenment thinker, was a historian, educator, litterateur, political commentator and social activist. He was an expert in Chinese and Western studies and made great achievements in history, philosophy, literature, law, moral philosophy, religion, journalism, etc. Norbert Wiener (1894– 1964), an American mathematician and founder of control theory, was not only fluent in ten languages but also involved in scientific research in philosophy, mathematics, physics, electrical engineering and biology. American scientist John von Neumann (1903–1957) mastered seven languages in his life and was a mathematician, physicist, computer scientist, economist, and engineer. American economist Herbert Alexander Simon (1916–2001) was a political scientist, management scientist, psychologist, and computer scientist. His research achievements included scientific theory, applied mathematics, statistics, operations research, economics and business management. In reality, the question of whether education should cultivate all-rounders or specialists has always been an important topic of debate. An all-rounder usually refers to talent with a variety of abilities and extensive multidisciplinary knowledge. A specialist refers to a professional with in-depth knowledge and abilities in a particular discipline. Throughout world history, well-known scholars of ancient times were usually all-rounders who were good at both arts and sciences, whose knowledge and expertise were often beyond the reach of people today. The division of the disciplines in modern education has become more detailed due to the in-depth development of the social division of labour and specialisation in today’s society. The accumulation of human knowledge made it very difficult for a person to master the knowledge of several subjects. Therefore, almost every talent in modern society is a specialist in a particular field. However, for humans to explore the unknown world, both specialists and all-rounders are needed. However, modern society has produced far more specialists than all-rounders, making all-rounders so scarce in our time. The world needs knowledgeable and interdisciplinary all-rounders. In the 1980s, the United States analysed the papers published by some scholars and their research results and found that most of the scholars who have achieved great achievements have extensive knowledge, and their knowledge structure often has the features of all-rounders. This discovery shifted higher education in the United States from the original education model focusing on the cultivation of specialists to the model targeting the training of all-rounders, thereby advocating the implementation of broad liberal arts education.2 The all-rounder education model gives more attention to broadening students’ knowledge scope and the cultivation of versatile talent. In human society, scientists explore and discover new knowledge and new laws and lay a foundation for humans to reconstruct the world to promote the continuous progress and development of human civilisation. The famous physicist Wu Da-You (1907–2000) issued an article in 1976 and pointed out that the essence of science is the pursuit of truth. The content of science includes not only knowledge but also 2

Cheng, X. G., Liu, D. C. (eds). (2008). A Study on the Development Path of Higher Education with Chinese Characteristics. Jiangxi: Jiangxi People’s Publishing House. pp. 62–63. 程样国., 刘 德才. (eds). (2008). 中国特色高等教育发展道路研究. 江西人民出版社. pp. 62–63.

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wisdom. Science is “an inseparable unit of ‘knowledge and wisdom’. Fragmental pieces of knowledge do not constitute science if they lack the ability to integrate various kinds of knowledge.” In response to the existing gap between the natural sciences and the humanities, he put forward three points. First, the development of human society to this day must “have a civilisation that integrates the humanities and the sciences”; Second, there must be frequent exchanges of ideas between the scientific and nonscientific communities; Third, the most important way to achieve such kind of communication and exchange is education.3 Therefore, whether a natural scientist or a social scientist, it is necessary for them to combine humanistic and cultural knowledge and scientific knowledge together or at least establish some connections between the two, instead of remaining in isolation or strictly staying within bounds. For any ordinary person, if his/her education is too specialised or the scope of knowledge is too narrow, that he/she can only master some fragments of knowledge, this flat knowledge structure will not only affect the formation of a complete worldview but will also limit the growth of his/her wisdom. As economist Meng Yang (1923–1997) pointed out, “a scientist, if he/she is unable to conduct cross-disciplinary study and is often trapped in a small world, must have a narrow vision. Only those who have the ability to conduct research across disciplines can become ideological giants”.4 The excessive social division of labour and specialised education have damaged and alienated the cultivation of talent with a complete personality. It is found that the knowledge structure of many specialists in modern society is often narrow and onesided, and their comprehensive ability is not strong. They are proficient in technology but do not master culture and possess knowledge but lack wisdom. In the face of complex real-world problems, they can make analyses but do not have the ability to make associations or even synthesise. They are excelled at piling up materials for empirical studies but are unable to think critically. They do not have the humanistic spirit and the vision of a better society. Apart from their professional dedication, they did not pay the necessary attention and thought to the essential issues of life and the overall issues of the entire human society, similar to groups of modern robots that have no soul, no thoughts and only mechanical actions. When facing the adverse consequences of the social division of labour and specialised education, some insightful scholars have realised that human civilisation has fallen into a serious crisis. As early as 1945, for example, professors at Harvard University put forward a report entitled General Education in a Free Society on the basis of reflecting on the two world wars and the lessons of human history. This report pointed out that overemphasising the social division of labour and specialised education may offset human cooperation and increase social conflict, resulting in class struggles and even fascist wars, which would not only bring great damage to human society Zhi, X. M. Wu Da-You on All-round Education. 智效民. 吴大猷谈通才教育.; Xia, Z. Y., Ding, D. (eds). (2004). University Humanities (I). Guangxi: Guangxi Normal University Press. 夏中义., 丁东主. (eds). (2004). 大学人文(第1辑). 广西师范大学出版社. 4 Meng, Y. (1999). The Theory of Economic Social Field. China Renmin University Press. p. 137. 孟氧. (1999). 经济学社会场论. 中国人民大学出版社. p. 137. 3

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but would also pose a great threat to democracy and freedom.5 In 1982, as a natural scientist, Wu Da-You also pointed out that sciences and humanities are two aspects of human civilisation. In response to the social status quo of the distinctive boundaries between professional disciplines, the zero interaction between the disciplines, and the isolation between science and humanities, he believed that human civilisation has experienced serious problems. He stressed that human society has come to an era where it is necessary to connect the humanities with the natural sciences.6 At present, the humanities and social sciences have not structured a progressive knowledge hierarchy from low to high, nor have they formed a unified system similar to the natural sciences. As the famous American sociobiologist Edward O. Wilson pointed out, the main reason for the current fragmentation of humanities and social sciences is that “social scientists are divided into small independent groups. They define their professional vocabulary meticulously but cannot use these terms to make cross-discipline communication.” He also criticised that the current social science research is “everything learned to the age of eighteen” “and only slightly advanced over ideas employed by the Greek philosophers.”7 How can these problems be eliminated? Wilson believed, “the only way forward is to study human nature as part of natural sciences, in an attempt to integrate the natural sciences with the social sciences and humanities.8 ” With the development of society, mankind has accumulated various forms of knowledge. Our finite life determines that one can only grasp or understand a part of the entire world. It is precisely because everyone has limited knowledge or can only be a specialist in a certain field, it is more necessary for us to break through our professional barriers and understand the world from an all-rounder perspective. Only with a broad mind to cross disciplinary boundaries and breakdown the portal prejudice of different schools can we possibly paint a whole and unified world. From this point of view, this book advocates a holistic, systematic and connected perspective to examine the human knowledge system, which integrates humanistic knowledge, cultural knowledge, social knowledge and natural knowledge, to build a complete, harmonious, and orderly world picture.

Zhi, X. M. Wu Da-You on All-round Education. 智效民. 吴大猷谈通才教育.; Xia, Z. Y., Ding, D. (eds). (2004). University Humanities (I). Guangxi: Guangxi Normal University Press. 夏中义., 丁东主. (eds). (2004). 大学人文(第1辑). 广西师范大学出版社. 6 Zhi, X. M. Wu Da-You on All-round Education. 智效民. 吴大猷谈通才教育.; Xia, Z. Y., Ding, D. (eds). (2004). University Humanities (I). Guangxi: Guangxi Normal University Press. 夏中义., 丁东主. (eds). (2004). 大学人文(第1辑). 广西师范大学出版社. 7 Wilson, E. O. (1999). Consilience: The Unity of Knowledge. New York: Random House. p. 199. 8 Wilson, E. O. (1978). On Human Nature. Harvard University Press. p. 6. 5

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1.4 Will the Social Sciences Eventually Move Toward Unity? To solve the deep crisis facing the current human civilisation, it is necessary to unify the natural sciences, social sciences and humanities. Doing this first requires unifying the fragmented social sciences. However, can the social sciences eventually move toward unity? Valuable research has been done on this issue by visionary, knowledgeable and insightful social science scholars. For example, Tang Shi-Ping, a Chinese social scientist, pointed out that if social science is reduced to the extreme, it will be found that the entire social science actually has only a limited variety of basic paradigms. These basic paradigms illuminate different aspects or areas of human society like a flashlight. In addition to the evolutionary social paradigm, each basic paradigm can only light up a limited part of human society. Many schools of social science are the result of different but often incomplete combinations of these basic paradigms, and their varying combinations of the basic paradigms determine the disparities between these schools. Because of the limited number of basic paradigms integrated by different schools of social science, these schools are doomed to fail to understand human society comprehensively. Although fewer combinations of paradigms can fully understand more specific social facts, to thoroughly understand human society, all basic paradigms must be organically synthesised. The strong demonstration in his research proved that different paradigms of social science theories are indeed compatible: “the organic integration is positively feasible, not only worthy of looking forward to.” He believed that “ontology precedes epistemology, and epistemology precedes methodology. The view that the most critical divisions in the social sciences are epistemological, or even methodological, is wrong”;He stressed that “only by starting from various basic paradigms and linking their ontological and epistemological assumptions is it possible to synthesise different schools of thought”.9 Generally, a complete theoretical system usually includes three parts, namely, ontology, epistemology, and methodology, which are distinctive but interrelated. Ontology refers to the theory that describes the fundamental basis and essence of the generation, existence, development and change of research objects, which generally includes basic elements such as concept, category, feature, relation, and restriction. Epistemology refers to the theory concerned with the occurrence, the process, the nature and the laws of knowledge, which generally includes basic elements such as subject, object, belief, information, and knowledge. Methodology is a knowledge system that provides guidance for practical activities for the purpose of understanding and transforming the world. Its content is the subjective application of objective laws, which are generally expressed in theoretical doctrines, universal principles, and primitive models, thinking methods and reasoning tools. It can be divided into 9

Tang, S. P. (2010). Basic Paradigms of Social Science. International Social Science Journal (Chinese Edition) 27(01):5, 84, 86, 98–99. 唐世平. (2010). 社会科学的基础范式. 国际社会科 学(中文版), 27(01):5, 84, 86, 98–99.

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philosophical methodology, methodology of general science, and methodology of specific scientific. The relation between the three is that ontology is the basis of epistemology, epistemology provides evidence for ontology, ontology and epistemology guide methodology to go deep into practice, practice results perfect epistemology, and epistemology further enhances ontology. For human society, this is an infinite process that never ends and repeats. According to the discrepancy between different theoretical ontologies and epistemologies, Tang Shi-Ping divided the theories of different schools of social science into two major categories and eleven basic paradigms. The two major categories are Bedrock Paradigms and Integrative Paradigms; Among them, there are nine Bedrock Paradigms, which are the Materialism, the Ideationalism, the Individualism, the Collectivism, the Biological Determinism, the Socialisation, the Anti-socialisation, the Conflict Paradigm, and the Harmony Paradigm; And Integrative Paradigms have two types, which are Social System Paradigm and Social Evolution Paradigm. He pointed out that when the Social System Paradigm is in its most complete state, it can integrate nine Bedrock Paradigms, providing us with a way to understand changes within the social system, while the Social Evolution Paradigm adds a time dimension to the Social System Paradigm, offering us an approach to comprehend the great transformation of the social system.10 For the convenience of readers’ understanding, Tang Shi-Ping’s classification of various social science theories is listed below (Table 1.111 ). In Table 1.1, according to Tang Shi-Ping’s interpretation, paradigms refer to basic paradigms, and school or theory refers to the result of the combination of basic paradigms. Ontological priority refers to the importance of power in the grand sense; that is, if power B cannot function without power A, then power A has ontological priority over power B.12 The first group of bedrock paradigms, materialism and ideationalism,13 is a dichotomy that is classified from the perspective of philosophical thinking. For example, the Historical Materialism created by Marx is a typical Materialism, while Hegel’s (Georg Wilhelm Friedrich Hegel, 1770–1831) Philosophy of History is a typical Ideationalism. The second group of Bedrock Paradigms, Individualism and 10

Tang, S. P. (2010). Basic Paradigms of Social Science. International Social Science Journal (Chinese Edition) 27(01):87, 95. 唐世平. (2010). 社会科学的基础范式. 国际社会科学(中文版) 27(01):87, 95. 11 The table was reorganised by the author basing on Tang Shi-Ping’s relevant discussions and Table 1.1 in his paper. The text in the table was adjusted or modified accordingly. See Table 1.1 in Tang, S. P. (2010). Basic Paradigms of Social Science. International Social Science Journal (Chinese Edition) 27(01):99, Table 1. 唐世平. (2010). 社会科学的基础范式. 国际社会科学(中 文版) 27(01):99, Table 1. 12 Tang, S. P. (2010). Basic Paradigms of Social Science. International Social Science Journal (Chinese Edition) 27(01):85, 100. 唐世平. (2010). 社会科学的基础范式. 国际社会科学(中文 版) 27(01):85, 100. 13 The Chinese academics has long translated the terms materialism and ideationalism into 唯物主 义 (doctrine solely based on material) and 唯心主义 (doctrine solely based on ideology), which are biased. See Min Jia-Yin. (2013). On the Chinese Translation of Materialism and Idealism. World Philosophy, (01). See 闵家胤. (2013). 浅议Materialism和Idealism的汉译. 世界哲学, (01).

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Table 1.1 Basic types of social science theories Theory type

Bedrock paradigms

Dimension

Paradigms with more ontological priority

Paradigms with less ontological priority

1. Philosophical thinking

Materialism

Ideationalism

2. Human existence

Individualism

Collectivism

3. Human evolution

Biological Determinism Socialisation Theory, Anti-socialisation Theory

4. Interest relationship

Conflict Theory

5. Integrated system

Integrative paradigms Paradigms with most synthesis theories

Harmony Theory Social system paradigm Social evolution paradigm

Collectivism, is labelled from the perspective of how (i.e., individual and collective) humans exist. For example, neoclassical economics is a typical individualism, while institutional economics is a typical collectivism. The third group of bedrock paradigms, biological determinism, socialisation and anti-socialisation, is a triad that is categorised from the perspective of human evolution and behavioural dynamics. Each person’s biological characteristics are inherited from his/her parents, and many components of his/her human nature are obviously related to biological evolution. When a person accepts the language, beliefs, values, and institutional norms of a social group through learning, the process of gradually adapting to society and integrating into the public life of society is socialisation. When a society has rigid institutional norms, solidified social strata, serious polarisation between rich and poor, and lack of fairness and justice, it often leads to the suppression or encroachment of individual rights and freedoms by the social collective, which in turn leads to individual anti-socialisation behaviour. Anti-socialisation refers to the behaviour and process of individuals resisting social constraints, getting rid of social control, violating social norms, and even destroying the normal social order. Correspondingly, socialisation theory refers to the theory that takes the origin, process, content, method and mechanism of individual socialisation as the research object. Anti-socialisation Theory refers to the theory that takes the origin, process, content, method and mechanism of individual anti-socialisation as the research object. For example, sociobiology and evolutionary psychology are typical paradigms of biological determinism; structural functionalism in sociology is a typical socialisation paradigm; and Marxism is a typical anti-socialisation paradigm. The fourth group of bedrock paradigms, conflict paradigm and harmony paradigm, is a dichotomy that is divided from the perspective of social interest relations (i.e., conflict or harmony). For example, Marx’s class

1.4 Will the Social Sciences Eventually Move Toward Unity?

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antagonism theory is a typical antagonism paradigm, while the theory of symbiosis14 is a typical harmony paradigm. The fifth group is the two Integrative Paradigms (i.e., Social System Paradigm and Social Evolution Paradigm), which are distinguished from the perspective of social totality and theoretical synthesis. For example, the social systems theory constructed by Niklas Luhmann (1927–1998) is a typical social system paradigm, while evolutionary economics is a typical social evolution paradigm. Regarding the question of whether the social sciences can finally be unified, scholars had different views. Although Tang Shi-Ping held that it is impossible to create a unified social science, a more organically integrated social science is possible; he emphasised that “we are dealing with different sides of a complex system, so a systems approach (especially the social system paradigm) is required”. In addition, “a social evolutionary approach that uses social evolution paradigm should be applied to understand social change”.15 Nevertheless, there are other views on this issue. For example, some advocates of complexity theory believe that there are universal principles that apply to all complex systems, which should ultimately prove it possible to construct a unified complexity theory. This is the core idea behind the Applied Complexity Research Project at the Santa Fe Institute in the United States. The purpose of the Santa Fe Institute is to explore a normative theory of complexity that applies equally to natural and social systems.16 Regarding the prospects of Complexity Science, George A. Cowan (1920–2012), the first director of the Santa Fe Institute said, “…if it works, something very important has happened. It represents, to me, a reintegration of a scientific enterprise that has become almost totally fragmented over the past few centuries—a recombining of the analysis and rigor of the physical sciences with the vision of the social scientists and the humanists.”17 Here, it needs to be emphasised that the ontology of the theory in this book adheres to the evolutionary pluralism initiated by Lao Tzu (approximately 571 B.C.–471 B.C.) in Chinese philosophical thought that “The Tao produced One; One produced Two; Two produced Three; Three produced All things” (Lao Tzu’s Tao Te Ching). The One, Two and Three here are not natural numbers, but philosophical terms, that is to say, the universe is begot from Tao, the unity to duality, then to trinity, then to all things. The theoretical framework constructed in the book belongs to the Social System Paradigm, which organically integrates the Social Evolution Paradigm and widely applies the philosophical concepts of complexity theory. Therefore, from the vision Hu, S. J. (2006). The Theory of Symbiosis. Fudan University Press. 胡守钧. (2006/2012). 社会 共生论. 复旦大学出版社. 15 Tang, S. P. (2010). Basic Paradigms of Social Science. International Social Science Journal (Chinese Edition) 27(01):84, 99. 唐世平. (2010). 社会科学的基础范式. 国际社会科学(中文版) 27(01):84, 99. 16 Boschma, R., Martin, R. (eds). (2010). The Handbook of Evolutionary Economic Geography. Edward Elgar Publishing, Inc. p. 95. 17 Waldrop, M. M. (1992). Complexity: The Emerging Science at the Edge of Order and Chaos. New York: Simon & Schuster. p. 357. 14

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and potential of theoretical synthesis, it has the widest inclusiveness and the greatest possibility to integrate various social science theories, and it at least provides a preliminary roadmap for a more organically integrated social science. In the theoretical framework of this book, a social system includes at least human-culture, economy, polity, science, law and education. Although this book focuses on the hierarchy, structure and function of the economic system, at least some kind of organic link is established between the subsystems of the social system and is essential for realising the integration of the natural sciences, the social sciences, and the humanities. Therefore, if scientists and scholars continue to explore along the path provided in this book, then George Cowan’s predictions may become a reality.

Chapter 2

The Evolution of the Thinking Paradigm and Its Philosophical Basis

Keywords Evolution · Darwin · Theory · Paradigm The motion and variation of things is somehow related to space–time, and human cognition to space–time determines the depth, breadth and level of human knowledge of things. Human socioeconomic activities are carried out in a specific space–time step by step, so the study of economic phenomena cannot be separated from the two corresponding factors of space and time. This chapter reviews the history of human understanding to space–time, introduces the basic concepts of the System and the Systems Science, compares the main differences of methodology between Reductionism and System Theory, demonstrates the development of evolutionary thoughts and their influences, summarises the new understandings and the philosophical enlightenments gained from the theory of biological evolution, and elaborates the three basic principles for understanding the evolution of complex systems (i.e., the Principle of System-level Emergence, the Coupling Principle of Positive and Negative Feedback, and the Principle of Circular Cumulative Causation). The discussion in this chapter shows that the thinking paradigm of modern biological evolution theory can be not only the paradigm of modern biology but also the basic paradigm of philosophy and social sciences. The understanding method proposed by system theory and the thinking paradigms of evolution theory described in this chapter, especially the new knowledge, the new ideas and the three principles obtained from biological evolution, pile up the epistemological basis of this book, and their basic ideas will run through all subsequent chapters. Therefore, understanding these new ideas is the key to understanding the whole book.

© Fudan University Press 2023 R. Gan, Helix Network Theory, https://doi.org/10.1007/978-981-19-8803-5_2

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2.1 The Evolution of the Space–Time View and the Great Revolution in Physics Throughout the ages, mankind has never stopped exploring space–time. The space– time views that have appeared in human history can be roughly divided into three periods: the age of geometry, the age of mechanics, and the age of relativity. Among them, the most influential and representative figures are Aristotle, Newton, and Einstein. The thoughts and views of these three giants basically reflect the evolution of the human space–time view.1 The space–time view refers to people’s understanding of the physical nature of space and time. All things are moving in a specific space–time, which means that the human space–time view is closely related to the development of natural science. Major scientific reforms are often accompanied by the emergence of new space–time views. It can be concluded that the change in the space–time view is the basic sign of the great reform in science. Aristotle regarded time as the numeration of continuous movement. He assumed that although time is not motion, it still cannot be separated from motion. He defined the place of a body as the limit of that which surrounds it and then redefined it as the first (i.e., innermost) motionless boundary of a body that contains it. He stressed that in regard to motion, it is important to state where when and what it is in motion, which in fact is the inseparability of motion, space and time that Aristotle proposed.2 Regarding the question of the infinity of time, he held that the time in the universe is infinite, while the time of specific things is finite. He advocated the use of motion to measure time, that is, to apply uniform circular motion to measure time length. Regarding the existence of space, he believed that space is not an independent entity, and the existence of space needs to depend on specific things and their motions, and he denied the existence of voids in the universe.3 In Aristotle’s cosmology, the Earth lies at the centre of the entire universe, and the centre of the Earth is the centre of the universe. The entire universe is composed of seven concentric spherical shells orbiting the Earth. The Moon, the Sun, the planets and stars are located on different spherical shells, and they all make perfect circular motions.4 Aristotle divided space into two completely unalike regions, Superlunar and Sublunar, and proposed that the natural positions of Superlunar bodies (i.e., stars, suns, etc.) are on the celestial sphere, and they make circular motions with the celestial 1

Wang, Y. F. (2005). Man’ s Endless Exploration of Time and Space. Journal of Jiangsu University of Science and Technology (Social Sciences Edition) (03):8. 王玉峰. (2005). 时间、空间: 永无止 境的探索. 江苏科技大学学报(社会科学版) (03):8. 2 Wang, Y. F. (2005). Man’ s Endless Exploration of Time and Space. Journal of Jiangsu University of Science and Technology (Social Sciences Edition) (03):8. 王玉峰. (2005). 时间、空间: 永无止 境的探索. 江苏科技大学学报(社会科学版) (03):8. 3 Du, H. (2011). Study on Aristotle’s Philosophy of Physics: By the Theory of Time and Space. Dissertation, Chongqing University. 杜红. (2011). 亚里士多德的物理学哲学思想研究. 硕士学 位论文, 重庆大学. 4 Zhou, Y. (2007). From Newton’s Absolute Space–time View to Einstein’s Theory of Relativity. Science and Technology Consulting Herald, (18). 周妍. (2007). 从牛顿的绝对时空观到爱因斯 坦相对论时空观. 科技咨询导报, (18).

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sphere, while objects on the Earth’s surface have their natural positions at the centre of the Earth, and they make rectilinear motions.5 From this point of view, Aristotle’s space features isotropy and heterogeneity because the positions of various points in space are not equivalent (i.e., there are special points such as the centre of the earth). Later, the ancient Greek astronomer and geographer Ptolemy (approximately 90– 168) developed Aristotle’s cosmology and put forward the famous Ptolemy Geocentrism. He arranged the order of the Sun, the Moon and other planets according to their distance to the Earth and created the geocentric model.6 Aristotle’s view of space–time and Ptolemy’s geocentrism dominated Europe until the mid-sixteenth century. In 1543, the Polish astronomer and mathematician Kopernik published De Revolutionibus Orbium Coelestium (On the Revolutions of the Heavenly Spheres). In the book, Kopernik proved that the Earth is not at the centre of the universe but one of the planets based on astronomical observations and stated that the Earth rotates on its own axis, the Moon revolves around the Earth, and the Earth and all other planets orbit the Sun. Kopernik’s discovery denied the conclusion that the Earth is at the centre of the universe, thereby overturning the Geocentric Theory that had ruled the West for more than 1,300 years. It not only changed the understanding of the universe at that time but also shook the ideological foundation of European medieval theology. From then on, natural sciences in Europe were liberated from theological constraints. In 1687, Isaac Newton published the great work in the history of science, Philosophiae Naturalis Principia Mathematica (Mathematical Principles of Natural Philosophy). In this book, Newton started from the basic concepts of mechanics and used mathematical reasoning as a tool to establish a complete and rigorous mechanical system, thus unifying the mechanics of objects on Earth and the mechanics of celestial bodies in space, realising the first giant theoretical synthesis in the history of physics. In the book, he also proposed the concepts of absolute time and absolute space, which had an everlasting influence on the subsequent development of science and philosophy. Newton believed that absolute time and absolute space are independent of each other, and they have nothing to do with the external things and the motion of matter. In Newton’s view, time is similar to an endless river. Regardless of whether there is an event, the river flows continuously, evenly, and invariably in one direction, while space is similar to a boundless container in which objects and events occur. The space itself does not change whether objects are put in or removed. The absolute time and the absolute space put forward by Newton are independent of the motion of matter and are unaffected by the motion of matter. The mechanical movement of specific objects is carried out in this absolute space–time. 5

Leng, H. J. (1995). Newton’s Space–time and Einstein’s Theory of Relativity. Science, Technology and Dialectics (Studies in Philosophy of Science and Technology) (03):59. 冷护基. (1995). 牛顿 时空观与爱因斯坦相对论. 科学技术与辩证法 (03):59. 6 Xu, Y., Fan, X. Q. (1999). The Evolution of Space–time Views in the Development of Physics. Journal of Baoshan Teachers’ College (04):33. 许艳.,樊兴桥. (1999). 时空观在物理学发展过程 中的演变. 保山师专学报 (04):33.

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From Newton’s absolute space–time view, the entire universe has no beginning or end in time and is boundless in space. Space and time are separated. Therefore, there is no specific model for the entire universe, and the natural world is also infinite and eternal. If one wants to find the root, one can only rely on God. Under the guidance of this cosmic picture, people’s observation of things often easily falls into the quagmire of mechanical determinism, mistakenly thinking that as long as the initial conditions of the motion of objects are known, the future of things can be accurately predicted. Based on his absolute space–time view, Newton systematically summarised the scientific achievements of Galileo, Kepler and Huygens and concluded the famous three laws of motion and the law of universal gravity, thereby constructing classical mechanics. Newton’s mechanics explained not only the motion of planets and comets in space but also the motion of tides and other objects on Earth and successfully discovered the existence of Neptune. This theoretical system has made remarkable achievements in various fields of physics in the two hundred years after Newton created the classical mechanics system and has long been recognised as the unified foundation of all physics and even the entire natural sciences. Newton’s classical mechanics, which is flawless and powerful, convinced most physicists that all motions that have occurred in the world from ancient times to the present, regardless of space and time, can be described by mechanics. They believed that as long as the initial conditions of things are given, the causality of the motion of things can be grasped with certainty. Therefore, until the end of the nineteenth century, the thinking paradigm of Newton’s classical mechanics had always acted as the guiding ideology of physicists in varying fields, and classical mechanics had also been used in physical research fields such as acoustics, thermodynamics, electromagnetics, and optics. By the end of the nineteenth century, on the one hand, classical physics had developed to a rather complete level, while on the other hand, the deepening of experimental and theoretical research had led to the discovery of a series of new phenomena, such as electrons, X-rays, and radioactivity, which cannot be reasonably explained by classical physics theory, thus plunging classical physics into an unprecedented crisis. In the mid-nineteenth century, British physicist James Clerk Maxwell (1831– 1879) inherited and developed Faraday’s concept of a continuous electromagnetic field, summarised the laws of electromagnetic phenomena discovered at that time, and derived a set of electromagnetic field equations (i.e., Maxwell’s Equations), thus establishing the electromagnetic field theory that replaces Newton’s action-ata-distance with field interaction. Maxwell’s electromagnetic field theory not only predicts the existence of electromagnetic waves but also proves that light is electromagnetic waves of different wavelengths. It unified the phenomena of light, electricity, and magnetism that were originally considered to be independent into one unified theoretical framework. The establishment was a giant leap for humans to understand light and electromagnetics. In 1888, the electromagnetic wave discovered by the German physicist Heinrich Rudolf Hertz (1857–1894) in the experiment not only provided reliable experimental evidence for electromagnetic field theory, thus making Maxwell’s electromagnetic field theory generally accepted by the scientific

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community but also opened up a new world for the study of optical and electromagnetic phenomena and their wide-ranging technical applications. The establishment of Maxwell’s electromagnetic field theory is a profound scientific revolution on the axiomatic basis and the conceptual structure of classical physics since Newton, and it is also the first serious impact and challenge of new scientific ideas on Newton’s absolute space–time view.7 At the beginning of the twentieth century, three great theoretical revolutions occurred in physics, the special theory of relativity, the general theory of relativity and quantum theory. These three revolutions changed the axiomatic basis and the nature of physics, opened up a new era of modern physics, and laid a theoretical foundation for the development of modern high technology. The special theory of relativity discovered the relativity structure of time and space and established a new theory of relative space–time structure and the new laws of motion that change the human understanding of time and space. The General Theory of Relativity revealed the relationship between the four-dimensional curved space–time geometry and gravity, established a new gravitational field theory, and built up modern cosmology that scientifically studies the origin, evolution and structure of the universe. Quantum theory deepened people’s understanding of the microscopic structure of matter, constructed quantum mechanics to study the laws of motion of microscopic particles, and effectively promoted the rapid development of molecular and atomic physics, solid-state physics, nuclear physics, elementary particle physics, and chemistry.8 In 1905, at the age of 26, Albert Einstein published a 30-page article, On the Electrodynamics of Moving Bodies, on Annalen der Physik (Annals of Physics) in Germany, which announced the birth of the Special Theory of Relativity. The special theory of relativity uncovered a new relation between time, space, matter and motion. It showed the closeness between time, space and the motion of matter that space and time are interrelated and interrestricted as a unified totality (i.e., four-dimensional space–time continuum), revealed the intrinsic connection between mass and energy of a body, and discovered the law of mutual transformation between mass and energy (the famous mass–energy formula E = mc2 ). The special theory of relativity not only provided a powerful guide for physicists to explore the new dynamics of fields and particles but also opened a new page for philosophers to study the nature of time and space. In classical physics, mass and energy are independent and obey the law of mass conservation and the law of energy conservation, respectively. The special theory of relativity not only connects mass and energy but also unifies these two independent laws of conservation into one inseparable law of mass–energy conservation. Now, the law of mass–energy conversion has become the theoretical basis for human beings to utilise nuclear power, and it is also the internal mechanism behind the mystery of the Sun and other stars burning day and night and constantly releasing light and heat. 7

This paragraph is compiled from: Zhou, Q. (2008). Time, Space and Motion: On the Special Theory of Relativity and Its Far-reaching Scientific Significance. College Physics (03):49. 周奇. (2008). 时间、空间与运动——狭义相对论及其伟大科学意义. 大学物理 (03):49. 8 This paragraph is quoted from: Zhou, Q. (2008). Time, Space and Motion: On the Special Theory of Relativity and Its Far-reaching Scientific Significance. College Physics (03):47. 周奇. (2008). 时间、空间与运动——狭义相对论及其伟大科学意义. 大学物理 (03):47.

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In 1915, Einstein extended his principle of relativity to the general theory of relativity for all motion. In the General Theory of Relativity, Einstein extended the principle of relativity from uniform motion to uniformly accelerated motion and discovered the relation between the four-dimensional curved space–time geometry and gravity, further unveiled the relation between space–time and matter, and established a new gravitational field theory that gave people a new understanding of the nature of gravity.9 In the General Theory of Relativity, space–time is affected by the distribution and movement of matter and energy in the universe and in turn influences the distribution and movement of matter and energy. Space–time and matter together create an indivisible and unified totality. Without matter, there is no space or time, and vice versa. As Einstein pointed out,10 in the classical view of space–time, the space– time itself, as a stage on which all physical phenomena occur, can still exist even if all the matter disappears from reality. However, the General Theory of Relativity proved that when matter disappears, a space–time without any matter cannot exist. The General Theory of Relativity revealed the unified relation between space–time and matter. The structure and properties of space and time depend on the distribution of matter; the denser the distribution of matter is, the greater the curvature of space–time; time, space, and the motion of matter interact, which deeply discloses the unified relation between the four-dimensional space–time and the motion of matter.11 In 1917, Einstein proposed a static universe model based on the General Theory of Relativity. This model indicated that the universe is a closed statically curved body with a finite volume, thus laying the foundation for modern cosmology. In 1922, Russian physicist and cosmologist Alexander Friedmann (1888–1925) established a dynamic universe model based on Einstein’s model. This model pointed out that the entire universe is pulsating, that is, expanding and contracting alternately, and currently the universe is in the process of expansion, which will stop one day as he demonstrated and will initiate a contraction process until all the matters of the universe are squeezed back to a singularity. In 1929, American astronomer Edwin Powell Hubble (1889–1953) confirmed that the universe was expanding by analysing the spectra of 24 galaxies. In 1948, American physicist and cosmologist George Gamow (1904–1968) and others brought forward the Big Bang Theory based on General Theory of Relativity and Friedman cosmological models. The theory asserted that the universe originated from the Big Bang more than 15 billion years ago. The universe was initially in a state of high temperature and high density with a temperature exceeding several billion degrees. With the Big Bang and the continuous expansion of the universe, the temperature of the universe slowly decreased and formed the present galaxy and other celestial bodies bit by bit. They also predicted the existence of the cosmic microwave background radiation and the 9 Complied by Fan, D. N., Zhao, Z. L., Xu, L. Y. (eds). (1977). The Collected Works of Einstein (II). Commercial Press. pp. 278–334. 范岱年., 赵中立., 许良英. (eds). (1977). 爱因斯坦文集: 第 二卷. 商务印书馆. pp. 278–334. 10 Einstein, F. P. (1974). Sein Leben und sein Zeit. Briaunschweig: Vieweg. pp. 296–297. 11 Wang, Y. F. (2005). Man’ s Endless Exploration of Time and Space. Journal of Jiangsu University of Science and Technology (Social Sciences Edition) (03):12. 王玉峰. (2005). 时间、空间: 永无 止境的探索. 江苏科技大学学报(社会科学版) (03):12.

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elemental abundance12 based on calculations. These two predictions were verified by subsequent astronomical observations and scientific explorations, and the Big Bang theory was therefore widely accepted by the public. The Dynamic Universe Model, the Big Bang Cosmology, and the later Cosmic Inflation constituted modern cosmology. The establishment of this discipline paved the way for scientific research on the origin, evolution and structure of the universe. It was under the guidance of modern cosmology that astronomers discovered various new celestial bodies and new astronomical phenomena that were previously unknown, thereby greatly advancing mankind’s in-depth understanding of the structure of the universe. The space–time view contained in the General Theory of Relativity and modern Cosmology painted a whole new picture for the evolution of the universe. In the past, it was generally accepted that the universe is inherently immutable, but modern astronomical observations and cosmological studies clearly indicated that the universe is not static but has its birth and evolution. The universe originated in the Big Bang, constantly expanding and contracting. The celestial bodies in the universe, like living organisms, have both the beginning of their birth and the day of their end. In 1986, the American thinker Ervin Laszlo proposed the General Evolutionary Systems Theory. The theory revealed the evolution law of the universe from elementary particles such as quarks, photons, and electrons to atoms of various elements, from the combination of atoms to molecules, from inorganic micromolecules to organic macromolecules, from organic macromolecules to primitive cells, from primitive cells to biological systems, from biological systems to ecological systems, and further to social systems and human cultural systems; it blended material evolution, biological evolution, and social-cultural evolution into a unified evolutionary system, demonstrating a broad panoramic picture of the evolution of the universe.13 From the space–time view of Einstein’s General Theory of Relativity, the entire universe is a closed finite universe that is heterogeneous and has a beginning and an end. For example, in the universe, the space–time inside the black hole is inconsistent with the space–time outside the black hole, which is the heterogeneity of space–time in the General Theory of Relativity. The boundary formed by matter in the Big Bang is the boundary of space–time in the General Theory of Relativity, which is the finiteness of space–time. The singularity of the Big Bang is the beginning of space–time, while the singularity created by the black hole is the end of space–time. In October 2006, NASA announced that, according to the detection data of the background radiation anisotropy of the universe, astrophysicists in the United States and Italy concluded through computer simulation that our universe is an ellipsoid. According to the estimation of Chinese cosmologist Lü Jin-Hua, if the age of the universe is calculated as 20 billion years, the specific scale of our universe is approximately 13.859–15 billion light-years, while American astronomers computed that it is approximately 13.7 billion light-years based on the space photos taken by space telescopes.14 12

The relative proportions of hydrogen and helium in space. Laszlo, E. (1988). Evolution: The Grand Synthesis. New Science Library. pp. 44–56. 14 Lü, J. H. (2008). The theoretical Development of Physical Sciences. In: The 17th National Symposium on Atomic and Nuclear Physics and the 10th Annual Proceedings of the National 13

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Classical physics suggests that space–time is absolute, time is characterised by eternity, homogeneity and isotropy, space is characterised by infinity, homogeneity and stillness, time and space are independent and unrelated, and time, space and matter are disconnected, while the special theory of relativity assumes that space– time is not absolute but relative, both space and time are characterised by infinity, homogeneity and isotropy, space and time are interrelated, and both are closely connected to the motion of objects.15 However, in the space–time view of the special theory of relativity, space–time acts on matter, but matter does not react to space– time. The space–time view of the General Theory of Relativity is a step further than the space–time view of the Special Theory of Relativity. In the General Theory of Relativity, space–time features physicality, finiteness and heterogeneity; space–time acts on matter, and matter in turn acts on space–time. The properties of space–time are more closely related to matter, and time and space cannot be separated from the material world and exist independently.16 Mankind’s exploration of the natural world is endless. With the in-depth development of scientific research and practical activities, even scientific theories that have made brilliant achievements such as Einstein’s Theory of Relativity are now facing new challenges. For instance, people questioned the important premise and foundation of the special theory of relativity that the speed of light is constant 17 and proved that the speed of light is not only variable but also not the limit of speed, and the relative motion of objects will not cause length contraction. In fact, some scientists have already developed superluminal and subluminal photons in the laboratory and can even stop photons from moving. These experimental results challenged Einstein’s Theory of Relativity.18 In addition, astronomical observations also found that two galaxies are separated at a speed far exceeding 300,000 kms per second, which indicated that some cosmological phenomena also contradict the Theory of Relativity. In view of this, the scientific community’s trust in Einstein’s Theory of Relativity has also begun to waver, and even the United States National Research Society of Modern Physics, July 2008, pp. 97–98. 吕锦华. (2008). 物理科学理论的发展. In: 第 十七届全国原子、原子核物理研讨会暨全国近代物理研究会第十届年会论文集, 2008年7月, pp. 97–98. 15 Zhang, T. R. (1999). Newton’s Absolute Space–time View and Relativity’s Space–Time View. Journal of Liupanshui Normal University, (02). 张太荣. (1999). 牛顿的绝对时空观与相对论的 时空观. 六盘水师范高等专科学校学报, (02). 16 Xu, Y., Fan, X. Q. (1999). The Evolution of Space–time Views in the Development of Physics. Journal of Baoshan Teachers’ College (04):40. 许艳.,樊兴桥. (1999). 时空观在物理学发展过程 中的演变. 保山师专学报 (04):40. 17 The Chinese cosmologist Lü Jin-Hua pointed out that Einstein’s original intent in the Theory of Relativity was the speed of light in a vacuum is a constant, instead of the speed of light is constant as assumed. He also indicated that the speed of light of 300,000,000 m/s currently measured by the scientific community is not the speed of light in a vacuum, but theoretically it should be 800,000,000 m/s in vacuum. See Lü, J. H. (2006). The Big Bang Forms Multi-Cosmic Space–time. Xuelin Verlag. 吕锦华. (2006). 大爆炸形成多宇宙时空. 学林出版社. 18 Hua, Di. (2009). Fundamental Revision of Einstein’s Theory of Relativity: Relativistic Mechanics Based on Variable Speed of Light. Frontier Science, 3(04), pp. 43, 62. 华棣. (2009). 爱因斯坦相 对论的根本性修正——光速可变的相对论力学(上). 前沿科学, 3(04), pp. 43, 62.

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Council made a proposal that the question of whether Einstein’s Theory of Relativity is correct should be listed as one of the key scientific research topics that need to be solved in the twenty-first century in the United States.19 Quantum theories created by physicists such as Niels Henrik David Bohr (1885–1962), Erwin Schrödinger (1887–1961), and Werner Karl Heisenberg (1901–1976) all faced similar new challenges and predicaments. In the early 1970s, for example, the British cosmologist Stephen William Hawking (1942–2018) proposed the famous Hawking Radiation Theory when he studied the celestial black hole predicted by the General Theory of Relativity. Hawking confirmed through theoretical calculations that black holes have temperature and pointed out that black holes can emit thermal radiation to the outside world in the form of energy. Following Hawking’s theoretical thinking, it was discovered that black holes cannot shed physical information in the process of radiation, which violates many core precepts of both classical and quantum physics, such as the conservation of lepton numbers and the conservation of baryon numbers. The paradox of black hole information brought about by Hawking’s radiation theory has brought quantum field theory into a crisis.20 At present, physicists are trying to establish a unified field theory that integrates classical mechanics, relativity and quantum theory. From the evolution of the human time–space view, every major reform in the time–space view is a huge leap in human understanding of nature, and every leap is a challenge to traditional thinking and a huge breakthrough of new ideas to old ones! Today, in the twenty-first century, the entire human society has developed into an era of great transformation, in which, whether it is natural science, social science or humanities, theoretical thinking has undergone profound changes. The essence of these transitions, no matter whether it is from Reductionism to System Theory, from Mechanism to Organism, from Determinism to Non-Determinism, from simplicity to complexity, from a factor perspective to a relational perspective, from linear relation to nonlinear relation, from Existentialism to Evolutionism, from closed system to open system, or from analysis to new synthesis, is to establish a new relationship between human beings and nature and then build a new world picture of harmonious coexistence and coordinated development among nature, society and individuals!

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Lü, J. H. (2008). The theoretical Development of Physical Sciences. In: The 17th National Symposium on Atomic and Nuclear Physics and the 10th Annual Proceedings of the National Society of Modern Physics, July 2008, p. 96. 吕锦华. (2008). 物理科学理论的发展. In: 第十七届 全国原子、原子核物理研讨会暨全国近代物理研究会第十届年会论文集, 2008年7月, p. 96. 20 Zhao, Z. (2006). Puzzles and Major Enlightenment in Black Hole Theory. Chinese Journal of Nature (04):212–213. 赵峥. (2006). 黑洞理论的疑难与重要启示. 自然杂志 (04):212–213.

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2.2 A Revolution of the Thinking Paradigm: The Birth of Systems Science Beginning in the 1940s and 1950s, there was a revolution of the thinking paradigm in the field of modern science. This revolution first originated in the field of biology, expanded to physics, mathematics, chemistry, and life sciences, and then infiltrated almost all scientific disciplines, including economy, management, sociology, ecology, environment, meteorology, medicine, philosophy, etc. This paradigm revolution was characterised by interdisciplines, mutual catalysis and grand synthesis, which not only linked different disciplines but also created a number of new interdisciplines. Scientists worldwide who had experienced the huge waves of this revolution were excited or shocked by the new landscape it had opened up! The impact of this revolution was unprecedentedly extensive and profound, which not only reshaped the previous knowledge system of human beings and constructed a new world picture but also greatly changed their way of thinking. The main theoretical result of this revolution was systems science. Systems science has provided new ideas and methodologies for people to understand and transform the objective world. Its birth has played a crucial role in both scientific and technological progress and social development.

2.2.1 What Is System? The term system is derived from the ancient Greek and means a whole made of parts. An organic functional totality structured by a group of elements is called a system. In other words, a system is a group of interrelated, interinfluenced and interacting components comprising a unified functional whole. The function of the system is greater than the sum of the functions of each part, which has the collective function that a single component does not equip. Systems are always connected and related to the environment. The integrity and function of systems are the result of the meta-synthesis of the systems’ internal structure and external environment. In the real world, systems are ubiquitous, ranging from the vast universe to the smallest elementary particles. The world is a collection of systems, and a system can be cosmically the galactic system, the solar system, the Earth, macroscopically the atmosphere, the hydrosphere, the pedosphere, microscopically a cell, a molecule, an atom, or a forest, a lake, a tree, a swarm of bees in the natural world, or a state, a city, a firm, a household in a social system. There are many types of systems. According to different principles and standards, systems can be divided into different types. For example, according to the size of the space–time scale, a system can be divided into Micro-system, Meso-system, and Macro-system; or Biotic System and Abiotic System if according to the existence of living phenomena; or Natural System and Manual System if according to whether there are human beings involved; or Static System and Dynamic System if according to the state of motion; or Closed System and Open System if according

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to the exchange relationship with the environment; or Equilibrium System, Nonequilibrium System, Near-equilibrium System and Far-from-equilibrium System, etc. if according to the different equilibrium relationships between the elements of the system; or Simple System and Complex System if according to the complexity of the system structure; or Deterministic System and Random System if according to the characteristics of the system evolution law; or Natural System, Social System, Thinking System, etc. if according to the different fields of discipline. Among all the systems above, the most complex system is the social system composed of humans, which is known as the specially complex giant system.

2.2.2 Systems Science Systems science is a discipline whose research object is system phenomena or system issues.21 It is a scientific knowledge system established by observing the objective world through a system perspective, principles and methods. Systems science studies the objective world from the relation between the part and the whole and the hierarchical relationship of things.22 In real life and theoretical discussions, all issues that focus on the interrelation between part and whole, difference and unity, structure and function, object and environment, order and disorder, cooperation and competition, behaviour and purpose, stage and process are all system issues.23 It is generally believed that the basic principles of systems science include integrity, comprehensiveness, hierarchy, and relevance. The basic methods of systems science include holistic methods, synthetic methods, hierarchical methods, structural methods, functional methods, and environmental association methods.24 In the overall system of the modern science, systems science is a major discipline that is juxtaposed with natural sciences, social sciences, and thinking science. According to the well-known scientist Qian Xue-Sen’s disciplinary division system (1911–2009), systems science also has a hierarchy from theory to application, which is constituted by the basic theory represented by systems theory, the technical science represented by applied mathematics such as operations research, and the

Miao, D. S. (1998). The Theory of System Science. Journal of Systems Science (04):7. 苗东升. (1998). 系统科学论. 系统辩证学学报 (04):7. 22 Qian, X. S. (2001). Creating Systems Science. Shanxi Science and Technology Publishing House. p. 134. 钱学森. (2001). 创建系统学. 山西科学技术出版社. p. 134. 23 Miao, D. S. (1998). The Theory of System Science. Journal of Systems Science (04):7. 苗东升. (1998). 系统科学论. 系统辩证学学报 (04):7. 24 Chang, S. S. (2013). Discussion on the Similarities and Dissimilarities of System Method and System Engineering Method. Chinese Journal of Systems Science (01):23–24. 常绍舜. (2013). 浅 谈系统方法与系统工程方法的异同. 系统科学学报 (01):23–24. 21

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engineering practice technology systems engineering, which directly transforms the objective world using systems thinking.25 From the disciplinary development, the initial theories of systems science, namely, general system theory, cybernetics and information theory, were established around the 1940s, while the subsequent self-organization theory, in terms of dissipative structure theory, synergetics, catastrophe theory and hypercycle theory, was established between the 1970s and 1980s, and research on fractal theory, chaos theory, and complexity science began to develop in the 1990s.26 In 1937, the Austrian American biologist Ludwig von Bertalanffy (1901–1972) first proposed general system principles, which marked the beginning of the scientific community to explicitly regard systems as the research object. General System Theory: Foundation, Development and Application, another monograph he published in 1968, laid the initial theoretical basis of this science. In 1982, Qian Xue-Sen put forward the structural framework of three layers and one bridge,27 which clarified the disciplinary system of systems science, symbolising that systems science has since become a veritable modern science department. The founding of the Santa Fe Institute in 1984 marked that the human exploration of the essence of life entered a new era of self-organising structures and autocatalytic networks of complex systems. In 1994, American scientist John Henry Holland put forward the theory of complex adaptive systems, which changed the composition of the systems from inanimate elements to living organisms that can actively adapt to the environment, which confirmed the status of biotic systems in the study of systems science. Since the 1950s, systems thinking and methods have begun to enter research circles worldwide and have taken an important position. At present, systems science has developed into a relatively complete system including philosophy, theory, technology and application of systems science. In the establishment of Systems Science, a number of scholars have contributed in their own ways, for instance, Bertalanffy, Anatol Rapoport, George J. Klir and others who proposed General System Theory, Claude Elwood Shannon (1916–2001) who brought forward Information Theory, Wiener, W. R. Asbby and S. Beer, who laid the foundation of Cybernetics, and Ervin Laszlo, Mario Bunge, Min Jia-Yin, Jin Guan-Tao, Wei Hong-Sen, Zeng Guo-Ping and Wu Jie all contributed to the construction of systems philosophy. Many other scholars have also made pioneering contributions at different levels and branches of systems science. Ilya Prigogine (1917–2003) proposed dissipative structure theory, Hermann Haken suggested the synergetics, Manfred Eigen put forward 25

Qiao, F., Shen, R. F., Wu, Q. D. (1996). System Theory, System Means, System Engineering: Development and Prospect. Systems Engineering (05):5. 乔非., 沈荣芳., 吴启迪. (1996). 系统理 论., 系统方法., 系统工程——发展与展望. 系统工程 (05):5. 26 Wu, T. (2010). Review and Prospect: the Thirty Years of Studies About Philosophy of System Science in China. Studies in Philosophy of Science and Technology (02):2. 吴彤. (2010). 中国系 统科学哲学三十年: 回顾与展望. 科学技术哲学研究 (02):2. 27 Qian, X. S. (1984). Systems Thinking, Systems Science and System Theory. Scientific Methods and Philosophical Issues in Systems Theory. Tsinghua University Press. pp. 16–17. 钱学森. (1984). 系统思想、系统科学和系统论. 系统理论中的科学方法与哲学问题. 清华大学出版社. pp. 16– 17.

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hypercycle theory, James Grier Miller brought up general biotic systems theory, René Thom (1923–2002) proposed catastrophe theory, Jules Henri Poincaré (1854–1912) pioneered chaos theory, and Benoit B. Mandelbrot (1924–2010) proposed fractal theory, Uyomov (A.I.YeMOB) put forward the Parametric General System Theory, John Holland advanced the Complex Adaptive Systems, Niklas Luhmann constructed modern Social Systems Theory, Deng Ju-Long created the Gray System Theory, Wu Xue-Mou established the Pan-Systems Theory, Qian Xue-Sen proposed the MetaSynthesis Method, Gu Ji-Fa and Zhu Zhi-Chang formulated the WSR Theory (the abbreviation of physics, affairs and human science methodology), etc. They have all endeavoured to establish and perfect systems science. The thoughts, theories and methods of systems science were distilled from the common laws in different disciplines of classical science by scholars worldwide. The feedback effect coming from the thoughts, theories and methods of systems science on various disciplines has spawned a number of systematised classical scientific disciplines (i.e., systems biology, systems economics, systems sociology, systems ecology, etc.), and their birth and growth have further promoted the development and improvement of systems science, which is a dynamic reciprocating process of motion. The result of this systematisation will eventually connect the knowledge system of human society’s understanding of the world into a huge, complex and three-dimensional network. If the disciplines are regarded as the nodes of this giant network, then systems science is a thread linking different nodes together. It is evident that this network has been continuously deriving and expanding since Bertalanffy put forward the System Theory Thinking.

2.2.3 Reductionism Method Human beings generally have two basic approaches to understand the objective world: the Reductionism Method and the Holism Method. The Reductionism Method is used to understand things by decomposing things and digesting them with logical thinking and reasoning. The Holism Method is used to understand things by observing the different sides of things and connecting them with imagery thinking. In ancient society, due to the limitations of knowledge and technological means, it was difficult for people to conduct in-depth analysis and detailed observation of things. Therefore, people usually adopt the holistic method to observe and understand things. In Western society, it was not until the European Renaissance that the Reductionism Method was valued and respected by the public, especially after the French philosopher René Descartes explicitly introduced Reductionism in 1637. The reductionism method decomposes one thing into several components, then distills the simplest factors in the analysis of the components and analyses these components or factors to grasp the properties of things, and finally uses the properties of these components or factors to define the nature of things as a totality. This method focuses on the analysis of the parts or elements that make up a thing, following a simple,

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linear, and one-way causal determinism thinking paradigm. Classical science represented by Newton’s mechanics is based on this thinking paradigm. The Reductionism Method has long been predominant in the development of modern natural sciences since the mid-seventeenth century. Although the Reductionism Method has played an important role, its way of thinking cannot truly reveal the complete nature of things, nor can it fully reflect the connections and interactions between things. It is only suitable for understanding simple things and is not competent in the study of complex issues, especially the integrity of complex systems and complex giant systems. According to the Reductionism Method, in the field of physics, research on the structure of matter has gone deep to the quark level, while in the field of biology, the study of life phenomena has gone deep into the genetic level. However, although the basic particles that make up matter are known, the complete nature of matter cannot be fully explained; even if the genes of organisms are known, the fundamental mechanism of how life works still cannot be answered. In knowing the world, these facts increasingly reveal the limitations and shortcomings of the Reductionism Method. It is like a single neuron has no consciousness, and a single amino acid has no life. The vitality of biological organisms cannot be explained by the concepts of division, reduction, and movement used in classical physics. In modern society, the development of science and technology presents two obvious trends that are both highly differentiated and highly integrated. According to statistics, there are currently more than 1,000 research fields and more than 4,000 disciplines in the scientific community,28 and new disciplines are still emerging. On the one hand, the existing disciplines are constantly differentiated and divided, resulting in the continuous discovery of new fields and new sciences; on the other hand, varying disciplines in different fields intersect, combine and even merge with each other, which leads to the integration and synthesis of the disciplines. These two trends have formed a complementary and mutually reinforcing pattern. In the integration and comprehensive development of disciplines, there is not only the intersection and combination of different disciplines in the same field but also the mutual merging and integration of different disciplines in different fields (i.e., natural sciences, social sciences, and humanities), which forms a new landscape for the development of modern scientific knowledge systems. Under this trend, the emergence of systems science has caused profound changes in the way of thinking of mankind to understand the world.

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Jing, S. R. (2001). The Age of Complex Science: The Development and Current Status of Systems Science and Systems Engineering. Science & Technology Progress and Policy (02):18. 经士仁. (2001). 复杂科学时代: 系统科学与系统工程的发展和现况. 科技进步与对策 (02):18.

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2.2.4 System Theory Method System Theory Method refers to the method of examining the relationship and interaction between structure and function, part and part, part and whole, thing and environment from the perspective and principles of the systems, thereby revealing the nature and laws of things. This method requires people to comprehensively analyse the relations between elements and elements, elements and systems, systems and environments, this system and that system from a holistic point of view to grasp the complete nature of things. The establishment and development of System Theory gave birth to the corresponding System Theory Method, which was continuously improved. Compared with the Reductionism Method, the System Theory Method shifts the focus from the constituent elements to the relations inside and outside of things, making the comprehensive analysis of the whole thing instead of the isolated analysis of the parts. At the end of the 1970s, Qian Xue-Sen proposed a research method combining the reductionism method and the holism method,29 which is a modern system theory method suitable for studying complex problems. When using the system theory method to study the system, it is still necessary to decompose the system and perform the meta-synthesis after decomposition to reveal the overall 1 + 1 > 2 effect of the system function and to achieve the purpose of researching and solving issues as a unified whole. From the late 1980s to the early 1990s, Qian Xue-Sen put forward the meta-synthesis method from a qualitative approach to a quantitative approach30 and established a set of concrete and operable system theory methods. Qian Xue-Sen’s meta-synthesis method is a set of methodologies for the issues of open complex giant systems, which is characterised by its comprehensiveness. The specific manifestation of this comprehensiveness is that its theoretical base is Thinking Science, and its methodological bedrock is Systems Science and Mathematical Science. Its technical basis is computer-based modern information technology, its practical premise is the application of systems engineering, and its philosophical foundation is the practice and epistemology of dialectic materialist theory.31 In scientific research work, Qian Xue-Sen’s Meta-Synthesis Method is worthy of reference and promotion, whether it is for natural science researchers or social science researchers. System Theory Method absorbs the respective strengths of Reductionism Method and Holism Method, and makes up for their limitations; It surpasses Reductionism Method and develops Holism Method, which is the advantage of System Theory Method. The Reductionism Method, Holism Method and System Theory Method are all methodologies, but their perspectives and approaches of studying problems are different. The Reductionism Method takes a research approach from the top to 29

Qian, X. S. (2001). Creating Systems Science. Shanxi Science and Technology Publishing House. p. 134. 钱学森. (2001). 创建系统学. 山西科学技术出版社. p. 134. 30 Qian, X. S. (2001). Creating Systems Science. Shanxi Science and Technology Publishing House. p. 134. 钱学森. (2001). 创建系统学. 山西科学技术出版社. p. 134. 31 Yu, J. Y., Liu, Y. (2002). Complexity Research and System Science. Studies in Science of Science (05):452. 于景元., 刘毅. (2002). 复杂性研究与系统科学. 科学学研究 (05):452.

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the bottom, from the whole to the part, while the Holism Method does not decompose and is from the whole to the whole. The systems theory approach is both from the whole to the part from the top to the bottom and from the bottom to the top from the part to the whole.32 The objective world is interrelational, interinfluential and interactional. Therefore, the natural sciences, social sciences, and humanities that reflect the laws of different parts of the objective world are also interrelated, interinfluenced and interacted. The inner connection between these disciplines should not be separated on purpose but should be organically linked to study and solve issues. The famous German physicist Max Planck (1858–1947) pointed out as early as the 1930s that “…die Wissenschaft bildet nun einmal sachlich genommen eine innerlich geschlossene Einheit. Ihre Trennung nach verschiedenen Fächern ist ja nicht in der Natur der Sache begründet, sondern entspringt nur der Begrenztheit des menschlichen Fassungsvermögens, welche zwangsläufig zu einer Arbeitsteilung fuhrt. In der Tat zieht sich ein kontinuierliches Band von der Physik und Chemie über die Biologie und Anthropologie bis zu den sozialen und Geisteswissenschaften, ein Band, das sich an keiner Stelle ohne Willkür durchschneiden läßt… (…science…is an internally closed unit. Their separation according to different subjects is not based on the nature of things but only arises from the limitations of human comprehension, which inevitably leads to a division of labour. Indeed, there is a continuous bond runs from physics and chemistry through biology and anthropology to the social sciences and humanities, a bond that cannot be arbitrarily cut at any point…)”33 Planck’s understanding and assertion of the inner integrity of science has been confirmed by the general trend of meta-synthesis in modern scientific development. It is known that the social system is an extremely intricate complex giant system that not only has natural attributes but also social attributes and humanistic attributes. Therefore, the research and analysis of social systems requires not only the natural sciences but also the social sciences and humanities, especially their organic metasynthesis, by which only social systems issues can be studied and solved comprehensively and deeply. The method adopted in this book is in fact a meta-synthesis method. However, its thoughts, principles and methods are mainly from systems science theory, biological evolution theory, structural functionalism and network theory. Apparently, this book runs through the ideas and methods of structural functionalism while also emphasising the importance of network thinking in the social sciences. From the perspective of network thinking, the structure of the system can be abstracted into the structure of the network. Undeniably, a complex system can be 32

Yu, J. Y., Zhou, X. J. (2004). Evolution of System Science and System Engineering. Complex Systems and Complexity Science (03):7. 于景元., 周晓纪. (2004). 系统科学与系统工程的发展. 复杂系统与复杂性科学 (03):7. 33 Yu, J. Y., Zhou, X. J. (2004). Evolution of System Science and System Engineering. Complex Systems and Complexity Science (03):5. 于景元., 周晓纪. (2004). 系统科学与系统工程的发 展. 复杂系统与复杂性科学 (03):5.; Planck, M. (1973). Vorträge und Erinnerungen. Darmstadt Wissenschaftliche Buchgesellschaft. p. 270. Ursprung und Auswirkung wissenschaftlicher Ideen. Planck, M. (1973). Lectures and Memories. Darmstadt Scientific Book Society. p. 270. Origin and Impact of Scientific Ideas.

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simplified into a network for research, and the subsystems (or elements) of the system can be regarded as the nodes of the network. Accordingly, the relations between them can be viewed as the connecting lines between the nodes. In this way, the study of the system evolution is the analysis of the dynamic changes of the network structure, and the study of the relationship between the whole system and the part is the analysis of the relationship between the whole network and the nodes and the connecting lines. When a system is regarded as a network, the indicators describing the state of the network can be used to reflect the overall state of the system. This is more convenient and effective for studying complex systems (especially complex giant systems such as social systems).

2.3 The Development of the Thought of Biological Evolution and Its Influence In today’s world, in regard to evolution theory, people will naturally think of the evolution theory proposed by Charles Robert Darwin (1809–1882) and his epochmaking book The Origin of Species. Darwin’s theory of biological evolution was once praised by the German thinker Friedrich von Engels (1820–1895) as one of the three discoveries of natural sciences in the nineteenth century. For the first time, this theory scientifically outlined life from simple to complex and from low-level to highlevel. It “eliminates the existence of God, breaks through the shackles of teleology and determinism, opens up a new direction in the laws of human knowledge, and provides a new way of thinking.”34 It not only helped the public establish a progressive view of history but also provided an important ideological basis for the development of biology and many other disciplines. The Theory of Biological Evolution, together with the theory of relativity and quantum mechanics, constitutes an important pillar of modern science. To enable readers to understand the philosophical basis and logical method of this book more clearly, it is necessary to sort out and introduce the thought of biological evolution because the basic idea of evolution theory is one of the important thinking paradigms of the book.

2.3.1 Evolutionary Thought Before Darwin In human society, ideas about the evolution of nature were created very early and have been developing.

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Wang, Z. L. (2008). The Development of the Theory of Biological Evolution and Its Philosophical Thinking. Popular Science & Technology (03):184. 王泽榔. (2008). 生物进化论的发展及其哲学 思考. 大众科技 (03):184.

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The ancient Greek philosopher Anaximander (approximately 610–545 B.C.) believed that all living things are created from the water elements evaporated by the Sun, primitive organisms were bred in the soil of the Earth, and primitive organisms gradually developed into animals and plants and finally evolved into humans after a long period of time. The ancestor of humans is fish, and humans are derived from fish because they are alike in embryos. His idea embodied a primitive thought of biological evolution. The great ancient Greek thinker and scientist Aristotle assumed that nature is a continuum and inorganic materials are its inferiority, inorganic materials are transformed into organic materials and organic materials are transformed into life, life evolves upward from a soft matter to an impeccable form and even develops into a more advanced life form. The evolution of nature from inanimate organisms to living animals follows in proper sequence and advances gradually. There is a continuous hierarchy in kingdom Plantae, which makes its evolution converge toward the kingdom Animalia. His ideas embodied an evolutionary view of early Gradualism Theory.35 Since the eighteenth century, some pioneers of evolutionary thought have appeared in Europe, such as French naturalist Buffon (Georges-Louis Leclerc de Buffon, 1707– 1788) and Lamarck (Jean-Baptiste Lamarck, 1744–1829). They successively put forward some remarks on the variation and evolution of species, but due to the limitations of the times, these opinions have not yet reached the theoretical level. It was not until Darwin published The Origin of Species in 1859 that the theory of biological evolution was widely recognised by the public. French naturalist Buffon published a set of 36 volumes of Natural History between 1749 and 1788, which described the evolution of the universe, the solar system and the Earth, put forward the assumption of the origin of the Earth and the evolution of life, and denied the idea of Creationism. Buffon is the first person to explore biological evolution in a truly scientific spirit. He believed that the Earth is separated and evolved from the Sun, and organisms are not created in a ready-made state all at once, nor have they always been in this appearance, but they are shaped in the historical development of the Earth and variated with the changes of the environment. The material evolution on the Earth produces plants and animals, then human beings. Life first arises in the ocean and then develops on land. Species are constantly changing under the influence of the environment. Some similar species may have originated from one common ancestor; one species can be transformed into another under the influence of environmental conditions such as climate, soil, nutrition, cultivation and domestication. In 1809, French naturalist Lamarck published Zoological Philosophy, in which he put forward the Theory of Biological Evolution on the direct influence of the environment on the shape and structure of organisms, the natural occurrence of organisms and the upward development of organisms. This created an evolutionary natural classification method, established the first comparatively systematic theory 35

Wang, Q. A. (2012). A Study of Naturalistic Evolution Theory and Darwin’s Theory of Biological Evolution. Hubei Social Sciences (09):91. 王秋安. (2012). 自然进化论与达尔文的生物进化论 探析. 湖北社会科学 (09):91.

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of biological evolution, and described the picture of biological evolution from many aspects. He held that the climatic conditions on Earth are changing in a gradual way, life is continuous, and the fossils of animals and plants underground are the ancestors of modern organisms. He brought forward the two famous evolutionary principles of use and disuse and acquisitive inheritance; that is, the organs frequently used by animals will become more developed, and the organs that are not frequently used will become more degraded. The new traits acquired by organisms may be inherited, and the newly acquired structural changes will be further strengthened through inheritance. The change in species has its own definite direction. Animal individuals undergo physical changes to adapt to environmental changes. These new characteristics can be passed on to offspring so that after generations of genetic changes, new species are created. He reclassified animals according to the order of biological development from low-level to high-level, thus correcting the previous order of taxonomy from high-level to low-level. Lamarck divided biological evolution into two aspects: vertical evolution and horizontal evolution. He used the slow self-progress of organisms to illustrate vertical evolution and the impact of the environment on biological changes to demonstrate horizontal evolution. He suggested that the evolutionary power of the lowest animal comes from the influence of the environment. In evolution, organisms will have autonomy. This is the mechanism of use and disuse and acquisitive inheritance.36 At that time, in the era when European theocracy was in absolute dominance, Lamarck’s theory of evolution was undoubtedly a major ideological breakthrough and laid the foundation for the formation of Darwin’s theory of evolution. However, Lamarck’s evolutionary theory was strongly inclined to Mechanical Determinism and Teleology. He believed that the environment directly determines the changes in functions and traits of organisms, and the isotropic evolution of organisms from low-level to high-level is controlled by the innate desire of organisms to improve themselves and evolve upward.37 In the nineteenth century, the British geologist Charles Lyell (1797–1875) introduced the idea of Gradualism into geology, emphasising that the Earth’s topography and landforms were formed by slow changes over a long period of time. He suggested that small forces such as wind, raindrops, ice and snow can change the topography of the surface after tens of thousands of years. His masterpiece Principles of Geology depicted a vivid picture of the changes in crustal movement, which inspired and influenced the formation of Darwin’s theory of biological evolution. In the process of understanding geological changes, he only acknowledged the gradual change and denied the existence of qualitative changes and leaps. Therefore, the theory he put forward was also called Uniformitarianism or Gradualism. Between 1838 and 1839, German biologists Matthias Jacob Schleiden (1804– 1881) and Theodor Schwann (1810–1882) proposed Cell Theory. They pointed 36

Wang, Q. A. (2012). A Study of Naturalistic Evolution Theory and Darwin’s Theory of Biological Evolution. Hubei Social Sciences (09):92. 王秋安. (2012). 自然进化论与达尔文的生物进化论 探析. 湖北社会科学 (09):92. 37 Wu, X. J. (1981). A Preliminary Study of the Non-Darwinian Theory of Evolution. Philosophical Research (06):31. 吴晓江. (1981). 初探非达尔文主义进化论. 哲学研究 (06):31.

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out that both plants and animals are composed of cells, and cells are the common constituent units and developmental basis of all organisms. Animal and plant cells generally contain three parts: the cell membrane, cell contents and cell nucleus. The proposal of Cell Theory built a bridge between the kingdom Plantae and the kingdom Animalia, thus establishing the universal conception of nature that the biological world originated from the universal connection of cells. Cell theory contains a distinct thought of biological evolution and provides evidence for the theory of biological evolution from the unity of biological origin. The introduction of the Cell Theory prompted biological research to enter the cellular level, which directly led to the establishment of Cell Physiology and Cytogenetics. In 1850, the British sociologist Herbert Spencer (1820–1903) published Social Statics, in which he put forward the ideas of social organism and social evolution theory and established a universal framework of social evolution. He assumed that evolution is a general law; human society is a social organism that does not differ in essential principles from a biological organism. Different parts of society are interrelated and interdependent, forming a unified complex system. Similar to the organs of biological organisms, the organisations of society have their own complex functions and are served by different organisational structures to maintain the operation of the whole social organism. The development of human society, accompanied by the complication of the division of labour and social organisation, is an evolutionary process similar to that of biological organisms. In the process of human society progressing from an undifferentiated nomadic tribe to a sophisticated civilised society, the continuous differentiation of labour pushes the evolution of human society. Social development follows the natural law of survival of the fittest. The direction of social evolution is from a low-level society with a simple structure and a single function to a high-level society with a complex structure and diverse functions. Although Spencer introduced the concept of survival of the fittest and the thought of social evolution before Darwin’s The Origin of Species, he simplified the relation between human society and nature and ignored the real causal mechanism and process of human society and social changes.

2.3.2 Darwin’s Evolutionary Thought In 1859, The Origin of Species published by the British naturalist Charles Darwin laid the scientific foundation for the theory of biological evolution. In the book, Darwin presented two closely related theories, the theory of evolution and the theory of natural selection, highlighting the ideas of species evolution and common origin, survival competition and natural selection, and gradual evolution of organisms. The main argument of evolution theory is that the world is not static but is in constant evolution. Biological types are not unchanged but gradually transform in the continuity of life, and new species emerge when old species disappear. Evolution is a process of continuous bifurcation. All life originates from the same primitive cell and gradually evolves into fish, amphibians, mammals, etc. Some of these mammals

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evolved into man-apes through natural selection and then into today’s humans. The main point of the theory of natural selection is that organisms in nature realise natural selection through survival competition, and survival competition is the only way to achieve biological evolution. The development and change of organisms is a process of natural selection, in which those who adapt to the environment survive, and those who do not adapt to the environment are eliminated by nature. There are only gradual changes but no leaps in biological evolution, and the adaptations that organisms show to the environment are the products of natural selection. Natural selection is the main driving force of biological evolution, and the variation caused by environmental influences and the use and disuse of organs and their inheritance are auxiliary factors of evolution. Darwin pointed out that all kinds of biological species on Earth have close or distant kinship, all existing biological species originated from simple primitive ancestors, and the biological world is a historically continuous whole. The process of evolution has gradually evolved into various organisms through the three mechanisms of inheritance, variation and selection. From Darwin’s point of view, natural selection, taking variation as raw material and environment as condition, works through survival competition. The result of selection determines the direction of species evolution and results in the development of biological adaptability (also survival of the fittest). The competition for existence includes the competition between the members of the same species and the competition between species and environment, which are the two manifestations of the same kind of competition. Under the effect of natural selection, the evolutionary pattern of organisms has no predetermined direction, and biological evolution presents a process of dendritic and continuous bifurcation rather than a linear evolution with a predetermined direction from low-level to high-level, as previously understood by the pioneers of evolution theory. Darwin suggested that there are competitions in which individuals of different species compete for limited resources, and the members of the same species compete for the same resources in an ecosystem. In the competition, those who adapt to the environment survive and obtain the opportunity to reproduce, while those who do not adapt are eliminated. This is natural selection; the fierce competition for existence among organisms stems from the contradiction between excessive biological reproduction and limited living conditions. If biological reproduction increases geometrically, the resulting excess reproduction will inevitably lead to competition among the species for space and food. In these competitions, biologically beneficial variations are preserved and passed on to future generations, while harmful variations are eliminated. Through the historical process of natural selection, small variation gradually accumulates into significant variation, which changes biological traits and ultimately forms new species or subspecies. It is through inheritance, variation and selection that organisms develop from low-level to high-level and from simple to complex. In the process of evolution, biological traits diverge, intermediate types become extinct, new species continuously arise from existing species, biological species also increase from few to many, and biological evolution presents a tree-like bifurcation process. As Wu Xiao-Jiang pointed out, “in the history of evolutionary thinking, people’s research on biological evolution is mainly carried out from two aspects, History

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of Evolution and Mechanisms of Evolution. On the former question, evolutionary pioneers such as Buffon, Lamarck and others have already clarified that organisms are evolving rather than being static. Darwin’s outstanding achievements above his predecessors are mainly due to two reasons: in the study of the History of Evolution, he proposed that all living things are related and originated from a common ancestor; in the study of the Mechanisms of Evolution, which was the first scientific explanation of the reasons and driving forces of biological evolution.38 The theory of biological evolution is a pivotal summary of human’s understanding of the biological world and even the whole nature, which not only drives the progress of modern biology but also has a huge impact on philosophy. The epoch-making significance of Darwin’s theory of biological evolution is that he not only pointed out that biological species are changeable but also scientifically explained the evolutionary history of biological adaptability and diversity, thus giving a heavy blow to idealistic theories such as species immutability, creationism and teleology. However, Darwin’s theory of biological evolution has shortcomings due to the limitations of the times. Darwin affirmed that biological evolution is a continuous and gradual process and that natural selection is slow, which cannot explain the increase in complexity of organisms due to random mutations or the sudden changes or sudden leaps that organisms take in successive evolution. For example, in the more than 3 billion years of life evolution history, there have been many large-scale mass extinctions and species explosions in the Earth’s biosphere, which are difficult to explain with Darwin’s theory of gradual evolution. Darwin did not correctly understand the genetic mechanism of biological evolution. Modern molecular genetics have proven that some genetic factors or genetic structures inherent in organisms can push their self-evolution. Darwin’s theory of evolution over-emphasises the interspecific competition between organisms but ignores various other connections. In fact, the relationship between the creatures in nature is not merely opposite but is a combination of conflict and harmony, confrontation and cooperation. Furthermore, it is inappropriate for Darwin to treat the survival competition caused by excess reproduction as the main driving force of biological evolution. In fact, even if there is no over reproduction, genetic variation, extinction of old species and replacement by more developed new species will still happen sooner or later.

2.3.3 New Development of Evolutionary Thought After Darwin Similar to the evolutionary thought expounded by Darwin’s theory of evolution, the theory of biological evolution is also evolving and developing. After Darwin published The Origin of Species, scientists worldwide have conducted extensive and in-depth research from different aspects, and the theory of biological evolution has 38

Wu, X. J. (1981). A Preliminary Study of the Non-Darwinian Theory of Evolution. Philosophical Research (06):27. 吴晓江. (1981). 初探非达尔文主义进化论. 哲学研究 (06):27.

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been further revised, supplemented and developed, mainly in the creation of new disciplines or new theories such as genetics, gene theory, mutation theory, synthetic theory, molecular biology, the neutral theory of molecular evolution, systematics, and sociobiology. The following is a brief overview of the progress of biological evolution theory in various aspects, using these new disciplines or new theories as clues.

2.3.3.1

Genetics

In 1865, Austrian botanist Gregor Johann Mendel (1822–1884) discovered on the basis of pea hybridization experiments that the genetic material that controls biological traits exists in the form of a self-contained unit of factors, from which he proposed the concept of genetic factors (the concept of genes later); he concluded two laws of inheritance (i.e., the law of segregation and the law of independent assortment) through statistical analysis of hybridization experiments. His basic idea is that the genetic factors that control different traits of plants cannot be mixed but enter into different gametes independently, and they are either expressed as dominant factors in the next generation of gametes or as recessive factors in the next generation of gametes. Mendel’s hybrid experiments showed that the traits of plants are particlelike when analysed from genetic factors, and they can be used as raw materials for natural selection to develop directionally through selection, indicating that it is genetic factors rather than the environment that dominate the genetic traits of organisms. Mendel’s hybrid experiments and discoveries made up for the deficiencies of Darwin’s theory of evolution in terms of quality, enabled later generations to discover the correspondence between genetic factors, variations and traits, laid a scientific foundation for modern genetics, and led to the rise of the Theory of Particulate Inheritance. Mendel’s discovery was ignored by the scientific community for more than three decades until it was discovered again in 1900. German biologist Ernst Haeckel (1834–1919) introduced the concept of adaptation and genetic interaction into the theory of evolution, assuming that both artificial selection and natural selection are only based on the interaction between the adaptation and genetics of organisms, and species variation is the result of adaptation and genetic interaction, thereby expanding the idea of natural selection and taking Darwin’s theory of evolution a step forward.39

2.3.3.2

Gene Theory

In 1910, Thomas Hunt Morgan (1866–1946), an American cytologist, proposed gene theory on the basis of genetic testing of the fruit fly (Drosophila) and published The Theory of the Gene in 1926. He pointed out that genes are the discrete units of 39

Zhong, A. H. (1979). The Development and Scientific Practice of Evolutionary Theories. Teaching and Research (01):55. 钟安环. (1979). 进化论的发展与科学实践. 教学与研究 (01):55.

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chromosomes in an organism’s cells, and the material basis for the genetic variation of an individual, genes are arranged in a straight line on the chromosome, thus establishing the corresponding relationship between different genes and traits, so that the changes of traits can be judged according to the changes of genes. The genetic recombination of organisms inevitably occurs at a certain frequency, and such occurrence has no necessary connection with the external environment. Once this genetic variation occurs, it stabilises in a new state. Therefore, the acquired traits are not inherited. Thomas Morgan examined evolution from the perspective of genetic mutation and believed that natural selection is only the external force of biological evolution, and random genetic mutations are the real cause of new species. Gene theory unifies the external selection force and the internal adaptive force in biological evolution, thus making necessary amendments to the previous directional thinking of biological evolution.

2.3.3.3

Mutation Theory

In 1901, the Dutch botanist Hugo de Vries (1848–1935) introduced mutation theory by studying the variation of evening primrose (Oenothera lamarckiana) and published the book Mutation Theory. He suggested that biological evolution is not necessarily formed by small continuous variations, as Darwin proposed; biological variation can be a discontinuous disruptive change that directly creates new species. In de Vries’s view, the role of natural selection in evolution is not pivotal, and selection only plays a role in screening disruptive changes. The German-American geneticist Richard Goldschmidt (1878–1958) published The Material Basis of Evolution in 1940. In the book, he termed the mutation of the entire chromosome system caused by chromosome remodelling in biological cells the macromutation and believed that every major evolution and every emergence of new species in the biological world originates from leaps and changes, the macromutations that have a significant impact on biological development have created some promising monsters, and the further evolution of these monsters has given birth to new species and taxa. In 1953, Theodosius Dobzhansky (1900–1975), Simpson, Matsumura and others further proposed that biological mutation includes two forms of gene mutation and chromosome mutation, and chromosome mutation can be divided into chromosome number mutation and chromosome structure mutation.40 In 1972, American palaeontologists Niles Eldredge and Stephen Jay Gould (1941– 2002) discovered that there have been many explosions and extinctions of species in the history of palaeontology. From there, they proposed the Punctuated Equilibria to explain the obvious discontinuities and jumps in the evolution of palaeontology. They held that biological evolution is a punctuated balancing process, and biological leaping evolution and speciation occur simultaneously. Species evolution is giant 40

Mi, J. J. (1960). Comments on the Mutation Theory of Modern Neo-Darwinism. Bulletin of Biology(01):20. 米景九. (1960). 评论现代新达尔文主义的突变进化论. 生物学通报 (01):20.

