Standing on the Sun. Christopher Meyer

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      CHAPTER TWO

      Cambrian Capitalism

      Runaway feedback, the peacock's tale, and the evolution of capitalism

       One hundred years from now economists will look back and say the father of the profession wasn't Adam Smith—it was Charles Darwin.

      —Robert Frank, 2011 Aspen Ideas Festival

      In 1992, Chris was facilitating an annual strategy offsite for the senior management team of MicroAge, one of two Fortune 500 companies in Arizona at the time.¹ The discussion turned to a new class of competitor and its possible effect on MicroAge. After ten minutes of increasingly concerned discussion, the VP of sales exploded: “It's a war out there, and these guys are getting ready to attack us! We have to be ready to hit them first, before they can build momentum.” The President, Alan Hald, responded, “Maybe, but could we consider another way to think about it? What if it's not a war of us against them, but more like an ecology, in which they're a new species with a niche distinct from ours, and we're both better off by coexisting?”

      Chris was startled. He'd been following the literature of complexity theory (more formally, complex adaptive systems), which often suggested parallels between biology and economics. And he had tested some of the ideas with businesspeople, most of whom reacted with bemused skepticism. Now, for the first time, he was hearing a corporate executive try to sell this concept to his team. (To be honest, though, it didn't get much uptake, except from Hald's equally innovative Chairman, Jeff McKeever. The VP of sales responded with an ostentatious eye roll.)

       To discuss these ideas on Twitter, use these hashtags:

       #runaway #coevolution #greenfield

      Complexity theory went on to enjoy a vogue in the mid-1990s after which much of the punditocracy considered it passé. But in the fifteen years since, the idea of business as biology has only grown stronger, to the point that businesspeople employ the jargon without giving it much thought, as when they say, for example, “That's not in our DNA” about a corporate capability.² Books have been written, the ideas continue to be diffused, and biology-inspired techniques have been developed, applied, and proven fruitful. The eye rolling stopped long ago, and complexity applications don't go by that name any more; they're called things like agent-based models, genetic algorithms, and nonlinear search algorithms, or accepted as a subset of analytics. Practitioners have taken on these ideas, developed new tools, and proved their capabilities. The methods are in ever-broader use, and the power of the parallels between economy and ecosystem has only begun to be exploited.

      This is not another book about biology and business, but it does build on what has been learned about systems that evolve, be they ecologies or economies.³ In chapters to come, you will find us invoking a few concepts about feedback, selection, and evolution that are valuable to understand at the outset. It's not that you need a glossary to read this book, but our use of some terms draws on meanings they might not always carry in common parlance.

      Chapter 1 already provided a specialized definition of the word “environment,” explaining that the environment in which capitalism is situated is not only geographic, but also demographic, technological, and cultural. This chapter moves from the “where” of capitalism's evolution to the “how”—providing the language to discuss the process by which a system adapts to its environment. If we're going to convince you that capitalism can change its spots, we need to be clear on the process by which that transformation will happen.

      A Theory of Change

      In the world of NGOs—the nongovernmental organizations that work to make the world a better place—a phrase has caught on in recent years. It's the observation that one must have a “theory of change.” The point in the social sphere is that it is often easy to get broad agreement on a desired end-state—for example, to reduce homelessness or eradicate malaria—but the hard part is outlining for donors and others how you think the movement will happen from point A to point B. Often the most effective route is not the one that seems most obvious and direct.

      In writing this book, we didn't start from a point B; we had no consensus target for capitalism to move toward. We do, however, have a very definite theory of change: that capitalism is made up of rules practiced by capitalists; that in different environments capitalists will adapt, generating new rules; that the new rules will be taken up wherever they work well; and that some of the existing rules will not be favored in new (and increasingly influential) environments. In the jargon, capitalism is an adaptive system.

      Not to get too Discovery Channel, if you were watching the evolution of homo sapiens and got to the part where the monkeys came down from the trees, you might notice that they were using their limbs differently on the ground and imagine that someday they might look like tailless, upright apes. That would happen because the monkeys with capabilities best fitting their no-longer-arboreal environments got to pass their genes on to successors more frequently than those that didn't. In the same way, capitalism will end up optimized for a new world not because of policy or revolution but because of adaptation.

      To state it all but redundantly, adaptive systems come to reflect the features of their environments. In chapter 1, we explored how capitalism's environment has changed broadly, deeply, and rapidly. Knowing that, one could adopt one of two points of view: either this shift has no feedback on capitalism itself, or it does. If the economy is like a machine, a change of environment will mean nothing to it. It will go through all the same motions it did in the old environment, even if they prove less productive. But if it's more like a natural, organic system, made up of individuals who can figure out new ways to make a living, the system will discard things that are not working out well in this new world, and adapt.

      Capitalism Is a Set of Rules

      What is it exactly that changes when a system like capitalism evolves? Economist Paul Romer addresses this question in the theory of history he is developing. A new theory of history sounds awfully ambitious, and it is, but Romer brings it down to two forces. Change in human society, he says, is the result of fresh ideas, and those come in two flavors: technologies and rules. “Technologies are just ways to rearrange physical objects to make them more valuable to us,” he explains, and “rules are just ways to structure the interactions that people have with each other, to get the most value out of those interactions.”⁴ Ideas of both kinds are easily spread, and they often go hand in hand. The constant quest to gain value on both fronts propels civilization forward.

      At the level of an economy, a rule might be a matter of law or it might be less formally stored in culture, values, and norms. Romer cites, for example, the social repercussions that followed as people in communities got past their sense—their internalized rule—that if they were harmed by someone the right response was to exact vengeance. When a new rule took hold—that instead of meting out retribution they should seek compensation—civilization advanced. “If a man is wronged and retaliates by burning his antagonist's house down, there is a net loss to the economy,” Romer explains. “If he instead sues for the value of the house and prevails, there is a transfer with no overall cost.” (Legal costs were presumably de minimis at the time.)

      We're in full agreement with the emphasis Romer places on rules in his theory of history. The march of technology is stunning and constantly commented upon, but it is only half of the force that advances civilization. The new possibilities created by technological progress must be navigated with new rules. This, we think, is appreciated on a very deep level, even if it is rarely articulated as well as it has been by Romer. СКАЧАТЬ