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No natural selection in business
Natasha Loder, science and technology correspondent for The Economist.
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KAI RYSSDAL: Today is Charles Darwin's 200th birthday. He is, of course, the English scientist who came up with the theory of evolution. Over the years, that theory's been applied to all sorts of fields beyond just science and biology. If ever there was a place the phrase "survival of the fittest" applies you'd think it'd be Wall Street. But commentator Natasha Loder says recent events show us that selection in business is far from natural.
Natasha Loder: When the economy is strong it is easy to kid ourselves that the market is Darwinian. In other words, that the least fit companies go out of business leaving only the strongest. But in times like these, it is much easier to see why this isn't how our world works.
If nature were to run its course in markets right now we'd see a mass extinction. But because many businesses serve vital social functions, we are not letting this happen. We need the banks to survive, so we are bailing them out. Ditto Fannie Mae and Freddie Mac, or AIG.
Artificial selection is what humans do. We regulate everything from how much capital banks must have, to how companies treat their employees. Sure, there is some natural selection going on out there -- Microsoft killed Netscape using its power as the dominant breeder. And of course there are more companies out there than can survive. But the big companies with political leverage are getting the bailouts. Is this really the invisible hand at work?
Markets are more like unruly gardens than the wild forest full of nature red in tooth and claw. And we are always trimming, weeding and fertilizing this garden so it grows the way it suits us. It's just the same inside companies. What goes on is artificial, more like the domestication of cattle than anything natural. Companies decide what kind of employees they want, whether they are selecting for ruthlessness or brilliance. If you want to change a company, you buy a stud CEO, cross breed him with all the suitable specimens on staff, and send the rest off to slaughter.
It might sound brutal, but that doesn't make it Darwinian. Darwinian is having bank bosses fight to the death for their bonuses armed only with letter openers. Listen. I'm not saying bad companies never get weeded out, just that what goes on is nothing like natural selection. Should we let more companies fail? Darwin might think so. In the long term, propping up companies has got to be bad for efficiency. But nobody is really looking at the long term right now.
KAI RYSSDAL: Natasha Loder is the science and technology correspondent for The Economist magazine.
In this case I think it's important to remember that selective advantages are contextual and environment dependent. The environment of the business world includes the reactions of government to the business world so the distinction here between natural and artificial selection is semantic.
Actually, Nature *is* the model. But not evolution and natural selection at the moment. No.
The correct metaphor from Nature here is different:
http://findingourdream.blogspot.com/2009/01/direction-forward.html
Ms. Loder has reminded us of an important distinction between natural and artificial selection.
However, I was disappointed her piece did not similarly distinguish between Darwininan fitness and Charles Atlas fitness.
"Fitness" in natural selection and evolution is a reproductive advantage, i.e "fit" parents produce more offspring and pass on their genes at a higher rate. This is not necessarily related to strength, endurance, or place on the food chain. Indeed, these " stronger" individuals in a population may well require more food to reproduce and thus produce fewer offspring.
After 200 years, our artificial selection for this interpretation of "fitness" should leave the press pool.
Indeed, our government bailouts are being used to help weak banks buy out other banks, in order to become the new "too big to fail!" somewhere in the future.
But, is this really just another tactic of the strong, to survive? Using political strength in place of actual physical strength?
The commentary is made on the premise that health or survival ability of a company is just based on its balanced sheet. That is a much simplistic view. It is not only based on the balance sheet, it is also based on its lobbying power, whether it is AIG or Lehman, whether it is Citigroup or Wachovia, how many people are employed by the company and so on... Thus Natural selection is still at play, the selection criteria is not the simpler profit or loss numbers.
Natural selection is only one aspect of evolutionary theory and while it may not necessary apply to the current business climate, I would argue that other components of evolution do. For example - non-random mating. In the animal world, mates are chosen based upon favorable characteristics such as territory or mating displays. Surely we can see such behavior in the current markets as companies look for another potential partners that will ultimately strengthen their positions? How about Genetic Drift, a chance alteration of the gene pool - often the result of disaster or unforeseen circumstance. The loss of companies such as Linens N' Things and others is an unexpected event and ultimately affects the remaining players in the economic gene pool.
I applaud Ms. Loders generating parallels between Darwin and Wallace's theories of evolution with modern economics. However, just as economics is more than just simple supply and demand, evolution is more than simply natural selection.
Dr. James McCaughern-Carucci
