Over 6.4 billion people participate in a $36.5 trillion global economy, designed and overseen by ... more Over 6.4 billion people participate in a $36.5 trillion global economy, designed and overseen by no one. How did this marvel of self-organized complexity evolve? How is wealth created within this system? And how can wealth be increased for the benefit of individuals, businesses, and society? In "The Origin of Wealth," Eric D. Beinhocker argues that modern science provides a radical perspective on these age-old questions, with far-reaching implications. According to Beinhocker, wealth creation is the product of a simple but profoundly powerful evolutionary formula: differentiate, select, and amplify. In this view, the economy is a "complex adaptive system" in which physical technologies, social technologies, and business designs continuously interact to create novel products, new ideas, and increasing wealth. Taking readers on an entertaining journey through economic history, from the Stone Age to modern economy, Beinhocker explores how "complexity economics&...
In his target article, Herbert Gintis provides an assessment of the state of modern economics thr... more In his target article, Herbert Gintis provides an assessment of the state of modern economics through his own personal and intellectual journey. It is a compelling journey, along whose road I’ve been a fellow traveler. But although that journey has taken me to broadly the same destination, my interpretation of what that means is somewhat different. When there is agreement on facts and analysis, but then differences over meaning, there are usually some deeper philosophical issues at play. I believe that the proverbial elephant in the room (more on elephants shortly) is ontology. My response here will argue that in order to assess the state of economics and have useful debates about its future direction, there must be a shared conception of what kind of system the economy is and how best to understand it. Consistent with the subject matter of this journal, and with Gintis’s own lifetime oeuvre, I will argue that the economy is ultimately a product of human imagination—a complex, adaptive, and reflexive social system that arises from the coevolution of human behavior, institutions, technologies, and culture—and is most productively understood from that perspective. But this is not a perspective standard economics has historically shared.
After a full year in heads-down crisis mode, business executives are looking again to the future.... more After a full year in heads-down crisis mode, business executives are looking again to the future. As they reengage in strategic thinking, many are struck by a sense that the world has changed: The turmoil was not merely another turn of the business cycle but a restructuring of the economic order. Is that impression accurate?
In this invited comment piece, I argue that the Lima de Miranda and Snower SAGE framework represe... more In this invited comment piece, I argue that the Lima de Miranda and Snower SAGE framework represents not just another “beyond GDP” alternative but is an important contribution to a larger shift underway in economics regarding our understanding of human behavior and the nature and purpose of economic systems. Recognizing this broader shift helps us see how SAGE might be strengthened and built upon. In this spirit, I suggest some starting points for strengthening the normative foundations of the SAGE framework, discuss an alternative interpretation of the welfare effects of inequality, propose further work on the “material gain” part of the framework, and and briefly suggest an alternative approach to SAGE’s utility maximizing decision model. I conclude that SAGE provides a framework for a very rich future research agenda.
ABSTRACT Eric Beinhocker and Nick Hanauer describe a Copernican change in our understanding of pr... more ABSTRACT Eric Beinhocker and Nick Hanauer describe a Copernican change in our understanding of prosperity that replaces simple measures of GDP growth and market performance with the quantity, quality and accessibility of solutions to society's problems.
