Institutional Variety and Ayres-Veblen “Lag”: Implications for Selection and Development

Firms and nations attempt to build their technological capabilities amidst co-existing systems of knowledge and a variety of institutions. This variety might in principle result in fragmented knowledge and learning systems with no easy adaptation, clear social connection, or shared idea of progress. High institutional variety environments may be innovative but offer an uncertain future environment in which individuals and firms act, and which can paralyze the search and learning process. This paper discusses the Ayres-Veblenian concept of institutional ‘lag’ and its links to institutional variety. Industrial policy is routinely used conceptually and administratively as a selection device to cull such institutional variety, for example, re-steering the health industry’s knowledge and production context or integrating informality in social policy design. Policy selection can thus offer valuable framing contexts to build inference and judgments about evolutionary systems and technology products. Once an evolutionary and institutional perspective is employed however, ‘lag’ and ‘progress’ are technologically contingent. The paper concludes that both industrial analysis and economics’ philosophical foundations may benefit from co-evolutionary and combinatorial approaches, and insights from a non-Western perspective.