Perhaps the
most fundamental problem for rational choice arises when uncertainty is
radical, i.e. when we do not know in advance what all the options for actions
are and what their consequences may be. Often options arise in the light of the
outcomes of actions rather than being given in advance. Also, the preferences
that are supposed to form the basis for rational choice are often formed in
action rather than being given before it. I will argue that an evolutionary
perspective of innovation, which avoids ‘intelligent design’, yields a more
useful perspective.
The basic
principles of evolution are variety generation, selection and
transmission (of what survives selection). In item 30 of this blog I
discussed evolution in society. Here I focus more on the economy. Variety
generation arises from innovation, selection is performed by markets and
institutions, and transmission of success occurs in firm growth, imitation,
education and training.
However, in
item 30 I warned against going too far in adopting a biological analogue of
evolution. In society, variety generation, selection and transmission take
their own forms, which are quite different from biology. Innovation is not the
same as mutation of genes and crossover of chromosomes. The selection environment
of markets and institutions can be manipulated by political influence.
Transmission entails communication, which entails interpretation, which entails
transformation, so that it is at the same time not only transmission but also a
source of variety.
Evolution
provides an alternative to market logic including freedom and variety as well
as selection. There is freedom in a variety of ideas put up for selection.
Struggle for survival includes competition, but also symbiosis. Survival, in
adaptiveness to the selection environment, is not necessarily rational or
optimal. In innovation it is often not the best product that wins, but the one
that manages to conquer the market first. Most important, evolutionary theory
recognizes radical uncertainty that limits intelligent design.
It is often
adaptive, good for social survival, to go along with majority opinion, against
one’s own views and convictions. This is connected with group think in
organizations, herd conduct in markets, and immorality of
groups (see item 48). Policies are designed and adopted that are illogical,
not optimal or even detrimental, for the sake of political expediency.
Paradoxically,
this can lead to policies that satisfy old, erroneous intuitions of rational
design, thwarting the dynamics of evolution. An example is innovation policy,
as adopted in the Netherlands, in the form of planning innovation in committees
for selected industries. It goes against the logic of evolution, and indeed the
logic of markets, in reducing variety and selection. It yields an obstacle for
the crossing of boundaries between industries and technologies that generates
innovation. However, there is an erroneous, adaptive political rationale. Such policy
avoids the risks of real innovation that parliament finds hard to stomach for
its ‘failures’ to succeed, it gives vested interests in big business an opportunity
to lobby for their interests to limit innovation to incremental innovation that
does not upset existing investments and markets too much. This yields a
powerful political force to adapt and conform to current standards that sweeps
along even scientists who know better.
Is there no
evolution or market mechanism to penalize this? Yes: it is manifested in new
emerging countries less caught in habits and regulation that win out in
innovation.
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