'...chance favors only the prepared mind.' --Louis Pasteur Senior executives generally ag... more '...chance favors only the prepared mind.' --Louis Pasteur Senior executives generally agree that crafting strategy is one of the most important parts of their job. As a result, most companies invest significant time and effort in a formal, annual strategic-planning process that typically culminates in a series of business unit and corporate strategy reviews with the CEO and the top management team. Yet the extraordinary reality is that few executives think this time-consuming process pays off, and many CEOs complain that their strategic-planning process yields few new ideas and is often fraught with politics. Why the mismatch between effort and result? Evidence we culled from research on the planning processes at 30 companies (see sidebar, "About the research," on the next page) and work with more than 50 additional companies points to a common dispiriting explanation: the annual strategy review frequently amounts to little more than a stage on which business unit leaders present warmed-over updates of last year's presentations, take few risks in broaching new ideas, and strive above all to avoid embarrassment. Rather than preparing executives to face the strategic uncertainties ahead or serving as the focal point for creative thinking about a company's vision and direction, the planning process "is like some primitive tribal ritual," one executive told us. "There is a lot of dancing, waving of feathers, and beating of drums. No one is exactly sure why we do it, but there is an almost mystical hope that something good will come out of it." But something good ought to come out of it. In a business environment of heightened risk and uncertainty, developing effective strategies is crucial. But how can companies reform the process in order to get the payoff they need? New goals for strategic planning Part of the answer lies in taking a fresh look at the substance of business unit and corporate strategy. But a more important--and often overlooked--element is to rethink the process by which strategy is made. It can even be argued that without a strong process, it is unlikely that the substance will come out right. A key starting point is the acceptance of the counterintuitive notion that the strategic-planning process should not be designed to make strategy. Henry Mintzberg, a professor of management at McGill University, calls the phrase "strategic planning" an oxymoron. (1) He argues that real strategies are rarely made in paneled conference rooms but are more likely to be cooked up informally and often in real time-in hallway conversations, casual working groups, or quiet moments of reflection on long airplane flights. What then is the purpose, if any, of a formal planning process? Our research persuades us that the exercise can add value if it has two overarching goals. The first is to build "prepared minds"--that is, to make sure that decision makers have a solid understanding of the business, its strategy, and the assumptions behind that strategy, thereby making it possible for executives to respond swiftly to challenges and opportunities as they occur in real time. GE Capital, for instance, has consistently proved quicker to react and better able to value acquisition opportunities than have its competitors. Part of this success is due to a strategy process ensuring that GE Capital's executives have a strong grasp of the strategic context they operate in before the unpredictable but inevitable twists and turns of their business push them to make M&A and other critical decisions in real time. The second goal is to increase the innovativeness of a company's strategies. No strategy process can guarantee brilliant flashes of creative insight, but much can be done to increase the odds that they will occur. In addition to formal planning at the business unit level, for example, Johnson & Johnson uses crosscutting initiatives on major issues such as biotechnology, the restructuring of the health care industry, and globalization in order to challenge assumptions and open up the organization to new thinking. …
Most companies are far better at executing their current activities than at adapting to long-term... more Most companies are far better at executing their current activities than at adapting to long-term changes in the business environment. Very few can do both well. Three barriers to adaptability are deeply rooted in the nature of organizations: inflexibility in the mental models of their managers; organizational complexity, driven by the demands of execution; and mismatches between current resources and future opportunities. Overcoming these barriers requires a rethinking of what GE's former CEO Jack Welch has called an organization's "social architecture"—the combination of individual behavior, structure, and culture—which determines a company's long-term performance.
New developments in economics, in particular the application of ideas from complexity theory, hav... more New developments in economics, in particular the application of ideas from complexity theory, have the potential to contribute new insights to major public policy challenges and to re-frame long-standing political debates.
What prosperity is, where growth comes from, why markets work—and how we resolve the tension betw... more What prosperity is, where growth comes from, why markets work—and how we resolve the tension between a prosperous world and a moral one.
ABSTRACT The current model of economic growth generated unprecedented increases in human wealth a... more ABSTRACT The current model of economic growth generated unprecedented increases in human wealth and prosperity during the 19th and 20th centuries. The main mechanisms have been the rapid pace of technological and social innovation, human capital accumulation, and the conversion of resources and natural capital into more valuable forms of produced capital. However, there is evidence emerging that this model may be approaching environmental limits and planetary boundaries, and that the conversion of natural capital needs to slow down rapidly and then be reversed. Some commentators have asserted that in order for this to occur, we will need to stop growing altogether and, instead, seek prosperity without growth. Others argue that environmental concerns are low-priority luxuries to be contemplated once global growth has properly returned to levels observed prior to the 2008 financial crisis. A third group argues that there is no trade-off, and, instead, promotes green growth: the (politically appealing) idea is that we can simultaneously grow and address our environmental problems. This paper provides a critical perspective on this debate and suggests that a substantial research agenda is required to come to grips with these challenges. One place to start is with the relevant metrics: measures of per-capita wealth, and, eventually, quantitative measures of prosperity, alongside a dashboard of other sustainability indicators. A public and political focus on wealth (a stock), and its annual changes, could realistically complement the current focus on market-based gross output as measured by GDP (a flow). This could have important policy implications, but deeper changes to governance and business models will be required.
