Origins of Wealth
The Origins of Wealth. Eric D. Beinhocker.
Description
Craig Howe:
"In "The Origin of Wealth" Eric D. Beinhocker argues wealth creation is the product of a "simple, but profoundly powerful" three step process:
1. Differentiate. 2. Select. 3. Amplify.
The same process that drives the order and complexity of life, the author says, drives the order and complexity of the economy. Borrowing from Darwin's theory of natural selection - which incidentally was borrowed from the economist Richard Malthus - the senior advisor to McKinsey & Company argues the economy evolves. It is a "design without a designer."
If the economy is a complex, adaptive system, the author argues, there are four implications:
1. Equilibrium, and with it much of the economic thinking that has dominated the past century, is out. 2. A new tool set with its own techniques and theories are available to explain economic phenomena. 3. Wealth is a product of evolutionary processes. 4. Changes in economic thought foreshadow tremors. Adam Smith begat free trade. Karl Marx begat revolutions and socialism. Neo-classical economics begat the rise of global capitalism." (http://www.craighowe.com)
Review
From the Cook Report, http://www.cookreport.com/15.09.shtml
"We are still trying to see the future from the midst of a technology upheaval that fundamentally overturns many of our ideas about where and how wealth profits are being created. In two parts (pp. 5 -13 and pp 14-23) I undertake an extensive essay that is a review and summary discussion of the chain of arguments in Beinhocker' s very informative book. I find that, when he explains the difference between what he calls traditional economics and the newly emerging field of complexity economics, the first reflects circuit switched telephony very well. The relatively static equilibrium point of view of how the world works fits well with non innovative state of the PSTN. He points out that social scientists who followed the development of complexity theory began to wonder whether economies too might be a type of complex, adaptive system. If economies do unfold as part of a complex adaptive system rather than a static one that tends toward equilibrium states, "we have a new set of tools for working out an understanding of what is happening. [This] means that wealth is a product of evolutionary processes." [. . .] and finally "history shows that each time there has been a major shift in the paradigm of economic theory the tremors have been felt far beyond the academic worlds."
I speculate that managers who have grown up with phone companies have a genetic code that is predisposed to the static point of view of the world as a series of vertical silos where their business model is controlling and all inclusive of what their "customers" can do. Meanwhile the Internet, having quickly grown to global scope, certainly reminds one of a complex adoptive system.
He asserts that "wealth creation is the product of a simple, but profoundly powerful formula – differentiate, select, and amplify – the formula of evolution. The same process that has driven the growing order and complexity of the biosphere has driven the growing order and complexity of the 'econosphere.'" He continues: "In short, evolution's simple recipe of "differentiate, select and amplify" is a type of computer program – a program for creating novelty, knowledge and growth. Because evolution is a form of information processing, it can do its order creating work in realms ranging from computer software to the mind, to human culture and to the economy." He sees markets as the playing fields on which business plans compete and evolve.
Finally he makes a very important point that there is an important role for government – namely to see that the playing filed of the market is level and not tilted in favor of certain business plans whose backers have been able to buy special favors. These are old ideas that unfortunately among many governments of the last twenty years or so have gone out of favor.
Beinhocker finds that companies don't innovate - markets do. If one looks at the largest and most successful corporations from thirty, fifty and 100 years ago one will find few of today's successful companies in those listings. He invites us to consider "a brutal truth about most companies. Markets are highly dynamic, but the vast majority of companies are not."
Beinhocker doesn't pretend to write about or to even understand the complexity of the internet. Nevertheless, the Internet is an ecosystem that that seems well at home in the dynamic and rapidly changing complexity markets that Beinhocker describes.
We are still trying to see the future from the midst of a technology upheaval that fundamentally overturns many of our ideas about where and how wealth profits are being created. In two parts (pp. 5 -13 and pp 14-23) I undertake an extensive essay that is a review and summary discussion of the chain of arguments in Beinhocker' s very informative book. I find that, when he explains the difference between what he calls traditional economics and the newly emerging field of complexity economics, the first reflects circuit switched telephony very well. The relatively static equilibrium point of view of how the world works fits well with non innovative state of the PSTN. He points out that social scientists who followed the development of complexity theory began to wonder whether economies too might be a type of complex, adaptive system. If economies do unfold as part of a complex adaptive system rather than a static one that tends toward equilibrium states, "we have a new set of tools for working out an understanding of what is happening. [This] means that wealth is a product of evolutionary processes." [. . .] and finally "history shows that each time there has been a major shift in the paradigm of economic theory the tremors have been felt far beyond the academic worlds."
I speculate that managers who have grown up with phone companies have a genetic code that is predisposed to the static point of view of the world as a series of vertical silos where their business model is controlling and all inclusive of what their "customers" can do. Meanwhile the Internet, having quickly grown to global scope, certainly reminds one of a complex adoptive system.
He asserts that "wealth creation is the product of a simple, but profoundly powerful formula – differentiate, select, and amplify – the formula of evolution. The same process that has driven the growing order and complexity of the biosphere has driven the growing order and complexity of the 'econosphere.'" He continues: "In short, evolution's simple recipe of "differentiate, select and amplify" is a type of computer program – a program for creating novelty, knowledge and growth. Because evolution is a form of information processing, it can do its order creating work in realms ranging from computer software to the mind, to human culture and to the economy." He sees markets as the playing fields on which business plans compete and evolve.
Finally he makes a very important point that there is an important role for government – namely to see that the playing filed of the market is level and not tilted in favor of certain business plans whose backers have been able to buy special favors. These are old ideas that unfortunately among many governments of the last twenty years or so have gone out of favor.
Beinhocker finds that companies don't innovate - markets do. If one looks at the largest and most successful corporations from thirty, fifty and 100 years ago one will find few of today's successful companies in those listings. He invites us to consider "a brutal truth about most companies. Markets are highly dynamic, but the vast majority of companies are not."
Beinhocker doesn't pretend to write about or to even understand the complexity of the internet. Nevertheless, the Internet is an ecosystem that that seems well at home in the dynamic and rapidly changing complexity markets that Beinhocker describes. " (http://www.cookreport.com/15.09.shtml)