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and discontinuous, while gradual evolution based on natural selection is a linear gradual pattern, which cannot explain the origin of the taxa above species. So they opposed modern Darwinism’s view of only gradualism.41 Punctuated Equilibria is based on the dialectical unity of disruptive change and gradual change, holding that42 : Biological evolution has two processes, disruptive change and gradual change. Most species are formed in a short period of time that is negligible geologically (i.e., disruptive change). After speciation, it will go through a long-term relatively stable stage. At this stage, organisms undergo very slow variation through natural selection (i.e., gradual change); disruptive change is the main force of biological evolution. Although gradual change can also produce new species, the amount of variation (or evolution) it creates is rather small. For speciation, the theory emphasises that disruptive change is the motive power, the way of mutation is initially random, geographic isolation is a necessary factor for speciation, and the final appearance of new species is also the result of natural selection. From the research results of palaeontology and geology, the historical change in biological evolution on Earth over the past 3.8 billion years is not uniform and gradual, as Darwin assumed, but is gradual and disruptive at the same time. The long-term evolution of biological species presents a periodic combination of gradual change and disruptive change, and each disruptive change makes the evolution level of organisms leap to a new level. For example, in the last 570 million years, there have been five large explosions of biological species in the Earth’s biosphere: the Cambrian explosion, which was characterised by the appearance of fish animals (i.e., myllokunmingia, haikouichthys, etc.) and the leap of organisms from invertebrates to vertebrates; Devonian explosion, which was marked by the emergence of amphibians (i.e., ichthyostega, sinostega, etc.) and the leap of organisms from fish animals to amphibians; Carboniferous explosion in the Late Paleozoic, which was identified by the leap of kingdom Animalia from amphibians to reptiles; Triassic explosion, which was distinguished by the rise of mammals (i.e., tritylodont, morganucodon, etc.), and the leap of kingdom Animalia from reptiles to mammals; Paleogene explosion, which was denoted by the coming of primates (i.e., decoredon, eosimias sinensis, etc.), and the leap of kingdom Animalia from primitive mammals to advanced primates (including humans). These events reflected the evolution of the biological world from fish animals to Homo sapiens and the evolutionary process of life systems from zero to one, from low-level to high-level, and from simplicity to complexity.43 The explosion of species in the five geological periods of the Cambrian, Devonian, Carboniferous, Triassic, and Paleogene in the evolution of the crust was well explained by punctuated equilibria, while no clear explanation could be given by Darwin’s gradual evolution model. 41

Eldredge, N., Gould, S. J. (1972). Punctuated Equilibria: An Alternative to Phyletic Gradualism. In: Schopf, T. J. M. (ed). Models In Paleobiology. pp. 82–115. 42 Hu, A. N., Jin, X. Z. (2005). Darwinism is not a Culminate Evolution Theory. Soft Science of Health (06):379. 胡安娜., 金新政. (2005). 达尔文主义不是终极的进化理论. 卫生软科学 (06):379. 43 Xu, Q. Q. (2007). Zhou Yi and Darwin’s Theory of Biological Evolution. Fossils (03):17. 徐钦 琦. (2007).《周易》 与达尔文的生物进化论. 化石 (03):17.

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2.3.3.4

2 The Evolution of the Thinking Paradigm and Its Philosophical Basis

Synthetic Theory

As early as the beginning of the twentieth century, Hardy (1908) and Weinberg (1909) successfully combined Darwin’s theory of natural selection with Mendel’s genetics and proposed the Hardy–Weinberg equilibrium principle, also described as genetic equilibrium. R. A. Fisher (1929), B.S. Haldane (1931) and S. Wright (1932) established Population Genetics by using mathematical models to study gene frequency changes in biological populations and the role of natural selection affecting such frequency changes.On this basis, Dobzhansky (1937) and Julian Huxley (1942) established the Synthetic Theory of Evolution. They began to use quantitative methods to study biological evolution at the population level and further developed Darwin’s theory of evolution. Synthetic theory emphasises that population is the unit of biological evolution; under the pressure of selection, the interaction of various factors, such as mutation, recombination, and isolation, pushes the gradual differentiation of biological populations and the development of new species.44 In 1937, the American geneticist Dobzhansky published Genetics and the Origin of Species, which marked the birth of modern Darwinism; he revised and refined his theory by publishing Genetics of the Evolutionary Process in 1970. Dobzhansky merged Darwin’s theory of natural selection with Mendel and Thomas Morgan’s genetic theory and introduced the principles of population genetics to clarify the evolution of species from comprehensive factors such as selection, isolation and genetic mutation. He used the principles and methods of Molecular Biology and Population Genetics to clarify the dialectical relations between internal cause (biological genetic variation) and external cause (environmental selection), contingency (genetic variation) and inevitability (selection) in the process of biological evolution. His main points include the following: Population is the basic unit of biological evolution; The research of evolutionary mechanisms belongs to the scope of Population Genetics; Mutation, selection and isolation are the three basic links in speciation and biological evolution; Speciation must be achieved through isolation; In most organisms, natural selection does not simply play the role of screening; it retains many harmful and even lethal genes in the heterozygous state of species due to the existence of various selection mechanisms in nature.45 Dobzhansky not only enriched and developed Darwin’s theory of natural selection but also made up for the deficiency of Gene Theory, so that the study of biological evolution was advanced from the external morphological level of biological individuals to the chromosomal level of biological cells. Modern Darwinian Theory is also known as modern synthesis, which combines Darwin’s theory of natural selection, modern genetics, palaeontology and other disciplines to comprehensively explain the process and mechanism of biological 44

Cai, D. Q. (1986). A New Theory of Molecular Evolution: Neutral Theory. Journal of Biology (04):1. 蔡德全. (1986). 一种新的分子进化学说——中性学说. 生物学杂志 (04):1. 45 Ma, T. S., Hao, G. L. (2002). Darwinism, New Darwinism, Modern Darwinism. Teaching of Middle School Biology (04):39–40. 马铁山., 郝改莲. (2002). 达尔文主义·新达尔文主义·现代达 尔文主义. 中学生物教学 (04):39–40.

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evolution. The theory posits that the mutation of genetic material and genetic recombination through sexual hybridisation are the raw materials for biological evolution. The basic unit of biological evolution is the population rather than the individual, and evolution comes from the change in gene frequency in the population. Natural selection is the decisive force in the direction of biological evolution, and biological adaptability is the result of long-term selection. Isolation leads to speciation in which continued geographic isolation often differentiates populations into subspecies, and on this basis, the accumulation of variation due to different environmental conditions may trigger reproductive isolation, which in turn promotes the formation of new species. Modern Synthesis denied acquired inheritance, emphasised the gradualness of evolution, and reaffirmed the leading role of natural selection in biological evolution at the population level.46 The new progress of modern synthesis pointed out that there is both contingency and inevitability in biological evolution. For instance, genetic mutation is random and accidental, while selection is nonrandom and directional. The formation of new biological species includes two types: gradual and explosive.47 Discontinuous intense disruptive change and continuous subtle gradual change can be demonstrated by the same genetic mechanism, emphasising the important role of geographical environmental factors in speciation.48 The new research of this school also pointed out that the biological population has its specific structural composition and heredity; it interinfluences and interacts with the environment as a whole, and like all biological individuals, it has a life cycle (i.e., its survival activities are expressed as the historical process of growth, differentiation and division of labor, survival, ageing and death).49

2.3.3.5

Molecular Biology

In 1952, the famous experiment of Bacteriophage Infecting Bacteria chaired by A. Hershey and M. Chase proved that the material carrier of biological genes is the deoxyribonucleic acid (DNA) molecule in the nucleus.50 In 1953, American biologist James Dewey Watson and British physicist Francis Compton Crick (1916–2004) applied X-ray to study nucleic acids and discovered the double helical structure of 46

Liang, Q. J. (2009). Matching the Perfect, Pursuing the Ultimate: The Theory of Biological Evolution is Developed in Controversy. Life World, (11):12. 梁前进. (2009). 望衡对宇, 追求极 致——生物进化论在争鸣中发展. 生命世界 (11):12. 47 Lu, H. R., Ye, Y. Z. (1982). The Evolution of Evolution Theory: Darwinism, Neo-darwinism and Non-darwinism. Journal of Fujian Agricultural College (04):72. 卢浩然., 叶永在. (1982). 进化论 的进化——达尔文主义、现代达尔文主义和非达尔文主义. 福建农学院学报 (04):72. 48 Zhang, L. N. (2005). The Development of Genetics and the Emergence of Modern Darwinism. Fossils (02):32. 张丽娜. (2005). 遗传学的发展与现代达尔文主义的产生. 化石 (02):32. 49 Sun, Y. (1993). The Present Comprehensive Development of the Theory of Evolution. Journal of Xinyang Normal University (Natural Science Edition) (04):437–438. 孙毅. (1993). 综合进化论 的发展现状. 信阳师范学院学报(自然科学版) (04):437–438. 50 Min, J. Y. (2012). Evolutionary Pluralism. China Social Sciences Press. p. 336. 闵家胤. (2012). 进化的多元论. 中国社会科学出版社. p. 336.

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DNA, which marked the birth of Molecular Genetics. Their research results indicated that the DNA molecule is a double helix composed of two long chains, and the chains are connected by pairs of bases. The pairing of bases is fixed, but the order and ratio of the arrangement are variable. The double strands of DNA replicate themselves through the principle of complementarity. During cell division and reproduction, the two strands of the DNA molecule are separated, and each strand can serve as a template and form a new complementary strand. In the course of sexual propagation of life, a DNA strand of a sperm cell combines with a DNA strand of an egg cell to form a DNA double-strand in the fertilised egg cell. It is through such a replication mechanism of DNA molecules that biological cells can accurately transfer genetic information from parents to offspring. This discovery of the double helical structure of the DNA explained the self-replication, relative stability and variability of genetic material, as well as the storage and transmission of genetic information, which not only clarified the replication mechanism of genetic information from the molecular level but also innovated the concept of genetics and developed the research of genetic evolution to a new stage. The breakthrough in Molecular Biology laid a scientific foundation for future generations to study the internal mechanism of biological evolution at the molecular level. The discovery of the double helical structure of the DNA pushed the study of Biogenetics from the chromosomal level to the molecular level and gave birth to Molecular Genetics. Since then, scientists have begun to use the techniques and methods of Molecular Biology to conduct in-depth research on the internal mechanisms of biological evolution. It was found that the amino acids in all biological proteins are left-handed, and the biological genetic code uses the same triple codon,51 thus confirming the common origin of species at the molecular level. By comparing the sequence of similar proteins and nucleic acids in different organisms, the relative positions of different species on the evolutionary sequence and the kinship between them can be quantitatively detected, and the phylogenetic tree of biological divergence from low-level to high-level can also be outlined. The advancement of Molecular Biology transformed the research of biological evolution from the longformed qualitative research model into a new model that combined qualitative and quantitative research, which pushed the rapid development of biological evolution.

2.3.3.6

Neutral Theory of Molecular Evolution

In 1968, Japanese molecular biologist Kimura Motoo (1924–1994) proposed the Neutral Theory of Molecular Evolution, which he systematically expounded in his book The Neutral Theory of Molecular Evolution published in 1983. The main point

51

Zhang, Y. P., Shi, L. M. (1992). Modern Evolutionary Theory and the Controversy. Discovery of Nature (03):41. 张亚平., 施立明. (1992). 现代生物进化论及其面临的挑战. 大自然探索 (03):41.

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of this theory is52 that most mutations in organisms at the molecular level are neutral or near-neutral (i.e., these mutations are neither positive nor negative for biological individuals). The reservation or disappearance of neutral mutations in biological inheritance is a random process, which is called genetic drift. Biological evolution at the molecular level is the result of random genetic drift and is not affected by natural selection. Genetic drift is the basic motive force for the evolution of biological molecules. The rate of neutral mutation (i.e., the substitution rate of nucleotides or amino acids in biological molecules) determines the rate of biological evolution. The predominant factor in biological evolution is neutral mutation, and the direction of molecular evolution is random and accidental. Kimura pointed out that in biological organisms, different types of protein molecules evolve at different rates; in different types of biological organisms, the evolution rate of similar protein molecules is roughly constant. The evolution speed of molecules with important functions is slow, and the evolution speed of those with unimportant functions is fast. In the process of biological evolution, neutral mutations that do not change the molecular structure and functions are prone to occur. When genes with new functions appear, biological organisms often increase the copies of the original genes first; the neutral mutations of biological organism molecules are not restricted by natural selection. Through the random combination of male and female individuals in the population, some neutral mutant genes disappear, while some are retained, resulting in polytypism of biological genes and polymorphism of traits. At the molecular level, most evolutionary changes in organisms and variations within species are not dominated by natural selection but are caused by random drift of mutant genes that are neutral in selection. In 1969, American scholars J. L. King and Thomas Jukes also cited evidence of molecular biology to support the neutral theory of molecular evolution and called the theory a non-Darwinian theory of evolution.53 The neutral theory of molecular evolution was an important supplement to Darwin’s theory of evolution at the micro-level and the molecular level. It further disclosed that most of the evolution at the molecular level is not triggered by natural selection but by neutral mutant genes through random genetic drift, revealing that the path and direction of molecular evolution are not mainly determined by nonrandomness and inevitability, such as phenotypic evolution, but to a large extent by randomness and contingency. The introduction of the Neutral Theory of Molecular Evolution expanded people’s understanding of the role of contingency in biological evolution and had a special significance for overthrowing the teleology of Idealism and metaphysical Mechanical Determinism in the history of evolutionary thought.54

52

Liu, H. L., Liu, Q. (2006). The Impact and Perfection of the Neutral Theory of Molecular Evolution on Darwin’s Theory of Evolution. Social Sciences in Guangxi (04):14–15. 刘鹤玲., 刘 奇. (2006). 分子进化中性学说对达尔文进化论的冲击和完善. 广西社会科学 (04):14–15. 53 King, J. L., Jukes, T. H. (1969). Non-Darwinian Evolution. Science, 164(881). pp. 788–798. 54 Wu, X. J. (1981). A Preliminary Study of the Non-Darwinian Theory of Evolution. Philosophical Research (06):31. 吴晓江. (1981). 初探非达尔文主义进化论. 哲学研究 (06):31.

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Systematics

In 1968, the American Austrian biologist and the founder of System Theory Bertalanffy published General System Theory: Foundations, Development, Applications, which examined the evolution of biology from the relation between organisms and the environment. Bertalanffy proposed that an organism is an open system that continuously exchanges material and energy with the external environment, and only such an open system can ensure that an organism continues to develop in a highly ordered direction. The Belgian physicist Prigogine developed the idea of system evolution, arguing that an organism is a dissipative structural system with a high degree of selforganising ability, which achieves a higher order state by forming a new ordering state through fluctuations (i.e., dynamic expansion or contraction) away from the equilibrium state, and this fluctuation occurs in the unstable stage of biological evolution. In the process of biological evolution, this kind of fluctuation is manifested as the biological adjustment ability. The origin of life and the evolution of organisms pass through the unstable stage through this fluctuating ability so that organisms can temporarily evolve from a disordered structure to a newly ordered structure, and new species and ecological types are naturally produced in this process.55 In 1973, the American biologist L. van Valen proposed coevolution theory when studying biological evolution. The main idea was that the biological individuals and their environment are evolving together, and each organism must keep up with the pace of environmental changes to ensure the stability of its relative competitive position. Coevolution theory expands the dynamic range of natural selection, emphasising the evolutionary mechanisms of the interstimulation between organisms due to competition, thereby explaining the long-term and inextinguishability of survival competition in the environment. Coevolution is an important driving force for the continuous evolution of organisms, which normalises the competition for survival in the environment, thus making biological evolution a long-term continuous process.56

2.3.3.8

Sociobiology

In 1975, the American social biologist Edward Wilson published Sociobiology: The New Synthesis, which integrated the achievements of evolutionary theories from Ethology, Microevolution Gene Theory, Ecology, and Population Genetics to various fields, established the theoretical models of sociobiology, and culminated decades

55

Zhang, M. S., Jin, Z. H. (1987). Interdisciplinary Interaction is the Driving Force for the Development of Biological Evolution. Journal of Liaoning Educational Administration Institute 03:9. 张 美生., 金正浩. (1987). 学科间的相互作用是生物进化论发展的推动力. 辽宁教育学院学报(社 会科学版) 03:9. 56 Qian, H., Xiang, B. H. (2006). The Theory Bases and Research Assumptions of Organization Evolution. Journal of Dialectics of Nature, (03). 钱辉., 项保华. (2006). 企业演化观的理论基础 与研究假设. 自然辩证法通讯, (03).

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of biologist research on animal social behaviour. Wilson stated in the book57 that natural selection not only determines the physiological structure of animals but is also a necessary condition for the formation of animal behaviour patterns. Animal behaviour and social structure can be inherited like biological organs. The fixed behaviour patterns of animals and the function of social organisation maximise the reproduction of a social population. These behaviour patterns can be interpreted as phenotypes of genes at the genetic level, and these phenotypes are passed on from one generation to another through gene duplication. The peculiar behaviour of a population is the maximisation of adaptation in the living environment on which it depends. The social characteristics of animals are manifested as a universal evolutionary advantage. The social evolution of organisms has gone through four typical stages, and their landmark achievements are corals, invertebrates such as pipe jellyfish, social insects as well as social vertebrates and humans. The social characteristics of populations such as animal gathering, sexual behaviour and territory result from the behaviour of individual animals and the interaction between the population and the ecological environment. Wilson attempted to use sociobiology to combine the humanities and social sciences. In the last chapter of this book, he argued that “human behaviour can be explained by the theory of evolutionary biology”, which aroused much controversy. Prior to his publication, the research on animal social behaviour was strictly limited to the field of biology. Wilson extended the research object of sociobiology from the kingdom Animalia to human society and built up a bridge connecting animal social behaviour and human social behaviour. It is precisely his pioneering historical achievements that transformed Darwin’s evolutionary paradigm into a fundamental research paradigm in the field of social sciences.

2.3.4 The Infiltration and Influence of Evolutionary Thought on Other Disciplines Since the development, changes and interconnected thoughts of things contained in the theory of biological evolution are conducive to promoting the mutual penetration and overall synthesis between different disciplines, after the theory of biological evolution founded by Darwin has been widely spread, it has had a huge impact on the public’s ideas and ways of thinking. Just as Wiener, the founder of cybernetics, put it that even as early as the nineteenth century, Darwin’s progressive view was not limited to the field of biology, and all philosophers and sociologists drew their scientific ideas from the valuable sources of their time.58 57

Zhao, D. H. (2004). Are There Any Relations between Culture and Gene? - The Ideological Track of Modern Darwinism Penetrating into Social Fields. Literature, History and Philosophy (04):18–19. 赵敦华. (2004). 文化与基因有无联系?——现代达尔文主义进军社会领域的思想 轨迹. 文史哲 (04):18–19. 58 Wang, Z. L. (2008). The Development of the Theory of Biological Evolution and Its Philosophical Thinking. Popular Science & Technology (03):172, 184. 王泽榔. (2008). 生物进化论的发展及其 哲学思考. 大众科技 (03):172, 184.

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Since the establishment of the theory of biological evolution, it has not only led to the emergence of many interdisciplinary and marginal disciplines, such as biochemistry, biophysics, photobiology, bionics, cybernetics, and general system theory, but it has also penetrated into some other disciplines that have an important impact on social development and directly promoted the rapid development of these disciplines. From a rough literature review, the disciplines infiltrated by the theory of biological evolution generally include Philosophy, Psychology, Eugenics, Anthropology, Economics, Sociology, Political Science, Law, and Artificial Intelligence. Here is a brief introduction to the infiltration and influence of evolution theory on these disciplines.

2.3.4.1

Philosophy

The Theory of Evolution has penetrated into the field of philosophy since its birth, mainly in the three fields of evolutionary epistemology, evolutionary ethics and evolutionary aesthetics. Evolutionary epistemology holds that the knowledge or cognitive results possessed by human beings are an important evolutionary mechanism for human survival and reproduction, and its representatives include philosophers such as SirKarl Raimund Popper (1902–1994), Donald T. Campbell (1918–1996) and Gehard Vollmer. Evolutionary ethics, represented by Spencer, Thomas Henry Huxley (1825–1895), and Kropotkin (1842–1921), explained the origin, nature and function of morality from an evolutionary point of view, arguing that ethical values such as goodness, justice or fairness are developed from the biological nature of human beings and their evolution, and all biological structures, psychological mechanisms, and cultural traditions related to the survival and reproduction of species have their ethical significance. The appearance of austere evolutionary aesthetics should be attributed to Darwin, who wrote in the final chapter of The Origin of Species that “we can to a certain extent understand how it is that there is so much beauty throughout nature, for this may be largely attributed to the agency of selection”.59

2.3.4.2

Psychology

Modern psychology was built on the foundation laid by Darwin’s evolution theory and dialectical materialism. Jean Piaget’s (1896–1980) genetic epistemology, praised by the international psychology community, was derived from Darwin’s theory of evolution. Darwin discussed in his theory of evolution that humans and animals are psychologically continuous and emphasised that the mental abilities of humans and animals only differ in degree but not in essence. He cited evidence that animals also have mental abilities such as emotion, curiosity, imitation, attention, memory, imagination, and sensibility. He also put forward the psychological concept of instinct 59 Liu, C. X. The Influence of Evolution Theory on the Humanities and Social Sciences. Chinese Social Sciences Today, Mar. 4, 2013, A08.

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and pointed out that the origin of all instincts cannot be explained without natural selection. He explored the origin and development of human psychology from the way of germ-line evolution and individual development and made contributions to the study of child psychology. The Expression of the Emotions in Man and Animals published by Darwin in 1872 applied historical methods and psychological analysis methods to compare the expressions and emotions of humans and animals. Based on the three basic principles: (1) the principle of serviceable associated habits, (2) the principle of antithesis, and (3) the principle of direct action of the nervous system, he verified that the expression of the emotions in animals and humans have a common origin. Darwin put the evolutionary theory of biology into psychology, especially the application of developmental viewpoints and historical methods, which gradually broadened the scope of psychological research, thereby prompting profound changes in psychology.60 Evolutionary psychology assumes that the human psychological mechanism is the product of evolution, and the past of humans is the key to understanding the current psychological mechanism of humans. Currently, the evolutionary paradigm in psychology has attempted to integrate various branches of psychology, such as cognitive psychology, social psychology, personality psychology, and developmental psychology, with the theory of evolution.61

2.3.4.3

Eugenics

Francis Galton (1822–1911), Darwin’s cousin, began to study psychological inheritance and individual differences due to the influence of evolutionary theory. He discovered that human intelligence is genetic based on statistical analysis of the genetic factors of human intelligence and created Eugenics in 1883.62 The establishment of Eugenics is of great significance to reducing human genetic diseases and protecting the health of newborn babies. During World War II, Eugenics was abused by racists and became the theoretical basis for Adolf Hitler (1889–1945) to launch the war of aggression and the massacre of the Jews63 and thus gained notoriety.

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Ma, W. J. (1983). The Historical Contribution of Darwin’s Theory of Evolution to Psychological Science: Commemorating the Centenary of Darwin’s Death. Acta Psychologica Sinica, (03). 马 文驹. (1983). 达尔文进化论对心理科学的历史贡献——纪念达尔文逝世一百周年. 心理学报, (03). 61 Liu, C. X. The Influence of Evolution Theory on the Humanities and Social Sciences. Chinese Social Sciences Today, Mar. 4, 2013, A08. 62 Ma, W. J. (1983). The Historical Contribution of Darwin’s Theory of Evolution to Psychological Science: Commemorating the Centenary of Darwin’s Death. Acta Psychologica Sinica (03):297– 298. 马文驹. (1983). 达尔文进化论对心理科学的历史贡献——纪念达尔文逝世一百周年. 心 理学报 (03):297–298. 63 Jiang, H. P. (1998). Replicator. Taiwan: Hanyu Publishing Co., Ltd. pp. 26–28. 江海平. (1998). 复制人. 台湾汉宇出版有限公司. pp. 26–28.

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Anthropology

Anthropology, as an independent discipline, has been closely linked to the theory of evolution as soon as it emerged. Anthropologists such as Edward Burnett Tylor (1832–1917) and Lewis Henry Morgan (1818–1881) are all staunch cultural evolutionists. Shortly after the end of World War II, anthropologists such as Leslie Whirt and Elman Rogers Service revived the evolutionary paradigm in anthropology.64

2.3.4.5

Economics

When Darwin created the theory of evolution, he was influenced by the contemporary Thomas Malthus’s (1766–1834) theory of population and the invisible hand principle in economics,65 while his thoughts and principles in turn influenced the development of Economics after his establishment of the theory of evolution. The originator of introducing Darwin’s evolutionary mechanism and principles into economics was American economist Thorstein B. Veblen (1857–1929), who established a paradigm of economic system evolution based on cumulative causation; institutional economics is in the same line with Darwin’s evolutionary thought in its theoretical origin. Veblen’s inheritance mechanism of institutional change was developed by contemporary economist Douglass C. North (1920–2015) into the path dependence thought in institutional economics.66 Well-known winners of the Nobel Prize for Economics Milton Friedman (1912–2006) and Gary Stanley Becker (1930–2014) applied the principle of survival of the fittest of natural selection to prove the existence and rationality of the invisible hand in the economic order.67 The competition mechanism of natural selection is similar to an invisible hand, which regulates the evolution of the entire biosphere through a series of environmental changes, while the competition mechanism in the market economy also has an equally powerful coordination effect. There is indeed a great similarity between the two. At present, evolutionary economics has gradually become the mainstream of western economics. For example, one can often see economics papers involving the evolutionary paradigm in top American economics journals such as the American Economic Review.

64 Liu, C. X. The Influence of Evolution Theory on the Humanities and Social Sciences. Chinese Social Sciences Today, Mar. 4, 2013, A08. 65 Huang, Y. Q (ed). (1989). Genetics. Higher Education Press. p. 376. 黄裕泉 (ed). (1989). 遗传 学. 高等教育出版社. p. 376. 66 Xu, W. B. (2004). Darwinism in Economics: Deviation and Regression. Nankai Economic Studies (04):4–5. 许文彬. (2004). 经济学中的达尔文主义: 背离与复归. 南开经济研究 (04):4–5. 67 Cui, Z. Y. (2002). The Paradigm of the Invisible Hand-Metaphor, Argument and Dilemma. Shiba Consulting Network. 看不见手的范式——比喻、论证和困境. 士柏咨询网. http://www.pen123. net.cn.html. Accessed 19 Mar 2002.

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Sociology

Long before the publication of The Origin of Species, the idea of social evolution already existed in the field of sociology in the West, mainly represented by the British sociologist Spencer. After Darwin published The Origin of Species, the idea of biological evolution not only penetrated into the field of sociology but also gave birth to the theory of social Darwinism. In 1871, Darwin published The Descent of Man, in which he confirmed the applicability of the laws of biological evolution in human society and pointed out that rapid population growth would induce severe competition for survival and the result is survival of the fittest and genocide. Spencer subsequently published The Study of Sociology in 1874, in which he transplanted the principles of survival competition and natural selection in Darwin’s theory of biological evolution into his sociological theory. He assumed that the evolutionary process of society is similar to biological evolution, and it is also a history of survival competition, survival of the fittest, and natural selection, and the principle of survival competition in the biological world also plays a dominant role in society. Spencer believed that driven by survival competition, society is a supraorganism that has undergone the same development process of diversification, specialisation, and functional differentiation through the mechanism of natural selection.68 Spencer’s ideological views on social function pioneered Structural Functionalism in sociology and directly influenced the functionalist sociological thoughts of French sociologist Emile Durkheim (1858–1917), British sociologist Alfred Radcliffe-Brown (1881–1955), and Bronislaw Malinowski (1884–1942), etc. However, Spencer simply compares social evolution to biological evolution, which oversimplifies the complex process of social evolution and overemphasises the role of survival competition, erroneously considering that war is the driving force of social evolution. Some of his more extreme social thoughts evolved into the so-called Social Darwinism after being developed by German biologist Haeckel and others. At the end of the nineteenth century and the beginning of the twentieth century, Social Darwinism, as a worldview and ideology, not only had an extremely extensive influence in European and American intellectual circles but also played a crucial role in the social and political practice at that time.69 During World War II, Social Darwinism was abused by Nazi Germany, became the theoretical basis for Nazis’ crazy aggression and massacre and was disgraced worldwide after World War II.

68

Pan, D. Z. (2004). Theoretical Support for the Rationality of Modern Industrial Society: A Study of Spencer’s Social Evolutionary Thought. Dissertation, East China Normal University. pp. 69–70. 潘德重. (2004). 近代工业社会合理性的理论支撑: 斯宾塞社会进化思想研究. 博士学位论文, 华东师范大学. pp. 69–70. 69 Zhou, B. W. (2011). A Review of “Social Darwinism”. History Research and Teaching, (05). 周 保巍. (2011). “社会达尔文主义”述评. 历史教学问题, (05).

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Political Science

The influence of the theory of evolution on politics is mainly reflected at the level of international politics. The origin of war between states, the formation of international order and the evolutionary process of the concentration of international power are all research hotspots in evolutionary politics.70

2.3.4.8

Law

Since the end of the nineteenth century, the evolutionary paradigm in legal research has been mainly reflected in various legal evolutionary theories. At present, attention has been given to the application of evolutionary paradigms in the study of specific legal issues. Although the influence of evolutionary theory on jurisprudence cannot be ignored, a school of evolutionary law that can be compared with Natural Law, Positive Law or Sociological Law has not yet been formed.71

2.3.4.9

AI Mathematics

In artificial intelligence mathematics, there is a calculation method called genetic algorithms. Inspired by Darwin’s theory of natural evolution and Mendelian genetics, this algorithm is commonly used to generate high-quality solutions to optimisation by formulating the search problems as a population’s evolution problems, which applies the principle of survival of the fittest to select the fittest individuals for reproduction and produces through the two basic biologically inspired operators of crossover and mutation a new generation more adapted to the environment and converges that population to an optimal individual. In 1975, American scientist John Holland published Adaptation in Natural and Artificial Systems, in which he developed a set of theories for simulating biological adaptive systems, expounded the principles and methods of Genetic Algorithms, and laid the mathematical foundation for Genetic Algorithms. Genetic algorithms are not merely optimisation algorithms but a brandnew general methodology based on evolutionary thinking, which is an important tool for solving complex problems; they have been widely applied to solve optimisation problems in engineering due to their many outstanding advantages.72 Although Darwin’s theory of biological evolution influenced many scientific disciplines and greatly promoted human understanding of nature, self and society, the 70 Liu, C. X. The Influence of Evolution Theory on the Humanities and Social Sciences. Chinese Social Sciences Today, Mar. 4, 2013, A08. 71 Liu, C. X. The Influence of Evolution Theory on the Humanities and Social Sciences. Chinese Social Sciences Today, Mar. 4, 2013, A08. 72 Liu, S. G., Fei, P. Y., Hou, Z. M. (1999). Biological Evolution Theory and Genetic Algorithms in Artificial Intelligence. Studies in Dialectics of Nature, (12). 刘曙光., 费佩燕., 侯志敏. (1999). 生物进化论与人工智能中的遗传算法. 自然辩证法研究, (12).

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theory of biological evolution is mainly the theory of species evolution. A comprehensive understanding of human activities requires a systematic study of human society at least at the three levels of biology, society and culture. Since the end of the nineteenth century and the beginning of the twentieth century, the establishment and development of disciplines such as genetics, animal behaviour, behaviour ecology, sociobiology, and evolutionary anthropology have conducted research on broad biological topics such as the social structure, social behaviour, behaviour evolution, and cultural phenomena of animals (including humans), thereby bridging the cognitive gap between humans and other animals and laying a solid foundation for the wide application of the evolutionary paradigm in the humanities and social sciences. Therefore, more than 160 years after Darwin published his theory of evolution, the modern biological evolution theory developed and synthesised by many researchers not only constitutes a paradigm of modern biology but can also become a paradigm of natural science, as well as a paradigm of philosophy and social sciences. It is also based on the foundation laid by the modern theory of biological evolution that this book can comprehensively explain human society from the perspective of economy, society, polity and even a broad cultural perspective.

2.4 New Understanding and Philosophical Enlightenments Obtained from the Theory of Biological Evolution By analysing the development of biological evolution theories and combining the thinking of systems science and synthesising the new achievements of biological evolution studies, the following new understandings and philosophical inspirations can be obtained:

2.4.1 The Development of Evolution Theory Also Requires the Introduction of the System Theory Method In terms of the level and method of studying organisms, Darwinism generally examined the laws of biological evolution from the macro and higher levels of biological individuals, groups or environments, that is, to study biological evolution from phenotypic characteristics such as morphology, taxonomy and ecology outside the organism, which gave birth to the disciplines of bioanatomy, population taxonomy, and eco-environment. Modern Darwinism looked into the laws of biological evolution from the meso-level and meso-micro level of biological individuals, that is, to explore biological evolution from the levels of cells, chromosomes, and genes within the biological individual, which produced the disciplines of Cytology, Genetics and Genomics. Non-Darwinism inspected the laws of biological evolution from the microscopic perspective and subtle levels of biological individuals, that is, to

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investigate biological evolution from the level of macromolecules such as nucleic acids and proteins in individual cells of organisms, which created the disciplines of biochemistry, molecular biology, and molecular genetics. From this point of view, the research method from Darwinism, modern Darwinism to non-Darwinism is actually a deepening process of the Reductionism Method. Judging from the abovementioned new achievements in biological evolution research, the natural environment exerts a selection effect on organisms from the outside to the inside, from ecology, population to individual, while biological individuals vary and inherit at different levels from the inside to the outside, from micro, meso to macro. Biological evolution is a coevolution process that occurs at all levels from ecology and population to individual, which is actually the combined result of the factors inside and outside the biological system. Therefore, it is impossible to give a scientific and satisfactory explanation of biological evolution when examining the phenomenon of biological evolution from any single level of macro, meso or micro. The real way out is to introduce the system theory method and downplay the reductionism method and apply the perspective and thinking of systems science to resynthesise research results from different levelsto construct a more inclusive and explanatory theory of biological system evolution that organically integrates theories such as mutation theory, synthetic theory, neutral theory of molecular evolution, and sociobiology.

2.4.2 The Biosphere Is a Complex and Nested System, and Each Layer of Biological Systems Has Its Own Evolutionary Law Observed from the perspective of systems science, the Earth’s biosphere is a set of interrelated and nested complex systems that exist in the form of different layers or levels, in which each layer or level constitutes a relatively independent biological system and has its own special structure and function, as well as evolutionary laws that are different from other layers or levels. For example, the mammalian system can be divided into three basic hierarchies of individual, family, and population, each of which constitute a relatively independent biological system and have its own structure, function, and evolutionary laws. The evolutionary laws of animal families are different from those of individual animals, and the evolutionary laws of animal populations are not exactly the same as those of animal families. The evolutionary laws that exist at the three levels of individual, family, and population have their own particularities and cannot be substituted for each other or mixed up, although they are related to each other. From the perspective of systems science, for a comprehensive and complete understanding of the evolutionary laws of the kingdom Animalia, it is obviously not sufficient to only study the evolutionary laws of individual animals (i.e., body shape, tissues and organs, cells, chromosomes, genes and molecules, etc.), it is also necessary to study the relationship between the members of the animal family (i.e., the genetic relationship between parents and offspring, the relationship

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between offspring and offspring, etc.), the relationship between the elements within the population (i.e., competition, cooperation between different subspecies, etc.), and even the relationship between species and the ecological environment. In this way, the research scope in fact involves social organisations at different levels and social behaviour in the kingdom Animalia, which are precisely the research topics of sociobiological theory. Darwin’s theory of evolution is a theory of species evolution, which does not focus on the study of the social behaviour of animals, so it cannot replace the research in biological social organisation and social behaviour. Therefore, to fully and completely explain the evolutionary laws of the biological world, it is necessary to examine the problem from a sociobiological perspective. It is precisely because of the objective need to explore the laws of biological evolution that urges people to put forward and create the emerging discipline of Sociobiology.

2.4.3 Every Biological Individual Has a Two-Layer Structure of Genotype and Phenotype Starting from gene theory, some important insights about the structure of biological individuals can be obtained. Every biological individual has a unique duality, which is manifested in the fact that each biological individual is composed of two aspects of genotype and phenotype. Genotype can determine phenotype, but not any genotype can appear as phenotype. From a system perspective, the phenotype of an individual is not completely determined by its inherent genotype but is the result of the combined action of the individual’s genotype and environmental factors. At the phenotype level, because the traits and functions of biological individuals are obviously constrained and influenced by the external environment, the evolutionary pace of biological individuals at the phenotype level will be accelerated or delayed due to survival competition and natural selection, which is often manifested as the inconsistency and nonconstancy of its evolutionary rate. At the genotype level, although a large number of nucleic acid molecules in biological individuals are constantly mutating, they generally do not significantly change the phenotype of biological individuals. These molecules are not directly affected by the external environment, so their evolutionary pace does not depend on natural selection, which is manifested as the consistency and constancy of the evolutionary rate of biological individuals at the genotype level.

2.4.4 The Evolutionary Laws of Biological Individuals at All Levels Are Interrelated, Interacted and Interinfluenced From all levels of biological individuals, there are three different biological variations, namely, beneficial, harmful and neutral. However, the relation between these

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three variations is neither absolute nor fixed, and their properties can be transformed under certain conditions. The nature of a certain variation form, whether it is beneficial or harmful to a biological individual, is in fact related to environmental conditions. Variations that are beneficial under one environmental condition may turn into detrimental ones under another, just as a variation that is neutral under one environmental condition may become beneficial under another. For this reason, the law of molecular evolution revealed by the neutral theory of molecular evolution cannot be interpreted absolutely. In addition, all levels of biological individuals are interconnected, interact and influence each other, so neither the selection theory based on the survival of the fittest nor the neutral theory can fully reflect the fundamental mechanism of biological evolution. In fact, the evolution of biological individuals is the result of the combined action of two mechanisms, internal structural change (i.e., gene mutations, molecular variations, etc.) and the natural selection of the external environment. At the phenotype and genetic level of biological individuals, natural selection plays a role in screening the nonneutral (i.e., beneficial or harmful) variations of organisms, thus leading the evolution direction of individual phenotypes, while genetic drift plays an important leading role in the neutral variation of organisms at the phenotype, gene and molecular levels of biological individuals. Because the various levels of biological individuals, from the external morphology, body structure, tissues and organs at the macro-level, the cells, chromosomes and genes at the meso-level to the nucleotides, amino acids, proteins and other macromolecules in cells at the micro-level, are closely related and cooperate with each other, they together form an organic unified whole. Therefore, only by organically integrating the evolutionary laws that reflect all levels of individual organisms and forming a new synthesis can one have a more comprehensive and complete understanding of the causes, dynamics, methods and nature of the evolution of biological individuals, as well as scientifically explain the dialectical relationships between variation and adaptation, contingency and necessity, balance and imbalance, and internal causes and external causes in the evolution of biological individuals, thereby advancing the study of biological evolution to a new and higher level.

2.4.5 The Evolutionary Process of Biological Individuals Is the Unity of Contingency and Inevitability In the process of evolution of biological individuals, there are morphological evolution at the macro level, cell and chromosome evolution at the meso level, and molecular evolution at the micro level, which are organically connected and should not be clearly separated. At the molecular level, the evolution caused by beneficial and harmful mutations will eventually be reflected in the phenotype of biological individuals, and natural selection still plays a dominant role in this nonneutral type of molecular evolution. The evolution caused by molecular neutral mutations, whether neutral mutant genes can be inherited, is initially determined by the mechanism of

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genetic drift. However, when the mutant genes are fixed in the biological population, from the adaptation process of biological individuals, the natural selection mechanism of the external environment begins to play a screening role. Therefore, the biological evolution caused by the molecular neutral mutation is actually the result of the combined effect of genetic drift and natural selection. In the process of the variation, inheritance and adaptation of biological individuals, meso in fact makes an important pivotal function in connecting and conducting the interaction between micro and macro. In the process of evolution of biological individuals, whether it is macro-level morphological evolution, meso-level cell and chromosome evolution, or micro-level molecular evolution, they will all be constrained by natural selection, although the degree of impact varies, with the macro-level impact being the most direct and significant and the micro-level impact being more indirect and subtle. Overall, the evolution of biological individuals is the result of the combined action of the internal variation-inheritance mechanism and the external adaptation-selection mechanism, and the adaptation-selection effect ultimately determines the direction of biological evolution. The variation-inheritance effect reflects the contingency in the evolution of biological individuals, while the adaptation-selection effect demonstrates its inevitability. Therefore, the evolution process of biological individuals is neither a purely contingent phenomenon nor a simple inevitable phenomenon but the unity of contingency and inevitability.

2.4.6 The Mechanism of Biological Evolution Is Not Only a Survival Competition But Also Contains a Wealth of Content From the Systematics, some important understandings of the mechanism of biological evolution can be obtained. From the perspective of systems science, the relation between organisms and the environment is not simply a relation between survival competition and natural selection, as described by Darwin, but a very complex interactive relationship. This intricate relationship is manifested in the selection, isolation, and mutagenesis imposed by the environment on biological species, which become the restrictive conditions for their survival and evolution, and the dynamic adaptation of the organisms to the environment and the reverse influence of survival activities. In addition, there are not only competitive relationships between organisms (intraspecies, interspecies) and between organisms and abiotic environments but also symbiotic relationships of coordination and harmonious coexistence. In the competitions among organisms, there are fierce and gentle competitions; there are direct competitions, such as wolves and sheep, and indirect competitions, such as rabbits and sheep, as well as cats and clover; and there are long-term continuous competitions and intermittent discontinuous competitions.

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2.4.7 Biological Diversity Originates From the Diversity of Biological Variation and Ecological Environment Combinations From the organisational level of biological systems, a biological system can be divided into three basic levels of individual, family, and population. At the individual level, there are variations such as molecular variation, chromosomal variation and morphological variation; at the family and population levels, there are genetic phenomena such as gene combination and generational inheritance. The infinite combinations and changes of the variations and genetic factors result in the infinite potential of biological variation and inheritance, which is the internal reason for the evolution of a biological system to diversification and complexity. From the perspective of the external environment of the biological system, there are many ecological factors in the ecological environment, which naturally form their own distinctive differences in long-term evolution. The infinite combination and changes in the differentiated ecological factors result in a variety of ecological environments. The selection, isolation, and mutagenesis exerted by these diverse ecological environments on biological systems are the external reasons for the evolution of a biological system to diversification and complexity. In the evolution of biological systems, the coincidentia oppositorum (unity of opposites) of internal causes and external causes is actually the combined action mechanism of variation-inheritance and adaptationselection revealed by Modern Synthesis, which is the fundamental driving force behind the evolution of biological systems. Different combinations of internal causes of the biological system and external causes of the ecological environment make the same species differentiate and evolve in different directions. After a long-term accumulation of variation, populations that evolve in different directions eventually form species with greater differences. In summary, biological diversity originates from the varying combinations of biological variation and ecological environment, and the infinite change of these combinations is the inexhaustible source of biological evolution.

2.4.8 Some New Understandings About the Dynamic Mechanism Behind the Evolution of Biological Systems According to the basic principles of system theory, the process of system evolution is the process of interrelation, interaction and interinfluence between internal causes and external causes, and the state of system evolution is the result of the unity of opposites between internal causes and external causes. In the evolution of biological systems, biological variation and inheritance are internal causes, while selection, isolation, and mutagenesis of the ecological environment are external causes. It is the unity of opposites of internal causes and external causes that pushes biological systems to evolve to diversification and complexity. When the internal causes of the

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biological system and the external causes of the ecological environment are coordinated, the biological system will appear in a temporary stable state (at this time, the biological evolution is in a stage of gradual change). However, with the occurrence of new variation, inheritance, and the change in the ecological environment in the biological system, new antagonisms will be formed between internal causes and external causes, and the biological system will appear in a temporary unstable state (at this time, the biological evolution is in a stage of abrupt change), followed by the selection of the new mutation by the new environment. When the organisms adapt to the new environment, the two sides tend to be temporarily unified, which is actually a dynamic cyclical process that goes back and forth. This process is a discontinuous equilibrium process in which stability-instability and gradation change-abrupt change are constantly intertwined in the evolution of biological systems.

2.4.9 Philosophical Enlightenment on the Structure and Evolution of Things From the Theory of Biological Evolution 2.4.9.1

The Two-Tiered Information Structure

From the performance of information, a thing generally has a unique two-tiered information structure, which means that the information inside a thing can be divided into two levels: one is the visible explicit level (surface structure), and the other is the hidden implicit level (deep structure). The surface structure determines the generality of a thing; the visible information it contains is commonly open to the external environment, and it interacts with the external environment to form a part of the environment in which the thing is located. The deep structure of things determines the particularity of things, and the hidden information it contains is generally closed to the external environment, which is the source of the diversity of things. The information contained in the same type of things at the same level has both the same components and varied components. The visible information contained in the surface structure is normally more discrepant than consistent, while the hidden information contained in the deep structure is mostly more consistent than discrepant. It can be summarised from the perspective of information that there is always a certain degree of similarity between things, which means that there are more similarities than dissimilarities between the same type of things and more dissimilarities than similarities between different types of things.

2.4.9.2

The Development Trend of the Evolution of Things

Evolution refers to the movements and changes that occur with the continuation of time and the expansion of space. It generally includes three developmental trends:

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progression, regression and stagnation. Progression refers to the forward, progressive, and expanded evolution of the structure, function, and external connection of a thing from simplicity to complexity, from disorder to order and from low-level to high-level. Regression refers to the backward, regressive, and shrunken evolution of the structure, function, and external connection of a thing from complex to simple, from order to disorder and from high-level to low-level. Stagnation means that things are in a neutral and relatively static development trend in the process of change, which is a chaotic state between progression and regression. At different stages or different levels in the evolution process of things, the development state of things may present as one of the three trends of progression, regression, stagnation, or may show some kind of mixed state of the three trends (i.e., partially progressive, partially regressive, or partially stagnant).

2.4.9.3

The Essence of the Evolution of Things

The evolution of anything is a historical process closely related to time and space, which is the unity of progression, regression and stagnation that occur in a specific spacetime. During progression, some internal structures or functions may decline or stagnate to some extent, while during regression, some internal structures or functions may also undergo a certain degree of progression or stagnation. From the perspective of time, the evolution of things does not proceed at a uniform speed but tends to happen in fits and starts, sometimes moving very fast, sometimes moving very slowly. In terms of space, the evolution process of things is not carried out homogeneously but is manifested as differences in density, with some aspects expanding and some shrinking. Therefore, the overall evolution of things is the unity of gradual change and disruptive change, quantitative change and qualitative change, order and disorder, and progression and regression. In the biological evolution of nature, it is not difficult to find such cases of the unity of progression and regression. For example, palaeontological studies showed that the ancestors of modern cetaceans and other aquatic mammals were animals that ran on land with limbs 50 to 60 million years ago, which returned to rivers and seas approximately 45 million years ago to adapt to the changes in the Earth’s natural environment and degenerated their overall body structure from complex to simple during the long process of adaptation to the aquatic environment. By comparing the body structure of ancient whales and modern whales, it was discovered that their bodies were adjusted to streamlined shapes, forelimbs shortened and progressed into flat fins, hind limbs greatly degraded (as seen from the remains of the pelvis and femur), and tails broadened at the tip in horizontal flukes to create a hydrofoil to fit in their exclusively aquatic lifestyle.73 Seals, another aquatic mammal, also experienced

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Mueller, T. Valley of the Whales. National Geographic, 2010, (8).

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regression similar to that of ancient whales in their long-term evolution.74 Comparing the body structure of ancient seals and modern seals, it was discovered that the outer ears of the seals were greatly degenerated (into two small holes), while their limbs progressed into flippers (webbed toes). This idea can also be proven by the physiological structure of the human body that the general trend of human evolution is progressive, but human tissues and organs such as the cecum and coccyx were significantly degraded. In nature, the evolution of organisms is manifested not only in the progression or regression of their morphological structure but also in the changes in species diversity and adaptability of biological populations.

2.4.9.4

The Dynamic Mechanism Behind the Evolution of Things

The dynamic mechanism of the evolution of things is the unity of opposites between internal causes and external causes, and the direction of the bifurcation of the evolution of things depends on the relative status of the internal causes and the external causes, which is a dynamic process of repeated games between internal causes and external causes. At one stage or level of the evolution of things, internal causes may be in a dominant position, while external causes may be in a subordinate position, and the internal causes determine the direction of the evolution of things. At another stage or level of the evolution of things, the positions of internal causes and external causes may be interchanged, that is, external causes may be in a dominant position, while internal causes may be in a subordinate position, and external causes determine the direction of the evolution of things.

2.4.9.5

The Relation Between Systems Structure and Function

Generally, the internal structure of the system determines the nature of its external output function. On the one hand, systems with different internal structures generally have different external output functions. On the other hand, when the external environment of a system changes, the environment will put forward new function requirements for the system, and the internal structure of the system will also change accordingly to adapt to the changed new environment. Such cases of adapting to the external environment by changing the internal structure also exist in biological evolution. For example, the Bajau people living in Indonesia mainly collect sea cucumbers from the sea and sell them for a living. Researchers discovered that long-term diving to collect sea cucumbers led to a mutation in the genes of the Baggio people who their spleens are five times larger than ordinary people and can secrete a hormone

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Yan, X. H., Cao, J. Y. (1995). A Research on Some Basic Concepts of Evolution. Journal of Yan’an University (Natural Science Edition) (04):84. 阎锡海., 曹娟云. (1995). 生物进化论中的 若干基本概念探究. 延安大学学报(自然科学版) (04):84.

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when they dive to increase the content of oxygen molecules in the blood, allowing their bodies to adapt to diving operations in the sea for a long time.75

2.5 The Three Basic Principles of the Evolution of Complex Systems Of the three basic principles introduced in this section, some have been applied as philosophical ideas to the analysis of economic systems, some have been specifically discussed in relevant chapters, and some have been expressed in other ways in the first edition of the book. To make it easier for readers to understand the ideas contained in these basic principles, this revised edition extracts them specifically to elaborate.

2.5.1 The Principle of System-level Emergence The ontology of this book adheres to the idea of evolutionary pluralism. Using this idea to understand the hierarchy of the system means that the system gradually evolves from nonhierarchical to hierarchical, from single-layer to multilayer, and from simple structure to complex structure, and a complex system is a multilayered entity, each layer has a unique structure that is different from other levels. Based on the layered ontology and emergence ideas of philosophers such as Roy Bhaskar (1944–2014), Alfred North Whitehead (1861–1947) and Arthur Koestler (1905–1983), British evolutionary economist Geoffrey M. Hodgson extended the ontological layered view to the analysis of the evolution of social institutions.76 The layered ontology and emergence thought are of great value for understanding the complexity of the socioeconomic system. From the relation between the whole and the part, each layer of the system has duality, which is not only the constituent element (or subsystem) of the upper layer but also the whole of the next layer, containing all elements (or subsystems) of the next layer. For a complex system in which there are people involved, although the upper layer of the system is composed of the elements of the lower layer, logically, each layer of the system has new features that cannot be restored to the properties of its constituent parts, let alone reducing all layers to a single layer of atomic individuals. In other words, in a complex system, no layer can be simplified or restored to another layer, and the explanation of one layer cannot be completely

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Stewart, J. (2018, May 7). Rare Genetic Mutation Allows Bajau People to Stay Underwater for Extended Periods. Cell. http://mymodernmet.com/bajau-freediving-genetic. 76 Hodgson, G. M. (1999); and Hodgson, G. M. (1999). Evolution and Institutions: On Evolutionary Economics and the Evolution of Econmics. Edward Elgar. Chapt. 6 Meanings of Evolutionary Economics.

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reduced to the phenomena of its lower layers. A higher-layer system includes a lowlayer system and is based on a lower-layer system, but a lower-layer system cannot determine the function and property of a higher-layer system; that is, a lower-layer system is necessary rather than sufficient conditions for a higher-layer system. For example, in the economic system of modern society, in the sequence from the firm system, industry system, and sector system to national economic system, the lowerlayer system cannot determine the function and property of the higher-layer system, but they can generate a higher-layer system by communicating with relevant social and natural environments and by interacting with other lower-layer systems. It is precisely because of the existence of higher and lower layers in the complex system that these levels can be divided and categorised by terms such as micro, meso and macro. In a complex system, how are the layers connected? Emergence is the key. The philosophical concept of emergence that appeared in the 1920s has regained the attention of the scientific community in recent years after a period of silence with the development of systems science. In systems science, the interaction between the low-layer elements of a system will produce novelty at new layers, but its property cannot be explained by the properties of the low-layer elements. The novelty here is a new structure produced by the interaction of the elements of the system, which has completely new properties and characteristics. For example, firm organisation is formed through the interaction between individuals, and the firm system is created by the combination of firm organisation and various resources. The firm system is composed of elements such as individuals, organisations, and resources. The interaction between these elements will produce a new structure in the firm system, but the property of this new structure cannot be explained by individual properties of any single element of the firm system. When one element is added to another, purely from mathematics, the result should be 1 + 1 = 2, but from the emergence’s philosophy of creating novelty, the result should be 1 + 1 > 2, which is the essential meaning of emergence. In chemistry, for instance, hydrogen (H) and oxygen (O) combine to form a new substance, water (H2 O), whose structure and properties are obviously different from hydrogen and oxygen alone. Looking at society as a totality, the production activities of human society include at least three aspects of population production, material production and information production, which are inseparable and organically connected. From the production activities of material products, the economic system of modern society can at least be divided into different layers of firm system, industry system, sector system and national economic system. By comprehensively examining the behaviour of the economic system, it can be discovered that there are emergence phenomena among the various layers of the economic system. It is the interrelation, interinfluence and interaction between the elements inside and outside these systems that lead to the emergence of a new structure of the higher-layer system from the lower-layer system of the economic system.

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2.5.2 The Coupling Principle of Positive and Negative Feedback Feedback is a fundamental concept in cybernetics.77 It refers to the process of regulating the function of a system by returning some or all of the system’s output information to the system’s input in the process of system–environment interaction. Feedback can be divided into positive and negative feedback. On the one hand, positive feedback is the process when regulating the directions of the feedback and the input are the same, thereby promoting and enhancing the system’s function. On the other hand, negative feedback is a process wherein the feedback information is regulated in the opposite direction of the input information, thereby inhibiting and weakening the system’s function. The meaning of positive feedback is to promote the changes in the system’s internal environment, which in turn causes structural instability of the system and thus drives it away from equilibrium. Alternatively, negative feedback means maintaining a stable environment within the system, which keeps the system structure settled and consequently contributes to the system’s balance. The terms positive and negative here do not convey their literal meanings. For social systems, positive feedback can be either a revolutionary or destructive factor. For instance, positive feedback can lead to system innovation and collapse or annihilation. Again, negative feedback may be a conservative or constructive factor. For example, negative feedback can drive a system to maintain a steady state or cause the system to stagnate or to decay. The virtuous and vicious cycles of a system are both positive feedback mechanisms at work, whereas the system’s steady state and equilibrium state are both negative feedback mechanisms in operation. First-generation cybernetics focused on the issues of the system’s negative feedback. At that point, cybernetics emphasised that an open system could maintain its steady state only when a circular negative feedback loop is formed in its internal environment. Meanwhile, second-generation cybernetics dealt with both negative and positive feedback issues and combined the two to study their interaction mechanisms. Moreover, the cybernetics at that time indicated that under the combined actions of positive and negative feedback, the system could operate in three states: dynamic equilibrium (steady state), deviation from equilibrium (unstable state), and abrupt bifurcation (in multiple steady states). For a system, positive feedback amplifies the input. Additionally, the positive feedback effect of the system occurs when the negative feedback effect decays.78 77

The main content of this section was first given a speech on the afternoon of November 21, 2020 in the panel discussion of the 12th Annual Conference of China Evolutionary Economics held in Guilin, Guangxi, then published with the title of A Brief Discussion on the Coupling Principle of Positive and Negative Feedback in the Economic System in the second issue of 2021 of Review of Evolutionary Economics and Economics of Innovation sponsored by Tsinghua University in Beijing. 78 Pang, Y. Z., Li, J. H. (eds). (1989). Selected Classical Literature on Systems Theory, Cybernetics, and Information Theory. Qiushi Press. pp. 284–285. 庞元正., 李建华. (eds). (1989). 系统论、控 制论、信息论经典文献选编. 求实出版社. pp. 284–285.

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Niu Long-Fei, a cultural philosopher, summarised the philosophical idea of positive feedback, self-generation and negative feedback, the self-stabilisation coupling principle based on the outcomes of systems science in combination with the classical Chinese philosophy in Zhou Yi (the Earliest Book on Systems Science in the World and among the oldest of the Chinese classics) and Taoism’s idea of Tai Chi (a Chinese cosmological term for the Supreme Ultimate).79 The evolution of a system contains both positive and negative feedback effects. Moreover, it is an organic coupling of positive and negative feedback. As Niu LongFei noted, “The former is to change, the latter is to not change; The former is the proliferation of information, and the latter is the maintenance of information; The former is positive feedback, self-generation, and the latter is negative feedback, selfstability.” He further stated, “Neither positive feedback self-generation alone, nor negative feedback self-stabilisation alone, is sufficient condition for the evolution of things. However, the reciprocal cycle of the two is what ensures the occurrence and existence of heterogeneous new things.”80 A system in a stable state will be destabilised and self-organised due to a positive feedback mechanism. The result of self-organisation is to create a new structured system on a new level, which will maintain a relatively stable state due to a negative feedback mechanism. This cyclical process will continue to produce new structured systems from the old ones. Both positive and negative feedback phenomena exist in real economic activities. By way of illustration, “the rich get richer, and the poor get poorer” is a positive feedback phenomenon in wealth distribution; Simultaneously, the balance of supply and demand is a negative feedback appearance in market exchange. Moreover, positive and negative feedback precepts exist among the economic laws that people have concluded. As proof, the laws of increasing returns and diminishing returns are postulated, where the former corresponds to a positive feedback mechanism and the latter corresponds to a negative feedback mechanism. The law of increasing returns means that as the input elements continue to grow in an economic system, the output will increase accordingly, that is, the marginal revenue is on the rise. Meanwhile, the law of diminishing returns refers to the fact that as input elements continue to increase in an economic system, the system’s output will first increase and then decrease, that is, the marginal revenue shows a downward trend. These laws are two basic propositions in economic theory. From a superficial point of view, they are contradictory and opposed to each other, which have led to a long dispute in the economics community. Can they be organically integrated and unified? In terms of premises, period, and method of observation of propositions, the law of diminishing returns is the result of a static study of local, short-term phenomena in the 79

Niu, L. F. (1989). Human-Culture-Civilisation Evolutionology and General Evolution Theory. Gansu Science & Technology Press. pp. 109–110. 牛龙菲. (1989). 人文进化学. 甘肃科学技术 出版社. pp. 109–110. Niu, L. F. (1990). Human-Culture-Civilization Evolutionology and General Evolution Theory. World Futures—The Journal of General Evolution. Gordon and Breach Science Publishers S. A. (30). pp. 85–94. 80 Long, F. (2017). Historical Evolution and System Structure. New Economy (04):34, 35. 陇菲. (2017). 历史演化与系统结构. 新经济 (04):34, 35.

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economic field. Alternatively, the law of increasing returns is the insight derived from dynamic research of overall, long-term events in the economic area. Arguments in the economic community are more reflected in the differences between the understanding of these two aspects. To essentially identify the differences, the histories of economic thought and socioeconomic formations can be examined.

2.5.2.1

An Investigation into the History of Economic Thought

If tracing economic thought back to the initiation of classical economic theory, it will be noticed that there is no such disagreement in Adam Smith’s The Wealth of Nations. Since the 1930s, the static equilibrium framework has been continuously refined in the mainstream economics community, dominated by neoclassical economic thought, whereas dynamic economic development has long been neglected. It was not until the 1980s that economic theories emphasising disequilibrium and the law of increasing returns attracted attention. In The Wealth of Nations, Adam Smith proposed two different theories of economic equilibrium and economic evolution. His idea of equilibrium was mainly reflected in the section “On the natural and market prices of commodities.” Since Adam Smith proposed the theory of economic equilibrium, from Léon Walras (1834– 1910) and Alfred Marshall (1842–1924) to Kenneth J. Arrow (1921–2017) and Gérard Debreu (1921–2004), the general equilibrium theories were in the same vein. The core of general equilibrium theory was the analysis of the conditions for reaching various equilibria in an economic system. To build mathematical models, economists had to make extremely strict assumptions about the theory’s premises, from which increasing returns and the nature of technological and institutional changes were excluded.81 In 1890, Alfred Marshall applied partial equilibrium analysis in his masterpiece Principles of Economics82 to detail the existence of increasing and diminishing returns in the economic system and the interrelationship between them. From the characteristics of diminishing returns in agriculture and mining sections, he inferred that the universal law governing the economic system was the law of diminishing returns. Moreover, he attributed the cause of increasing returns to the expansion of firms or industries’ size. When the size of the representative firms increased, individual firms experienced increasing returns to scale, which he termed the internal economy. Meanwhile, when the size of the representative firms remained the same but the size of the industry increased, individual firms also experienced increasing returns to scale, which he termed the external economy.

81

Jia, G. L. (1998). Economics of Increasing Returns: Retrospect and Prospect (I). Nankai Economic Studies (06):30–32. 贾根良. (1998). 报酬递增经济学: 回顾与展望(一). 南开经济研究 (06):30– 32. 82 Marshall, A. (1930). Principles of Economics. The Macmillan and Co. Limited. Chaps. 8–13.

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In 1928, Allyn Abbott Young (1876–1929) expounded Adam Smith’s economic thoughts. He attributed the cause for increasing returns to the interaction and interstimulation between the division of labour among industries and the extent of the market. Simultaneously, he highlighted the conditions of departure from equilibrium in economic operations.83 The ideas of Alfred Marshall and Allyn Young have a significant influence on later economists. Since then, two significantly different thought lines have been formed in the development of economic theories: the neoclassical and structuralist economic theories. The neoclassical economic theory incorporates the external economy into the equilibrium framework. Meanwhile, a structuralist economic theory initiated by economist Allyn Young and refined by Karl Gunnar Myrdal (1898–1987) and Nicholas Kaldor (1908–1986) emphasises the importance of imbalanced characteristics of the economic operating process and the importance of historical conditions. Its most recent representative is W. Brian Arthur. Rethinking the basic assumptions and research paradigms of neoclassical economic theory, Brian Arthur constructed a new framework of complexity economics by applying the positive feedback thought in cybernetics and the probability theory method in mathematics to analyse the disequilibrium process and increasing returns in the economic system.84 His series of papers published since the 1980s (1987, 1988, 1989, 1990, etc.) have advanced the theory of increasing returns to a new stage and made significant contributions to the development of economic theory. Brian Arthur stressed that the law governing the modern economic system was the law of increasing rather than diminishing returns. Moreover, the evolution of the economic system was characterised by positive feedback and path dependence. He highlighted that, under the premise of increasing returns, multiple equilibria would occur in the operation of the economic system. That is, increasing returns could lead to a variety of possible outcomes, and the exact outcome bound to happen was not certain but mediated by a series of random events in history. A result selected by random events might be inefficient; in other words, it might not be necessarily optimal but suboptimal or inferior. However, once the economic system determined such an outcome, the economic operator would step into that specific path and be locked in it. The result of the positive feedback effect of increasing returns would magnify this outcome, eventually leading to the “the superior gets better, and the inferior gets worse” result. From this, he precisely explained the “vicious circle of poverty” phenomenon in underdeveloped countries and the economic growth differences of “poor countries get poorer, and rich countries get richer.” Brian Arthur focused more on studying the evolution of technologies, and his framework needs to be considered in a broader domain. If neoclassical economic theory is representative of emphasising the law of diminishing returns, structuralist economic theory is the representative of underlining the law of increasing returns. The former emphasises the equilibrium characteristics of 83 Young, A. A. (1928). Increasing Returns and Economic Progress. The Economic Journal 38(152), pp. 533–539, 541. 84 Arthur, W. B. (2014). Complexity and the Economy. New York: Oxford University Press.

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the economic operating process and the law of diminishing returns. It is based on the concept of the optimal, unique outcome, predictable, and history-independent equilibrium. Conversely, the latter underlines the nonequilibrium characteristics of the economic operating process and the law of increasing returns. It is founded on the concept of nonoptimal, multiresults, unpredictable, and history-dependent evolution. Obviously, these are two very different economic theories. In the economic field, neoclassical economic theory emphasises statics, negative feedback, and equilibrium more but ignores long-run unbalanced growth. It even tries to integrate long-term economic improvement into the equilibrium framework. Meanwhile, structuralist economic theory emphasises the dynamics, positive feedback, and disequilibrium while ignoring the partial short-term economic equilibrium in the economic domain. The long-standing debate in the economics circle about economic equilibrium and disequilibrium actually reflects the divergence of understanding of the relationship between positive and negative feedback. This disagreement may be settled by unifying the local static equilibrium idea and the overall dynamic nonequilibrium idea in epistemology. The two ideas cannot be separated or opposed to each other, nor can either of them be abandoned.

2.5.2.2

A Study in the History of Socioeconomic Formations

In the history of socioeconomic formations, human society has experienced the eras of the gathering and hunting economy, agricultural economy, industrial economy, service economy, and information economy. In the long historical process, on one hand, more factors of production have been involved in the economic system, and the connotation of the economic system has been enriched; on the other hand, among the total factors of production, the relative weight and revenue contribution of tangible factors have tended to decrease gradually, whereas the relative weight and revenue contribution of intangible factors have tended to increase progressively. In the era of the gathering and hunting economy, the geographical distribution and abundance of natural resources on the land, for example, water, plants, and animals, directly influenced the economic life of different ethnic groups in human society. Meanwhile, in the age of the agricultural economy, production factors, such as land and labour, had a leading role in the development of social productivity. In the industrial economy era, factorssuch as land, labour, and monetary capital played a leading role in the development of social productivity. Since the twentieth century, human society has entered the era of the service economy. In terms of improving social productivity, the role played by tangible factors of production (i.e., land, labour, and monetary capital) has been reaching its limit. Alternatively, the role played by intangible factors (i.e., human capital, management knowledge, and production technology) has become increasingly important. Since the 1950s, human society has entered the era of the information economy. In this era, the proportion of tangible production factors in the economic system, such as natural resources, land, labour,

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and monetary capital, has declined. Meanwhile, the proportion of intangible production factors in the economic system (i.e., human capital, education and training, knowledge, technology, institution, and information) is increasing daily. For a specific society or country, the quantity of tangible factors, for instance, natural resources, land, labour, and monetary capital, is limited in the short term (less than a year). These factors generally have characteristics and properties such as scarcity, slow regeneration, and difficulty in sharing, which determine the features of diminishing returns in an economic system led by tangible factors of production. Moreover, the quantity and quality of intangible factors are growing and improving in the long term (more than one year). These factors usually have characteristics and properties opposite to the aforementioned ones, such as nonscarcity, faster regeneration, and the ability to be shared, which determine the features of an economic system led by intangible factors of production with increasing returns. At present, human society has entered the era of the knowledge economy. Various kinds of knowledge and technologies are nonexpendable and can be easily spread and shared as factors of production. Furthermore, they can be integrated with other knowledge and technologies to derive new ones, that is, creating new knowledge through the existing knowledge and inventing new technologies through existing technologies, thus enabling continuous innovation and value appreciation of the economic system. Therefore, it is apparent that equilibrium theory and disequilibrium theory are not in absolute opposition and contradiction but can be compatible and unified. That is, the analysis of economic systems lends itself to the application of equilibrium theory in the short term and disequilibrium theory in the long term. Regarding the relationship and compatibility between the law of diminishing returns and that of increasing returns, Tao Shi and Aiping Tao (2007) gave a better explanation85 : changes in the relative weight of tangible and intangible factors of production in total factors directly determine the direction of changes in returns. Increasing returns may appear in a certain industry or a certain section of an industry in a traditional economy. However, under the predominance of tangible factors, the increasing returns as particularity are often submerged in the generality of decreasing returns in many economic fields; with the continuous enrichment of the economy, the proportion of intangible factors in the total increases. Thus, the increasing trend of total marginal returns becomes more apparent, and the law of increasing returns extends from one or a few fields to many other fields and thus becomes increasingly general. From the above discussion, the understanding of the theory of equilibrium and the theory of disequilibrium, and that of law of diminishing returns and the law of increasing returns, are in fact compatible with each other and can be unified, despite the long-standing disputes between them in economics. The human social system is a super complex giant system. It is easy to fall into misunderstandings and draw one-sided conclusions from partial and short-term 85

Shi, T., Tao, A. P. (2007). Increasing returns: Analysis on the Conversion from the Particularity to the Universality. China’s Industrial Economics (04):10. 石涛., 陶爱萍. (2007). 报酬递增: 特殊 性向普遍性转化的分析. 中国工业经济 (04):10.

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observations. Only observation and thinking from the overall and long-term historical process can help us witness the trend of social development clearly and truly grasp its essence. In the long evolution of the social system, both positive and negative feedback effects alternate in predominance, thereby making the system both relatively stable and in a constant state of evolutionary change. From a long-term historical perspective, after a social system has accumulated abundant practices, some individuals will generate innovations in knowledge, technology, institutions, and so on. When these innovations are disseminated and diffused through social selection, the positive feedback mechanism of evolution in the social system is activated. Furthermore, when the positive feedback effect develops to a critical point, the social system will suddenly bifurcate. It may either jump to a higher or fall to a lower level. The leap or fall of the social system depends on the influence of contingent factors at that point; once the social system enters a certain level, it will remain relatively stable for a certain period due to the effect of the negative feedback mechanism. The long-term evolution of the social system is actually a process of organic coupling, alternating dominance, and reciprocating cycles of the effects of positive and negative feedback. Applying the coupling principle of positive and negative feedback can clarify the essential relationship and compatibility between the law of diminishing returns and the law of increasing returns. This can bridge the fundamental differences between the theories of equilibrium and disequilibrium in economics in a philosophical and epistemological sense and thus help effectuate the creative synthesis of economic theories.

2.5.3 The Principle of Circular Cumulative Causation The concept of cumulative causation has two meanings. One is that all phenomena can be traced back to the origin of their occurrence, that is, the occurrence of things is the cumulative result of a series of causes. The second refers to the interinfluence between the cause and the result, that is, the dynamic process of action and reaction, and interactive influence between the cause and the result. Inspired by Darwin’s theory of evolution, the concept of cumulative causation was first proposed in 1898 by the American economist Veblen.86 Unlike Veblen, the concept commonly used by economists such as Myrdal and Kaldor is Circular Cumulative Causation. From the literal expression, Veblen’s concept is close to the first meaning, while Myrdal and Kaldor’s concept is the second meaning. Adam Smith systematically discussed the idea that the division of labour leads to the expansion of the extent of the market in his theory of division of labour, which contains the one-way causality that the division of labour leads to the expansion of the extent of the market. Allyn Young developed Adam Smith’s one-way causality 86

Veblen, T. B. (1898). Review of Mallock, William H. Aristocracy and Evolution: A Study of the Rights, the Origins and the Social Functions of the Wealthier Classes. Journal of Political Economy.

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into a two-way reciprocal relation. He emphasised that “the securing of increasing returns depends upon the progressive division of labour” and “the division of labour depends upon the extent of the market, but the extent of the market also depends upon the division of labour”,87 revealing the mutual causal relationship between the division of labour and the extent of the market in the course of time. In fact, Allyn Young organically combined the three aspects of the division of labour, the extent of the market and the increasing returns and comprehensively discussed the dynamic operating process of the economic system. This dynamic process of the division of labour → the expansion of the extent of the market → the increasing returns → the further division of labour → the further expansion of the extent of the market is actually the core essence of the classical theory of economic growth, which profoundly reflects the circular cumulative causation existing in the economic system. If the three axes (i.e., A, B, C) are used to represent the growth degree of the three dimensions of the extent of the market, the increasing returns and the division of labour (Figs. 5.9), it can be clearly seen that the process of economic development is an expanding spiral (Fig. 5.9 is a helix diagram in a three-dimensional coordinate system). In 1931, Myrdal introduced the concept of the cumulative process of Swedish economist Knut Wicksell (1851–1926) into his book Monetary Equilibrium.88 The concept of circular cumulative causation was explicitly proposed by Myrdal in 1944, who recognised the triggers and underlying mechanisms of the causal interaction in the self-enhancing effect of the system.89 Myrdal advocated a holistic approach to comprehensive research on economy, society, institutional phenomena, social equality, population, race, and poverty, focusing on the links between economic and noneconomic factors and emphasising the interdependence between the factors in social operation, and put forward the important idea that the factors in the dynamic operation of social economy are interrelated, interacted and are changing in a circular way. He believed that “in a dynamic social process, there is a causal relation between social factors. A change in one socioeconomic factor will cause a change in another social factor, which in turn strengthens the previous change in the first factor. Therefore, the relation between the socioeconomic factors does not tend to be a stable equilibrium, but a circular movement”. He distinguished the movement of the Circular Cumulative Causation into two forms of the ascending circular cumulative motion and the descending circular cumulative motion.90

87

Young, A. A. (1928). Increasing Returns and Economic Progress. The Economic Journal, 38(152), p. 539. 88 Barber, W. J. (2008). Gunnar Myrdal. New York: Palgrave Macmillan. p. 73. 89 Yang, H. T., Xu, H. M. (2014). The Circular Cumulative Causation of Evolutionary Economics: Veblen, Myrdal, and Kaldor. Fujian Tribune (04):29–30. 杨虎涛., 徐慧敏. (2014). 演化经济学的 循环累积因果理论——凡勃伦、缪尔达尔和卡尔多. 福建论坛 (04):29–30. 90 Ma, T. (ed). (2018). A Tutorial on the History of Economic Thoughts. Fudan University Press. pp. 316–317. 马涛 (ed). (2018). 经济思想史教程. 复旦大学出版社. pp. 316–317.

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Kaldor, as a student of Allyn Younger and a colleague of Myrdal,91 inherited the abovementioned thoughts of Allyn Young and may also absorb Myrdal’s related ideas, further enriching and developing the idea of circular cumulative causation on their basis. Kaldor incorporated factors such as demand, investment, productivity, net exports, and real income into the analysis of circular cumulative causation and studied the virtuous circular mechanism of the economic system. Kaldor analysed demand and assumed that strong domestic demand can form stable and optimistic market expectations, stable and optimistic market expectations will stimulate investment, and investment in new technologies will improve productivity and yield economies of scale. The increase in productivity promotes the growth of net exports and further increases the level of demand by raising real income, while the Circular Cumulative Causation between investment, productivity, net exports, real income and domestic demand drives continuous economic growth.92 It is obvious that the idea of circular cumulative causation can clearly reflect the trajectory of the complex system evolving over time. When a multidimensional coordinate system is applied to describe the evolutionary trajectory of a complex system, the images displayed by these trajectories are shown as various spiral diagrams. For instance, the virtuous circular evolution of a firm system is shown as an expanding helix, the vicious circular evolution of a firm system is shown as a shrinking helix, and the rigid and stagnant firm system is shown as a circular cycle. At present, the principle of circular cumulative causation is regarded as a common principle that embodies the methodology of holism, evolutionary processes, and disequilibrium analysis in evolutionary economics,93 which is in fact not unique to the field of evolutionary economics but has long existed in the field of history with similar ideas. For example, the philosopher of history Giovanni Battista Vico (1668– 1744), in his New Science published in 1725, regarded human history as a cyclical process, revealing that historical evolution is like an upward spiral, which contained the idea of Circular Cumulative Causation. In addition, the idea of circular cumulative causation was also absorbed by contemporary thought of complexity. For example, the French philosopher Edgar Morin, famous for his thoughts on complexity, clearly pointed out that there are three types of causation: linear causality, feedback loop causality and recursive causality.94 The helix diagrams in Chaps. 4, 5, 7 and 8 are visual representations of the principle of circular cumulative causation. 91

Kaldor worked with Myrdal at the UNECE (United Nations Economic Commission for Europe). See Principle of Circular and Cumulative Causation: Fusing Myrdalian and Kaldorian Growth and Development Dynamics. requoted from: Yang, H. T., Xu, H. M. (2014). The Circular Cumulative Causation of Evolutionary Economics: Veblen, Myrdal, and Kaldor. Fujian Tribune (04):29. 杨虎 涛., 徐慧敏. (2014). 演化经济学的循环累积因果理论——凡勃伦、缪尔达尔和卡尔多. 福建 论坛 (04):29. 92 Kaldor, N. (1978). Further Essays on Economic Theory. New York: Holmes and Meier Publishers. pp.100–139. 93 Yang, H. T., Xu, H. M. (2014). The Circular Cumulative Causation of Evolutionary Economics: Veblen, Myrdal, and Kaldor. Fujian Tribune (04):31. 杨虎涛., 徐慧敏. (2014). 演化经济学的循 环累积因果理论——凡勃伦、缪尔达尔和卡尔多. 福建论坛 (04):31. 94 Morin, E. (2008). On Complexity. Hampton Press. pp. 60–61.