The rise of rentier capitalism in America, its relationship to inequality, and the need to re-inv... more The rise of rentier capitalism in America, its relationship to inequality, and the need to re-invigorate the middle class.
Neoclassical models of strategic behavior have yielded many insights into competitive behavior, d... more Neoclassical models of strategic behavior have yielded many insights into competitive behavior, despite the fact that they often rely on a number of assumptions—including instantaneous market clearing and perfect foresight—that have been called into question by a broad range of research. Researchers generally argue that these assumptions are “good enough” to predict an industry’s probable equilibria, and that disequilibrium adjustments and bounded rationality have limited competitive implications. Here we focus on the case of strategy in the presence of increasing returns to highlight how relaxing these two assumptions can lead to outcomes quite different from those predicted by standard neoclassical models. Prior research suggests that in the presence of increasing returns, tight appropriability, and accommodating rivals, in some circumstances early entrants can achieve sustained competitive advantage by pursuing “get big fast” (GBF) strategies: Rapidly expanding capacity and cutti...
Over 6.4 billion people participate in a $36.5 trillion global economy, designed and overseen by ... more Over 6.4 billion people participate in a $36.5 trillion global economy, designed and overseen by no one. How did this marvel of self-organized complexity evolve? How is wealth created within this system? And how can wealth be increased for the benefit of individuals, businesses, and society? In "The Origin of Wealth," Eric D. Beinhocker argues that modern science provides a radical perspective on these age-old questions, with far-reaching implications. According to Beinhocker, wealth creation is the product of a simple but profoundly powerful evolutionary formula: differentiate, select, and amplify. In this view, the economy is a "complex adaptive system" in which physical technologies, social technologies, and business designs continuously interact to create novel products, new ideas, and increasing wealth. Taking readers on an entertaining journey through economic history, from the Stone Age to modern economy, Beinhocker explores how "complexity economics&...
In his target article, Herbert Gintis provides an assessment of the state of modern economics thr... more In his target article, Herbert Gintis provides an assessment of the state of modern economics through his own personal and intellectual journey. It is a compelling journey, along whose road I’ve been a fellow traveler. But although that journey has taken me to broadly the same destination, my interpretation of what that means is somewhat different. When there is agreement on facts and analysis, but then differences over meaning, there are usually some deeper philosophical issues at play. I believe that the proverbial elephant in the room (more on elephants shortly) is ontology. My response here will argue that in order to assess the state of economics and have useful debates about its future direction, there must be a shared conception of what kind of system the economy is and how best to understand it. Consistent with the subject matter of this journal, and with Gintis’s own lifetime oeuvre, I will argue that the economy is ultimately a product of human imagination—a complex, adaptive, and reflexive social system that arises from the coevolution of human behavior, institutions, technologies, and culture—and is most productively understood from that perspective. But this is not a perspective standard economics has historically shared.
After a full year in heads-down crisis mode, business executives are looking again to the future.... more After a full year in heads-down crisis mode, business executives are looking again to the future. As they reengage in strategic thinking, many are struck by a sense that the world has changed: The turmoil was not merely another turn of the business cycle but a restructuring of the economic order. Is that impression accurate?
In this invited comment piece, I argue that the Lima de Miranda and Snower SAGE framework represe... more In this invited comment piece, I argue that the Lima de Miranda and Snower SAGE framework represents not just another “beyond GDP” alternative but is an important contribution to a larger shift underway in economics regarding our understanding of human behavior and the nature and purpose of economic systems. Recognizing this broader shift helps us see how SAGE might be strengthened and built upon. In this spirit, I suggest some starting points for strengthening the normative foundations of the SAGE framework, discuss an alternative interpretation of the welfare effects of inequality, propose further work on the “material gain” part of the framework, and and briefly suggest an alternative approach to SAGE’s utility maximizing decision model. I conclude that SAGE provides a framework for a very rich future research agenda.
ABSTRACT Eric Beinhocker and Nick Hanauer describe a Copernican change in our understanding of pr... more ABSTRACT Eric Beinhocker and Nick Hanauer describe a Copernican change in our understanding of prosperity that replaces simple measures of GDP growth and market performance with the quantity, quality and accessibility of solutions to society's problems.
