The Evolution of Future Wealth

– The relatively new science of Complexity is one of the most exciting ideas around and Kauffman has always been involved near the cutting edge of what’s known and suspected about Complexity through his work with the Santa Fe Institute. Here he argues for business to take a page from biology if it wants to better understand how to adapt to changing markets.

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by Stuart A. Kauffman

When the world changes unpredictably over the course of centuries, no one is shocked: Who blames the Roman centurions for not foreseeing the invention of rocket launchers? Yet monumental and surprising transformations occur on much shorter timescales, too. Even in the early 1980s you would have been hard-pressed to find people confidently predicting the rise of the Internet or the fall of the U.S.S.R. Unexpected change bedevils the business community endlessly, despite all best efforts to anticipate and adapt to it–witness the frequent failure of companies’ five-year plans.

Economists have so far not been able to offer much help to firms trying to be more adaptive. Although economists have been slow to realize it, the problem is that their attempts to model economic systems focus on those in market equilibrium or moving toward it. They have drawn their inspiration predominantly from the work of physicists in this respect (often with good results, of course). For instance, the Black-Scholes model used since the 1970s to predict the volatility of stock prices was developed by trained physicists and is related to the thermodynamic equation that describes heat.

As economics attempts to model increasingly complicated phenomena, however, it would do well to shift its attention from physics to biology, because the biosphere and the living things in it represent the most complex systems known in nature. In particular, a deeper understanding of how species adapt and evolve may bring profound–even revolutionary–insights into business adaptability and the engines of economic growth.

One of the key ideas in modern evolutionary theory is that of preadaptation. The term may sound oxymoronic but its significance is perfectly logical: every feature of an organism, in addition to its obvious functional characteristics, has others that could become useful in totally novel ways under the right circumstances. The forerunners of air-breathing lungs, for example, were swim bladders with which fish maintained their equilibrium; as some fish began to move onto the margins of land, those bladders acquired a new utility as reservoirs of oxygen. Biologists say that those bladders were preadapted to become lungs. Evolution can innovate in ways that cannot be prestated and is nonalgorithmic by drafting and recombining existing entities for new purposes–shifting them from their existing function to some adjacent novel function–rather than inventing features from scratch.

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