Chapter 3

A Bird’s-Eye View of the Economic Society

This chapter is the outline of the whole book, which basically reflects the overall appearance and core idea of the book. This chapter introduces the basic hierarchy from the natural system to the social system; concludes the four major laws (i.e., bifurcation, synergy, fractal and periodicity) followed by the evolution and development of human society; summarises the basic classification of resources and their forms; describes the evolution of the components of social reproduction; analyses the features of the long-term transition of relations of distribution in social production by means of historical investigation; and finally demonstrates the differences and similarities between the theoretical framework of this book and the micro-mesomacro theoretical framework proposed by Kurt Dopfer and others by comparing the connotation of the surface structure and the deep structure and lists the niches of the systems in different domains. The theoretical framework of this book will help to establish a new economic paradigm for the twenty-first century. The main discussions of this chapter are as follows: 1. In modern society, a complete state system includes at least six subsystems: the human-culture system, economic system, political system, science system, legal system and education system. A state’s internal economic system can be divided into five basic levels of firm (micro), industry (meso), sector (meso-macro), national economy (sub-macro), and state and society (macro). 2. The evolution and development of human society generally follow the four laws of bifurcation, synergy, fractal and periodicity. Scholars (especially economists) worldwide have already conducted a great deal of research and discussion on bifurcation and periodicity, so this book focuses on synergy and fractal. An important theoretical achievement of the book is its revelation of the general structural similarity between the firm system, the sector system and the national economic system and its disclosure of the two-tiered structure of the subsystems in the social system in terms of human-culture, economy, and polity. 3. The resources of human society can generally be categorised into natural resources and social resources; social resources can be divided into human resources, material resources and knowledge resources. Among them, human © Fudan University Press 2023 R. Gan, Helix Network Theory, https://doi.org/10.1007/978-981-19-8803-5_3

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resources are important renewable resources and the most productive resources among all available resources. Knowledge resources are economic resources with original attributes. 4. The four parts of production, distribution, exchange and consumption have been regarded as the components of social reproduction since they were separated from Economics by French scholar Jean Baptiste Say (1767–1832). This chapter graphically describes the long-term changes in social reproduction from primitive society, agricultural society, and industrial society to modern society. It is discernible that with the continuous development of human society, the process of social reproduction has become more complicated. From the long-term history of human society, socioeconomic systems are similar to biological organisms in that they also have a history of birth, growth, and evolution. Therefore, human socioeconomic activities are more suitable for observation and research from the perspective of biology rather than from the mechanical view of physics. 5. As far as the entire socioeconomic life of mankind is concerned, the link of distribution is of special importance. From the historical development of the entire human society, the relations of distribution have generally evolved from basic fairness and equality in the primitive society to extreme unfairness and inequality in the slave society, then to general unfairness and inequality in the feudal and capital society, and finally to comparative fairness and equality in modern society. From the perspective of long-term historical changes, there is a dynamic relationship of action-reaction and feedback-adjustment between the human cognition level of social production and the social distribution result. On the one hand, the lower level of human cognition determines their unreasonable value orientation, resulting in an unfair social distribution result. On the other hand, the unfair social distribution result will lead to the resistance or revolution of the exploited class, forcing them to challenge the unreasonable distribution institutions and gradually improve the public’s cognition level of social production. In a social economic system, there is also a dynamic relationship of action-reaction and feedback-adjustment between the ratio structure of factors of production and the ratio structure of factors of distribution, which is similar to the interactive relationship between human cognition level and social distribution result. In the development of human society, the relative position of production factors such as manpower (labour), land, capital, technology and knowledge is always changing. It is the constant changes in the relative positions of the factors of production that push the long-term evolution of the structure of social factors of production, which in turn encourages changes in the structure of factors of distribution. In a certain period of time, the decisive effect of the relations of production factors on the relations of distribution factors is determined by the level of social production, which is, in essence, determined by the human cognition level, while the reactive force of relations of distribution factors to relations of production factors is mainly manifested in the continuous adjustment and transformation of the distribution institutions. 6. Different from Adam Smith, Karl Marx and Vilfredo Pareto (1848–1923), who selected three core concepts of value, commodity and economic man, respectively,

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as the origin of the study of Economics, this book chooses system as the core concept and uses firm system as the starting point of research to analyse the organic connection and complex operation process of different links of social reproduction in modern society from micro, meso and macro. 7. A pair of important categories for understanding the theoretical ideas of this book are surface structure and deep structure. From the comparison of the connotation of the categories, it can be discovered that the theoretical framework of this book further deepens, refines and improves the micro-meso-macro theoretical framework proposed by Kurt Dopfie et al. Continuing research and synthesis along the theoretical framework proposed in this book will help to establish a new economic paradigm that meets the needs of social development in the twenty-first century. 8. Another key concept to understand the theoretical ideas of this book is the niche. The book interprets a niche as the specific resource space in which the economic system survives and the part in which the internal environment of the economic system communicates with the external environment. From the point of view of systems theory, there is a synergistic symbiosis between a system and its niche. There are corresponding niches at all levels of the socioeconomic system.

3.1 The Basic Hierarchy from Natural System to Social System Humans are a species in the biological world, and human society is the result of the long-term evolution of nature. A clear overview of the basic hierarchy from the natural system to the social system will help humans truly recognise their place in the entire world rather than continuously arrogantly surpassing nature.

3.1.1 The Basic Hierarchy of the Cosmic System Observing from the universe and space, if it starts from Earth and extends to the outer layers, then the celestial system of the universe can be divided into the Earth-Moon System, the Solar System, the Galactic System, the Extragalactic System, and the Macro-Cosmic System. From this, the spheres of the cosmic system can be drawn (Fig. 3.1). From the main factors affecting the life of the Earth, the natural system can be divided into five levels: the Pedosphere, Hydrosphere, Biosphere, Atmosphere, and Heliosphere. Humans are one species among many creatures in the Earth’s biosphere, so the human social system should be a subsystem of the biosphere system. Humans are part of nature.

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Fig. 3.1 Spheres of the cosmic system

3.1.2 The Basic Hierarchy and Structure of the Human Social System Social structure refers to the basic elements that make up society, the functions of the elements and the general state of the interconnection between these elements. Social structure is people’s abstract understanding of the basic features and essential attributes of society and the static generalisation compared to the dynamic process of social operation. From the long-term history of social development, the social structure of any open social system is constantly evolving, generally from nonhierarchical to hierarchical, from single-layer to multilayer, from monism to pluralism, and from simplicity to complexity. The famous American sociologist Talcott Parsons (1902–1979) conducted systematic research on the social system and the social structures and divided the social system into four subsystems of economy, polity, societal community, and fiduciary system, which perform four basic functions of adaptation, goal attainment, integration and latent pattern maintenance. Among them, the economic system performs the function of adaptation, which involves all the production and circulation activities of consumer goods needed for human life. The political system performs the function of goal attainment by selecting the common goals of society, setting the priorities for the realisation of goals, and mobilising social forces to achieve the goals. The societal community performs the function of integration by making social members act according to certain norms to avoid conflicts and to maintain the sustainable social solidarity, which includes all functional institutions such as the judiciary, the military, and the community organisations that aim to establish and sustain social unity. The fiduciary system performs the function of latent pattern maintenance by keeping the basic value model recognised by the society through the kinship system and education system and cultivating and bringing up various individuals who conform

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to social norms through the process of socialisation. Parsons believed that under the premise that these four subsystems are coordinated and their respective functions are fully exerted, the entire social system can maintain an orderly operation, and the key to the full functioning of these four subsystems lies in the shared value system among members of society.1 The Chinese system philosopher Min Jia-Yin (1999, 2004, 2006, 2012, and 2016) proposed a new Social System Model2 based on the shortcomings of Marx’s Historical Materialism Model3 and the advantages of the American thinker Ervin Laszlo’s Systems Model and the Chinese scientist Qian Xue-Sen’s Systems Model. This social system model included five subsystems of the human and cultural information database, human production system, material production system, cultural information production system and management system, in which the human and cultural information database is at the core and surrounded by four other systems. The external environment includes the social environment and natural environment. The five subsystems of the social system have their own independent functions, but they adapt, influence, determine, change, and co-evolve with each other; There are two-way exchanges of labour, resources, information and capital between every two subsystems, and there are also exchanges of resources, energy and information between the social system and the environment. Min Jia-Yin believed that the social system is a self-replicating-autopoietic dynamic system, a complex system with great randomness and indeterminism. The dominant culture in the cultural information database determines the structure, traits and function of the social system. He emphasised that humans are the starting point and the destination of all activities in the social system; humans are the subjects of cognition, creation, production and entertainment in the social system; and society should be human-oriented, treating humans as an end instead of a mean.4 In 2000, the Chinese economist Jia Gen-Liang, by absorbing the research results of Marx’s philosophy of science, institutional and evolutionary economics, put forward a social structural framework composed of a political structural system, economic structural system, cultural cognitive model (ideological) system, technological system and ecological geographic system.5 In fact, he constructed a social 1

Wang, H. J. (1992). Social System Analysis Model: A Comparison between Marx and Parsons. Sociological Study (01):54–57. 汪和建. (1992). 社会系统分析模型: 马克思与帕森斯的比较. 社 会学研究 (01):54–57. 2 Min, J. Y. (2012). Evolutionary Pluralism: A New System of Systems Philosophy. China Social Sciences Press. p. 370. 闵家胤. (2012). 进化的多元论——系统哲学的新体系. 中国社会科学出 版社. p. 370. 3 Min, J. Y. (2016). A New Model of Social Systems with Three Kinds of Production and Synthetic Evaluation Standard. Chinese Journal of Systems Science (01):6. 闵家胤. (2016). 社会系统的新 模型、三种生产和综合评价标准. 系统科学学报 (01):6. 4 Min, J. Y. (2016). New Model of Social Systems, Three Types of Production and Comprehensive Evaluation Standards. Chinese Journal of Systems Science (01):31–34. 闵家胤. (2016). 社会系统 的新模型、三种生产和综合评价标准. 系统科学学报 (01):31–34. 5 Jia, G. L. (2000). The Research Tradition of Marxist Economics and the Research Program of “Chinese Economics”. Tianjin Social Sciences (04). 贾根良. (2000). 马克思经济学研究传统与 “ 中国经济学”的研究纲领. 天津社会科学, (04).

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structure model, but the exposition of this structural framework was very brief, and he did not expound on the constituent elements and interrelationships of each system. The British scholar Christopher Freeman (1921–2010) and the Portuguese scholar Francisco Louçã constructed an organic social system constituting five subsystems of polity, economy, culture, science and technology,6 which is also a model of social structure. Learning from the advantages of Parsons’ and Min Jia-Yin’s social system models and combined with the author’s understandings of human history and society, the author divides the modern social system into the surface structure consisting of the human-culture system, economic system, political system, etc., and the deep structure composed of the science system, legal system, education system, etc.7 From the long-term history of social development, the first social subsystem formed in human society is the human-culture system, followed by the economic system and political system, which are all differentiated gradually from primitive social organisations.8 From the evolution of ancient Chinese society, the legal system was born when the primitive state was conceived and born, and it was not until the time of Emperor Wu of Han (Liu Che, 156–87 B.C.) that a systematic education system appeared,9 whereas the science system was not created until modern times due to the influence of Western society.10 In terms of system, the human social system is a super complex giant system, a composite system of nature, society, polity, economy, and culture. The complexity of the human social system is mainly reflected in its sophisticated internal structure, the complexity of the variety, quantity and hierarchy of subsystems, and the strong coupling between subsystems. From the historical development process, the emergence of human society precedes the birth of the state (Sect. 8.2). From the hierarchy of the system, the 6

Freeman, C., Louçã, F. (2001). As Time Goes By: From the Industrial Revolutions to the Information Revolution. Oxford University Press. 7 Gan, R. Y. (2016). Helix Network Theory-The Dynamic Structure and Evolution of Economy and Society. Fudan University Press. p. 236. 甘润远. (2016). 螺网理论——经济与社会的动力结构 及演化图景. 复旦大学出版社. p. 236. 8 The content about the formation of primitive countries and the evolution of national structure is more complicated. For detailed explanation, please refer to Chap. 8. 9 China’s ancient education system began in the Western Zhou ancient (eleventh century B.C. to 771 B.C.), grew in the Spring and Autumn Period (The Book of Rites—Record on the Subject of Education and The Rites of the Zhou—Offices of Earth, etc.), and became relatively prosperous in Qi and Lu, in which there was an emergence of privately-run schools represented by Kong Tzu. However, the systematic and standardised education system did not basically take shape until the Han Dynasty. In the fifth year of Yuan Shuo (124 B.C.), the Han Dynasty established the highest rank of educational institution Tai Xue (or Imperial Academy), and the government school system was thus established in ancient Chinese; At the time of Emperor Wu of Han, the imperial court also “ordered all counties to set up school officials” (Book of Han—Upright Officials), and all counties established government-run schools and officials responsible for education. Since then, the Han Dynasty established the first nationwide education system from the central to the local. 10 In 1906, the earliest scientific research institution in modern China, the Capital Agricultural Experiment Station was established in Beijing. It was not until June 1928 that the Academia Sinica, the highest scientific research institution in modern China, was established in Nanjing.

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Fig. 3.2 Spheres of the human social system

State System should be included in the human social system. At the current stage of human social development, almost all human populations are included in different states. Therefore, the entire human society on Earth is a collection of states. In this sense, the human social system is also an international system. Vertically, the external environment of the State System includes the Global Social System (International System) and the Natural System, and the internal environment of the State System includes the subsystems of human-culture, economy, polity, science, law and education. To facilitate readers’ understanding, the spheres of the human social system can be drawn (Fig. 3.2). The social structure and hierarchy shown in Fig. 3.2 are a brand-new social system model put forward by the author. It is a theoretical generalisation of the modern social structure, which is very close to the real functional division of contemporary society. From the system perspective, the elements that make up the State System are also the subsystems of the State System, each of which is relatively independent and has its own unique function. Among them, the main function of the human-culture system is to bear and cultivate human beings and to produce and create humanistic and cultural knowledge. The term human-culture is a compound word that includes both the meanings of humans and the culture11 created by humans. The main function of the economic system is to produce, exchange, distribute, and consume material products. The main function of the political system is to provide public services and public goods and to organise, exchange, distribute, and use public rights. The main function of the science system is to explore, discover, innovate and improve the scientific knowledge system relating to the natural environment, human society and 11

Please refer to Sect. 8.4 for the discussion of the connotation and definition of the term humanculture.

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human beings. The main function of the legal system is to regulate the relations inside and outside the state system; to eliminate contradictions, conflicts and confrontations; to maintain basic fairness, justice and order; and to promote the orderly, harmonious, healthy, and sustainable development of human society. The main function of the education system is to accumulate, inherit, copy and spread all kinds of knowledge and to cultivate talent of all kinds that meet the needs of society. Figure 3.2 can be viewed as a simple sketch of the structure of the current human social system. Even if it looks simple, the interrelations, interactions, and interinfluences among the subsystems of human society can be clearly recognised, which is helpful for understanding the complex operating process of the human social system as a totality.

3.1.3 The Basic Hierarchy of the Socioeconomic System The production activities in human society include at least three aspects: population production, material production and mental production. The production of material products is the most basic economic activity that human society depends on for survival, which is completed by human beings, the microeconomic subject. In human society, people engaged in production activities are usually formed into certain social populations, carried out in the form of division of labour and cooperation. In ancient society, the basic unit engaged in the production of material products is generally the household, while in modern society, the basic unit is the firm. The organisation of a firm is not inherent but gradually differentiated from the household with the development of human social and economic activities. In modern society, the firms that produce similar products form an industry, the industries connected by the supply–demand relationship become a sector, the interrelated sectors compose a sector system in a region, and the interconnected economic organisations (including sector organisations, exchange organisations, and distribution organisations, etc.) constitute a state’s economic system. In a modern society, a state’s internal economic system can be divided into five basic levels of firm (micro), industry (meso), sector (meso-macro), national economy (sub-macro), and state and society (macro). If the economic system transcends national borders, it can be vertically divided into three basic levels of national economy, international economy, and natural ecology.

3.2 The Four Laws that Human Society Follows in Evolution and Development By applying the method of systems science and the paradigm of biological evolution, the book expounds the dynamics and the basic features of the evolution and development of human society through the structural analysis of the social system,

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especially the structure and function of the subsystems within the state system in terms of the firm system, the sector system and the national economic system, and provides an overview of the evolution and development of human society. From the macro scale, the entire human society has evolved and developed under the combined action of the two basic laws of the bifurcation law and the synergy law. The development of human society also reflects two significant features of fractal law and periodicity law, which generally feature a gradually unfolding helix from simplicity to complexity, from disorder to order, and from low-level to highlevel. The evolution of a social system is a historical process closely related to time and environment, which will not only be affected by the natural environment and other social systems but will also react against the natural environment and other social systems. The evolution of human society includes stages or components of progression, regression and stagnation. During a certain historical stage in the progression of the social system, some internal structures or functions may degenerate or stagnate to some extent, while during the regression stage of a social system, some internal structures or functions may also undergo some degree of progression or stagnation. From the time dimension, the evolution of society does not proceed at a uniform speed but is sometimes characterised by gradual changes and disruptive changes, sometimes slow and sometimes fast. From the internal structure of the social system, social evolution and development present a certain degree of differentiation and imbalance, which is mainly manifested in the unsynchronised development of social subsystems such as human-culture, economy, and polity and changes in their relative positions such that some progress faster, while some progress more slowly. In some stages, the economic subsystem dominates the progress of society, while in other stages, the political subsystem prevails. In short, the overall evolution of human society is the unity of gradual change and disruptive change, quantitative change and qualitative change, order and disorder, and progression and regression. The analysis and discussion in this book show that the evolution of human society is an interweaving and spiral helix network consisting of multidimensional dynamics (Fig. 8.14). The book, after comprehensive research, concludes the four laws the social evolution and development generally follow, namely, bifurcation, synergy, fractal and periodicity, which will be briefly elaborated as follows.

3.2.1 The Law of Bifurcation Bifurcation means that a thing grows from one branch into two or more branches, differentiates from a whole into two or more parts, splits from a stable state into two or more stable states, and diverges from one evolution direction into two or more directions. Bifurcation is an important mechanism for the evolution and growth of things. Under the effect of the bifurcation mechanism, things evolve in the direction from simplicity to complexity, single-layer to multilayer, and from low-level to highlevel, thus showing a development trend that is increasingly subdivided, specialised,

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hierarchical and diversified. Whether it is in the inorganic natural world, the organic biological world, or human society, there is a bifurcated evolutionary law, which is summarised as the law of bifurcation in the book. Although some documents regard bifurcation as forking, their essential meanings are basically the same. Bifurcation exists extensively in nature. The most common phenomena are the forking of branches, the diversion of rivers, the division of mountains, and the intersection of roads. In the biological world, the cases of bifurcation are plenty and diverse, and their existence provides an intuitive image for people to study the law of bifurcation. Trees, for example, grow through constant branching (Fig. 3.3). The evolutionary divergence of biological species also conforms to the bifurcation law. According to Darwin’s theory of biological evolution, the evolutionary course of biological species presents a tree-like bifurcated evolutionary image. Modern Molecular Biology’s study of the features of molecular evolution has confirmed that Darwin’s description of species evolution through bifurcation is relatively accurate. For example, by comparing the molecular structures of humans and sharks, scientists discovered that humans and sharks shared a common ancestor of primitive fish approximately 400 million years ago. For 400 million years, the appearance of one species has still maintained the shape of a fish, while another species has evolved from fish to amphibians, from amphibians to reptiles, to mammals, and finally to humans, which are highly intelligent. The difference between the two species has reached an extraordinary degree of disparity.12 Bifurcation is also an important mechanism behind the evolution of human society. According to anthropological studies, the process of human society’s gradual evolution from a primitive population to a primitive state is accompanied by the differentiation of social organisations and the refined social division of labour, exhibiting the characteristics of tree-like bifurcation (Sect. 8.2). It is under the bifurcation mechanism that human society has evolved from the primitive nomadic group to clan society, from clan society to tribal society, then from tribal society to chiefdom society, and finally from chiefdom society to primitive state. This book divides the human social system into the subsystems of human-culture, economy, and polity, etc., according to the structure and function of the social system, and proves by integrating the research results of predecessors that the human-culture system, the economic system and the political system of a society were gradually differentiated from the primitive social system; in other words, the structure and function of the social system also show the characteristics of tree-like bifurcation in the evolution process. This book also demonstrates through the structural analysis of the economic system within the state system whether it is the constituent elements of the economic system (i.e., organisation, resources, products, knowledge, technology, institutions, etc.), or the hierarchy of the economic system (i.e., firm, industry, sector, etc.), or the operational links of the economic system (i.e., production, exchange, distribution, and consumption), their evolution and development all show the characteristics of 12

Yang, J. F. (1995). Neutral Selection Theory of Molecular Evolution. Biology Teaching (02):41– 42. 杨娟芬. (1995). 分子进化的中性选择学说. 生物学教学 (02):41–42.

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Fig. 3.3 Branching of trees

gradual bifurcation. An important discovery of this book is that the social division of labour, which is an important phenomenon in economics research, has a similar mechanism to the forking in nature, which is in other words the bifurcation law (Sect. 8.8).

3.2.2 The Law of Synergy Synergy means that different parts, elements, links, stages, or levels of a thing are interconnected and coordinated to form an orderly structure, thereby forming its unified function. Synergy is another important mechanism behind the evolution and growth of things. Under the action of the synergy mechanism, one thing can link its parts or elements together and organise its links, stages and levels into an orderly structure to maintain the coordination, consistency, integrity and unity of its overall function during evolution. In vastly different natural or social systems, there are various forms of synergy. The material world is universally connected, which is mainly reflected in the systemicity and synergy of the material world. Synergetics, which originated in the 1970s, pointed out that in a complex open system, under certain inputs of external material flow, energy flow, and information flow, the system will form a new ordered structure in terms of time, space and

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function through the interaction between the subsystems. When the external input comes to a critical value, there will be a synergy between the subsystems, which can make the system change qualitatively at the critical point, changing the operating state of the system from disorder to order and transforming the overall structure from an unstable structure to a stable one. Depending on the strength of synergy or the degree of coordination, things show different ordered structures and different functional effects, which are synergistic effects. The synergistic effect refers to the overall effect or collective effect produced by the interaction of a large number of subsystems in a complex open system. Synergistic effects are generally divided into potentiate effects, additive effects and antagonistic effects. When the overall function of the system is greater than the sum of the functions of the individual components (or elements), the synergistic effect of the system is a potent effect, which is often expressed as 1 + 1 > 2. When the overall function of the system is equal to the sum of the functions of the individual components (or elements), the synergistic effect of the system is an additive effect, which is often expressed as 1 + 1 = 2. When the overall function of the system is less than the sum of the functions of the individual components (or elements), the synergistic effect of the system is an antagonistic effect, which is often expressed as 1 + 1 < 2. Whether in the inorganic natural world, organic biological world, or human society, synergistic effects exist extensively. In the inorganic natural world, some synergistic phenomena existing in the material world were first discovered and understood by physicists with their in-depth study of physical phenomena. For example, synergistic effects exist in the process of liquid bypassing the cylinder (Fig. 3.4). When the flow rate of the liquid is lower than a critical value, this section of fluid is in a uniform laminar flow state. However, when the flow velocity is higher than this critical value, a pair of static vortices will form on the back side of the cylinder. When the flow rate is further increased and reaches the second critical value, dynamic oscillating vortices will be formed on the back side of the cylinder (these vortices are generated intermittently and move with the fluid). The static vortex generated by the fluid here is a spatially ordered structure, while the dynamic vortex is a spatiotemporally ordered structure, which can also be regarded as a more complex ordered structure, both of which are due to the synergistic effect of a part of the fluid molecules resulting in a qualitative change in tissue morphology, thereby transforming its overall structure from an unstable structure to a stable one. Another typical example is the lasing phenomenon of crystalline substances. Physicists discovered that when a crystal material is hit by high-energy photons, it triggers electrons outside the crystal’s nucleus to jump from high-energy levels to low-energy levels and radiate photons. In this process, there are also synergistic phenomena between the microparticles: When the energy of the emitted photons is lower than a critical value, the photons radiated by the crystal will move in a chaotic direction, and the light emitted by the crystal will show a disordered divergence state. However, when the emission energy is higher than the critical value, the photons radiated by the crystal will move in a unified direction, the light emitted by the crystal will be the monochromatic light with the same frequency, phase and direction, and the crystal will exhibit a stable state of emitting continuous laser light. When the

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Fig. 3.4 Synergistic phenomena when fluid bypasses a cylinder

emission energy is further increased and reaches the second critical value, the crystal will emit intermittent pulsed laser light, presenting a regular sequence of ultrashort pulses. In this example, the continuous laser generated by the excitation of the crystal is a spatially ordered structure, while the pulsed laser is a spatially and temporally ordered structure, which are both microparticles such as electrons and photons in the crystal, resulting in a qualitative change in tissue morphology due to the synergistic effect so that the overall structure changes from a disordered structure to an ordered one. In the biological world, there are universal synergistic phenomena and synergistic effects of individual organisms at all levels and stages of development and growth. For example, in the process of plant germination from seeds to mature plants, the external environment always provides it with light, water and nutrients. However, when the temperature and humidity reach a certain value, the cells in the seed begin to divide and differentiate. The tissue morphology changed qualitatively with the germination of the seeds and underwent qualitative changes again with the further differentiation of the germ cell group in which the young shoots developed roots, stems, and leaves. It is apparent from this example that from the micro-level, the synergistic effects at the micro-level between plant seed cells maintain the order of cell division. For example, in the seed cells of plants, some cells divide into root cells, some divide into stem cells, and some divide into leaf cells, and the splitting direction between them is orderly, not chaotic. From a meso level, the synergy between cell groups of plant embryos maintains the difference and coordination of tissues. For example, the different self-organisation methods of the root cell group, stem cell group and leaf cell group of plant embryos allow them to form different ordered structures and promote them to grow into tissues with different structures and functions, while the interconnectedness and coordination between the cell groups maintain the integrity of plant embryos and the orderliness of differentiated growth. The synergy between plant tissues maintains the integrity and unity of the overall structure and function of plants at the macro-level. Although the structure and function of the tissues of plants

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are different, for example, the main function of the root is to absorb water and various elements, the stem is to transport and distribute water and various elements, and the leaves are to carry out respiration and photosynthesis, yet they function in harmony and support each other, thereby maintaining the integrity and unity of the whole plant. There are always synergistic effects in all parts and levels of animal bodies in different stages of their growth, which is more connected, advanced and complex than the synergistic mechanism of plants. The process of biological development is not only a historical process that progresses with the continuation of time and space but also a process of gradual growth and perfection of organisation, structure and function. There are also various synergistic phenomena and effects in different forms and hierarchies in human society. In the period of primitive society, on the one hand, due to the needs of survival, different primitive humans cooperated and formed a certain social population to hunt and defend against beasts together; on the other hand, due to the need for racial continuity, different humans in the same social group form clan communes because of marriage. The close connection between the clan communes due to mutual intermarriage led to the emergence of phratry or tribes, the alliance or annexation of the tribes due to wars led to the birth of chiefdom society, and the further complex evolution of chiefdom society finally gave rise to primitive states. Human society has evolved from clan society to tribal society to chiefdom society to national society, and its organisational form and internal structure have undergone many qualitative changes. In this process, the two factors of marriage and war played an important driving role. The enhancement of synergy in terms of scope and level among social groups to improve the overall ordering degree of the social system is a historical process from simplicity to complexity, from low-level to high-level, and from single-level to multi-level, in which social organisations, social structures and social functions gradually differentiate and grow. In modern society, from firms, industries, sectors to national economic systems and state systems, there are different degrees of synergistic effects, which will be discussed more systematically in later chapters of the book. Social evolution is similar to the development and growth of biological organisms, which is also a historical process that progresses with the continuation of time and the unfolding of space. At each stage of social growth and evolution, each internal subsystem needs to be coordinated and cooperated, and the healthy and orderly development of the entire social system will be affected once there is structural misalignment, proportional imbalance, and speed imbalance between the subsystems. When the subsystems of a social system can cooperate and coordinate with each other in terms of organisation, structure and function, the synergistic effect they produce is a potent effect (or additive effect), which will promote the healthy development, virtuous circle and continuous progress of the whole society. Conversely, when the subsystems conflict and confront each other in terms of organisation, structure and function, the synergistic effect they produce is an antagonistic effect, which in severe cases will lead to the abnormal development, vicious circle and stagnation of the whole society and may even, if the conflicts and confrontations are not eliminated and resolved in time, intensify social contradictions

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into violent social revolutions, resulting in the destruction or collapse of the orderly structure of society.

3.2.3 The Law of Fractal Fractal phenomenon is the phenomenon that the parts of things and the whole have similarities in some aspects. Similarity in fractal phenomenon refers to the differential, approximate similarity between things, or similarity in a statistical sense. These specific aspects of similarity are called fractal dimensions. Fractal dimensions include time, space, mass, speed, energy, information, structure, function, cycle and motion. Fractal phenomena exist not only in the inorganic natural world and organic biological world but also in human society. Typical fractal things feature self-similarity, hierarchy, recursive nesting, infinite fine structure, etc. Self-similarity here means that the parts of things are similar to the whole in some respects, or the parts separated from the whole can reflect the basic characteristics of the whole. Hierarchy refers to the hierarchy of things that can be divided into many different scales, levels or sequences from the part to the whole. Recursive nesting means that there are structures within the structure of things, small structures are nested within large structures, and smaller structures are nested within small structures. Infinite fine structure means that things have infinite fine structure, which can show more fine details at any small scale. To characterise and describe the complex shapes in nature, in the 1960s and 1970s, mathematicians created fractal geometry, which depicted natural shapes as parts that have certain similar properties to the whole and are logically infinitely nested and have a certain hierarchical structure. Fractal geometry supplements and expands the limitations of traditional Euclidean geometry and is a geometry that is closer to the true face of nature and can better reveal the inner structure of things. Fractal theory, an important branch of systems science, is a set of ideas, methods and theories developed on the basis of fractal geometry, mainly to study those complex things or phenomena in nature or society that are irregular in shape, rough in appearance, and self-similar in structure. Fractal theory is a theory that can span many disciplines, which can reveal the deep connections between natural sciences, social sciences and the humanities. At present, the thinking method of fractal theory has been applied to the research fields of natural science, social science and even some humanities to analyse and understand the nature and features of many complex phenomena. The core content of fractal theory research is self-similarity. In fractal theory, the whole thing with fractal features is called a fractal body, and any relatively independent component or element inside the fractal body is called a fractal element. A fractal element is similar to a fractal body; it contains and reflects the properties and information of the fractal body, although its complexity is much smaller than that of a fractal. In some fractal dimensions, the fractal element is the reproduction and miniature nature of the fractal body to a certain extent. This regularity revealed

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by fractal theory is essentially consistent with the holographic principle revealed by physics and the bioholographic law suggested by biology. The law of bioholography pointed out that there is similarity and correspondence between the whole and parts of a living organism, and each relatively independent part (i.e., holographic element) of the organism that has life functions is a microcosm of the whole of the organism and stores all the information of the whole. The holographic element of an organism is hierarchical, and the large holographic element contains small holographic elements: the higher the level of the holographic element, the closer it is to the whole. For example, from the perspective of genetic information, a biological individual is a fractal body, the cell inside it is a fractal element, and the cell contains all the genetic information of the biological individual. Fractal theory applies the principle of self-similarity to gain insight into the new hierarchy, structure and order hidden in complex phenomena and offers a brand-new methodology for understanding the whole from the part, the infinite from the finite, and the order from the disorder. If the relevant concepts and thoughts in fractal theory are further abstracted and sublimated into a methodology, it can form a thinking method for understanding things in philosophy, the fractal theory method. From a methodical point of view, the fractal theory method is different from the system theory method. The system theory method is used to understand the properties of each part from the whole of things and generally examine the correlation between the whole and the parts along the direction from macro to micro. The fractal theory method, however, is used to understand the properties of the whole from the parts and generally examines the similarity between the parts and the whole along the direction from micro to macro. “System Theory emphasises the dependence of the parts on the whole, which embodies the method of understanding the parts from the whole, while Fractal Theory stresses the reliance of the whole on the parts, and reflects the way of comprehending the whole from the parts”.13 Therefore, the fractal theory method and the system theory method constitute a complementary relationship, and their comprehensive application will greatly improve the ability of human beings to understand the world. Starting with the basic economic unit of the firm, the book systematically analyses the structure, function and operating laws of the firm, industry, sector, and national economic system and reveals the dynamic structure and evolutionary laws of the socioeconomic system, thus depicting the development trajectory of the State System and the entire human society. An important theoretical achievement of the book is its revelation of fractal features such as self-similarity, hierarchy and recursiveness in the general structure of the firm system, industry system, sector system, and national economic system and its disclosure of the two-tiered structure of the subsystems in the social system in terms of human-culture, economy, and polity. Combining the general structural diagrams drawn in the book from the firm system, the sector system to the national economic system, the state system, and the social system (Figs. 4.6, 5.2, 7.1, 8.1, 8.2, 8.10), a set of symmetrical and nested geometries similar to the 13

Zhang, Y. C., Zhang, G. Q. (2005). Science and Philosophy of Fractal Theory. Social Science Research (05):86. 张越川., 张国祺. (2005). 分形理论的科学和哲学底蕴. 社会科学研究 (05):86.

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Fig. 3.5 Mandelbrot Set pattern

Mandelbrot Set 14 pattern (Fig. 3.5) can be obtained, which is the fractal law that exists in the social system revealed in this book, vividly reflecting the similarity in the internal structure between the social system and the subsystems and between the subsystems.

3.2.4 The Law of Periodicity The movement of the material world generally reflects a certain periodicity, which is the periodicity law of things. Periodic motion is the universal law of the movement of things in the objective world. Whether it is the biological world, human society, inorganic natural world, or the broader universe and space, there are periodic motions in the entire universe, from organisms, humans, social organisations to human society, from the Earth, the Earth-Moon System, and the Solar System to the Galactic System. There are periodic motions of different durations in the material world at different levels from cosmoscopic, macroscopic to microscopic. At present, the matter that mankind has observed, from cosmoscopic celestial bodies to microscopic particles, is in periodic motion. For instance, the Sun and its eight planets orbit periodically around the Galactic Centre, the Earth and other planets revolve periodically around the Sun, the Moon revolves periodically around the Earth, and the electrons revolve periodically around the nucleus, while the Sun, planets (including the Earth), planetary satellites (including the Moon), and particles such as electrons all turn on their own axes periodically. There are also periodic motions in the running process of biological organisms and human society, but this periodic motion is different from the intuitive periodic motion of celestial bodies, electrons, etc., and it manifests as 14

A geometry drawn by computer operation using an iterative formula, discovered by American mathematician Mandelbrot in the 1970s, is now regarded as a typical fractal geometry. The salient feature of this picture is that no matter how many times the pattern is magnified, it shows more complex parts, whose shapes are both similar and different from the overall pattern.

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rhythmic periodic motion and metabolic activity. As far as biological organisms are concerned, biological individuals always carry out cell metabolism activities at the micro-level and carry out periodic life activities at the meso-level. For example, there is a 23-day physical boom/bust cycle and a 28-day mood swing cycle in the human body. The tissues in the human body also carry out periodic metabolic activities: the renewal cycle of taste bud cells is 10 days, the skin surface cells are 2 weeks, the red blood cells in the human blood are 4 months, the liver cells are approximately 300–500 days, the bone cells are approximately 300–500 days, and the bone cells are 10 years.15 In fact, the rhythmic periodic motion of biological organisms is related to the periodic motion of the Earth orbiting the Sun. This correlation is mainly manifested in the periodic changes in the climate and environment of the Earth’s biosphere in terms of light, temperature, air pressure, humidity, monsoons, precipitation and magnetic fields caused by the periodic rotation of the Earth around the sun, which leads to rhythmic changes such as the withering and prosperity of plant growth, the abundance of crops, the dormancy and migration of animals, and changes in physiological parameters of the human body. Changes in crop yields will influence human society’s agricultural harvests, which in turn will affect human social life. In the past half century, much research has been conducted on the influence of the Earth’s climate and environment on social development, which has shown that long-term changes in the Earth’s climate have many important impacts on social development and that periodic changes in the Earth’s climate have even indirectly led to the historical cycle of ancient Chinese society.16 From a system perspective, systems at different levels have different operating cycles, and different systems at the same level have different operating cycles. For example, from the celestial body system of the solar system, Jupiter’s orbital period around the sun is 11.86 years, and its rotation period is 9.84 h (equatorial part), while the Earth’s revolution period around the sun is 1 year, and its rotation period is 24 h. For the Earth-Moon system, the period of the Moon’s revolution around the earth is 27.32 days, and its rotation period is also 27.32 days. Modern astronomical research has shown that the distance between the centre of the Moon and the centre of the Earth is gradually increasing, which means that if the origin of the coordinate system is observed at the centre of the earth, the movement of the moon around the earth is actually a gradually expanding spiral. However, when the distance between the centre of the Moon and the centre of the Earth increases to a certain extent, the distance between them begins to gradually shrink again, and the movement of the Moon around the Earth presents a gradually shrinking spiral. Interestingly, there is also a similar spiral motion between the Earth and the Sun, which reflects the fractal feature of the motion process between the celestial bodies. From the operating laws of these celestial bodies in the solar system, philosophical inspirations can be obtained as follows: the periodic motion of things is not simply a mechanical circular motion but a spiral motion that never repeats in space and time. Every week, things do not 15

Kong, H. F. (2012, June 1). Reader Magazine Reveals the Timeline of Body Renewal. Life Times. 孔会芬. (2012, 6.1). 美国 《读者》 杂志揭示——身体更新时间表. 生命时报. 16 See Sect. 9.5, The Impacts of Natural Environment on Social Historical Development.

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return to the original starting point but rise (or fall) to a newer level or evolve into a new structure. The overall running process of things is cyclical but different from time to time, from day to day, from the point of view of the irreversibility of the passage of time and the change of spatial position. According to the difference in structure and function, the book further divides the human social system into different subsystems, such as the human-culture system, the economic system, and the political system. Among the various categories of social sciences, economics is the social science with the highest degree of mathematics, physics and quantification. It is the discipline with the most applied mathematical analysis and the most mature at present, and it is also a discipline with rich empirical research. Since the mid-nineteenth century, economic systems have seen cycles of varying lengths and types, namely, the short cycle of 3–4 years (also known as the Kitchin Cycle), the mid-long cycle of 9–10 years (also known as the Juglar Cycle), the mid-long cycle of 15–25 years, averaged at 20 years (also known as the Kuznets Cycle and Building Cycle), and the long cycle of 50–60 years (also known as the Kondratiev Cycle). From the point of view of the book, these economic cycles actually reflect the cyclical movements of different economic systems at different levels in different historical stages under different social conditions and actually manifest themselves as never-repeated spiral movements. The economic cycle of a society is the result of the joint action and interaction of many factors. The interconnection, interaction and interinfluence of the operating cycles of different sizes at various levels of the economic system form a complex hypercycle structure with fractal features such as self-similarity, hierarchy, and structural recursiveness. In a social system, apart from the economic system, the other subsystems, such as the human-culture system and the political system, also have their own inherent periodicity. For example, the famous British historian Arnold Joseph Toynbee (1889– 1975) discovered that world history has a cycle of approximately 600 years.17 The literature on the economic cycle in economics research is overwhelming, while the research on the periodicity of other social subsystems, such as the human-culture system and the political system, is relatively inadequate. The visual description of the periodicity of the economic system in the book is intended to inspire in-depth research of the periodic features of other social subsystems, such as the human-culture system and the political system. Because in actual social operations, different subsystems, such as the human-culture system, the economic system and the political system, are interconnected, interacted and interinfluenced, only by fully studying the structure, function and cycle of each social subsystem can the complex relationship between them be truly clarified, and a more comprehensive and in-depth understanding of the regularity of human social development can be achieved.

17

See Sect. 9.5, The Impacts of Climate Pulsation on Human Civilisation.

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3.3 Basic Classification of Resources and Their Forms The economic activities of human society are inseparable from the development and utilisation of resources. Resources can generally be categorised into natural resources and social resources; social resources can be divided into human resources, material resources and knowledge resources. Natural resources refer to substances that already exist in nature and are available for human use. Sunlight, air, water, land, minerals, plants, animals, etc., that exist in nature are all natural resources. Humans, for example, use sunlight and wind to generate electricity, water to breed fish and shrimp, and land to cultivate food. In the development history of human society, the usage of natural resources is from small amounts to large amounts, from direct employment to indirect employment (transformation), and from primary processing to deep processing. Whether humans incorporate a natural resource into production mainly depends on their cognition level of this natural resource and the development level of social production technology at that time under certain historical conditions. Generally, people’s understanding of the value of natural resources is continuously enriched with the improvement of the human cognition level of the nature of things, such as the process of understanding sunlight. At first, humans only regarded sunlight as a common phenomenon existing in nature, which seemed to have no special value other than the lighting function of dispelling darkness for humans at the time. However, it turned out that sunlight also has the practical value of being a heat source, when humans discovered that concave mirrors can be used to gather sunlight to boil water and cook rice. Later, it was found that the use of P-type and N-type semiconductors can convert sunlight into electricity, proving that sunlight also has the practical value of being a power source that can be used to generate electricity. Since 2000, solar technology has matured; between 2000 and 2006, global solar cell production has increased rapidly, with an average annual growth of more than 40%.18 At present, countries worldwide place great emphasis on the development and utilisation of solar energy, and the photovoltaic sector has therefore become a rapidly growing new industry. Social resources generally refer to the products of human inventions and creations, specifically including elements from social systems, including political systems, economic systems, human-culture systems, science systems, education systems, legal systems, etc. Commodities, currency, capital, machineries, factories, etc., that exist in human society are all social resources. When the products manufactured by humans are put into society again, they will become new forms of social resources after circulation or transformation. Therefore, the social resources created by human society are constantly enriched with the development of human social production activities. In the process of social production, social resources generally have multiple attributes and functions, mainly manifested in the diverse functions and values that the same resources often have in different social production links. For example, when one uses furniture made by oneself for one’s own consumption, the furniture at this Lang, X. P. (2008). Industrial Chain Conspiracy I. Oriental Press. pp. 52–54. 郎咸平. (2008). 产业链阴谋I. 东方出版社. pp. 52–54. 18

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time is only an ordinary product. However, when one transports the same furniture to the market for sale, the furniture becomes a commodity, and the furniture is converted from a common commodity into a special commodity currency when it is sold. Currency is a great invention of mankind. As we all know, currency as a social resource has five functions, namely, value metrics, circulation means, storage means, payment means and world currency. When one uses a sum of money accumulated by oneself to purchase a car for one’s own use, the money is only ordinary currency, whose function is to serve as a means of payment for general merchandise. However, when one uses the same amount of money to start a business, the money becomes the capital of the business. When one takes out a part of the capital of the firm to purchase production tools (machineries), this part of the capital is converted into the means of production. It is clear in these examples that the form and function of social resources actually change continuously along with its movement. Treating human resources as a production input element can also be put into the category of social resources, but it is a special social resource that is different from other material resources because people have subjective consciousness and can actively create materials. Human resources are important renewable resources that are the most dynamic and initiative part of production factors and have the potential for continuous development. The famous American management scientist Peter F. Drucker (1909–2005) pointed out in his book The Practice of Management published in 1954 that “the human resource—the whole man—is, of all resources entrusted to man, the most productive, the most versatile, the most resourceful.” “… the human being has one of set of qualities possessed by no other resource: it has the ability to coordinate, to integrate, to judge and to imagine.” Talent resource refers to those people in a state or region who have more scientific knowledge/professional technology and stronger labour skills and play a key or important role in the process of value creation. Talent resources are a part of human resources, that is, high-quality human resources. In modern society, with the widespread application of science and technology in production, high-quality talent resources who master modern knowledge and technology are playing an increasingly important role in social and economic development. In the survival and development of a firm, talent has an important role that cannot be replaced by other resources. Among all the talent in a firm, the most critical is the entrepreneur. If a human’s own understanding of the world—the knowledge and the symbols (i.e., words, numbers, letters, and calculations) invented to record and express knowledge—are also regarded as a social resource, then the entire analytical framework proposed in this book can be applied to explain the cultural production of human society. In fact, as long as the evolution of human beings from hominoidea, hominidae, homininae, hominini, homo, ancient humans to modern humans are examined, and the characteristics of each important stage of human evolution are analysed, it is obvious that with the continuous evolution of human beings, the level of human understanding of the world is constantly improving, and the production activities of human beings are also progressing simultaneously from simple to complex, from lowlevel to high-level. After the invention of language and writing, human beings also

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carry out knowledge production along with material production activities. As long as the history of scientific and technological progress in human society is analysed, it can be found that every stage of the leap in the process of human development is an upgrade of human cognition level that occurs after knowledge has accumulated to a certain extent. Today, when entering any major bookstore or public library in the city, it is easy to be dazzled when walking through the rows of shelves filled with books of all kinds. Even if each of us spends a lifetime reading these books, only a few of them can be read. Then, imagine that in the era when human beings first invented writing, the ancients recorded books on clay tablets, tortoise shells, bamboo slips, wood chips, plant leaves, etc., which were very rare, and one person could read them all in a short time. Today, human society produces such a large amount of knowledge that it is clearly not created by a generation or two in a short period of time. In fact, every writer (including philosopher, thinker, economist, sociologist, mathematician, physicist, chemist, biologist, professor, writer, poet, etc.) in every era of human society has learned or referred to the knowledge created by their predecessors or contemporaries when writing their own works. The knowledge system of human society is gradually being enriched by people of different eras, different nationalities, and different disciplines. Therefore, from the perspective of knowledge production, knowledge itself can also be regarded as a unique resource. As a resource, knowledge resources and material resources have different forms and functions, and their production processes also have special laws that are different from material products. In the early twentieth century, American economist Veblen suggested that human knowledge and ability are the most important asset capital of a society. Decades later, Wesley C. Mitchell (1874–1948) combined dissenting opinions with mainstream Economics, asserting that knowledge is the “mother of other resources” and the incomparably greatest among all human resources.19 The book fully agrees with this view. Knowledge is a reflection of the understanding of the laws of movement of objective things formed by human beings in social practice to a height of rationality,20 and it is a grasp of the essence of universal inevitability.21 Knowledge and information are both distinct and related. Knowledge is the transformation of the information in the objective world after receiving, processing, sorting, and synthesising by subjective consciousness, and it is “the crystallisation of the reflection and understanding of the objective world from the subjective world of human beings”.22 Information is

19

Magill, F. N. (eds). (2009). International Encyclopedia of Economics (Wu, Y. F., trans.). Beijing: China Renmin University Press. p. 1386. 弗兰克·N·马吉尔. (eds). (2009). 经济学百科全书. (吴 易风, trans.). 中国人民大学出版社. p. 1386. 20 Yang, L. (2001). On the Relationship between Knowledge and Economy. Journal of Zhengzhou Textile Institute (S1):25–26. 杨岚. 浅谈知识与经济的关系. 郑州纺织工学院学报 (S1):25–26. 21 Plato. (1963). Theaetetus: Teacher of the Wisdom. (Yan, Q., trans.). Commercial Press. p. 159. 柏拉图. (1963). 泰阿泰德智术之师 (严群, trans.). 商务印书馆. p. 159. 22 Zhuang, S. J. (2005). On the Application of Knowledge Mapping from the Perspective of Information Science. Journal of Modern Information (08):198–200. 庄善洁. (2005). 从情报学角度谈 知识地图的应用. 现代情报 (08):198–200.

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the objective basis of knowledge, and knowledge is the subjective synthesis of information. It is the combination of objective information and human cognitive ability that creates knowledge. After knowledge is generated, its content can be expressed in language, text, numbers, graphics, sign language, semaphore or other symbols to obtain an objective form of existence. Knowledge is useful and scarce. Knowledge is the precursor, guide and guidance for the economic system to input other economic resources, and to acquire, input, use and deploy a certain resource, one must be aware of, familiar with and understand the natural functional attributes and socioeconomic characteristics of this resource and have relevant natural and social knowledge. In fact, knowledge has always been the inner core of human social production activities, rather than an exogenous variable. Knowledge production is the source of production activities in human society. Not only does the production of material goods ultimately depend on knowledge innovation, but the production of mental and cultural products also needs to rely on knowledge growth. Knowledge is the cause of the economy, and the economy is the fruit of knowledge.23 Knowledge is an economic resource with original attributes.24

3.4 The Components of Social Reproduction25 In 1803, French scholar Jean Baptiste Say expounded the economic thinking of British economist Adam Smith in his book Traité d’économie politique (A Treatise on Political Economy), in which he divided Economics into the three parts of production, distribution and consumption, plus the later addition of circulation or exchange,26 an arrangement that was generally accepted by the public because of the wide circulation of his writings.27 Influenced by this division, economist Karl Marx also assumed that social reproduction consists of production, distribution, exchange and consumption. Marx said in TheIntroduction to A Contribution to the Critique of Political Economy that “production creates articles corresponding to requirements; Distribution allocates them according to social laws; Exchange, in its turn, distributes 23

Li, Z. H. (1999). Development and Utilisation of New Resources and Economic Development. Guihai Tribune (03):35–37. 李宗华. (1999). 新资源的开发利用与经济发展. 桂海论丛 (03):35– 37. 24 This paragraph is compiled from: Dai, T. Y. (2008). Economics: Paradigm Revolution. Tsinghua University Press. pp. 198–199. 戴天宇. (2008). 经济学: 范式革命. 清华大学出版社. pp. 198–199. 25 The content of this section was first published in the 16th issue of Guangzhou New Economy magazine 2015 with the title of To Take a Longer View: A Brief Discussion on the Long-term Transition of the Components of the Social Reproduction Process. 26 British economist James Mill (1773–1836) first further divided the content of Economics into four categories, namely, production, exchange, distribution, and consumption, on the basis of Say’s trichotomy. See: Ma, T. (ed). (2018). A Tutorial on the History of Economic Thoughts. Fudan University Press. p. 135. 马涛 (ed). (2018). 经济思想史教程. 复旦大学出版社. p. 135. 27 Spiegel, H. W. (1991). The Growth of Economic Thought. Duke University Press. Social Sciences Press. p. 258.

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Fig. 3.6 Social reproduction in the early stage of primitive society

the goods, which have already been allocated, in conformity with individual needs; Finally, in consumption, the product leaves this social movement and it becomes the direct object and servant of an individual need, which use it satisfies. Production thus appears as the point of departure, consumption as the goal, distribution and exchange as the middle—which has a dual form since, according to the definition, distribution is actuated by society and exchange is actuated by individuals. Distribution determines the proportion (the quantity) of the products accruing to the individual… Production is determined by general laws of nature; distribution by random social factors, it may therefore exert a more-or-less beneficial influence on production.”28 Marx looked at the general process of social reproduction and defined distribution and exchange as the middle links between production and consumption, but he did not deeply analyse the specific connection form of distribution and exchange in depth. According to Say and Marx, the complete process of social production consists of four links, that is, production, distribution, exchange, and consumption, which is actually their analysis and description of the production activities of capitalist society in the nineteenth century. If the process of social production is examined from the perspective of social evolution, it is not difficult to find that the components of the reproduction of human society are constantly evolving. The following will briefly discuss the long-term transition of the components of social reproduction in combination with the different historical stages of human social development. In the early days of primitive society, humans lived in primitive forests, gathering wild fruits, young leaves or catching fish and hunting beasts for food, and they formed clan groups based on blood relations. The social structure at that time was extremely simple in that humans took clan groups as production and living units to participate in labour and share the fruits of their labour together. Due to the small scale of society at that time, there was no significant division of labour in social production, and the level of social productivity was extremely low, so there were basically no surplus products available for exchange at that time. Therefore, the social reproduction process in the early stage of primitive society should consist of the following three links (Fig. 3.6). In the middle stage of a primitive society, the merger of clan groups led to the emergence of some tribes scattered in various places in human society, and the division of labour appeared in social production activities with the gradual expansion of the social scale. The first agricultural activities, such as crop cultivation, animal husbandry, and fishery, in human society were born and gradually developed with the emergence of the social division of labour. The initial division of labour in subdivided industries such as crop cultivation, animal husbandry, and fishery in human society is likely due to the different geographical environments in different places. For example, 28

Marx, K., Engels, F. (1970). The German Ideology. International Publishers. pp. 129–130.

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Fig. 3.7 Social reproduction in the middle stage of primitive society

the plain area near the river basin has soft soil and convenient irrigation, which is suitable for planting foxtail millet (粟), proso millet (黍), rice (稻) and other plants, so the tribes living in the area started planting activities. The temperate grassland has lush green grass and a vast area, which is suitable for grazing cattle, sheep and other animals, so the tribes living in the area started animal husbandry activities. For the areas near the seas or lakes, where all kinds of fish can be easily caught and the locals can fish for a living, the tribes living here began to build boats and weave nets. With the continuous development of the social division of labour, when social productivity developed to a certain level, a small amount of surplus was created in production, so the tribes engaged in different industries began to exchange surplus products. Therefore, in the middle stage of primitive society, after the further differentiation of agriculture, the social reproduction process consists of the following four links (Fig. 3.7). In Fig. 3.7, the two links of distribution and exchange should coexist. When there are few surplus products in social production, the types and quantities of products exchanged between tribes are relatively small, but they will continue to expand as the surplus products in social production increase with the continuous development of social productivity. With the growing demand for people to exchange products, the places and locations where people exchanged were gradually fixed, and the initial market was born naturally. When human society developed to the end of primitive society, class and private ownership were born with the differentiation of society, and human society developed from tribal society to chiefdom society to primitive state. During this period, with the further development of the social division of labour and social productivity, handicrafts and commerce gradually diverged from agriculture. The increase in the variety and quantity of commodities directly led to the prosperity of commodity exchanges, which was followed by the expansion of the extent of the market. More subindustries were born and grew up with the further development of the social division of labour and social productivity when society developed into a feudal society. The variety and quantity of the market increased with the continuous increase in the variety and quantity of commodities exchanged in various regions. With the development of commercial circulation in different regions, the originally independent markets began to gradually connect, thus interweaving into a market transaction network ranging from village and town markets to urban markets to regional markets to national markets. Judging from the market economy of ancient Chinese society, social production activities were often destroyed due to the serious influence of dynasties, wars and turmoil. Therefore, the distribution and exchange network of the entire social production is sometimes continuous and sometimes discontinuous, sometimes expanding and sometimes contracting.

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Fig. 3.8 Social reproduction in the agricultural age

During the period of slave society (or primitive state), the social land system began to be gradually privatised, and the land rent collected by the landlord from the serfs mainly took the form of labour rent and rent in kind. For example, the jingtian zhi 井田制 Well-field System29 that prevailed in ancient China during the Shang and Zhou dynasties was a typical labour rent. In the early and middle stages of feudal society, the landlord generally collected land rent from the serfs in the form of rent in kind. Whether it is labour rent or rent in kind, the agricultural products produced by farmers were first distributed to the landlords, and then the surplus was shipped to the market for sale in exchange for other means of production or subsistence (i.e., farm tools and clothes), and the last part was used for household consumption. It was not until the later period of feudal society, with the gradual prosperity of the commodity economy, that the land rent levied by the landlord from the serfs changed was transformed from physical objects into currency. In the period of slave society and feudal society, agriculture was dominant in all sectors of the socioeconomic system; therefore, this period can also be called the agricultural age. In general, the overall social reproduction of human society in the agricultural age can be represented by Fig. 3.8. After the Industrial Revolution in the eighteenth century, the social production mode of major European capitalist countries such as the United Kingdom gradually changed from handicrafts to large-scale machinery industrials. The advancement of science and technology and the in-depth development of the social division of labour led to the emergence and rapid growth of more industries in the sectors of these countries. The large-scale mechanised production introduced more and richer commodities to the market, coupled with the great geographical discovery that connected all continents of the world, and the ever-expanding capitalist market subsequently jumped out of national borders to form the world market. Since then, the production activities of human society have connected people and resources in different regions and countries and established a complex network of distribution and exchange in a broader scope. Since the beginning of capitalist society, social production was first carried out for market exchange, and commodities were finally consumed by people in different regions after market exchange and multiple distributions and exchanges. In the early and middle stages of capitalist society, industrials were dominant in all

The term jingtian 井田 well-field comes from Chinese character jing 井 well, which looks like the # symbol. The ruling class at that time divided a square area of land into nine identically-sized sections just like the # symbol. The eight outer sections were privately cultivated by serfs and the centre section was communally cultivated on behalf of the landowning aristocrats. Eight outer sections shared one well for cultivation, and the serfs needed to cultivate on the public communal land in the centre before they were allowed to cultivate on their private lands. The Well-field System was formed in the Shang Dynasty, prevailed in the Western Zhou Dynasty, and became strained in the Spring and Autumn period, and was abolished during the Warring States period.

29

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sectors of the socioeconomic system; therefore, this period can also be called the industrial age. Examples of factory production are used to explore the specific situation of the components of social reproduction in the industrial age. For example, a factory owner who produces cotton cloth first needs to use monetary capital to purchase machinery, raw materials and other means of production and employ a certain number of workers before the factory starts production. Then, he needs to sell the cotton products manufactured by the factory through the market, uses part of the funds from the recovered costs and profits to purchase the raw materials in the next production cycle, and finally can initiate the profit distribution among himself, shareholders and employees. The behaviour of the factory owner to distribute profits within the firm is actually the first distribution activity in income distribution. After the factory owner, shareholders, and workers are allocated a certain amount of profit or salary, they need to pay tax to the tax department, part of which will be allocated to the public workers in the government as their salary income. In this process, tax collection and distribution activities are actually redistribution activities in income distribution. After the initial distribution and redistribution, whether it is factory owners, shareholders, workers, or public workers, etc., they all can use their distribution income to exchange daily necessities (i.e., cars, food and clothing, etc., and consume the goods purchased by themselves. Through this example, it is evident that the social reproduction process in the industrial age is obviously much more complicated than that in the agricultural age, especially between production and consumption, and the connection between distribution and exchange is more complex and diverse. Therefore, the overall social reproduction process of human society in the industrial age can be simply represented by Fig. 3.9. In modern society, due to the highly developed science and technology and the unprecedented development of social productivity, sectors in the socioeconomic system have been deepening in the division of labour and specialisation, which has led to the birth and development of new industries, and the distribution and exchange activities between production and consumption have become complicated in social production. Compared with the initial stage of capitalist society, in addition to the production of ordinary commodities for private consumption, modern society pays more attention to the production of public goods for collective consumption. In the economic system of modern countries, all links from production, distribution, and exchange to consumption have evolved into a huge network system with a complex structure that is criss-crossed, interrelated, and influenced. Therefore, the overall social reproduction process in modern society can be simply represented by Fig. 3.10.

Fig. 3.9 Social reproduction in the industrial age

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Fig. 3.10 Social reproduction in modern society

In Fig. 3.10, public goods refer to products or services that are collectively consumed by society rather than individually consumed by members of society. Public goods are generally provided by public departments such as the government, and it is difficult to sell them separately and recover capital through market transactions. For instance, roads, ports, airports, national defences, public security, health and epidemic prevention, and beautiful environments are typical public goods. A private good refers to an ordinary product or service that can be consumed by members of society alone. Private goods are generally provided by production departments such as firms, and it is usual to sell them separately and recover capital through market transactions. In the economic system of modern countries, the production of public goods and the production of private goods have formed two basic systems that are closely interrelated, interinfluenced and interrestricted in the field of social production. From the above figures, it is conspicuous that with the continuous development of human society, the social division of labour and sectoral classification have prompted more subdivided industries to join the social production system, resulting in the entire social reproduction becoming more complicated. From the long-term development of human society, the evolution trend of social reproduction is from unity to plurality, from closeness to openness, and from simplicity to complexity. For a long time, the thinking mode of static equilibrium mechanical dynamics has been dominating the mainstream economic circles of various countries, which has severely hindered the further development of economic theory, and it is also the ideological source of the rigidity of thinking, the prevalence of dogma, and the separation of theory from practice in economics. Compared with the static equilibrium thinking model of traditional Economics, this book establishes a theoretical framework of the dynamic nonequilibrium thinking mode. From the long-term history of human society, human socioeconomic activities are more suitable for observation and research from the perspective of biology rather than from the mechanical view of physics. As the famous British economist Marshall said, “The Mecca of the economist lies in economic biology rather than in economic dynamics. Biological conceptions are more complex than those of mechanics, but there should be a biological concept in the minds of economists”.30 The economic significance revealed from Figs. 3.6 to 3.10 is that the socioeconomic system is similar to biological organisms, which also have a history of birth, growth and evolution, and the study of economic phenomena cannot 30

Requoted from: Chen, P. (2004). Civilisation Bifurcation, Economic Chaos, and Evolutionary Economic Dynamics. Peking University Press. p. 458. 陈平. (2004).文明分岔、经济混沌和演化 经济动力学. 北京大学出版社. p. 458.

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be separated from specific time and space. Therefore, in essence, Economics is a historical discipline. Regarding the history of Economics, the famous American economist Paul A. Samuelson (1915–2009) once pointed out, “Economics is, by its nature, an evolutionary science. It alters itself to reflect the changes in social and economic trends”.31 To analyse the complicated economic relations in the reproduction process of modern society, comprehensive research on the entire socioeconomic system will be carried out by applying methods such as systems theory and structural functionalism. Chapters 4, 5, and 7 will explain the interrelations, interactions and interinfluences between the links of the entire process of social reproduction from the three levels of the firm system at the micro-level, the industry and sector systems at the meso-level, and the national economic system at the macro-level.

3.5 The Long-Term Transition of Relations of Distribution in Social Production32 As far as the entire economic life of human society is concerned, the link of distribution is of special importance. However, for a long time, Western economists have devoted much energy to the analysis of output growth and market exchange but paid little attention to the distribution link in the socioeconomic system, so the economic theories put forward by them have led to the abnormal development of Western society to some extent. The fundamental goal of human society’s economic activities is to improve the quality of human life and promote the full development of individuals, and economists who ignore the distribution link have obviously forgotten this. The British economist John Stuart Mill (1806–1873) criticised people’s blind pursuit of economic growth without considering the quality of life as early as the mid-nineteenth century. He pointed out that “it is only in the backward countries of the world that increased production is still an important object: in those most advanced, what is economically needed is a better distribution.”33 As far as a specific social group is concerned, whether the result of the distribution of labour results is reasonable and fair will directly affect the quality of life and living conditions of each individual in the social group. When the distribution of labour results (i.e., income distribution) in a society is seriously unreasonable or unfair, the continuous accumulation of this distribution method will lead to the inevitable 31

Samuelson, P., Nordhaus, W. (1992). Economics (Gao, H. Y., trans.). China Development Press. 保罗·萨缪尔森., 威廉·诺德豪斯. (1992). 经济学 (高鸿业, trans.). 中国发展出版社. Requoted from: Ma, T. (2017). The Evolution of the Economic Paradigm. Higher Education Press. p. 128. 马 涛. (2017). 经济学范式的演变. 高等教育出版社. p. 128. 32 The main content of this section was first published on the 25th issue of New Economy magazine in 2015 at Guangzhou with the title “Relationship Changes of Social Distribution and Reform of Distribution Institutions”. 33 Spiegel, H. W. (1991). The Growth of Economic Thought. Duke University Press. Social Sciences Press. p. 389.

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disparity and polarisation between the rich and the poor in different strata of society. Such a society is bound to be full of exploitation, confrontation and conflict, and it is often prone to violent revolutions under extreme circumstances, and social order often collapses and disintegrates under the impact of revolution. This point has been repeatedly proven by the countless social revolutions and national downfalls in human history. Starting from these basic facts, it can be found that economics and sociology are in fact closely connected, and they cannot be absolutely separated. For this reason, this book extends the discussion of economics to the field of sociology in the last two chapters. As Brian Arthur, an economist at the Santa Fe Institute in the United States, pointed out, “Economics, as any historian or anthropologist could have told him instantly, hopelessly intertwined with politics and culture”.34 In the process of human society’s reproduction, not only does the connection mode between the links undergo long-term changes, but each link also evolves. Only from the distribution link in social production has it experienced a long-term historical change.

3.5.1 The Long-Term Evolution of Relations of Distribution in Social Production From the historical development of the entire human society, the relations of distribution have generally evolved from basic fairness and equality in the primitive society to extreme unfairness and inequality in the slave society, then to general unfairness and inequality in the feudal and capital society,35 and finally to comparative fairness and equality in modern society. In the period of primitive society, the clans or tribes formed by primitive humans practiced the primitive communist production method that they collectively collected wild fruits, hunted beasts, and shared labour fruits. Due to the extremely low level of social production in human society, there was no class differentiation for the time being, the labour results that can be distributed by clans or tribes are very limited, and social production reflects a mutually equal production and distribution relationship. Even at the end of primitive society, some primitive tribes still evenly allocate public land for households and evenly distribute collective labour gains under the auspices of tribal leaders, village heads, or clan leaders. For example, the Dulong people living in Yunnan, China, who remained in the primitive stage in the early twentieth century, spent approximately 200 days a year gathering food. Under the leadership of the

34

Waldrop, M. M. (1992). Complexity: The Emerging Science at the Edge of Order and Chaos. New York: Simon & Schuster. p. 27. 35 Capital society refers to the social stage in which the element capital is in predominance in social production activities. The concept of capital society and capitalist society are different in connotation.

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older women in the family, the food collected by the group is equally distributed according to the head, including those who did not collect food.36 In the period of slave society, due to the mutual plunder and frequent wars between tribal groups, the defeated captives became the objects of enslavement by the victors, and human society was thus divided into two major classes of slave-owners and slaves. The enslavement of the ruling class to the ruled class resulted in serious discrimination against people themselves. The supreme leaders of the ruling group were often deified, while the slave class at the bottom was dehumanised that slaves were often treated as nonfree animals possessed by slave owners. At this time, there was an economic relationship of oppression and exploitation between slave owners and slaves, the fruits of social labour were mainly divided up by the slave-owner class, and social production reflected an extremely unequal production distribution relationship. In ancient Greece, in Athens at its heyday, 60,000 free male citizens were served by 600,000 slaves. In ancient Rome, in the city of Rome in the first century B.C., slaves accounted for 900,000 of the population of 1.5 million. These slaves did not have the rights of free people; they were the property of the slave owners. For example, the ancient Greek historian Xenophon (440 B.C.–355 B.C.) advocated strict management of slaves and even suggested mastering slaves by the approach of taming wild beasts. Aristotle believed that a slave is not a human but “a living property” and a tool that can talk, which belongs to its master.37 In the period of feudal society, the social class was divided into serfs, landlords, handicraftsmen, merchants, soldiers, and feudal officials. Due to the dominant role of agriculture in the whole social production at this time, the land lease and contract relationship between serfs and landlords was the main economic relations in the field of production. In the social background where the landlords’ land value had long been overestimated and the serfs’ labour value had long been underestimated, there had been an economic relationship of exploitation between landlords and serfs for a long time, and the rent, including labour rent, product rent and monetary rent, paid by the serfs to the landlords was the main form of the distribution of labour results between the two. In the distribution of labour results, although serfs obtained part of the labour results, due to the absolute dominance of land ownership in the entire distribution relationship, social production still reflected many unfair and unequal production distribution relations. In the period of capital society, the social class was further divided into serfs, landlords, workers, merchants, capitalists, soldiers, and officials. As industrials gradually occupied a leading position in the entire social production, the employment relationship between workers and capitalists and the contractual relationship between serfs and landlords were the main economic relations in the field of production. In the social background where the value of capital and land was overestimated and the labour 36

Yao, S. Z. (1997). The History and Development of Yunnan Minority Values. Yunnan Fine Arts Publishing House. pp. 1–33. 姚顺增. (1997). 云南少数民族价值观的历史和发展. 云南美术出 版社. pp. 1–33. 37 Wu, Y. H., Zhang, J. X. (eds). (2014). History of Foreign Economic Thoughts. Higher Education Press. p. 17. 吴宇晖., 张嘉昕. (eds). (2014). 外国经济思想史. 高等教育出版社. p. 17.

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value of workers and farmers was underestimated, there was still an economic relationship of exploitation between capitalists and workers, between landlords and serfs, and most of the main social wealth created by workers and peasants was occupied by capitalists and landlords. In the distribution of labour results, although workers and serfs obtained part of the labour results, due to the absolute dominance of capital in the entire distribution relationship, social production still reflected some unfair and unequal production distribution relations. In modern society, modern technology has greatly improved the level of social production in various countries since the Industrial Revolution, making the public realise that technology is an important factor in promoting the development of social productivity so that the stratum holding invention patents or new technologies has a higher status in the distribution of social production. Since the mid-nineteenth century, with the expansion of the corporate scale and the increasing complexity of production and operation, corporate management has been separated from the production process and has become an important factor in the production and management of firms, which has led to the rise of professional corporate managers, represented by entrepreneurs. With the strengthening of the power of the corporate management class, the value of the management knowledge of the corporate management class has been gradually recognised by the public in repeated games with capitalists. Continuous in-depth research on the laws of corporate management has gradually cleared the fog shrouded in human resources and discovered the unique value and multiple functions of human resources. Through the understanding of the evolution process of the distribution relationship in social production, it is apparent that a human’s understanding of its own value has also undergone an evolution process from unconsciousness (i.e., enslaving people as animals) to consciousness, from low value (i.e., labour value is lower than land value) to high value, from tool value (i.e., treating people as a tool to create surplus value) to resource value. This process reflects not only the progress and development of human social civilisation but also the continuous improvement of human beings’ awareness of their own values.

3.5.2 The Relation Between Human Cognition Level and Social Distribution Result In the reproduction process of human society, the human cognition level of social production and social distribution result are interrelated, interacted and interinfluenced, and there is a dynamic relationship of action-reaction and feedbackadjustment between them from the perspective of long-term historical changes. On the one hand, the lower level of human cognition determines their unreasonable value orientation, resulting in an unfair social distribution result, which reflects the decisive effect of the human cognition level on the social distribution result. On the other hand, the unfair social distribution result will lead to the resistance or revolution of

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the exploited class, forcing them to challenge the unreasonable distribution institutions and gradually improve the public’s cognition level of social production, which reflects the reactive force of the social distribution result on the human cognition level. In the process of social reproduction, the relationship between human cognition level and social distribution result can be shown in Fig. 3.11. In Fig. 3.11, the black arrow indicates the decisive effect of the human cognition level on the social distribution result. The white arrow indicates the reactive force of the social distribution result on the human cognition level. The arc arrow below represents the feedback of the social distribution result to the human cognition level. The upper arc arrow indicates the adjustment of the human cognition level to the social distribution result. In terms of system, a society’s economic system can be viewed as a complex system that inputs resources and outputs functions. To explain the abovementioned interactive process clearly, the input–output relations of the economic system in primitive society, slave society, feudal society, capital society and modern society will be compared vertically. Among the input–output relations of the socioeconomic system, the most important relations are the relations of production factors and the relations of distribution factors, and the relations of distribution of production resulting in the relations of distribution factors are particularly important. The production factor here refers to the basic factor that must be possessed when conducting social production and operation. Relations of production factors refer to the interrelationship between the factors of production (or inputs) and the ratio structure of the inputs before the start of social production. Relations of distribution factors refer to the interrelationship between the distribution factors and the ratio structure of distribution in the process of social

Fig. 3.11 Interaction between human cognition level and social distribution result

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production and operation. In a specific society, the distribution relation of production results is embodied as a series of interrelated social distribution institutions. The rationality of the distribution institutions of social production results (i.e., income distribution) directly affects the fairness and justice of social distribution. In a social economic system, in terms of its long-term historical changes, there is also a dynamic relationship of action-reaction and feedback-adjustment between the ratio structure of factors of production and the ratio structure of factors of distribution, which is similar to the interactive relationship between human cognition level and social distribution result. In actual economic analysis, generally only the relative value of input factors and distribution results can be compared. Therefore, the long-term historical evolution of the value structure of factor input and the value structure of the result distribution in social reproduction will be briefly described in Table 3.1. In the development of human society, the relative position of production factors such as manpower (labour), land, capital, technology and knowledge is always changing. For example, in the era of the agricultural economy, land was predominant, and labour was dominant. In the preindustrial economy era, the position of land gradually declined, and the status of capital began to rise. Capital replaced land and became predominant after the Industrial Revolution, and the status of professional technology and management knowledge began to gradually rise, but capital had always been the superior in the entire industrial economy era. In the postindustrial economy era (or the service economy era), as the value of human resources was generally recognised and valued, the standing of intellectual workers with technologies and knowledge was further upgraded. In the era of information economy (or the era of knowledge economy), knowledge and technological factors became crucial in production; thereby, the status of intellectual workers with knowledge and technologies rose and started to lead, and the relative status of capital began to decline. It is the constant changes in the relative positions of the factors of production that push the long-term evolution of the structure of social factors of production, which in turn encourages changes in the structure of factors of distribution. In the process of social production, if the distribution result is considered fair and reasonable, the input structure and distribution structure will be determined in the form of institutions and will be further strengthened in subsequent production and distribution activities. If the distribution result is considered unfair and unreasonable, the input structure and distribution structure will be adjusted or changed through various channels, and the distribution relationship will be continuously improved in subsequent production and distribution activities. Judging from the development history of human society, in a certain period of time, the decisive effect of the relations of production factors on the relations of distribution factors is determined by the level of social production, which is, in essence, determined by the human cognition level, while the reactive force of the relations of distribution factors to the relations of production factors is mainly manifested in the continuous adjustment and transformation of the distribution institutions. The cause of this kind of institutional reform usually comes from the dissatisfaction of the exploited class with the income distribution result, which prompts the

Modern society

capitalist

entrepreneur manager

inventor technician

professional knowledge (S)

professional technology (Y)

capitalist

machinery (P)

capital (M)

capitalist

capital (M)

industrial labour worker (G)

landlord

land (T)

land (T)

serf

landlord

simple machinery (P)

agricultural labour (L)

serf

labour (L)

Feudal society

Capital society

serf

labour (L) land (T) more complex tools (J)

Slave society

slave owner

collective ownership

land (T)

simple tools (J)

labourer

labour (L)

Primitive society

Factor owner

Factor of production

Social times

Industrials: M+P> S+Y+L M↓; P↓ S↑; Y↑ L↓

T>L M>T M+P>G L and G are undervalued (humans are undervalued) M+P> S+Y+L getting more reasonable

M>T>L M+P>G (unequal)

entrepreneur (Q)

capitalist (B)

government (Z)

worker (R)

capitalist (B)

serf (N)

landlord (D)

government (Z)

serf (N)

landlord (D)

government (Z)

T>L+P (unequal)

T>L>P L is undervalued

slave owner

extremely unequal

L ≈ animal T>J

all members of a clan or tribe

Distribution subject

early-phase: more equal; late-phase: differential treatment

Factor value ratio structure

L>T L>J

Factor value comparison

Table 3.1 Historical evolution of the value structure of factor input and result distribution

early-phase: more fair; late-phase: unfair

Fairness of distribution result

Z+B>Q+F+ R; Q ≥ F + R; F > R; more equal

Z+D>N unequal Z+B>R unequal

Z+D>N unequal

(continued)

getting more fair

inadequate fairness

lack of fairness

extremely unequal; extremely unfair slave owner possesses all products

early-phase: more equal; late-phase: differential treatment

Distribution value ratio structure

3.5 The Long-Term Transition of Relations of Distribution in Social Production 103

Factor owner

government, firm, or societal community

landlord (state)

worker, serf

capitalist or serf

Factor of production

(natural or social) resources

land (T)

labour (L)

machinery (P)

Agriculture: M+P> L+T M↓; P↓ L↑; T↓

Factor value comparison

M+P> L+T getting more reasonable

Factor value ratio structure

serf (N)

landlord (D)

capitalist (B)

worker (R)

inventor (F)

Distribution subject

Z+B≥ N+D N≥D more equal

Distribution value ratio structure

Fairness of distribution result

Notes ➀ To make the expression more concise, production factors and distribution subjects are represented by different letters; ➁ “ > ”, “ ≥ ” and “≈” in the table indicate the comparison of relative value, which, respectively indicate greater than, greater than or equal to, and approximately equal to; “↑” indicates that the appraised value is rising gradually, while “↓” Indicates that the appraised value is declining; ➂ Factor value and distribution value in the above table both refer to relative value in a comparative sense, which is different from the meaning of labour value in traditional economics

Social times

Table 3.1 (continued)

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society to constantly readjust and reform the unreasonable and unfair factors in the distribution institutions and reassess the relative value of production factors such as manpower (labour), land, and capital. On the basis of the revaluation of the factor value, through the readjustment of the value ratio structure of input factors, the value ratio structure of the production result distribution is very much optimised, thereby gradually rationalising the social distribution institutions. The adjustment process mainly passively took place by means of class conflict, social revolution, or power reconstruction in the traditional agricultural age and was generally carried out in the form of periodic economic crises or the reconstruction of international market patterns in the capital-dominated industrial age. In the history of human society, in different regions of the world, there have been tens of thousands of times that slaves rebelled against slave owners, peasants’ riots against landlords, and workers’ struggles against capitalists. These class conflicts or social revolutions have continuously changed the disagreements in human society. Unfair and unequal distribution institutions promote the continuous progress of human society and gradually move toward modern civilisation. In modern society, with the improvement of human civilisation and the gradual deepening of humans’ understanding of the economic principles in social production, they take the initiative to reform institutions to improve the unfair and unequal factors in society, thus making distribution institutions more reasonable, fair and perfect. For example, in the early days of the industrial economy, the production input elements were mainly capital and manual labour. Because manual labour occupied an important position in corporate production, the income distribution institutions of distribution according to work were put forward so that income distribution was inclined to manual labour. In the middle of the industrial economy, in addition to capital and manual labour, production input elements also included management knowledge and professional technology. With the broadening of the market and the expansion of corporate scale, the role of management and professional technology became more important. Therefore, the income distribution institutions of distribution according to factors were put forward so that income distribution began to tilt toward management and professional technology. In the later industrial economy, the production input elements were mainly capital and intellectual labour. The innovation, creativity, knowledge and skills of intellectual workers played an increasingly crucial role in corporate production and operation. There were more intangible assets created by intellectual labour, and their value was growing. The intangible assets of some high-tech firms even exceeded the value of the tangible assets of the firm. It was obviously unreasonable and unfair if the income distribution was still inclined toward capital investors. Therefore, people put forward the income distribution institutions of distribution according to contribution so that income distribution began to tilt toward intellectual workers. In 1960, the American economist Theodore W. Schultz (1902–1998) pointed out that human capital is the main source of contemporary national wealth growth. He believed that the quality of the population and investment in knowledge determine

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the future prospects of mankind to a large extent.38 In 1993, American management master Peter Drucker pointed out in his book Post Capitalist Society39 that in Western society, from 1750 to 1880, knowledge was used to improve production tools, processes and products, resulting in the Industrial Revolution; From 1880 to 1945, knowledge was used in labour, resulting in the Productivity Revolution; From 1945 to the present, knowledge was used in knowledge itself , which led to the Management Revolution. After that, in addition to capital and labour, knowledge soon became a factor of production and one of the most important factors of production. In the second half of the twentieth century, scientific knowledge became the basic force to promote social and economic development in human society. As the American futurist John Naisbitt pointed out, “knowledge is the driving force of our economy”.40 After entering the twenty-first century, human society has entered the era of the knowledge economy. With the gradual predominance of knowledge elements in social production, the social wealth created by intellectual workers will increase. Sun Bo-Liang analysed and pointed out that “in the era of knowledge economy, the contribution rate of capital to social wealth will gradually decrease, and social production will be characterised by the large-scale use of knowledge. Correspondingly, in the distribution of social wealth, the proportion of capital will gradually decrease, while the proportion of technology and knowledge will gradually increase. The knowledge economy means that knowledge labour becomes the main source of economic value, knowledge becomes the production resource with the highest added value, and the added value of operating labour will continue to decrease in the production process. For example, more than 85% of the cost of a car in 1920 was paid to workers and investors engaged in conventional production; By 1990, these two categories received less than 60 percent of the share, with the rest going to designers, engineers, managers, etc.”41 The American futurist writer Alvin Toffler also pointed out that “at every step from today on, it is knowledge, not cheap labour. Symbols, not raw materials, that embody and add value.”42 Just as knowledge has created the world’s wealthiest like Bill Gates, innovative intellectuals in the era of the knowledge economy will gradually replace traditional capitalists and become the richest in society. ∗ ∗ ∗ 38

Tang, Z. R. (2014). An Analytic History of Western Economic Evolution. China Economic Publishing House. p. 165. 汤正仁. (2014). 西方经济演化分析史. 中国经济出版社. p. 165. 39 Liu, D. C., Liu, W. R. (1998). Knowledge Economy: China Must Respond. China Economic Publishing House. pp. 137–162. 刘大椿., 刘蔚然. (1998). 知识经济——中国必须回应. 中国经 济出版社. pp. 137–162. 40 Naisbitt, J. (1984). Megatrends: Ten New Directions Transforming Our Lives. New York: Warner Books. p. 7. 41 Sun, B. L. (2008). Value Distribution and Economic Operation in a Knowledge Economy Society. Shanghai Joint Publishing Press. p. 60. 孙伯良. (2008). 知识经济社会中的价值、分配和经济运 行. 上海三联书店. p. 60. 42 Toffler, A. (1991). Powershift: Knowledge, Wealth, and Violence at the Edge of the 21st Century. Bantam Books. p. 82.

