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consultants, offering strategic planning and marketing services
to a wide range of public and private sector clients.
Bionomics:
The Inevitability of Capitalism
by Michael Rothschild
Henry
Holt, New York, 1990
"Capitalism,
or the market economy, or the free-enterprise system - whatever
you choose to label it - was not planned. Like life on earth,
it did not need to be. Capitalism just happened, and it
will keep on happening. Quite spontaneously. Capitalism
flourishes whenever it is not supressed, because it is a
naturally occurring phenomenon. It is the way human society
organizes itself for survival in a world of limited resources.
A capitalist economy can best be comprehended as a living
ecosystem. Key phenomena observed in nature - competition,
specialization, cooperation, exploitation, learning, growth,
and several others - are also central to business life.
Moreover, the evolution of the global ecosystem and the
emergence of modern industrial society are studded with
striking parallels.
Briefly
stated, information is the essence of both systems. In the
biologic environment, genetic information, recorded in the
DNA molecule, is the basis of all life. In the economic
environment, technological information, captured in books,
blueprints, scientific journals, databases, and the know-how
of millions of individuals, is the ultimate source of all
economic life. " (p.xi)
Drawing
an extensive analogy between biology and economics, Rothschild
argues that capitalism is the natural state for an economic
system. This is so because the most profound parallel between
biology and economics is that they are both systems for
organizing and retaining knowledge: genetic information
in the case of biology, and 'production, distribution and
consumption knowledge' in the case of economics. The economy
is a learning system, and evolves according to certain rules
that are remarkably similar to those that would apply to
a species or ecosystem. Like an ecosystem, the economy is
self-organizing, and requires no central direction or control.
Just as the genetic code stores the data that governs the
growth, development and reproduction of a species, so too
do the compilation of records, processes, plans, etc. that
are the information-storage mechanisms for a company or
industry perform the same function for the economy.
Rothschild
discusses the concept of the 'learning' or 'experience curve'
in some depth. This, he maintains, is a fundamental concept
largely ignored by traditional economic theory (which is
obsessed with mathematical models of stationary equilibrium,
and thus ignores the dynamics of the real world). The application
of the experience curve is the analogue to the evolutionary
process in the natural world, in that this is what allows
products and services to be offered increasingly at lower
real cost, and ever more finely attuned to the needs of
the marketplace. (And, just like the concept of the 'survival
of the fittest' in evolutionary theory, it is those products
and services that better meet a need and at a lower price,
that will be the ones that survive in the marketplace.)
Alternative
economic systems (such as Marxism) that flout this 'natural
law of economics' will prove to be untenable in the long
term (note that this book was written on the brink of the
collapse of the Soviet Union).
Some
basic policy directions that are implied by the 'bionomics
approach':
Taxes
should be levied on consumption, not investment: Rothschild
contends that, when all the 'politically adroit camouflage'
is stripped away, the U.S. federal tax system is based primarily
on the taxation of household savings, and not on the taxation
of household consumption. The 'bionomics' question therefore
is: does consumption or saving make one better off? (p.
144) Rothschild maintains that it is savings (that are in
turn invested) that contribute to the growth and development
of an economy, by allowing new enterprises that meet market
needs (business organisms that are able to exploit a market
niche) to flourish. The taxation of savings stifles this
economic growth and development, and is akin to robbing
the source of energy that keeps an ecosystem going (like
cutting back the amount of sunlight that reaches a particular
environment would reduce the number of species that would
be able to thrive, although Rothschild doesn't use that
example).
Corpocracy
and bureaucracy are parasitic developments that sap the
vitality of a business organism: Corpocracies (the senior
group of executives within a company that ignores the interests
of the shareholders in favor of their own personal gain)
and bureaucracies (the equivalent in the public sector)
are like parasites feeding on the energy of a system, but
not contributing to the vitality of that system. In extreme
cases, such parasitic behavior can 'kill the host' - again
not a good thing from a business perspective. Rothschild
argues that both corpocracies and bureaucracies should be
limited.
Poverty can be reduced by making educational opportunities
available equally to all: His analysis in this area is somewhat
more convoluted, and is as follows:
€ differences in income in America stem largely from
differences in wages (only the top 10% derive any significant
income from investments)
€ wages are not simply payment for raw labor - they
reflect workers' investment in human capital (i.e. themselves)
€ "without a stream of future income paying dividends
on that educational investment, most people would not bother
to acquire advanced skills" (p.240)
€ on average, even as a person invests more years in
education, the percentage return stays about the same (several
studies have shown that this is about 15%)
€ thus, paradoxically, income redistribution schemes
(progressive taxes, transfer payments, etc.) make dollar
income streams more equal by making the percentage returns
on investment in human capital less equal
€ in an increasingly technological society that depends
upon an investment in human capital, this amounts to stupid
policy
€ as an alternative, relative penalties should not
be imposed on the investment in education; rather, educational
opportunities should be made accessible to all, and any
disincentive to investments in education removed
The underlying approach to bionomics is to find the economic
incentives to encourage socially desirable behaviors (reducing
poverty, eliminating homelessness, environmental responsibility,
etc.) and then letting the self-organizing free market determine
the ways in which the business ecosystem will encourage
those behaviors. This approach tends to favor incentives
and pricing mechanisms over rules and regulations (which
require large bureaucracies to administer, and are thus
not ultimately an efficient organization mechanism - see
the previous discussion item on 'parasitism').
