A professor of biocomplexity says economists won't get anywhere unless they stop acting like physicists and start adopting the models and analytical techniques of biology:
The Evolution of Future Wealth, by Stuart A. Kaufman, Scientific American: When the world changes unpredictably over the course of centuries, no one is shocked... Yet monumental and surprising transformations occur on much shorter timescales, too. Even in the early 1980s you would have been hard-pressed to find people confidently predicting the rise of the Internet or the fall of the U.S.S.R. Unexpected change bedevils the business community endlessly, despite all best efforts to anticipate and adapt to it—witness the frequent failure of companies’ five-year plans.
Economists have so far not been able to offer much help to firms trying to be more adaptive. Although economists have been slow to realize it, the problem is that their attempts to model economic systems focus on those in market equilibrium or moving toward it. They have drawn their inspiration predominantly from the work of physicists in this respect (often with good results, of course). For instance, the Black-Scholes model used since the 1970s to predict the volatility of stock prices was developed by trained physicists and is related to the thermodynamic equation that describes heat.
As economics attempts to model increasingly complicated phenomena, however, it would do well to shift its attention from physics to biology, because the biosphere and the living things in it represent the most complex systems known in nature. In particular, a deeper understanding of how species adapt and evolve may bring profound—even revolutionary— insights into business adaptability and the engines of economic growth.
One of the key ideas in modern evolutionary theory is that of preadaptation. The term may sound oxymoronic but its significance is perfectly logical: every feature of an organism, in addition to its obvious functional characteristics, has others that could become useful in totally novel ways under the right circumstances. The forerunners of air-breathing lungs, for example, were swim bladders with which fish maintained their equilibrium; as some fish began to move onto the margins of land, those bladders acquired a new utility as reservoirs of oxygen. Biologists say that those bladders were preadapted to become lungs. Evolution can innovate in ways that cannot be prestated and is nonalgorithmic by drafting and recombining existing entities for new purposes—shifting them from their existing function to some adjacent novel function—rather than inventing features from scratch.
A species’ suite of adaptive features defines its ecological niche through its relations to other species. In the same way, every economic good occupies a niche defined by its relations to complementary and substitute goods. As the number of economic goods increases, the number of ways in which to adaptively combine those goods takes off exponentially, forging possibilities for all-new niches. The autocatalytic creation of niches is thus a main driver of economic growth.
We do not yet know what makes some systems more adaptable than others, but research on complexity has yielded some clues. Some of my own work on physical systems called spin glasses suggests that the level of central control over subsidiary parts of a system is an important consideration. Too much control freezes the system into limited configurations; too little causes it to wander aimlessly. Only systems that hover on the border between order and chaos exhibit the needed general stability and capacity to explore the universe of possible solutions to challenges.
The path to maximum prosperity will depend on finding ways to build economic systems in which new niches will generate spontaneously and abundantly. Such an approach to economics is indeed radical. It is based on the emergent behavior of systems rather than on the reductive study of them. It defies conventional mathematical treatments because it is not prestatable and is nonalgorithmic. Not surprisingly, most economists have so far resisted these ideas. Yet there can be little doubt that learning to apply these lessons from biology to technology will usher in a remarkable era of innovation and growth.
When Stuart says "We do not yet know what makes some systems more adaptable than others" and that they are just discovering that the "level of central control" matters ( his "spin glasses") I have to wonder if maybe biocomplexologists shouldn't spend more time talking to economists - we have some pretty good ideas about how that works.
As for niches, or profit opportunities in economic terms, I think there is some value in that concept, particularly when combined with the ideas such as those from an article by Olivia Judson where the existence of niches, or the lack thereof, explains differential rates of evolutionary change (i.e. different rates of innovation). For example:
Newly erupted islands are famous for this. Over and over again, archipelagos see explosive bursts of evolutionary change and the rapid appearance of species found nowhere else. New Zealand is full (and was fuller) of an amazing array of unique flightless birds... Hawaii has an abundance of unique fruit flies, spiders, silverswords ... and birds. Madagascar has all manner of lemurs... And everyone knows about the Galápagos.
Rapid bursts of evolution can also happen in new lakes... Indeed, right now, the great lakes of tropical Africa are the backdrop for the fastest known radiation of vertebrates, the cichlid fishes. Lake Victoria, for example, ... has cichlids that eat algae, cichlids that eat other cichlids, cichlids that eat fish eggs — cichlids, in short, that have evolved to eat everything that can be eaten. Some fish live in shallow water; others prefer the deeps...
Ideas about adaptive radiation can also be tested in experiments. ...[M]any bacteria can whiz through hundreds of generations in a month. This makes it relatively easy to use bacteria to look at radiations. Here’s what you do. You create two sets of environments, one simple, and one complex. The complex environment might have several different places to live, or a variety of sources of carbon. The simple environment has just one habitat or foodstuff. Then, since bacteria reproduce asexually, you take genetically identical individuals, and release them into the two different environments. Sure enough, mutations happen, and the bacteria rapidly evolve to exploit the different niches. After a month, you will find that bacteria from the complicated environment have become genetically diverse. Those from the simple environment, in contrast, remain unevolved.
In short, empty niches are a license for evolutionary change. Once the new niches are full, natural selection acts to stop further change, and the rate of evolutionary change slows. Fossils, islands and test tubes — they all show the same dynamics. ...
But this tells us very little about how islands and lakes supplying the new niches - the opportunities for profit - are created in relation to the biological system, and it does not acknowledge the additional complexity that arises when the actors within the system can respond rationally to change. Once again, I think economists have something to say about this - more than simply beginning with the exogenous emergence of lakes, islands, etc. and then modeling how these niches are filled.