3.5 The Long-Term Transition of Relations of Distribution in Social Production

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The above simple analysis of the long-term transition of the links and the relations of distribution in social reproduction adopts the historical investigation method, which is the basic method of Marx’s historical materialism. Some Chinese scholars who studied production relations did not analyse the changing process of social production from rich and colourful historical facts but limited their research vision to a specific historical fault. Instead of examining the production activities in social reality, they ruminated on the posthumous manuscripts left by Marx more than 100 years ago. How could the bookworm-style research that was thus far away from history and reality truly understand the connotation of Marx’s discourse? Similar to some Christians, who respectfully recite passages from the Bible repeatedly, neither knowing the origin of this classic nor what the whole classic is about. They often searched for chapters and excerpts to discuss reality but dared not go beyond the prescribed limit to put forward new ideas. Even if they published some academic papers, they did not have their own independent observation and thinking, let alone any innovative ideas! How can such self-proclaimed academic research achieve conceptual progress and theoretical breakthroughs? Logically, since the birth of Economics, three distinct research perspectives have appeared in the course of its evolution and development, and three core concepts in terms of value, commodity and economic man were selected by these three perspectives as the origin of the study of Economics. These three research perspectives were put forward by Adam Smith, Karl Marx and Vifredo Pareto in different development stages of Economics and became the research origins of Classical Economics, Marxist Political Economy, Neoclassical Economics and modern Western mainstream Economics.43 As far as its essence is concerned, value has both its subjective side and objective side, which is constantly evolving with the development of human social practice and the improvement of the human cognition level, as briefly analysed earlier in the book. Therefore, there is only a relative value and no absolute value. Commodity is the product of human social development to a certain historical stage, which is only the object of production activities in its essence. Therefore, taking the object of production activities as the core of economic activities to analyse human economic life obviously has its limitations. Man, however, is the main body of production activities, so it is obviously reasonable to take man as the core of economic activities to analyse the economic life of human beings. Nevertheless, the real man is a man of society, a man of history, and a multidimensional man with complex human nature. It is obviously one-sided to straightforwardly simplify and abstract the complex man into the profit-maximising economic man. In terms of system, whether it is man or commodity (or product), they are actually the constituent elements of a specific economic system. To thoroughly examine the operating laws of the economic system, apart from analysing the interrelationships of constituent factors such as man and commodity, it is also necessary to analyse the interrelationships between the economic system and its external environment at the same time. Dai, T. Y. (2008). Economics: Paradigm Revolution. Tsinghua University Press. p. 24. 戴天宇. (2008). 经济学: 范式革命. 清华大学出版社. p. 24.

43

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In 2008, the young economist Dai Tianyu published the book Economics: Paradigm Revolution, in which he put forward the core concept of economic unit 44 as the origin of research on economics on the basis of criticising Western mainstream economics and analysing the shortcomings of Marxist political economy and created the economic analytical framework of economic unit—economic flow— economic field. Regarding the economic thinking paradigm, the analytical framework proposed by Dai Tian-Yu is undoubtedly pioneering! The main shortcoming of the analytical framework is that it neither put the economic system in a broader social environment for historical investigation, nor made a vertical hierarchical division of the economic system, nor distinguished different economic units in terms of structure and function. This book has made some positive explorations in these areas. To analyse the social reproduction process of the capitalist society, Marx chose the most ordinary, common and basic economic element of commodity as the research origin in Das Kapital, which deeply analysed the contradiction between productive forces and the relations of production in capitalist society and revealed the development law of capitalist society and the entire human society. The book chooses the economic unit of firm as the research origin, starts from the actual corporate production and operation, analyses the organic connection and complex operation of the links of social reproduction in modern society from micro, meso to macro, reveals the structure, function and dynamic mechanism of firms, industries, sectors and national economy, and reinterprets the development law of the whole human society on this basis.

3.6 A Brand New Economic Paradigm for the Twenty-First Century In 2001, Swiss economist Kurt Dopfer proposed the evolutionary ontology of economics and the analytical framework of evolutionary economics. In 2004, together with Australian economists John Foster and Jason Potts, he proposed the meso concept and the micro-meso-macro analytical framework for the evolution of socioeconomic systems, together with Australian economists John Foster and Jason Potts45 Different from the traditional micro–macro dichotomy of economics, they newly added a new meso-analysis, forming two analysis levels of micro-meso and meso-macro. There is an aggregate relationship between micro and meso, and a structural relationship between meso and macro, and the macro can be obtained through the emergence and self-organisation of meso groups and structures. They also introduced two methodologies of individualism methodology and groupism methodology, which corresponded to the two analysis fields of micro-meso and meso-macro, respectively, Dai, T. Y. (2008). Economics: Paradigm Revolution. Tsinghua University Press. pp. 20–21. 戴 天宇. (2008). 经济学: 范式革命. 清华大学出版社. pp. 20–21. 45 Dopfer, K., Foster, J., Potts, J. Micro-meso-macro. Journal of Evolutionary Economics, 2004, (14), pp. 263–279. 44

3.6 A Brand New Economic Paradigm for the Twenty-First Century Table 3.2 Rules and carriers in several domains

Domains

109

Generic categories Rule(s) ‘Deep’

Carrier(s) ‘Surface’

Micro

Rule

Micro-unit*

Meso

Rule pool

Population

Macro

Many rule pools

Many populations

Notes ➀ Source Dopfer, K. (ed). (2005). The Evolutionary Foundations of Economics. Cambridge University Press. p. 41, Fig. 1.4. The letters and mathematical set formulas in the original table are omitted from this table for the sake of simplicity ➁ *Micro-unit is based on the contextual meaning of the book The Evolutionary Foundation of Economics edited by Dopfer. The original text is “ai = ai (gi j )”, which refers to an individual, a firm or a household

which can better explain the evolution of emergence and self-organisation.46 They believed that meso is the key and basic unit of evolution, and the genetic changes at the micro level lead to the changes of the entire system at the macro level through the structural changes at the meso level. The trajectory of the meso-evolution of the economic system includes three stages of origin, adoption, and retention.47 In particular, Kurt Dopfer et al. introduced the idea of a two-tiered structure in the macro domain of the micro-meso-macro analytical framework, that is, the pair of surface structures and deep structures. Surface structure refers to the visible interconnected populations of an economic system, which have quantitative attributes of an economic structure. Deep structure refers to the invisible interrelated rules of an economic system, which embody qualitative attributes of an economic structure. A Population is an ensemble of entities, and it is in the nature of such a collection to have members assigned to it on the basis of specific principles of inclusion. Regarding the notion of rule, Dopfer specified that “…like a gene, as in biology, or like technical, cognitive and behavioural rules, as in economics. Analogies, such as the term ‘economic genes’, are permissible, since the notion of ‘rule’ is ontologically warranted”.48 The idea of two-tiered structure actually permeates their elaboration on micro and meso, even if the specific expression is not clear enough. For example, they listed the rules and carriers in the micro-meso-macro framework of the economic system (Table 3.2). In this book, I proposed a set of theoretical frameworks, including firm system, industry and sector system, national economic system, and state and the system, covering the micro-, meso-,macro-level of the economic system, and is created with 46

Feng, Y. (2010). K. Dopfer & J. Potts: The General Theory of Economic Evolution. China Public Administration Review (00):213–217. 冯垚. (2010). 库尔特·多普菲、杰森·波特:《经济演化的一 般理论》 . 公共管理评论 (00):213–217. 47 Tang, Z. R. (2014). An Analytic History of Western Economic Evolution. China Economic Publishing House. p. 139. 汤正仁. (2014). 西方经济演化分析史. 中国经济出版社. p. 139. 48 Dopfer, K. (ed). (2005). The Evolutionary Foundations of Economics. Cambridge University Press. pp. 42, 47, 398.

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the idea of two-tiered structure, that is, the category of surface structure and deep structure is adopted at all levels of the economic system from micro, meso to macro. It should be noted that the inspiration for this two-tiered structure did not originate from the theoretical ideas proposed by Kurt Dopfer et al.49 but from the philosophical generalisation of the concept of phenotype and genotype of organisms in the theory of biological evolution (Sect. 2.4). Based on the philosophy of systems science and the law of evolution theory, the book, by applying the methods of structural functionalism, divides the modern social system into human-culture, economy, polity, science, law, education and other subsystems through the systematic synthesis of disciplines such as economics, sociology, management, politics, culture theories, history and philosophy and explores the connection between these subsystems and their intricate relation with social progress, thus depicting the historical trajectory of the long-term evolution of the human social system. The book summarises the basic laws of the evolution and development of human society into the four laws of bifurcation, synergy, fractal and periodicity. Among them, the two laws of bifurcation and periodicity have been discussed by a large number of scholars, and the author mainly discusses the two laws of synergy and fractal, especially the discussion of fractal law, which almost constitutes the book’s basic theoretical framework. The main theoretical innovation of this book is that it reveals fractal features such as self-similarity, hierarchy, and recursiveness in the general structure of the firm system, the industry system, the sector system, the national economic system, and the state and social system, thereby integrating micro-, meso- and macro-economics into a unified theoretical framework. From the categories of surface structure and deep structure, it can be discovered that the theoretical framework of the book further deepens, refines and improves the micro-meso-macro theoretical framework proposed by Kurt Dopfie et al., goes beyond the scope of pure Economics50 and extends to the field of sociology and political science. For a simple comparison, the following table regarding surface structure and deep structure will list the similar concepts used in the theoretical framework of this book (Table 3.3). If the surface structure factors and the deep structure factors listed in Tables 3.2 and 3.3 are compared one by one, it will not be difficult to find that the theoretical

49

On April 20, 2019, when I visited Professor Jia Gen-Liang in Beijing, I asked him specifically about the origin of the surface structure and deep structure. I did not read up on the book The Evolutionary Foundation of Economics edited by Dopfer until May 18, 2019 when I participated in the 11th Annual Conference of China’s Evolutionary Economics in Guangzhou, and then I learned with Dopfer’s relevant theories. 50 At the end of 2012, when I completed the theoretical framework of the economic system from micro, meso to macro in Helix Network Theory, I found that only considering economic factors was not enough to explain the dynamics for social development, so I spent another year supplementing the theoretical framework of the state and social system, and spent another two years carefully revising and perfecting the whole theoretical framework.

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Table 3.3 Structural factors at each level of the socioeconomic system Domains

Structural factors Deep structure (implicit factors)

Surface structure (explicit factors)

Micro (firm)

corporate knowledge, corporate institutions, corporate technology

entrepreneur, corporate organisation, corporate resources

Meso (industry)

industrial knowledge, industrial institutions, industrial technology

corporate clusters, industrial resources, industrial markets

Meso-macro (sector)

sectoral knowledge, sectoral institutions, sectoral technology

industrial clusters, sectoral resources, sectoral markets

Sub-macro (national economic system)

science and technology, economic institutions, cultural education

sector system, exchange system, distribution system

Macro (state and society)

science system, legal system, education system

human-culture system, economic system, political system

framework of this book is basically compatible with the micro-meso-macro theoretical framework by Kurt Dopfer and others.51 The concepts used in this book have practical counterparts in real society. The most important thing is that these concepts have established a clearer relationship with traditional economics, sociology, and political science. Therefore, continuing research and synthesis along the theoretical framework proposed in this book will help to establish a new economic paradigm that meets the needs of social development in the twenty-first century. Another key concept to understand the theoretical ideas of this book is the niche. The concept of niche came from environmental ecology and was later introduced into economic research. Baum (1994, 1996) put forward the concept of organisational niche, and he researched corporate evolution from the perspective of organisational niche; Qian Hui (2004) summarised the basic components of organisational niche. He defined organisational niche as a concept related to space and time. Based on the concept of Qian Hui, this book interprets the niche as the specific resource space in which the economic system survives and the part in which the internal environment of the economic system communicates with the external environment. From the point of view of systems theory, there is a synergistic symbiosis between a system and its niche. The niche of the system is born and grows with the system. It expands with the expansion of the system, shrinks with the shrinkage of the system and disappears with the disappearance of the system. Here, we embody a thorough dynamic view

51

For a succinct comparison, see Gan, R. Y. (2020). The Fractal Structure in the Micro-Meso-Macro Domain of Economic System. Review of Evolutionary Economics and Economics of Innovation (1):45–64.

112 Table 3.4 Niches at each level of the socioeconomic system

3 A Bird’s-Eye View of the Economic Society Hierarchy

Corresponding systems Actor (system)

Niche (system)

Micro-level

Firm

Corporate niche

Meso-level

Industry

Industrial niche

Meso-macro-level Sector

Sectoral niche

Sub-macro-level

National economy

Domestic economic ecosystem

Macro-level

State system

National ecosystem

International-level International society Earth natural ecosystem

of space–time. There are corresponding niches at all levels of the socioeconomic system (Table 3.4). In Table 3.4, the higher the level of the actor is, the easier its niche is to be observed empirically. For example, at the state level, the national ecosystem is easily observed, and the territory in it is one of the most important components of a modern sovereign state. At the level of the international community, the observed niche is the Earth’s natural ecosystem. William Hardy McNeill, a famous American historian, used the ecumene in his famous book The Rise of the West in 1917–2016 to refer to a similar concept that the “geographical space connected by the interaction of human civilisations, which extends not only to land but also to the vast oceans.”52 Economists or scholars who study economic issues by reading the book will find that this book integrates the basic ideas of micro-, meso-, and macro-economics into a unified analytical framework (logically unified economic framework at least), thus laying an ideological foundation for ending the long-term fragmented, chaotic, and contradictory situation of economic theory. However, apparently, the book only creates a preliminary framework for the formation of a unified economic theory. Similar to an initial blueprint drawn by an architect, the author sketched the basic outline of the entire economic building. The details and the subsequent construction still need the continued hard work of economists and sociologists worldwide to be finally completed. After the three economic syntheses by John Stuart Mill, Alfred Marshall and Paul A. Samuelson, I believe that the time for another economic synthesis has arrived! The accompanying period of rapid development and major progress in various fields of social science is not far away!

52

Liu, Z. L. An Analysis of William McNeill’s Theory of Ecumene. In: Proceedings of the 22nd National Seminar on Theory of History (II), 18–20 October 2019, p. 298. 刘志来. 威廉·麦克尼尔生 存圈理论探析. In: 第二十二届全国史学理论研讨会会议文集(下), 2019年10月18-20日, p. 298.

Chapter 4

The Micro-level of the Economic System: The Dynamic Structure and Evolution of the Firm

As the basis of this book, this chapter briefly introduces the research of corporate evolution and corporate ecology; takes the apple tree as a metaphor to elaborate the complexity of corporate growth, which leads to the concept of niche; puts forward a two-tiered corporate structural model, and expounds the features of the deep structure of the firm on the basis of analysing the essential characteristics, and the internal and external environment and constituent elements of the firm; reveals the relation between exchange and distribution within the firm by studying the process of corporate production and operation; explores the approaches to improve the production efficiency of firms from the perspective of the combination structure of production factors. This chapter redefines the concept of overall corporate competence; explores the dynamic factors affecting the development of the firm and the role of entrepreneurs from the perspective of structure; briefly outlines the basic mechanisms behind corporate evolution from the three aspects of division of labour and coordination, interaction between internal factors and external factors, and gradual change and disruptive change; and describes the corporate life cycle and its development trajectory from the perspective of multifactor correlation and interaction. The main discussions of this chapter are as follows: 1.

Achievements in the research of corporate evolution: The theoretical basis of corporate evolution mainly includes Lamarack’s theory of use and disuse and acquisitive inheritance, Darwin’s theory of biological evolution and Leigh van Valen’s coevolution theory. Organisational ecology developed after the 1970s is the application of natural ecology in corporate operations, mainly studying the two aspects of corporate ecology and corporate evolution. In terms of the external factors of corporate evolution, many scholars have emphasised factors such as resources and technology, while others have stressed factors such as competition, regulations, and politics. In terms of the internal factors of corporate evolution, the more representative result is the corporate competency theory. Corporate competency theories focus on factors such

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3.

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4 The Micro-level of the Economic System: The Dynamic Structure …

as internal competency, resources, knowledge and technology, and organisational learning. Darwinism tends to believe that the driving force for corporate or populational evolution is natural selection from the external environment, while Lamarckism tends to promote the variation of the firm, and the subsequent competence improvements lead to evolution. Regarding the process of corporate evolution, scholars seemed to prefer the punctuated equilibrium, i.e., long-term gradual changes accompanied by short-term disruptive changes. In summary, corporate evolution, similar to the evolution of species, presents three characteristics: diversity, heredity and natural selectivity. From the perspective of the internal and external environment and factor interaction, there were few results of systematic research on corporate evolution, among which the most representative were the innovative research done by Qian Hui and Li Xiao-Ming. This chapter comprehensively absorbs the research results of the abovementioned scholars, especially Qian Hui and Li Xiao-Ming, applies the basic methods of system theory and structural functionalism, elaborates the internal and external environment and key factors of the firm, discovers that the general structure of the firm, which is a two-tiered structure composed of a surface factor chain and a deep factor chain, is very similar to the phenotype and genotype of the organism, and analyses the dynamic structure and the evolutionary law of the firm on this basis. The specific resource space that a firm occupies in the socioeconomic environment to support its survival and development forms the niche of the firm. Along with the growth and expansion of a firm, its niche is also enlarging. Different niches indicate different living spaces. The nature of the firm, as Peter Drucker put it, lies in its difference from other organisations that produce goods and provide services, and any organisation that reflects its functions by operating goods (including selling services) is a firm. In this book, a firm is defined as an organisation composed of humans that process resources into products to meet the normal needs of society. A firm is an artificial and complex adaptive system with a value creation function from a system perspective. From the external environment of the firm system, the external factors that corporate the development can be divided into the two categories of demand factors and supply factors, and these factors include humans, resources, products, knowledge, institutions, and technology. In terms of the internal environment of the firm system, a firm is composed of the basic factors of humans, resources, products, knowledge, institutions, and technology. Among the humans in the corporate organisation, the entrepreneur is at the core. Firms are artificial intelligence systems that are able to continuously learn and constantly adjust their organisational hierarchy and functional structure as they develop. To better adapt to the external environment, firms should keep pace with the times and constantly adjust their internal organisational structure. The organic connection of the deep factors of the firm forms the deep structure of the firm system, which reflects the step-by-step enhancement of the

4 The Micro-level of the Economic System: The Dynamic Structure …

5.

6.

7.

8.

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practicality of the firm system in the process of creating value from cognition to rules to skills. This feature of the deep structure of the firm system can be seen from the comparison of the two typical forms of the intangible (implicit) and the tangible (explicit) deep factors of the firm. An in-depth study along the key elements in the deep structure of the firm system will establish the necessary connections to cognitive science and psychology. Corporate production and operation is a cyclical process starting from production and ending with providing products to customers. The internal production activities of the firm are actually divided into the two chains of production → entrepreneur → organisations → resources → products and production → knowledge → institutions → technology → product, from which the relation between the internal production links of the firm can be obtained. From the relation between the system and the environment, the complete production relations of a firm should be composed of its internal production relations network and its external social relations network. Corporate growth and evolution are essentially the dynamic entanglement, interaction and interinfluence of the two relationship networks inside and outside the firm, constituting a multidimensional and complex dynamic picture. In actual corporate production and operation, the two links of distribution and exchange between the starting point of production and the ending point of consumption are not simply connected before and after, but there are often small distributions and exchanges within a large exchange, or a large distribution, while there are even smaller distributions and exchanges within each small distribution or exchange. The entire corporate production and operation is actually a complex network formed by intertwined and nested internal and external links of distribution and exchange at different levels. In the distribution and exchange activities within the firm, this book focuses on the discussion of the relations of distribution. In the book, distribution is defined as a means and tool used to regulate the interest relationship between people, promote social justice and achieve social harmony. As a link in social reproduction, its function is mainly to segment social production results. As a reflection of the will of the distribution subject, its role is mainly to adjust the rational allocation of resources at different levels of social departments, sectors, and classes. The distribution of material products in the production results can be divided into primary distribution and redistribution according to the hierarchy. Distribution is generally composed of distribution subject, distribution object, distribution institutions, and distribution standards. In corporate production and operation, in terms of surface factors, the internal distribution activities mainly include the entrepreneur’s distribution of the three types of explicit factors of manpower, resources and products; in terms of surface factors, this is actually the distribution of knowledge, technology and value within the firm, and the specific distribution relations form the corresponding corporate institutional systems. In terms of system, a firm is an artificial system that inputs resources and outputs functions. In terms of the inputs, the inputs of the firm include manpower,

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resources, and the relations of production factors, while in terms of the outputs, the outputs of the firm mainly include the function of organisational synergy, the function of value creation and the relations of distribution factors. In the reproduction process of the firm, the relations of factors of production and the relations of factors of distribution are interrelated, interacted and interinfluenced, and there is a dynamic relationship of action-reaction and feedback-adjustment between them from a long-term perspective. On the one hand, the difference in the structure of factors of production determines the difference in the structure of factors of distribution. On the other hand, the unfair distribution result will lead to all levels within the firm and external stakeholders requesting adjustments to the unreasonable distribution institutions. It is this dynamic mechanism between them that promotes the long-term evolution of the income distribution relations of firms from unfairness and inequality to comparative fairness and equality. 9. Traditional production theory examined corporate production efficiency only from the two aspects of cost and technology. While the book believes it is necessary to consider the six aspects of entrepreneur, organisation, resources, knowledge, institutions and technology when looking into corporate production efficiency, according to the general corporate structural framework proposed in the book. In addition, the improvement of corporate production efficiency should also include the improvement of its distribution efficiency and exchange efficiency. This chapter briefly discusses distribution efficiency only. 10. This book does not adopt the concept of corporate competence proposed by corporate competency theories but redefines a more general concept. Overall corporate competence refers to the comprehensive competence of the firm to effectively integrate different resource elements, produce goods or provide services, and meet the needs of social consumption. Overall corporate competence is generally composed of the eight abilities of production and supply, entrepreneur, organisation, resources, knowledge, institutions, technology, and product. The stronger a firm’s abilities in these eight dimensions, the stronger its overall competence, and the stronger its market competitiveness. The book then draws the potential energy diagram of corporate competence, which vividly describes corporate growth and competence. The stronger the overall competence of a firm and the higher its potential energy position, the more vigorous its market competitiveness and the greater its ability to supply the market. 11. Demand factors from the external environment are the primary driving force for corporate development, and supply factors from the external environment are the necessary conditions for restricting the development of the firm. Cooperative factors and competitive factors in the external environment are the secondary dynamics that affect corporate development. The key internal dynamics that drive corporate development come from the six factors of humans, resources, products, knowledge, institutions, and technology within the firm. Among them, the most important dynamic factor is humans, and among all the humans, entrepreneurs are at the core. This book then draws the relation between the dynamics behind corporate development.

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12. Entrepreneurs are business managers with entrepreneurial spirit. Corporate culture plays an important role in corporate operations, which has a profound impact on the long-term business performance of firms. The core of corporate culture is the entrepreneurial spirit, which is mainly shaped by the entrepreneur. In the process of promoting corporate growth and development, entrepreneurs play their role through the two chains of entrepreneur → team organisation → firm and entrepreneurship → enterprise spirit → corporate culture. These six factors are closely connected and coordinated in corporate growth and development, and together they grow into a gradually expanding spiral. In the external environment of the firm, the factor of human-culture is also an important factor that cannot be ignored in corporate development, which has a profound impact on entrepreneurship, enterprise spirit and corporate culture. 13. In corporate growth and development, division of labour and coordination, interaction between internal factors and external factors, and gradual change and disruptive change are important mechanisms behind corporate evolution. (1) The division of labour enables the firm to specialise and refine; coordination encourages the departments within the firm to cooperate and coordinate. The division of labour is actually a concrete manifestation of the bifurcation law in corporate production and operation, while coordination is the exhibition of the synergy law. (2) The interaction between the corporate niche factor and key corporate internal factors is not only a pivotal bridge for the external environment and the internal environment to communicate supply and demand but also a general mechanism behind the cooperation, competition, learning and innovation among firms. It is the interactions of the factors inside and outside the firm that promote its growth and development. (3) Corporate evolution is a continuous process that alternates between gradual change and disruptive change, which promotes corporate transition from one stage, or state, to another. The disruptive change in corporate evolution is achieved through the interaction between the factors inside and outside the firm. The factors that cause disruptive change may come from the external environment or the internal environment. If the disruptive change causes the firm to progress, then the result is the improvement of overall corporate competence and the expansion of niche; if the disruptive change causes the firm to regress, then the result is the deterioration of overall corporate competence and the shrinkage of niche. 14. This book holds that the firm also has a life cycle, but the corporate life cycle discussed in the book is different from the stage division of corporate lifecycles discussed by Ichak Adizes. From the direction and state of corporate evolution, this book divides the corporate lifecycle into three stages of growth and progression, retaining the status quo, and regression and decline. The ultimate determinant of corporate progression is not from the outside but from the inside. Regardless of whether the external pressure is large or small, as long as the internal momentum is strong, the firm will progress continuously. The

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evolutionary trajectory of corporate competence is a gradually expanding spiral in continuous corporate progression. Regardless of whether the external pressure is large or small, as long as the internal momentum is weak, the firm will regress continuously. The evolutionary trajectory of corporate competence is a gradually shrinking spiral in the continuous corporate regression. 15. From corporate growth and development, corporate evolution can be described by the two chains of resource absorption → organisational growth → exchange efficiency improvement → distribution level improvement → production capacity enhancement and information absorption → knowledge accumulation → institutional innovation → technological innovation → customer value growth, from which a corporate evolutionary trajectory can be drawn. The trajectories of the two chains along which the firm develops and evolves are two gradually expanding spirals with the same starting point. The evolution of the corporate niche and the evolution of the firm proceed are carried out simultaneously through the interaction of the factors inside and outside the firm, forming a two-tiered (i.e., surface and deep) network, which constitutes a multidimensional complex dynamic picture.

4.1 A Brief Introduction to the Theoretical Research on Corporate Evolution and Corporate Ecology1 Almost all important innovations of mankind are carried out on the basis of predecessors, and the theoretical innovations in this book are no exception. Therefore, it is necessary to account for the research results of corporate evolution. The theoretical basis of corporate evolution mainly includes Lamarack’s theory of use and disuse and acquisitive inheritance, Darwin’s theory of biological evolution and Leigh van Valen’s coevolution theory (also known as the Red Queen hypothesis).2 Influenced by Darwin’s theory, evolutionary ideas were introduced into the study of economic theory in the early days. Marx, Marshall and Van Buren were generally considered to be pioneers of economic evolution (Zhaohan and Jiang 2002). After that, evolutionary ideas were widely adopted by economic and management scholars such as Milton Friedman, Burns and Stalker. Burns and Stalker (1961) argued that organisational structures should match environmental characteristics, emphasising 1

This section synthesises the related content of Chap. 2 of Qian Hui’s doctoral dissertation and the introduction of Li Xiao-Ming’s doctoral dissertation. Qian, H. (2004). Niche, Factos Interacting and Organization Evolution. Dissertation, Zhejiang University. pp. 17–26. 钱辉. (2004). 生态位、因子互动与企业演化. 博士学位论文, 浙江大学. pp. 17–26. Li, X. M. (2006). Research on Enterprise Environment, Environmental Factors Interaction and Enterprise Evolution. Dissertation, Tianjin University. pp. 7–13. 李晓明. (2006). 企业环境、环境因子互动与企业演 化研究. 博士学位论文, 天津大学. pp. 7–13. 2 Qian, H., Xiang, B. H. (2006). The Theory Bases and Research Assumptions of Organization Evolution. Journal of Dialectics of Nature (03). 钱辉., 项保华. (2006). 企业演化观的理论基础 与研究假设. 自然辩证法通讯 (03).

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that organic corporate structures are better suited to the changing external environment, while mechanically inflexible structures are better suited to a more stable environment. Subsequently, Thompson, Lawrence and Lorsch in 1967 followed the principle of survival of the fittest and proposed that the design of corporate structure should be adapted to the changing external environment and demonstrated the central role of environmental forces in the formation of corporate structure through case studies. After the 1970s, Western academics developed an organisational ecology from sociology, a theory studying corporate ecology. This theory is the application of natural ecology in corporate operations, mainly studying the two aspects of corporate ecology and corporate evolution. The research on corporate ecology mainly focused on the evolution conditions, the causes of evolution, the process of evolution and the results of evolution. First, the external conditions and motivations of corporate evolution. Darwinists believe that adapting to the external environment is the condition and driving force for corporate evolution, which achieves corporate evolution through natural selection. Most scholars hold that resource acquisition is the key to the survival and development of firms, and the key factor affecting the ability of firms to acquire resources in the external environment is technology. Scholars such as Richard Nelson, Sidney G. Winter and Tushman saw technology as the key force affecting environmental changes. Changes in technology (especially technical standards) and technological innovation have a decisive impact on the survival of a firm. If a firm wants to keep adapting to the external environment and its own continuous development, it is necessary to carry out technological searches to maintain its ability to innovate. Technological innovation is divided into two categories: gradual innovation and disruptive innovation. Gradual innovations affect the competitive landscape, while disruptive innovations change the industrial status and the evolution path. Other scholars (Horwitch, 1982; Starbuck, 1983; Nobel, 1984) believe that the influence of the external environment is a combined result of competition, regulations, politics, and technology and study their interrelations and interactions. However, compared with the sufficient research of the theory of environmental technology, the environmental theory did not clarify how these factors change with time and how they determine the external environmental conditions. Barnett and Hansen (1996) introduced the Red Queen hypothesis into the study of competitions in organisational evolution, arguing that competition is an important factor driving organisational evolution, and if a firm wants to maintain good long-term development, it must actively participate in competitions. Due to the Red Queen effect, competitors and the environment are constantly improving, and every firm must keep moving forward to ensure its relative competitive position. Although firms can avoid competition through specialisation and resource monopoly, they will lose the opportunity to participate in the Red Queen evolution, which is detrimental to the firm in the long run. Competition will promote better evolution and development, and firms should choose and confront competitions bravely rather than avoid competitions.

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The second is the internal conditions and motivations of corporate evolution. Different from Darwinism’s view of natural selection, Lamarckism put forward the corporate evolution ideas of use and disuse and acquisitive inheritance, believing that corporate evolution depends on the firm’s own adaptability. Firms will consciously change themselves to adapt to environmental changes; therefore, organisational variation is not directionless and random. Corporate evolution depends on its own capabilities, and the functions acquired after corporate mutation can be inherited. In terms of the internal conditions and motivations of corporate evolution, the more representative result is the theory of corporate competency. Corporate competency theory includes resource theory (Wernerfelt, 1984), knowledge theory (Conner, 1991, 1996; Kogut and Zander, 1992, 1996; Spender, Prahalad, 1996), and core competency theory (Prahalad and Hamel, 1990; Langlois, 1992; Teece, Pisano, Shuen and Fosse, 1997). These theories took the internal factors as the focus, believing that the accumulation of internal capabilities, resources and knowledge is the key factor for organisations to survive, develop and maintain competitive advantages. Resource theory is the study of organisational investments. It took internal resources as the fundamental reason for corporate competitive advantages, and the establishment of organisational competence is the optimal allocation and use of resources. Knowledge theory regards knowledge as the source of corporate competence and believes that the differences in performance between firms are due to the asymmetry of knowledge and corporate competence. It emphasises that corporate competence is knowledge-specific, and the purpose of accumulating corporate capabilities is to obtain economic rent from proprietary knowledge (Liebeskind, 1996). In contrast, Core Competence Theory was more conceptual and abstract. Its research carrier was basically the same as that of Resource Theory and Knowledge Theory, but the scope of concern was more comprehensive and in-depth. In 1990, The Core Competence of the Corporation published by Prahalad and Hamel was regarded as the starting point for further research on Corporate Competency Theory. Corporate competency theory holds that the development process of organisational adaptation is evolutionary, and corporate competitiveness relies more on gradual innovations to make more effective use of existing corporate capabilities rather than giant leaps and adjustments (Nelson and Winter, 1982). Dynamic corporate competence reflects the ability of the firm to strive for innovative competitive advantage under path dependence3 and the existing market environment (LeonardBarton, 1992). Only based on continuous constructive learning can corporate competence avoid creative destruction (Schumpeter, 1934) and achieve a dynamic balance of organisational consistency and corporate dynamic development. Corporate competency theory assumes that organisational learning is the fundamental way to establish and continuously strengthen corporate competence. Corporate competence came from corporate collective learning and the transfer of empirical norms and values. The formation of capabilities requires the accumulation and integration of unique resources, knowledge and technology within the firm. Through a 3

Path dependence refers to the dependence corporate evolution has on the choice of development path and applicable rules. Once a firm chooses a certain development path, it is difficult to change.

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series of effective accumulations and integrations, the organization will have unique and lasting competitiveness. What hides behind and determines the core competence is knowledge. Therefore, core corporate competence is represented by knowledge and experience, which are obtained and updated through continuous organisational learning. The sharing of knowledge, empirical skills and failure lessons is the main content of corporate learning. Through knowledge sharing, individual capabilities and knowledge can be transformed into corporate collective competence and knowledge. Combining the view of external causes and internal causes, the evolution of a firm is determined by two basic factors, its external environment and its variation, which act through the following four basic rules: 1. Variation: Changes in the firm’s own competence and adaptability; 2. Selection: The external environment is favourable for some firms to evolve but unfavourable for others; 3. Inheritance: Some healthy variations are inherited and passed on by the corporate population; 4. Competition: All firms face competition for survival, and the firms or groups that can better adapt to the external environment have the upper hand in the competition. Darwinism tends to believe that the driving force for corporate or populational evolution is natural selection from the external environment, while Lamarckism tends to promote the variation of a firm, and the subsequent competence improvements lead to evolution. The above two views are not contradictory but complementary, each focusing on one aspect of corporate evolution: Darwinists focused on external conditions and motivations, while Lamarckists focused on internal conditions and motivations. The third is the process and results of corporate evolution. Regarding the process, scholars seemed to prefer the Punctuated Equilibrium, i.e., long-term gradual changes accompanied by short-term disruptive changes. In the 1930s, Joseph Alois Schumpeter (1883–1950) studied the process of economic evolution from the perspective of innovation. In his opinion, innovation is the essence of economic changes, and economic development is essentially a process of dynamic evolution. He put forward the concept of industrial mutation and believed that the qualitative change of economic development can be either incremental or discontinuous, and the process of creative destruction is a basic fact of capitalism. In 1950, Armen Alchian published his classic paper Uncertainty, Evolution and Economic Theory. By applying the biological theory of natural selection, he proved that economic evolution can create the results of neoclassical economics, emphasised the important impact of environmental uncertainty on corporate development, and reinterprets the profit-maximising behaviour of firms in terms of evolutionary competitive forces. Milton Friedman (1953) believed that in the process of economic evolution, only those who tried to maximise returns could survive in market selection. Therefore,

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the behaviour of firms to maximise benefits is the result of market selection (as-if methodology). In 1977, Hannan and Freeman put forward a complete organisational ecology concept and research framework on the basis of comprehensive discussion on organisational ecology and established a mathematic model that can measure the individual development, change and succession of a firm. They believed that corporate changes (adaptations) and environmental choices are the main paths of evolution, regarded population density as a key factor affecting the survival of firms, and suggested that the level of population density has a direct positive or negative relation with corporate mortality. The key factors that affect firm classifications and population density are technology and institutions. At the same time, technological innovations and changes in environmental institutions are the main ways for firms to change. Other organisational population ecologists (Mckelvey, 1978, 1982; Mckelvey and Aldrich, 1983) also regarded technological factors as an important element in the formation of organisational populations, and assumed that firms with similar technology and knowledge gradually form one population. Ichak Adizes (1979), inspired by life phenomena, argued that like all biological and social systems, organisations also have their own processes of producing, growing, maturing, declining and dying. In his book Managing Corporate Lifecycles, which was published in 1988, he subdivided these five stages into ten stages of courtship, infancy, Go-Go, adolescence, prime, stability, aristocracy, recrimination, bureaucracy and death. An evolutionary theory of economic change published by Nelson and Winter in 1982 was considered an important symbol of the formation of evolutionary economics. In this work, they proposed a comprehensive analytical framework that absorbed natural selection theory and corporate behaviour, and systematically applied the ideas of evolution to the study of corporate management. They constructed a corporate evolution model including corporate routines, strategic search, technological innovation and environmental choices and, for the first time, established a more systematic theoretical analytical framework of corporate evolution. They believed that firms should accept the natural selection of the market environment, and firms compete with each other in the market, with profitable firms expanding and unprofitable firms shrinking and weakening until they are eliminated. Since then, the idea of corporate evolution has been supported and discussed in depth by many scholars. Hannan and Freeman continued to develop the corporate ecology model. Burgelman and Bower, based on the ecological interaction within the organisation, designed a strategic decision-making B-B model; Tushman and Romanelli proposed a theoretical punctuated equilibrium model that organisations evolve with the unbalanced development of technology; Baum verified corporate evolution from the perspective of niche; Ken Baskin and others studied the composition of corporate DNA and their operating mechanism; and James F. Moore proposed business ecosystem coevolution theory. The Resource-Based Theory (Wernerfelt, 1984), Core Competency Theory (Prahalad and Hamel, 1990), and Organisational Learning Theory (Peter M. Senge, 1990) are referred to as the main sources of corporate evolutionary competence and have been fully studied and demonstrated.

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Tushman and Romanelli (1985, 1994) further studied the evolutionary law of firms and believed that the law of corporate change is intermittently balanced, that long-term gradual growth is accompanied by the interruptions of short-term disruptive changes, and that the survival of firms depends on their ability to successfully complete the repositioning and business convergence cycle. Burgelman (1983, 1986, 1987, 1988, 1991) investigated corporate strategy from the perspective of internal ecological evolution, assuming that strategic decisionmaking is the result of the interaction and evolution of different managements within the firm. He put forward the concept of intra-organisation ecology, believing that the organisation’s strategy formulation is closely related to the interaction of ecological units within the organisation, there is a specific connection between the ecology inside the organisation and different organisational adaptation patterns, and strategy formulation and survival adaptation are internal processes of variation-selectionretention. Tushman suggested in 1996 that there are three modes of organisational evolution: continuous growth, discontinuous disruptive change, and fundamental reform. For managers, the organisational culture and strategy should not only adapt to the current environment but also ensure that the organisation has the ability to respond to disruptive environmental changes in the future. In 2000, Eisenhardt and others studied the process of corporate coevolution and concluded that coevolution is a crucial strategy that firms should adopt in the new economic era. Coevolution is more likely to occur within an alliance’s firm network. In 2001, he put forward the concept of edge competition, arguing that the strategic model of firms under traditional stable conditions often fails, and firms should form a set of internal mechanisms to adapt to chaos to maintain a competitive advantage in a high-speed changing environment. The overall goal of edge competition is to make chaos and order coexist within the firm to ensure the space for innovation and variation and to build up competitive power in different directions to completely transform the firm to achieve a combination of advantages. In summary, corporate evolution, similar to the evolution of species, presents three characteristics: diversity, heredity and natural selectivity. Diversity means that when a firm organisation enters the process of evolutionary innovation, it will have at least one important trait that can trigger its innovation, and this feature will be significantly different from other firm organisations; Heredity refers to the existence of some kind of organisational replication mechanism similar to biological genes in the firm organisation. In the process of replication, it will perform genetic optimisation simultaneously to ensure that the organisation can evolve unidirectionally from a low-level to a high-level; natural selectivity emphasises the effectiveness of the adaptive system in the evolutionary competition of the firm organisation. The survival of some organisations and the demise of others is the result of the natural selection of different organisational forms by the environment. Natural selection drives organisational variation and encourages evolutionary changes. In the process of mutual selection, a new balance and harmony is established between the organisation and the environment. Once this balance is broken, a new selection process begins anew. Corporate organisational evolution is not a partial adaptive change but a substitution

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of one organisational form for another, sometimes manifested as forced evolution, sometimes manifested as gradual evolution. However, no matter which way of evolution is adopted, it is the result of the changing requirements of the environment on the organisation. From the perspective of the internal and external environment and factor interaction, there were few results of systematic research on corporate evolution, among which the most representative were the innovative research done by Qian Hui and Li Xiao-Ming. In 2004, Qian Hui explained the strategic interaction between organisation and environment from the perspective of niche and factor interaction, summarised and demonstrated the basic elements of organisational niche, systematically expounded the characteristics and the concept of organisational niche, constructed the Organisation-Niche Diamond Matching Model, put forward the assessment method of organisational niche based on catastrophe theory, summed up the characteristics of corporate evolution path from the angle of corporate ecological interaction, and carried out an empirical analysis in combination with cases. In 2006, Li Xiaoming sorted out the research results on the nature of firms in economics and management, proposed the corporate behaviour process model based on the corporate environment, constructed a relatively complete theoretical framework of the corporate environment, performed an in-depth analysis of the internal and external factors of the firm and their interaction mechanism, suggested the mutation model of the corporate niche factor, and studied corporate evolution with the interaction of corporate environmental factors.

4.2 A Metaphor: Apple Tree and Firm 350 years ago, one day in 1666, when the famous British scientist Newton was walking one day in his garden and saw some fruits (apples) falling from a tree, he fell into a profound meditation on that gravity.4 The law of gravity unified the movement laws of ground objects and celestial bodies, which had a profound impact on the subsequent development of physics and astronomy and greatly promoted the process of human understanding of the natural world. The apple tree opened up human wisdom and brought mankind into a new era. Here, the book also uses the growth of an apple tree as a metaphor for the growth process of a firm. If an apple seed is planted in the soil, as long as the light, temperature, moisture and nutrients are appropriate, the apple seed will germinate and gradually grow into an apple sapling. In a couple of days, this sapling will grow into an apple tree, and the apple tree can blossom and bear fruits after a few years.

4

Voltaire. (1894). Letters on England. Cassell. p. 108.

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The ability of an apple seed to grow into an apple tree should give credit to both the internal and external factors. Both internal and external factors are important and indispensable. When an apple seed is planted, the reason it does not grow into a pear tree or a peach tree is because the apple seed is planted. The apple seed determines that it can only grow into an apple tree. The apple genes contained in the apple seed are internal factors. On the other hand, if there is no proper light, temperature, moisture, or nutrients, the apple seed cannot germinate normally or grow into a tree, blossom or bear fruits. Appropriate light, temperature, moisture and nutrients are external factors. It is known that the Earth’s biosphere is the living environment of all earth creatures. Every species has its own living space and land for activities. The external environment that constitutes the living space of organisms is regarded as the ecological environment. The part of the ecological environment (or habitat) occupied by biological individuals is called the niche.5 For an apple tree, its niche is the small plot of land it occupies, the space covered by the canopy, and all the substances contained within it. The energy and substances (i.e., light, moisture, nutrients, etc.) absorbed by the seed in the process of germination and growth come from the niche it occupies. In other words, all the external factors of growth are included in its niche. What are the factors that make up an apple tree’s niche? Ordinary plants need proper light, temperature, air, moisture, inorganic materials, organic nutrients, etc., for healthy growth, and similarly, these contents also constitute the factors of the apple tree niche. Where do these niche factors come from? The sources are analysed through the following table (Table 4.1): From the above table, it is discernible that the light required by apple trees comes from the sun in the solar system, and the water that is indispensable for its growth comes from multiple environments at different levels, such as soil, surface, and atmosphere. This is instructive for us to analyse the external environment of the firm. Trees, including apple trees, grow through absorption, transpiration, photosynthesis, respiration, and metabolism. In addition to the lifespan of birth, growth, ageing and death, fruit trees also have phenomenal periods, such as the temperature period6 and harvest period.7 5 The concept of niche was first proposed by natural ecologist Johnson in 1910. In addition, ecologist J. Grinnel first made a specific definition of niche in 1917. He pointed out that “the niche is the sum of the habitat requirements and behaviours that allow a species to persist and produce offspring, which can be called space niche or habitat” (Chen, T. Y. (ed). (1995). Basics of Ecology. Nankai University Press. 陈天乙. (1995). 生态学基础教程. 南开大学出版社.) Since then, the definition of niche has been in a state of controversy in the field of natural ecology, and has not yet formed a unified result. 6 Additionally, known as the thermoperiod, referring to the periodic impact the cyclical changes of temperature in natural conditions have on the growth of plants, which can be divided into daily thermoperiod and annual thermoperiod. 7 Additionally, known as on-and-off year period or fruit period, which refers to the obvious fluctuations in the quantity of fruits picked in different years, resulting in the alternation of harvest

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Table 4.1 Sources of apple tree niche factors System hierarchy

Environment

Sources

Factors

Compositions

High-level

Solar system

Sun

Light

Photon

Mid-level

Atmosphere

Clouds

Rains

H2 O

Air

Vapor → Dew

H2 O

Gas (Oxygen, etc.)

O2 , CO2

Rivers

Surface water

H2 O

Soil

Ground water

H2 O

Inorganic materials

K, Ca, Mg, Na, etc

Organic materials

Organic fertilisers, etc

Low-level

Earth

Similar to an apple tree, a firm also has its life period of birth, growth, ageing and death, as well as phenomenal periods such as the production period and capital operation period. When an entrepreneur with passion and dreams puts his or her thoughtful business plan into practice, the seed of a firm is born! A market opportunity, a new technology, a new invention, a novel idea… The seeds of these firms will sprout and grow in the soil of the market once they meet the right partners and investors. In Silicon Valley in the United States, in Zhongguancun in Beijing, in Zhangjiang in Shanghai, in the university town of Guangzhou, in the science park in Shenzhen, and in the entrepreneurial parks of many cities, all kinds of corporate seeds are born almost every day. Some germinate, grow and bear fruit, some die before they grow, many more seeds die soon after germinating, and thousands of seeds fail to germinate due to a lack of suitable temperature, water and nutrients. When a firm is created, to survive and adapt to the environment, it must constantly acquire knowledge and technology from the social environment for survival, similar to an apple tree, which continuously absorbs water and minerals from the natural environment. Firms also deliver knowledge and technologies to society through their products and services, such as an apple tree, continuously discharging water from its body into the surroundings. The learning and spreading behaviour of firms are similar to the absorption and transpiration of apple trees. In the process of growth, a firm needs to recruit all kinds of personnel from society and make them a part of its own after training. A firm also needs to absorb various resource elements in the social environment, convert them into products and services through production and processing, and then return them to the social environment for consumption. Similar to the apple tree, it needs to convert the light energy absorbed in the natural environment into organic energy through photosynthesis and store it in its own body, as well as to convert and decompose carbon dioxide and water absorbed

years (i.e., on years) and low-yielding years (i.e., off years). Different types of fruit tree species vary greatly in the severity in on-and-off year period. On-and-off year period of fruit trees has great impacts on fruit production and economic income.

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from the outside environment into organic matter and oxygen and return them to the outside environment. In development, when creating new departments and expanding organisational scale, a firm needs to invest capital, allocate corresponding sites and equipment, and eliminate obsolete equipment and facilities. This is similar to the growth of an apple tree; in the process of cell division and growth, it needs to consume energy and oxygen and discharge carbon dioxide and water through respiration. During the growth process, the metabolism of matter and energy is always carried out between the apple tree and the external environment; a similar metabolic process also takes place between a firm and its environment during growth. Just as an apple tree has its own niche, so does a firm. Different niches indicate different living spaces. In general, firms with similar environmental resource conditions and production capacity have similar niches. Different scholars have different understandings of corporate niches. Hannan and Freeman (1989) discussed the niche of organisational population and believed that organisational niche is a multidimensional space determined by environmental resources, one population constitutes one niche, and organisational population can be regarded as composed of firm clusters occupying the same niche in the multidimensional resource space. Baum (1994, 1996) put forward the concept of an individual organisational niche. He believed that one organisation occupies one niche, and the organisational niche describes the demand and production capacity of individual firms in the community for different resources. Qian suggested that the organisational niche is a vector superposition of multidimensional resources and demand spaces formed by firms in the environment, which is a function related to space and time.8 This book believes that the specific resource space that a firm occupies in the socioeconomic environment to support its survival and development forms the niche of the firm. When an apple tree grows from a seed to a tree, its niche space is also expanding. Similarly, along with the growth and expansion of a firm, its niche is also enlarging. When an organisation grows to a certain scale, it will begin to derive new departments and set up new branches to obtain more market share. It is the same as an apple tree; when the tree grows to a certain level, the trunk begins to fork. After so many times of forking, the tree can have enough branches and leaves to obtain more sunlight, rain and space. This process of continuous branching is actually the bifurcation law that prevails in nature and human society. In nature, the growth of plants shows cyclical changes of prosperity and withering in the four seasons (Fig. 4.1). When spring comes, the apple trees begin to produce tender leaves and fragrant flowers, full of vitality. Then, summer sees the apple trees absorbing much sunlight, water and nutrients and growing so fast that they become lush in just a few months. By

8

Qian, H. (2004). Niche, Factos Interacting and Organization Evolution. Dissertation, Zhejiang University. pp. 22, 47. 钱辉. (2004). 生态位、因子互动与企业演化. 博士学位论文, 浙江大学. pp. 22, 47.

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Fig. 4.1 Apple trees in four seasons

autumn, the harvest season, the trees are full of apples. Winter, with sparse branches swaying and a layer of dead leaves under the trees, is a bleak scene. In human society, the economic system also has a regular cycle of expansion and contraction. Every economic cycle contains prosperity and depression. The transition stage of the economic system from depression to prosperity is similar to the temperature in spring changing gradually from cold to hot. The transition stage of the economic system from prosperity to depression is similar to the temperature in autumn changing gradually from hot to cold. The peaks of prosperity and the bottoms of depression are similar to boiling summers and freezing winters. In prosperity, countless firms are created, and a large number of firms begin rapid expansion, recruiting troops and buying horses, very much like the wildly growing apple trees in midsummer, which become thick and leafy in a very short time! In depression, countless firms go bankrupt and die, and a large number of firms start to lay off employees to overcome the difficulties, very much like the apple trees with falling yellow leaves in the chilling winter! In the economic system of real society, there is a type of corporate organisation that is a chain firm. All chain units of this type of firm have a unified name, logo and image. The most representative chain firms are McDonald’s and the KFC. Such organisations set up batches of new firms in different cities every year according to a certain pattern, which is also very similar to the mass propagation of apple trees. The annual batch of apples produced by the apple trees contains apple seeds. After being planted in the soil and regularly watered and fertilised, they will sprout, grow and eventually grow into a new batch of apple trees.

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4.3 The Nature of the Firm In a state’s economic system, an economic entity (or actor) at the micro-level is generally the firm system. Firms are the most basic economic unit in modern society. What is the nature of the firm? Many economists have studied the nature of the firm from different perspectives, but thus far, there has been no standard answer. Peter Drucker, an American management scientist, argued that the difference between a firm and any other organisations is that it produces goods and provides services, and any organisation that reflects its functions by operating goods (including selling services) is a firm. He pointed out that “firms are just a tool, and every firm is a social organisation used to perform a certain social function.”9 Peter Drucker’s point of view speaks out the true nature of the firm. Generally, a firm is an organisation composed of humans that processes resources into products to meet the normal needs of society. In this context, products refer to products in a broad sense, including tangible materialised products and intangible nonmaterialised services. Organisation refers to a group of interrelated humans combined in accordance with certain rules. Resources refer to various necessary elements from natural and social systems, including natural resources and social resources, in corporate production and operation. Many theories regard humans in firms’ human resources and include them in the category of corporate resources, which is not impossible from a theoretical analysis perspective. However, among all animals in nature, humans are the only ones that have self-awareness and can actively create tools, and humans have an important initiative role in corporate development. Therefore, to highlight the role of humans, this book puts humans as a separate constituent element of a firm. A firm is a historical category, and it has different connotations and denotations at different development stages of human society. In human history, in the early days when the market just appeared, individuals and households were the basic units of the social economy. At that time, the individuals and households engaged in production and operation were the original forms of firms. According to classical economic theory, under the condition of sufficient market information, commodity transactions between individuals and households can be completed smoothly. At that time, the firm is just a production unit, not much different from the individual if only from the perspective of economic entity. However, because the market has become more diversified and complex due to the continuous progress and development of society and because individuals and households are unable to undertake the tasks of social production and operation due to circumstances such as the failure of market adjustment, the continuous increase in transaction costs, and the complexity of business information, corporate organisations have replaced individuals and households and become the basic unit of the Requoted from: Cai, W. Y., Na G. Y. (2002). What is a firm?. Manager (04). 蔡文燕., 那国毅. (2002). 企业是什么? 经理人 (04).

9

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social economy, and the individual becomes the basic constituent element of corporate organisation. Once a corporate organisation is formed, it will gradually evolve and develop with the continuous progress of human society. For example, in corporate evolution, different organisational types such as hierarchical organisation, flat organisation, virtual organisation, and network organisation have been formed. Alfred DuPont Chandler Jr. (1918–2007) sketched out the process of corporate development through his research on the history of American firms. Before 1840, American firms were usually small-scale firms that only managed a single product by their owners. Many transactions were coordinated by the market due to its small scale. After 1840, the appearance of new transportation and communication technologies made long-distance large-scale commodity transactions possible, and various new technologies greatly improved production capacity, so modern industrial and commercial firms emerged and flourished. With the continuous development of society, some transaction activities that were originally regulated by the market have been transferred to the inside of the firm, and the firm has gradually evolved into a huge economic organisation that can perform multiple economic functions.10 The evolution of modern firms is still ongoing in all countries of the world. Firms have different definitions under different analytical perspectives. For example, scholars such as Edith T. Penrose (1959, 1995), Wernerfelt (1984), and Barney (1986) examined firms from the perspective of organisational resources and focused on resource endowment and factor markets. They believed that a firm is a unique collection of resources. Penrose defined a firm as a collection of resources coordinated and bounded by an administrative management framework, while Kogut and Zander (1992, 1996), Spender (1996) and other scholars held the opinion that a firm is a unique aggregate of knowledge, and the core of firms is knowledge.11 Li Xiao-Ming, from a system perspective, put forward the following: “Firm is essentially an artificial system with value creation function. The external environment provides resources, opportunities and regulations for the firm. The firm transforms the inputs and provides products (or services) to the external environment, while the external environment evaluates the outputs and determines the future inputs accordingly.” “The firm system is a complicated and adaptive system for human labour. In addition to the features of integrity, relevance, intentionality, and environmental adaptability of general systems, the firm system also has complex structures, complex relationships, and complex behaviours, and is a dynamic and open system”.12 Judging from the actual corporate operation, whether it is regarded as a collection of resources or a collection of knowledge is one-sided. Therefore, this book adopts the definition 10

Qian, H. (2004). Niche, Factos Interacting and Organization Evolution. Dissertation, Zhejiang University. p. 61. 钱辉. (2004). 生态位、因子互动与企业演化. 博士学位论文, 浙江大学. p. 61. 11 Qian, H. (2004). Niche, Factos Interacting and Organization Evolution. Dissertation, Zhejiang University. pp. 63–64. 钱辉. (2004). 生态位、因子互动与企业演化. 博士学位论文, 浙江大学. pp. 63–64. 12 Li, X. M. (2006). Research on Enterprise Environment, Environmental Factors Interaction and Enterprise Evolution. Dissertation, Tianjin University. pp. 24, 44. 李晓明. (2006). 企业环境、环 境因子互动与企业演化研究. 博士学位论文, 天津大学. pp. 24, 44.

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given by Dr. Li Xiao-Ming, which states that in terms of system, a firm is an artificial and complex adaptive system with a value creation function.

4.4 The Environment, Elements and Structure of the Firm 4.4.1 The Internal and External Environments of the Firm A firm that exists in a specific socioeconomic environment has both an external environment and an internal environment, all of which have their own hierarchies. At present, scholars’ research on the corporate environment focuses on the external environment of the firm but lacks research on the internal environment. Therefore, the academic circle has not yet formed a complete theoretical system of the corporate environment. According to Li Xiao-Ming’s research review, scholars’ analysis of the internal and external environment and factors of the firm is messy, neither reasonable nor systematic.13 To make an exploratory attempt on this issue, a brand-new framework is proposed for the environment inside and outside the firm through the following graph, but the book only conducts a simple analysis and does not make a more in-depth and detailed discussion because the focus of the discussion is not here.

4.4.1.1

The External Environment of the Firm

The external environment of the firm refers to the collection of the factors that exist beyond the boundaries of corporate organisation and have an impact on corporate production and operation. The external environment of the firm includes the natural environment and the social environment. The social environment also includes the political, economic, humanistic and cultural, scientific, educational, legal and other environments. From the hierarchy and function of the system, firms belong to the category of the sector system and the national economic system. The external system that contains the firm is vertically composed of the three basic levels of the industry and sector system, the national economic system, and the state system. The two outer systems are the social system (international system) and the natural system. The social system (international system) is contained within the natural system. The hierarchical relationship of each system in the external environment of the firm is shown in Fig. 4.2. What are the external factors that affect corporate development? It is clear in Fig. 4.2 that there are many external factors that affect corporate development, 13

Li, X. M. (2006). Research on Enterprise Environment, Environmental Factors Interaction and Enterprise Evolution. Dissertation, Tianjin University. pp. 14–15. 李晓明. (2006). 企业环境、环 境因子互动与企业演化研究. 博士学位论文, 天津大学. pp. 14–15.

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Fig. 4.2 Spheres of the corporate external environment

including the factors from the social environment and the factors from the natural environment. However, most of them come from the social environment, including economy, polity, human-culture, science, education, and law. Among them, the most direct external factors are the factors within the economic system. The sources and categories of these factors are analysed through the following table (Table 4.2): It is obvious in Table 4.2 that there are many external factors that affect corporate development, including the factors from the economic system, the state system, the social system (international system), and the natural system. Although there are many factors, they can be grouped into the six categories of humans, resources, products, knowledge, institutions, and technology. The way in which these factors affect the firm can be divided into demand and supply according to the direction of the flow of factors. Therefore, the general external factors that affect corporate development can be divided into the two categories of demand factors and supply factors, and these factors include humans, resources, products, knowledge, institutions, and technology. Demand is the direct driving force for corporate development. If there is no specific demand for the firm’s products in the external environment, the firm will lose its basis for existence. Demand stems from the public’s increasing need to improve material and cultural life, and it is an inevitable result of socioeconomic development. Demand runs through the movement process of the socioeconomic system and changes with the development of the socioeconomic system. The higher the level of socioeconomic development is, the greater the number of demands and the richer the types of demands. Demand is an extremely active and transformative factor in the socioeconomic system. Engels once pointed out that “if society has a technical need, that

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Table 4.2 External influencing factors of the firms Hierarchy

Name

Outermost sphere

Sources

Main influence factors

Factor category

Influence mode

Natural System Sun, Earth

Sunlight, air, water, land, minerals, organisms, etc

Resources

Supply

Outer sphere

Social System International system

Worldwide governments, firms, households, scientific research institutions, universities, international organisations, etc

Humans, procurement, supply, investment, loan, management knowledge, expertise, international convention, trade agreement, international standard, patented technology

Humans, products, resources, knowledge, institutions, technology

Demand, supply

Middle sphere

State System

Political System Public service, investment, procurement, taxation, etc

Resources, products

Demand, supply

Legal System

National laws, economic institutions, sectoral policies

Institutions

Supply

Human-culture System

Family life, population reproduction, community organisations

Humans

Demand, supply

Humanistic spirit, values, ethical morals

Knowledge (human-culture)

Supply

Knowledge, technology

Supply

Science System Scientific research, basic knowledge, technology research and development

(continued)

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Table 4.2 (continued) Hierarchy

Inner sphere

Name

Economic System Sector

Sources

Main influence factors

Factor category

Influence mode

Education System

Talent training, Humans, knowledge knowledge application, knowledge transfer

Supply

Other firms

Personnel exchange (enter, depart)

Humans

Demand, supply

Information exchange (inflow, outflow)

Resources

Demand, supply

Capital exchange (financing, investment)

Resources

Demand, supply

Procurement, supply

Resources, products

Demand, supply

Expertise, management knowledge, cultural knowledge

Knowledge

Demand, supply

Organisational form, institutional norms, process standards

Institutions

Demand, supply

Production technology, production process, operating methods

Technology

Demand, supply

Note This table lists only some of the major factors that affect the external factors of the firm. In addition to these factors, there are obviously other influencing factors (i.e., wars between countries, climate change, geographic conditions, natural disasters, etc.) To facilitate the analysis of the problem, these factors will be discussed in Chaps. 8 and 9

helps science forward more than ten universities”.14 Demand plays a leading role in corporate production and operation. Demands in the external environment are constantly changing, and firms must keep track of these changes at any time, adjust 14

Marx, K., Engels, F. (1972). Selected Works of Marx and Engels (IV). People’s Publishing House. p. 484. 马克思., 恩格斯. (1972). 马克思恩格斯选集(第四卷). 人民出版社. p. 484.

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production and management strategies in time, and develop marketable products to develop smoothly. To provide the products or services required by society, a firm inevitably needs the external environment to supply resource elements. Resource elements are necessary conditions for corporate survival and development and are also a prerequisite for firms to successfully create value. The supply of resource elements is a necessary link and prerequisite for the operation of the socioeconomic system, and it also runs through the movement process of the socioeconomic system and changes with the development of the socioeconomic system. The higher the level of socioeconomic development is, the greater the number of demands and the richer the types of demands. The supply of resource elements is also an extremely active and transformative factor in the socioeconomic system. The supply of resource elements dominates the constituent elements inside the firm. If the external environment does not supply resource elements to the firm, the firm will not be able to carry out normal production and operation, let alone growth and development. The supply of resource elements dominates the level, speed and direction of the evolution of the firm’s ecological environment and its internal components. To facilitate the analysis, some necessary definitions and explanations of the concepts of the factors such as knowledge, technology, and institutions that affect corporate development are made below. ➀ Knowledge Knowledge is the result or crystallisation of human understanding of nature and society, including empirical knowledge and theoretical knowledge. The primary form of knowledge is empirical knowledge, and the advanced form of knowledge is systematic scientific theory. Knowledge can be divided into natural science knowledge, social science knowledge and thinking science knowledge according to its content. Apparently, knowledge has different classifications and definitions under different analytical perspectives. For example, the scientific philosopher Michael Polanyi divided knowledge into two types: explicit knowledge and tacit knowledge.15 Economist Dai Tian-Yu categorised knowledge into inactive knowledge and active knowledge, pointing out that knowledge is “a broad system that includes the both: the former includes the knowledge that is printed on books, recorded on CDs, concreted on buildings, and frozen on machines, etc.; The latter is active in the human brain and its auxiliary or extension, the automatic control system or computer memory.” “Knowledge, especially active knowledge, as the main source of productivity growth and improvement, is the base and ultimate support for the survival and development of the microeconomic meta-system and macroeconomic system”.16 Davenport and Prusak believed that knowledge consists of elements such as experience, values, situational information, and professional insight. Knowledge is dynamic and updated at any time with the learning of the subject. In an organisation, knowledge resides 15

Polanyi, M. (1957). The Study of Man. London:Routledge & Kegan Paul. p. 12. Dai, T. Y. (2008). Economics: Paradigm Revolution. Tsinghua University Press. p. 199. 戴天宇. (2008). 经济学: 范式革命. 清华大学出版社. p. 199.

16

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Table 4.3 Taxonomic dimensions of knowledge assets18

Tacit Not teachable Not articulated

Articulable Teachable Articulated

Not observable in use

Observable in use

Complex

Simple

An element of a system

Independent

not only in documents and knowledge bases but also in routine work, processes, practices, and culture.17 American economist Winter (1987) proposed taxonomic dimensions for classifying different types of knowledge, which is more helpful for understanding knowledge (Table 4.3). ➁ Technology The concept of technology can be classified into the two types of broad sense and narrow sense. Technology in a broad sense refers to the means or activities of human beings to change or control their surroundings and is the sum of the means, methods and skills created by human beings to realise the needs of society. As the overall technical force of social productivity, technology generally includes craftsmanship, labour experience, information knowledge and physical tools and equipment, as well as technical talents, technical equipment and technical materials covering the entire society. Technology in a narrow sense refers to various process operation methods and skills developed by human society based on practical production experience and natural science principles and is the sum of all tools, facilities, equipment, digital data, and information records in human daily life and production and operation. The concept adopted here is technology in the narrow sense. The history of technological application in human society is as long as the history of mankind. The iconic technologies of each human era represent the height of the development level of human productivity. For instance, the development stages of human history can be roughly listed into the Stone Age, the Bronze Age, the Iron Age, the Steam Engine Age, the Electric Age, and the Information Age according to the impact of technology. Technology originates from and is higher than practical activities and continues to develop with the deepening of public awareness. With the development of society, modern technology has begun to evolve into complex, diversified and all-around multidisciplinary technical engineering. Technology can be grouped into production technology and nonproduction technology according to the functions. Production technology is the most basic part of technology; nonproduction technology includes scientific experiment technology, cultural and educational technology, public technology, military technology, medical technology, etc., and is 17

Davenport, T. H., Prusak, L. (1998). Working Knowledge: How Organizations Manage What They Know. Boston: Havard Business School Press. 18 Dosi, G., Marengo, L., Fagiolo, G. Learning in Evolutionary Environments. from: Dopfer, K. (ed). (2005). The Evolutionary Foundations of Economics. Cambridge University Press. p. 278.

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a technology developed to meet the various needs of social life. Modern technology can be expressed as hardware such as tangible tools and equipment, machinery and facilities, and physical substances, etc., and software such as intangible processes, methods, techniques, and programs, etc., as well as information materials, design drawings, etc., that are not physical substances but having material carriers. In modern society, due to the increasingly close connection between science and technology, they are often used together (i.e., science and technology). In fact, science and technology are fundamentally distinctive, albeit closely connected. Science is the approach and means for mankind to understand the world, while technology is the approach and means for mankind to transform the world. Technology is the intermediate link from science to production and a bridge that transforms scientific theory into productive forces. Technology comes from the summary of practical experience and the guidance of scientific principles. Generally, technological inventions are the materialisation of scientific knowledge and empirical knowledge, making applicable theories and knowledge reality. On the one hand, the development of modern technology is inseparable from the guidance of scientific theories, and modern technology has become a scientific application to a large extent. On the other hand, the development of modern science is also inseparable from technology, and the practical needs of technology are often the purpose of scientific research, while the development of technology provides necessary technical means for scientific research. The relationship between science and technology is a relationship of mutual connection, mutual promotion and mutual restriction. Science and technology differ significantly in terms of mission, purpose and form. In terms of mission and purpose, the main differences between science and technology are as follows: the basic mission of science is to understand the world and to make discoveries in scientific research to increase the intellectual wealth of mankind, while the basic task of technology is to transform the world and to make inventions in technological research to create the material wealth of mankind. The results of science and technology also differ in form: scientific achievements are generally expressed in the form of concepts, laws, theories, papers, etc.; technical achievements generally appear in the form of technological processes, design drawings, operating methods, etc. Scientific achievements are generally not commercial, while technological achievements are highly commercial and can often be directly transformed into real commodities. ➂ Institutions The concept of institutions can also be classified into the two types of broad sense and narrow sense. Institutions in a broad sense generally refer to the sum of behavioural norms such as conventions, laws, regulations, policies, and rules established by human society in a specific historical stage and within a specific scope to regulate the political, economic, social, cultural, scientific and educational relations between individuals and organisations, which generally consists of the three parts of the informal constraints recognised by society, the formal constraints stipulated by the state, and implementation mechanisms. Institutions in a narrow sense refer to a code of conduct, rules, or guidelines that an organisation formulates and requires members of the organisation to abide by to maintain a normal operating order. Institutions are

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normative, procedural, instructive, and restrictive, and their content must be able to provide a basis for the behaviour of members of the organisation to follow. The broad concept of institutions is applicable to macro levels, such as society and country, while the narrow concept of institutions is applicable to micro-levels, such as societal communities and firms. Generally, the institutions at the micro level are constrained by the institutions at the macro level. For example, the labour system, wage system, insurance system and other rules formulated by firms must comply with the laws and regulations of the state where the firms are located; otherwise, they will be subject to certain sanctions. Institutions have different definitions under different analytical perspectives. The American institutional economist Veblen pointed out that institutions are the solidified form of social relations and are mapped to the public’s subjective consciousness, which are, in substance, “prevalent habits of thought with respect to particular relations and particular functions of the individual and of the community”,19 North (1990), a contemporary institutional economist, suggested that “institutions are the rules of the game in a society or, more formally are the humanly devised constraints that shape human interaction” and divided the institutions into the three dimensions of formal constraints and informal constraints and enforcement. Formal constraints, also known as formal rules, include political (and judicial) rules, economic rules, and contracts consciously designed by the government, the states or the rulers in accordance with certain purposes and procedures. The hierarchy of such rules, from constitutions, to statute and common laws, to specific by laws, and finally to individual contracts defines constraints, from general rules to particular specifications. Informal constraints are unconsciously formed by people in long-run practices, have lasting vitality, and become part of the culture passed on from generation to generation, including values, beliefs, ethics, moral concepts, customs, ideologies and other factors. Enforcement ensures the implementation of the relevant institutional arrangements for the above constraints, and it is a key link in the institutional arrangements. These three parts constitute a complete connotation of institutions and are an indivisible whole.20 Chinese evolutionary economist Jia Gen-Liang regarded the institutions as “the constraints governing the public’s economic behaviour”, and divided the institutions into the two categories of tangible institutions and intangible institutions. Tangible institutions include “the formal rules such as property rights and financial institutions”, while intangible institutions refer to “the informal rules such as ideologies, values, customs and habits as the external form of culture”. In the institutional structure, the two types of institutional arrangements are complementary, that the tangible institutions can change immediately, while the intangible institutions alter slowly.21 19

Veblen, T. (1934). The Theory of the Leisure Class: An Economic Study of Institutions. New York: The Modern Library. p. 190. 20 North, D. (1990). Institutions, Institutional Change and Economic Performance. Cambridge University Press. pp. 3, 4, 36–60. 21 Jia, G. L. (2000). Cultural Tradition in Economic Transition. Comparative Economic & Social Systems (02):70. 贾根良. (2000). 经济转轨中的文化传统. 经济社会体制比较 (02):70.

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North’s definition of institutions is relatively strict and complete, but its connotation is somewhat broad. For example, the content covered by informal constraints actually belongs to the sociocultural category. If the connotation of a concept is too broad, it is often not conducive to in-depth study of the problem described by the concept. For example, using the concept of institutions defined by North to examine the production and operation of microsubjects such as firms often brings confusion to researchers. Generally, it is the corporate culture of a firm that contains the corporate institutions, not the corporate institutions that contain the corporate culture. However, if one looks at the concept of institutions as defined by North, one would draw the opposite conclusion. Corporate culture refers to the sum of enterprise spirit, values, business philosophy, moral code, and a code of conduct with its own characteristics created by a firm in its production and operation. Among them, enterprise spirit is the core of corporate culture and has a dominant position in the entire corporate culture. Enterprise spirit refers to the spiritual outlook of the firm members formed by deliberate shaping based on its own unique nature, goal, positioning and direction. Enterprise spirit is based on values and driven by corporate goals. It plays a decisive role in the business philosophy, management system, moral trend, group awareness and corporate image. Enterprise spirit is the soul of the firm and the externalisation of the conception and group psychology of firm members. Corporate culture is a relatively broad concept that not only includes the elements of humanistic-cultural knowledge (i.e., humanistic spirit, values, ethical morals, etc., but also the components of institutional norms (i.e., code of conduct, management institutions, etc.), as well as ideological content. Therefore, corporate culture is actually a composite concept that is suitable for describing the overall situation of the firm but not for analysing the constituent elements of the firm. This is also the reason this book does not include it as an independent factor that affects corporate development.

4.4.1.2

The Internal Environment of the Firm

The internal environment of the firm is an organic system composed of humans, resources, products and other factors. The factors within the system are interrelated, interacted, and interinfluenced, forming a complex network. The internal environment of the firm has a unique hierarchy and functional structure, which changes continuously with the dynamic changes of the firm. It is known that a complete firm generally includes at least the three elements of humans, resources and products; otherwise, it is not a complete firm. In addition, a firm must also have basic knowledge, institutions and technology to carry out normal production and operation; otherwise, it will be difficult for the firm to successfully complete its production and operation. In addition to these most basic elements, some other important factors that constitute a firm can be listed from different perspectives, such as entrepreneurs, corporate teams, corporate culture, corporate strategy, corporate management, organisational structure, and customer value. After careful analysis, it is not difficult to find that the elements that constitute

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a firm are not at the same level. Some of them are in the core position of the firm (i.e., entrepreneurs), while some are in the outer position of the firm (i.e., products). The core elements and noncore elements of a firm have different characteristics and functions. The core elements stipulate the value orientation and development direction of the firm and provide the stability and internal consistency of the firm. The noncore elements become the necessary basis for the profit orientation of the firm, providing the variability and diversity of the firm. The spheres of the corporate internal environment can be drawn according to the hierarchy of the factors in the firm, as shown in Fig. 4.3. The spheres of the corporate internal environment discussed here are only a rough division, which can be further subdivided and classified according to the different needs of the analysis. For instance, the specific level of corporate culture can be subdivided into three levels: entrepreneurship, enterprise spirit and corporate culture. Some of the factors can also be reclassified according to their nature. For example, the institutional norms and organisational structure are classified into the category of institutional system; Resource elements, technology, equipment, products and hardware sites are grouped into the category of physical environment. Because a firm is an organisation formed by humans, humans must be the core factor of a firm. Nevertheless, among the humans in the corporate organisation, the entrepreneur is at

Fig. 4.3 Spheres of the corporate internal environment

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the core. At the periphery of entrepreneurs are the corporate team, corporate culture, institutional system, and material environment. In daily corporate production and operation, the interaction between the entrepreneur and the team, along with the interaction between entrepreneurship and enterprise spirit, shapes corporate culture. In the process of corporate growth and evolution, the entrepreneur and the team are growing together, while entrepreneurship, enterprise spirit and corporate culture are also growing together. It should be noted that the hierarchy in Fig. 4.3 is only a rough division for the convenience of analysis. In fact, entrepreneur and entrepreneurship are one, corporate team and enterprise spirit are one, corporate totality and corporate culture are one, and the three are highly coupled; Corporate culture and institutional systems are also highly coupled, material environment is the carrier of corporate culture and institutional systems, and these three evolve from low-level to high-level and from simplicity to complexity as the firm grows and evolves. Firms are artificial intelligence systems where humans inside are able to learn from experience to continuously adapt to the external environment. Therefore, with the passage of time, the structure, function and behaviour of the internal environment of the firm can continuously improve itself and evolve toward a higher order. The features of corporate internal environment evolution are coordination in discordance, self-organisation in organisation, and coupling in adaptation. Just as organisms must adapt to the external environment to survive, a firm also needs to constantly adapt to the external environment in the process of growth and development. When the external environment changes, the internal environment of the firm must be adjusted accordingly until the internal and external environments are coupled. The higher the degree of coupling between the internal and external environments of the firm, the better the survival and development environment of the firm. The coupling process of the internal and external environments of the firm is the process of corporate growth and evolution.

4.4.2 The Constituent Elements and Organisational Structure of the Firm 4.4.2.1

The Constituent Elements of the Firm

Generally, in addition to the three basic elements of humans, resources, and products, a complete firm must also have knowledge, institutions, and technology, and these six categories of factors are the most basic key elements that make up a firm. These six key factors can be divided into two categories: A: Explicit factors (surface factors): humans, resources, and products B: Implicit factors (deep factors): knowledge, institutions, and technology

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In the previous analysis, it is concluded that the above six factors also exist in the external environment of the firm. The humans in the firm possess certain knowledge. To carry out production and operation, the humans in the firm must be organised according to certain production and operation rules, which are the corporate institutions. At the same time, to produce specific products, firms also need to use some technical means to process relevant resources into corresponding products. Firms need to continuously absorb factors such as humans, resources, knowledge, institutions, and technology from the external environment, internalise them into their constituent factors in the process of growth, and continuously disseminate their internal knowledge and technology to the external environment by providing products and services to the markets.

4.4.2.2

The Organisational Structure of the Firm

Firm is a collective made up of many humans. Every human is an individual with thoughts and can act independently. If the humans in the firm do not form a structured organisation according to certain institutions and rules, the firm will not be able to successfully complete its production and operation. Therefore, before a normal firm starts production and operation, its personnel must form an organic organisation according to a certain division of labour. The organisational structure of the firm refers to the order and form of interrelation, intercoordination and interrestriction determined by the constituent elements within the firm in accordance with particular institutional rules. The organisational structure of corporate organisation is a concrete manifestation of corporate institutions and the basis for the formation, establishment and normal operation of corporate institutions. A firm is an artificial intelligence system with self-learning, self-adaptating, and self-organising characteristics and abilities that is able to continuously learn, constantly adjust, reorganise and improve its organisational hierarchy and functional structure as it develops. To adapt to the increasingly complex and dynamic external environment, firms need to constantly adjust their organisational structure to coordinate with the external environment. When studying corporate ecology and evolution, the theory of organisational ecology emphasises that a firm must adapt to the external environment. The structure of corporate organisation should be adapted to the external environmental conditions. It also stressed that only when the organisational structure meets the requirements of the external environment can the firm achieve sustainable development. The relatively stable external environment requires the internal organisational structure to apply a formal organisational form; the turbulent and changeable external environment requires the internal organisational structure to apply a flexible organisational form. The complexity of the external environment requires the firm to have a more complicated organisational structure, while the relatively simple external environment requires the firm to have a relatively simple organisational structure.

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How to construct a reasonable organisational structure scientifically is crucial to the future development of a firm because the nature and function of an organisation mainly depends on its internal structure. Regarding the relationship between structure and function, let us look at two more typical examples. ➀ Diamond and Graphite In nature, both graphite and diamond are substances composed of carbon elements, but their properties are very different. From the appearance, graphite is black and opaque, while diamond is colourless and transparent. In terms of hardness, graphite is very soft and is often used as a lubricant and pencil lead, while diamond is rather hard and is often used as a drill bit and glass cutter. Studies have shown that the underlying reason for the different properties of graphite and diamond lies in their internal structure, that is, the spatial arrangement of carbon atoms is different (Figs. 4.4 and Fig. 4.5). The carbon atoms inside the graphite are arranged in regular hexagons in a flat layered structure, and the layers can move freely, making the graphite very soft. The carbon atoms inside the diamond are arranged in regular tetrahedrons in a pyramid-shaped network structure, which is highly stable and makes the diamond very hard. Fig. 4.4 Internal structure of graphite

Fig. 4.5 Internal structure of diamond

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This is an example of things being different in nature due to the different spatial arrangements of their constituent units. ➁ Tian Ji’s Horse Racing Strategy Volume LXV of Records of the Grand Historian documented an incident involving Tian Ji and the ruler of Qi State on horse race. During the Warring States period, King Wei of Qi and his general Tian Ji frequently bet heavily on horse race. One day, they selected three horses with different speed classes, fast, medium and slow to race. In the races, Tian Ji pitted his fast, medium and slow horses against the King’s fast, medium and slow horses. Since the horse of each level that the king’s was better than Tian Ji’s, Tian Ji loses all the time. Later, strategist Sun Bin advised him to pit his slow horse against the King’s fast horse, his fast horse against the King’s medium horse, and his medium horse against the King’s slow horse. Taking Sun Bin at his word, when all three horse races were finished, although Tian Ji lost the first race, his horses prevailed in the next two, in the end winning the race. In the race, Tian Ji and the King pitted the same horses as before, but Tian Ji turned defeat into victory by changing the order of the horses. This story vividly demonstrates that different time arrangements and structures of the internal components of things often cause changes in the forces of contradictions within things and ultimately lead to changes in the overall nature of things. Different firms have different organisational structures. The organisational structure of the same firm also has different characteristics at different stages of development. The organisational structure of a firm is relatively stable in the short term, but it is constantly developing and changing in the long term (for example, in ten years). To better adapt to the external environment, firms should keep pace with the times and constantly adjust their internal organisational structure.

