From Clan to Keiretsu: the Evolution from Conflict to Cooperation and What it means for Innovation

World history has thus far given rise to two different paradigms for institutional design: the clan and the keiretsu.

For most of human history, the clan has been the dominant form for institutional design.  The clan is the most politically and economically efficient form of government when communication between people is difficult and credible commitment uncertain.  In a world in which two groups can achieve a better outcome for both over the long-term by cooperation, but in which each can achieve a better outcome  for itself over the short-term, difficulties in communicating and making commitments will result in repeated conflict between the two groups.  And it is not at all certain whether the repeated conflicts will eventually lead to cooperation over the long-haul.  In some places, such as Papua New Guinea, Northern Ireland, or Palestine, the barriers to communication and commitment may never be overcome.

About three centuries ago, a different paradigm began to emerge: the keiretsu.  Although the paradigm could not be recognized as such for many hundreds of years, the early forms of corporations, such as the sovereign charters for the groups that set out to explore and colonize the "New World", were nonetheless distinct from the clan in their strategy for organizing people.  Instead of motiving people to organize for the purpose of defeating another clan, the corporation motivated people to organize for the reward of long-term profits that could be realized by cooperation toward a common goal.  So long as there was no other corporation in competition for the same goal (in which case, the two competing corporations would begin to take on more clan-like characteristics), the strength of the corporation was defined entirely in terms of how-well the vision of  its members was shared.  The keiretsu may have reached its highest peak thus far in Japan in the 1950s and 1960s, as the entire nation organized together with the common goal of rebuilding the Japanese economy.

Having recognized these two paradigms for institutional design, the world now has a choice in deciding what kind of institution it will build: will it be the warlike clan or the peaceful keiretsu?

But the question is not as simple as it might seem.  Because as the experience of Japan has demonstrated over the past few decades, the keiretsu has a weakness that has been serious enough to prevent it from taking over as the dominant form of human institution.  Although the keiretsu has been more effective than the clan in organizing people into achieving long-term goals, its success has depended crucially on improved communication and the ability to extract personal commitments from its members.  It is no wonder then that Japan should have been home to the culture in which the keiretsu model has closest approached perfection.  The corollary is that where communication and commitment remain difficult, the dominant form of institution will remain the clan.  And communication and commitment have become much more difficult in a globalized world in which change happens everywhere and all at once.

Communicating and committing to cooperate in the decades-long cycle of innovation is perhaps the most complex challenge the business world has ever faced.  In fact, as the norms of conflict demonstrated by the plague of antitrust and IP litigation demonstrate, we have not yet been able to evolve from a clan-like model for competition.

But the Internet has permitted for unprecedented ease in communication.  And the evolution of the law of organizations in the United States and around the globe promises new flexibility and accountability in achieving lasting commitment between diverse groups.  As Lincoln anticipated long ago, the law of patents may give birth to a new age of cooperation among diverse groups of people within industry.

I'm looking forward to seeing how we rise to the challenge.

Update: Perhaps the earliest proto-keiretsus were not corporations, but coinsurance agreements in Genoa in the 15th century.