The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics
by Eric D. Beinhocker
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Complexity catastrophes help explain why bureaucracy seems to grow with the tenacity of weeds. Many companies go through bureaucracy-clearing exercises only to find it has sprung back a few years later. No one ever sits down to deliberately design a bureaucratic muddle. Instead, bureaucracy springs up as people just try to optimize their local patch of the network: finance is just trying to ensure that the numbers add up, legal wants to keep us out of jail, and marketing is trying to promote the brand. The problem isn't dumb people or evil intentions. Rather, network growth creates interdependencies, interdependencies create conflicting constraints, and conflicting constraints create slow decision making and, ultimately, bureaucratic gridlock.
The evolutionary economist Richard Nelson of Columbia University has pointed out that there are in fact two types of technology that play a major role in economic growth. The first is Physical Technology; this is what we are accustomed to thinking of as technology, things such as bronze-making techniques, steam engines, and microchips. Social Technologies, on the other hand, are ways for organizing people to do things.
Intuitively, many people imagine that humankind's upward climb in economic sophistication was a slow, steady journey, a linear progression from stone tools to DVD players. The actual story, pieced together by archaeologists, anthropologists, historians, and economists, is not at all like that. It is far more dramatic.
This tension between interdependencies and adaptability is a deep feature of networks and profoundly affects many types of systems. Software designers see it when a program becomes so complex that any enhancement or bug fix introduces five new bugs. Architects see it when a client asks them to move a wall just one foot, and it has knock-on effects that send the project's cost sky-high. Some biologists, such as Stuart Kauffman, believe that this tension creates upper limits on the complexity of organisms. In economic organizations, there is a clear trade-off between the benefits of scale and the coordination costs and constraints created by complexity.
Hierarchies are critical in enabling networks to reach larger sizes before diseconomies of scale set in. This is why so many networks in the natural and computer worlds are structured as networks within networks.
There are people who make a hobby of "alternative history," imagining how history would be different if small, chance events had gone another way One of my favorite examples is a story I first heard from the physicist Murray Gell-Mann. In the late 1800s, "Buffalo Bill" Cody created a show called Buffalo Bill's Wild West Show, which toured the United States, putting on exhibitions of gun fighting, horsemanship, and other cowboy skills. One of the show's most popular acts was a woman named Phoebe Moses, nicknamed Annie Oakley. Annie was reputed to have been able to shoot the head off of a running quail by age twelve, and in Buffalo Bill's show, she put on a demonstration of marksmanship that included shooting flames off candles, and corks out of bottles. For her grand finale, Annie would announce that she would shoot the end off a lit cigarette held in a man's mouth, and ask for a brave volunteer from the audience. Since no one was ever courageous enough to come forward, Annie hid her husband, Frank, in the audience. He would "volunteer," and they would complete the trick together. In 1890, when the Wild West Show was touring Europe, a young crown prince (and later, kaiser), Wilhelm, was in the audience. When the grand finale came, much to Annie's surprise, the macho crown prince stood up and volunteered. The future German kaiser strode into the ring, placed the cigarette in his mouth, and stood ready. Annie, who had been up late the night before in the local beer garden, was unnerved by this unexpected development. She lined the cigarette up in her sights, squeezed...and hit it right on target.Many people have speculated that if at that moment, there had been a slight tremor in Annie's hand, then World War I might never have happened. If World War I had not happened, 8.5 million soldiers and 13 million civilian lives would have been saved. Furthermore, if Annie's hand had trembled and World War I had not happened, Hitler would not have risen from the ashes of a defeated Germany, and Lenin would not have overthrown a demoralized Russian government. The entire course of twentieth-century history might have been changed by the merest quiver of a hand at a critical moment. Yet, at the time, there was no way anyone could have known the momentous nature of the event.
Foster and Kaplan’s somewhat paradoxical finding that as a group, the long-term survivors in the S&P 500 underperformed the average. It is the constant entry of newcomers that keeps the average up.