4.4.3 The Deep Structure of the Firm System According to the previous definitions and descriptions of knowledge, institutions and technology, the organic connection of the deep factors of the firm forms the deep structure of the firm system, which reflects the step-by-step enhancement of the practicality of the firm system in the process of creating value from cognition to rules to skills. This feature of the deep structure of the firm system can be seen from the comparison of the two typical forms of the intangible (implicit) and the tangible (explicit) deep factors of the firm (Table 4.4). An in-depth study along the key elements in the deep structure of the firm system will establish the necessary connections to cognitive science and psychology. In Table 4.4, the necessary explanation and clarification of the terms habit and routine are needed. The main difference between habit and routine is that habit presents an individual’s behaviour pattern, while routine presents the interaction

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Table 4.4 Two typical patterns of deep corporate factors Deep factors

Types Intangible (implicit)

Tangible (explicit)

Notes

Corporate knowledge Intangible knowledge Tangible knowledge Reflecting the features of cognition from silence to clarity, and from perception to speech Corporate institutions Intangible institutions Tangible institutions Reflecting the features of rules from habit to routine, from accident to norm Corporate technology Intangible technology Tangible technology Reflecting the features of skills from conception to practice, from potentiality to reality

pattern among members of an organisation. Habits are regarded as the microfoundations of routines, and their interlinks constitute routines.22 Institutions are a broader concept than routines, including formal rules based on explicit knowledge and informal rules based on tacit knowledge; routines usually belong to the part of informal rules.23 Habits refer to a person’s stable and automatic tendency to behave over a long period of time or a person’s repetitive behaviours that occur under specific stimuli or hints in psychology. Huang Kai-Nan defined habit as “an individual’s internal response mechanism that can automatically produce repetitive behaviours under specific stimuli and cues.” He pointed out that “repetitive behaviour includes both explicit and observable behavioural activities, as well as implicit and unobservable cognitive and psychological activities. Habits have the following characteristics: (1) Habits are an adaptive response mechanism of individuals to repeated scenes, which contain knowledge of how to deal with corresponding scenes or environments and are relatively stable. (2) In chronological order, instinct precedes habit, and habit precedes reason. Rational choice is not the starting point of human behaviour. Reasons and beliefs on which rational behaviour relies depend upon habits of thought.24 (3) Unlike instincts given by nature, habits will change. The speed and

22

Cohen, M. D., Levinthal, D. A., Warglien, M. (2014). Collective Performance: Modeling the Interaction of Habit-based Actions. Industrial and Corporate Change, 23(2). pp. 329–360. 23 Huang, K. N. (2016). Theoretical Development and Construction of Institutional Evolutionary Economics. Social Sciences in China (05):70. 黄凯南. (2016). 制度演化经济学的理论发展与建 构. 中国社会科学 (05):70. 24 Wegner, D. M. (2002). The Illusion of Conscious Will. Cambridge: Massachusetts Institute of Technology Press. pp. 121–137; Hodgson, G. M. Choice, Habit and Evolution. Journal of Evolutionary Economics, 2010, 20(1), pp. 1–18.

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direction of the evolution of habits depend on their adaptability to the environment in which they are located and the selection pressure from the environment”.25 Routine was a concept first introduced by Nelson and Winter in the analysis of organisational and economic evolution. Here, combining the research results of some scholars (Hodgson and Knudsen, 2004; Cacciatori, 2012; Winter, 2013; Huang KaiNan, 2016), gives a clearer summary of this concept. Routines refer to the relatively stable tendency of organisational behaviour that can be repeated under environmental stimulation. They are informal rules for coordinating the interaction between members of the organisation. They contain the relevant knowledge and memory accumulated by the organisation to adapt to the environment. Routines generally have the following characteristics26 : ➀ Routines are reaction rules at the level of organisations or groups, with a certain degree of inertia and stability; ➁ Routines are usually implemented automatically and do not require careful consideration, which can save the cognitive resources of members within the organisation; ➂ Compared with other formal, standardised or general rules, the formation and implementation of routines are more context-dependent and specific and are often tacit knowledge stored in the organisation; and➃ The formation and evolution of routines is a multilevel and multisubject interaction process, including the interaction between the organisation and the environment, as well as the interaction between members within the organisation. The change of routines is endogenous in the learning process of the organisation. Regarding the two typical forms of deep factors of firms, how can their gradually increasing practicality be understood? Here, institutions and technology are used as examples to illustrate. First, take the formation of the decision-making institutions of start-ups as an example. When an entrepreneurial opportunity (i.e., a new technology) is just born, its future prospects are very uncertain. It may have a large number of social needs, which can enable start-ups to grow rapidly and even give birth to a new industry, or may only have a small number of short-lived social needs, or just a transitional technology may soon be replaced by other technologies. Facing the same entrepreneurial opportunity in reality, different entrepreneurs often make different attitudes and decisions. Risk-loving entrepreneurs may quickly seize it as a good opportunity. Risk-averse entrepreneurs may take a wait-and-see attitude. These two different attitudes and decisions to seize opportunities are obviously closely related to the personal experience, knowledge structure and thinking habits of different entrepreneurs. Some dare to take risks, often make decisions and act quickly, and thus seize some business opportunities and achieve entrepreneurial success. While some are slow in decisionmaking and action, they miss some business opportunities when they are pondering, which in turn leads to entrepreneurial failure. Entrepreneurs of start-up firms often introduce personal decision-making habits into their corporate organisations, thereby 25

Huang, K. N. (2016). Theoretical Development and Construction of Institutional Evolutionary Economics. Social Sciences in China (05):68–69. 黄凯南. (2016). 制度演化经济学的理论发展 与建构. 中国社会科学 (05):68–69. 26 Huang, K. N. (2016). Theoretical Development and Construction of Institutional Evolutionary Economics. Social Sciences in China (05):69. 黄凯南. (2016). 制度演化经济学的理论发展与建 构. 中国社会科学 (05):69.

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forming the decision-making routines of corporate organisations; The formation of such organisational routines is often sporadic and unconventional in the early stages of corporate development. If the continuous application of these routines results in the firm being able to seize business opportunities and to grow and develop in a timely manner, these routines will be selected by the corporate organisation and become the regular and relatively normative rules of corporate organisation. Once these rules are written and included in corporate management norms, they in fact constitute the corporate decision-making institutions. Since 1978, some founders of private firms in China have been able to seize certain business opportunities and make fortunes by bribing local officials to obtain social resources (i.e., land or mineral resources). As a result, the habit of bribing was introduced into corporate organisations, thus forming their corporate routines and further evolving into corporate rules (i.e., invite government officials to the firm’s year-end gala, specifically including public relations, entertainment, and gift expenses, etc., in the firm’s annual budget). To date, the lasting impact of this behaviour can still be seen in the operation and corporate rules of some private entrepreneurs in China. It is apparent in these examples that corporate institutions have two typical types of intangible form and tangible form, which also reflects the evolutionary characteristics of corporate rules from personal habits to organisational routines, from sporadic to regular. Take the long-term evolution of vehicle technology as another example. The first vehicle invented by humans was the wheelbarrow, which used human power to propel it forward. Then, the two-wheeled vehicle used large animals such as cattle and horses to pull forward. Later, the two-axle four-wheeled carriage was invented, and the carriage could shelter passengers from wind and rain. In 1769, French army engineer Nicolas-Joseph Cugnot (1725–1804) created the world’s first three-wheeled vehicle driven by a steam engine, but it was not until 1803 that steam engine vehicles began to be practically used in France. Since then, various technologies related to automobiles, such as internal combustion engine ignition devices, rubber tires, ceramic electric ignition devices, lead-acid batteries, electric spark ignition gas generators, and reciprocating piston gas engines, have been developed. In 1885, German inventor Karl Friedrich Benz (1844–1929) developed the world’s first petrol-powered threewheeled automobile. In 1886, the German inventor Gottlieb Daimler (1834–1900) installed the petrol engine he designed on a four-wheeled carriage to make the world’s first four-wheeled car.27 The basic form of modern automobiles is the petrol-powered four-wheeled vehicle, which uses the mechanical energy generated by oil combustion to propel it forward. It is discernible that in the process of vehicle form transformation from carriage to automobile, major innovations have occurred in vehicle technology, mainly due to the disruptive changes in its driving force. When the automobile was invented, in addition to inheriting old technologies such as the wheels, axles, frames, and carriages, new technologies such as petrol engines, steering mechanisms, and power transmission devices were added. Before drawing specific design drawings,

27

A Hundred Years of the World’s Automobiles (世界汽车百年历史). Baidu Baike. https://baike. baidu.com.html. Accessed 10 Apr 2020.

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car inventors first came up with the idea of combining horse-drawn carriage technology with petrol engine technology, then manufactured various parts of the car according to the design drawings, and finally assembled the parts into a car. In this process, the inventor’s ideas and design are conceptual and do not have the actual transportation capacity, but when the inventor manufactures the car and drives it normally on the road, the car has the actual transportation capacity. Conspicuously, there are two typical types of intangible forms and tangible forms in the process of automotive technology from conception, design, to manufacture, which also reflects the characteristics of human transportation skills from conception to practice and from potentiality to reality. In the history of the invention of automobile technology, the technology of steampowered automobiles was earlier than that of petrol-powered automobiles. Steampowered cars were equipped with bulky steam boilers, fueled by coal, and were slow and difficult to operate, while petrol-powered cars overcame these deficiencies. Therefore, when Carl Benz founded the world’s first automobile manufacturing company in 1887, petrol-engine four-wheeled vehicles were widely accepted, and petrol-engine-powered automobile technology became the dominant technology in the world’s automobile industry, which fully reflects the obvious path-dependence in the process of technological evolution.

4.5 The Production and Operation of the Firm The daily operation of a firm is a cyclical process starting from production and ending with providing customers with products to meet their needs. In the firm, a simple process of production and operation is as follows: social demand → firm production → product sales → customer consumption

Among them, the process of the firm selling products is actually the process of exchanging the customer’s currency with the products of the firm, and its essence is exchange. Therefore, the above process of corporate production and operation can be simply expressed as follows: demand → production (factor combinations → products) → exchange → consumption

Above, the process in brackets is the internal corporate production process. If the internal production process is further decomposed in combination with the constituent elements of the firm, it is not difficult to obtain the relationship diagram of the production links within the firm (Fig. 4.6), which actually reflects the general structure of the operation of the firm system from the perspective of the system. The general structure of the firm system refers to the general order and form of interrelation, interaction, interinfluence and interrestriction formed among the subsystems within the firm system in its dynamic evolution. The general structure of the firm system reflects the structural features of the internal elements of the firm system supporting each other in terms of function and is the basis for the coevolution

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Fig. 4.6 General operational structure of the firm system

of the external environment system and the firm system, as well as the firm system and its internal elements. As seen from Fig. 4.6, the actual production process of the firm system can be divided into two chains (the solid arrow in the figure): Chain A (surface factor production chain): production → entrepreneur → organisation → resources → product Chain B (deep factor production chain): production → knowledge → institutions → technology → product Through the production process of Chain A, the firm produces the tangible value, that is, the physical value, of the product for customers. Through the production process of Chain B, the firm produces the intangible value, that is, the abstract value, of the product for customers. These two values are combined into one, and they together constitute the commercial value, that is, the customer value, of the product. In corporate production and operation, the process reflected by Chain A is the production of the physical value of the product and the internalisation, integration, and processing of the explicit elements of the firm. The process reflected in Chain B is the production of the abstract value of the product and internalisation, integration, and application of the implicit elements of the firm. These two production processes are performed simultaneously, and together they manufacture products with complete customer value. In the entire process of corporate production and operation, the humans in the firm (i.e., entrepreneur and organisation) are the main actors, and the entrepreneur plays a vital leading role. Humans here mainly refer to the organised person formed in accordance with certain institutional rules. Corporate institutions play a key role in uniting individuals into organisations. Corporate technology is crucial in integrating and processing different factors of production into products. Only when all factors of production are coordinated and cooperated can the firm successfully realise the manufacture of products. Under modern social and economic conditions, the process of a firm organising production and operation activities is quite complicated. To facilitate the analysis of the issue, a brief summary of the complete production and operation process of the firm can be made. The entrepreneur first determines the nature, goals, orientation and development direction of the firm according to his/her own knowledge of the

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market, firms, and products. Subsequently, the entrepreneur determines the organisational structure and management methods of the firm according to the management knowledge he/she has mastered and creates a firm organisation accordingly. Then, the firm begins to recruit various types of personnel and select suitable raw material suppliers. At the same time, the corporate organisation selects specific technology from the external environment as the leading technology of the firm based on its professional knowledge, and this technology is absorbed and internalised by the firm as a corporate technology that the firm can freely use. Under the promotion of the entrepreneur and the coordination of the institutional rules, the corporate organisation deeply combines corporate technology and resource elements and manufactures corporate products through certain integration and processing. Finally, the firm sells the products it manufactures to customers. At this point, the firm completes the whole process of production and operation. Afterwards, under the stimulation of new customer demand, the firm will start a new process of production and sales. In reproduction, the production capacity of the firm is gradually improved with the continuous improvement and innovation of the leading technology used, but when the potential of the technology is exhausted, the firm will start to search for new technologies in the external environment. In corporate growth and development, corporate production and operation are dynamic processes that are repeated, cyclical, and continuous. In the entire process of corporate production and operation, factors such as entrepreneurs, organisations, resources, knowledge, institutions, technology, and products do not work individually or separately but coordinately and cooperatively. That is, every two factors are interrelated, interacted and interinfluenced, and they together form the network of production relations within the firm. In Fig. 4.6, the dashed double arrow is used to indicate this relationship between them. In economics, different scholars have paid attention to and emphasised the importance of different factors of the firm system. Schumpeter, for example, highlighted the important role of entrepreneurs, North signified the importance of institutional rules, and Brian Arthur focused on the analysis of technological evolution. Since the firm system is an artificial system, the factor of humans is obviously the most important one, just as North pointed out that “as a part of an organisation, individuals can make decisions to change the rules of the game; The change of knowledge is the key to economic evolution, and the learning of individuals and organisations is the main driving force for institutional evolution”.28 In the process of growth and development, in addition to the need to deal with the production relations network inside the firm, a firm also needs to deal with its social relations network outside. The relationships formed by the natural and social environmental factors in the firm system and its external environment (i.e., states, governments, laws, firms, markets, households, scientific research institutions, educational organisations, etc., especially suppliers, distributors, customers, partners, 28

Tang, Z. R. (2014). An Analytic History of Western Economic Evolution. China Economic Publishing House. p. 114. 汤正仁. (2014). 西方经济演化分析史. 中国经济出版社. p. 114.

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competitors and other stakeholders) constitute the external social relations network of the firm. In terms of socioeconomic relations, the complete production relation of a firm should be composed of its internal production relations network and its external social relations network. Corporate growth and evolution are essentially the dynamic entanglement, interaction and interinfluence of the two relationship networks inside and outside the firm, constituting a multidimensional and complex dynamic picture. In the field of Economics, when studying production relations, some scholars only paid attention to the production relations inside the firm but ignored the social relations outside the firm, thus cutting off the inevitable connection between the firm and the external environment, which is clearly biased from a system perspective.

4.6 The Exchange and the Distribution Within the Firm The internal organisation of small and medium-sized firms generally includes the departments of Management, Human Resources, Finance, Market Insight, Product Planning, Procurement, Production, and Sales. In the process of corporate growth, different departments need to coordinate and cooperate so that the firm can carry out normal production and operation. In the process of corporate production and operation, there are extensive exchange activities within the firm. In small firms, due to the division of labour between departments, each department is often only responsible for completing a part of a complex task, so different departments need to exchange work results with each other, and finally, the entire firm can cooperate to complete this complex task. For example, Human Resources recruits suitable personnel for the departments of the firm; Finance handles financial and accounting affairs for the firm; Market Insight collects and analyses customer demands; Product Planning designs products according to the demand report provided by Market Insight and submits the design to Production for processing and manufacturing; Procurement purchases raw materials according to the production needs; Production uses the raw materials purchased by Procurement to process and manufacture products according to the design drawings of Product Planning and hands over the products to Sales for sale; In this process, Management is responsible for the coordination, communication, management and monitoring of the entire process to improve the operating efficiency of the entire organisation. Some larger firms are themselves composed of smaller firms that have a division of labour and need to exchange products or services with each other. For example, in an automobile factory, some of its subordinate units are responsible for the production of engines, while some are responsible for the production of vehicle frames, etc., and they need to exchange labour results to finally complete the manufacture of automobiles. In corporate production and operation, there is also a widespread process of allocating manpower, resources and products. In a real-world economic environment, to adapt to the rapidly changing environment and gain more competitive advantages over peers, some large firms even

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constructed complex distribution and exchange systems within the firm. For example, the Haier Group in China replaced the traditional pyramid-type bureaucratic mechanism with a parallel market mechanism at the operational level and replaced the traditional authority relationship and administrative relationship with market relationships, thus building a market chain within the entire firm. They decomposed external market orders into a series of internal market orders, down to each individual; turned the relationship between superiors and subordinates and departments into a market exchange relationship, so that units, departments and individuals can form a market contractual relationship with interests as the link; changed the corporate mission from maximising profit to prioritising user satisfaction, so that units or individuals in adjacent processes can directly face customers; adjusted low-energy incentives into high-energy incentives, and gave different rewards according to the individual’s daily order completion and performance; abolished the original post wages and implemented the market wage system for all employees in 1999, which means that their income distribution system is not based on labour or capital but based on market results. After the implementation of this system, the firm has not only enhanced its vitality, improved its efficiency, and reduced its costs but also accelerated its response to the market.29 Obviously, in actual corporate production and operation, the two links of distribution and exchange between the starting point of production and the ending point of consumption are not simply connected before and after, but there are often small distributions and exchanges within a large exchange, or a large distribution, while there are even smaller distributions and exchanges within each small distribution or exchange. The entire corporate production and operation is actually a complex network formed by intertwined and nested internal and external links of distribution and exchange at different levels. Since the birth of Economics, scholars have paid full attention to the exchange relationship based on the market and have carried out extensive and in-depth analysis and research on the exchange relationship in the economic system, so the distribution relationship in the economic system has not been sufficiently and fully studied. For this reason, this book makes some more systematic discussions on the distribution relationship.

4.6.1 The Meaning of Distribution and the Related Theories As one of the important contents in human social relations, distribution plays a crucial role in the social economy. Since the birth of Economics, the issue of distribution has been an important topic in economics studies. In Economics, the term distribution is generally understood as the division of labour results, the assignment of products, or the allocation of income. Similar to 29

Su, H. W. (2001). Haier’s Managerial Innovation: Market Chain and Business Process Reengineering. Nankai Management Review (01). 苏慧文. (2001). 海尔管理变革: 市场链与流程 再造. 南开管理评论 (01).

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the understanding of anything, people’s understanding of distribution is constantly developing and gradually deepening. Adam Smith, David Ricardo (1772–1823), up to Marx, basically studied and analysed distribution problems along the line of value determination. In Adam Smith’s distribution theory, he revealed the relationship between labour (employed labourers), capital (capital owners), and land (land owners), assuming that the price and exchange value of commodities are composed of the value of labour-wages, the value of capital-profit, and the value of land-rent, which are the sources of all national income and national tax revenue. In a certain period of time, the income of a state is distributed among the three classes of labourers, capitalists and landlords. He pointed out that “all the commodities which compose the whole annual produce of the labour of every country, taken complexly, must resolve itself into the same three parts, and be parcelled out among different inhabitants of the country, whether as the wages of their labour, the profits of their stock, or the rent of their land… Wages, profit, and rent are the three original sources of all revenue as well as of all exchangeable value. All other revenue is ultimately derived from some one or other of these.”30 In explaining distribution, Adam Smith argued that the economy only plays an important role in the short run and that the long-term influences are mainly history and culture. Inheriting Adam Smith’s distribution thought, David Ricardo proposed that distribution should follow the two principles of residual principle and marginal principle. He revealed that the three classes of labourers, capitalists, and landlords have different dominant forces behind the distribution of total social products and suggested that the wages of labour are determined by the minimum subsistence wage level, the profits of stock are determined by the average profit rate, and the rent of land is determined by the supply and demand of land and the marginal productivity of different lands.31 Marx inherited the rational elements of the distribution thought of Adam Smith and David Ricardo, connected the distribution with the production process, and clarified the nature, source and internal relationship of wages, profits, interest, and rent. He regarded distribution as a link in social reproduction consisting of production, distribution, exchange and consumption and assumed that distribution is not only the distribution of the products of labour results but also the distribution of social resources such as production tools and labour. He pointed out that “in the most shallow conception of distribution, the latter appears as a distribution of products and to that extent as further removed from and quasi-independent of production. However, before distribution means distribution of products, it is first a distribution of the means of production, and second, what is practically another wording of the same fact, it is a distribution of the members of society among the various kinds of production (the subjection of individuals to certain conditions of production). The distribution of products is manifestly a result of this distribution, which is bound up with the process of production and determines the very organisation of 30

Smith, A. (1937). The Wealth of Nations. Random House. p. 52. Ricardo, D. (1821). On the Principles of Political Economy and Taxation. John Murray. pp. 53– 129. 31

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the latter. To treat production apart from the distribution which is comprised in it, is plainly an idle abstraction; Conversely, we know the character of the distribution of products the moment we are given the nature of that other distribution which forms originally a factor of production.”32 Marx’s distribution thought embodied the systems thinking of the comprehensive investigation on the movement of things, which is very enlightening for the comprehensive analysis of distribution issues. For example, he stated that “with such distribution of a factor that originally constitutes production, the distribution of products is naturally determined.” This statement reminds us that distribution constitutes a factor of production, which means that there are distribution issues before production starts, during production, and after production is completed; “The distribution of production tools” and “the distribution of social members among different types of production” he demonstrated alerts us that the distribution of economic resources among departments, sectors, and industries cannot be ignored. Although the meaning of Marx’s expression is somewhat inexplicable, the thoughts revealed in his words are quite clear. The distribution theory of neoclassical economics is the most representative of the marginal productivity theory of distribution and the general equilibrium theory of distribution. Marginal productivity theory of distribution holds that total social income is jointly created by production factors such as labour, capital, and land, and the share of each factor in the distribution is determined by their marginal contribution to total social income; that is, wages are equal to the marginal productivity of labour, interests are equal to the marginal productivity of capital, rent is equal to the marginal productivity of land, and profits are equal to the wages of entrepreneurial labour, thus turning the problem of income distribution into a price decision of factors of production. Marshall established his distribution theory on the basis of equilibrium price theory. He believed that total social income is created by the four factors of labour, capital, land, and organisation (capitalists’ management and supervision of firms), and the total social income is correspondingly divided into labour-wages, capital-interests, land-rent, organisation-profits, and their respective metrics are the prices of factors. Among them, wages are determined by the supply price and the demand price of labour, and interests are determined by the supply price and the demand price of capital. He assumed that land has no production cost and therefore no supply price, and land rent is only affected by demand and thus determined by its marginal productivity. He suggested that the profits obtained by entrepreneurs are the labour remuneration that they should receive for managing the firms, while the profits obtained by capitalists are the return of their talents.33 How can the economic welfare of society be improved through income distribution? This is the subject of the Economics of Welfare. Through the study of such topics, the Economics of Welfare greatly expanded the research space of distribution theory. Welfare economists, represented by British economist Arthur Cecil Pigou

32

Marx, K. (1904). A Contribution to the Critique of Political Economy. International Library Publishing Co. p. 286. 33 Marshall, A. (1930). Principles of Economics. The Macmillan and Co. Limited. pp. 476–609.

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(1877–1959), shifted the function of distribution from the previous income distribution to the field of social equity and social justice. They believed that the increase or decrease in socioeconomic welfare is directly related to the amount of national income and the reasonableness of income distribution activities: if the activities of distribution and redistribution increase the overall economic welfare of the society, then this distribution is reasonable; otherwise, it is unreasonable. The total economic welfare of the society can be expressed by the national income for a certain period of time. When national income increases, if there is no unfair income distribution, then the total economic welfare of society will increase. If there is an unfair distribution of income, the state can transfer the currency of the high-income class to the low-income class through taxation, payment transfer, etc., which can also improve the overall economic welfare of society. To increase the total economic welfare of society, on the one hand, it is necessary to increase the total social product (national income) and on the other hand, to make the income distribution more reasonable.34 Polish economist Michal Kalecki (1899–1970) put forward distribution theory and the existence of class struggle, divided the capitalist society into the capitalist class and working class, and suggested that the antagonism between the two major classes affects the distribution of national income and the determination of commodity prices, while the antagonism within the capitalist class affects the competition mode of capitalism and the law of movement of social reproduction. He believed that the factors that determine income distribution include class differences, monopoly degree, sectoral structure, product cost and price determination.35 In addition to the aforementioned Adam Smith, David Ricardo, Marx, Marshall, Pigou, and Kalecki, there were many other scholars who carried out special research on distribution, including John Bates Clark (1847–1938, author of The Distribution of Wealth), John Atkinson Hobson (1858–1940, author of The Economics of Distribution), and Chinese scholar Sun Luo-Ping (author of Principles of Income Distribution), He Chuan-Qi (author of Distribution Revolution: Distribution According to Contribution), Yu Guo-An and Qu Yong-Yi (authors of A Study on Income Distribution Issues), which will not be discussed here. Most scholars have basically investigated the distribution problem from the perspective of product distribution or income distribution and have rarely analysed the distribution issue from the comprehensive perspective of system theory. Wang Chao-Ke and Cheng En-Fu applied the analysis method of system theory to analyse the distribution problem from the four levels in terms of economic category, social reproduction links, economic policy tools and economic institutions, endowed distribution with a broader connotation, highlighted the characteristics of economic policy tools and economic institutions, and analysed

34

The literature on distribution in the above three paragraphs is compiled from: Wang, C. K. Cheng, E. F. (2011). A Study on Economic Power System. Shanghai University of Finance and Economics Press. pp. 205–212, 236–239. 王朝科. 程恩富. (2011). 经济力系统研究. 上海财经大学出版社. pp. 205–212, 236–239. 35 Source: Michal Kaleski. MBA Think Tank Encyclopaedia. http://wiki.mbalib.com/wiki.html.

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the effectiveness of distribution in allocating economic resources, dividing production results, adjusting social relations, and achieving social justice and harmony.36 Their research results provided a valuable reference for this book’s elaboration of distribution. Combining the relevant points above, a general definition of distribution can be made. Distribution is formed by human society on the basis of certain social productive forces to regulate the interest relationship between people, promote social justice and achieve social harmony. As a link in social reproduction, its function is mainly to segment social production results. As a reflection of the will of the distribution subject, its role is mainly to adjust the rational allocation of resources at different levels of social departments, sectors, and classes. The distribution of material products in the production results can be divided into primary distribution and redistribution according to the hierarchy. Distribution is generally composed of distribution subject, distribution object, distribution institutions, and distribution standards. Here, distribution subject refers to the individual or organisation that conducts distribution activities (including firm, societal community, and government, etc.). Distribution object refers to the resource or product (including material product, mental product or service) used by distribution subject for distribution. Distribution institutions refer to a series of rules formulated to achieve the goal of regulating the behaviour of distribution subjects, dividing the rights of distribution subjects, managing the relations of social distribution, adjusting the flow of resources and evaluating the effectiveness of distribution, with the purpose of balancing interest relationships, promoting social justice, and realising social harmony, in accordance with the inherent laws of economic operation and the realistic requirements of social development. Distribution standards refer to the specific metrics applied to measure the number of distribution objects or the measurement of distribution effectiveness, including value standards, time standards, fairness standards, and efficiency standards, while efficiency standards can be divided into political efficiency standards, social efficiency standards, and economic efficiency standards. Different distribution standards usually need to be adopted for different distribution subjects or distribution objects. For example, for ordinary workers in a firm, the amount of labour is generally measured and paid according to time standards, while the redistribution of social production results is generally based on fairness standards for the most basic distribution.

4.6.2 Distribution in the Firm System The following examines the distribution at the microeconomic level of firms. To make the investigation more intuitive, the general operational structure of the firm system (Fig. 4.6) in the previous article is combined for analysis. 36

Wang, C. K. Cheng, E. F. (2011). A Study on Economic Power System. Shanghai University of Finance and Economics Press. pp. 204–222. 王朝科. 程恩富. (2011). 经济力系统研究. 上海财经 大学出版社. pp. 204–222.

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Three Types of Distribution Activities in the Firm System

Humans, resources and products are the basic factors that make up a firm. In the process of corporate production and operation, the distribution of these three factors always exists. When an entrepreneur starts a business, he/she first needs to consider the distribution of these three types of factors. If the entrepreneur has sufficient start-up capital, he can set up a sole proprietorship invested by himself, and at this moment, the manpower and equipment required by the firm can be purchased through the labour market and the commodity market, respectively. When manpower, equipment and other factors enter the firm, the entrepreneur needs to make a specific division of labour among the personnel within the firm, arranging some people to do accounting, some to do procurement, some to do technical work, some to do production, and some to engage in sales, etc., which is actually an allocation of human resources. Meanwhile, the entrepreneur also needs to make the necessary distribution of material resources such as various production equipment, allocating some material resources for public use (i.e., photocopiers), and some material resources for exclusive use (i.e., computers used by each employee), which is actually an allocation of material resources. Here, human resources refer to the sum of the physical and mental power that a person possesses within a certain time and space that can be utilised by the organisation to contribute to creating value. When an enterprise produces a specific product, the enterprise first needs to sell the product and collect cash before the entrepreneur can distribute the realised value (i.e., sales revenue) of the product. In actual production and operation, the entrepreneur generally uses part of the sales income to pay wages to employees, part for taxation, part for reproduction (i.e., purchasing raw materials, etc.), and part (salary or profit) for themselves. This distribution activity is generally understood as product distribution (or income distribution), which is the initial distribution of products (or income). If the firm’s sales revenue after deducting the fixed investment and various expenditures invested in the firm has surplus, it means that the firm has created a profit. However, if the business is operating at a loss, then the firm has no residual value to distribute. As an investor in a firm, the real income the entrepreneur shares can only come from the profits generated by the firm. If the business does not generate profits, then the entrepreneur has no income. Comparing Fig. 4.6, the distribution activities within the firm described above reflect the distribution of the three explicit factors of humans, resources and products by the entrepreneur. These three types of distribution activities are not only relatively independent but also combined into a closely connected totality, which is jointly included in corporate production and operation. In the distribution of human resources, the entrepreneur is the distribution subject, the employees are the distribution object, the distribution institutions are the organisational rules related to human resources formulated within the firm, and the distribution standard is the professional ability of employees and the needs of the division of labour within the firm. In the distribution of the material resources of the firm, the entrepreneur or its agent (i.e., the manager in charge of production equipment in the firm) is the distribution subject, the material resources of the firm (i.e., computers) are the distribution object, the

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distribution institutions are the management rules for material resources formulated within the firm, and the distribution standard is the exclusive function of material resources and the needs of the division of labour within the firm. Compared with the first two types of distribution activities, the distribution of products within the firm is more complicated. When the entrepreneur is the sole investor of the firm, the subjects involved in the distribution of the firm’s products are the entrepreneur, the employees, and the government (the tax department is a specialised agency that collects taxes on behalf of the government); if a part of corporate profits is to be extracted as corporate accumulation, the distribution subject should also include the firm itself. When the entrepreneur is not the only investor of the firm, the subjects at this time include not only the entrepreneur, the employees, and the government but also other investors (i.e., corporate shareholders) who will distribute the profits together with the entrepreneur. When the entrepreneur is not an investor but only the manager employed by the firm, the actual role of the entrepreneur at this moment is the manager of the firm (i.e., the agent of the owner of the firm), and the way the entrepreneur participates in the distribution of corporate products (whether to participate in profit distribution) is generally regulated by the corporate distribution institutions. The distribution object is all the products of the firm within a certain period, and in fact, only the value of those products sold by the firm is involved in the distribution. Distribution institutions refer to the internal remuneration rules, reward rules, financial rules, articles of incorporation and other corporate institutions, as well as the relevant employment agreements signed by the firm and individual employees. Here, although the internal salary rules, reward rules, financial rules and other income distribution institutions of the firm are formulated by the internal personnel of the firm, their content is not designed at will and is based on the firm’s own development needs and actual payment capabilities, as well as the relevant laws and regulations of the government and factors such as market wage level. The income distribution standard of the firm is obviously a diversified system, and there are different distribution standards for different distribution subjects. Investors (shareholders), generally before the formal establishment of the firm, negotiate the proportion of shares occupied by each person and sign the corresponding investment agreement. When business operations generate profits, they will distribute corporate profits in accordance with the proportion of shares agreed upon in the contract. For the entrepreneur, if he/she is not an investor but merely an employed manager, whether he/she may participate in the profit distribution or he/she may not participate in the profit distribution (only salary) depends on the agreement reached between the entrepreneur and the business owner, which is actually the result of negotiations between the two parties. Excellent managers are scarce resources in the market. Whether their management abilities can be fully utilised is very important for the survival and development of a firm. If the agreement reached between the business owner and the entrepreneur and the distribution institutions designed by the firm not only maintain the benefit rights of the business owner but also maximise the enthusiasm of the entrepreneur, it will effectively motivate the entrepreneur to work hard, thereby driving the rapid growth of the entire firm. In contrast, it may inhibit

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the rapid growth of the firm. Therefore, the incentive for entrepreneurial ability and management enthusiasm in distribution institutions will be very important content. To mobilise entrepreneurs’ abilities and business enthusiasm, the distribution institutions of modern firms often link the business performance of the firm to the income of the entrepreneur and give the entrepreneur a certain percentage of shares as an incentive. For ordinary employees of a firm, when they sign an employment agreement with the firm, their salary, bonus and other income distribution contents are determined; their specific income distribution standards are generally determined by factors such as the corporate distribution institutions, individual professional abilities, and the supply and demand status of the labour market. In modern firms, to retain personnel with special expertise, in addition to normal wages, some firms often allocate a certain percentage of corporate shares to them to mobilise their enthusiasm for work. In addition, the government, as the distribution subject, collects taxes from firms, which is a concrete manifestation of the will of the state. The specific tax collection approaches, proportions, and methods are clearly stipulated in each state’s corresponding tax laws and regulations. Here, whether it is investors (shareholders), entrepreneurs, or ordinary employees, before they start or enter a business, or before the business initiates tax registration, the distribution standards such as the approaches, proportions and methods for these distribution subjects to participate in the distribution of corporate products (income distribution) have been determined. When the firm manufactures products and sells them for profits, the distribution subject of these products is only implementing specific distribution behaviours. In the entire process of production and operation, the firm also has the distribution activities among human resources, material resources and corporate products, which can be discovered from the investigation of the surface factors of the firm. If we examine the deep factors of the firm, what is the situation like? When the entrepreneur distributes human resources, what he actually allocates is the professional knowledge, professional skill, and labour capacity embedded in the individual human resource. Each employee has different professional knowledge, professional technology and labour ability, which means that different employees have different labour skills. When allocating human resources, the role of the entrepreneur is mainly manifested in two aspects: first, assign employees to the departments and positions that can best exert their personal strengths according to the needs of the division of labour within the firm and their professional abilities to give full play to each individual’s profession. Second, deploy, combine, and aggregate various professional capabilities of the firm into a competence structure according to the needs of the overall corporate development and the characteristics of the professional abilities of the departments of the firm, thereby forming the comprehensive capabilities of the firm to exert the synergistic effect of the whole organisation. When the entrepreneur allocates material resources, what he actually allocates is the technical means, proprietary functions, and use values contained in the material resources. Similar to the employees of the firm, different material resources have different forms, properties, functions and values. For example, sunlight, land, and lakes are also natural resources, but the three have significant differences in form, nature, function, and value. If the basic principle for the entrepreneurs to allocate

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human resources is to make the best use of their talents, then the basic principle for the entrepreneur to allocate material resources is to make the best use of resources. The distribution of production tools is mainly to combine technical means with human labour to improve labour production efficiency. In the production activities of the firm, the professional knowledge, professional technology and labour capacity contained in human resources together create the labour value of the product. In other words, the value of human resources can be divided into the three parts of professional knowledge value, professional skill value and general labour value, which are usually transferred to the final product in stages during the production process of the firm. The material resources of the firm can be divided into natural resources and social resources. Natural resources are usually incorporated into corporate production as raw materials. In production, people generally process natural resources into a certain form and transfer the value it contains to the final product. The social resources of the firm generally include capital, technology, production tools (machines), factories and other forms. Among them, the capital of the firm as a means of purchasing factors of production is of value in itself. The production tools (machines), plants and other assets of the firm are generally purchased through capital, and they are corporate property with a certain value. Production tools (machines), as the technical means for firms to carry out production activities, also contain corresponding knowledge and technology. These social resources of the firm, despite their varied forms, properties, and functions, can be divided into the three factors of knowledge, technology, and value. In the production activities of the firm, the material resources of the firm are combined with a certain organisational form to create the functional value of the corporate product. The labour value created by human resources and the functional value created by material resources together constitute the tangible value (i.e., physical value) of corporate products. After analysis, it can be found that, from the deep factors of the firms, the entrepreneur’s distribution of human resources and material resources is actually the distribution of knowledge, technology and value within the firm, and the specific distribution relations form the corresponding corporate institutional systems (i.e., organisational rules for human resources, management rules for material resources, etc.). From the firm’s deep factor production chain, these two types of distribution activities are actually the process of decomposing, combining and applying the internal knowledge and technology of the firm and the process of establishing, improving and adjusting the internal production relations of the firm, which produces the intangible value (i.e., abstract value) of the final product of the firm. Combining Fig. 4.6, the complex processes involved in these two types of distribution activities will be more clearly seen. It is known that the tangible value (physical value) and intangible value (abstract value) of a corporate product are combined into one and constitute the commercial value (i.e., customer value) of the product. The distribution of products within the firm is actually a dual division of the tangible value and the intangible value of the product by the distribution subject.

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Within the firm, what are the essential differences between the three types of distribution activities: the distribution of human resources, the distribution of material resources, and the distribution of corporate products? It is clear from the above analysis that the most essential difference between them lies in whether the ownership (or property rights) of the distribution object is transferred. In the allocation of human resources and material resources, the ownership (or property rights) of the distribution object is not transferred, while in the distribution of corporate products, the ownership (or property rights) of the distribution object is eventually transferred. In the distribution of products within a firm, the distribution object is the products manufactured by the firm in a certain period of time, and their ownership (or property right) belongs to the company. When these products are distributed, their ownership is transferred to the government, corporate shareholders, entrepreneurs, and corporate employees according to a certain proportion. Therefore, among the three types of distribution activities, only the distribution of products (income distribution) is a true distribution. In modern firms, the distribution of human resources, material resources and corporate products have been independent and become three important aspects of corporate management. As the content of modern corporate management is becoming more complex, the functions of the entrepreneur have also been decomposed into relatively independent parts and transferred to different levels of management personnel within the firm. For example, the management of human resources is divided into human resources strategy and planning, organisational design and functional division of labour, recruitment and deployment of personnel, training and career planning, performance appraisal and evaluation, compensation and benefits management, employee relations management, personnel file management and other parts that are relatively independent but closely connected.

4.6.2.2

The Input–Output Relations in the Firm System

In terms of the firm system, a firm can be regarded as a system that inputs resources and outputs functions. In terms of the inputs of the firm system, the inputs of the firm include the three aspects of manpower, resources, and the relations of production factors, while in terms of the outputs of the firm system, the outputs of the firm system also include the three aspects of the function of organisational synergy, the function of value creation and the relations of distribution factors. Here, the function of organisational synergy refers to the function of the firm system to combine the scattered and disorderly individual manpower into an organic totality according to the inherent requirements of production and operation. The function of value creation refers to the function of the firm system to absorb resources, produce products and create value. Relations of production factors refer to the interrelationship between the factors of production (or inputs) and the ratio structure of the inputs before the start of corporate production. Relations of distribution factors refer to the interrelationship between the distribution

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factors and the ratio structure of distribution in the process of corporate production and operation. From the corporate reproduction cycle, what is the law between the input and output of the firm system? From the inputs and outputs of the firm system, the relations of inputs in the firm system are the relations of factors of production, and the relations of outputs in the firm system are the relations of factors of distribution. Chapter 3 conducts a simple analysis of the long-term transition of the relations of social production and distribution, from which it is apparent that there is an inherent connection between the relations of factors of production and the relations of factors of distribution, and the difference in the structure of factors of production determines the difference in the structure of factors of distribution. In the process of social reproduction, different combinations of production factors, such as manpower (labour), land, capital, technology, and knowledge, form different input value ratio structures, and different input value ratio structures determine different production distribution value ratio structures, which in turn determine the final distribution of social production results. In the process of total social production, such distribution relations are fixed in a certain institutional form and regulate the relations of economic interest of social strata within a certain period of time. This involves the evaluation of the value of various resource elements, and the judgment of the relative value of a certain resource is obviously determined by the overall level of understanding of this resource. In various firms in reality, the adoption of different distribution institutions is determined dynamically by the level of cognition and practical activities. When a firm introduces a new series of distribution institutions, if these rules can mobilise the factors inside and outside the firm to promote the rapid growth and development of the firm, then the firm will further strengthen these institutions in production and operation activities; otherwise, the firm will adjust, modify or abandon these institutions. In the process of promoting the improvement and perfection of corporate institutions, in addition to corporate investors (shareholders), entrepreneurs, managers, and employees at all levels and other internal personnel that are playing a direct role, stakeholders such as suppliers, distributors, customers, partners, and competitors are also critical. If the distribution result are considered unfair or unreasonable, they will require adjustment or change through various channels, thereby promoting the evolution of the relations of corporate production and distribution. In the process of corporate production and operation, the relationship between the relations of factors of production and the relations of factors of distribution can be shown in Fig. 4.7. In Fig. 4.7, the black arrow indicates the decisive effect of the relations of production factors on the relations of distribution factors, the white arrow indicates the reactive force of the relations of distribution factors to the relations of production factors, the arc arrow at the bottom indicates the feedback of the ratio structure of distribution factors to the ratio structure of production factors, and the arc arrow above indicates the adjustment of the ratio structure of production factors to the ratio structure of distribution factors.

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Fig. 4.7 Interaction between relations of factors of production and relations of factors of distribution

In the reproduction process of the firm system, the relations of factors of production and the relations of factors of distribution are interrelated, interacted and interinfluenced, and there is a dynamic relationship of action-reaction and feedbackadjustment between them from the perspective of long-term historical changes. On the one hand, the difference in the structure of production factors determines the difference in the structure of distribution factors, which reflects the decisive effect of the relations of production factors on the relations of distribution factors. On the other hand, the unfair distribution result will lead to all levels of the firm and external stakeholders requesting adjustments to the unreasonable distribution institutions, which reflects the reactive force of relations of factors of distribution on relations of factors of production. The interactive process between relations of factors of production and relations of factors of distribution is a long-term historical evolution. It is this dynamic mechanism of action-reaction and feedback-adjustment that promotes the income distribution relations between various strata within the firm system and external stakeholders to evolve from extreme unfairness and inequality to general unfairness and inequality and then to comparative fairness and equality.

4.7 Corporate Production Efficiency Firms need to invest corresponding factors and expenses in the production of goods. These expenses are the costs of production for firms. The remaining part of the firm’s sales revenue after deducting costs is the firm’s profits. Firms can obtain profits in production and operation, which is a necessary condition for firms to expand reproduction. In a certain period of time and under certain conditions, if a firm wants to accumulate more profits, the firm needs to carry out more efficient production and

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operation. If the production efficiency of a firm is higher than that of another firm, this firm is more competitive in the market. According to traditional production theory, corporate production efficiency is generally defined as the maximum output of the firm when the cost level is constant or the realisation of cost minimisation when the output level is constant. There are usually many ways for a firm to achieve a certain level of output. For example, the cost of producing a certain quantity of agricultural products can be different, either by investing more in labour and less in agricultural machinery (labour-intensive methods) or by investing less in labour and more in agricultural machinery (capital-intensive methods). When the output is constant, if the company wants to improve production efficiency, it is necessary to choose the lowest cost input portfolio. Traditional production theory takes into account the role of technological factors in improving corporate production efficiency, and technical efficiency is reflected in the production function, which is the basic composition of production theory. The production function is a precise quantitative or mathematical expression of the input–output relation in the production of a firm, which reflects the maximum output of a firm under a certain input portfolio. Referring to Fig. 4.6 above, it is obvious that from the perspective of the surface factors of the firm, to successfully complete the production process of a product, a firm needs the joint participation and coordination of three types of factors of entrepreneur, organisations and resources, while from the deep factors of the firm, a firm needs to participate in and cooperate with the three factors of knowledge, institutions and technology. In actual production and operation, these six factors will obviously affect the production efficiency of a firm to varying degrees. Traditional production theory examined corporate production efficiency only from the two aspects of cost and technology. While the book believes when looking into corporate production efficiency, it is necessary to consider these six types of factors at the same time according to the analytical framework proposed in the book in terms of entrepreneur, organisation, resources, knowledge, institutions and technology. From the perspective of the social reproduction process, production activities generally include the four links of production, distribution, exchange and consumption. It is clear that these links also affect the production efficiency of a firm to varying degrees. Because the two links of distribution and exchange are generally included in corporate production and operation, the improvement of corporate production efficiency actually includes the improvement of its distribution efficiency and exchange efficiency. The efficiency of these two links is also a problem that was ignored by traditional production theories. However, in the specific business practice, some entrepreneurs did not ignore these two problems. For example, the abovementioned behaviour of Haier Group to construct a market chain within the firm is the proof. Here is a brief discussion on the topic of distribution efficiency within the firm.

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4.7.1 On the Allocation of Resources In corporate production and operation, the entrepreneur often needs to assign tasks to the employees. Here, we take the work distribution of employees within the firm as an example to analyse the distribution efficiency within the firm. Suppose there are three tasks that need to be assigned to three employees at the same time to complete. Different employees have different professional knowledge, professional technology and labour abilities, so the time spent by different employees to complete the same task is different. Suppose three employees are represented by A, B, and C, the three tasks are represented by 1, 2, and 3, respectively, and the specific task combination is represented by these two. The time spent by each employee to complete different tasks is listed as follows (Table 4.5): According to the permutation and combination, there are six options for assigning tasks: Scheme I: A1 = 5, B2 = 4, C3 = 5; the total time is 14 h; Scheme II: A2 = 6, B1 = 4, C3 = 5; the total time is 15 h; Scheme III A3 = 7, B1 = 4, C2 = 2; the total time is 13 h; Scheme IV: A1 = 5, B3 = 8, C2 = 2; the total time is 15 h; Scheme V: A2 = 6, B3 = 8, C1 = 3; the total time is 17 h; Scheme VI: A3 = 7, B2 = 4, C1 = 3; the total time is 14 h Among the above six schemes, Scheme III takes the least total time (only 13 h). For a firm, the use of limited resources (i.e., employees) to spend the least time completing the same tasks is efficient production and operation. Therefore, among the above six schemes, the optimal scheme that the entrepreneur should choose is Scheme III. For a specific firm, if A, B, and C are three factors of production (i.e., manpower, technology, and capital), the combination of these three factors in different proportions forms the production structure of the firm’s input. From the above analysis, different ratios of factor combinations represent different production structures, and different production structures have different productivities. Similarly, if A, B, and C represent three different departments within the firm, then the combination of these three in different proportions represents different organisational structures, different organisational structures can be aggregated into different capacity structures of the firm, and different capacity structures of the firm can also form different production efficiencies. Therefore, when the entrepreneur allocates the internal and external Table 4.5 Time required for each staff member to complete different tasks

Staffs

Tasks Task 1

Task 2

Task 3

Staff A

5h

6h

7h

Staff B

4h

4h

8h

Staff C

3h

2h

5h

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resources of the firm, the most important thing is to reflect this distribution efficiency and synergy function to realise corporate comprehensive production efficiency. In fact, this type of decision-making and selection work of the entrepreneur has become one of the important contents of modern management science.

4.7.2 On the Allocation of Income In corporate production and operation, the distribution of labour results (i.e., income distribution) is obviously a very important issue. The income distribution of a firm is directly related to the interests of stakeholders such as government departments, investors, entrepreneurs, managers, technicians, ordinary employees, suppliers and distributors. From the perspective of the external environment of the firm, if a firm wants to achieve smooth production and operation, it needs to adjust the distribution of interests with upstream and downstream suppliers and distributors. If a firm only cares about its own interests without considering the interests of suppliers and distributors, then these suppliers and distributors will not maintain a good cooperative relationship with the firm, which is clearly unfavourable to the long-term development of the firm. However, if a firm over satisfies the interests of suppliers and distributors, it will reduce its own profit margin, which is also detrimental to the survival and development of the firm. Therefore, firms need to maintain a reasonable distribution relation between their own interests and the interests of suppliers and distributors. From the perspective of the internal environment of the firm, if a firm wants to achieve efficient production and operation, it needs to adjust the distribution of interests between corporate development and the investors, entrepreneurs, managers, technicians, ordinary employees and corporate development. Income distribution within the firm can be roughly divided into four parts: government taxation, investor profit sharing, entrepreneur compensation, and employee wages. Government taxation is determined by a state’s taxation policy, which is a relatively stable distribution factor for firms. In corporate profit distribution, if investors only consider maximising their own interests and take away most of their corporate profits, which is what capitalists did in the early days of the Industrial Revolution, then entrepreneurs and employees will lack the enthusiasm to work hard for corporate development, and the firm will suffer from a lack of inner dynamics and decline. Therefore, the distribution institutions determined by such an income distribution structure are obviously inefficient. A similar situation exists in the income distribution of entrepreneurs and employees. However, on the other hand, in the distribution of corporate profits, if the remuneration of entrepreneurs and the wages of employees are too high, the cost of the enterprise will increase and the profit of the enterprise will decrease, thereby reducing the return on investment of investors. In the long run, it will affect the enthusiasm of investors to reinvest and expand the production scale, which is also detrimental to corporate growth and development. Therefore, the distribution institutions determined by such an income distribution structure are also inefficient. From this point

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of view, the distribution of income by the firm will affect the subsequent production efficiency and corporate growth and development. o enable firms to continue to grow and develop continuously, it is necessary to design an income distribution system that can effectively motivate investors, entrepreneurs, managers, technicians, ordinary employees, and other distribution subjects and can balance the interests between corporate development and distribution subjects on the basis of efficiency and fairness. From the dynamic relationship between the relations of factors of production and the relations of factors of distribution analysed in the previous article, the distribution institutions need to be dynamically adjusted according to the changes in the internal and external environment of the firm, rather than remaining unchanged for a long time once it is formulated. From the actual social practice, this is also the internal reason for breaking through the old system of distribution according to capital and successively putting forward income distribution institutions such as distribution according to labour, distribution according to factor, and distribution according to contribution. From long-term corporate development, the continuous adjustment and reform of the institutional system, including the distribution institutions by the entrepreneur, is also one of the internal driving forces for the firm to achieve continuous progress and a long-lasting foundation!

4.8 Overall Corporate Competence With the cyclical process of production → consumption → reproduction → reconsumption, entrepreneurs and teams are constantly learning and making progress to improve management abilities, absorb new resources, introduce new technologies, adjust organisational structure, update institutional norms to coordinate departments with factors of production, and cooperate with stakeholders outside the firm to enhance overall corporate competence and realise growth. The idea of corporate competence can be traced back to Adam Smith’s theory of division of labour. Adam Smith’s implicit conclusion in the division of labour is that through division of labour, firms can better cultivate and improve production capabilities. Marshall proposed corporate internal growth theory in 1925, suggesting that the division of labour varies in different functional departments of the firm, and such division of labour produces disparate knowledge and skills. Perceivable evolution occurs within the firm as knowledge and skills are accumulated in the production process. George Richardson further pointed out that competence reflects the knowledge, skills, and experience accumulated by the firm and is embedded in specific activities such as production, marketing, research and development.37

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Xu, F. (2007). Corporate Development Theory - X: Core Competency Theory. China Management Communication Network. 徐飞. (2007). 企业发展理论之十: 核心能力理论. 中国管理传播网. http://manage.org.cn/Article/200701/42845.html. Accessed 29 Jan 2007.

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Geoffrey Hodgson pointed out38 that competency-based corporate theory places a strategic focus on the growth and learning of corporate internal knowledge, which is essentially different from the contract-based approach developed by Ronald Harry Coase (1910–2013) and others. The abilities of an individual or a team in a firm are acquired through learning. Within an organisation, learning contains changes to the cognitive framework and mental model of the world, which is a process that includes both construction and deconstruction. Developed by Penrose (1959) and expanded by Nelson and Winter (1982), Wernerfelt (1984), Prahalad and Hamel (1990), Langlois (1992), Foss (1993), Hamel and Heene (1994) and other scholars, corporate competency theory believes that a firm is essentially a collection of capabilities. On the surface, firms are composed of tangible material resources and intangible rules, but from a deep perspective, the significance and value of the existence of material resources and rule resources lie behind their respective capabilities.39 The views of these scholars are worth learning, but this book does not adopt the specific concept of corporate competence they put forward but redefines a more general concept. Overall corporate competence refers to the comprehensive competence of the firm to effectively integrate different resource elements, produce goods or provide services, and meet the needs of social consumption. Overall corporate competence is generally composed of the eight abilities of production and supply, entrepreneur, organisation, resources, knowledge, institutions, technology, and product. The stronger a firm’s abilities in these eight dimensions, the stronger its overall competence, and the stronger its market competitiveness. If the eight dimensions of production and supply, entrepreneur, organisation, resources, knowledge, institutions, technology, and product are used to describe the overall corporate competence, the potential energy diagram of corporate competence can be drawn, as shown in Fig. 4.8. In Fig. 4.8, the eight dimensions are: ➀ production and supply; ➁ entrepreneur; ➂ knowledge; ➃ organisation; ➄ institutions; ➅ resources; ➆ technology; ➇ product. In the ➀ dimension, the firm changes from oa → oA, indicating that the firm’s overall competence to produce and supply increases from point a to point A; In the ➁ dimension, the firm changes from ob → oB, indicating that the entrepreneur’s ability to manage increases from point b to point B; In the ➂ dimension, the firm changes from oc → oC, indicating that the firm’s ability to learn and innovate increases from point c to point C; In the ➃ dimension, the firm changes from od → oD, indicating that the firm’s ability to manage and coordinate increases from point d to point D;

38

Hodgson, G. M. (1999). Evolution and Institutions: On Evolutionary Economics and the Evolution of Economics. Cheltenham, U.K.: Edward Elgar, ch. 11. 39 Li, X. M. (2006). Research on Enterprise Environment, Environmental Factors Interaction and Enterprise Evolution. Dissertation, Tianjin University. p. 22. 李晓明. (2006). 企业环境、环境因 子互动与企业演化研究. 博士学位论文, 天津大学. p. 22.

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Fig. 4.8 Potential energy diagram of corporate competence

In the ➄ dimension, the firm changes from oe → oE, indicating that the firm’s ability to construct and improve corporate institutions increases from point e to point E; In the ➅ dimension, the firm changes from of → oF, indicating that the firm’s ability to absorb and integrate resources increases from point f to point F; In the ➆ dimension, the firm changes from og → oG, indicating that the firm’s ability to innovate and apply technology increases from point g to point G; In the ➇ dimension, the firm changes from oh → oH, indicating that the firm’s ability to research, develop and update products increases from point h to point H. The above eight dimensions are a rough competence division based on the investigation of the entire corporate production and operating process. In fact, each corporate ability can be further subdivided. For example, the management abilities of entrepreneurs can be subdivided into strategy formulation, team motivation, management innovation, asset operations, and capital operations. In addition to the learning, accumulation and innovation capabilities of the organisation in terms of professional knowledge, management knowledge, and cultural knowledge, the firm’s abilities in knowledge also include the building of intellectual property rights such as brands, trademarks and patents, as well as corporate culture. The firm’s abilities in resources include the ability to discover, absorb, internalise, integrate, schedule and optimise resources. The firm’s abilities in technology include the ability to discover, absorb, internalise, and apply new technologies in the sector environment, as well as the

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ability to continuously improve, perfect, and innovate the existing production technologies of the firm. The firm’s abilities in product include the ability to continuously improve, perfect, and innovate in all links closely related to products, such as product R&D, design, manufacturing, packaging, marketing, and delivery. In Fig. 4.8, the small circle enclosed by a, b, c, d, e, f, g, h and a represents that the firm is in a lower position of potential energy, where the overall corporate competence is relatively low, indicating that its market competitiveness is relatively weak. The large circle enclosed by A, B, C, D, E, F, G, H, and A represents that the firm is in a higher position of potential energy, where the overall corporate competence is relatively high, indicating that its market competitiveness is relatively strong. The development of the firm from a, b, c, d, e, f, g, h and a to A, B, C, D, E, F, G, H and A is the process of the firm growing from small to large, from weak to strong. Through the potential energy diagram of corporate competence, corporate growth and competence can be vividly described. The supply of the firm to the market is the act of a firm providing products or services to the market to meet social needs. It is through production and operation that firms realise the act of supplying products to society. The type, quantity and quality of products provided by the firm to the market must be able to meet the real demand from the market. Only when the actual demand from the market is met can the firm realise profits. The overall competence of a firm is mainly reflected by the timely supply of the market, and the metrics are the market share. The stronger the overall competence of a firm and the higher its potential energy position, the more vigorous its market competitiveness and the greater its ability to supply the market. Qian mentioned when discussing the issue of sustainable corporate operation that “with regard to the issue of sustainable competitive advantage of firms, a lot of research has been done on the corporate theory. The core is to build a long-term competitive advantage around the four dimensions of demand, resources, technology, and institutions. Practice also shows that demand, resources, technology, and institutional factors can bring long-term or short-term competitive advantages to firms.”40 From the perspective of the potential energy diagram of firms, researchers of the sustainable competitiveness of the firm only emphasised these four factors while ignoring the impact of other factors. Apparently, in actual corporate growth, it is generally impossible for the firm to increase its abilities in the above eight aspects evenly in proportion, but with some abilities enhancing rapidly, some slowly, and some fluctuate. Therefore, the actual potential energy diagram of the firm generally does not form a regular circle. In fact, some scholars have noticed that corporate competence is dynamically changing. For example, in 1992, David J. Teece, Gary Pisano and Amy Shuen jointly published the book Dynamic Capabilities and Strategic Management, which proposed a corporate development strategy based on dynamic capabilities. Dynamic competency theory emphasises that firms with limited dynamic capabilities cannot 40

Qian, H. (2004). Niche, Factos Interacting and Organization Evolution. Dissertation, Zhejiang University. p. 104. 钱辉. (2004). 生态位、因子互动与企业演化. 博士学位论文, 浙江大学. p. 104.

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develop a lasting competitive advantage, and over time, their advantages will disappear and eventually be replaced by competitors. Firms with strong dynamic capabilities can accumulate and enhance their resources and capabilities over time and can effectively exploit new opportunities in the market to create a competitive advantage.41 Modern core competency theory and dynamic competency theory regard corporate competence as the source and foundation of corporate competitiveness, but these theories have not been systematically analysed from the entire process of corporate production and operation, so it is inevitable to fall into the misunderstanding of partial generalisation, which is a major defect and deficiency in corporate competency theory.

4.9 Corporate Development Dynamics Generally, the evolutionary power of a system mainly comes from two aspects: one is the internal structure of the system itself, and the other is the interaction between the system and its environment. From the perspective of dialectical materialism, the development of things is determined by the joint action of internal and external factors. External factors are conditions, internal factors are root causes, and external factors act through internal factors. In terms of the system, internal factors refer to the interactions between various factors within the system, and external factors refer to the interactions between the system and the factors in its environment. What are the internal and external factors that affect corporate development?

4.9.1 The Dynamic Factors in Corporate Development In terms of the external environment, consumer demand is the external driving force that stimulates the development of the firm; if there is no consumer demand in the market, the firm will lose the basis for existence. Resource elements are the necessary condition for corporate survival and development and the prerequisite for the smooth value creation of the firm. If the external environment does not provide the firm with resource elements, the firm will not be able to carry out normal production and operation, let alone corporate development. Here, we use the theoretical model of the corporate behaviour process proposed by Dr. Li Xiao-Ming (Fig. 4.9) to analyse the dynamics behind corporate development. The process of corporate production and operation is to obtain resource elements from the external environment, integrate them into products, and then sell the products to the external environment. 41

Li, X. M. (2006). Research on Enterprise Environment, Environmental Factors Interaction and Enterprise Evolution. Dissertation, Tianjin University. p. 6. 李晓明. (2006). 企业环境、环境因子 互动与企业演化研究. 博士学位论文, 天津大学. p. 6.

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Fig. 4.9 Theoretical model of the corporate behaviour process42

From the outside of the firm, the process of the external environment providing resource elements to the firm is the external supply; the process of the external environment purchasing products from the firm is the external demand. From the inside of the firm, the process of the firm absorbing resource elements from the external environment is the corporate demand; the process of the firm selling products to the external environment is the corporate supply. The supply and demand inside and outside the firm correspond to each other, and the correspondence between them is as follows: external supply ← → corporate demand external demand ← → corporate supply

Therefore, the actual process of corporate production and operation can be expressed as follows: external supply → corporate demand → (factor combinations → products) → corporate supply → external demand

What is shown in brackets above is the internal production process of the firm, that is, the process of corporate value creation. The above process can be described in the supply–demand relation diagram inside and outside the firm (Fig. 4.10), in which the solid ellipse represents the organisational boundaries of the firm. In Fig. 4.10, the solid white arrow indicates the movement direction of resource elements, the solid black arrow indicates the movement direction of products, and the dashed arrow indicates the transmission process of the supply–demand information inside and outside the firm. The transmission process of supply and demand information is as follows: in the interaction between the firm and the external market, the demand information in the market (i.e., the variety, quantity and quality of the required products, etc.) is transmitted from the outside to the inside of the firm (i.e., Market Insight, Sales) 42

Source: Li, X. M. (2006). Research on Enterprise Environment, Environmental Factors Interaction and Enterprise Evolution. Dissertation, Tianjin University. p. 24. 李晓明. (2006). 企业环境 、环境因子互动与企业演化研究. 博士学位论文, 天津大学. p. 24.

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Fig. 4.10 Supply–demand relation inside and outside the firm

and then to the decision makers, who determine the demand quantity of resource elements according to the market demand information (i.e., number of recruits and raw materials), thus forming the demand information within the firm and allowing the relevant departments (i.e., Human Resources, Procurement) to follow the internal demand information to introduce the required resource elements from the external environment. Here, the actual demand from the external market directly drives the demand inside the firm. In general, the resource elements required by the firm may not be fully satisfied. For example, firms can only recruit some of the required personnel from the labour market and can only purchase raw materials at higher prices than expected. After the actual supply information of resource elements (i.e., price, quantity and quality of raw materials) in the external market is transmitted to the firm (i.e., procurement department, etc.), the firm can only introduce the corresponding quantity and quality of resource elements according to the existing capabilities, thus forming the internal supply information within the firm, and the production department can only manufacture products based on the resource elements actually obtained. Here, the actual supply of the external environment directly restricts the internal supply of the firm. Therefore, demand factors from the external environment are the primary driving force for corporate development, while supply factors from the external environment are the necessary conditions for restricting the development of the firm. In addition, in the external environment, the joint action of suppliers, distributors, partners, competitors and other stakeholders directly affects the supply–demand relationship between the market and the firm. Competition is formed between the firm and other firms operating similar products, and cooperation is formed between upstream suppliers and downstream distributors. Cooperation is conducive for firms to obtain more demand and supply opportunities in the market, while competition often reduces the opportunities for firms to acquire demand and supply in the market. Therefore, cooperative factors and competitive factors in the market are another pair of contradictions that affect corporate development. Because cooperative and competitive

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factors play a role by influencing the demand and supply opportunities in the market, they can also be regarded as external secondary drivers of corporate development. It is concluded in the previous analysis of the external environment of the firm that the factors of humans, resources, products, knowledge, institutions, and technology extensively exist in the external socioeconomic environment. From the internal environment of the firm system, the firm system contains six factors: humans, resources, products, knowledge, institutions, and technology. In fact, the most basic key elements that make up the firm system basically correspond to the specific factors in the external niche that affect the development of the firm system, but the external environmental factors are more complex and diverse. Cooperation and competition between firms can also be roughly classified into these six categories of factors. However, the actual resource elements that can be directly used and allocated by the firm are generally these six factors within the firm. In the long run, the process of growth and evolution of a firm system is actually a continuous search, absorption, internalisation, and integration of these elements from the external niche. Therefore, the internal dynamics that can affect the production and operation of the firm system can only come from these six elements within the firm system. Therefore, it can be concluded that the key internal inputs that drive corporate development come from the six factors of humans, resources, products, knowledge, institutions, and technology within the firm. Among them, the most important dynamic factor is humans, and among all the humans, entrepreneurs are at the core. Through the above analysis, it is concluded that the key driving factors affecting the development of the firm mainly include the following eight categories: External factors: demand and supply; Internal factors: talents, resources, products, knowledge, institutions and technology. For the convenience of analysis, the key internal drivers that affect corporate development are divided into two categories: A. Explicit factors (surface factors): talents, resources, and products. B. Implicit factors (deep factors): knowledge, institutions, and technology. If the external and internal factors that promote corporate development and the process of corporate production and operation are combined, the relation between the dynamics behind corporate development can be drawn (Fig. 4.11). From the socioeconomic environment, except for extreme conditions (i.e., wars, political turmoil, natural disasters, etc.), the demand and supply factors in the external environment of the firm are relatively stable, but they are constantly changing in the long run. To have an ordinary life, it is necessary to have food, clothing, habitation, and transportation. The purchasing behaviour of a person buying food, clothes, houses, and vehicles is the act consumption, and his actual need for these items (or commodities) is consumption demand. Therefore, the consumption demand here refers to the consumption demand from individuals, that is, the consumption demand from society for the final products. Personal consumption demand is a person’s innate desire and need. When the original consumption demand is satisfied, as time passes,

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Fig. 4.11 Relations between the dynamics behind corporate development

people will have more new desires and needs. The endless human desire determines the infinity of human consumption demand. Therefore, personal consumption demand is inexhaustible and constantly changing. Driven by demand, firms provide the market with more types and levels of products and services. The more goods and services in the market, the richer resource elements the external environment can provide for corporate production and operation. This is actually a dynamic process in which production and consumption and demand and supply are interrelated, interacted and interinfluenced. It is a repetitive cycle of production and consumption, demand and supply that promotes the growth and evolution of firms. On the other hand, to produce the final personal consumption product, intermediate goods need to be produced. For example, to produce clothes, textile machines need to be produced, and to produce textile machines, steel needs to be produced, where textile machines and steel are both intermediate products. For the firm that produces intermediate products, the consumer it faces is the firm that needs its products. For example, for the firm that produces a textile machine, the spinning mill is the consumer of its products. The behaviour of the spinning mill to purchase the textile machine is the consumption behaviour, and the actual demand of the spinning mill for the textile machine forms the consumption demand of the spinning mill for the textile machine manufacturer. The consumption demand here refers to the consumption demand from the firm, that is, the consumption demand from society for the intermediate product. The consumption demand for the final product drives the consumption demand for the intermediate product. Therefore, corporate consumption demand is also inexhaustible and constantly changing. From the above analysis process, for the firms that produce intermediate products, their growth and evolution

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principles are also in line with the diagram of the relation between the dynamics behind corporate development. In growth and evolution, under the joint promotion of demand factors and supply factors in the external environment, the firm has always carried out the production cycle of production → consumption → reproduction → reconsumption. From the internal point of view of the firm, the firm is constantly searching, absorbing, internalising, and integrating in the six aspects of talents, resources, products, knowledge, institutions, and technology. In this process, the corporate niche and the six factors within the firm have jointly promoted the growth and development of the firm under the coordination and disposition of the entrepreneur. In the process of corporate growth and evolution, these six factors within the firm do not work individually or separately but coordinately and cooperatively. That is, every two factors are interrelated, interacted, and interinfluenced, and they together form the network of dynamic relations within the firm. This interrelationship is represented by a dashed double arrow in Fig. 4.11. Firm is an organisation composed of humans. As a human in a firm, it is inevitable to apply the knowledge one has mastered to daily corporate operations in the process of production and operation. Therefore, knowledge must have important value and function for corporate growth and development. Scholars such as Kogut and Zander (1992, 1996) and Spender (1996) put forward that a firm is a unique collection of knowledge, and social knowledge and collective knowledge at the firm or organisational level constitute the key elements for the success of a firm. The core of the firm is knowledge, not only because the tacit knowledge possessed by the firm is unique to the firm but also because the knowledge structure formed by the firm’s current knowledge stock determines how the firm discovers future opportunities and allocates resources. The difference in the effectiveness of resources is also determined by the existing knowledge of the firm; the acquisition of knowledge requires more professionalism than its use, so the key task of corporate production is the coordination of many individual experts with different types of knowledge.43 From a macro perspective, corporate growth and development will inevitably be affected by changes in the entire economic environment. Most scholars currently regard technological change and institutional change as the fundamental force behind many economic phenomena and treat technological change and institutional change as the main form of environmental mutation. For example, Liu Han-Min (2003) believed that economic changes include technological changes and institutional changes.44 Changes in the institutional environment not only affect the operation of the social economy but also determine the path characteristics of corporate evolution. Zheng Jiang-Sui and He Lian-Cheng (2003) held that socioeconomic evolution can be viewed as a process of selection by multiple institutions; Nelson suggested 43

Qian, H. (2004). Niche, Factos Interacting and Organization Evolution. Dissertation, Zhejiang University. p. 64. 钱辉. (2004). 生态位、因子互动与企业演化. 博士学位论文, 浙江大学. p. 64. 44 Qian, H. (2004). Niche, Factos Interacting and Organization Evolution. Dissertation, Zhejiang University. p. 140. 钱辉. (2004). 生态位、因子互动与企业演化. 博士学位论文, 浙江大学. pp. 140.

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that in developed industrial countries, it is the institutions that promote technological evolution and organisational evolution in a direction that is conducive to sustainable economic development.45 The institutions within the firm stipulate the decision-making form and operation mode of the firm, thus standardising the daily behaviour of the firm and guiding the development path of the firm. When the firm establishes a set of institutions and operates normally, the firm will accept and pass on the institutions in an inertial way. In the process of corporate production and operation, when these institutions can effectively promote corporate growth, departments within the firm will generally recognise and anticipate these institutions, which will lead to the locking of particular institutions within a certain period of time. As external conditions change, the firm needs to adjust and revise these institutions accordingly. The perfection of corporate institutions directly affects the speed and evolution path of corporate growth. In terms of the external environment of the firm, institutional factors in the industrial economic system are often beneficial to some institutional models of the firm but not to others. Institutional models that adapt to the environment will be widely adopted by the firm community and continue to spread, while those that are not adapted to the environment will gradually disappear. Corporate production and operation are bound to be closely linked to certain technical conditions. Technology plays an important role in corporate production and operation, and the degree to which the firm masters the predominant technology in a specific industry determines the production level and production efficiency of the firm to a large extent. Once the firm chooses a particular predominant technology, it basically determines its predominant value creation mode. The establishment of the firm’s dominant value creation model determines the demand type, quantity, and quality of the firm’s resource elements so that the firm, upstream suppliers and downstream distributors can jointly build a value chain with closely linked interests and then evolve into a mutually supporting, reinforcing and restricting coevolutionary ecosystem. Therefore, how the firm chooses leading technology is directly related to the survival and development prospects of the firm. In terms of the external environment of the firm, the factor of technology in the industrial economic system is often the object of the firm’s imitation and learning and the premise and foundation of the technological innovation of the firm. On a broader scale, the degree of technological development of a society also determines the depth and breadth of the division of labour and coordination in the entire society.

45

Qian, H. (2004). Niche, Factos Interacting and Organization Evolution. Dissertation, Zhejiang University. p. 145. 钱辉. (2004). 生态位、因子互动与企业演化. 博士学位论文, 浙江大学. p. 145.

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4.9.2 The Role of the Entrepreneur A firm is an economic organisation composed of humans, and the core of the firm is a human. Among all the internal factors that drive corporate development, talents are undoubtedly the most important. Among all the talent in a firm, the most critical is the entrepreneur. Accenture, a world-renowned management consulting company, after talking with thousands of entrepreneurs in 26 countries and regions, with 79% of business leaders, suggested that entrepreneurship is crucial to the success of firms; Accenture’s research report also pointed out that, in the minds of senior executives around the world, entrepreneurship is the gene and key of the organisation’s health and longevity.46 The carrier of entrepreneurship is the entrepreneur. Entrepreneurs are pivotal in the growth, development and expansion of firms. What kind of human can be regarded as an entrepreneur? What characteristics do they generally have? Entrepreneurs are those managers who are innovators, adventurers, cooperators, hard workers, learners, men of integrity, doers, men with a strong sense of mission and responsibility, and those who are active for excellence and success. The spirit of innovation, adventure, cooperation, dedication, intellectual curiosity, integrity, action, a strong sense of mission and responsibility and the active pursuit of excellence and success are the entrepreneurial spirit emphasised by many scholars. Therefore, not all managers are entrepreneurs, and only those with entrepreneurial spirit are qualified to be called entrepreneurs. Entrepreneurs with innovative spirit and managerial ability are scarce resources of the social economy. In the economic realm, it is more common to see ordinary business owners, managers, and wealthy businessmen who have made a fortune. True entrepreneurs with entrepreneurial spirit, such as Bill Gates of Microsoft, Jack Welch of GM, Andy Grove (1936–2016) of Intel, Konosuke Matsushita (1894–1989) of Panasonic, Akio Morita (1921–1999) of Sony, Shi Zhen-Rong of Acer, and Zhang Rui-Min of Haier, are rarer. In the real economic field, every successful firm has an excellent entrepreneur, and behind every excellent entrepreneur is a hard-working team. Successful firms often have an excellent corporate culture. Excellent corporate culture originates from the unique enterprise spirit, which is the organisational embodiment of entrepreneurial spirit. Corporate culture plays an important role in corporate operations. It is critical to the survival and development of the firm, as well as to the formation of its long-term competitiveness. After nearly 20 years of research, John P. Kotter and James Heskett concluded that corporate culture can have a significant impact on a firm’s long-term economic performance, and it determines the success or failure of the firm in the

46

Xu, F. (2007). Corporate Development Theory - IX: Core Competence Theory. China Management Communication Network. 徐飞. (2007). 企业发展理论(九): 企业家理论. 中国管理传播网. http://manage.org.cn/Article/ShowArticle.asp?ArticleID=42258.html. Accessed 12 Jan 2007.

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next decade.47 A good corporate culture can promote close coordination between the departments and the factors of production of the firm so that the firm can smoothly achieve the predetermined goals. The core of corporate culture is the entrepreneurial spirit, which is mainly shaped by the entrepreneur. The orientation of core values in corporate culture determines the formulation of corporate development strategies. The development strategy of the firm has a direct and important impact on the firm’s market positioning, internal institutional construction, professional knowledge learning, and leading technology choices and ultimately determines the development direction and path of the firm together with these factors. In the real economic field, the growth and development of a firm is accompanied by the common growth and development of the entrepreneur and the team. The growth and development of the entrepreneur, in addition to his/her personal accumulation of knowledge, experience, and management abilities, mainly lies in the improvement of his/her vision and responsibility, or entrepreneurship. The improvement of entrepreneurial spirit reshapes the enterprise spirit, and the renewal of enterprise spirit promotes the development of corporate culture. Therefore, in promoting the growth and development of the firm, the entrepreneur plays a role through the following two chains: A: Surface factor chain: entrepreneur → organisational team → firm B: Deep factor chain: entrepreneurship → enterprise spirit → corporate culture In corporate growth and development, these factors are closely linked and coordinated to promote corporate development. If the above six factors are used as six dimensions to describe the process of corporate growth, then the trajectory of corporate growth can be drawn (Fig. 4.12). In Fig. 4.12, the six dimensions are ➀ entrepreneur; ➁ entrepreneurship; ➂ organisational team; ➃ enterprise spirit; ➄ firm; and ➅ corporate culture. From a static point of view, the factors in Chain A form a virtuous circle of mutual promotion, that is, the solid circle in Fig. 4.12. This process can be described as follows: the growth of the entrepreneur → the growth of the organisational team → the growth of the firm, and then the growth of the firm promotes the growth of the entrepreneur. At the same time, the factors in Chain B also form a virtuous circle of mutual promotion, that is, the small solid circle in Fig. 4.12. This process can be described as follows: the development of entrepreneurship → the development of enterprise spirit → the development of corporate culture, and then the developed corporate culture promotes the development of entrepreneurship. In corporate growth and development, the above six factors are closely linked and coordinated. Therefore, Chain A and Chain B are in fact twining and developing together.

47

Li, X. M. (2006). Research on Enterprise Environment, Environmental Factors Interaction and Enterprise Evolution. Dissertation, Tianjin University. p. 41. 李晓明. (2006). 企业环境、环境因 子互动与企业演化研究. 博士学位论文, 天津大学. p. 41.

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Fig. 4.12 Positive interactions between entrepreneur, organisation team and firm

From a dynamic point of view, a normally developing firm is continuously growing in these six aspects, that is, consistently expanding outward in these six dimensions. It is not difficult to find that in the corporate evolution from small to large, from weak to strong, the cogrowth trajectory of the entrepreneur, the organisational team, and the firm is actually a gradually expanding spiral. At the same time, the cogrowth trajectory of entrepreneurship, enterprise spirit, and corporate culture is also gradually expanding. In the development of corporate evolution, these two spirals are in fact intertwined (Fig. 4.13). In reality, the behaviour of the entrepreneur is regulated by the entrepreneur’s humanistic spirit, values, and ethical morals. The humanistic and cultural knowledge of the entrepreneur predominates the value orientation of entrepreneurship, and entrepreneurship shapes the enterprise spirit, which in turn predominates the core values of corporate culture. The 2008 Chinese milk scandal48 showed that the imperfection or lack of humanistic and cultural knowledge of the entrepreneur, such as humanistic spirit, values, and ethical morals, will greatly restrict the development of a firm. If a modern firm is obsessed with pursuing profits and ignores ethical morals and social responsibility, then the firm is bound to fall into the predicament of development. From this, it is also discernible that the humanistic and cultural knowledge 48

The scandal in 2008 involved milk and infant formula along with other food materials and components being adulterated with melamine, which is known to cause kidney failure and kidney stones in humans and animals when it reacts with cyanuric acid inside the body. The exposure directly led to the bankruptcy of Sanlu, and seriously damaged the reputation of China’s food exports that at least 11 foreign countries halted all imports of Chinese dairy products. The root cause of this incident, apart from the government’s absent supervision of food safety, is that the firm’s leadership and management team are profiteering and morally corrupt.

