I recently came across this article on "evolutionary economics" and was immediately skeptical. Generally such concepts the result of yet another academic or consultant trying to make a buck by repackaging common sense or existing theory. However since it included the word "evolutionary" and we claim to spout forth on that which is "evolving" I figured I better read at least half of the article. Good thing I did, as it piqued my interest enough to get me to the end, which is where there was some real meat. Not new meat mind you, but still real.
… a new science called evolutionary economics. This discipline looks at
the economy as an ever-changing, complex adaptive system — not unlike
that of biological evolution. Immune systems, language, the law, and
the Internet are all examples of other complex adaptive systems. They
learn and grow from the bottom up. Individual elements (organisms in
evolution, people in economics) interact and adapt to changing
conditions. These systems are so intricate that they often look as
though they’ve been designed from the top down. So our minds naturally
infer the existence of an intelligent designer for complex life and a
government designer for complex economies.
Hmmm… not sure that’s really new. I’ve always been amazed at the complexity of economic systems, which is why I’ve never been amazed at the failure of government attempts to control it. But let’s stop rolling our eyes and move on.
But there’s more to it than that. Both evolution and the economy are
autocatalytic, which means they each contain self-driving feedback
loops. In evolution, an arms race between predators and prey is a type
of feedback loop where, for example, antelopes will get faster in their
efforts to escape leopards that in turn will increase leopards’ running
speeds or else they won’t survive as a species.
Basic Darwinism… or basic free market economic theory when applied to unregulated organizations. Eyes are aching to roll…
In biological evolution, variation is produced by random genetic
mutations and the mixing of parental genes. These produce
characteristics that are naturally selected by the criteria of survival
and reproduction. Out of this process emerge complex and diverse
In economic evolution, we generate variation by producing numerous
permutations of countless products. Customers then opt for the products
they deem most desirable, "selecting" those with the features they
Behold! The free market! Uh… that was invented a while ago…
So, again, why do we desire — indeed, demand — top-down interventions into the economy when it stumbles?
We have little appetite for economic uncertainty, in part because of
our roots as hunter-gatherers, where the economy is a zero-sum game in
which one’s gain is another’s loss. The latest evolution of human
groups, into large, modern nation-states, has created an expectation
that government will balance that zero-sum threat by providing a
measure of economic certainty — rebuilding houses destroyed in
hurricanes, and so forth. And so we’re hardwired to demand political
action to smooth out business cycles and level the playing field.
Now that makes sense. How many of us taxpayers have been peeved at homeowners who build in flood zones or microscopic sand bars off the coast, see their homes destroyed, then get government intervention to rebuild? Or how about the latest proposed (still not signed…) bailout of homeowners who didn’t read the fine print or weren’t savvy enough to realize that eventually paying a mortgage of 110% of their take-home wasn’t exactly feasible? Of course most of that fine print was driven by regulatory excess to begin with. Could the "make it easily understandable" side of lean accounting be applied to voluminous contracts?
Yet today, the economic game is not zero-sum. A market economy in a
modern democracy with the protection of private property, the rule of
law, a sound currency, a fair justice system, a reliable
infrastructure, and entrenched civil liberties means that the gain of
one can be the gain of another. Win-win is the new economics. Still,
our deep intuitions about how the world works haven’t caught up to our
Now there’s some meat. We’ve discussed the fallacies of a zero sum mindset a couple of times. There doesn’t have to be winners and losers… you can have a win-win dynamic. And it call comes back to basic economics.
At those moments when we believe in top-down solutions for bottom-up
problems, remember the bedrock of Adam Smith’s economic theory:
"Consumption is the sole end and purpose of all production; and the
interest of the producer ought to be attended to, only so far as it may
be necessary for promoting that of the consumer." Government bailouts
and handouts are both forms of appeasing producers. If we focus on
solving problems for customers instead — encouraging the creation of
can’t-live-without products — we will have an easier time riding out
the natural storm of a down cycle.
Focus on the value to the customer. Now where have I heard that before?