Thursday, April 22, 2010

Economic competition and selection

But Apple's success says something, I think, about 21st century economics: economic competition and success is almost nowhere predicated on the fundamentals of price and performance. Rather, it is about secondary economic factors: monopoly/monopsony, network effects, control of the regulatory process, bubbles and feedback effects. Competing on just price and performance is a recipe for a rate of return on capital enough only to cover its management costs.

To a certain extent, competing on secondary factors isn't all that bad: It means that we have (to a certain extent) solved the price and performance issues, and can turn our attention to more interesting activities. However, secondary economic effects are intrinsically limited. You have to be in the top 10% to be successful on secondary economic effects, and you are successful just because you're in the top 10%. The problem, though, is that not being in the top 10% means not just not succeeding, it means failing.

Selective forces are negative. Evolution does not occur unless some traits are eliminated from the population. A variation that is merely "better" will not change the population unless variations that are comparatively "worse" are selectively eliminated.

Competition on the fundamentals tends to select against the bottom. Since people need food, clothes, housing, medical care, etc. they can temporarily tolerate a certain degree of mediocrity. Selectively eliminating the bottom 10% of companies still pushes innovative evolution while preserving a lot of variation in the remaining 90%. However, competition on secondary factors — which are all about creating and maintaining artificial scarcities — tends to eliminate all but the top: i.e. the "bottom" 90%.

Evolution is about the dialectic between variation and selection. Neither one by itself is enough to drive evolution in the long term. "Too much" variation and "not enough" selection or "not enough" variation and "too much" selection ends up in stagnation. The result is — sooner or later — group selection. In biological evolution entire species die off or ecosystems collapse; in social evolution, sooner or later whole economies or societies collapse.

I don't think we can prevent a group selection event in the West. The only question remaining is what presently marginal economic and social ideology will survive the selection event and fill the vacuum caused by the collapse of Western capitalism. And I don't think there's any way to answer this question with any confidence. I don't think the "strongest" marginal system (fundamentalist Christianity or Islam, for example) has much advantage in the coming struggle: their very strength also makes it more likely that the dominant system will drag them down too. On the other hand, weakness is no predictor of success either.

I'm have no idea what I can do right now to even ameliorate the collapse or subsequent recovery. The best I can do now is just try to figure things out, post my thoughts, and hope they are of some value to coming generations.