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Fig. 4.13 Evolutionary trajectories of entrepreneur, organisation team, and firm

of the entrepreneur is closely related to the enterprise spirit and corporate culture, which are pivotal to the development of a firm! Therefore, where does an entrepreneur’s humanistic and cultural knowledge come from? One might say that it comes from the education received by the entrepreneur, but where does the humanistic and cultural knowledge in the education system come from? Tracing back to the source, humanistic and cultural knowledge can only come from the human-culture system of society (Sect. 8.4). Therefore, in the external environment of the firm, the factor of human-culture is also an important factor that cannot be ignored in corporate development, which has a profound impact on entrepreneurship, enterprise spirit and corporate culture. The importance of the factor of human-culture lies mainly in that it shapes the spirit and ideology of human beings and plays a guiding role in social values and ethical morals. Education courses of business administration (MBA or EMBA) for managers all over the world often focus on the education of management knowledge rather than humanistic and cultural knowledge, which is obviously a major oversight and deficiency in cultivating sound entrepreneurship.

4.10 Corporate Evolutionary Mechanism The growth and development of the firm from small to large, from weak to strong, is a process of continuous evolution of the firm over time. In this process, division of labour and coordination, interaction between internal factors and external factors,

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gradual change and disruptive change are important mechanisms behind corporate evolution.

4.10.1 The Division of Labour and Coordination In corporate production and operation, the division of labour and coordination are the two most basic and necessary mechanisms. The division of labour enables the firm to specialise and refine; coordination encourages the departments within the firm to cooperate and coordinate. If there is no division of labour and coordination, no firm can successfully realise the manufacture of products and normal business activities. The division of labour is actually a concrete manifestation of the bifurcation law in corporate production and operation, while coordination is the exhibition of the synergy law. From a long-term perspective, the organisation, resources, products, knowledge, technology, institutions, etc., of the firm are constantly evolving from unity to plurality, from low-level to high-level, and from simplicity to complexity under the combined effect of the bifurcation law and the synergy law. In economic research, the role of division of labour has been noticed for a long time. Since Adam Smith, classical economics and later neoclassical economic theories have always taken the phenomenon of division of labour as the focus of research and analysis. In contrast, the understanding of the coordination mechanism appears to be undervalued. The fact that many microeconomic theories of the firm tend to be paranoid is a concrete reflection of this reality. In the operation of the firm, the organisation, resources, products, knowledge, technology, institutions and other factors of the firm are interrelated, interacted, interinfluenced and interrestricted. Each factor plays a role in the influence and restriction of other factors, and the change of any one of them will cause the change of other factors to varying degrees. For instance, changes in technology will inevitably lead to varying degrees of changes in organisation, resources, product, and institutions, and vice versa. Apparently, at different stages of corporate development, the relative positions of these factors are not fixed but are often in alternation. For example, in a particular period of time, technology plays a leading role in corporate development, while in another period, institutions become dominant. Therefore, in the practice of corporate operation and management, from the internal factors of the firm, it is necessary to pay attention to the dynamic collaborative management of the six aspects at the same time, instead of only focusing on one of them.

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4.10.2 The Interaction between Internal and External Factors A corporate niche is the specific resource space that a firm occupies in the socioeconomic environment to support its survival and development. The corporate niche is the junction point between the firm and the socioeconomic system. The formation, change and expansion of a corporate niche are the result of the interaction between the firm and the external environment, as well as the result of the competition and cooperation between firms. The corporate niche is composed of many factors. However, which factors are the key elements that affect the survival and evolution of the firm? In the previous analysis of the factors affecting the internal and external environment of the firm, it is concluded that the general external factors are demand and supply, while the specific factors include the six factors of humans, resources, products, knowledge, institutions and technology. These six factors are also the most basic key elements that constitute a firm. It is known that corporate growth and development is actually a process of constantly searching, absorbing, internalising and integrating these six factors. Therefore, it can be judged that the six factors of humans, resources, products, knowledge, institutions and technology in the corporate niche are important factors that affect the survival and evolution of the firm, while the demand factor and supply factor are the other two important factors. Qian demonstrated and proposed that the organisational niche is described and decided by the four factors of demand, resources, technology and institutions.49 This book believes that he only noticed four of the eight factors, which is clearly not complete and sufficient for corporate growth and evolution. How do these corporate niche factors affect corporate survival and evolution? The book argues that the interaction between the corporate niche factor and key corporate internal elements (factors) is not only a pivotal bridge for the external environment and the internal environment to communicate supply and demand but also a general mechanism behind the cooperation, competition, learning and innovation among firms. It is the interactions of the factors inside and outside the firm that promote its growth and development. The six factors of humans, resources, products, knowledge, institutions, and technology, plus the two factors of demand and supply, are used to describe the interaction process of factors inside and outside the firm. To be more intuitive, the eight dimensions are still applied to reflect the changing state of the eight factors to draw the diagram of the interaction between factors inside and outside the firm (Fig. 4.14). In the figure, the eight dimensions are ➀ demand; ➁ humans; ➂ knowledge; ➃ resources; ➄ institutions; ➅ products; ➆ technology; and ➇ supply. 49

Qian, H. (2004). Niche, Factos Interacting and Organization Evolution. Dissertation, Zhejiang University. pp. 72–87. 钱辉. (2004). 生态位、因子互动与企业演化. 博士学位论文, 浙江大学. pp. 72–87.

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Fig. 4.14 Interactions between factors inside and outside the firm

The large solid circle represents the niche boundary of the firm, and the small solid circle indicates the organisational boundary of the firm; The larger dotted circle demonstrates the current niche of the firm. Among them, the intersection points of the larger dotted circle and eight axes, A, B, C, D, E, F, G, and H, represent demand, humans, knowledge, resources, institutions, products, technology, and supply, the eight niche factors outside the firm; The smaller dotted circle indicates the current organisational boundary of the firm. Among them, the intersection points of the smaller dotted circle and eight axes, a, b, c, d, e, f, g, and h, represent supply, humans, knowledge, resources, institutions, products, technology, and demand,50 the eight key factors inside the firm. In the previous analysis of the process of corporate production and operation, it is concluded that when the external environment transmits the demand (A) to the firm, the firm will quickly respond to the supply (a), which forms the interaction of demand (A) and supply (a) between the external environment and the firm. This interactive process is marked as A ← → a in Fig. 4.14. On the other hand, in production and operation, the firm also needs resource elements provided by the external environment. At this time, the firm will have a demand for the external environment (h). When the firm transmits demand (h) to the external environment, the external environment will quickly respond to supply 50

Here, the external demand corresponds to corporate internal supply, and the external supply corresponds to corporate internal demand. For the internal connection between them, please refer to Fig. 4.10, Supply–demand relation inside and outside the firm.

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(H), which forms the interaction of supply (H) and demand (h) between the external environment and the firm. This interactive process is marked as H ← → h in Fig. 4.14. When the firm interacts with the external environment between external demand and internal supply (A ← → a) or external supply and internal demand (H ← → h), it is necessary to communicate and interact with people inside and outside the firm first, such as inquiry, negotiation, signing, and placing orders. Apparently, the human interaction between the firm and the external environment also includes the mutual exchange and mutual learning of ideas, culture, and knowledge between people, as well as the exchange of talents. These interactions are marked as B ← → b in the figure. Similarly, the interaction between the firm and the external environment in terms of capital, raw materials and other resource elements is marked as D ← → d in the figure. The interaction between the firm and the external environment in terms of products or services is marked as F ← → f in the figure. When the firm interacts with the external environment in terms of humans, resources and products, it will inevitably be accompanied by the interaction of knowledge, institutions and technology. These interaction processes are marked as C ← → c, E ← → e and G ← → g in the figure. It is known that the process of corporate production and operation is a cyclical process of demand–supply and production-consumption. In this process, the firm and the external environment always interact in the eight aspects of demand, humans, knowledge, resources, institutions, products, technology, and supply. It is the constant interaction of these internal and external factors that promote the growth and evolution of the firm from small to large and from weak to strong. At different stages of corporate growth, the intensity and relative positions of these factors affecting corporate development are not fixed but are in dynamic and cyclical alternation. For example, in a particular period of time, demand plays a leading role in corporate development, while in another period, technology becomes dominant. The change in the predominant factor will exert a major influence on the survival and evolution of the firm and have a significant effect on the other factors, which is a synergistic process. The most basic function of a firm is to provide products or services to society to meet its consumption demand. Consumption demand is the direct driving force for corporate development, so if there is no consumer demand from society, the firm will lose the dynamics for development. At the same time, if a firm wants to provide the products or services required by society, it needs the external environment to supply resource elements. Therefore, among the many factors of the corporate niche, the demand factor of products and services and the supply factor of resource elements are obviously the two key factors that affect corporate survival and development. Every firm exists in a particular economic system, and it must have various relationships with other firms in the external environment. Of the many intercorporate relationships, the most common ones are competition and cooperation. In the sector system, firms that provide similar products compete with each other in terms of talents, resources, and customers and are often in competition with each

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other. Firms that provide different types of products rarely compete in terms of talents, resources, and customers and are often in complementary cooperation with each other. Intercorporate competition and cooperation are not absolute but can be transformed into one another under certain conditions. For example, Firm N produces flour, and Firm M produces bread, so when Firm N provides flour to Firm M, a cooperative relationship is formed between them. However, if Firm N also starts producing and selling bread to the market or Firm M also starts producing and selling flour to the market, the relationship between them becomes a competitive relationship. In the real economy, in addition to competition and cooperation, firms sometimes have a competition + cooperation relationship, that is, coopetition. For example, two firms that produce similar products are originally in a competitive relationship. However, when they jointly develop a new product and share the market, the relationship between them becomes coopetition. As a firm grows and develops, it will often compete with other firms in the market in terms of talents, resources, and products. For example, similar firms often offer high salaries and favourable treatment to compete for outstanding management talents, technical talents, and marketing talents in the industry. To gain an advantage in the competition, firms will also compete in knowledge, institutions, and technology. One of the means of competition among firms is innovation. To innovate, the firm needs to learn from other outstanding firms in the external environment. Intercorporate cooperation, competition, learning and innovation are carried out through the interactions of the factors inside and outside the firm. The interaction of the factors inside and outside the firm promotes corporate evolution. Corporate innovation generally includes innovation in culture, organisation, resources, products, knowledge, institutions, and technology. An important aspect of intercorporate competition is product competition. The competition among firms in terms of products is generally carried out through product innovation. Innovation in products is often intertwined with innovation in resources, technology, knowledge, institutions and other aspects of the industry. For example, in the market, when a firm introduces a new product f1 and obtains substantial profit from the market, other competing firms will soon develop an upgraded product F1 that is more functional or of better quality than product f1 . At this time, the product advantages of the firm that introduces product f1 are replaced, and its competitive advantages are weakened accordingly. However, to regain new competitive advantages, the firm will carry out product innovation again and develop and launch an upgraded product f2 with stronger functions and better quality than f1 . Other competing firms in the market will soon develop a new product F2 that is more functional or of better quality than product f2 . The innovation process of this product will continue through repeated interactions of factors inside and outside the firm. The innovation of corporate products is an important reason for the increasing variety of products in the market. The innovation of corporate products is also accompanied by the continuous progress of various knowledge and technologies in the industry. The advancement of knowledge and technologies spawns the birth of various new inventions, which in turn promote the innovation of corporate products.

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Similar to the above process, different firms in the sector system realise innovation in culture, organisation, resources, products, technology, knowledge, and institutions through the interaction of internal and external factors. A firm is an organisation composed of humans, and humans are the most dynamic factors of all the elements of the firm. Whether a firm can stand out in market competition, talents are the key, especially innovative talents, the innovation of a firm in all aspects is ultimately completed by talents. Therefore, intercorporate competition is ultimately the competition of talents. In corporate growth, entrepreneurs and organisational teams are also making progress, which is mainly reflected in the increasing enrichment and improvement of corporate knowledge, spiritual culture, management level and business skills. In the previous analysis of the dynamics behind corporate development, it is concluded that the entrepreneur is pivotal in the growth and development of a firm. The factor of human-culture in the corporate niche system has a great influence on entrepreneurship, enterprise spirit and corporate culture. Therefore, among the many factors of the corporate niche, human-culture is also an important factor that cannot be ignored, which affects corporate survival and development. Through the above analysis, it is clear that it is through the interaction mechanism of internal and external factors that enables firms to absorb and integrate the supply of resources from the external environment, to respond to and meet the product demand from the external environment in time, and to realise intercorporate cooperation, competition, learning and innovation to promote the progress and growth of firms in terms of culture, organisation, resources, products, knowledge, institutions, and technology. Through this process, the overall corporate competence is improved, and the organisational boundaries and niche boundaries of the firm are expanded accordingly.

4.10.3 Gradual and Disruptive Changes The firm has been constantly evolving since humans created the firm as an organisation. Corporate evolution has gone through a process from unity to plurality, from low-level to high-level, and from simplicity to complexity. The process can be divided into a gradual change stage and a disruptive change stage. Gradual change is the basis of disruptive change, while disruptive change is the result of gradual change. Corporate evolution is manifested in the alternation between gradual changes and disruptive changes. This mechanism promotes the transition of a firm from one stage to another and from one state to another. As a result, the firm has realised the evolution from unity to plurality, from low-level to high-level, and from simplicity to complexity. The factors that cause the disruptive change in the firm may come from both the external environment and the internal environment of the firm. The disruptive change in corporate evolution is achieved through the interaction between the factors inside and outside the firm.

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In corporate evolution, in addition to the interaction between its internal elements, there is also communication between the elements inside the firm and the factors outside the firm. These interactions lead to slow changes in the firm in terms of organisation, resources, products, technology, knowledge, institutions, etc. These slow changes are the gradual changes in corporate evolution; when slow changes accumulate to a certain extent, the nature of each factor within the firm will undergo qualitative changes, leading to significant changes in the structure, function, and behaviour of the firm. These significant changes are the disruptive changes. In the previous analysis of the interaction mechanism between the internal and external factors of the firm, it is concluded that it is the innovative factors inside and outside the firm that play an important role in the corporate reform. The firm realizes innovation in culture, organisation, resources, products, technology, knowledge, and institutions through the interaction of internal and external factors. The innovation of the firm in these aspects leads to the gradual change of various elements within the firm, and when the amount of change accumulates to a certain extent, qualitative change will occur, resulting in the disruptive change in the process of corporate evolution. Disruptive changes will lead to significant changes in overall corporate competence and the status of the corporate niche. If the disruptive change causes the firm to progress, then the result is the improvement of overall corporate competence and the expansion of niche; Otherwise, if it causes the firm to regress, then the overall corporate competence will deteriorate and the niche will shrink. Corporate growth and development are directly related to a firm’s ability to innovate. Abernathy and Utterback (1978), Suarez (1993), Tushman (1996) and others pointed out from the perspective of innovation that the process of corporate evolution is a discontinuous equilibrium process, that is, a relatively long incremental innovation process interrupted by short-term disruptive change, which is often a fundamental technological innovation.51 Schumpeter divided the forms of corporate innovation into five types: (1) the introduction of new products or the provision of new qualities of products; (2) the adoption of new production processes; (3) the opening of new markets; (4) the acquisition of new sources of resource supply; and (5) the application of new organisational forms.52 The five forms of innovation he mentioned can be classified as corporate innovations in products, technology, markets, resources, and organisation. Among them, the process of firms opening up new markets can be understood as the result of the expansion of the firm’s external niche. Judging from the internal factors of the firm, Schumpeter may have overlooked the firm’s innovation in other aspects, such as corporate culture, knowledge, and institutions. For the external environment of the firm, the socioeconomic environment is relatively stable in a certain period of time, but it has been changing in the long run. Changes in the external environment of the firm are divided into gradual changes 51

Li, X. M. (2006). Research on Enterprise Environment, Environmental Factors Interaction and Enterprise Evolution. Tianjin University. p. 88. 李晓明. (2006). 企业环境、环境因子互动与企 业演化研究. 博士学位论文, 天津大学. p. 88. 52 Li, X. M. (2006). Research on Enterprise Environment, Environmental Factors Interaction and Enterprise Evolution. Dissertation, Tianjin University. p. 65. 李晓明. (2006). 企业环境、环境因 子互动与企业演化研究. 博士学位论文, 天津大学. p. 65.

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and disruptive changes, which determine that the changes in corporate niche are also classified into gradual changes and disruptive changes. Disrupted changes in the corporate niche are often caused by sudden changes in a factor in the corporate niche. When the external environment undergoes gradual changes, the corporate niche is relatively stable, and the firm can adapt to the changes in the external environment through its partial adjustments. When the external environment undergoes disruptive changes, the corporate niche alters rapidly due to severe impacts, and the firm often needs to make quick responses or make global adjustments to adapt to the changes in the external environment. If the adjustment is slow or the response is improper, its development or even survival will be seriously threatened. In the previous analysis, it is concluded that among the many factors of corporate niche, the demand factor of products and services and the supply factor of resource elements are the two key factors that affect corporate survival and development. When the customer’s demand for the firm’s products abruptly changes or the supply of a particular resource element required by the firm is unexpectedly short, it will cause a disruptive change in the corporate niche. For example, when colour televisions appeared, the demand for black-and-white televisions decreased sharply; when digital signal phones emerged, the demand for analog signal phones dropped greatly. Those firms that manufactured black-and-white televisions and analog-signal mobile phones were facing the serious threat of a sharp shrinkage of their niches, and if they did not make adjustments in time, bankrupcy would be their sole destiny. Catastrophe Theory, which was formally proposed by the French mathematician René Thom in 1972 and perfected by the British mathematician E.C. Zeeman, can be used to explain the discontinuity or catastrophe of things. The core idea of catastrophe theory is53 : Stability is a common characteristic of things. The stable state and unstable state are the two basic states of the movement of things and are the two aspects of the unity of opposites. Both gradual change and disruptive change are ways for things to achieve qualitative change, and the intermediate transition state experienced by qualitative change is the approach to judge the qualitative change of things. The gradual change and disruptive change of things are closely related to the state of things. The distinction between gradual change and disruptive change is based on whether the intermediate state in the transformation is stable; if the intermediate transition state experienced by the qualitative change is unstable, it is a disruptive change; if the intermediate transition state is stable, it is a gradual change; the change of things in one structurally stable state is a quantitative change, and the change between two structurally stable or unstable states is a qualitative change. The following uses the core idea of catastrophe theory to explain the process of gradual change and disruptive change in corporate growth. Through the above analysis, the important factors affecting corporate development are mainly as follows:

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Li, X. M. (2006). Research on Enterprise Environment, Environmental Factors Interaction and Enterprise Evolution. Dissertation, Tianjin University. p. 69. 李晓明. (2006). 企业环境、环境因 子互动与企业演化研究. 博士学位论文, 天津大学. p. 69.

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Fig. 4.15 Process of gradual change and disruptive change in corporate development

Internal factors: humans, resources, products, knowledge, institutions and technology; External factors: general factors include supply and demand; specific factors include humans, resources, products, knowledge, institutions, and technology. The six factors of humans, resources, products, knowledge, institutions, and technology, plus the two factors of demand and supply, are used to describe the gradual change and the disruptive change of the firm. The eight dimensions are used to reflect the changing states of the eight factors, and the process diagram of the gradual change and the disruptive change in the development of the firm is drawn (Fig. 4.15). In Fig. 4.15, the eight dimensions are ➀ demand; ➁ humans; ➂ knowledge; ➃ resources; ➄ institutions; ➅ products; ➆ technology; and ➇ supply. The dotted concentric circles in the figure indicate the corporate niche, the small circle indicates that the firm is in a lower potential niche, and the larger circle indicates that the firm is in a higher potential niche. With the continuous growth and development of the firm, the organisational boundaries and niche boundaries of the firm are gradually expanding from small to large. In this process, the eight factors affecting corporate development also change from small to large. From the dynamics of corporate growth and development, in the evolution of the firm from small to large, from weak to strong, its trajectory in eight dimensions is actually a gradually expanding spiral (as the solid spiral lines show in Fig. 4.15). A complete process of the firm evolving from axis ➀ to axis ➇ and back to axis ➀ is called a cycle of corporate evolution. In a cycle of corporate evolution, the intersection of spiral lines and eight axes is represented by a, b, c, d, e, f, g, and h. In a cycle of corporate evolution, driven by external demand, when the firm evolves from state a to state b, the management level of the entrepreneur and the team in the firm is enhanced; from state b to state c, the degree of learning and application

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of knowledge (management knowledge, professional knowledge, etc.) of the firm is improved; from state c to state d, the degree of integration and utilisation of resources by the firm is boosted; from state d to state e, the degree of innovation in corporate institutional construction is upgraded; from state e to state f, the degree of corporate product R&D innovation is advanced; from state f to state g, the degree of corporate technological R&D innovation progresses; and from state g to state h, the extent of the corporate niche’s supply of resource elements is developed. From catastrophe theory, the firm is in a stable state in the intermediate stage of the evolution from a → b, b → c, c → d, d → e, e → f , f → g, and g → h, and the transitional state in the middle is stable, so the changes are gradual changes. When the firm is at or near the eight points of a, b, c, d, e, f, g, and h, the firm is in an unstable state, and the transitional state in the middle is unstable, so the changes are disruptive changes. When the firm completes a cycle of evolution, pushed by new external demands, the firm will begin to enter the next cycle of evolution, and corporate evolution will prepare for another round of alternation between gradual changes and disruptive changes. As the cycle continues, the overall corporate competence is improved, and the organisational and niche boundaries are expanded accordingly. In short, corporate evolution is a continuous process that alternates between gradual change and disruptive change, which promotes corporate transition from one state to another. The disruptive change in corporate evolution is achieved through the interaction between the factors inside and outside the firm. The factors that cause disruptive change may come from the external environment (i.e., changes in market demands or sectoral policies) or the internal environment (i.e., reform in corporate management systems, major innovations in corporate technology or products, etc.). If the disruptive change causes the firm to progress, then the result is the improvement of overall corporate competence and the expansion of niche; if the disruptive change causes the firm to regress, then the result is the deterioration of overall corporate competence and the shrinkage of niche.

4.11 Corporate Life Cycle Any organic matter in the world has a life cycle. The firm composed of humans is an organic organisation, so it also has a life cycle. To be more vividly, a firm also has its cycle of birth, growth, ageing, and death. From the direction and state of corporate evolution, the corporate lifecycle can be divided into three stages: growth and progression, remaining the status quo, and regression and decline. There are generally two directions of corporate evolution, namely, progression and regression. Corporate progression refers to the evolution of the firm’s intrinsic quality, management level, organisational scale, overall competence, and niche quality in a direction beneficial to corporate development, which is embodied in the better internal quality of the firm, specifically shown in the increased intrinsic corporate quality, upgraded management level, larger corporate scale, stronger overall corporate competence, and better quality of corporate niche. Regression is the opposite of

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progression. Corporate regression refers to the evolution of the firm’s intrinsic quality, management level, organisational scale, overall competence, and niche quality in a direction unfavourable to corporate development, specifically shown in the declined intrinsic corporate quality, degraded management level, smaller corporate scale, weaker overall corporate competence, and worse quality of corporate niche. Under the reciprocal action of external pressures and internal motivations, there are only three possible outcomes of the firm’s ultimate evolution, namely, continuous progression, remaining the status quo, and regression and decline. In the actual economic system, the states of the firm corresponding to these three evolutionary results are as follows:

4.11.1 The Firm That Is Growing The ultimate determinant of corporate progression is not from the outside but from the inside. Regardless of whether the external pressure is large or small, as long as the internal momentum is strong, the firm will progress continuously. When the external environment changes rapidly and the internal dynamics is very strong, driven by the entrepreneur’s endeavour and unremitting pursuit of self-renewal, the firm will respond to the challenges of the external environment through learning and innovation. As time goes by, the quality and abilities of the firm will be improved, and the result of corporate evolution will be demonstrated in market competitiveness, the corresponding expansion of corporate scale and corporate niche. The potential energy diagram of corporate competence clearly describes how a firm grows and progresses. In the potential energy diagram (Fig. 4.16) of corporate competence growth, the eight dimensions are ➀ production and supply; ➁ entrepreneur; ➂ knowledge; ➃ organisations; ➄ institutions; ➅ resources; ➆ technology; and ➇ products. Figure 4.16 shows that at first, the production and supply capacity of the firm was relatively weak, but driven by the internal momentum for growth, the firm’s capabilities are constantly improving. From the surface factors of corporate production and operation, the entrepreneur is active and enterprising, constantly overcoming the pressure from the external environment and the entrepreneur’s ability to manage, and the organisation’s ability to coordinate is gradually improved, which in turn enhances the firm’s ability to absorb and integrate resources. From the deep factors of corporate production and operation, the enhancement in the abilities of the entrepreneur, organisation and resources also boosts corporate competence in terms of knowledge learning and innovation, institutional construction and perfection, as well as technological innovation and application, which in turn encourages the firm’s ability to develop products and make innovations. The improvement of the firm’s ability to develop products and make innovations also strengthens the firm’s production and supply capacity. As the production cycle progresses, the overall corporate competence continues to grow; as a result, the competitiveness of the firm in the market

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Fig. 4.16 Potential energy diagram of the growth of corporate competence

increases, the corporate scale keeps expanding, and the corporate niche expands accordingly. It is not difficult to find that in the process of corporate growth and progress, corporate competence undergoes a process from weak to strong, and the evolutionary trajectory of corporate competence is actually a gradually expanding spiral.

4.11.2 The Firm That Remains the Status Quo When the external environment is less competitive and the firm’s internal momentum is weak, the firm will maintain a relatively stable state for a certain period of time. When the external environment changes slowly, the firm will face a relatively stable external environment. At this time, even if the firm has no motivation for further development, the firm can still maintain and continue its original business until the external environment changes drastically. During this period, the firm is characterised by relatively solid market competitiveness, unchanged corporate scale and steady corporate niche. However, in today’s globalising economy, accelerating technological innovation and fast-changing customer needs, such a stable external environment has become less common, and firms are often faced with a rapidly changing environment and increasingly fierce competition. Therefore, remaining in the status quo is only a relatively short-term phenomenon in the process of corporate development. From the perspective of the potential energy diagram of corporate competence evolution, the corporate competence of a relatively stable firm will basically retain its status quo in all aspects for a certain period of time. At this point, the evolutionary trajectory of corporate competence is actually a closed circle (Fig. 4.17).

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Fig. 4.17 Potential energy diagram of the evolution of corporate competence

In the potential energy diagram (Fig. 4.17) of corporate competence evolution, the eight dimensions are ➀ production and supply; ➁ entrepreneur; ➂ knowledge; ➃ organisations; ➄ institutions; ➅ resources; ➆ technology; and ➇ products. In this case, due to the lack of motivation for further development, from the surface factors of corporate production and operation, the entrepreneur’s ability to manage, the organisation’s ability to coordinate, and the firm’s ability to absorb and integrate resources basically remain in their original states. From the deep factors of corporate production and operation, corporate competence in terms of knowledge learning and innovation, institutional construction and perfection, and technological innovation and application basically remain at the original level. In a particular period of time, the firm’s ability to develop products and make innovations and the firm’s production and supply capacity basically remain at their original levels. On the whole, the firm remains at its original level in terms of overall competence, organisational scale, and corporate niche. In the real economic system, managers who pursue stability by retaining the status quo are generally those with rigid thinking and a lack of initiative. They disregard reality and respond to the fast-changing environment with outdated business ideas and strategies. In fact, corporate development is like sailing against the current, either forward or backward. Unpredictable changes in the external environment make it impossible for firms to continue to maintain the status quo. If the managers continue to be inactive, the firm will eventually evolve along the direction of regression.

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4.11.3 The Firm That Is Declining Regardless of whether the external pressure is large or small, as long as the internal momentum is weak, the firm will regress continuously. When the external environment changes rapidly and the internal dynamics is insufficient, the firm will not be able to actively adapt to the changing environment. With the passage of time, the quality and abilities of the firm will be gradually degraded, and the result of corporate evolution will be demonstrated in the decline of market competitiveness, the forced reduction of corporate scale and the shrinkage of corporate niche. If the manager cannot effectively curb such regression, the destiny of the firm will be bankruptcy or breakup. From the perspective of the potential energy diagram of corporate competence, with the passage of time, the corporate competence of a stagnant and declining firm is constantly weakening, and the evolutionary trajectory of corporate competence is actually a gradually shrinking spiral (Fig. 4.18). In the potential energy diagram (Fig. 4.18) of corporate competence decline, the eight dimensions are ➀ production and supply; ➁ entrepreneur; ➂ knowledge; ➃ organisations; ➄ institutions; ➅ resources; ➆ technology; and ➇ products. Figure 4.18 shows that at first, the production and supply capacity of the firm was relatively strong, but due to the weak internal momentum for development and the pressure of the external environment, the firm’s capabilities are continuously decreasing. From the surface factors of corporate production and operation, the entrepreneur’s ability to manage and the organisation’s ability to coordinate are also gradually reduced, which in turn declines the firm’s ability to absorb and integrate resources. From the deep factors of corporate production and operation, the diminution in the abilities of the entrepreneur, organisation and resources also impedes corporate competence in terms of knowledge learning and innovation, institutional Fig. 4.18 Potential energy diagram of the decline of corporate competence

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construction and perfection, as well as technological innovation and application, which in turn impairs the firm’s ability to develop products and make innovations. The decline in the firm’s ability to develop products and make innovations also weakens the firm’s production and supply capacity. As the production cycle progresses, the overall corporate competence continues to decline; as a result, the competitiveness of the firm in the market decreases, the sectoral scale keeps shrinking, and the corporate niche shrinks accordingly. Dr. Li Xiao-Ming examined the life cycle of the organisation based on the specific sector in which the organisation is engaged and divided the organisation into three types: the firm that ends young, the firm that ends naturally, and the firm that lasts forever. He pointed out that firms engaged in different sectors have different life cycles. Some sectors have very long life cycles, and the firms engaged in these sectors have naturally long life cycles. Some sectors have rather short life cycles, and the firms engaged in these sectors usually have short life cycles. It is less rigorous to compare the length of the life cycle of firms regardless of the type of sector they are engaged in. In reality, most firms have a very short lifespan. According to statistics, over a decade, nearly 40% of the Fortune 500 list of companies have disappeared; over three decades, 60% have been acquired or bankrupted. Of the 12 firms shortlisted for the DJI (Dow Jones Indexes) in 1900, only one remains, the General Electric. For firms in Europe and Japan, the average lifespan is only 12.5 years. According to the survey report of the U.S. Department of Commerce, 500,000 firms are born in the United States every year, 40% of them fail within one year, and 96% of them fail within 10 years. China’s data also indicated that the average life expectancy of Chinese SMEs is only 3.5 years, and the average lifespan of group corporations is 7–8 years. It is evident that most firms cannot achieve sustainable development. The reason is that in fierce market competition, most firms cannot survive the critical period of infancy, some can die at a ripe old age, and only a very few can achieve immortality. The fundamental reason why a firm can become immortal is that the firm has achieved continuous progression.54 In the real economic environment, all firms that can achieve continuous progression are firms with a long-term foundation. For example, century-old firms such as Rémy Cointreau in France, Steinway Piano in Germany, General Electric, Coca-Cola, and Geely Safety Razor in the U.S. all famously belong to this category.

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Li, X. M. (2006). Research on Enterprise Environment, Environmental Factors Interaction and Enterprise Evolution. Dissertation, Tianjin University. pp. 91–92. 李晓明. (2006). 企业环境、环 境因子互动与企业演化研究. 博士学位论文, 天津大学. pp. 91–92.

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4.12 Corporate Evolutionary Trajectory With the advancement of time, the morphological characteristics of the firm will continue to change, and the historical process of these changes is the corporate evolutionary trajectory. Corporate evolution is a combined result of external pressure and internal dynamics. When the external pressure is greater than the internal dynamics, the firm will not be able to actively adapt to the changes in the external environment, the relative corporate competitiveness will decline, the corporate scale will be forced to reduce, and the corporate niche will shrink. When the external pressure is less than the internal dynamics, the firm will be able to actively adapt to changes in the external environment, the relative corporate competitiveness will be improved, the corporate scale will increase accordingly, and the corporate niche will gradually expand. Among the influences of the two on corporate evolution, the influence of internal dynamics is greater than that of external pressure, and the final evolution result of the firm is progression or regression, which ultimately depends on the internal dynamics of the firm. The direct external pressure faced by the firm comes from the firm’s niche system, mainly including the pressure on the demand for products and services and the pressure on the supply of resource elements. If the firm properly handles these two pressures, the firm will be able to turn the external pressure into a driving force, the corporate competency will be improved, and the firm will gain continuous competitive advantage. In contrast, if the firm cannot properly handle these two pressures, the normal production and operation of the firm will be seriously affected, the competence of the firm will be reduced, and ultimately the competitiveness of the firm will be weakened. In addition, the factor of human-culture in the corporate niche is also an important factor that affects corporate evolution, which mainly lies in its profound impact on entrepreneurship, enterprise spirit and corporate culture. The internal dynamics of corporate evolution come from the six factors of talents, resources, products, knowledge, institutions, and technology within the firm. Among them, the most important dynamic factor is humans, and among all the humans, entrepreneurs play a leading role. As previously analysed, the entrepreneur plays a crucial role in the growth and development of a firm. The entrepreneur shapes the enterprise spirit and corporate culture and affects the growth of the organisation team through his/her entrepreneurship. The entrepreneur’s learning and innovation spirit will motivate the learning and innovation of the organisation team. Continuous learning and innovation is an important means for internal talents to improve their own ability, and it is an important way for the organisation to continuously improve its quality and overall competence and to gain competitive advantages. Through continuous learning, the organisation can keep pace with the times and adapt to the changes in the external environment. Continuous innovation can optimise the internal environment of the firm and promote the progress and growth of the firm in terms of talents, culture, organisation, resources, products, knowledge, institutions, and technology.

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From the relation between the dynamics behind corporate development (Fig. 4.11), it is evident that corporate production and operations start with production and end with consumption. In this process, the dynamics for corporate development are formed by the two chains of: Chain A (surface factor chain): production → humans → resources → products → consumption Chain B (deep factor chain): production → knowledge → institutions → technology → consumption From the start point and the end point of the firm’s production activity, on the one hand, it is the demand of consumers in the niche that induces the firm to start the production of a particular product; on the other hand, a complete production process ends when the firm produces a product and sells it to customers for their consumption. Therefore, the process of corporate production is actually the response of the firm to the consumption demand in the niche, and it is also the process of the firm’s production supply to the niche. From the actual process of corporate operation, the process of corporate reproduction is a cyclical process that continuously meets the consumption demand of consumers in the niche and creates production supply for them. In terms of the deep factors of corporate operation, this is actually a cyclical process of continuously absorbing consumers’ consumption demand information and creating customer value for them. From the exchange link, there are ceaseless exchanges of information and work between the departments within the firm, and there are also exchanges of personnel, information, materials and energy between the firm and its niche. The information mentioned here includes production and operation information such as demand information, supply information, technical information, and product information inside and outside the firm. The materials mentioned here include the resources provided by the external environment to the firm and the products manufactured by the firm to the external environment. Among them, the supply of products to the external environment by the firm is actually the corporate behaviour of selling products. Whether the firm can smoothly sell its products directly determines whether the firm can successfully realise customer value and obtain corresponding profits; whether the firm can make profits determines the survival of the firm. In addition, whether a firm realises profits in the short-term or in the long-term has different meanings for the reproduction cycle and expansion of the firm. If a firm can realise profits in a short period of time, the entrepreneur can use the profits to expand the scale of production as soon as possible, which enables the firm to gain a favourable position in the competition and win more niche space. The term energy was originally a concept in physics. In the economic system, the corresponding term of energy is currency, which can be expressed as a certain amount of financial capital or a certain amount of circulating funds. In modern society, if a firm can successfully raise the required monetary capital, it is extremely beneficial for its growth. The more money a firm accumulates through production and operation, the more investment opportunities it has, thus giving it more space for development. Therefore, the improvement of

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the exchange level and efficiency between the firm and the external environment has important value and effects on corporate survival and development. From the perspective of distribution, the efficiency of the distribution process and the reasonability of the distribution result determine the potency of the firm’s operation, which directly affects the firm’s efficiency in production and operation and is also related to the competitiveness of the firm. Obviously, highly competitive firms can gain more niche space than firms with weak competitiveness, and they can grow rapidly in a relatively short period of time. Judging from the results of income distribution, income distribution regulates the interest relationship between investors, entrepreneurs and employees, and the reasonability of distribution result affects the subsequent production and operation efficiency and development process of the firm. On the one hand, whether the distribution results can motivate entrepreneurs and employees is directly related to the reasonableness of their income; on the other hand, whether investors can obtain sufficient investment incentives (or capital accumulation) will in turn affect the firm’s ability to reinvest and expand its scale of production. In the income distribution of the firm, if its profit distribution is too much biased toward investors, then entrepreneurs and employees will receive relatively less income, which is not conducive to mobilising the innovation of entrepreneurs and the enthusiasm of employees. Similarly, if the profit distribution of the firm is too much in favour of entrepreneurs and employees, then the returns to investors will be relatively small, which is also unfavourable to motivate investors to reinvest and expand the production scale. Therefore, the improvement of distribution efficiency and rationalisation of distribution in the firm also have important value and effect in the survival and development of the firm. Therefore, from the two links of exchange and distribution, exchange and distribution constitute the two key links in corporate development and evolution. From the internal environment, the firm must obtain resource elements from its niche before production. Whether the firm can obtain the required resource elements depends on the firm’s own resource absorption capacity; incorporating resource elements from the niche into the firm is actually a necessary prerequisite for the smooth development of production and operation. From corporate development, the absorption, cultivation and growth in humans by the firm is mainly reflected in the growth of its organisation team. Based on the above analysis, the two operating chains of dynamics behind corporate development shown in Fig. 4.11 can be described as follows: Chain A: resource absorption → organisational growth → exchange efficiency improvement → distribution level improvement → production and supply capacity enhancement Chain B: information absorption → knowledge accumulation → institutional innovation → technological innovation → customer value growth Chain A reflects the growth of the surface features of the firm, while Chain B reflects the growth process of the essential features of the firm.

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Fig. 4.19 Corporate evolutionary trajectory

In corporate evolution, the above ten aspects are closely linked to jointly promoting corporate growth. If these ten factors are used as ten dimensions to reflect the development and evolution of the firm, the corporate evolutionary trajectory can be drawn (Fig. 4.19). In Fig. 4.19, the 10 dimensions are ➀ resource absorption; ➁ information absorption; ➂ organisational growth; ➃ knowledge accumulation; ➄ exchange efficiency; ➅ institutional innovation; ➆ distribution level; ➇ technological innovation; ➈ production supply; and ➉ customer value. In the process of development and evolution, the firm is growing in these ten aspects, that is, expanding outwards in the ten dimensions. It is not difficult to find that with the continuation of time, the running trajectories of the firm in Chain A and Chain B are two gradually expanding spirals with the same starting point (in Fig. 4.19, the trajectories of Chain A and Chain B are merged). In corporate production and operation, these ten aspects are closely linked and coordinated, so chain A and chain B are developing and evolving in an intertwined spiral shape, which is similar to the double helix structure of biological DNA. The growth and development of the firm is a history of continuous evolution throughout time. From birth, growth to maturity, the firm experiences a process from unity to plurality, from low-level to high-level, and from simplicity to complexity. With the continuous expansion of corporate scale and the growth of the corporate age, the number of departments within the firm is rising, the organisational structure is becoming increasingly complex, and the interrelation and interaction between the components within the firm are becoming cumulatively sophisticated; as a result, the difficulty of management and control is escalating. In the actual economic system, the development of the firm in these ten dimensions is not always synchronised evenly but fluctuates frequently such that some factors

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(i.e., technology) may change quickly, while some (i.e., institutions) may change slowly. Therefore, in fact, the trajectory of corporate development and evolution is not necessarily a smooth and regular spiral. Figure 4.19 also shows the change in corporate niche factors. If “the line segment formed by connecting the points on the spiral with the origin of coordinates, and the area swept by the rotation around the origin of coordinates over time” are used to represent the changes in the corporate niche, then in the growth of the firm from small to large, from weak to strong, its niche also experiences a process from unity to plurality, from low-level to high-level, and from simplicity to complexity. The evolution of the corporate niche and the evolution of the firm proceed are carried out simultaneously through the interaction of the factors inside and outside the firm, forming a two-tiered (i.e., surface and deep) network, which constitutes a multidimensional complex dynamic picture. Figure 4.19 shows that the evolutionary trajectory of the corporate niche is actually a gradually expanding spiral. The firm exists in a particular economic system, and the evolution of the corporate niche is only part of the evolution of its external environment. In fact, the external environment of the firm is also in continuous evolution. The internal evolution of the firm and the evolution of the external environment are carried out at the same time. The two are interrelated, interacted and interinfluenced. External evolution is the condition and prerequisite of internal evolution, and internal evolution is the embodiment and carrier of external evolution. Therefore, the essence of corporate evolution is a process in which the internal factors of the firm and the external niche factors of the firm are continuously coupled over time in the interaction.

Chapter 5

The Meso-Level of the Economic System: The Dynamic Structure and Evolution of the Sector

This chapter briefly describes the core ideas of economic growth theory; distinguishes the basic concepts of industry and sector; puts forward a two-tiered sectoral structural model on the basis of analysing the internal and external environment and constituent elements of the sector; introduces the basic taxonomies of the sector; briefly analyses the differentiation process of the sector; explores the dynamic factors affecting the development of the sector from the angle of structure, and expounds the effect process of human demand on the sector, the long-term evolutionary trend of demand and the important role of core firms in sectoral development; briefly outlines the basic mechanisms behind sectoral evolution from the four aspects of division of labour and coordination, interaction between internal factors and external factors, competition and cooperation, as well as intersectoral interaction; discusses the intersectoral correlation effect and the factor distribution within the sector with the examples of actual sectoral chain; puts forward the concept of overall sectoral competence; describes sectoral life cycle and its development trajectory from the perspective of multifactor correlation and interaction. The main discussions of this chapter are as follows: 1.

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The classical theory of economic growth first expounded the relationship between division of labour, market transactions and economic growth. Classical economic growth theory pointed out that the deepening of the division of labour and specialised coordination is the continuous source of long-term economic growth. This book inherits this important idea. Industry refers to a group of firms that produce similar goods or provide similar services within a certain space-time. The sector refers to a system of firm groups composed of different interrelated industries within a particular temporal and geographical range. Industry and sector are the concepts used to describe firm groups, both of which have temporal and geographical stipulations, but the extension of sector is greater than that of industry. From the external environment of the sector system, the general external factors that affect sectoral development are demand and supply, and the specific factors include firms, resources, markets, knowledge, institutions, and technology. In

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terms of the internal environment of the sector system, sector is composed of the basic factors of firms, resources, markets, knowledge, institutions, and technology. Market is the sum of all commodity transaction (exchange) activities and relationships in commodity circulation and is generally composed of transaction subjects, transaction objects, transaction media, transaction venues, and transaction rules. The book’s view that market is an indispensable factor for forming industry and sector is significantly different from other sectoral economics’ interpretation of sector, and an appreciation of this is helpful in understanding the discussion in this chapter logic. From sectoral operation, the process of sectoral growth and evolution is a cycle of input and output. The actual operating process within the sector can be divided into two chains of input → firm → resources → market → output and input → knowledge → institutions → technology → output, from which the book obtains the general operational structure of the sector. In terms of socioeconomic relations, the complete production relation of a sector system should be composed of its internal production relations network and its external social relations network. Sectors can be classified differently according to different criteria. The main methods include two-class taxonomy, three-sector taxonomy, four-sector taxonomy, standard sector taxonomy, and factor intensity taxonomy. This book adopts four-sector taxonomy. Sectoral differentiation in human society is actually a gradual bifurcation, which is first the differentiation of handicrafts from agriculture, followed by the differentiation of services from handicrafts and agriculture, and then the differentiation of information from services. Sectoral differentiation in human society is in full compliance with the law of bifurcation, which is also a concrete manifestation of the bifurcation law in sectoral evolution. From the external environment of the sector system, the demand of the external environment is the primary force for sectoral development, while the supply of resource elements by the external environment to the sector is a necessary condition for sectorak evolution. The general external factors that affect sectoral development are demand and supply, and the specific factors include firms, resources, markets, knowledge, institutions, and technology. The internal dynamics that drive sectoral development come from the six factors of firms, resources, markets, knowledge, institutions, and technology within the sector. Among them, the most important dynamic factor is the firms inside the sector, and among all the firms inside the sector, core firms play a crucial demonstration and leading role in sectoral growth and evolution. This book then draws the relation between the dynamics for sectoral development. The effect of human demand on the economic system is a dynamic process, which is achieved through the two chains of material demand—agricultural sector- industrial sector- service sector- information sector and mental demand→ knowledge→ technology→ institutions→ cultural education. The book then draws the interaction between social demand and its effect and the evolution of social demand. The evolutionary trajectories of human society’s

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material demand and mental demand are two gradually expanding spirals in the long period of history; in the development of human society, these two spirals are in fact intertwined. 9. A core firm in the industry refers to a firm whose market share is at the forefront of its peers, and at the same time, it is in a predominant and dominant position in terms of price, technology, and institutions. The core firms in each industry lead the development of this industry. In the process of leading industrial growth and evolution, core firms mainly play their role through the two chains of core firms → related firms → entire industry and industrial knowledge → industrial institutions → industrial technology. These six factors are interrelated, interacted, and interinfluenced in industrial growth and evolution, and together they grow into a gradually expanding spiral. 10. In sectoral growth and development, division of labour and coordination, interaction between internal factors and external factors, competition and cooperation, and intersectoral interaction are important mechanisms behind sectoral evolution. (1) The division of labour enables the industries within the sector to specialise, deepen, and refine; coordination can encourage the industries within the sector to connect, complement and coordinate. Sectoral division of labour is actually the concrete manifestation of the bifurcation law in sectoral operation, while sectoral coordination is the exhibition of the synergy law. From a long-term perspective, firms, resources, markets, knowledge, technology, institutions, etc., of the sector are constantly evolving from unity to plurality, from low-level to high-level, and from simplicity to complexity under the combined effect of the bifurcation law and the synergy law. From the economic system as a whole, the exchange (or transaction) network is actually the basic form of the coevolution among the subsystems within the economic system. (2) The interaction and exchange between sectoral niche factors and key sectoral internal factors is not only a pivotal bridge for the external environment and the internal environment to communicate supply and demand but also a general mechanism behind the cooperation, competition, learning and innovation among the firms inside and outside the sector. It is the interactions and exchanges of the factors inside and outside the sector that promote its growth and evolution. (3) In the socioeconomic system, intersectoral competition and cooperation lead to the intersectoral exchange and interaction of humans, firms, resources, markets, knowledge, institutions, and technology, which in turn leads to intersectoral ebbs and flows. Within the sector system, interindustrial competition and cooperation also lead to interindustrial ebbs and flows. (4) From the occurrence sequence of the leading sectors in human society, the leading sectors are agriculture, industrials, services and information. The

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intersectoral interaction, on the one hand, is manifested in the penetration, transformation and promotion of the new leading sector to the original sector, thereby promoting the development of the original sector to a higher level; on the other hand, the original sector also plays a necessary supporting role for the new leading sector in terms of resources, products, and markets. 11. In terms of system, a sector is a complex system that inputs resources and outputs functions. From the input perspective, sectoral input includes resources, firms, markets, and sectoral input relations. From the output perspective, sectoral output includes synergy functions, value-added functions, exchange functions, and sectoral output relations. 12. Sectoral correlation refers to the objective intersectoral linkage formed in production, exchange, and distribution, and its essence is the intersectoral supply-demand relationship. The objective intersectoral correlation effect reflects the synergy function in sectoral development. The actual intersectoral correlation effects require the products (or services) provided by related sectors to perform a dynamic balance in quantity and proportion and to achieve mutual adaptation and matching in terms of technology and quality. 13. Within the economic system, the distribution activities at the meso level are divided into the two levels of the distribution within the industry system and the distribution within the sector system. The distribution within the industry system mainly includes the distribution of industrial elements such as resources, firms and markets; the distribution within the sector system mainly includes the distribution of sectoral elements such as industrial resources, related industries and market systems. In the operation of the sector system, in terms of surface factors, the distribution activities in the sector system are reflected in the interindustrial supply and allocation of the three factors of resources, firms and markets by the external environment, while in terms of deep factors, it is actually a dynamic process of interindustrial absorption, integration, application and innovation within the sector in the three aspects of knowledge, institutions and technology. Within the sector system, the distribution activities of sectoral elements are generally coordinated with government departments through market mechanisms to jointly allocate resources. The distribution organisations of government departments generally include tax organisations, fiscal organisations, and financial regulatory organisations. 14. This book puts forward the concept of overall sectoral competence. Overall sectoral competence refers to the comprehensive competence of firms within a sector to effectively integrate resources, provide products or services, and meet the needs of society. Overall sectoral competence is generally composed of the eight aspects of input, firms, resources, markets, knowledge, institutions, technology, and output. The stronger a sector’s abilities in these eight dimensions, the stronger its overall competence, and the stronger its comprehensive competitiveness. This book then draws the potential energy diagram of sectoral competence, which vividly describes sectoral growth and development.

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15. This book believes that sector also has a life cycle. From the direction and state of sectoral evolution, the sectoral lifecycle can be divided into three stages of growth and progression, stability maintenance, and regression and decline. The decisive force of sectoral progress mainly comes from the social needs of the external environment. As long as human needs exist, the sector will progress continuously. The evolutionary trajectory of sectoral competence is a gradually expanding spiral in the continuous sectoral progression. When the needs of the external environment continue to weaken or even disappear, the sector will regress continuously. The evolutionary trajectory of sectoral competence is a gradually shrinking spiral in the continuous sectoral regression. 16. From sectoral growth and development, sectoral evolution can be described by the two chains of resource absorption → sectoral organisational growth → market exchange efficiency improvement → sectoral distribution level improvement → sectoral competence enhancement and information absorption → industrial knowledge accumulation → industrial institutional innovation → industrial technological innovation → sectoral chain value growth, from which a sectoral evolutionary trajectory can be drawn. The trajectories of the two chains along which the sector develops and evolves are two gradually expanding spirals with the same starting point. The evolution of the sectoral niche and the evolution of the sector are carried out simultaneously through the interaction of factors such as firms, resources and markets inside and outside the sector system, forming a two-tiered (i.e., surface and deep) network, which constitutes a multidimensional complex dynamic picture.

5.1 Classic Theories on Economic Growth In the eighteenth century, the classical theory of economic growth in Adam Smith’s era first expounded the relationship between the division of labour, market transactions and economic growth. Classical economic growth theory pointed out that the deepening of the division of labour and specialised coordination promotes not only the innovation of production institutions but also the standardisation and perfection of transaction institutions, which brings about increasing returns and constitutes a continuous source of long-term economic growth. In 1776, Adam Smith published his masterpiece The Wealth of Nations. In this classic work, he proposed a systematic theory of the division of labour, demonstrated the effect of the division of labour on improving labour productivity, and revealed the role of the division of labour in promoting invention and creation, expanding the scale of transactions and market scope, and improving social welfare. Marx and Engels coauthored a more systematic theory of social division of labour in Die Deutsche Ideologie (The German Ideology) completed in 1846 and further developed the theory in Misère de la Philosophie (The Poverty of Philosophy) and Das Kapital (The Capital). From the perspective of productive labour, Marx examined the social division of labour and expounded

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its beneficial influence on productivity, its restriction on the formation and development of social relations, and its dual impact on human development. By analyzing the contradiction between the division of labour within the capitalist society and the division of labour within the factory, it deeply revealed the basic contradictions in the capitalist society and criticises the capitalist mode of production.1 In his 1928 paper, Increasing Returns and Economic Progress, Allyn Young summed up Adam Smith’s idea of “the division of labour depends upon the extent of the market” as Smith Theorem and suggested that this is “one of the most illuminating and fruitful generalisations which can be found anywhere in the whole literature of economics”; he believed that the division of labour is a cumulative self-expansion, from which he deduced the increasing returns.2 Allyn Young’s mentality of research has become one of the most important sources of ideas inspiring contemporary theories of economic growth. In 1937, Coase analysed the relationship between the choice of individual firms’ specialisation direction and economic growth based on the operating costs of corporate institutions and market institutions. In 1951, George J. Stigler integrated firm theory, theory of competitive advantage and Coase’s theory of the nature of the firm to further discuss the mechanism of increasing returns and revealed that increasing income is a dynamic process that is accompanied by sectoral growth, market expansion, and the continuous deepening of specialisation.3 In 1986, Paul M. Romer combined the three factors of externalities, the production of consumption goods, and the production of new knowledge to explain the relationship between the accumulation of specialised knowledge, corporate technological progress and longterm economic growth.4 In 1988, Robert E. Lucas examined the relationship between specialised human capital accumulation mechanism and economic growth.5 In 1991, Yang Xiao-Kai (1948–2004) and Jeff Borland studied the relationship between the division of labour and economic growth from the micro level of production and consumption. They pointed out that, on the one hand, in the production process, the finer the division of labour, the higher the degree of professional coordination and the higher the labour productivity. On the other hand, in the consumption process, with the deepening of the division of labour, the greater the labour’s dependence on market transactions, and the greater the scope of market transactions, the higher the transaction costs. The negative utility of the division of labour in transactions will offset the positive utility of the division of labour in production, so that economic

1 Yang, F. (2010). Marx’s Theory of Social Division of Labor and Contemporary Values. Dissertation, Wuhan University. pp. 49–65. 杨芳. (2010). 马克思的社会分工理论及其当代意义. 博士学 位论文, 武汉大学. pp. 49–65. 2 Young, A. A. Increasing Returns and Economic Progress. The Economic Journal, 1928, 38(152):527–542. 3 Stigler, G. J. (1983). The Organization of Industry. The University of Chicago Press. pp. 131–144. 4 Romer, P. M. (1986). Increasing Returns and Long-Run Growth. Journal of Political Economy (05). 5 Lucas, R. E. (1988). On the Mechanism of Economic Growth. Journal of Monetary Economics (22).

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growth can reach a stable equilibrium.6,7 In 1993, by discussing the relationship between endogenous transaction costs and the Walrasian price mechanism, Yang Xiao-Kai and Yew-Kwang Ng used the Sequential Equilibrium Model8 to clarify the true connotation of the division of labour transmission mechanism, that is, division of labour—dispersion of information—coordination of price (Walras mechanism)— reduction of endogenous transaction costs—improvement of productivity—evolution of the division of labour.9 They used a mathematical method to describe a microeconomic mechanism of the division of labour and specialisation for economic growth, proved that the extent of the market (per capita trade volume) will increase as the division of labour evolves, and established a formal basis for the extension of Smith’s famous proposition that not only does the division of labour depend on the extent of the market, “but the extent of the market also depends on the division of labor”; The market not only efficiently allocates resources but also sorts out the efficient level of the division of labour, efficient contractual arrangements, efficient number of goods, efficient degree of competition, efficient structure of residual rights, efficient degree of roundaboutness, efficient hierarchical structure of transactions, etc. They also revealed that “the level of social division of labour determines the accumulation speed of specialised knowledge and the ability of human society to acquire technological knowledge, and people’s knowledge of the optimal level of the division of labour determines the equilibrium level of the divison of labour”, “human’s knowledge of the division of labour determines the level of the division of labour, the level of the division of labour determines the ability and productivity of humans to acquire technological knowledge” and other economic principles.10 These classical theories about economic growth were the result of economists’ observation and analysis of economic systems at different times, which revealed some truths about the operation of the human socioeconomic system in different aspects. From the dynamic point of view of social development and the evolution of the economic system, these economists’ findings only reflected the laws of economic growth in a particular region during the time period they observed. The differences in time and space of the research objects make the knowledge they acquired have a certain relativity and particularity. Because of their different basic assumptions and preconditions, their conclusions cannot be simply superimposed and integrated. Nonetheless, the objects studied by these economists are the economic activities of 6

Yang, X. K., Borland, J. (1991). A Microeconomic Mechanism for Economic Growth. Journal of Political Economy (03). 7 The literature in this paragraph is compiled from: Zou, W., Zhuang, Z. Y. (1996). Division of Labour, Transaction and Economic Growth. Social Sciences in China (03):4–12. 邹薇., 庄子银. (1996). 分工、交易与经济增长. 中国社会科学 (03):4–12. 8 A dynamic model created by Wilson and Kreps that allows both parties to choose strategies in chronological order under the condition of information asymmetry. 9 Requoted from: Hu, X. P. (2004). From Division of Labor to Modulization: The Reflection on Economic System Evolvement. China Industrial Economics (09):7. 胡晓鹏. (2004). 从分工到模 块化: 经济系统演进的思考. 中国工业经济 (09):7. 10 Yang, X. K., Ng, Y.-K. (2015). Specialization and Economic Organization: A New Classical Microeconomic Framework. Elsevier. pp. 143, 196–197, 340–341, 362, 471.

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human society after all, which determines that these special cognitions must contain the elements of general laws. To summarise the general laws of human socioeconomic development, it is necessary to carry out a higher-level synthesis and generalisation of the truths they discovered from a system point of view.

5.2 Industry and Sector In a state’s economic system, the meso-level and the meso-macro level are two closely related but distinct levels. The actor at the meso-level is the industry system, while the actor at the meso-macro-level is the sector system. Industry refers to a group of firms that produce similar goods or provide similar services within a certain space–time. The sector refers to a system of firm groups composed of different interrelated industries within a particular temporal and geographical range. Industry and sector are the concepts used to describe firm groups, both of which have temporal and geographical stipulations, but the extension of sector is greater than that of industry. In many economics treatises, the two concepts of industry and sector are mixed, which can easily cause confusion in people’s understanding. Here, it is necessary to distinguish these two concepts. If the analogy of similar concepts in biology is applied, then industry is the population of firms, and sector is the community of firms. For ease of understanding, a sector system can be metaphorised as an orchard, in which different fruit trees grow, each fruit tree represents a firm, and different fruit trees represent firms in different industries. In this orchard, the same type of fruit trees form a fruit tree population, and different fruit tree populations together form a fruit tree community. For example, the apple tree population formed by the apple trees in the orchard can be regarded as an industry. Similarly, the peach tree population formed by the peach trees in the orchard can also be seen as another industry. In this way, different fruit tree populations, such as apple trees, peach trees, pear trees, apricot trees and plum trees, form a fruit tree community. Therefore, a sector system is actually a community of firms composed of different firm populations in a specific geographical area. In fact, some scholars have already introduced related concepts in biology into the research of firms and industries. Firm population is a cluster of firms or products with similar functions in the same geographic region (Hannan and Freeman, 1977; McKelvey, 1978, 1982; McKelvey and Aldrich, 1983). The concept of firm population includes two characteristics: ➀ being in one geographical area; ➁ firm groups with the same or similar product functions. A firm population can also be composed of a group of similar niches, and each niche has one or more firms (Baum and Singh, 1994). There is a relationship of cooperation and competition among the firms within the population. Firm community refers to a group of firms formed by a number of different types of firms or firm populations under particular habitat conditions and interacting with the environment in an unbroken geographical space (Lu Ling, 2001). The concept of firm community

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includes three characteristics: ➀ in a continuous geographical area; ➁ more than two different types of firms or firm populations; ➂ a strong connection between firms or firm populations. The members of the firm community generally include firms in the same region and different industries or firm clusters whose products have alternative, complementary and independent functions.11 From the extension of the concept, industry is a subset of sector. The division between industry and sector is relative, which can also be subdivided according to the needs of research. For example, a state’s sector can be divided into agriculture, industrials and services, of which agriculture can be divided into crop cultivation, animal husbandry, aquaculture, and forestry. Industry and sector are economic organisations between macroeconomics and microeconomics, which are distinctive but interrelated. The sector describes firm populations more in terms of the way of production and organisation, while industry mainly describes firm populations in terms of the types and functions of the products. A sector can utilise products (middleware) of multiple industries to rationally organise production activities in accordance with the principles of economies of scale and scope.12 For example, the automobile manufacturing process consists of the production of engine, chassis, body, steering mechanism, electronic equipment and instrumentation, tires and other components. In the production process of automobiles, it is necessary to use products from many related industries and organise production in a certain way to form the automobile sector. The automobile sector is closely connected with many industries, such as steel, rubber, glass, and electronics. Sector is a historical category. It is produced and expanded with the progress of social productivity and the deepening of the social division of labour. People’s understanding of the sector is also deepening with the development of the social economy. In the different stages of human society, with the deepening of the social division of labour, sectors have gradually formed an interrelated, multilevel, and complex economic system. The social division of labour is usually divided into the general division of labour, the special division of labour and the individual division of labour. General division of labour refers to the division of labour that divides social production into major categories of sectors such as agriculture, industrials, and commerce according to its nature. Special division of labour refers to the division of labour that further divides each sector category into several small industries according to its nature. Individual division of labour is the division of labour within the firm. Historically, the first sectors of human society were formed through the general division of labour, while new sectors are now formed mainly through the special division of labour.13 11

Qian, H. (2004). Niche, Factos Interacting and Organization Evolution. Dissertation, Zhejiang University. p. 7. 钱辉. (2004). 生态位、因子互动与企业演化. 博士学位论文, 浙江大学. p. 7. 12 Zhang, F. (2010). The Division of Labour and Coordination Network and Evolution of Sectoral Organisation. Science Press. p. 7. 章帆. (2010). 分工协同网络与产业组织演进. 科学出版社. p. 7. 13 Chen, X. T. (2007). The Industrial Evolution Theory. Dissertation, Sichuan University. p. 11. 陈 晓涛. (2007). 产业演进论. 博士学位论文, 四川大学. p. 11.

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5.3 The Internal and External Environments of the Sector The sector that exists in a specific socioeconomic environment has both an external environment and an internal environment, all of which have their own hierarchies.

5.3.1 The External Environment of the Sector The external environment of the sector refers to the collection of the factors that exist beyond the boundaries of the sectoral organisation and have an impact on sectoral input and output. The external environment of the sector includes the natural environment and the social environment. The social environment also includes the political, economic, humanistic & cultural, scientific, educational, legal and other environments. In terms of system, sector belongs to the category of the economic system. The external system that contains the sector is vertically composed of the four levels of the economic system, the state system, the social system (international system), and the natural system. Details of the hierarchical relationship of each system in the external environment of the sector are shown in Fig. 4.2 in Chap. 4. The sector is a firm community composed of firms, and the growth and evolution of the sector is manifested in the growth and evolution of the specific firm community. Therefore, sectoral activities can be analysed by studying the economic behaviour of the firm community. In the analysis of the firm system in Chap. 4, it is concluded that the external factors that affect corporate development include the factors from the economic system, the state system, the social system (international system), and the natural system. Among the external factors affecting the development of the firm system, the most direct influence comes from the factors in a state’s economic system, especially from other firms within the sector system. Specific factors include the six categories of humans, resources, products, knowledge, institutions, and technology. From an industry point of view, these six types of factors, whether intraindustrial or interindustrial flow, are realised through the specific interaction (cooperation or competition) of firms. The intercorporate exchange of resources or products is generally realised through market transactions. The influence factors from the state system mainly come from the six systems of a state’s internal political system, economic system, human-culture system, legal system, science system, and education system. These factors are intertwined, interrelated, interacted, and interinfluenced, forming a complex giant system with a threedimensional network structure. The main function of a state’s political system is to provide public services and public goods and to organise, exchange, distribute, and use public rights. The main function of a state’s economic system is to produce, exchange, distribute, and consume material products. The economic system can be divided into different levels in terms of firm, industry, and sector. The main function of

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a state’s human-culture system is the cultivation of human beings and the creation of spiritual culture. The human-culture system not only provides labour and consumption demands for firms but also provides the original core of humanistic-cultural knowledge such as humanistic spirit, values, and ethical morals for entrepreneurship. The main function of a state’s legal system is to regulate the relationships between individuals, individuals and organisations, and organisations and organisations within the state and to maintain the basic social order, fairness and justice. Economic laws and sectoral policies in the legal system have an important impact on corporate development. Scientific studies, scientific experiments and other activities carried out by the science system have an increasingly important role for mankind to understand the world and explore new knowledge. The basic knowledge from the science system lays a scientific foundation for the production and operation as well as technological innovation of firms. The education system plays an irreplaceable role in the cultivation and delivery of talents of all kinds needed by firms; the applied knowledge from the education system constitutes an important factor in corporate production and operation. Specific factors of the state system can also be divided into the six factors of humans, resources, products, knowledge, institutions, and technology, which are all external factors of the firm. Among them, the human resources needed by the firm are generally obtained through recruitment in the human market, and human resources have all kinds of knowledge needed by the firm. Public services and investments provided by government departments can be classified into the external public resources of firms, and the taxes paid by firms to government departments can be regarded as necessary costs paid by firms for consuming public resources. Government departments and households’ demand for corporate products is generally realised through market transactions. Legal institutions, industrial policies, and local regulations from the legal system can all be included in the institutions. Practical technical achievements and technical patents from the Science System can be classified into the technology. The influencing factors of the social system (international system) come from other states and international organisations worldwide, in terms of the six aspects of each state’s internal political system, economic system, human-culture system, legal system, science system, and education system. The influencing factors from an international system are far more complex than those from a state system. These factors are intertwined, interrelated, interacted, and interinfluenced, forming a super complex giant system with a three-dimensional network structure. Although the influences from the international system are quite diverse, when studying the sector, the six aspects at the level of the state system can be examined, generally focusing only on the impact of governments, policies, firms, households, scientific research institutions, universities, and international organisations on firms. For example, the analysis of multinational corporations can focus on the state systems in which they have established branches and then conduct a comprehensive study of all the state systems that have been stationed there. In this way, the key influencing factors from the international system can also be divided into the six factors of humans, resources, products, knowledge, institutions, and technology. For a multinational firm, these

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factors are distributed worldwide. In the current era of globalisation, multinational conglomerates allocate resources on a global scale, employing talents from different states worldwide, integrating resources globally, and selling their products to markets in different regions of the world. Among these factors, the procurement of corporate products by governments, firms, and households in different states and the supply from firms are generally realised through commodity market transactions (i.e., initially international trade, then domestic trade, then wholesale and retail); factors such as investments and loans made by governments, firms and international organisations around the world to firms can be included in the scope of external resources of firms; international conventions, trade agreements, international standards, etc., from the international system can all be included in the scope of the institutions. In addition, the exchanges between a firm and foreign firms, scientific research institutions, universities and other organisations are mainly reflected in the cooperation and competition in knowledge and technology. The influencing factors from the natural system mainly come from the Sun and the Earth. Specific influencing factors are mainly natural resources such as sunlight, air, water, land, minerals, and organisms. The natural environment is the basis for the survival of human society, which restricts the living space and scope of human activities. The abundance of natural resources and the exploitation, utilisation and protection of natural resources directly affect the economic activities of human society. Since the Industrial Revolution, the unrestrained exploitation and utilisation of natural resources by human society has caused many natural resources to face the danger of exhaustion, and waste materials discharged by human production activities have seriously polluted the natural ecological environment. Modern astronomical research confirmed that the Earth is the only planet suitable for human survival in the entire solar system. Studies from the earth sciences also made it clear that waste gas emitted by human production activities has caused atmospheric pollution, acid rain, lake pollution, soil desertification, forest reduction, and the disappearance of certain species. The combination of many factors has deteriorated the planet’s ecosystem. The direct result of the deterioration is first the reduction of clean air, clean water and pollution-free food and then the major changes in the Earth’s climate. The reduction of clean air, clean water and pollution-free food directly threatens the health and survival of human beings. Changes in the Earth’s climate affect the growth of surface organisms, which will directly influence the agricultural production income (mainly food production) of human society. If there is no food such as grain, how can human beings survive? Humans cannot feed their hunger with gold, silver, or coins, can they?! Therefore, human economic activities must consider the influencing factors of natural systems and must limit human production and operation within the range that the natural ecological environment can bear and reproduce. If human society continues to exploit natural resources in a predatory manner without restraint and allows the Earth’s ecological environment to deteriorate, then the fate of the Jurassic dinosaur extinction will also be the future of human society! Based on the above analysis, although there are many external factors that affect sectoral development, they can be grouped into the six categories of firms, resources, markets, knowledge, institutions, and technology. The way in which these factors

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affect the sector can be divided into demand and supply according to the direction of the flow of factors. It is known that the general external factors that affect the development of the firm system are demand and supply. The sum of the external environment’s demand for all firms within an industry (or sector) forms the aggregate external demand for the industry (or sector). The sum of the conditions and resources provided by the external environment to all firms within an industry (or sector) is the aggregate external supply to the industry (or sector). The demand from the external environment is the ultimate driving force for corporate development, while its supply of resource elements required by firms is a necessary condition for firms to carry out normal production and operation. Since an industry or a sector is a group of firms, the demand from the external environment is also the driving force behind the development of the industry (or sector), while the supply of resources required by the industry (or sector) from the external environment is also a necessary condition for the growth and evolution of the industry (or sector). Therefore, the general external factors that affect sectoral development are demand and supply, and the specific factors include firms, resources, markets, knowledge, institutions, and technology.

5.3.2 The Internal Environment of the Sector The internal environment of the sector is an organic system composed of firms, resources, markets and other factors. The factors within the system are interrelated, interacted, and interinfluenced, forming a complex network. The internal environment of the sector has a unique hierarchy and functional structure, which changes continuously with the dynamic changes of the sector. Market is the sum of all commodity transaction (exchange) activities and relationships in commodity circulation and is generally composed of transaction subjects, transaction objects, transaction media, transaction venues, and transaction rules. The market system is a transaction (exchange) system consisting of various professional markets (i.e., commodity market, labour market, capital market, technology market, information market, property rights market, etc.). Each professional market in the market system has its own special function. They are interrelated, interdependent and interrestricted, jointly promoting the evolution and development of the industrial system. Here, transaction subject refers to the individual or organisation that conducts transaction activities (including firm, societal community, and government, etc.). The transaction object refers to the commodity used by the transaction subject to exchange, including products, labour services, capital, technology, information, property rights, etc. The transaction media of human society are initially shells, metals, and common commodities, which gradually evolved into precious metals such as gold and silver. The transaction media of modern society includes currency and credit. Transaction rules refer to the formal or informal rules and regulations that transaction subjects abide by together when conducting trading activities. In

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the formation of the market, the market grew from nothing, the transaction venues developed gradually from mobile venues to immobile venues, the transaction scale continued to expand, and the transaction types became increasingly diversified. With the advent of the information age, markets are becoming more networked and visualised. Today, the buying and selling of commodities can be realised through the Internet. Therefore, many modern markets do not necessarily need to possess tangible transaction venues. China’s e-commerce such as Tmall and JD.com are real cases that provide virtual markets for commodity transactions. Market can be classified separately according to different taxonomies of the market. For instance, in terms of the end-use of the transaction object, the market can be categorised into a productive property market and subsistence market. Regarding whether the transaction object has a physical entity, the market can be divided into a tangible product market and an intangible product market. According to the time attributes of the transaction object, the market can be classified into a commodity spot market and a commodity futures market. It should be emphasised that the market is an indispensable factor for forming industry and sector. This is an important insight I obtained from system theory, and it is also a major difference between this book and traditional economics’ understanding of the sector. On this point, the American economist Allyn Young made a similar view in 1928. “In an inclusive view, considering the market not as an outlet for the products of a particular industry, and therefore external to that industry, but as the outlet for goods in general, the extent of the market is determined and defined by the volume of production”,14 Young said. Young’s expression has long been ignored by the economics community due to its briefness. The main function of the firm is to manufacture products, while the main function of the market is to exchange products. From the historical development process of human society, the birth time of the market is earlier than that of the firm. Before the emergence of modern corporate organisations, the function of material production in human society was mainly undertaken by households (i.e., the men farming and women weaving activities of ordinary households in ancient society). From the basic point of view of this book, the emergence of corporate organisations is the inevitable result of the social division of labour, which is a natural historical process. Since the British economist Coase published The Nature of the Firm in 1937, in which he discovered that, in a market economy, firms not only have a production function but also have an exchange transaction function; Market transactions have costs, that is, transaction cost, so that a group of institutional economists who inherited the mantle of Coase insisted that “the emergence of the firm is a substitute for the market”,15 seeing firm and market are two economic organisations that can replace each other, which is absurd! They comprehended the relationship between the firm and the

14

Young, A. A. (1928). Increasing Returns and Economic Progress. The Economic Journal 38(152):533. 15 Yang, R. L., Hu, Q. (2000). Rethinking the Reasons for the Existence of Firms. Jiangsu Social Sciences (01):1–7. 杨瑞龙., 胡琴. (2000). 企业存在原因的重新思考. 江苏社会科学 (01):1–7.

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market solely from the firm’s transaction cost but ignored its production function, which is the firm’s main function and is irreplaceable by the market. A complete industry generally includes at least the three elements of firms, resources and markets; otherwise, it is not a complete industry. In addition, a firm in the industry must also have basic knowledge, institutions and technology to carry out normal production and operation; otherwise, it will be difficult for the firm in the industry to successfully complete its production and operation. In an industry, the collection of the professional knowledge owned by its internal firms creates the industrial knowledge of the industry. Similarly, in an industry, the collection of the professional technology owned by its internal firms creates the industrial technology of the industry. In the sector system of a state, to regulate the production and operation of the firms in the industry, an industry will often formulate industrial norms or industrial standards (i.e., the hygiene standards formulated by the beverage industry) that have a certain binding force in the industry. The industrial norms or industrial standards here are actually institutional factors at the meso level, which can be regarded as industrial institutions. Therefore, industrial knowledge, industrial technology and industrial institutions are also important factors that constitute the industry. For example, in China’s publishing industry, publishing firms are publishing houses or press companies. The knowledge of communication, editing, publishing and other disciplines mastered by the employees of publishing firms is the industrial knowledge of the industry. The Copyright Law, Publication Management Regulations and other laws and regulations are the basic industrial institutions of the industry. Support technologies such as microcomputers, text editing software (WORD, WPS, etc.), typesetting design software (InDesign, CorelDRAW, PageMaker, etc.), proofreading software (Dark Horse, Woodpecker, Grammarly, etc.) is the industrial technology of the industry. Collecting and selling books, the products of publishers, forms the book market; different types of books form different market segments, i.e., the children’s book market, the novel market and the architectural book market. The term market here refers to the market within the same industry system. The resources of the industry come from the natural system (i.e., land, water, etc.), also the factors from the social system (i.e., personnel, funds, etc., as well as the factors from the state system (i.e., public services, infrastructure, etc.), but more from the economic system (i.e., products and technologies from other industries). Within the economic system, firms in different industries form an interrelational, interactional, and interinfluential network, and the products of one industry often form the resource elements of other industries. For example, bread industrials belong to the scope of light industrials. The factory buildings used in this industry are the products of the construction industry. The processing machinery and equipment employed here are the products of the machinery industry. Wheat, its main raw material, is the product of the agricultural industry. The breads produced from the factory need to be sold through commercial firms such as shopping malls and supermarkets. The machinery industry’s main raw material, steel, requires products from the metallurgical industry. The metallurgical industry’s raw material, ore, requires products from the mining industry.

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During the growth of an industry, among the resources it needs, in addition to services, investment, and franchising from the government, other resources are generally obtained through market transactions. For example, the processing machinery and equipment, the main raw material wheat and other resource elements required by the bread industry can all be purchased from related firms in other industries in the commodity market. The monetary funds used by the bread industry to purchase these resource elements can come from the accumulation of the industry inside or from the financial industry outside. For example, borrowing loans from financial firms (banks) or financing from other firms through a variety of ways (firms can sell part of their equity through the property rights exchange market to obtain the funds they need). Whether it is bank loans or financing from other firms, these behaviours are essentially market transaction behaviour. The difference is only in the transaction approach, the transaction efficiency and the transaction cost. Therefore, market transactions are also an essential element of the sector system. In a state’s economic system, the market has formed a multilevel, diversified market system including the commodity market, labour market, capital market, technology market, information market, property rights market, etc. The term market discussed above refers to the exchange market between different industries. The example of the book publishing industry can still be used to illustrate this point. In the book publishing industry, a paper book usually goes through the following links from the author to the reader: ➀ author → ➁ publication (copyright) → ➂ copyright company → ➃ copyright market → ➄ publisher → ➅ printing factory → ➆ bookstore → ➇ reader. Among them, in link ➂, copyright firms also appear in the form of independent copyright brokers, mainly acting as copyright agents, copyright middlemen and copyright traders, and they often play an important role in international copyright trade. Here, copyright firms, copyright resources, and copyright markets together form the copyright industry. In link ➄, the publishers are mainly engaged in the selection, editing, typesetting, proofreading, printing and distribution of books. The microcomputers they employ are (purchased through the computer market) from the computer industry, the basic software (i.e., Windows, Linux, Netware, etc.) and professional software (i.e., editing software, typesetting software, proofreading software, etc.) and other software they install are purchased through the software market from the software industry. In link ➅, the manuscripts edited and typeset by the publishers are printed with ink on paper by the printing plants. After cutting, folding, gluing and other processes, the manuscripts are finally bound into books. Here, printing firms, printing resources (paper, ink, etc.), and the printing markets together form the printing industry. In link ➆, the publisher’s books are published, displayed and distributed by the bookstore system. Here, bookstore firms, bookstore resources (books, sales venues, etc.) and book markets together form the bookstore industry. Throughout the book publishing industry, with publishers at the centre, from its upstream of copyright to its downstream of printing and bookstore, the copyright market, printing market and book market involved belong to the market within the book publishing industry. However, the computer market and the software market, where microcomputers and basic software are purchased to employ in the book publishing industry, are difficult to include in this industry. From the sector

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Fig. 5.1 Composition of the sectoral internal environment

category, the book publishing industry, computer industry and software industry are all in the information industry. Therefore, the computer market and software market involved here should be included in the exchange market between different industries, and they all belong to the market within the information industry. Through the above analysis, the composition of the sectoral internal environment within a state’s economic system can be drawn (Fig. 5.1). The economic system of a state is an organic system composed of many different sectors. Industries are interrelated, interacted, and interinfluenced, forming a sector system with a complex network structure. Each sector system can be vertically divided into the three basic levels of firm, industry and sector. From the historical development process, the growth and evolution of a state’s economic system is realised through the coevolution of the firm system, the industry system, and the sector system. It is a historical process from unity to plurality, from low-level to high-level, and from simplicity to complexity. In modern society, the basic elements that make up the sector system are industrial clusters, industrial resources and industrial markets. The basic elements that make up an industry system are firm clusters, industrial resources, and industrial markets, while the basic elements that make up the firm system are entrepreneurs, corporate organisations, and corporate resources. In the actual economic system, these factors are all factors that can be observed from experience, so they can be included in the surface structure (explicit factors) of the sector system. Correspondingly, the knowledge, technology and institutions corresponding to these three levels can be included in the deep structure (implicit factors) (Table 5.1). Just as a biological population or community in an ecological environment must adapt to the external environment to survive and develop, an industry or sector also needs to constantly adapt to the external environment in the process of growth and development. When the external environment changes, the internal environment of the industry or sector must be adjusted accordingly until the internal and external

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Table 5.1 Basic hierarchy and deep factors of the sector system Factors

Notes

Basic hierarchy

Knowledge

Technology

Institutions

Sector

Sectoral knowledge

Sectoral technology

Sectoral institutions

Contains common knowledge, technology and institutions of different industries in the same sector

Industry

Industrial knowledge

Industrial technology

Industrial institutions

Contains common knowledge, technology and institutions of different firms in the same industry

Firm

Corporate knowledge

Corporate technology

Corporate institutions

Contains a variety of tangible and intangible knowledge, technology and institutions

environments are coupled. The higher the degree of coupling between the internal and external environments of the industry or sector, the better the survival and development environment of the industry or sector. The coupling process of the internal and external environments of the industry or sector is the process of the growth and evolution of the industry or sector. With the continuous advancement of science and technology, human society will continue giving birth to new industries. In the early days of their birth, the number of firms engaged in the new industry is extremely small, and its production scale is not able to form an industry. However, as the market matures, with more firms joining, when the total output of these firms reaches a certain scale, a new industry is thereby formed. Therefore, innovative firms are the mother of creating new industries. When a new industry is born, the coevolution of all firms in the industry promotes the evolution of the industry. In the growth and development of an industry, the core firms within the industry have an important demonstration and driving role in the evolution speed and evolution direction of the industry.

