Standing on the Sun. Christopher Meyer
car that would hire them as its ticket to the high-occupancy vehicle lane. The net effect was not only an unintended consequence but also an outright negation of the original goal to improve traffic flow.
Often, organizations or societies rely on cultural norms to rein in a runaway incentive. But a strong enough selection for the incented behavior can actually change the norms. (Recall Frank Lorenzo and the Florida home flippers.) Without law enforcement, regulation, morality, or some other form of social code to represent the nonfinancial interests of society, the combination of runaway selection and moral hazard can lead to something like “social suicide.” This is a line of thought we return to in chapters to come—and a crucial thought in understanding the forces that drive the selection of rules in the capitalist system.
The Rain Forest of Capitalism
We began this chapter by putting forth a theory of change by which capitalism would evolve as a complex adaptive system. Now we offer a corollary to that theory: that this process of adaptation will happen more readily in the rapidly growing emerging economies, and the emerging shape of a fitter form of capitalism may first be spotted there.
Remember Paul Romer's theory of history based on technologies and rules. When he talks about it, he makes an important point that we haven't yet mentioned: that it is very hard to change rules once they have taken hold. Brian Arthur, having thought so thoroughly about lock-in, would agree: because networks depend on standards to make efficient connections, the standards they begin with end up being nearly impossible to walk away from once the network is functioning. Others would describe the difficulty of changing rules in terms of stickiness or inertia.
For all these reasons, rules have a self-perpetuating quality. Once everyone is driving on the left side of the road, good luck to you if you're trying to get them to drive on the right—even if the rest of the world is doing it. Even when the decision is not so arbitrary and there is a strong argument for a new approach, change is not embraced. Just ask an American about the metric system.
Romer's notion of how to get past that rule of stickiness in a society is to give people a good look at how well a different system can function, and even to let many of them put a toe in the water. Romer proposes doing this with charter cities—cities created from blank slates to operate according to different principles than their underperforming neighbors. The reference is to the charter schools set up in U.S. cities to test alternatives to public school methods. Romer is getting some traction for the idea; it was packaged as a very popular TED talk, and Harvard Business Review called it one of the “breakthrough ideas” of 2009. Romer is persuasive in arguing that there are in fact still large enough greenfields left in the world on which to plonk down new cities.
And to a degree, it's happening: Mazdar City, in the United Arab Emirates, and the city being built around Prince Abdullah University in Saudi Arabia are both being built as Petri dishes in which to culture new rules—sustainability in the former case, and gender equality in the latter. But while they may get their rules right, it will be a long, long time before they have enough economic mass to promulgate them. They may also simply lack enough diversity of rule ideas to create a vibrant ecology.
We're looking instead to emerging economies to be the disruptive influence. They are richly, chaotically packed with activity. And because, as noted in chapter 1, their growth collectively equals in size, and far exceeds in speed, the growth of the rest of the world, emerging economies are attracting every capitalist idea on the planet. Thus they have the diversity and speed of breeding to try everything. And their digital native populations and the falling costs of connectivity reinforce both of these strengths. They will be to the information economy what the United States was to the industrial—the source and integrator of the new rules.
But their influence may be even greater, for three reasons. First, in a connected world (OK, fine, “flat” if you must), ideas encounter other ideas much faster than ever before, breeding more novelty. Second, of course, the new ideas spread around the globe in no time. There are private equity funds in China that invest only in copies of new U.S.-based Internet businesses for the Chinese market and do so with no perceptible lag.
Third, connected systems are different. The parallel between these two observations about politics and evolution, written almost a century apart, is striking:
World history, with its great transformation, does not come upon us with the even speed of a railway train. No, it moves in spurts but then with irresistible force.
—Otto von Bismarck
Instead of a slow, continuous movement, evolution tends to be characterized by long periods of virtual standstill “punctuated” by episodes of very fast development of new forms.
—F. Heylighen, Principia Cybernetica, 1999, referring to Gould and Eldredge's Theory of Punctuated Equilibrium
Innovation doesn't proceed in a linear fashion or even, as Ray Kurtzweil's analyses suggest, log-linear, accelerating constantly but predictably. We're headed into a period of punctuated equilibrium, or period of intense evolutionary activity. One such period was the Cambrian Explosion five hundred million years ago. Scientists believe new species appeared and disappeared across an eighty-million-year period at a rate ten times greater than usual.
Why should this be? There is controversy about both the theory and its explanations, but one that is intriguing as an analogy with the current world is that during periods of equilibrium, genetic diversity builds up but little of that diversity is expressed, because dominant species occupy all niches in the ecosystem. Only when something dramatic happens to unseat those strong occupants—such as an asteroid that changes a world seemingly made for the dinosaurs—does room open up for the expression of all those suppressed “ideas.”17
What would this logic say about the present moment in economic history? We believe that the leap in connectivity among the world's cultures and economies presents precisely a radical increase in the rate at which business ideas encounter other business ideas, creating the opportunity for innovation; and simultaneously an enormous increase in the number of niches in which their fitness will be evaluated. Whatever happens will send ripples to the next round of recombination.
It is inevitable that we will see a rate of economic coevolution comparable only to the effect of the technologies of the early nineteenth century—which spawned a set of revolutions around 1848—but much, much faster, because software spreads much faster than machine tools.
The technologies of globalization are like an instantaneous land bridge between continents, allowing the exchange and recombination of ideas at an unprecedented pace. No one society, Western or Eastern, will be dominant. We will all be struggling to keep up with a rate and a strangeness of innovation never experienced before.
Requisite Variety
Around the world, there are different species of capitalism and capitalists, displaying myriad mutations of rules, beginning to interact more intensely with new environments and each other. In Israel, the venture capital industry was started by the state and then devolved to private ownership, as an element of economic policy. In India, the partnership of public and private, for-profit and nonprofit, is a major source of growth. In Brazil, private companies are taking responsibility for improving education and for providing the human capital needed for growth. In the United Arab Emirates, the government is pursuing a hybrid of Singapore's strong and enlightened approach to government, with the use of oil wealth to import the expertise needed to train the next generation. In China, energy policy is being used simulta-neously to ensure an infrastructure for growth, to prevent further environmental catastrophe, and to develop a new world-class industry. And in the United States, the digital natives are exploring open source models of collaborative production and the gift economy, while venture philanthropists are propounding theories of patient capital.
In every locale, capitalism exists as a set of rules selected by its practitioners to serve their various interests. As they are confronted by changes in their opportunities and constraints—and by each other's examples—they will begin to choose new rules. This doesn't constitute