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Monday, November 27, 2006

Stuart Kauffman/Scientific Investigations and Business Acumen: Notes from the World Science Forum

As a speaker at the interesting World Science Forum meeting, I wish to make the two major points I made in my talk, both fundamentally relevent to business and economics.

1) We cannot foresee technological evolution. I'll say why in a moment.

2) Economic growth is, to an unknown extent, driven by the structure of the "economic web" and the growth of new economic niches. Almost certainly this growth is autocatalytic - the higher the diversity of goods and services in the web, the more niches are created.

1) The inability to be able to foresee technological evolution is, I think, a fundamental change in how we have believed that science should be done.

I begin with Darwin's concept of an adaptation. If asked, what is the function of the heart? Darwin would have said "To pump blood". But the heart makes heart sounds. These are NOT the function of the heart. That is, Darwin would have said that the reason hearts exist in the biosphere is that they pump blood, thereby offering a selective advantage to those having such hearts.

Now Darwin also spoke about preadaptations. Here his ideas was that a causal property of a part of an organism might be of no selective value in the normal environment, but become of selective value in a novel environment, hence be selected, and a new functionality would come to exist in the biosphere. An example is the swim bladders of early fish which had air and water in them to adjust neutral bouyancy in a water column. They were preadapted to become lungs in later land dwelling organisms. And a new functionality, lungs and air breathing, arose in the biosphere.

The essential question I raise is this: Can we say ahead of time what all possible Darwinian preadaptations are? The answer appears to be clearly, "NO". Part of the problem is that we cannot prestate all possible selective environments. How would we even start on such a task?

But the incapacity to "prestate" or predict such preadaptations is not slowing down the evolution of the biosphere, where such novel functionalities appear all the time.

But this means that we cannot follow Newton's methods, identify the variables, forces among them, initial and boundary conditions, and calculate forward to predict the evolution of the system. We cannot because we do not now know the relevant variables, such as lungs.

This truth is a radical departure from our image of science from physics. It literally means that we cannot know beforehand how the biosphere will evolve in its ceaseless creativity.

The same arises in the evolution of the "econosphere". The story concerns the invention of the tractor. The engineers knew they would need a large engine block. They fit it to chassie after larger chassie. It broke all of them. At last one of the engineers said, "The engine block is so big and RIGID, that we can use that rigidity and the engine block itself as the chassie and hang everything else off the engine block!". That is how tractors are, in fact, made. The rigidity of the engine block was an unused causal property of the engine, open to use for a novel function, that of being a chassie. It too is a preadaptation.

Thus, we cannot predict the evolution of the economy. Five year plans are largely pointless because of this. And this is the major point to be made here.

Instead of trying to predict the next innovations, which we may partially do, we also have to learn how to be adaptive - indeed that is what biology has done. Evolvability itself has evolved.

Fine, but unfortunately at present we have only sketchy ideas about how to be adaptive. (See "Patches" in my book, At Home in the Universe", Oxford University Press, 1995.) We will, however, make progress. This also means that we need to invent generative environments in our companies to enable such innovation. Skunk works are one such effort.

2) The economic web and its growth.

Economic growth theory includes labor, capital, human capital, savings and investiment, including investiment in R and D.

But economics does not focus on the fact that over the past 50,000 years the diversity of the economy has grown from perhaps 1000 to 10 billion goods and services. We have no theory of this explosion.

Hammer and nail are complements, nail and screw are substitutes. Picture each good as a point in a room. Connect each complementary pair with a green line, and each substitute pair with a red line. This web is the economic web.

New goods and services typically enter the economy as complements and substitutes of existing goods and services - channel changer to TV.

We have almost no theory of the growth of the economic web (again see At Home in the Universe, last chapter.) It is intuitively clear, and analytic results support the hypothesis, that the more diverse the web, the more economic niches there are. The growth of such niches helps drive economic growth given other factors such as labor, capital, investiment, institutions, and so forth.

We deeply need a theory of the growth of the economic web, its autocatalytic creation of new economic niches, and how to use that to drive economic growth generally.

From the CEO's perspective, meanwhile, it may matter a great deal if your company makes automobiles or computers, central to the web, or hula hoops, peripheral to the web. No one yet knows, but the stability of those central to the web seems more likely than those peripheral to the web. This requires investigation.

I note finally, that if we cannot predict preadaptations, the growth of the economic web may NOT be algorithmic. It may be fundamentally unknowable, but nevertheless livable. Life, after all, is not deduced, it is lived.

All this seems to open new arenas for scientific investigation and business acumen.

Stuart Kauffman

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