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5.4 The Constituent Elements and General Structure of the Sector 5.4.1 The Constituent Elements of the Sector Generally, in addition to the three basic elements of firms, resources, and markets, a complete sector must also have knowledge, institutions, and technology, and these six categories of factors are the most basic key elements that make up a sector. These six key factors can be divided into two categories: A. Explicit factors (surface factors): firms, resources, and markets B. Implicit factors (deep factors): knowledge, institutions, and technology. In the previous analysis, it is concluded that the above six factors also exist in the external environment of the sector. An industry (or sector) needs to constantly absorb resource elements from the external environment and internalise them into its own components as part of its growth and evolution. If the external environment does not supply resource elements to the industry (or sector), then the industry (or sector) cannot grow and develop. In a sector system, whether within an industry or between different industries, resource elements are generally realised through business-specific interaction (cooperation or competition), and the exchange of resources or products between firms generally needs to be achieved through market transactions. Without the market, the middleman, it will be difficult for firms to successfully realise the transaction of resource elements, which will also hinder the growth and development of the industry (or sector). Therefore, resources and markets are two necessary factors for the formation of the sector. The normal production and operation of the firm is carried out on the basis of a certain knowledge, institutions and technology, which also determines that the growth and development of an industry (or sector) is also carried out on the basis of a certain knowledge, institutions, and technology. Here, industrial institutions are one level higher than corporate institutions and one level lower than the economic laws and sectoral policies formulated by the state. Its content must not only promote the development of the firms in the industry but also be restricted by national laws and sectoral policies. For example, the industrial institutions of a state’s food industry must comply with the provisions of the national food sanitation law. Douglas North was best known for his work on the important influence of institutions on economic development. In an important paper published in 1968, North noted that,16 there had been no major technological advances, such as flutes replacing sailboats, from 1600 to 1860 that were responsible for the sharp increase in productivity in ocean shipping. The root cause was the changes in institutions and markets, which greatly reduced 16

Xu, J. L. (2001). Thoughts on Dynamic System of Social Development on the Condition of Science and Technology Revolution. Journal of System Dialectics (02). 徐建龙. (2001). 科技革命 条件下社会发展动力系统的思考. 系统辩证学学报 (02).

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the sailing costs. He pointed out that without technological changes, institutional innovations can also improve production efficiency and achieve economic growth.

5.4.2 The General Structure of the Sector The general structure of the sector system refers to the general order and form of interrelation, interaction, interinfluence and interrestriction formed among the subsystems within the sector system in its dynamic evolution. The general structure of the sector system reflects the structural features of the internal elements of the sector system supporting each other in terms of function and is the basis for the coevolution of the external environment system and the sector system, as well as the sector system and its internal elements. The sector is the firm community composed of firms. A firm is an artificial intelligence system with self-learning, self-adapting, and self-organising features and abilities that can constantly adapt its own organisation to changes in the external environment. Sectoral growth and evolution is achieved through the interaction between firms within the sector and between the firms inside and outside the sector, which determines that the sector itself is also an adaptive and self-organising system. From the operation of the sector system, the growth and evolution of a sector is actually a continuous cycle of inputs and outputs. Combining the components of the sector system, the general operational structure of the sector system can be drawn (Fig. 5.2). As shown in Fig. 5.2, the actual operating process of the sector system can be divided into two chains (the solid arrow in the figure): Chain A (surface factor operating chain): input → firm → resources → market → output Chain B (deep factor operating chain): input → knowledge → institutions → technology → output During the operation of the sector system, Chain A reflects the process in which firms in the sector continue to absorb, internalise, and integrate resources through

Fig. 5.2 General operational structure of the sector system

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market transactions. It is also a process in which the number of firms continues to increase and the market system continues to improve; Chain B reflects the process of continuous learning, internalisation, and integration of industrial knowledge and industrial technology by firms in the sector. It is also a process of continuous adjustment of corporate institutions and continuous improvement of industrial institutions. The two processes of Chain A and Chain B are combined into one and jointly realise the input–output process of industrial operation. In the operation of sector systems, core firms within are important role models and leaders. In the actual operation of the sector system, all the factors in the above two chains do not work individually or separately but coordinately and cooperatively. That is, every two factors are interrelated, interacted, and interinfluenced and together form a network of production relations within the sector system. This relationship is represented by a dashed double arrow in Fig. 5.2. In its growth and evolution, a sector has always been communicating personnel, materials, currencies, commodities, knowledge, institutions, technology, and information with its external environment. The relation established between a sector system and its external environment in terms of the natural system and the social system (including the subsystems of human-culture, economy, polity, science, law, education and other systems in the state system) form the social network outside this sector system. In terms of socioeconomic relations, the complete production relation of a sector system should be composed of its internal production relations network and its external social relations network. The process of a sector system’s growth and evolution is essentially a dynamic process of the entanglement, interaction and influence of the two relationship networks inside and outside the sector system. The dual relation networks inside and outside the sector system constitute a multidimensional and complex dynamic picture.

5.5 The Taxonomies of the Sector In a state’s economic system, there are various sectors, and the intersectoral relationships are complex. With the continuous development of human society and the continuous progress of science and technology, a variety of new sectors and industries will continue to emerge. To analyse and study different sectors, the sector must first be classified. It is necessary to introduce the taxonomies of the sector. At present, there are many classification approaches for the sector in Economics, and different states have their own domestic methods for classification. Sectors can be classified differently according to different criteria. The following introduces some of the main taxonomies of the sector.17

17

The sectoral classification methods quoted part of the content of Chen Xiao-Tao’s doctoral dissertation, see: Chen, X. T. (2007). The Industrial Evolution Theory. Dissertation, Sichuan University. pp. 12–14. 陈晓涛. (2007). 产业演进论. 博士学位论文, 四川大学. pp. 12–14.

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5.5.1 Two Class Taxonomy Two Class Taxonomy was proposed by Marx. He divided the material production of society into two great sections: means of production (i.e., Department I) and means of consumption (i.e., Department II). Department I refers to the commodities having a form in which they must, or at least may, pass over into productive consumption, including production tools, equipment, raw materials, and materials; Department II refers to the commodities having a form in which they pass into the individual consumption of the capitalist and working classes, including personal consumer goods.18 Marx’s Two Class Taxonomy is concise and easy to understand. However, this classification did not include all areas of material production and only focused on the production of material products, not the production of mental and cultural products. It is difficult to classify some production departments in reality if this taxonomy is solely applied.

5.5.2 Three Classification of Sector Three-sector taxonomy was originally proposed by A. G. D. Fisher and was widely known after being improved and developed by Colin G. Clark (1905–1989). Threesector taxonomy divides all economic activities of human society into three sectors according to the time sequence of occurrence and the characteristics of labour objects. In 1935, British economist Fisher divided the history of human economic activity into three stages in the book The Clash of Progress and Security. The first stage is the primary production stage dominated by agriculture and animal husbandry, and the corresponding production department (activity) is the primary sector. The second stage is the production stage marked by large-scale industrial development, and the corresponding production department (activity) is the secondary sector. The third stage is a production stage led by services, and the corresponding production department (activity) is the tertiary sector. In 1940, the British economist Colin Clark made it clear in his book The Conditions of Economic Progress that the first sector refers to agriculture in a broad sense, including agriculture, animal husbandry, nomadic husbandry, fishery and forestry. The secondary sector refers to industrials in a broad sense, including manufacturing, construction, communications, coal mining, etc. The tertiary sector refers to services in a broad sense, mainly including commerce, finance, catering and other services, as well as science, education, health care, and other public administrations such as the government. After that, American economist Simon Smith Kuznets (1901–1985) supplemented and improved the Three Sector Taxonomy. In his book Economic Growth of Nations published in 1971, he clearly divided the national economy into three major sectors: agriculture, industrials, and services. Three-sector taxonomy is suitable for analysis and research on the internal 18

Marx, K. Capital (Vol. II). Charles H. Kerr & Company. p. 457.

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relations of the three sector-related changes in economic development and can better reflect the level of a state’s sectoral development in a certain period of time. The taxonomy adopted by China basically belongs to the Three Sector Taxonomy, but it also has some features that are not exactly the same as those of other states. In 1985, China’s National Bureau of Statistics clarified China’s three sectors as follows: First sector: agriculture (including crop cultivation, forestry, livestock and fishery, etc.); Secondary sector: industrials (including extractive, manufacturing, water, electricity, steam, hot water, gas) and construction; Tertiary sector: all sectors except the abovementioned first and secondary sectors, which can be divided into four levels: the first is the services for circulation; the second is the services for production and living; the third is the services that improve the quality of residents in terms of cultural and scientific knowledge level; and the fourth is the services for society and the public.

5.5.3 Four Sector Taxonomy Four Sector Taxonomy is based on Three Sector Taxonomy, proposed by Fritz Machlup (1902–1983) and developed by Mac Uri Porat. In 1962, the American economist Fritz Machlup introduced the concept of the knowledge industry in his book The Production and Distribution of Knowledge in the United States, adding knowledge sector to the three sectors. On this basis, in 1977, the American economist Mac Uri Porat proposed in his book The Information Economy to classify sectors by agriculture, industrials, services, and information. Four-sector taxonomy highlights the importance of information in human economic activities and more accurately describes the increasing degree of informatisation in current human society.

5.5.4 Standard Sector Taxonomy Standard sector taxonomy is the sectoral classification method promulgated by the United Nations to unify the sectoral classification standards of all nations worldwide. In 1971, the United Nations promulgated The International Standard Industrial Classification of All Economic Activities (ISIC), dividing all economic activities of human society into ten sections, each consisting of a purely numerical system at the section (1-digit), division (2-digit), group (3-digit) and class (4-digit) levels. There is a close relationship between the Standard Sector Taxonomy and the Three Sector Taxonomy. The major sectors of the Standard Sector Taxonomy can be easily combined into three parts and correspond to the three sectors. The three parts of the Three Sector Taxonomy can also be subdivided into different sector branches to correspond to the Standard Sector Taxonomy. Standard Sector Taxonomy is relatively complete and has a wide range of adaptability.

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5.5.5 Factor Intensity Taxonomy Factor Intensity Taxonomy is a method of classifying sectors according to the difference in the degree of dependence of sectors on different resource elements in the production process. According to this classification, sectors can be divided into labour-intensive sectors, capital-intensive sectors and technology-intensive sectors. In labour-intensive sectors, the proportion of firms’ dependence on labour is relatively high, while the organic composition of money capital is relatively low. For example, sectors such as the food industry, textile industry, clothing industry, and life services are all typically labour-intensive. In capital-intensive sectors, the proportion of firms’ dependence on capital is relatively high, while the organic composition of money capital is relatively high. For example, sectors such as the steel and petrochemical industries are capital-intensive. In technology-intensive sectors, the proportion of firms’ dependence on technology is relatively high, and their products generally consume less material and have higher added value. For example, sectors such as computers, precision instruments, aerospace engineering and bioengineering are technology-intensive. Factor Intensity Taxonomy can reflect the level of economic development of a state and the relative proportion of different resource elements in the sector.

5.6 The Differentiation Process of the Sector According to the Four Sector Taxonomy proposed by Machlup and Porat, the sector in a state’s economic system can be at least divided into four major categories: agriculture, industrials, service, and information. Each sector category is further subdivided below, and its differentiation process is briefly analysed.

5.6.1 The Differentiation of the Agricultural Sector Agriculture is a sector that uses the growth and development laws of plants and animals to obtain products through artificial cultivation. Agriculture is the source of food and clothing, the foundation of survival, and the basic production activity on which mankind depends for a living. In the national economy, agriculture is the primary sector. The main objects of agricultural production are living animals and plants, and the products obtained are animals and plants. Agriculture in a broad sense includes industries such as crop cultivation, animal husbandry, aquaculture (fishery), and forestry; agriculture in a narrow sense only refers to planting, including the production of food crops, cash crops, fodder crops, green manure and other

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crops. According to the nature of productivity and the level of development, agriculture can be divided into primitive agriculture, ancient agriculture, modern agriculture and contemporary agriculture. Modern agriculture refers to agriculture in which labour tools change from human and livestock to mechanised farm tools, and production activities transform from direct experience to modern experimental science. Contemporary agriculture refers to socialised agriculture, which widely uses modern science and technology, modern mechanised tools and production materials and adopts modern production management methods. With the further development of the division of labour in agriculture, a number of industries continue to be differentiated from agriculture. For example, the orchard industry is differentiated from forestry because of people’s need for fruits. With the professional development of the commodity economy, the orchard industry specialises in apple orchards, litchi orchards, cherry orchards, grape orchards, etc., each of which can be further subdivided into different types. For instance, grapes are divided into different types, such as table grapes, wine grapes, and raisin grapes. With the urbanisation of human society, when people’s consumption demand for milk, cheese, butter and other dairy products is increasing, dairy agriculture differentiates itself from animal husbandry, and dairy farms emerge across the world. The increase in people’s demand for farming cultural experience and agricultural leisure tourism quietly increases agritourism. In addition, following the continuous progress of science and technology in human society, modern technologies are driving agricultural production to a higher level. For example, the application of satellite positioning in agricultural production has led to the emergence of precision agriculture. This technology is to install satellite locators on planters, fertiliser spreaders or combine-harvesters so that the locators can transmit the real-time agricultural information to the control centre for calculation to realise the precise seeding, precise fertilisation and precise harvest, which greatly improves the level of agricultural production. Another example is the application of modern biotechnology with genetic engineering as the core, which leads to the emergence of genetic agriculture, enabling the agricultural production of more new varieties with better quality, higher yield, and more adaptability, thereby enhancing the direct control of mankind on the natural production of agriculture.

5.6.2 The Differentiation of the Industrial Sector The industrial sector refers to the sector that transforms natural resources and raw materials into products after human production and processing. Industrials is one of the most important material production departments in a state’s economic system. It provides raw materials, fuels, power, and production technology for industrials and other departments in the economic system. In the economic system of a state, the industrial sector is also known as the secondary sector. The industrials of human society has gone through the development stages of handicrafts, machinery industrials and modern industrials. In ancient society, the handicrafts were originally a

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sideline of agriculture. However, with the development of the social division of labour, it was not until the late primitive society that handicrafts gradually separated from agriculture and formed an independent production department. By the eighteenth century, the Industrial Revolution in the U.K. gradually transformed the former workshop handicrafts into large-scale machinery industrials; with the advancement of science and technology, from the end of the nineteenth century to the beginning of the twentieth century, industrials entered the modern industrials age. According to the different end-users, modern industrials can be roughly divided into two categories: light industrials and heavy industrials. According to the classification criteria of light and heavy industrials by China’s National Bureau of Statistics, the light industrial sector mainly refers to industrials that provide humans with consumer goods and hand tools. In terms of raw materials, light industrials can be divided into two categories: (1) light industrials using agricultural products as raw materials, such as food manufacturing, beverage manufacturing, tobacco processing, textile, sewing, leather and fur manufacturing, papermaking, and printing; (2) light industrials using industrial products as raw materials, such as cultural, educational, sporting goods, chemical medicine manufacturing, synthetic fibre manufacturing, daily chemical products, daily glass products, daily metal products, hand tool manufacturing, medical equipment manufacturing, cultural and office machinery manufacturing. Heavy industrials mainly refers to the industrial sector that provides the material and technological foundation and main means of production for different departments of the national economy. According to the nature of production and product use, heavy industrials can be divided into three categories: (1) mining industrials, for instance, oil extraction, natural gas extraction, coal mining, metal mining, nonmetal mining, and timber logging; (2) raw material industrials, which refer to the industrials that provide basic materials, power and fuels to different departments of the national economy, such as metal smelting and processing, coking and coke, chemicals, chemical raw materials, cement, wood-based panels, and power, petroleum and coal processing; (3) processing industrials, including machinery and equipment manufacturing industrials which equip departments of the national economy with metal structures, cement products, as well as industrials that provide production materials (i.e., fertilisers and pesticides) for agriculture. With the extensive and in-depth development of the division of labour in the industrial sector, a number of industries continue to be differentiated from the industrial sector. The above classification is only a rough division. In fact, each industrial sector can be further subdivided. For example, machinery industrials can be further divided into industrial equipment and machinery manufacturing industries, agricultural machinery manufacturing industries, and transportation machinery manufacturing industries based on different service targets. Transportation machinery manufacturing can be further subdivided into railway locomotive and vehicle manufacturing, automobile manufacturing, shipbuilding and aircraft manufacturing. Power industrials can also be divided into thermal power industrials, hydropower industrials, and nuclear power industrials. With the progress of science and technology, technological clusters promote the development of modern industrials to a higher level, and some industries have also

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emerged. For example, the wide application of electronic control technology in the industrial field has enabled industrial production to automate the production process based on machine automation. Microelectronics-centric technology clusters have spawned emerging industries, including bioengineering, optical fibres, new energy sources, new materials and robots. In the field of new energy, as humans have mastered the technologies of wind power, solar power and bioenergy generation, the wind power industrials, solar power industrials and bioenergy industrials have emerged naturally. For transportation machinery, with the mastery of new power and aerospace technology, aerospace industrials such as space launch vehicles, man-made earth satellites and manned spacecraft have been developed.

5.6.3 The Differentiation of the Service Sector The service sector refers to the sector that provides and sells service commodities and provides services to society. Compared with products from other sectors, service goods are generally nonphysical, nonstorable and simultaneous with production and consumption. The service sector plays a connecting and coordinating role among different departments in a state’s economic system. The service sector has gone through a long historical process from serving the circulation of goods to serving human life and then further developing to serving production and operation. Commerce is the earliest service sector in human society. Commerce is an economic activity that realises the circulation of goods through exchange activities such as buying and selling commodities. It is generally believed that the commercial activities of human society originated from bartering behaviours in primitive society. To analyse the process of the gradual differentiation of the service sector, let us first understand the development of ancient Chinese commerce. Commercial transactions appeared very early in ancient Chinese society. In the Shang Dynasty, many merchants were engaged in long-distance trafficking in ox carts or boats. By the late Shang Dynasty, merchants specialising in commodity trading had appeared in the capital. Jiang Zi-Ya19 used to slaughter cattle in Chaoge and sold rice for a living in Mengjin. By Western Zhou, commerce had become an economic sector of society and was monopolised by the government. The commodities on the market mainly included crops, silk, jewellery, weapons, cattle, horses, slaves, etc. In the Western Zhou Dynasty, except for shells, copper coins were used as currency. During the Spring and Autumn Warring States Period, a great deal of commodity markets and large merchants appeared; Fan Li (536–448 B.C.), Xian Gao, Bai Gui, and Lü Pu-wei (29–235 B.C.) were all famous merchants at that time. 19

Additionally, known as Jiang Tai Gong, he bore the surname Jiang, and given name Shang. His courtesy name is Zi-Ya. He was an outstanding politician and military strategist during the Shang and Zhou Dynasties in ancient China, who helped the three generations of King Wen, King Wu and King Cheng of Western Zhou politically and militarily. He was known in history as a noble minister if assisting an emperor, a noble monarch if governing a regional state and he has made outstanding contributions to the establishment and consolidation of the Western Zhou Dynasty.

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After the unification of China, the First Emperor of Qin (259–210 B.C.)unified the units of measurement and the forms of currency and built Qin Zhi Dao (the first state highway), all of which promoted the development of commerce. During the two Han Dynasties, with the development of agriculture (crop cultivation), animal husbandry, and handicrafts, commerce gained further development. At that time, the capitals of Chang’an and Luoyang, as well as major cities such as Handan, Linzi, Wan (Nanyang), and Chengdu, all developed into renowned commercial centres. Each city has a shi 市 market dedicated to commodity trading, which is managed by full-time officials established by the government. During this period, the Han Dynasty opened two Silk Roads on land and by sea, which promoted the development of Sino-foreign trade. During the Sui Dynasty, the Grand Canal that ran through the north and the south was excavated, and the development of shipping and transportation promoted the expansion of the scope of commodity circulation. In A.D. 713, in the Tang Dynasty, there was a guifang 柜坊 counter store specialising in currency deposit and lending business (which was actually the earliest prototype of bank in China), and later feiqian 飞钱 flying cash20 appeared. The emergence of guifang and feiqian brought more convenience to commercial transactions. The government of the Tang Dynasty allowed foreign businessmen to trade freely within the territory. For a time merchants from the Western Regions, Persia, and Dashi gathered in the city, making the city of Chang’an a prosperous business. During the Tang Dynasty, rural fairs also developed further, especially near the main roads of water and land transportation. Fairs continued to increase, and some developed into important towns. In the Song Dynasty, the rapid development of agriculture and handicrafts provided a solid material foundation for the prosperity of commerce. The government gradually relaxed restrictions on commodity transactions so that domestic trade, border trade and foreign trade advanced together. The Northern Song Dynasty began to issue the paper money jiaozi 交子 currency (the earliest paper currency in the world). All of these brought unprecedented prosperity to the country’s commerce. Dongjing (now Kaifeng), the capital of the Northern Song Dynasty, had developed into a mega-city with a population of more than one million, with bustling commercial neighbourhoods and professional transaction venues. Along the River during the Qingming Festival, Northern Song painter Zhang Ze-Duan depicted the bustling scene of commerce in Tokyo at that time. Lin’an (now Hangzhou), the capital of the Southern Song Dynasty, had a population of one million in its heyday. It was the largest city in the world at that time. Its booming commerce of nonstop morning and evening markets flooded the city with various stores, restaurants and tea houses. At that time, agricultural products and handicrafts such as grain, bamboo and woodware entered the market and became important commodities. As the variety of goods increased, fairs of all types emerged. Fairs of different types, both regular and irregular and professional and seasonal, appeared in cities. At the same time, commercial Feiqian 飞钱 flying cash, also called bianhuan 便换 easy exchange appeared in the Yuanhe reign of Emperor Xianzong of Tang (A.D. 806), was the oldest type of paper currency for transfer between different places, similar to today’s bills of exchange. It is the earliest bill of exchange in China and the world. See New Book of Tang (Volume LIV)—Treatise on Trade.

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taxes gradually became an important source of government revenue. In the Northern Song Dynasty, dozens of countries in Southeast Asia, South Asia, the Arabian Peninsula and even Africa traded with China. Overseas trade developed even further in the Southern Song Dynasty, and foreign trade taxation became an important source of wealth for the treasury. In the Yuan Dynasty, the redredged Grand Canal connected the shipping from Hangzhou to Dadu, the great capital of the Yuan Dynasty, and at the same time opened up maritime transportation from the Yangtze River estuary to Zhigu (Tianjin) through the Yellow Sea and the Bohai Sea. The Yuan government also set up relay stations at regular intervals, and the Silk Road across Europe and Asia began to prosper again, all of which prompted the continued development of commerce in the Yuan Dynasty. At that time, Dadu was a bustling international commercial metropolis, the city of more than 30 different markets. Caravans came here from Japan, North Korea, Eastern Europe, Central Asia, Southeast Asia, and even the coast of Africa. All kinds of domestic and foreign commodities converged here for busy transactions. During the Ming and Qing Dynasties, the peasant economy and the market became increasingly close, and the commercialisation of agricultural products was developed. The urban economy was unprecedentedly flourishing, and many large cities and rural markets were prosperous. Among them, Beijing and Nanjing were nationwide commercial cities, bringing together specialty products from all aspects. At that time, regional merchant groups emerged throughout the country, among which merchants from Huizhou and Shanxi had the largest number and the most powerful strength. After accumulating commercial capital in the salt industry, Huizhou merchants began to operate in tea, timber, and grain throughout the country. In addition to dealing with bulk commodities and long-distance trafficking, they also managed in financial businesses such as pawnshops. Shanxi merchants also became rich by engaging in the salt industry. After accumulating huge amounts of commercial capital, they gradually began to sell silk, ironware, tea, cotton, wood and other commodities. During the reign of Qianlong Emperor of Qing, Shanxi merchants began to set up piaohao 票号 draft banks, the financial institutions that offered deposits, lending, and exchange services. Shanxi merchants had a wide range of business, even expanding to Japan, Southeast Asia, Russia and other places. In 1882, Shanghai Buffer Stock Company was established, which was the earliest securities trading institution in China. In 1897, the Imperial Bank of China was established in Shanghai, which was the first bank in China. From 1897 to 1911, China opened a total of 20 banks of all types, all of which were stock corporations. In January 1904, the Qing government promulgated The Business Law, which was the first modern commercial law in Chinese history. In 1906, the Qing government promulgated The Bankruptcy Law. The Business Law and The Bankruptcy Lawwere collectively referred to as the Commercial Law of the Qing Dynasty. At this point, China had an independent system of commercial law. Between 1904 and 1908, the number of private firms in China increased rapidly, during which time 272 firms were registered. China’s economic system changed drastically in the late Qing Dynasty, so that the emergence of a large number of new industries bred relevant associations rather quickly. Between 1840 and 1903, a total of 166 associations were established in the four cities of Shanghai, Suzhou, Hankou and Beijing. The Shanghai Business

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Conference Centre was established in 1902, which was China’s first chamber of commerce. From 1902 to 1912, apart from Mongolia and Tibet, there were 998 chambers of commerce in all provinces and regions in China.21,22 Through a rough understanding of the 3,000-year brief history of ancient Chinese commerce from the Western Zhou Dynasty (founded in 1046 B.C.) to the end of the Qing Dynasty (1911), it is apparent that commerce and markets gradually emerged with the progress of commodity exchanges, which were then subsequently differentiated from agriculture and handicrafts to form an independent industry as a result of the development of social division of labour and the appearance of professional businessmen. The growth of commerce and the markets gradually boomed service industries such as transportation, catering, hotel, and finance. With the evolution and expansion of market transactions from simplicity to complexity, from low-level to high-level, from domestic trade to foreign trade, more commodities and industries were involved in commercial circulation and market transactions, thus giving birth to numerous service industries, which infiltrated, transformed and improved all aspects of the production, operation, management, sales and other aspects of agriculture and handicrafts, thereby promoting the continuous deepening, specialisation, and refinement of agriculture and handicrafts, and more industries were differentiated from agriculture and handicrafts. It is such a positive feedback loop that has continuously given birth to more service industries, thus promoting the continuous expansion of the scale and scope of market transactions and the growth and development of the entire social and economic system. In the sector system of the economic system, the service sector is a sector category that includes numerous subdivided industries. In the actual work of China’s current national economic accounting, the service sector is regarded as the tertiary sector; that is, the service sector is defined as the department of all sectors except agriculture and industry. According to China’s 2012 Dividing Basis of Three Sectors for National Economic Activities (GB/T4754-2011) and other standards, China divided the service industry into 15 divisions and 3 major sections: (1) wholesale and retail; (2) transportation, warehousing and postal; (3) accommodation and catering; (4) information transmission, software and information technology services; (5) finance; (6) real estate; (7) leasing and business services; (8) scientific research and technical services; (9) water conservancy, environment and public facilities management; (10) resident service, repairs and other services; (11) education; (12) health and social work; (13) culture, sports and entertainment; (14) public administration, social security and social organisations; (15) international organisations; and services in agriculture, forestry, animal husbandry, and fishery; auxiliary activities in mining; metal products, machinery and equipment repairs in manufacturing. According to 21

Yu, H. P. (1993). Chamber of Commerce and China’s Early Modernisation. Shanghai People’s Publishing House. pp. 76, 134. 虞和平. (1993). 商会与中国早期现代化. 上海人民出版社. pp. 76, 134. 22 The literature in this paragraph is compiled from: Zhao, D. X. (2016). China’s Modern and Contemporary Economic History. Higher Education Press. pp. 62–67. 赵德馨. (2016). 中国近现 代经济史. 高等教育出版社. pp. 62–67.

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the classification methods of the United Nations and the World Trade Organization, the service sector mainly includes 11 divisions: (A) business services (which can be further divided into professional services, computer services, rental services, etc.); (B) communication services (which can be divided into postal services, courier services, telecommunications services, audio-visual services, etc.); (C) construction and related engineering services; (D) distribution services (which can be divided into commission agency services, wholesale services, retail services, franchise services, etc.); (E) educational services; (F) environmental services; (G) financial services (which can be divided into insurance and insurance-related services, banking and other financial services, securities services, etc.); (H) health-related services and social services; (I) tourism and travel-related services; (J) entertainment, cultural and sports services; (K) transportation services (which can be divided into shipping services, inland water transportation services, air transportation services, aerospace transportation services, railway transportation services, road transportation services, pipeline transportation services, transportation auxiliary services, etc.). Social progress and the increasingly specialised social division of labour allow the modern service sector, which has highly intensified intellectual elements, highly value-added output, less resource consumption, and less environmental pollution, to obtain rapid development. The modern service sector is different from traditional services such as commerce, accommodation, catering, warehousing, and transportation and is represented by education and training, finance and insurance, accounting, legal services, information transmission and computer software, leasing and business services, scientific research and technical services and geological surveys, culture, sports and entertainment, real estate, and residential community services. With the extensive and in-depth development of the division of labour in the service sector, a number of industries continued to be differentiated from the service sector. The prevalence of the Internet and its integration with traditional services resulted in a great number of brand new industries of new formats, such as online finance, online ticketing, online recruitment, online matchmaking, and e-commerce. For example, the differentiation of online retails from retails and the combination of online retails and express services have brought more convenient shopping experiences. In the past, people needed to go to bookstores and shops to purchase books and daily necessities, but now they only need to sit at home and shop by browsing the web and clicking the mouse. When selecting products, customers can compare products between a dozen vendors, and the products they ordered can be delivered to their home directly, which is more convenient. For example, when purchasing books on the Amazon website, one can easily select books in different languages and can easily compare the prices, contents and other information of similar books before making an order.

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5.6.4 The Differentiation of the Information Sector The information sector, also known as the knowledge sector, refers to the sector that provides information products and services to society. The information sector in the narrow sense refers to the information service sector, that is, the industries related to information production, collection, conversion, storage, transmission, exchange, distribution, search, usage, and information system construction, including news, publishing, broadcasting, film and television, network, telecommunications, advertising, intelligence, books, audio and video, database, archives, printing and other departments. The information sector in a broad sense refers to all sectors related to information production, storage, circulation, and utilisation, including information service, software technology and information equipment (i.e., computers, communication equipment, televisions, cameras, projectors, cameras, tape recorders, etc.) manufacture. The information sector is a kind of knowledge, technology, and information-intensive sector that was gradually differentiated from the service sector. In a state’s economic system, the information sector belongs to the fourth sector. Since Machlup first proposed the concept of the knowledge sector, scholars have conducted extensive discussions on the concept and scope of the information sector. However, due to different research purposes and perspectives, there are still divergent opinions about the concept of the information industry. The U.S. Department of Commerce classified the information sector into hardware, software and services, telecommunication equipment manufacturing, and telecommunication services in The Digital Economy 2000, published by the United States Department of Commerce in accordance with the country’s 1987 Standard Sectoral Classification. In the North American Sectoral Classification System, jointly formulated by NAFTA (the United States, Canada, and Mexico) in 1997, the information sector was categorized into four industries: publishing, film and audio-visual, radio and television and telecommunications, and information and data processing services. The European Information Providers’ Association (EURIPA) defined the information sector as an electronic information industrials that provides information products and services. The Japan Association for Science, Technology and Economics divided the information sector into software, database, telecommunication and corresponding information services. Although different countries and regions have different classification criteria, in general, the information sector includes the three major parts of information content services, information software technology, and information hardware equipment. As an emerging category, the information sector will develop and change with its connotation and extension as the sector continues to mature. With the division of labor and professional development of the information industry, the information sector will continue to differentiate into smaller industries, and each category of the information industry can be further subdivided. For example, the news industry can be divided into paper newspapers and periodicals, radio news, television news, etc., according to different information carriers. The

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rise of the Internet also led to the creation of network newspapers and periodicals, network broadcasting and network television. Merely news websites can be further subdivided into comprehensive news websites (i.e., Sina.com and Sohu.com) and professional news websites (i.e., Chemical News Network and Building Materials News Network). The book publishing industry can also be divided into paper publishing, electronic publishing, online publishing, and mobile publishing. The continuous progress of technology clusters such as modern communication technology, digital technology and network technology has greatly promoted the penetration of the information sector in more fields and its development to a higher level and has also given birth to some emerging industries. For example, the ecommerce produced by the alliance of the Internet and commercial transactions, the e-government created by the union of the Internet and government administration, the remote diagnosis and treatment driven by the combination of the Internet and medical services, and the distance education staged by the integration of the Internet and education and training. For another example, with the fusion of the Internet with the telephone network and television network and the connection between the Internet and the Internet of Things, smart buildings, smart homes, smart medical care, and smart logistics will enter our lives, which will greatly extend human perception and bring more convenience to life. The modern information sector is rapidly changing people’s studies, work and lifestyles and has a profound impact on human society! ∗ ∗ ∗ Through the above simple analysis of the further subdivision and differentiation of agriculture, industrials, service and information sectors, we will be surprised to find that, from the perspective of long-term historical evolution, the sectoral evolution of human society is very similar to a huge tree that keeps forking and growing: agriculture is its root and trunk, industrials, service and information sectors are larger branches that grow from the trunk, the industries in the major sectors are its finer branches, while the microeconomic organisations such as the firm are the leaves attached to the branches. Agriculture continuously absorbs and transforms natural resources from nature to support the growth of industrial, service and information sectors, while these sectors promote the level of agricultural production and development in turn. This is similar to the roots of the big tree continuously absorbing water and nutrients from the soil to support the growth of the trunk and the branches, while in turn, the leaves on the branches provide energy and power through photosynthesis and respiration to the roots and trunk. From a global perspective, the economic system of every state contains the four major sectors of agriculture, industry, services, and information. However, due to the differences in the sectoral structure, growth stage and development level of the four major sectors, the level of economic development of different states is also different. Similar to the same species of trees that grow in different regions, because of the differences in soil, water quality and climate conditions, they grow into different shapes in different regions. The German philosopher Leibniz once suggested that “no two leaves are ever exactly alike”. In fact, there are no two identical trees in

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the world, which is also the truth for different states that there are no two identical economic systems in the world. In this sense, each state should choose the path that suits its own economic development according to its own national conditions! In summary, it can be concluded that sectoral differentiation in human society is actually a gradual bifurcation, which is first the differentiation of handicrafts from agriculture, followed by the differentiation of services from handicrafts and agriculture, and then the differentiation of information from services. Industries inside each of the four major sectors of agriculture, industrials, services and information are also gradually subdivided from the original sector. Sectoral differentiation in human society is in full compliance with the law of bifurcation, which is also a concrete manifestation of the bifurcation law in sectoral evolution. It is under the effect of the bifurcation mechanism that the four major sectors of human society have realised the growth and evolution from unity to plurality, from simplicity to complexity, and from low-level to high-level.

5.7 Sectoral Development Dynamics There are many factors that affect sectoral growth and development, but in general, they can be divided into internal factors and external factors.

5.7.1 The Dynamic Factors in Sectoral Development From the external environment of the sector system, the demand of the external environment is the primary force for sectoral development, while the supply of resource elements by the external environment to the sector is a necessary condition for sectorak evolution. The general external factors that affect sectoral development are demand and supply, and the specific factors include firms, resources, markets, knowledge, institutions, and technology. From the perspective of the internal environment of the sector system, the sector system itself contains the six factors of firms, resources, markets, knowledge, institutions, and technology. In fact, the most basic key elements that make up the sector system basically correspond to the specific external factors that affect the development of the sector system, but the external environmental factors are more complex and diverse. In the long run, the process of growth and evolution of a sector system is actually a continuous absorption, internalisation, and integration of these elements from the external environment. Therefore, the internal dynamics that can affect the input and output of the sector system can only come from these six elements within the sector system. Therefore, it can be concluded that the internal dynamics that drive the development of sector systems come from the six factors of firms, resources, markets, knowledge, institutions, and technology. Among them, the most important dynamic

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factor is the firms inside the sector, and among all the firms inside the sector, core firms play a crucial demonstration and leading role in sectoral growth and evolution. Through the above brief analysis, it is concluded that the key driving factors affecting the development of the sector system mainly include the following eight categories: External factors: demand and supply; Internal factors: firms, resources, markets, knowledge, institutions and technology. For the convenience of analysis, the internal drivers that affect the development of the sector system are divided into two categories: A. Explicit factors (surface factors): firms, resources, and markets B. Implicit factors (deep factors): knowledge, institutions, and technology. If the internal and external factors that promote the development of the sector system and the sectoral input–output cycle are combined, the relation between the dynamics behind sectoral development can be drawn (Fig. 5.3). In the growth and evolution, driven by the demand and supply factors in the external environment, the sector system carries out a cyclic operation process of input → output → reinput → reoutput. From the internal environment of the sector system, the sector is constantly absorbing, internalising, and integrating in the six aspects of firms, resources, markets, knowledge, institutions, and technology. In this process, the interactions between these six factors in the sectoral niche and the six factors within the sector jointly promote the growth and development of the sector. In the growth and evolution of the sector system, these six factors within the sector do not work individually or separately but coordinately and cooperatively. That is, every two factors are interrelated, interacted, and interinfluenced, and they together form the network of dynamic relations within the sector. This interrelationship is represented by a dashed double arrow in Fig. 5.3.

Fig. 5.3 Relations between the dynamics behind sectoral development

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5.7.2 The Primary Dynamics in Sectoral Development The social production activities of human beings serve first for the needs of human life and ultimately for the needs of human existence and development. Human demand is the primary force for sectoral development. According to Marx’s point of view, in the production activities of human society, the means of consumption and the means of production should be harmoniously proportioned, and only when the production proportions of these two major departments are coordinated can the mass production of the entire society realise a virtuous circle. In terms of system, Marx’s thought is quite insightful. At the current stage of human society, the categories of the sector in the socioeconomic system can be at least divided into the four major sectors of agriculture, industrials, services, and information. In terms of system, these four major sectors should be harmoniously proportioned, and only when the production proportions of these four major sectors are coordinated can the mass production of the entire society realise a virtuous circle. The basis for harmonious proportions of the major sectors of human society is that the products manufactured by all sectors are neither too many nor too few and can just meet the needs of human society within a certain period of time. In a state system, the basis for harmonious proportions of the major sectors is that the products manufactured by all sectors can meet the actual needs of all citizens within a certain period of time. Therefore, it is necessary to analyse the role and transmission process of human demand in the major sectors. The external dynamics for the development of the socioeconomic system comes from human demand, which first acts on the production department of the means of consumption, then passes to the production department of the means of production, and finally returns to the production department of the means of consumption, thus achieving a complete cycle of mass social production. The development of the social division of labour increases the number of sectors and allows human needs to penetrate more sectors. In terms of the sequence of sectoral dominance, this demand first functions on agriculture, then passes to industry to the services to the information, and finally returns to agriculture to realise a complete cycle of mass social production. In this process, with the continuous increase and enrichment of human knowledge, human production technology is also advancing and progressing, as is the economic system, which is persistently updating and developing. In the cycle of social mass production, human needs are constantly increasing and enriching and are developing from low-level needs to high-level needs following the continuous progress of human society, which in turn stimulates production and economic activities to a higher level. Therefore, the effect of human demand on the economic system is actually a dynamic process, which can be analysed through the following two chains: A. demand → material demand → material production → material products B. demand → mental demand → mental production → mental products The core of the mental product of human society is knowledge. The combination of knowledge and production activities produces technology, and in the process of

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coordinating and organising social production, institutions are created. In addition, in the process of mental production, human society is inseparable from the study and inheritance of previous cultural knowledge, so cultural education constitutes an important link in the process of social mental production. Combining the sequence of the emergence of the leading sectors, the effect process of human demand on the economic system can be described as the following two chains: A. Surface factor chain: material demand—agriculture sector—industrial sector— service sector—information sector B. Deep factor chain: mental demand—knowledge—technology—institutions— cultural education If the above ten factors are used as ten dimensions to describe the effect process of demand on the economic system, the interaction between social demand and its effect (Fig. 5.4) and the evolution of social demand can be drawn (Fig. 5.5). In the figure, the ten dimensions are ➀ material demand; ➁ mental demand; ➂ agriculture sector; ➃ knowledge; ➄industrial sector; ➅ technology; ➆ service sector; ➇ institutions; ➈ information sector; and ➉ cultural education. From the surface factor chain of the economic system, the effect process of demand in Chain A forms a cycle, that is, the large solid circle in Fig. 5.4. This process can be described as follows: human material demand → the development of agriculture sector → the development of industrials sector → the development of service sector → the development of information sector → the development of material production, and the development of material production booms human material demand. This process is cyclical. From the deep factor chain of the economic system, the effect process of demand in Chain B forms a cycle, that is, the small solid circle in Fig. 5.4. Fig. 5.4 Interaction between social demand and its effect

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Fig. 5.5 Evolution of social demand

This process can be described as follows: human mental demand → the growth of knowledge → the progress of technology → the update of institutions → the development of cultural education, and the development of cultural education promotes the development of human mental demand. This process is also cyclical. During the functioning of demand and the process of transmission, agriculture, industrials, services, information and other sectors are interrelated, interacted, and interinfluenced. The growth and evolution of each sector is accompanied by the development and progress of human society in the four aspects of knowledge, technology, institutions, and cultural education. The development and progress of knowledge, technology, institutions, and cultural education promote the growth and evolution of the sector, and the growth and evolution of the sector in turn encourage the development and progress of knowledge, technology, institutions, and cultural education, which is cyclical. Therefore, Chain A and Chain B are in fact twining and evolving together. The four major sectors in human society of agriculture, industrials, services, and information continue to grow and evolve over the long period of history, while at the same time, the knowledge, technology, institutions, and cultural education in human society are also developing and progressing, as well as the needs of human society, which are constantly enriched and improved. Therefore, from a dynamic point of view, human society is expanding outward in the above ten dimensions. It is not difficult to find that the evolutionary trajectory of human society’s material needs is a gradually expanding spiral over time. At the same time, the evolutionary trajectory of human society’s mental demand is also a gradually expanding spiral. In the development of human society, these two spirals are in fact intertwined (Fig. 5.5).

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The development of human society increases and expands the needs of human beings. The Hierarchy of Needs Theory proposed by American psychologist Abraham Harold Maslow (1908—1970) in 1943 classified human needs into five rungs of physiological needs, safety needs, belonging and love needs, social needs or esteem needs, and self-actualisation needs. Maslow’s Hierarchy of Needs Theory discussed human needs from the perspective of personal development. However, from the long period of human social history, human needs in each era have the characteristics of that era. In general, the variety of human needs is increasing, and the level of human demand is rising. For example, people in the industrial age have more needs than those in the agricultural age, and people in the information age have more needs than those in the industrial age. The reason lies behind this is that the continuous division of labour in sectors gives rise to more diversified commodities, thus providing people with more consumption options. Like a person living in the seventeenth century, he could not possibly imagine purchasing an automobile, for which had not existed. Every time the emergence of a new leading sector in human society will give birth to a batch of new industries, which will bring brand-new products and services to human society, thereby stimulating new consumption demand. When people’s consumer demand is passed on to the sector again, it will be transformed into the primary force for sectoral development. The principles of modern economics and the history of economic development in developed countries have proven that the continuous increase in social aggregate demand is an objective law of human social and economic development, which reflects the continuous progress of human society as well as its level of social and economic development.

5.7.3 The Role of the Core Firm The sector is the firm community composed of firms. Firm is the basic unit of the sector. Among all the internal factors that drive sectoral development, firms are the most initiative and important. Among all the firms in a sector, the most critical one is the core firm. A core firm often leads the growth and development of a sector. In the actual sector system, nearly every industry has several large-scale core firms that occupy important pivotal positions. In addition, in every core firm, there will always be an outstanding entrepreneur. A core firm in the industry refers to a firm whose market share is at the forefront of its peers, and at the same time, it is in a predominant and dominant position in terms of price, technology, and institutions. From the geographic scope of sectoral development, the core firm can be divided into the three levels of regional, national, and transnational. Microsoft, for example, is a multinational core firm in the global software industry. With the extensive and in-depth development of global economic integration, multinational core firms generally take the form of multinational conglomerates, which often contain many industries, and dominate or dominate the layout and development of these industries in the global market.

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The core firm in each industry leads the development of this industry. The core firm in an industry often represents the predominant position of that industry in its sector and often possesses the most advanced knowledge, technology, institutions, and organisational structure in the industry. The organisational structure, corporate culture, management system and corporate behaviour of the core firm are often mimicked by other firms in the industry. The continuous diffusion of advanced knowledge and technology possessed by the core firm in the industry directly drives the update and development of industrial knowledge and industrial technology. Additionally, the core firm is often the maker of industrial institutions, such as industrial standards and industrial norms. A core firm is naturally generated from market competition, which evolves and grows together with the entire industry as well as other firms within the industry. From the surface factors of industrial evolution, the core firm first drives the growth and evolution of its related firms in the industry that are closely connected with its business and then leads the growth and evolution of the entire industry. From the deep factors of industrial evolution, the reason that the core firm can lead the industry is that it has advanced industrial knowledge, makes use of its superior market position to formulate industrial institutions, utilises these institutions to turn its corporate technology into the leading technology in the industry, and influences the growth and evolution of other firms within the industry in terms of knowledge, institutions, and technology, thus leading the growth and evolution of the entire industry. Therefore, in leading the growth and evolution of the industry, the core firm plays a role through the following two chains: A. Surface factor chain: core firms → related firms → entire industry B. Deep factor chain: industrial knowledge → industrial institutions → industrial technology. In the growth of an industry, these factors are interrelated, interacted and interinfluenced, thus jointly promoting the growth and evolution of the industry. If these six factors are used as six dimensions to describe the process of industrial growth, a map of the positive interaction between core firms, related firms and the entire industry (Fig. 5.6) and their coevolutionary trajectory (Fig. 5.7) can be drawn. In the figure, the six dimensions are ➀ core firms; ➁ industrial knowledge; ➂ related firms; ➃ industrial institutions; ➄ entire industry; and ➅ industrial technology. From a static point of view, the factors in Chain A form a virtuous circle of mutual promotion, that is, the solid circle in Fig. 5.6. This process can be described as follows: the growth of core firms → the growth of related firms → the growth of entire industry, and the growth of industry promotes the growth of core firms. At the same time, the factors in Chain B also form a virtuous circle of mutual promotion, that is, the small solid circle in Fig. 5.6. This process can be described as follows: the progress of industrial knowledge → the progress of industrial institutions → the progress of industrial technology, and the improved industrial technology promotes the progress of industrial knowledge.

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Fig. 5.6 Positive interaction between core firms, related firms and the entire industry

Fig. 5.7 Evolutionary trajectories of core firms, related firms and the entire industry

In the process of industrial growth and evolution, because the above six factors are interrelated, interacted, and interinfluenced, Chain A and Chain B are twining and coevolving.

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From a dynamic point of view, a normally developing industry is continuously growing in these six aspects, that is, consistently expanding outward in these six dimensions. It is not difficult to find that in the industrial evolution from small to large, from weak to strong, the cogrowth trajectory of the core firms, the related firms, and the entire industry is actually a gradually expanding spiral. At the same time, the cogrowth trajectory of industrial knowledge, industrial institutions, and industrial technology is also a gradually expanding spiral. In the development of industrial evolution, these two spirals are in fact intertwined (Fig. 5.7). The growth and evolution of a sector system is accompanied by the collaborative growth and evolution of firms, markets and industries. In this process, corporate evolution, market evolution, and industrial evolution are coupled to each other, forming a mutually coupled coevolution among the three. The growth of any industry will inevitably be accompanied by the growth of the industrial market. As the industry gradually grows, the number of firms in the industry and the number of products produced by the industry continue to increase, thereby promoting the formation and expansion of the industrial market. Therefore, the growth and evolution of the industrial market are embedded in the growth and evolution of the industry. The core firm leads the collaborative evolution of the firms, markets and industries. From the surface factors of the evolution of the sector system, the core firm drives the growth and evolution of its related firms in the industry, and the division of labour and coordination between the core firm and its related firms motivates the intercorporate division of labour and coordination within the industry, which improves the operational efficiency of the entire industry, pushes the industry to provide various products with a greater variety and quantity into the market, and directly promotes the growth and expansion of the industrial market. From the deep factors of the evolution of the sector system, the core firm through its own advanced knowledge, technology and institutions first affects the knowledge, technology and institutions of its related firms, then the knowledge, technology and institutions of the industrial market, eventually the knowledge, technology and institutions of the entire industry. This process actually contains the interaction of knowledge, institutions, technology, etc., between the core firms, related firms, industrial markets and the entire industry. This interactive process can be briefly described in Fig. 5.8. The interaction process of the above three aspects is not separated and isolated from each other but is interrelated, interacted, and interinfluenced. In modern society, the industrial market, by its very nature, can also be regarded as a special type of firm, and its products are to provide transaction services for other firms. Therefore, for the interaction process between core firms, related firms, and industrial markets,

Fig. 5.8 Interactions between core firms, related firms, the industrial market and the entire industry

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please refer to The Interaction between Internal and External Factors in Corporate Evolutionary Mechanism of Chap. 4. Apparently, in the growth and evolution of the industrial market, in addition to the influence from the core firms, the related firms and the entire industry, it will also be affected by other factors outside the industry, especially the other markets in the external environment. Therefore, in pushing the growth and evolution of the industrial market, core firms play a role through the following two aspects: C. Surface factor chain: core firms → related firms → industrial market D. Deep factor chain: {Knowledge} → {Institutions} → {Technology} Among them, {knowledge} includes core corporate knowledge, related corporate knowledge and industrial market knowledge, {institutions} include core corporate institutions, related corporate institutions and industrial market institutions, and {technology} includes core corporate technology, related corporate technology and industrial market technology. From a static point of view, the interaction process of factors on Chain C and Chain D is similar to that shown in Fig. 5.6, which can be represented by large solid circles and small solid circles in the figure, respectively. Factors in Chain C form a virtuous circle that promotes each other. This process can be described as follows: the growth of core firms → the growth of related firms → the growth of the industrial market, and the growth of the industrial market promotes the growth of core firms. At the same time, the factors in Chain D also form a virtuous circle of mutual promotion. This process can be described as: the progress of {knowledge} → the progress of {institutions} → the progress of {technology}, and the improved {technology} promotes the progress of {knowledge}. In the growth and evolution of the industrial market, the above six aspects are interrelated, interacted and interinfluenced. Therefore, Chain C and Chain D are in fact twining and coevolving. From a dynamic point of view, the trajectory of this evolution is similar to that shown in Fig. 5.7, which is also a gradually expanding spiral. That is, in the industrial evolution from small to large, from weak to strong, the cogrowth trajectory of the core firms, the related firms, and the industrial market is a gradually expanding spiral. At the same time, the cogrowth trajectory of this industry’s industrial knowledge, industrial institutions, and industrial technology is also a gradually expanding spiral. In the development of industrial evolution, these two spirals are in fact intertwined. A sector is composed of many industries, and each industry forms a market with its own features, and different industrial markets together form the sector’s market system. The evolution of a sector system includes the coevolution of firms, markets, and industries within the sector. The analysis in Chap. 4 shows that the evolution of the firm is a cyclical helix, while the evolution of the sector is a cyclical super helix. In other words, the evolution of a sector includes numerous cyclical corporate helices, cyclical market helices, and cyclical industrial helices; that is, a large helix possesses multiple small helices, and a small helix possesses multiple micro helices.

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It is clear that the factors affecting the growth and development of a sector actually form an interwoven complex giant system of all levels, all types and all structures.

5.8 Sectoral Evolutionary Mechanism The growth and development of the sector from small to large, from weak to strong, is a process of continuous evolution of the sector over time. In this process, division of labour and coordination, interaction between internal and external factors, competition and cooperation, and intersectoral interaction are important mechanisms behind sectoral evolution.

5.8.1 The Division of Labour and Coordination In sectoral input–output operations, the division of labour and coordination are the two most basic and necessary mechanisms. In an economic system, the division of labour and coordination of the sector also include further division of labour and coordination of the industries. The division of labour enables the industries within the sector to specialise, deepen, and refine; coordination can encourage the industries within the sector to connect, complement and coordinate. If there is no division of labour and coordination, no sector can smoothly grow and evolve from weak to strong. Sectoral division of labour is actually the concrete manifestation of the bifurcation law in sectoral operation, while sectoral coordination is the exhibition of the synergy law. In the economic field, the phenomenon of continuous bifurcation of sectors has been noticed for a long time, which can also be confirmed by the fact that the classification of sectors by economists increases with the development of society. For example, in the 1860s, the sectors of human society were relatively primitive and simple, so Marx divided the production department of society into two major categories: the means of production and the means of consumption. By the 1930s and 1940s, the sectors of human society began to become more complex, and the service sector had been greatly developed. Therefore, Fisher and Colin Clark divided social and economic activities into three major sectors: agriculture, industrials, and services. By the 1960s and 1970s, the sectors of human society were becoming more sophisticated, and the information sector was flowering. Therefore, Machlup and Porat further divided the sectors into four major sectors: agriculture, industrials, services, and information. Compared with the bifurcation mechanism, the understanding of the synergy mechanism in economic activities is insufficient. The long-term separation of microeconomic theory and macroeconomic theory in economic research, for example, is actually a concrete reflection of this status quo.

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From historical development, the four major sectoral departments of agriculture, industrials, services, and information in human society have been differentiated from the original sectors and have gradually progressed with the development of the social division of labour. At different development stages of human society, these four major sectors successively dominated the economic activities of human society. In fact, under the effect of the bifurcation law, each of the four major sectors has further differentiated into more detailed industries. For example, primitive agriculture evolved from the initial gathering-hunting activities to crop cultivation, animal husbandry, fishery, handicrafts, etc. The handicrafts were divided into clay handicrafts, bamboo and wood handicrafts, stone handicrafts, weaving handicrafts (the materials were branches and vines at first, then kudzu, hemp, and silk, etc.). From a long-term perspective, firms, resources, markets, knowledge, technology, institutions, etc., of the sector are constantly evolving from unity to plurality, from low-level to high-level, and from simplicity to complexity under the combined effect of the bifurcation law and the synergy law. Such changes, for instance, occurred in sectoral organisation, technology, and institutions during the industrialisation of western developed countries from the mid-nineteenth century to the mid-to-late twentieth century. Before the middle of the nineteenth century, the sectoral organisation was in the simple form of workshop, the production technology was featured with horizontal division of labour, the institutions were the apprenticeship formed between the workshop owner and the employee, and the representative industry was tool manufacturing. From the middle of the nineteenth century to the beginning of the twentieth century, the sectoral organisation evolved into the mechanised factory dominated by the linear organisation (U-shaped organisation), the production technology was the large-scale production with vertical division of labour, the institutions were the centralised hierarchical management system, and the representative industries were the textile as well as machinery and equipment manufacturing. From the beginning to the middle of the twentieth century, the sectoral organisation evolved into the large-scale modern firm dominated by the decentralised divisional organisation (M-type organisation), and the production technology was the mass customisation production (Ford-style production) that combines vertical and spatial division of labour. The institutions were the decentralised hierarchical management system, and the representative industries were the steel and the automobile manufacturing. In the mid to late twentieth century, the sectoral organisation evolved into network organisation (i.e., sectoral networks of firm clusters, firm alliances, sector zones, etc.), and the production technology was flexible production and outsourcing production that combines vertical, spatial, and modular division of labour, the institutions were the network management system that combines hierarchy and market, and the representative industries were automobile manufacturing and computer manufacturing.23

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Deng, Z. T. (2009). A System Economic Analysis of Production Network. Shanghai Journal of Economics (09):45. 邓智团. (2009). 产业网络化的系统经济学解读: 以计算机全球生产网络为 例. 上海经济研究 (09):45.

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Section 5.1 briefly introduced the classical theories on economic growth. On this basis, the general laws of economic development are expounded from the interrelations between the division of labour, market and sectoral development. First, it is necessary to introduce the concept of the sectoral chain to illustrate the issue. The sectoral chain refers to a group of production and operation network organisations from resources (including natural resources and social resources) to final consumer goods through the demand chain, supply chain, technology chain, information chain, etc., with the corporate chain as the carrier and the value chain as the basis. Here, the corporate chain refers to the intercorporate connection formed by the actual supply–demand relation in production and operation. The value chain refers to the dynamic link in which a firm creates value in production and operation. The value connections between business units within the firm constitute the value chain of the firm. The value links between upstream and downstream related firms within the industry constitute the industrial value chain. The interindustrial value connection within the sector constitutes the sectoral value chain (network). The demand chain refers to the demand relationship chain formed by the demand for corporate products (or services), including the consumer demand chain and the producer demand chain. Supply chain refers to the supply relationship chain formed by providing resource elements for firms in the process of production and operation. The technology chain refers to the technology connection between firms and their upstream and downstream links in the same sectoral chain, including the technical standard chain, product technology chain and technical service chain. Information chain refers to the relation of information exchange between firms and consumers, firms and firms, firms and governments, and firms and other social organisations, including demand information chain, supply information chain, knowledge information chain, institutional information chain, technological information chain, etc. In the actual economic system, the extent of development, growth and perfection of the sectoral chain reflects the development degree of the sector system. Generally, the longer a sectoral chain of a sector system, the more complete the sectoral level, the closer the production links, and the more harmonious the division of labour and coordination among its internal corporate chain, demand chain, supply chain, technology chain, and information chain, the smoother the exchanges of personnel, resources, commodities, funds, and information inside and outside the sector, and the higher the development level of this sector system. Here, we borrow the sectoral chain cobweb model proposed by Wu Jin-Ming and Shao Chang (Fig. 5.9) to illustrate the general process of sectoral growth and evolution in the economic system. In Fig. 5.9, the A axis represents the perfection of market transactions, where A3 > A2 > A1 indicates the continuous improvement of market transactions; the B axis represents the development of the sectoral chain, where B3 > B2 > B1 indicates the continuous improvement in the development level of the sectoral chain; and the C axis represents the specialisation of the social division of labour, where C3 > C2 > C1 indicates the continuous deepening of the specialisation of the social division of labour. The origin O, where the three coordinate axes intersect, represents the initial

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Fig. 5.9 Cobweb model formed by sectoral chains24

state where there is neither a social division of labour nor market transactions nor the birth of a sectoral chain. The existence of C1 (social division of labour) promotes the generation of A1 (market transaction), which needs B1 (sectoral chain) to connect. The birth of B1 encourages the further specialisation of the social division of labour, evolving from C1 to C2 . Accordingly, under the influence of C2 , the market transaction develops from A1 to A2 , which in turn advances the development of the sectoral chain from B1 to B2 . On the same principle, B2 fosters the development of C2 to C3 , then C3 stimulates the development of A2 to A3 , and A3 boosts the development of the sectoral chain from B2 to B3 … This process continues cyclically, thus realising the ongoing perfection of the market transaction institutions, the constant expansion of the market transaction scale, the sustained extension of the sectoral chain, and the steady growth of sectoral development. The sectoral operating mechanism reflected in this model is actually a vivid description of the division of labour, market transactions, and economic growth expounded by economists from Adam Smith to Yang Xiao-Kai. From the growth and evolution of the sector system, the specialisation of division of labour first begins within economic units, then between economic organisations, Source: Wu, J. M., Shao C. (2006). Research on Formation Mechanism of Industry Chain: “4 + 4 + 4” Model. China Industrial Economics (04):38. 吴金明., 邵昶. (2006). 产业链形成机制研 究——“4 + 4 + 4”模型. 中国工业经济 (04):38. The cobweb model diagram drawn by Wu JinMing and Shao Chang is very imaginative, and it is this diagram that inspired many of the author’s thinking in terms of sectoral development. Einstein once said, “imagination is more important than knowledge. For knowledge is limited, whereas imagination embraces the entire world, stimulating progress, giving birth to evolution”, and “it is, strictly speaking, a real factor in scientific research”, which is very true! 24

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finally between industries and sectors when markets and industries emerged. This is an uninterrupted level upgrade of the specialisation of the division of labour. The specialisation of the division of labour not only improves production efficiency but also promotes the continuous increase in product categories. To meet diversified consumer needs, there is a need to exchange products. With the maturing of product exchange, the market is born and prospered naturally. The development of market exchange then nurtures the specialisation of the division of labour between the individuals, between the individuals and social groups, and between different social groups, thereby advancing the formation and growth of the sectoral chain. The growth and extension of the sectoral chain includes the value-added process of the value chain inside the sector, so the growth of the sector generates economic growth with increasing returns. As early as the Neolithic Age, a natural division of labour based on sex appeared in the production activities of human society. Anthropologists have studied the Yangon Temple in Huainan County and Beishouling Tombs in Baoji (early Yangshao culture, approximately 5000–4000 B.C.) in Shaanxi Province and found that at that time, men were mainly engaged in tool making, hunting and some agricultural activities, while women were engaged in agriculture, textile and sewing activities.25 From the point of view of economic history, human society already had some kind of division and specialisation according to gender and age in the most primitive tribes, but this kind of division and specialisation is very superficial.26 In the late primitive society, with the deepening of the social division of labour, the handicrafts gradually separated from agriculture to an independent production department. Approximately 3500–3000 B.C., stone and pottery were professionally produced in handicraft production by some social groups in China. For instance, stone workshops in Honghuatao in Yidu, Hubei Province and Xiawanggang, Xichuan, Henan Province, and pottery workshops in Baidaogouping, Lanzhou, Gansu Province, were both large-scale handicraft bases at that time. These stoneware and pottery were all produced for exchange.27 For another example, at approximately 3,500 B.C., jade smiths specialising in jade ware were differentiated from stonemasons in eastern China, and at approximately 3500–2700 BC, Chinese society already had a copper industry and coppersmiths who mastered copper smelting techniques.28 After the emergence of the state, the specialisation of the social division of labour further advanced, and society was divided into 25

Su, B. Q., Zhang, Z. P., Yan, W. M. (eds.). (2014). China Ancient Times. Shanghai People’s Publishing House. pp. 77–78. 苏秉琪 (ed)., 张忠培., 严文明. (2014). 中国远古时代. 上海人民出 版社. pp. 77–78. 26 The literature in this paragraph is compiled from: Zou, W., Zhuang, Z. Y. (1996). Division of Labour, Transaction and Economic Growth. Social Sciences in China (03):7. 邹薇., 庄子银. (1996). 分工、交易与经济增长. 中国社会科学 (03):7. 27 Su, B. Q., Zhang, Z. P., Yan, W. M. (eds.). (2014). China Ancient Times. Shanghai People’s Publishing House. pp. 489–491. 苏秉琪. (ed)., 张忠培., 严文明. (2014). 中国远古时代. 上海人 民出版社. pp. 489–491. 28 Su, B. Q., Zhang, Z. P., Yan, W. M. (eds.). (2014). China Ancient Times. Shanghai People’s Publishing House. pp. 407–409. 苏秉琪 (ed)., 张忠培., 严文明. (2014). 中国远古时代. 上海人民 出版社. pp. 407–409.

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different classes, such as farmers, craftsmen, merchants, soldiers, and officials. The book Kaogong ji《考工记》Artificers’ Record, which was written between the end of the Spring and Autumn Period and the beginning of the Warring States Period, described the contents of 30 work types in six categories, including pottery, carpentry, jade, gold, leather, and dyeing, reflecting the division of labour and technology of the state-owned handicrafts in the Qi at that time; Among them, “the knives of Zheng, the axes of Song, the pen-knives of Lu, and the double-edged swords of Wu and Yue are famous for their origin. In no other places, can one make these things so well. This is natural because of the qi of the Earth”, which in fact pointed out the regional division of labour and comparative advantages of the vassal states at that time in terms of handmade products. With the professional progress of agriculture and handicrafts, commerce began to rise, and market transactions gradually flourished. In the era of traditional agriculture, a household was a production unit, and the division of labour that men farming and women weaving was formed. When landlord manors later appeared, the specialisation of the division of labour had been further developed. According to Simin Yueling《四民月令》Eastern Han Monthly Instructions for the Four Classes of People, the landlord farms in Luoyang at that time were not only engaged in cultivation (i.e., ploughing, sowing, split planting, hoeing, irrigation, and harvesting, etc.), sericulture (i.e., planting mulberries, raising silkworm, spinning, weaving, dyeing and making silk, etc.), brewing (i.e., wine, sauce) and other cottage handicrafts but also used crops, textiles, and silk as commodities for commercial transactions. In the landlord’s farms, the division of labour such as needlework (female workers specialising in spinning, knitting, weaving, dyeing, etc.), female cooks (specialising in food preparation and cooking), silkworm nurseries (specialising in sericulture), and seamstresses (especially in charge of sewing, disassembly and washing) already exist.29 The landlord farm here is actually a small family farm integrating agriculture, indutrials, and commerce. In the feudal dynasty, government-run workshops and businesses were actually the firms in ancient society, but the main target of their services was the feudal ruling group. To explain the evolution of market transactions, the illustrations of Yang Xiao-Kai and Yew-Kwang Ng (Fig. 5.10) are used here to elaborate this process. Figure 5.10 depicts the evolution of market transactions in which individuals develop from self-sufficiency to the exchange of four products with the maturation of the division of labour. In the figure, the thin line represents the product flow, the arrow represents the direction of the product flow, the number next to the thin line represents the product involved, and the circle with the number i represents the individual who sells product i. In Fig. (a), individuals each produce the goods they need for their own consumption (i.e., self-sufficiency). In Fig. (b), they each sell one other individual their own product, each purchase one product from that one, and each produce three products for their own. In Fig. (c), they each sell two other individuals their own product, each purchase two products from the other two, and each produce two products for Shi, S. H. (1980). A Review of Ancient Chinese Agricultural Books. China Agriculture Press. 石 声汉. (1980). 中国古代农书评介. 农业出版社.

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Fig. 5.10 Coevolution of the division of labour and market synergy30

their own. In Fig. (d), they each produce one product for their own and sell it to the other three individuals, and each purchase three products from the other three, which means that four products are all involved in the transaction. Fig. (a) and Fig. (d) describe the evolution of market transactions under different divisions of labour, from self-sufficiency, partial division of labour, to complete division of labour. As shown in Fig. (d), in a state of complete social division of labour, the market forms an interrelated transaction network. In the above coevolution of the division of labour and the market, it is actually possible to replace the subjects involved in product sales from individuals to households, landlord manors, natural villages, market towns and even cities to examine market evolution in the traditional agricultural era. The collaborative evolution between the division of labour and the market is an interactive process. On the one hand, the social division of labour promotes the formation and market evolution, and the market is an inevitable product of the development of the social division of labour and commodity exchange. On the other hand, during its development and growth, the market also promotes the further development of the social division of labour and commodity exchange. In the early stages of human society, people produced and consumed very few products. At that time, the degree of social division of labour and the level of commodity exchange were quite low. People’s commodity exchange activities had neither a fixed place nor a fixed time nor common transaction routines and norms. With the enrichment of commodity exchange types and the increase in exchange frequency, trading activities have gradually developed from irregular locations and times to regular locations and times, 30

Yang, X. K., Ng, Y.-K. (2015). Specialization and Economic Organization: A New Classical Microeconomic Framework. Elsevier. p. 191. Figure 7.2. The Evolution of the Division of Labor.

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and the market has gradually progressed from unorganised to organised, from simple to complex, and from low-level to high-level. People learn the supply and demand of commodities through exchange activities in the market, which directly affects the type, quantity, launch time and marketing strategy in terms of the commodities people produce. The market connects producers, distributors and consumers in the development of the commodity economy and provides exchange places, exchange times and other conditions for producers, suppliers and distributors. With the emergence of professional merchants, commerce differentiated from agriculture and handicrafts and continued to develop. Commerce connects the originally self-sufficient natural villages, market towns and cities and continuously expands the extent of the market, thus forming a crisscross market trading network. From the geographical space, with the development of the social division of labour and commercial circulation, the scale and scope of market transactions are constantly expanding. In the agricultural age, commodity transactions were first carried out within natural villages, thus shaping village fairs. When commodity transactions arose between natural villages, village fairs were formed. Commodity transactions between villages and towns within a certain area promote the birth and growth of urban commodity transaction networks, and the maturation of commodity transactions between urban and rural areas gives rise to the formation and development of urban markets. Commodity transactions between different cities have resulted in larger regional markets. Within a state, with the development of road traffic, interconnections between the isolated regional markets are realised such that the market network is connected vertically and horizontally from part to the whole, and finally, a national transaction network is formed. International trade is initiated when commodity transactions cross national borders between countries. The continuous growth of international trade then drives the formation and development of the world market. From the process of market evolution, it is obvious that it is the development of road traffic, shipping traffic and the invention of new means of transportation that have played an important role in encouraging the interconnection between regional markets and the continuous expansion of market transactions. From the process of market development, the internal factors that promote the expansion of the market scope mainly include knowledge, institutions and technology of market transactions. The progress of human society in road traffic, shipping traffic and new means of transportation can be regarded first and foremost as technological progress in the field of commercial circulation, and in a broader sense, they can also be included in the scope of technological advancement in market transactions. In modern society, in terms of sectoral division, a state’s economic system contains subsystems such as agriculture, industrials, services, and information. Within every sector system, there are three levels of sectoral organization, which, from low to high, are the intracorporate synergistic network, the intraindustrial synergistic network and the intrasectoral synergistic network, each forming a synergistic network. Inside a firm, there is an exchange network of the division of labour and coordination between the departments (or branches) within the firm, and it is the entrepreneur who leads the coordination. Outside a firm, there are three levels of market transaction networks, which, from low to high, are the intercorporate market transaction

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network, the interindustrial market transaction network (system), and the intersectoral market transaction network (system). In the hierarchical market transaction network, the leaders who play a synergistic role are firm organisations, core firms in the industry, and core conglomerates in the sector. Therefore, from the economic system as a whole, the exchange (or transaction) network is actually the basic form of the coevolution among the subsystems within the economic system. In summary, the hierarchy of the bifurcation and synergy mechanisms of the economic system can be concluded as follows (Table 5.2). Under the action of the bifurcation and synergy mechanisms, the intersection and integration of new industries and new industries, new industries and old industries in a state’s economic system will occur, thus giving birth to a batch of new industries. These new industries cross-integrate with other new and old industries and bring forth more brand new industries. Interrelated industries form a sector, and sectors will continue to intersect and integrate with each other, thus giving birth to a number of new sectors, which in a wider range and deeper level, are cross-integrated with sectors in other states or regions and will bring forth a number of newer sectors. This intersection, fusion, and innovation will continue in cycles, similar to the mating, breeding, and reproduction of animals in nature. In this process, exchanges in terms of personnel, resources, commodities, funds, and information are always in progress between different firms, industries, and sectors to enhance the self-adjustment and self-adaptability of the internal environment of the firms, industries and sectors and to evolve to a more advanced order. Over time, the economic system of a state has gradually realised the evolution from unity to plurality, from simplicity to complexity, and from low-level to high-level. In the operation of the sector system, the firms, resources, products, knowledge, technology, institutions and other factors of the sector are interrelated, interacted, interinfluenced and interrestricted. Each factor plays a role in the influence and Table 5.2 Hierarchy of the bifurcation and synergy mechanism of the economic system Large system Smaller systems are formed after the large system is bifurcated

Synergistic hierarchy and modes within each sector system

Synergistic Dominator of hierarchy and Synergy modes between the subsystems within each sector

Economic System

Intrasectoral synergistic network ↑ Intraindustrial synergistic network ↑ Intracorporate synergistic network

Intersectoral Core conglomerates market transaction in the sector network (system)

Information

Services

Industrials

Agriculture

Interindustrial Core firms in the market transaction industry network (system) Intercorporate Firm organisations market transaction network (system) Corporate internal Entrepreneur exchange network

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restriction of other factors, and the change of any one of them will cause the change of other factors to varying degrees. For example, new discoveries of humans in basic knowledge often lead to the birth of new technologies (i.e., human understanding of atomic structure leads to the birth of nuclear energy technology). The birth of new technologies will inevitably cause changes in various aspects, such as firms, industries, resources, markets, and institutions, and vice versa. Apparently, at different stages of sectoral development, the relative positions of these factors are not fixed but are often in alternation. For example, in a particular period of time, technology plays a leading role in sectoral development, while in another period, institutions become dominant. Therefore, when studying sectoral development, it is necessary to analyse from a dynamic perspective. From the factors inside the sector, at least these six issues need to be addressed simultaneously, rather than just focusing on one of them.

5.8.2 The Interaction Between Internal and External Factors A sectoral niche is the specific resource collection that a sector occupies in the socioeconomic environment to support its survival and development. The niche of an industry can be regarded as the sum of the niches of the many firms that make up the industry. The niche of a sector can also be considered the sum of the niches of the many industries that make up the sector. The formation, change and expansion of the sectoral niche are the result of the interaction between the sector and the external environment, as well as the result of the competition and cooperation between many factors inside and outside the sector. In the previous analysis of the factors that affect sectoral development, it is concluded that the general external factors are demand and supply, while the specific factors include the six factors of firms, resources, markets, knowledge, institutions and technology. These six factors are also the most basic key elements that constitute a sector. It is known that sectoral growth and evolution is actually a process of constantly absorbing, internalising and integrating these six elements. Therefore, it can be judged that in the sectoral niche, in addition to the two general factors of demand and supply, the six specific factors including firms, resources, markets, knowledge, institutions, and technology are important factors that affect the growth and evolution of the sector. How do these sectoral niche factors affect sectoral growth and evolution? The interaction and exchange between sectoral niche factors and key sectoral internal elements (factors) is not only a pivotal bridge for the external environment and the internal environment to communicate supply and demand but also a general mechanism behind the cooperation, competition, learning and innovation among the firms inside and outside the sector. It is the interactions and exchanges of the factors inside and outside the sector that promote its growth and evolution. Chap. 4 has already analysed the general mechanism of cooperation, competition, learning and innovation among firms, which is no longer repeated here. The

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exchanges of supply and demand between the external and internal environments of the sector are similar to the exchanges of supply and demand between the internal and external environments of the firm. However, the main body of the exchange activities in the firm is the humans, and the main body of exchange activities in the sector is the firms and other economic organisations. The exchanges of supply and demand inside and outside the sector are more complicated than the exchanges of supply and demand inside and outside the firm. In the process of sectoral growth and evolution, in addition to the interaction of cooperation, competition, learning and innovation among the firms inside and outside the sector, such interactions take place between the industries within the sector and between the firms within the industry. At the same time, exchanges and interactions also take place between the markets inside and outside the sector, including exchanges in resources and products, as well as mutual learning and innovation in market transactions in terms of knowledge, institutions, and technology. In addition, the exchanges and interactions on knowledge, institutions, and technology carried out inside and outside the sector are more complex than those inside and outside the firm. There are exchanges and interactions at the sectoral level and the industrial level, as well as the corporate level. In the operation of the sector system, there are always exchanges and interactions between the sector and the external environment in the eight aspects of demand, supply, firms, resources, markets, knowledge, institutions, and technology. It is the constant interaction of these internal and external factors that promote the growth and evolution of the sector from small to large and from weak to strong. At different stages of sectoral evolution, the intensity and relative positions of these factors affecting sectoral growth are not fixed but are in dynamic and cyclical alternation. For example, in a particular period of time, institutions play a leading role in sectoral growth and evolution, while in another period, technology becomes dominant. The change in the predominant factor will exert a major influence on the growth and evolution of the sector and have a significant effect on the other factors, which is a process of collaborative interaction. Social demand in the external environment is the primary force for sectoral development, so if there is no social demand, the sector will lose the dynamics for development. At the same time, for a sector to grow and develop, it also needs the external environment to provide it with various resource elements. Therefore, among the many factors of the sectoral niche, the demand factor and the supply factor are obviously two key factors that affect the growth and development of the sector.

5.8.3 Competition and Cooperation Every sector exists in a particular socioeconomic system, and it must have various relationships with other sectors in the economic environment. Of the many intersectoral relationships, the most basic ones are competition and cooperation.

