Standing on the Sun. Christopher Meyer
larger but far poorer in its stock of intellectual and financial capital, also embraced the new technologies. And precisely because it had no embedded base and no establishment to speak of, these technologies became the foundation of the new society that was rapidly growing there. As the new industrial systems presented challenges, the impulse was to respond to them and not to see them as proof of the innovation's limited value. Need massive amounts of capital to build mills? Create a national banking system. Need to get more productivity out of that investment in a plant? Institute a third shift—and while you're at it, build a company town to ensure your labor supply. Need a bigger market to absorb the output of efficient-scale factories? Build a transcontinental railroad system to open up far-flung territory. Need workers capable of operating machine tools? Make high school mandatory.
Even plagued as it was by missteps and misdeeds—from gold price manipulation and railroad stock fraud to the excesses of robber barons and labor uprisings—the United States by World War II had become the dominant military and economic power. It succeeded almost in spite of itself because it had built its economy and society around the newly available technologies of the Industrial Revolution. And because it had room—physical, mental, emotional, commercial—in which to grow.
The parallel today is inescapable. We've all read the statistics about the upside potential of the Indian and Chinese markets, and we know they are only now embarking on their own phenomenal growth trajectories. We know there are not well-developed industries in these emerging economies that will resist the disruptive innovation; those with enough juice to play are desperate to move forward. We know there is little now to hold back the entrepreneurial talent and ambition of literally tens of millions of people, to whom it is now abundantly clear that economic growth is possible.
Meanwhile, this time around the United States has that inertial challenge to overcome, the unattractive prospect of dismantling the massive institutions and entrenched interests built up in the industrial age. And the other G7 countries, having just caught up with the United States, don't have it any easier. It will be the economies that lack an embedded base that can get right down to building what makes sense given the new rules of a changed world.
We had a bench-scale preview of this situation in the 1980s when Japan had the opportunity to do a “release 2.0” on the world economy and beat the United States at its own game as an industrial power. U.S. auto companies were startled to find that Japanese competitors had surpassed them on both cost and quality dimensions, and even when they understood the logic of that breakthrough performance, it was a tremendous struggle for them to retool themselves. And in that case, it was mostly just a change of technology. Executives had to swallow only one power-shifting idea—that customers, and not manufacturers, got to define the meaning of “quality”—and the rest of the challenge was sucking it up and investing what was needed to replace outmoded production techniques. This time, fundamental ideas about capital, competition, and collaboration and the roles and purposes of government, the financial industry, and corporations are all subject to rethinking.
John Maynard Keynes once observed, “The difficulty lies not so much in developing new ideas as in escaping from old ones.” In the coming decades brilliant ideas for business, economic, and social innovations will come from everywhere, but it will be in the green fields of the rapidly growing emerging economies that the next generation of capitalism will take hold. Will the institutions of the developed world—corporations, governments, and citizens—react in the way the U.S. automakers did to the Japanese innovations of the 1980s? Will they be a little late to wake up but willing to learn, adopt the innovations, and fight back? (Note that even then success was elusive, or the U.S. wouldn't have had its bailouts.) Or will they mirror the stagnation of England, which took fifty years to adapt to its loss of leadership? It's a question of how quickly their capitalists can escape their old ideas.
CHAPTER TWO
Cambrian Capitalism
Runaway feedback, the peacock's tale, and the evolution of capitalism
One hundred years from now economists will look back and say the father of the profession wasn't Adam Smith—it was Charles Darwin.
—Robert Frank, 2011 Aspen Ideas Festival
In 1992, Chris was facilitating an annual strategy offsite for the senior management team of MicroAge, one of two Fortune 500 companies in Arizona at the time.1 The discussion turned to a new class of competitor and its possible effect on MicroAge. After ten minutes of increasingly concerned discussion, the VP of sales exploded: “It's a war out there, and these guys are getting ready to attack us! We have to be ready to hit them first, before they can build momentum.” The President, Alan Hald, responded, “Maybe, but could we consider another way to think about it? What if it's not a war of us against them, but more like an ecology, in which they're a new species with a niche distinct from ours, and we're both better off by coexisting?”
Chris was startled. He'd been following the literature of complexity theory (more formally, complex adaptive systems), which often suggested parallels between biology and economics. And he had tested some of the ideas with businesspeople, most of whom reacted with bemused skepticism. Now, for the first time, he was hearing a corporate executive try to sell this concept to his team. (To be honest, though, it didn't get much uptake, except from Hald's equally innovative Chairman, Jeff McKeever. The VP of sales responded with an ostentatious eye roll.)
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Complexity theory went on to enjoy a vogue in the mid-1990s after which much of the punditocracy considered it passé. But in the fifteen years since, the idea of business as biology has only grown stronger, to the point that businesspeople employ the jargon without giving it much thought, as when they say, for example, “That's not in our DNA” about a corporate capability.2 Books have been written, the ideas continue to be diffused, and biology-inspired techniques have been developed, applied, and proven fruitful. The eye rolling stopped long ago, and complexity applications don't go by that name any more; they're called things like agent-based models, genetic algorithms, and nonlinear search algorithms, or accepted as a subset of analytics. Practitioners have taken on these ideas, developed new tools, and proved their capabilities. The methods are in ever-broader use, and the power of the parallels between economy and ecosystem has only begun to be exploited.
This is not another book about biology and business, but it does build on what has been learned about systems that evolve, be they ecologies or economies.3 In chapters to come, you will find us invoking a few concepts about feedback, selection, and evolution that are valuable to understand at the outset. It's not that you need a glossary to read this book, but our use of some terms draws on meanings they might not always carry in common parlance.
Chapter 1 already provided a specialized definition of the word “environment,” explaining that the environment in which capitalism is situated is not only geographic, but also demographic, technological, and cultural. This chapter moves from the “where” of capitalism's evolution to the “how”—providing the language to discuss the process by which a system adapts to its environment. If we're going to convince you that capitalism can change its spots, we need to be clear on the process by which that transformation will happen.
A Theory of Change
In the world of NGOs—the nongovernmental organizations that work to make the world a better place—a phrase has caught on in recent years. It's the observation that one must have a “theory of change.” The point in the social sphere is that it is often easy to get broad agreement on a desired end-state—for example, to reduce homelessness or eradicate malaria—but the hard part is outlining for donors and others how you think the movement will happen from point A to point B. Often the most effective route is not the one that seems most obvious and direct.
In writing this book, we didn't start from a point B; we had no consensus target for capitalism to move toward. We do, however, have a very definite theory of change: that capitalism