This book review was written by Eugene Kernes
“Evolution creates designs, or more appropriately, discovers designs, through a process of trial and error. A variety of candidate designs are created and tried out in the environment; designs that are successful are retained, replicated, and built upon, while those that are unsuccessful are discarded. Through rejection, the process creates designs that are fit for their particular purpose and environment. If the conditions are right, competition between designs for finite resources drives the emergence of greater structure and complexity over time, as evolution builds on the successes of the past to create novel designs for the future.” – Eric D. Beinhocker, Chapter 1: The Question, Page 31
“Put simply, large organizations inherently have more attractive opportunities before them than small organizations do (the large can theoretically do everything the small can do, plus more.) But reaching those future opportunities involves trade-offs, and the more densely connected the organizational network, the more painful those trade-offs will be. The politics of organizations are such that local pain in particular groups or departments is often sufficient to prevent the organization from moving to a new state, even if that state is more globally fit.” – Eric D. Beinhocker, Chapter 7: Networks, Page 180
“All competitive advantage is temporary. Some advantages last longer than others, but
all sources of advantage have a finite shelf life. While this may sound like a truism, the observation
is often forgotten in the never-ending quest for “excellent” companies that
build sustainable competitive advantages and allegedly outperform their
industry peers year after year.” – Eric D. Beinhocker, Chapter, Page 363
Is This An Overview?
Wealth is an emergent property that evolved through people’s cooperation. Cooperating for rewards, for mutual benefits. Society enables synergy between people, differences within people, to create non-zero-sum outcomes. Wealth that is enhanced by the productivity of labor, through specialization created by division of labor. Cooperation made possible by various social technologies, which are the rules people abide by.
Wealth is contained in knowledge, for knowledge enables
people to transform resources into value.
Originating and improving through the process of evolution. A method of competing to survive that filters
out errors and enables the successful competitors to share their traits. There is no best strategy for survival, no
sustainable competitive advantage. Any
competitive advantage is temporary.
Survival itself is success.
Competition allocates finite resources, with markets being better due to
their ability to innovate in disequilibrium.
How Complex Is Cooperation?
Evolutionary successful strategy of cooperation builds on past methods. Innovate based on what was, but innovations have diminishing returns. To keep high returns, more innovation is needed. It might be impossible to predict the changes that evolution enabled, but societies can be designed better.
The collective has emergent properties. Properties that do not exist within the individual. Emergent properties such as complexity. Enabling systems that are dynamic and nonlinear. Systems that have self-reinforcing cycles of positive feedback, and self-regulating cycles of negative feedback.
Cooperation can have a network effect, in which products that
garner more users based on the number of users the system has. Networks can provide a lot of value, but they
can have consequences. Networks can
become too complicated. Creating a
complexity catastrophe. When the
networks grow too much, a negative change somewhere has drastic effects on
various other parts. Networks create
interdependencies that have conflicting constraints, that create gridlock. Local pain in change can prevent change in the
whole system even if the change would improve the whole system. Hierarchy can enable a better flow of
information, to enable complexity along with the interdependencies. But hierarchies have their own informational
problems, such as information degrading.
How Has Economics Changed? Or Did Not Change? How To Simplify?
Physics was imported into economics which gave economics mathematical precision, at the cost of realism. For some, it did not matter that the assumptions were not realistic, as long as they made correct predictions. That the system acted ‘as if’ the assumptions were correct. But, the purpose of science is explanations, not predictions. The explanation and conclusion need to be tested. Economics took ideas from physics, but while physics kept changing, economics did not. Physics went from deterministic to dynamic and indeterminate.
Various economic ideas were wrong because economists were using
science appropriately. Assumptions are
meant to simplify, but not contradict reality.
Economists used assumptions inappropriately by taking them to an
extreme, that contradicted reality. But
there has been improvement, by enabling more realistic assumptions such as
through the satisficing rather than making perfectly rational decisions.
Caveats?
Evolution is an integral concept to explain wealth, cooperation, and complexity. Evolution is considered to provide beneficial change by error correcting problems. The problem is that evolution does not provide only benefits, but also consequences. Evolution can enable traits that are better for the individual at the expense of the system, at the expense of cooperative ventures.
While the author critiques various economic ideas, and
referenced them as having been more static, there are also references to how
the ideas have changed, improved, and were integrated within various
fields. The author provides various updated
ways that economics has improved, has evolved.