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Intersectoral competition and cooperation are also more complicated than intercorporate competition and cooperation, including not only competition and cooperation at all levels from firm, industry to sector but also competition and cooperation in all geographical spaces from the same region (state) to different regions (states). In the sector system, competition and cooperation are common between industries of the same type as well as of different kinds. There are more intraindustrial competitions than intraiindustrial cooperations. Firms within the same industry face direct competition in terms of talents, resources, products, and markets. There are more interindustrial cooperations than interindustrial competitions. Firms from different industries face indirect competition in terms of humans and resources. Intersectoral competition and cooperation are not absolute but can be transformed into one another under certain conditions. Intersectoral competition and cooperation are specifically carried out through firms inside and outside the sector. The intercorporate cooperation, competition, learning and innovation inside and outside the sector are carried out through the communications and interactions of the factors inside and outside the sector. In an economic system, it is the exchange and interaction of the factors inside and outside the sector that promote the coevolution of firms, markets, industries, and sectors. In the socioeconomic system, intersectoral competition and cooperation lead to the intersectoral exchange and interaction of firms, resources, markets, knowledge, institutions, and technology, which in turn leads to intersectoral ebbs and flows. The changes in the leading positions of the three major sectors in human society are actually the process of each sector going up and down. In the social and economic activities of human beings, agriculture was at first in a dominant position. However, after the industrial revolution, human resources, capital and other resource elements in society began to flow from agriculture to industry. The employment and inputs in agriculture continued to decrease, followed by a proportional decline of agricultural output in a country’s total output value, while the employment and inputs in industrials started to rise, as well as the proportion of industrial output in a country’s total output value, eventually leading industrials to dominate and agriculture to take second place. However, with the further development of society, industrials has backspaced to its original position when the service sector has gradually become primary. Within the sector system, interindustrial competition and cooperation also lead to interindustrial ebbs and flows. In an economic system, moderate competition within a sector plays a positive role in maintaining the overall vitality of a sector and promoting the coevolution of its internal firms, markets, industries and the entire sector. Competitive factors in a sector are often conducive to the healthy growth of the industries or firms in the sector. Generally, for a firm that has been in a competitive environment for a long time, the pressure to survive and develop can prompt the firm to improve its learning and adaptability, as well as to continuously improve its own quality and overall competence. The positive role of competition can be illustrated by the eel effect of the biological world. Hokkaido produces an eel that is so fragile that it dies in less than half a day as soon as it leaves the deep sea. Since the price of fresh eels is higher than that of dead

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eels, local fishermen hope to extend the fresh life of the eels as much as possible, but the fishermen have tried everything to no avail. It was later discovered that after putting a few pikes, eels’ natural enemies, into a shoal of eels, the original dying eels became alive and well. The overall vitality of the eel group increased greatly, and the mortality rate was also significantly reduced. It turned out that a pike would chase and hunt at the sight of an eel, and the eel would swim and try to escape at full split for fear of being eaten, which instead stimulated the vitality of eels. These eels survived. This was called the eel effect. The eel effect shows that if a biological population has no competitors, its individuals will often develop inertia, and the population will become slack due to their self-complacence, which will cause the entire population to lose vitality. However, the introduction of competitors will stimulate the vitality of individuals and populations. The enlightenment of the eel effect to actual economic activities is that competition is conducive to stimulating the vitality of the sector and improving its overall competence. Only when the sectors survive in a competitive environment are they more likely to grow and develop, while the sectors in a protective environment (i.e., policy barriers, market isolation, etc.) grow slowly. Why is China’s publishing industry small in scale and weak in international competitiveness? The main reason lies in the protection from policies and the absence of necessary competitive factors in the industry, that the majority of publishing houses lack crisis awareness, and the long-term self-complacence of the status quo has cultivated their inertia. In 1973, Leigh van Valen proposed the coevolution theory (also known as the Red Queen hypothesis) when he was studying biological evolution. He believed that biological individuals and their environment are evolving together, and the organisms stimulate each other due to competition. Coevolution is an important driving force for continuous biological evolution. Due to the existence of the coevolution law, survival competition in the environment has become regular, which makes biological evolution a long-term sustainable process.31 Barnett and Hansen (1996) introduced this hypothesis into the study of competitions in organisational evolution, arguing that competition is an important factor driving organisational evolution, and if a firm wants to maintain good long-term development, it must actively participate in competitions. Since competitors are growing and the external environment is rapidly changing, every firm needs to keep moving forward to ensure its relatively front position. Although a firm can avoid competition through strategies such as specialisation and resource monopoly, it will lose the opportunity to participate in the Red Queen evolution, which is detrimental to the development of the firm in the long run; however, the failure rate is greatly reduced for those firms that are often showered in competition. Therefore, competition will promote better evolution, and firms should choose and confront competitions bravely, rather than avoid competition”.32 31

Qian, H., Xiang, B. H. (2006). The Theory Bases and Research Assumptions of Organization Evolution. Journal of Dialectics of Nature (03). 钱辉., 项保华. (2006). 企业演化观的理论基础 与研究假设. 自然辩证法通讯 (03). 32 Li, X. M. (2006). Research on Enterprise Environment, Environmental Factors Interaction and Enterprise Evolution. Dissertation, Tianjin University. p. 11. 李晓明. (2006). 企业环境、环境因 子互动与企业演化研究. 博士学位论文, 天津大学. p. 11.

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The above view of the Coevolution Theory is exactly the opposite of the traditional corporate strategy theory that advocates avoiding or eliminating competition. Considering the long-term development, firms should strategically dare to devote themselves to a fierce competitive environment, constantly improve their own quality and enhance their overall ability in the competition, and achieve coordinated evolution with the environment to ensure that they are not eliminated. At present, with the extensive and deepening development of information technology, the ecological environment of firms is changing even faster, which puts forward new requirements for firms to continuously enhance their environmental adaptability. The pace of reform and innovation accelerated by firms for competitive advantages to adapt to the environment in turn promotes the change speed of their ecological environment, forming a positive feedback cycle of collaborative evolution between firms and their ecological environment.

5.8.4 Intersectoral Interaction33 According to the different dominant positions of sectors, the development stage of human society can be divided into five historical stages: primitive age, agricultural age, industrial age, service age and information age. At every age, human society has made certain developments and advances in knowledge, technology, and institutions. From the economic activities in human society, these knowledge, technology, and institutions correspond to the leading sectors. See Table 5.3 for the specific knowledge, technology and institutions corresponding to the leading sectors. From the economic development history, the development process of the leading sectors of human society from a lower stage to a higher stage is generally advancing along a wavy curve; that is, before the original leading sectors have entered the peak of their development, the new leading sectors have already emerged. When the peak of the original leading sectors has passed before the recession, the new leading sectors gradually strengthen until they take an absolute dominant position. For example, in many countries around the world, industry has emerged before agriculture has reached its peak of development. After the peak, yet before its recession, an industrial revolution has been ushered in, and the share of industrials in the national economy has gradually increased until it dominates. Every time a new type of leading sector appears in human society, it will have a certain impact on the production mode of the original leading sector and will replace, transform and upgrade the technical means and economic system of the original sector with updated technical means and sectoral institutions to promote the original sector to reach a higher level of development. On the other hand, the original sector also plays a necessary supporting role for the new leading sector in terms of 33 The main content of this section was first published on the 28th issue of New Economy magazine in 2015 at Guangzhou with the title A Brief Discussion on the Interrelationships between Sectoral Departments in the Economic System.

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Table 5.3 Knowledge, technology and institutions corresponding to leading sectors Factors

Notes

Main sectors

Knowledge

Technology

Institutions

Agriculture

Agricultural knowledge

Agricultural technology

Agricultural institutions

Contains the knowledge, technology, institutions and other components of the primitive age

Industrials

Industrial knowledge

Industrial technology

Industrial institutions

Contains the knowledge, technology, institutions and other components of the agricultural age

Services

Services knowledge

Services technology

Services institutions

Contains the knowledge, technology, institutions and other components of the industrial age

Information

Information knowledge

Information technology

Information institutions

Contains the knowledge, technology, institutions and other components of the service age

resources, products, and markets. Agriculture, for example, supports industrials by providing it with food, raw materials, labour and markets. At a primitive age, the economic activities of human society were mainly gathering and hunting activities. People mainly use simple processed bamboo, wood or stones as tools for gathering and hunting. At that time, the knowledge, technology, and institutions related to primitive economic activities accumulated by mankind were simple and primitive. During the Neolithic period, approximately 10,000 B.P. to 12,000 B.P., primitive agriculture, including crop cultivation and animal husbandry, was born naturally and gradually developed as a result of technical inventions in terms of plant cultivation and animal husbandry.34 In agricultural production, people have gradually accumulated knowledge, technology and institutions related to agriculture. In the agricultural age, mankind replaces, transforms and upgrades the technical means and economic institutions of the primitive economy, thereby transforming and transitioning human society from the primitive age to the agricultural age. 34

Coclanis, P. A. (2009). Historical Changes and Effects of the World Agricultural Institutions (Su, T. W., trans.). World History (06). 彼得·考克莱尼斯. (2009). 世界农业制度的历史变迁与功效 ( 苏天旺, trans.). 世界历史 (06).

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Between 1750 and 1880, the invention and wide application of a large number of human technologies in steelmaking, railways, steam engines, electric power, petroleum energy, machine manufacturing, etc., triggered the industrial revolution, thus bringing human social production activities into an era dominated by industrials. In the industrial age, mankind replaces, transforms and upgrades the technical means and economic institutions of the agricultural economy, thereby transforming and transitioning human society from the agricultural age to the industrial age. At the same time, human industrial activities are also transforming and upgrading the remaining primitive economic activities. Primitive economic activities such as collecting wild fruits and fishing were replaced by modern orchards, pond fish farming and other production methods in the industrial era. Compared with the agricultural era and the industrial era, the entry of human society into the service era does not have a significant sign. In a state’s economic system, when the service sector dominates the output value of the entire national economy, it can be said that the state has entered the service era. The important inventions of human society in the service sector include currency (i.e., shells, metal coins, paper money, etc.), money orders, stocks, telephones, and means of transportation (i.e., vehicles, ships, aircraft, etc.). In the service age, mankind replaces, transforms and upgrades the technical means and economic institutions of the industrial economy, thereby transforming and transitioning human society from the industrial age to the service age. The service sector is also transforming and upgrading agricultural economic activities at the same time. For example, in the service era, agricultural economic activities such as seed selection, breeding, and sales of agricultural products have been replaced by economic organisations such as specialised seed selection institutions, breeding institutions, and agricultural product sales firms. Since the middle of the twentieth century, human society has gradually entered the information era. In February 1946, the world’s first electronic computer was born, which is an important symbol of the emergence of modern information technology. Since then, Internet information technology has been brought into glory by a series of important events, namely, computer connectivity technology in 1969, network information transmission technology in 1973, and Worldwide Web technology in 1989. In the information age, mankind replaces, transforms and upgrades the technical means and economic institutions of the information economy, thereby transforming and transitioning human society from the service age to the information age. The information sector is also transforming and upgrading industrial and agricultural economic activities at the same time. In fact, every time a new type of leading sector emerges in human society, it will have a vital influence on all previous sectors, which is all-round, manifesting in the infiltration, transformation and upgrade of the original sector in terms of knowledge, technology, institutions, organisation, and sectoral structure. For instance, in modern society, the development of industrials has promoted the commercialisation of agriculture, while commercialisation has also encouraged agriculture itself and its technology. The wide application of modern industrial knowledge and technology in

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the field of agricultural production has directly driven the mechanisation of agricultural tools and advanced innovations in the production, transportation, processing, marketing and financial services of agricultural products. Modern industrials provide a variety of advanced and efficient agricultural machineries, equipment and other tools for agricultural production, which greatly upgrades the productivity and level of agricultural production. For another example, the influence of the modern service sector on agriculture is manifested in the penetration, transformation and perfection of all aspects of agricultural production, operation, and management, as well as the further deepening, refinement and modernisation of the agricultural division of labour and professional development, thereby enhancing the production level of agriculture. For another example, the impact of the information sector on agriculture is mainly manifested in the extensive penetration of information technology in agricultural production, as well as the further agricultural modernisation on the basis of the influence from industrial and service sectors in terms of level and quality. The role of modern information technology in promoting agriculture is reflected in the penetration, transformation and improvement of all aspects of agricultural production, operation, management, and services, pushing contemporary agriculture to automation, intelligence, and informatisation.35 From the occurrence sequence of the leading sectors in human society, the leading sectors are agriculture, industry, services and information. If circles are used to represent each leading sector and arrows to represent the interinfluence between the leading sectors, then the interrelation between the four leading sectors can be shown in Fig. 5.11. In Fig. 5.11, the solid arrow indicates the support of the original sector to the new sector (in terms of resources, products, and markets). The dotted arrow indicates the penetration, transformation and upgrading of the new sector to the original sector. Figure 5.11 shows that the information sector is currently at the highest level of the human social and economic system, and it has huge sector potential energy, which can fully infiltrate, transform and upgrade the original sectors such as agriculture, industrials, and services. The impact of the information sector on the original sectors can be divided into the following three levels: The first level: [information sector] → service sector; The second level: [information sector + service sector] → industrial sector; The third level: [information sector + service sector + industrial sector] → agricultural sector. At the first level, the information sector directly penetrates, transforms and upgrades the service sector. At the second level, the information sector fully penetrates, transforms and upgrades the industrial sector through integration with the service service sector. At the third level, the information sector fully penetrates, transforms and upgrades the agricultural sector through integration of the service and industrial sectors. 35

For a detailed explanation, please refer to Sect. 6.3, Development of Contemporary Agriculture in China.

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Fig. 5.11 Interinfluences between leading sectors

Agriculture is the oldest and most fundamental sector that human society depends on for survival. Many economics treatises believe that agriculture is a declining sector and that agriculture has scarce development potential. Is that truly? Adherents of this argument obviously have noticed only a few historical stages while ignoring the perennial trend of human social development and the great creativity of mankind! In fact, each one of industrials, service and information can fully penetrate, transform and upgrade agriculture, so there is still great potential for agricultural development! Regarding the supporting role of the original sector to the new sector, scholars at home and abroad have carried out relevant studies. For example, as early as the 1940s, Chinese economist Zhang Pei-Gang (1913–2011) discussed the importance of agriculture for industrialisation in his book Agriculture and Industrialisation36 from the five aspects of food, raw materials, labour, market, and capital. In 1961, the American economist Kuznets proposed in his book Economic Growth and the 36

Originally in English, Agriculture and Industrialisation was Zhang Pei-Gang’s doctoral thesis in 1945 while studying for a Ph.D. in economics at Harvard University, which laid the theoretical foundation for the industrial development of agricultural countries. In 1947, it won the 1946–1947 Harvard University Award for Best Paper in Economics, the David A. Wells Prize; The English edition of the book was originally published by Harvard University Press in 1949 and reprinted in 1969; The Chinese edition was published by Huazhong University of Science and Technology Press in 1984 and republished in 1988.

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Contribution of Agriculture that the contributions agriculture provide to economic growth include products, markets, labour, and foreign exchange. Before the 1960s, under the influence of mainstream Western economic thinking, many developing countries implemented an industrialisation strategy that emphasised industrials and ignored agriculture, which led to the decline of agriculture and the interruption of industrialisation, ultimately causing incalculable economic losses.37 This fact also proves from the negative that agriculture is supportive of industrials. The supporting role of industry on services is mainly manifested in the fact that the industrial sector has provided a large number of modern machinery and technical means for the service sector, thereby improving the operating efficiency, service level and development level of the service sector. For example, the development of the shipbuilding industrials, railway industrials, automobile industrials, and aviation industrials has not only greatly improved the operating efficiency of modern transportation services but also expanded their scale and scope. For another example, refrigerator and freezer industrials provide modern commercial firms, such as large-scale shopping malls and supermarkets, with technical means of fresh-keeping storage, which enables shopping malls and supermarkets to store and sell more perishable goods. The supporting role of the service service sector in the information sector is mainly manifested in the service sector providing the information sector with human resources, capital and other social resources, as well as support in transportation, commerce, and markets. For example, education services provided specialised human resources for the development of the information sector, while venture capital and other financial services directly contributed to the rise of the early Internet industry. Without the support of the transportation, warehousing and other service industries, it would be unimaginable for firms such as Dell and Hewlett-Packard to sell their computer products to the world! At present, human society has developed into the information age. In the socioeconomic system, the information sector has gradually taken the leading position, and it will have a wide and profound impact on the political, economic, human-culture, science, education, and legal systems of human society. Today, modern information technology clusters, including Internet information, digital communication, satellite remote sensing, the Internet of Things, sensor networks, robotics, etc., are playing an increasingly important role in promoting the transition of traditional agriculture to contemporary agriculture, the upgrading of traditional industrials to new industrials, and the development of traditional service services to modern services.

5.9 Distribution in the Sector System This part examines the distribution issues at the sectoral level of the meso-economy.

37

Bi, Y. F. (2008). Exploration and Debate on the Road to Agricultural Industrialisation in Modern China. The 13th Annual Meeting of the Chinese Society for the History of Economic Thought.

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Within the economic system, the distribution activities at the meso level are divided into the two levels of the distribution within the industry system and the distribution within the sector system. The distribution within the industry system mainly includes the distribution of industrial elements such as resources, firms and markets; the distribution within the sector system mainly includes the distribution of sectoral elements such as industrial resources, related industries and market systems. In the operation of the sector system, in terms of surface factors, the distribution activities in the sector system are reflected in the interindustrial supply and allocation of the three factors of resources, firms and markets by the external environment. In terms of deep factors, it is actually a dynamic process of interindustrial absorption, integration, application and innovation within the sector in the three aspects of knowledge, institutions and technology. Within the sector system, the distribution activities of sectoral elements are generally coordinated with government departments through market mechanisms to jointly allocate resources. The distribution organisations of government departments generally include tax organisations, fiscal organisations, and financial regulatory organisations. The distribution activities within the sector system can be vertically divided into the three levels of firm, industry and sector. Chap. 4 has analysed the distribution issues within the firm system. Here, we will focus on the distribution issues at the industry and sector levels. An industry is a collection of different firms manufacturing similar products. A sector is a collection of different industries that are interrelated. Therefore, the exchange process between industries or sectors is actually carried out by specific firms. The exchange between different industries (or sectors) is actually a process of output distribution, which is the first distribution activity. Part of the distribution within the firm system as known is tax collected by government departments. The government’s act of collecting taxes from firms is not achieved through market exchanges but by the implementation of tax policies and other national compulsory means. The collection of tax revenue by governments at all levels within a state forms the state’s fiscal revenue. The process by which government departments allocate the revenue received within the state is in effect a redistribution activity. From the subsystems that make up the state system, redistribution activities within the state include government expenditures in the systems, such as polity, economy, human-culture, law, science, and education. Economic issues related to taxation and finance are the subject of fiscal economics (or public economics). Governmental redistribution has gone beyond the functional scope of a sector system and actually belongs to the distribution outside the sector system. Regarding the distribution outside the sector system, from a higher level, it can be divided into the exchange and distribution at the national economic system, state system, international system, and natural ecosystem. In modern society, because the economic systems worldwide have been integrated into the global economic system, these exchanges and distributions at different levels are interrelated, interacted, interinfluenced and interrestricted into an extremely large network system of exchange and distribution with a complex structure. To make the investigation more intuitive, the general operational structure of the sector system (Fig. 4.6) and the relation diagram of dynamic factors in sectoral

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development (Fig. 5.3) in the previous article are combined for analysis. Firms, resources and markets are necessary factors that constitute an industry (or sector). In the previous analysis of the growth and evolution of the sector, it is concluded that the growth of a sector is in fact the absorbing and integrating of these three factors from the environment. Among them, firms are the most active factor. Driven by entrepreneurs, a firm can move from one industry to another or even enter several different industries at the same time. It is the transfer of a large number of firms in different industries that leads to the interindustrial flow and distribution of humans, capital, and material resources, and the interindustrial correlation drives the rise and fall of professional markets. A necessary condition for the growth and development of a sector is that its external environment must provide it with resource elements. There are many different sectors in a state’s economic system, and different ways of resource allocation will cause different output effects, causing ebbs and flows between different sectors (or industries). For a sector system, through what means or ways can the resources allocated to different industries be balanced to achieve the optimal output yield for the economic system? The answer given by Western classical economics is to rely on the invisible hand of the free market to allocate resources, while economists represented by Marx and Keynes (John Maynard Keynes, 1883–1946) advocated relying on the visible hand of government to allocate resources. The basic idea of this book is to allocate resources together through the coordination of market mechanisms and government departments.

5.9.1 The Input–Output Relations in the Sector System Figure 5.2 shows that from the surface factors of the sector system, the operating chain of a sector system is input → firm → resources → market → output. In terms of system, a sector system can be regarded as a system that inputs resources and outputs functions. From the input perspective of the sector system, the sectoral input includes the four aspects of resources, firms, markets, and sectoral input relation. From the output perspective of the sector system, the sectoral output also includes the four aspects of synergy function, value-added function, exchange function, and sectoral output relation. Here, the synergy function refers to the function of the sector system connecting scattered and disorderly upstream and downstream firms into an interrelated firm network according to the supply–demand relation of production and operation. The value-added function refers to the function of all firms in the sector system jointly creating value through the division of labour and coordination. The exchange function refers to the function of the sector system connecting all internal markets to promote the exchange of commodities. The sectoral input relation refers to the interrelationship between the input factors and the ratio structure of inputs in sectoral growth. The sectoral output relation refers to the interrelationship between the output results of industries and the ratio structure among different industries in the process

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of sectoral operation. It reflects the distribution relation of different industries in the sector system. From the sectoral input–output recycling process, what is the law between the input and output of the sector system? Let us start with the analysis from the input end of the sector system. From the external environment of the sector system, the external environment includes the natural environment and the social environment (international environment). From the state system in the social environment, the state system includes the human-culture system, the economic system, the political system, the legal system, the science system, and the education system. From the growth and evolution of the sector system, the factors that exist in the external environment that can be absorbed and integrated by the sector can be regarded as the resources of the sector. Therefore, the resources of the sector system can be divided into two categories: natural resources and social resources. Social resources can be divided into resources such as human-culture, economy, polity, law, science, and education. The resource elements that different sectors rely on are not exactly the same. For example, for agriculture, land is its core resource element; for the extractive industry, coal, iron and other mineral deposits are its core resource elements; for finance, currency is its core resource element; and for the publishing industry, knowledge is its core resource element. In addition to core resources, the normal development of all sectors must include other common resources, such as human resources, capital, venues, laws, policies, public services, public security, public order, and infrastructure. According to the classification of the environment system, all the resources needed for sectoral development can be divided into nature, economy, polity, law, humanculture, science and education. For example, land and minerals belong to natural resources, commodities and capital belong to economic resources, laws and policies belong to legal resources, labour belongs to human resources, basic knowledge and technology belong to scientific resources, and applied knowledge belongs to educational resources. Public services, public security, public order, public infrastructure, etc., however, belong to the category of public goods, which generally should be provided by government organisations. Government organisations are the core elements of the political system, so public goods can be classified as broad political resources. For a specific industry, the firms and markets that exist outside the industry can be regarded as special element resources for this industry. When an emerging industry is born, in addition to newly created firms inside the industry, firms outside the industry will also continue to move into the industry. As the number of firms in the industry continues to increase, the industry will grow and expand. As the exchange of products and services between the firms inside the industry and the firms outside increases, the market inside the industry is also created and grown. For an industry to develop normally, smoothly, and healthily, it is necessary to maintain an appropriate proportional relationship between the resources, firms, and markets invested in the industry. At different stages of development of any industry, the ratio relations between these

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factors are different, and the ratio structure between them forms the input structure of the industry. From the deep factors of the sector system, the operating chain of a sector is input → knowledge → institutions → technology → output. Among them, knowledge actually includes knowledge about resources, firm and market, while similarly institutions include institutions of resources, firm, and market, and technology includes technology of resources, firm, and market. Because the so-called industry is actually a collection of firms of the same type, the knowledge, institutions, and technology of firms here are actually the knowledge, institutions, and technology of the industry. For an industry to develop normally, smoothly, and healthily, it is necessary to maintain an appropriate proportional relationship between the knowledge, institutions, and technology invested in the industry. At different development stages of any industry, the ratio relations between these factors are different, and the ratio structure between them is actually the deep structure of the industry’s input relation. In the Economics of old days, the allocation of resources was generally regarded as the central issue of research, while the allocation of firms and markets was neglected. In fact, for the normal and healthy development of an industry, the configuration of firms and markets is equally important. In an industry, if the upstream and downstream firms have relatively complete supporting facilities and the infrastructure and legal system provided by the environment are rather complete, the industry will grow rapidly. The growth and expansion of an industry is also inseparable from the supporting facilities of markets. A well-equipped industrial market will facilitate the interindustrial trading of commodities (or services). The expansion of the transaction scale can promote the development of the industry, and the development of the industry will further increase the prosperity of market transactions. In countries that implement a market economy, the allocation of resources generally occurs in two ways: market allocation and government allocation. Market allocation occurs through the invisible hands, such as supply and demand and price mechanisms, while government allocation occurs through the visible hands, such as policy tools and fiscal and taxation means. Similarly, these two methods can also be adopted for the configuration of firms and markets. People often allow firms and markets in the industry to grow spontaneously, not realising that rational allocation is conducive to the development of the industry. This in fact is the market’s supply and demand mechanism playing a regulatory role. When they realise that the rational allocation of firms and markets is conducive to the development of the industry, people can actively allocate firms and markets in the industry by implementing certain policies, administrative means, etc. Then, it can be analysed from the output end of the sector system. Among the four aspects of sector system output in terms of synergy function, value-added function, exchange function and output relation, there have been a great deal of studies and discussions on the value-added function and exchange function in economics, but the research on synergy function and output relation is insufficient. The value-added function can be intuitively understood from the process of firms integrating resources to create value and the exchange function from the process of markets exchanging goods to realise value, as well as the synergy function from the

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supply–demand chain (industrial chain) formed in corporate production and operation. In fact, the sectoral chains of industries in the sector system are interrelated and crisscrossed to form a complex firm network. The synergy function of the sector system is mainly reflected in the interindustrial correlation effect. It is precisely the correlation effect between industries in the sector system that makes its input–output relation complicated. For the clarification of the input–output relations in the sector system, it is necessary to discuss the intersectoral correlation effect, the allocation of sectoral elements and some other issues due to the complexity in the actual operation of the sector system. To make the narrative clearer, these issues will be addressed separately below. The input–output relations in the sector system will be further discussed in Sect. 7.5, which is much involved with macroeconomics. All aspects of the sector system are interrelated; therefore, readers need to connect the context in the reading to avoid one-sided, out-of-context understanding. Due to the excessively detailed division of labour in the modern disciplinary system, different economists of different schools worldwide have studied the laws or characteristics of industry (or sector) operations from different perspectives, such as resources, firms, markets, knowledge, institutions, and technology. However, few people integrate these factors into a unified framework for systematic research, which has caused today’s economics to present a fragmented picture. Only by organically combining, comprehensively considering and researching these factors can one-sided conclusions be avoided.

5.9.2 Intersectoral Correlation Effect Sectoral correlation, also known as sectoral linkage, refers to the objective intersectoral linkage formed in production, exchange, and distribution. Sectoral correlation reflects the complex and close economic and technological linkages that exist widely among sectors in economic activities. The essence of sectoral correlation is the intersectoral supply–demand relationship.38 The following takes the sectoral correlation involved in bread production as an example to analyse the interindustrial supply–demand chain of products. Figure 5.12 is a diagram of the supply and demand chain of major products between industries in bread production, where the arrow indicates the direction of resource or product flow, and the ellipse represents different industrial markets. It is known that when bakeries produce bread, they need to use certain production tools (i.e., flour mills, bread machines, toasters, etc.) in addition to the factors of production, such as manpower, capital, raw materials and sites. Under the modern

38

Yang, G. P., Xia, D. W. (eds). (1998). A Course in the Economics of Sector. Shanghai University of Finance and Economics Press. p. 110. 杨公朴., 夏大慰. (1998). 产业经济学教程. 上海财经大 学出版社. p. 110.

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Fig. 5.12 Supply–demand chain of major products between the industries in bread production

social division of labour, if a bakery wants to successfully realise the whole production process of bread, it must use the relevant products or services provided by other firms (or organisations). Otherwise, it is unimaginable to successfully realise the whole production process. Throughout the production process, bakeries need products or services provided by many other industries. For example, the human resources required by a bakery involve human training and the education industry. The capital needed comes from the financial industry (loans from the bank). The wheat, corn and other raw materials needed come from the agricultural industry. The factories, warehouses and other buildings used come from the construction industry. The land occupied by the factories comes from the landowner (government or other organisations). The public services, road facilities and other public goods used come from government departments. The flour mills, toasters, ovens and other food processing machines used by bakeries come from machinery plants. If tracing up or down the supply and demand chains of all products and resources, it is easy to discover that the resulting supply and demand chains formed by this are crisscrossed and interrelated into a huge network with a complex structure. It can be difficult to fully sort out the relationships between all industries or firms involved. Here, we only focus on the product supply–demand chain along the production and exchange process of food processing machines (as shown in Fig. 5.12). To make the analysis concise, the other factors of production involved in each link are greatly simplified here. For instance, in production, mining fields need capital and machinery, steel plants require labour, machinery, coke, lime, and fuel, and machinery plants need labour, capital, and electricity. However, only key elements such as labour, capital and technology are indicated in the figure. Figure 5.12 shows that bread production involves at least five industries: the extractive industry, the metallurgical industry, the machinery manufacturing industry, the food industrials industry, and the agriculture industry. Natural resources include iron ore deposits and land, and social resources include human resources, capital, technology, machinery, and public goods. The firm types involved include mining fields, steel mills, machinery plants, and bakeries. The industrial markets involved include the ore market, the steel market, the food machinery market, and the bread market. There is a close economic and technological connection between these industries: the output from one industry provides element input for other industries, and different industries are linked through the industrial market. An industry that is too small or under output will affect the input of elements in another industry, which in turn will affect the growth and expansion of this industry. Similarly, the growth of a core

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industry will drive the development of other industries that are closely related to it. In the economic system, the interconnection of the rise and fall between different sectors is the intersectoral correlation effect. There are many types of sectoral correlation, which can be divided into product (or service) correlation, technology correlation, price correlation, investment correlation, employment correlation, etc., according to the way in which sectors rely on each other.39 For example, the product of extractive industries is iron ore, which provides the metallurgical industry with iron ore as a raw material (i.e., element input), and a product relationship is formed between the extractive industry and the metallurgical industry. For example, between machine manufacturing and the food industrials, machine manufacturing provides a variety of food processing machinery for the food industrials. Food processing machinery is a production tool that actually embodies the technical means of production. Therefore, a technical connection is formed between machine manufacturing and the food industrials. Different industries are linked together through the industrial market. The price fluctuations of products in one industry will directly cause the price fluctuations of products in adjacent industries, which is the interindustrial correlation of price. In Fig. 5.12, there is actually a degree of price correlation between markets in the extractive industry, the metallurgical industry, the machinery manufacturing industry, and the food industrials industry. For another example, the electric power industry provides electric energy for the metallurgical industry, so when the metallurgical industry expands, if the electric power industry does not improve its power supply capacity accordingly, the normal production activities of the metallurgical industry will be directly affected. Therefore, after expanding the scale of investment in the metallurgical industry, it is also necessary to scale up the investment in the electric power industry. In summary, there is an investment link between the electric power industry and the metallurgical industry. The intersectoral correlation of employment is universal. The development of one sector will drive the growth of another, which will correspondingly lead to an increase in employment. Apparently, there is also the opposite situation; that is, the development of one sector may also lead to a decrease in employment in another sector. Among the various types of sectoral correlation, the intersectoral correlation of products (or services) is the most basic, from which other correlations are derived. Accelerating a state’s economic development cannot be achieved only by speeding up the growth of a certain sector but must be realised through the coordinated development of the relevant sector system. The actual intersectoral correlation effects require the products (or services) provided by related sectors to perform a dynamic balance in quantity and proportion and to achieve mutual adaptation and matching in terms of technology and quality. Otherwise, it is difficult for a state’s sector system to maintain long-term, stable and healthy development. The objective intersectoral correlation effect in fact reflects the synergy function in sectoral development. When

Jian, X. H. (ed). (2001). The Economics of Sector. Wuhan University Press. pp. 68–69. 简新华 (ed). (2001). 产业经济学. 武汉大学. pp. 68–69.

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the sectoral policies or administrative measures implemented by government departments can promote the synergy of the sector system, a state’s sector system will enter a sound development track; otherwise, they will hinder the healthy development of the sector system.

5.9.3 The Distribution of Elements in the Sector System In this section, the above diagram of the relation between the impacts behind sectoral development (Fig. 5.3) is combined to carry out a brief analysis on the distribution of factors in the sector system. From the input of the sector system, a sector must have external supply as a necessary condition before it starts to operate. Otherwise, even if there is a strong external demand, the sector cannot survive and develop. What exactly do these external supplies include? From the deep factors of the dynamics of the sector system, the sector can be supplied externally from the three aspects of resources, firms and markets that make up the sector system. The process of external supply can also be seen as the process of the external environment’s allocation of factors to the sector system. For ease of understanding, the following will still use bread production as an example.

5.9.3.1

Resource Allocation

In the bread production process, in terms of resources, any shortage or deficiency of resources such as land, iron ore deposits, human resources, capital, technology, machinery, and public goods will affect the final bread production and supply. Among them, the distribution of nonrenewable natural resources such as land and mineral deposits often has a relatively long-term impact. Across the world, natural resources such as land and minerals are state-owned in some countries but privately owned in other states. Even in a state with public ownership of land, if the laws and regulations are not sound enough or the government officials who implement the allocation violate the law, the initial distribution of these natural resources may also cause unfair allocation of resources. What are the consequences of such unequal distribution? A simple analysis can be made. If a state’s iron ore deposits are monopolised by a small number of private companies and the import trade of iron ore is restricted, the price of iron ore in this state’s ore market will be manipulated and increased by monopolies driven by interests. Because of the pricing correlation between industries, the price increase in iron ore will ultimately be passed on through the supply–demand chain of iron ore → steel → food machinery → bread to bread. People originally need to spend 3 yuan to buy 1 loaf of bread, but now they need to spend 5 yuan to buy 1 loaf of the same quality. In this bread consumption, each buyer spends an extra 2 yuan, and the interests of consumers are obviously infringed upon. However, in real life, few consumers truly

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understand that the extra 2 yuan they spend is one of the consequences caused by the monopoly of domestic iron ore deposits by a few firms! Perhaps some will treat the 2 yuan merely as a negligible loss. However, such a seemingly minor injustice will often be amplified into a series of unfair distributions after some market transmission. Calculations can be made here. Each person spends an extra 2 yuans on bread each day. After going through the four links above, assuming that the iron ore mine receives only 50 cents, each person will pay an extra 182.5 yuans to the iron ore mine every year. If 200 million people in the state consume 1 loaf of bread every day throughout the year, which is entirely possible, the iron ore mine will earn an additional 36.5 billion yuans each year. If iron ore owners use 1/3 of the 36.5 billion yuans for real estate speculation, then 12 billion yuans of funds will be invested by the iron ore owners in the real estate market after being amplified by the financial credit market. It will be enough to trigger a speculative heat wave that is no small. Under the temptation and drive of huge profits, people will extract more funds from other industries to invest in real estate, which will eventually lead to the abnormal expansion of the real estate industry. How can China’s housing prices not climb when speculators of a large number put the tens of billions they have received from the real estate back into it again40 ? If the government does not adopt redistribution policies (i.e., property tax, subsidies to low-income families, etc.) to narrow the gap between the rich and the poor, market transmission will further widen the income gap between different classes of society, ending with a minority of people making fortunes through monopoly and speculation and a majority of people being taken advantage of and becoming increasingly impoverished. This example shows that the initial unreasonable distribution of resources often leads to disparities in national income between the rich and the poor, which is in fact a process of gradually gathering and transferring scattered money to the wallets of a few people. This is the huge gap caused by a small gap in China’s social income distribution after the continuous amplification of intermediate markets. The brief analysis above indicates that the initial unfair distribution of resources may lead to the monopoly of some particular firms (or industries), which will not only cause losses to the public interest but may even cause huge disparities in income distribution. Therefore, in the case of an unfair initial allocation of resources, spontaneous regulation from the market alone cannot narrow the distribution gap of national income but instead will widen the small income distribution gap between different classes because of the market correlation effect, which is proven by the fact that there has always been a difference in resource allocation between urban and rural areas in China, and such an income distribution gap has been widening under the influence of market mechanisms since the reform and opening up. For another example, when domestic wheat cultivation fails due to the impact of natural disasters, if the government does not use all means (i.e., importing wheat, removing wheat reserves, etc.) to timely supply domestic market demand, bread 40

The rising prices of China’s real estate market are caused by a variety of factors. The main reason is that local governments rely on auctions of land to maintain fiscal revenues, resulting in a continuous increase of land prices.

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prices will rise shortly afterwards, ending in another violation of consumers’ interests. For another example, in the many links of the product supply and demand chain of iron ore → steel → food machinery → bread, if one of the links is interrupted (i.e., the steel → food machinery link is interrupted due to regional market separation), if the government does not take timely measures to eliminate regional market separation and unblock the circulation of goods, people in areas lacking food machinery may not be able to buy bread for a long time or consume high-priced bread. In this way, the interests of consumers in these areas will also be harmed. In this process, from the surface, it is the interruption in the supply chain that causes the loss, while from a deeper perspective, the cause is rooted in the failure of the government to fulfill its responsibility to provide a fair environment for society (at least the lack or insufficiency of public goods such as commercial policies). From the above examples, whether the distribution of resource sources (i.e., land, mineral deposits, etc.) or the regulation of resource supply chains (or channels), if the government cannot make overall plans, allocate resources scientifically and reasonably, and uphold social justice, an unfair resource distribution will damage the interests of the public and may even lead to unfair income distribution. According to the theory of resource allocation, resource allocation is generally divided into two levels, namely, the first allocation of resources and the second allocation of resources. The first allocation of resources refers to the allocation of social resources among sectors, regions, and firms within a particular period of time. The second allocation of resources refers to the second allocation of resources formed by the flow and reorganisation of resources between sectors, regions, and firms after the first allocation of resources. Through the first allocation of resources, the initial state of the allocation ratio of production factors has been formed within a certain period of time; through the second allocation of resources, the allocation ratio of production factors in the subsequent period has been adjusted, thus forming a new sectoral structure. There are two mechanisms of government allocation and market allocation for both the first allocation and the second allocation of resources. The government’s mechanism for resource allocation is the allocation of labour, material, capital and other resources through the government’s administrative power and means. The purpose of increasing investment is generally achieved through financial appropriations. The market’s mechanism for resource allocation is the allocation of labour, material, capital and other resources through the urge from the price signal formed in the supply and demand. The two mechanisms of government allocation and market allocation complement each other, and both function an irreplaceable part in resource allocation.41

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Xia, X. Y., Li, H. B. (1999). The Theory of Economy Structure and Its Development in China. Journal of Guangxi Vocational Normal University (04):8. 夏兴园., 李洪斌. (1999). 经济结构理 论及其在中国的发展. 广西经济管理干部学院学报 (04):8.

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Firm Allocation

A firm’s distribution (allocation) to industries is often determined by its entrepreneur’s personal preference and subjective judgment. Different entrepreneurs will choose different industries to start their businesses because of their different personal preferences. When entrepreneurs believe that entering another industry will yield higher returns, they will invest in these fields or move their original business to this new industry. Generally, the more firms enter an industry, the faster the industry will grow. In the bread production process, in terms of firms, any shortage or deficiency in any type of firm, such as mining fields, steel mills, machinery plants and bakeries, will affect the final bread production and supply. Within a state, if the machinery manufacturing industry in a particular region is underdeveloped and the number of professional machinery manufacturers is insufficient, the types and quantities of food processing machinery they provide will also be limited. If the commercial circulation and market network of the national food machinery are relatively backward, the development of the local food processing industry will be restricted. In this way, there will be two results: first, fewer local food processing firms and a limited variety and quantity of food (including bread);and second, the slow progress of local food processing firms (including bakeries) improving technology and expanding the production scale. For example, if local bakeries want to improve their technology, they often need to buy the required food processing machinery from other regions or even import from abroad, which increases the actual production cost (at least the cost of long-distance transportation). Both of these aspects will lead to higher prices of locally produced bread, which will infringe on the interests of local consumers. In the supply chain of production tools, machinery plants provide food processing machines for bakeries, so the machinery manufacturing industry is located upstream of the food processing industry. This example reflects that the development degree of the upstream industries will constrain the development of the downstream industries. If going back along the raw material supply chain of food processing firms, it will be found that if the food processing industry in a region is not developed, it will also restrict or limit the commercial development of agricultural products in the region because agricultural products such as fruits, vegetables, and grains are relatively easy to rot and are generally not easy to store for a long time. If in a particular year, there is a large harvest of local agricultural products, which cannot be sold out in a short period of time, one solution is to transport the surplus to other areas for sale.42 However, a better solution is to deep-process the surplus on the spot into different types of foods with longer shelf life (i.e., pickled products, canned food, beverages, dried fruits, biscuits, etc.) to supply a wider market demand. If the local food processing industry is underdeveloped, the types and quantities of 42

The actual result of this solution is often that the sales income of agricultural products cannot cover the cost of transportation. Farmers feel it unworthy and will usually let these unsold agricultural products rot in the fields or feed them to livestock.

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agricultural products demanded by local food processing firms will also be limited, which directly restricts the development of local agriculture. In the supply chain of raw materials, agriculture provides food processing firms with raw materials such as fruits, vegetables, grain and other agricultural products, so the food processing industry is located downstream of agriculture. This example reflects that the development degree of the downstream industries will also constrain the development of the upstream industries. In fact, this interrelation, interinfluence, and interrestriction between the upstream and downstream of the industry also exists between the extractive industry (mining fields) and the metallurgical industry (steel mills), as well as the metallurgical industry (steel mills) and the machinery manufacturing industry (machinery plants). Therefore, from the product supply–demand chain, the development of upstream industries will affect and restrict the development of downstream industries. Similarly, the development of downstream industries will in turn affect and restrict the development of upstream industries. From a deeper level, this actually involves the proportional structure and geographical layout of sectors (or industries) within a state.

5.9.3.3

Market Allocation

As a component of the industry itself, the market’s own exchange function plays an indispensable role in the development of an industry (or sector). In the bread production process, in terms of markets, any shortage or deficiency of markets, such as the ore market, steel market, food machinery market and bread market, will affect the final bread production and supply. For example, within a state, when the iron ore market network is underdeveloped or the commercial distribution channels are relatively backward, it will first affect the supply of raw materials for steel firms and will often increase the cost of steel firms to find raw materials. The backward commercial distribution channels will often lead to an increase in the transportation costs of steel firms, which will lead to an increase in the price of steel products in the steel market. The increase in the price of steel products will be transmitted to the most terminal bread retail market through the chain of steel market → food machinery market → bread market, thus violating the interests of consumers. Similarly, in the commodity supply–demand chain, if the market network of the steel or the food machinery is not developed or the commercial circulation channels are relatively backward, it will eventually affect the end bread retail market. From the point of view that the industrial market is a constituent element of every kind of industry, the shortage or insufficiency of any type of market will directly affect and restrict the growth and development of the industry itself. Here, the exchange function of the market plays an important role in commodity distribution. For example, before 1978, the planned economy model was implemented in the Chinese economic system. Products from different industries were distributed through the state monopoly of the purchase and supply. However, this allocation method often fails to truly reflect the total cost of each category of goods due to the

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lack of a free and flexible price adjustment mechanism. The distortions of commodity prices triggered by the distribution disconnect demand and supply regularly, resulting in low efficiency and slow development of the entire sector system in the economic system and ultimately leading to a prevalent shortage of social commodities. Since the Chinese government implemented the reform and opening up after 1978, especially after the official establishment of a market economic structure in 1992, all kinds of markets have sprung up on the Chinese land, and miscellaneous commercial distribution channels have connected the previously isolated areas. Large and small markets are crisscrossed and intertwined into a complex network with a threedimensional structure. Commodities from all over the world have been exchanged efficiently and extensively with the help of the invisible hand of the market network, and the long-suppressed market power has finally been awakened. China has gradually moved out of the era of a shortage economy, and people in different regions have the opportunity to purchase a wider variety of products. Under the conditions of a market economy, firms in industries play a dominant role, but this does not mean that the government has nothing to do with market allocation. In a state’s economic system, only when the sectors maintain a reasonable proportional structure can it be beneficial to the coordinated development of the entire sector system. Every sector is composed of numerous industries, and each industry contains an industrial market, which determines that within a sector, all industrial markets need to maintain a particular proportional structure to ensure the coordinated development of the entire sector. Furthermore, within a state’s economic system, all sectoral markets also need to maintain a particular proportional structure to ensure the coordinated development of the entire sector system within the state’s economic system. Specifically, within a country’s economic system, it is more conducive to the coordinated development of the state’s industrial system when a reasonable proportional structure is maintained between sectoral markets such as the agricultural market, industrial market, service market and information market. At the same time, it is necessary to maintain a reasonable proportional structure among the industrial markets within each sector category. For example, within a state’s agriculture system, it is more conducive to the coordinated development of the entire agricultural sector when a reasonable proportional structure is maintained between industrial markets such as crop cultivation, animal husbandry, aquaculture (fishery), and forestry. Therefore, the government can be a critical regulator in market allocation in terms of perfecting elements, a reasonable layout, and the adjustment of its proportional structure. The external environment supplies the sector system in the three areas of resources, firms and markets. From the deep factors of the dynamics of the sector system, it is the dynamic process of the absorption, integration, application and innovation of the sector system in the aspects of knowledge, institutions and technology, which will not be further discussed here.

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5.10 Overall Sectoral Competence With the sectoral operating cycle of input → output → reinput → reoutput, firms within the sector continue to absorb, internalise, and integrate resources through market transactions. The ever-increasing transaction demand promotes the growth and evolution of the market, the growing market attracts more firms to enter the sector, and the continuous increase in the number of firms has promoted the growth of the sector. In this process, firms in the industry are also growing and evolving at the same time and are constantly searching, learning, internalising, integrating knowledge and technology and are continuously adjusting and updating the corporate institutions. The continuous innovation activities of a large number of firms in the industry directly promote the continuous progress of industrial knowledge and industrial technology and the improvement of industrial institutions. The continuous advancement of corporate knowledge and corporate technology directly promotes the advancement of market transaction knowledge and technology, which then drives the development of market transaction institutions. This process is consistent with the growth and evolution of the market itself. Within a sector system, it is the coevolution of firms, markets and industries that have realised the growth and evolution of the entire sector. In the growth of a sector from weak to strong, the overall sectoral competence is constantly improving and growing. In the growth and evolution of the sector system, in addition to the coevolution of its internal firms, markets and industries, the sector also exchanges personnel, materials, currencies, commodities, knowledge, institutions, technology and information with the government, firms, households, scientific research institutions, universities and other social organisations in its external environment. A state’s government is crucial in the development of the sector, including the construction of public infrastructure, the establishment of a sectoral innovation system, the formulation and implementation of relevant sectoral policies, the guidance and adjustment of the sectoral proportional structure, and the cultivation and perfection of market transaction systems. Sectoral growth and evolution is actually a dynamic process in which the sector continuously adapts to the external environment and consistently realises the coupling of its internal and external environments. Overall sectoral competence refers to the comprehensive competence of firms within the sector to effectively integrate resources, provide products or services, and meet the needs of society. Overall sectoral competence is generally composed of the eight aspects of input, firms, resources, markets, knowledge, institutions, technology, and output. The stronger a sector’s abilities in these eight dimensions, the stronger its overall competence, and the stronger its comprehensive competitiveness. If the eight dimensions of input, firms, resources, markets, knowledge, institutions, technology, and output are used to describe the overall sectoral competence, then the potential energy diagram of sectoral competence can be drawn, as shown in Fig. 5.13. In Fig. 5.13, the eight dimensions are ➀ input; ➁ firm; ➂ knowledge; ➃ resources; ➄ institutions; ➅ market; ➆ technology; and ➇ output.

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Fig. 5.13 Potential energy diagram of sectoral competence

In the ➀ dimension, the sector changes from oa → oA, indicating that the overall investment from the external environment in the industry increases from point a to point A; In the ➁ dimension, the sector changes from ob → oB, indicating that the number, scale and production capacity of firms in the sector increases from point b to point B; In the ➂ dimension, the sector changes from oc → oC, indicating that the sector’s ability to learn, integrate and apply knowledge increases from point c to point C; In the ➃ dimension, the sector changes from od → oD, indicating that the sector’s ability to absorb, transform and utilise resources increases from point d to point D; In the ➄ dimension, the sector changes from oe → oE, indicating that the sector’s ability to construct, adjust and improve the institutions increases from point e to point E; In the ➅ dimension, the sector changes from of → oF, indicating that the quantity, scale and transaction capacity of the market in the sector have increased from point f to point F; In the ➆ dimension, the sector changes from og → oG, indicating that the sector’s ability to learn, apply and innovate technology increases from point g to point G; In the ➇ dimension, the sector changes from oh → oH, indicating that the sector’s overall output level and ability to the external environment increases from point h to point H. The above eight dimensions are a rough competence division based on the investigation of the entire sectoral input and output process. In fact, each sectoral ability can be further subdivided. For example, the external environment’s investment in the sector includes human resources, capital, policies, scientific research and innovation, infrastructure construction, etc. The improvement of the sector’s market competence not only refers to the quantity increase, the scale expansion, and the improvement in

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the transaction efficiency and level of the commodity market but also to the increase, improvement, and perfection of a multilevel and diversified market system including commodity markets, labour markets, capital markets, technology markets, information markets, and property rights markets in terms of quantity, scale, efficiency, and level. Each of these markets can be further subdivided; for instance, the capital market can be divided into the credit market, bond market, and stock market. Knowledge and technology in the sector include not only industrial knowledge and industrial technology but also market transaction knowledge and market transaction technology. Market transaction knowledge and market transaction technology can be further divided according to different sectors, markets and types of commodities. In addition to industrial institutions, institutions in the sector also include market transaction institutions, such as market access rules, market transaction rules, transaction bidding rules, and transaction arbitration rules. In Fig. 5.13, the small circle enclosed by a, b, c, d, e, f, g, h and a represents that the sector is in a lower position of potential energy, where the overall sectoral competence is relatively low, indicating that its market competitiveness is relatively weak. The large circle enclosed by A, B, C, D, E, F, G, H, and A represents that the sector is in a higher position of potential energy, where the overall sectoral competence is relatively high, indicating that its market competitiveness is relatively strong. The development of a sector from a, b, c, d, e, f, g, h and a to A, B, C, D, E, F, G, H and A is the process of the sector evolving from small to large, from weak to strong. Through the potential energy diagram of sectoral competence, sectoral growth and development can be vividly described. In actual sectoral growth and evolution, it is generally impossible for the sector to increase its abilities in the above eight aspects evenly in proportion, but with some abilities enhancing rapidly, some slowly, and some fluctuate. Therefore, the actual potential energy diagram of the sector generally does not form a regular circle. The concept of overall sectoral competence and the potential energy diagram of sectoral competence have provided a relatively comprehensive comparison metric for the horizontal comparison of the same type of sectors in different economic systems and a more comprehensive thinking framework for the government to support the development of related sectors. Apparently, the discussion of overall sectoral competence is still superficial, and the study in this area needs to be further discussed.

5.11 Sectoral Life Cycle The sector is the firm community composed of firms. A firm has its life cycle, and so does the sector. A sector generally has its life cycle of birth, growth, ageing and death. In the real economic system, some sectors have a long life cycle (i.e., planting agriculture), while some sectors have a relatively short life cycle (i.e., extractive industries). From the direction and state of sectoral evolution, the sectoral lifecycle can be divided into three stages of growth and progression, stability maintenance, and regression and decline.

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There are generally two directions of sectoral evolution, namely, progression and regression. Sectoral progression refers to sectoral evolution in a direction beneficial to sectoral development in terms of firm quantity, resource transformation, market scale, overall output, and niche quality, specifically shown in the continuously increasing number of firms, the enhanced resource transformation capabilities, the constant expansion of the extent of the market, the improved overall output capacity, and the better quality of the sectoral niche. Sectoral regression refers to the sectoral evolution in a direction unfavourable to sectoral development in terms of firm quantity, resource transformation, market scale, overall output, and niche quality, specifically shown in the continuously decreasing number of firms, the weakened resource transformation capabilities, the constant shrinking of the extent of the market, the reduced overall output capacity, and the worse quality of the sectoral niche. Under the combined action of external and internal motivations, there are only three possible outcomes of the sector’s ultimate evolution, namely, continuous progression, remaining the status quo, and regression and decline. In the actual economic system, the state of the sector corresponding to the three evolutionary results is as follows:

5.11.1 Sectors that Grow Up The decisive force of sectoral progress mainly comes from the social needs of the external environment. As long as human needs exist, the sector will progress continuously. The stronger the demands of human society are, the more sufficient the driving force for sectoral progression. In a state’s economic system, except for special circumstances such as wars, social unrest, and natural disasters, generally the state’s agriculture, industrials, services and other sectors will continue to grow. The potential energy diagram of sectoral competence clearly describes how a sector grows and progresses. In the potential energy diagram (Fig. 5.14) of sectoral competence growth, the eight dimensions are ➀ input; ➁ firm; ➂ knowledge; ➃ resources; ➄ institutions; ➅ market; ➆ technology; and ➇ output. Figure 5.14 shows that at first, the sector’s output capacity was quite weak (the starting point shown in the figure is zero), but driven by the demand outside the sector, the capabilities of the sector continue to improve, and the sector starts to grow. From the surface factors (firms, resources and markets) in sectoral operation, after the birth of the firm, which represents an emerging industry driven by social demand, new firms will continue to enter this industry, followed by resource elements such as talents and capital, thus prompting the growth of this new industry. The intercorporate division of labour and coordination within the industry promote the industry to manufacture products with a richer variety and a larger quantity into the market, which directly promote the growth and expansion of the industrial market. The expansion of the market has attracted more firms, thereby promoting further growth of the industry. From the deep factors (knowledge, institutions and technology) of sectoral

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Fig. 5.14 Potential energy diagram of the growth of sectoral competence

operation, the enhancement in the abilities of the firms, resources and markets also boosts sectoral competence in terms of knowledge learning and innovation, institutional construction and perfection, and technological innovation and application, which in turn encourages the output capacity of the entire industry. The improvement of the industry’s output capacity enhances the industry’s reproduction input capacity. Under the effect of the bifurcation and synergy mechanism, new industries have been continuously differentiated from this industry, and the intersection and merging of new and old industries has spawned a batch of newer industries, which has resulted in an increasing number of industries in the sector. As the input–output cycle progresses, the overall sectoral competence continues to grow, the sectoral scale keeps expanding, the competitiveness of the sector increases, and the sectoral niche expands accordingly. Thus, it is not difficult to find that in the process of sectoral growth and progress, sectoral competence undergoes a process from weak to strong, and the evolutionary trajectory of sectoral competence is actually a gradually expanding spiral (Fig. 5.14).

5.11.2 Stagnant Sectors When the external environment is less demanding and the sector lacks competitive factors, the sector will maintain a relatively stable state for a certain period of time. When the external environment changes slowly, which means that the industry is facing a relatively stable external environment, the industry can remain in a relatively stable operating state and continue until the external environment changes drastically. During this period, the industry is characterised by an unchanged sectoral scale, relatively solid market competitiveness, and steady sectoral niche.

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In ancient society, when a dynasty developed to a certain stage and the development of social productivity was seriously hindered by the lag of social system reform, if there were no major technological innovations during the same period, the socioeconomic system would often be stagnant. In ancient Chinese history, the socioeconomic system was stagnant in the middle and late stages of almost every feudal dynasty. The most typical is agriculture in the late Qing Dynasty in China. In a century from 1800 to 1900, China’s agricultural production had little development and was basically stagnant. At present, under economic globalisation, rapid knowledge and technological innovation, the external environment of the sector is changing fiercely. In a drastically changing external environment, no sector can retain the status quo in the long term. Therefore, maintaining stability can only be a relatively short-term phenomenon in the process of sectoral development.

5.11.3 Decaying and Declining Sectors When the needs of the external environment continue to weaken or even disappear, the sector will regress continuously. When the external environment changes rapidly and the internal dynamics is insufficient, the sector will not be able to actively adapt to the changing environment. With the passage of time, the overall sectoral competence will be gradually degraded, and the result of sectoral evolution will be demonstrated in the continuous reduction of sectoral scale, the decline of competitiveness, and the shrinkage of corporate niche. For resource industries such as coal and iron ore mines, when the resources are exhausted, the industry will naturally decline and die out, and the original firms in the industry need to move to new industries for development. Industrial transfer is formed by a large number of firms changing industries. If we observe the potential energy diagram of sectoral competence, a declining industry has experienced a process from strong to weak over time. The evolutionary trajectory of sectoral competence decline is actually a gradually shrinking spiral. In the potential energy diagram (Fig. 5.15) of sectoral competence decline, the eight dimensions are ➀ input; ➁ firm; ➂ knowledge; ➃ resources; ➄ institutions; ➅ market; ➆ technology; and ➇ output. Figure 5.15 shows that at the beginning, the output capacity of the sector was strong. Due to the gradual weakening of external demand, the capabilities of the sector are constantly decreasing, and the sector is declining and shrinking. From the surface factors of sectoral operation, under the circumstance of the gradual weakening of social demand and the continuous reduction of corporate profits, firms are withdrawing from the sector, and talents, capital and other resource elements are flowing to other sectors. The gradual shrinkage of sectoral scale directly leads to the contraction of the industrial market. The shrinking of the industrial market forces more firms to withdraw from industries, resulting in their contractions. The contraction of the industries in the sector further exacerbates the contraction and decline of the sector. From the deep factors of sectoral operation, the diminution in

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Fig. 5.15 Potential energy diagram of the decline of sectoral competence

the abilities of the firms, resources and markets also impedes sectoral competence in terms of knowledge learning and innovation, institutional construction and perfection, and technological innovation and application, which in turn impairs the output capacity of the entire sector. The reduction of the sector’s output capacity weakens the sector’s reproduction input capacity. As the input–output cycle progresses, the overall sectoral competence continues to decline, the sectoral scale shrinks, the competitiveness of the sector decreases, and the sectoral niche shrinks accordingly.

5.12 Sectoral Evolutionary Trajectory With the continuation of time, the morphological characteristics of the sector will continue to change, and the historical process of these changes is a sectoral evolutionary trajectory. Sectoral evolution is a combined result of external pressure and internal dynamics. When the external demand and supply are strong, the sector will progress in evolution, its scale will continue to be enlarged, and its sectoral niche will gradually expand. When the external demand and supply become weak, the sector will regress in evolution, its scale will continue to be reduced, and its sectoral niche will gradually shrink. The decline of resource-based industries such as coal and iron ore mines is generally directly reflected in the reduction of external supply due to the gradual depletion of mineral resources, which leads to the natural decline of the industry. Different from the micro-level firm system, in the forces affecting the evolution of the sector system, the influence from the outside is greater than that from the inside. Whether the final result of a sector system is progress or regress ultimately depends on the external driver.

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The external driving force for the evolution of the sector system comes from the niche system of the environment outside the sector. In the sectoral niche system, the demand for products and services, the supply of resource elements, polity, law, human-culture, science and education are the main factors that affect the sector system. Among them, the most direct influencing factors are the demand for products and services and the supply of resource elements, which have an important impact on corporate growth and development within the sector system. The human-culture factor in the sectoral niche system is a core factor that affects sectoral evolution because the survival and development needs of humans cause the demand for products and services, and the level of human understanding of the world restricts the supply of resource elements. In addition, human-cultural factors also affect the evolution and development of firms of all types in the sector system from the deep level of firms. The internal dynamics that drive the evolution of the sector system come from the six factors of firms, resources, markets, knowledge, institutions, and technology. Among them, the most important dynamic factor is the firms, and among all the firms, core firms play a leading role. As previously analysed, core firms play a leading role in the growth and development of an industry. It is the core firms that drive the development of related firms, thus driving the growth and expansion of industries and thus promoting the development of the entire sector. From the relation between the impacts behind sectoral development (Fig. 5.3), it is evident that sectoral operation starts with input and ends with output. In this process, the dynamics for sectoral development are formed by the two chains of: Chain A (surface factor chain): input → firm → resources → market → output Chain B (deep factor chain): input → knowledge → institutions → technology → output. From the sectoral input–output process, on the one hand, a sector is first tempted by the demand from other organisations in the sectoral niche system (i.e., governments, firms, or households) before starting input. It is this demand that induces specific firms in the sector to make a decision to start manufacturing certain products to put relevant resources into the production process; on the other hand, only after firms produce products and provide products to customers through market exchanges does a complete sectoral operating process end. Therefore, the process of sectoral operation is actually the response of the sector to the consumption demand in the niche, and it is also the process of the sector’s production supply to the niche. The input–output recycling process of the sector is actually a cyclical process that continuously meets the consumption demand of other organisations in the niche and creates production supply for them. In terms of the deep factors of sectoral operation, this is actually a cyclical process of consistently absorbing consumption demand information in the niche and creating customer value for them, and it is also a process of increasing the value of the sectoral chain. From the exchange link, apart from the interindustrial exchanges within the sector and the intercorporate exchanges within the industries, there are also exchanges of personnel, materials, commodities, funds, knowledge, institutions, technology, and

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information between the sector and its niche system, which are realised through the firms in the sector and the other organisations in the environment. The exchange mentioned here includes the external environment’s resource supply to the sector and the sector’s product supply to the external environment. The smooth exchange inside and outside the sector system directly affects whether an industry can grow easily. In addition, the sequencing of development (also the real-time structure) of different industries in a sector has different values and significances for the scale expansion and development speed of the sector. If a core industry in the sector can be prioritised for development, then this core industry can drive other related industries to grow together, thus driving the rapid growth of the entire sector. In contrast, if the core industries in the sector are not given priority to development, the correlation effect of the core industries in the sector will not be exerted, which will delay the rapid growth of the whole sector. It is known that the interindustrial association within the sector is interrelated through the intercorporate supply–demand chain of products, and the supply and demand of products between firms are generally realised through market exchanges. The level of market exchange and exchange efficiency directly affects the development of the sector. Therefore, the improvement of the exchange level and exchange efficiency between a sector and its external environment and between different industries within the sector has an important value and effect on the scale expansion and development speed of the sector. From the perspective of distribution, the efficiency of the distribution process and the reasonability of the distribution result directly affect the entire sector’s operating efficiency, which is also related to its strength of competitiveness. Obviously, highly competitive sectors can gain more niche space than sectors with weak competitiveness, and they can grow rapidly in a relatively short period of time. From the point of view of the resource allocation process, if too much resource allocation tends to be in the public goods industry, the input of the individual product industry is inhibited, and if the allocation of resources is too much toward the individual product industry, the input of the public goods industry is inhibited. The public good industry and the private good industry are interrelated, interinfluenced, interacted, and interrestricted. If the distribution relationship between the two cannot be coordinated, it will affect the healthy development of the entire national economy. Judging from sectoral distribution results, income distribution regulates the interests of different industries in the sector, different firms in the industries and different classes in the firms. Whether the distribution results are scientific and reasonable affects the subsequent operating efficiency and development of the sector. In addition, in the socioeconomic system, all kinds of resources are limited. If the limited resources are excessively occupied by noncore industries, it means that the resources required by the core industries will be relatively reduced. In this way, noncore industries will squeeze the growth of core industries, which is very detrimental to the scale expansion and rapid development of the entire sector. Noncore industries have less correlation influence than core industries, so their role as sectoral scale expanders and industrial pushers. Therefore, the improvement of distribution efficiency and rationalisation of distribution in the sector system also have important value and effect in the growth and development of the sector.

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Therefore, from the two links of exchange and distribution, exchange and distribution constitute the two key links in sectoral development and evolution. From the internal environment, the sector system must obtain resource elements from its niche before production. Whether the sector can obtain the required resource elements depends on the sector’s own resource absorption capacity. The sector incorporating resource elements from the niche into the sector is actually a necessary prerequisite for the smooth growth and evolution of the sector. From the growth and evolution of the sector system, the absorption and integration of resource elements in sector is also reflected in the growth and development of sectoral organisations, namely, firms, industries, and industrial markets within the sector. Based on the above analysis, the two operating chains of dynamics behind sectoral development shown in Fig. 5.3 can be described as follows: Chain A: resource absorption → sectoral organisational growth → market exchange efficiency improvement → sectoral distribution level improvement → sectoral competence enhancement Chain B: information absorption → industrial knowledge accumulation → industrial institutional innovation → industrial technological innovation → sectoral chain value growth Chain A reflects the growth of the surface features of the sector system, while Chain B reflects the growth process of the essential features of the sector system. In the evolution of the sector system, the above ten factors are closely linked to jointly promoting sectoral growth. If these ten factors are used as ten dimensions to reflect the development and evolution of the sector system, the sectoral evolutionary trajectory can be drawn (the shape of the diagram is similar to Fig. 4.19, which is no longer repeated here). In this figure, the ten dimensions are ➀ resource absorption; ➁ information absorption; ➂ sectoral organisation; ➃ knowledge accumulation; ➄ market exchange; ➅ institutional innovation; ➆ sectoral distribution; ➇ technological innovation; ➈ sectoral competence; and ➉ sectoral value. In the process of development and evolution, the sector system is growing in these ten aspects, that is, expanding outwards in the ten dimensions. It is not difficult to find that with the continuation of time, the running trajectories of the sector system in Chain A and Chain B are two gradually expanding spirals with the same starting point. During the operation of the sector system, these ten aspects are closely linked and coordinated. Therefore, chain A and chain B are growing and evolving in an intertwined spiral shape, which is similar to the double helix structure of biological DNA. The specific shape of the diagram is similar to the diagram of the corporate evolutionary trajectory in Chap. 4 (i.e., Fig. 4.19), which is no longer repeated here. The growth and development of the sector is a history of continuous evolution throughout time. From birth, growth to maturity, the sector experiences a process from unity to plurality, from low-level to high-level, and from simplicity to complexity. With the continuous expansion of the sectoral scale, the number of industries and industrial markets within the sector is rising, the sectoral structure and market network are becoming increasingly complex, and the interconnection, interaction

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and interinfluence between the industries and markets within the sector are becoming cumulatively sophisticated. In the actual economic system, the development of the sector system in these ten dimensions is not always synchronised evenly but fluctuates frequently such that some factors (i.e., firms and markets) may change rapidly, while some (i.e., distribution systems) may change slowly. Therefore, in fact, the trajectory of sectoral development and evolution is not necessarily a smooth and regular spiral. In the development and evolution of the sector system from small to large, its niche system also experiences a process from unity to plurality, from low-level to high-level, and from simplicity to complexity. The evolution of the sectoral niche and the evolution of the sector are carried out simultaneously through the interaction of factors such as firms, resources and markets inside and outside the sector system, forming a two-tiered (i.e., surface and deep) network, which constitutes a multidimensional complex dynamic picture. The sector system exists in a particular socioeconomic environment, and the evolution of the sectoral niche system is only part of the evolution of its external environment. In fact, the external environment of the sector system, whether it is the natural environment or the social environment (i.e., the human-culture, economy, polity, science, law, and education systems in the state system), is continuously evolving. The internal evolution of the sector system and the evolution of the external environment proceed at the same time, and the two are interrelated, interacted and influenced. Therefore, the essence of the evolution of the sector system is a process in which the internal factors of the sector and the external niche factors of the sector are continuously coupled over time in the interaction and communication.

Chapter 6

The Long-Term Evolution of Agriculture in China

This chapter follows Chap. 5, taking the long-term evolution of agriculture in China as a case study to provide historical facts for the theoretical framework of the sector system. According to the historical process, this chapter divides Chinese agriculture into three stages: ancient agriculture, modern agriculture and contemporary agriculture. The section of ancient agriculture explains the historical stages and main characteristics of ancient Chinese agriculture, discusses the relationship between ancient Chinese crop cultivation and animal husbandry, describes the market transaction network of ancient Chinese society, and expounds the agricultural knowledge, agricultural institutions and agricultural technologies corresponding to the deep structure of the agricultural system. The section of modern agriculture discusses the important influence of institutional reforms on economic development through the comparison of modern reforms between China and Japan, briefly depicts the process of China’s modern industrialisation and the impact of modern industrialisation on agricultural commercialisation, and describes the achievements of China’s modern agricultural mechanisation. The section of contemporary agriculture expounds the industrialisation trend of contemporary agriculture, lists its main technologies, and discusses the respective impact of contemporary industrials, contemporary services and contemporary information on agriculture. The famous economist Schumpeter pointed out that “the subject matter of economics is essentially a unique process in historic time. Nobody can hope to understand the economic phenomena of any, including the present, epoch who has not an adequate command of historical facts and an adequate amount of historical sense or of what may be described as historical experience.”1 Any economic theory that cuts off history is a rootless tree.2 To understand the sectoral structural framework proposed in the book from historical facts, this chapter briefly expounds the long-term changes in Chinese agriculture 1

Schumpeter, J. A. (1954). History of Economic Analysis. Oxford University Press. pp. 12–13. Wu, Y. H., Zhang, J. X. (eds). (2014). History of Foreign Economic Thoughts. Higher Education Press. p. 6. 吴宇晖., 张嘉昕. (eds). (2014). 外国经济思想史. 高等教育出版社. p. 6.

2

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and the evolution of market networks, agricultural books, agricultural institutions, agricultural tools, and modern industrialisation by means of historical investigation. According to the historical stages of agricultural development in human society, agriculture can be divided into the three periods of primitive agriculture, traditional agriculture, and modern and contemporary agriculture. Generally, the agricultural stage before the class society is classified into the period of primitive agriculture; the agricultural stage after the primitive agriculture and before the industrial age is classified into the period of traditional agriculture; and the agricultural period after the industrial age is classified into the period of modern and contemporary agriculture. In different parts of the world, the process of agricultural development is not completely consistent, so different countries have different historical stages of their own agriculture. Based on the viewpoints of some agricultural historians, the book divides the history of China’s agricultural development into the following stages (Table 6.1).

6.1 The Long-Term Transition of Agriculture in Ancient China The agriculture of human society originated in the Neolithic period at approximately 10 000 B.P. to 12 000 B.P. According to the authoritative research of most scholars, agriculture first appeared in approximately 5 to 9 regions of the world simultaneously and independently, and then farming and animal husbandry gradually spread throughout the world.3 China is one of the world’s agricultural origins, and China’s cultivation appeared in the Neolithic Age at approximately 9000 to 10 000 B.P.4 Thousands of primitive agricultural sites in the Neolithic Age have been discovered in mainland China, among which the earliest were 10 000 B.P.5 China’s agriculture was first initiated in the Yangtze River Basin and the Yellow River Basin and then in the other regions. The latest archaeological research indicates that approximately 8200 B.P. to 13 500 B.P., cultivated rice appeared in the Yangtze River Basin of China. The Shangshan Site in Pujiang County of Zhejiang Province is the world’s earliest remains of rice production, where our ancestors began to cultivate rice approximately 10 000 years

3

Coclanis, P. A. (2009). Historical Changes and Effects of the World Agricultural Institutions (Su, T. W., trans.). World History (06). 彼得·考克莱尼斯. (2009). 世界农业制度的历史变迁与功效 ( 苏天旺, trans.). 世界历史 (06). 4 Zhao, D. X. (2016). China’s Modern and Contemporary Economic History. Higher Education Press. p. 17. 赵德馨. (2016). 中国近现代经济史. 高等教育出版社. p. 17. 5 Peng, J. S. (2011). The Connotation of Farming Culture and Its Inspirations to Modern Agriculture. Northwestern Journal of Ethnology (01). 彭金山. (2011). 农耕文化的内涵及对现代农业之意义. 西北民族研究 (01).

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Table 6.1 History of China’s agricultural development Stages

Start & End year

Primitive agriculture

10 000 B.P.–4100 B.P Approximately 6000 years ★Approximately 2070 B.C., the Xia Dynasty established,6 and ancient China passed into a class society

Time span

Iconic events

Traditional agriculture

2070 B.C.–1861

3930 years

★In the first century B.C., the Han dynasty created Fan Shengzhi Shu 《泛胜之书》The Book of Fan Shengzhi ★In the sixth century A.D., Jia Si-Xie of the Northern Wei Dynasty completed Qimin Yaoshu 《齐民要术》Essential Techniques for the Welfare of the People ★In 1149, Chen Fu Nongshu《陈 旉农书》Chen Fu’s Treatise on Agriculture was written by Chen Fu in Southern Song Dynasty ★At the beginning of the fourteenth century, Wang Zhen of the Yuan Dynasty wrote Wang Zhen Nongshu《王祯农书》Wang Zhen’s Treatise on Agriculture ★In 1639, Xu Guang-Qi of the Ming Dynasty published Nongzheng Quanshu《农政全书》 Complete Treatise on Agriculture ★In 1861, the Qing Dynasty government launched the Self-Strengthening Movement, and the process of China’s industrialisation began

Modern agriculture

1861–1949

88 years

★In 1896, Luo Zhen-Yu and others initiated the Farm Bureau Federation in Shanghai, and founded Acta Agriculturae in 1897 ★In 1897, Zhejiang Silkworm Institute, the earliest agricultural school in modern China, was established ★In 1906, the Qing government set up Agricultural Experiment Station in Beijing ★In 1911, the Qing Dynasty fell; In January 1912, the Republic of China was established ★In 1915, agriculture in China began to introduce contemporary machinery (continued)

6 The calculations on the founding year of Xia Dynasty are many; According to the chronology based upon the Xia–

Shang–Zhou Chronology Project, commissioned by the Chinese government in 1996, the Xia ruled between 2070 and 1600 BC, existing 470 years approximately.

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Table 6.1 (continued) Stages

Start & End year

Contemporary agriculture 1949–present

Time span

Iconic events

More than 70 years

★In October 1949, the People’s Republic of China was established ★In 1958, China built its first tractor, indicating the start of China’s agricultural mechanisation ★In 1976, China began to promote the technology of indica hybrid rice, and the modern service sector started to enter the Chinese agricultural field ★In 1996, the backbone network of China’s public Internet was completed and opened, and China began to enter the information age

ago.7 The cultivated rice of 8000 B.P. to 9000 B.P. discovered in Dongting Lake, and the cultivated rice of 7000 B.P. unearthed from the Hemudu Site in Zhejiang, as well as the ancient cities, the altars of 6000 B.P., and the rice fields of 6500 B.P. detected at the Chengtoushan site in Hunan all indicate that the civilisation of the Yangtze River first appeared in the Yellow River Basin.8 China’s geographical conditions are complex, and different regions vary greatly in agriculture. In the Neolithic Age, China’s agricultural activities can be roughly divided into four regions9 : The Yellow River Basin and its northern part, a dryland agriculture based on foxtail millet (粟) and proso millet (黍) cultivations; The north of the Great Wall and the western regions, a nomadic husbandry focusing on raising cattle, sheep, and other livestock, given credit to a relatively developed hunting economy; The vast areas of the Yangtze River Basin, a paddy field agriculture relying on rice cultivation; The southern regions and the coastal areas, an agriculture in which harvesting and fishing account for a large proportion.

6.1.1 Historical Stages and the Main Features of Agriculture in Ancient China The combination of primitive agriculture and traditional agriculture was included in the scope of ancient agriculture. Compared with other countries, the most typical feature of ancient China’s agricultural production lies in its intensive cultivation. 7

Feng, Y., Li, M. M. (2020, December 4). The Fragrance of Chinese Rice and the Great River of Ten Thousand Years. Xinhua Daily Telegraph. 冯源., 李牧鸣. (2020, December 4). 中华稻香, 万 年前飘起一条大河边. 新华每日电讯. 8 Zhao, D. X. (2016). China’s Modern and Contemporary Economic History. Higher Education Press. p. 3. 赵德馨. (2016). 中国近现代经济史. 高等教育出版社. p. 3. 9 Zhai, H. Q. (ed). (2006). Introduction to Agriculture. Higher Education Press. p. 107. 翟虎渠 (ed). (2006). 农业概论. 高等教育出版社. p. 107.

6.1 The Long-Term Transition of Agriculture in Ancient China

293

Therefore, according to the periodisation method10 proposed by the agricultural economic historian Li Gen-Pan (1940–2019) in 1983, ancient China’s agricultural history can be divided into the period of primitive agriculture, the period of ditch agriculture, the formative period of intensive cultivation, the extended period of intensive cultivation, and the developmental period of intensive cultivation. Among them, except for the first stage, which belongs to primitive agriculture, the other four belong to traditional agriculture. The social eras corresponding to these five stages are as follows: 1. The period of primitive agriculture: from the birth of agriculture 10 000 years ago to 4000 years ago when ancient Chinese entered a class society; 2. The period of ditch agriculture: from Youyu-shi, Xia to Shang, Western Zhou, Spring and Autumn, when primitive agriculture transitioned to intensive cultivation; 3. The formative period of intensive cultivation: from the Warring States to the Qin, Han, Wei, Jin and Southern and Northern Dynasties, when a system of intensive cultivation techniques was formed in the northern dry lands; 4. The extended period of intensive cultivation: from Sui, Tang to Song, Liao, Jin and Yuan, when a system of intensive cultivation techniques was formed in the southern paddy fields; 5. The developmental period of intensive cultivation: this includes the Ming and Qing dynasties, when multicropping methods were promoted and cultivation techniques were refined. The evolution of these five stages in terms of cultivation system, crop composition, agricultural technology and farm tools is roughly as follows:

6.1.1.1

Stage I: The Period of Primitive Agriculture

This period began with the invention of agriculture 10 000 B.P., and ended with the formation of class society approximately 4000 B.P, around the late stage of Chinese primitive society. The time span of this period is approximately 6000 years.

10

Li, G. P. (1990). A Discussion on the Stages and Features of Ancient Chinese Agricultural History. In: Economic History Research Group of Institute of History at Chinese Academy of Social Sciences (ed). Questions in Ancient Chinese Social and Economic History. Fujian People’s Publishing House. 李根蟠. (1990). 试论中国古代农业史的分期和特点. In: 中国社会科学院历 史研究所经济史研究组 (ed). 中国古代社会经济史诸问题. 福建人民出版社.

294

6 The Long-Term Evolution of Agriculture in China

The cultivation system in this period mainly carried out shifting cultivation,11 initially virgin land cultivation, followed by abandoned land cultivation. The highlight of cultivation technology during this period was slash-and-burn agriculture,12 and the technological focus gradually shifted from the forest to the land. There were many more varieties of plants cultivated and used in this period than in later generations, including foxtail millet (粟), proso millet (黍), rice (稻), wheat (麦) and soybeans (菽). Among the crops, the north is dominated by foxtail millet, and the south is dominated by rice. The main raw materials for clothing are linen, hemp cloth and silk. This composition remained unchanged until the Tang and Song dynasties. The vast majority of agricultural sites in this period showed an economic outlook that was dominated by crop cultivation, combined with farming, grazing, gathering, fishing and hunting. Hunting and fishing have long been important in the places north of the Great Wall and along the rivers, streams, lakes and seas in the south. With the development of crop cultivation, animal husbandry has gradually appeared in some areas of the north. The livestock that people kept were mainly pigs at first, then liuchu 六畜 six domestic animals of pigs, cattle, sheep, dogs, horses, and fowls. Farm tools in this period were mainly stone tools supplemented by wood, bamboo, bone and clam tools. Farm tools discovered by archaeological studies include cutting tools such as stone axes and stone adzes; planting tools of bamboo sticks; harvesting tools such as stone knives and stone sickles; and earth-turning tools such as stone hoes, stone shovels, and stone ploughs. These tools are operated entirely by hand.

6.1.1.2

Stage II: The Period of Ditch Agriculture

Starting from the time of Youyu-shi and the Xia dynasty, passed through the Shang and Western Zhou dynasties, and ended in the Spring and Autumn Period, this period experienced Chinese slave society and feudal lordship society. The time span of this period is approximately 1594 years.

11

It refers to one of the oldest and primitive farming systems in the early stages of human cultivation, a land-use technique in which plots of land are cultivated temporarily, then abandoned (usually when the soil shows signs of exhaustion, or when overrun by weeds) and allowed to revert to their natural vegetation. 12 Slash-and-burn agriculture is a technique in agriculture left over from the Neolithic Age, and it is an ancient and primitive form of farming. This method now still exists among the indigenous tribes in tropical rainforest and hilly areas in South America, Africa and Southeast Asia. The method begins by cutting down the trees and woody plants in an area. Then, the biomass is burned into a swidden, which can be directly sowed without ploughing. Usually, after one year, the plot’s productivity decreases due to depletion of nutrients along with weed and pest invasion, causing the farmers to abandon the field and move over to a new area. The benefits of burning plants are it can, first, improve the acidic soil because the resulting ash is alkaline; second, the nutrient-rich layer of ash makes the soil fertile and increases production; and finally, the fire burns the grass seeds and pest eggs, thereby reducing the workload of weeding and controlling pests.

6.1 The Long-Term Transition of Agriculture in Ancient China

295

This period transitioned from primitive agriculture to intensive cultivation and traditional agriculture, featuring the close relation between ditch agriculture and leisi 耒耜 an ancient plough, ougen 耦耕 pair ploughing, and well-field system. In this period, ditch agriculture was mainly adopted in the North China Plain region, and a more extensive fire-ploughing and water-weeding method was implemented in the paddy fields in the south.13 In line with ditch agriculture, the cultivation system was changed from shifting cultivation to a fallow system. Crop cultivation had facilitated its dominant position vastly across regions, and aquaculture, artificial tree planting, and professional gardening have emerged one after another. Animal husbandry had also developed greatly, and techniques such as dry lot feeding, castration, animal body reading, protection of pregnant animals, and pasture management had all emerged. Bronze to