'...chance favors only the prepared mind.' --Louis Pasteur Senior executives generally ag... more '...chance favors only the prepared mind.' --Louis Pasteur Senior executives generally agree that crafting strategy is one of the most important parts of their job. As a result, most companies invest significant time and effort in a formal, annual strategic-planning process that typically culminates in a series of business unit and corporate strategy reviews with the CEO and the top management team. Yet the extraordinary reality is that few executives think this time-consuming process pays off, and many CEOs complain that their strategic-planning process yields few new ideas and is often fraught with politics. Why the mismatch between effort and result? Evidence we culled from research on the planning processes at 30 companies (see sidebar, "About the research," on the next page) and work with more than 50 additional companies points to a common dispiriting explanation: the annual strategy review frequently amounts to little more than a stage on which business unit leaders present warmed-over updates of last year's presentations, take few risks in broaching new ideas, and strive above all to avoid embarrassment. Rather than preparing executives to face the strategic uncertainties ahead or serving as the focal point for creative thinking about a company's vision and direction, the planning process "is like some primitive tribal ritual," one executive told us. "There is a lot of dancing, waving of feathers, and beating of drums. No one is exactly sure why we do it, but there is an almost mystical hope that something good will come out of it." But something good ought to come out of it. In a business environment of heightened risk and uncertainty, developing effective strategies is crucial. But how can companies reform the process in order to get the payoff they need? New goals for strategic planning Part of the answer lies in taking a fresh look at the substance of business unit and corporate strategy. But a more important--and often overlooked--element is to rethink the process by which strategy is made. It can even be argued that without a strong process, it is unlikely that the substance will come out right. A key starting point is the acceptance of the counterintuitive notion that the strategic-planning process should not be designed to make strategy. Henry Mintzberg, a professor of management at McGill University, calls the phrase "strategic planning" an oxymoron. (1) He argues that real strategies are rarely made in paneled conference rooms but are more likely to be cooked up informally and often in real time-in hallway conversations, casual working groups, or quiet moments of reflection on long airplane flights. What then is the purpose, if any, of a formal planning process? Our research persuades us that the exercise can add value if it has two overarching goals. The first is to build "prepared minds"--that is, to make sure that decision makers have a solid understanding of the business, its strategy, and the assumptions behind that strategy, thereby making it possible for executives to respond swiftly to challenges and opportunities as they occur in real time. GE Capital, for instance, has consistently proved quicker to react and better able to value acquisition opportunities than have its competitors. Part of this success is due to a strategy process ensuring that GE Capital's executives have a strong grasp of the strategic context they operate in before the unpredictable but inevitable twists and turns of their business push them to make M&A and other critical decisions in real time. The second goal is to increase the innovativeness of a company's strategies. No strategy process can guarantee brilliant flashes of creative insight, but much can be done to increase the odds that they will occur. In addition to formal planning at the business unit level, for example, Johnson & Johnson uses crosscutting initiatives on major issues such as biotechnology, the restructuring of the health care industry, and globalization in order to challenge assumptions and open up the organization to new thinking. …
Most companies are far better at executing their current activities than at adapting to long-term... more Most companies are far better at executing their current activities than at adapting to long-term changes in the business environment. Very few can do both well. Three barriers to adaptability are deeply rooted in the nature of organizations: inflexibility in the mental models of their managers; organizational complexity, driven by the demands of execution; and mismatches between current resources and future opportunities. Overcoming these barriers requires a rethinking of what GE's former CEO Jack Welch has called an organization's "social architecture"—the combination of individual behavior, structure, and culture—which determines a company's long-term performance.
New developments in economics, in particular the application of ideas from complexity theory, hav... more New developments in economics, in particular the application of ideas from complexity theory, have the potential to contribute new insights to major public policy challenges and to re-frame long-standing political debates.
What prosperity is, where growth comes from, why markets work—and how we resolve the tension betw... more What prosperity is, where growth comes from, why markets work—and how we resolve the tension between a prosperous world and a moral one.
ABSTRACT The current model of economic growth generated unprecedented increases in human wealth a... more ABSTRACT The current model of economic growth generated unprecedented increases in human wealth and prosperity during the 19th and 20th centuries. The main mechanisms have been the rapid pace of technological and social innovation, human capital accumulation, and the conversion of resources and natural capital into more valuable forms of produced capital. However, there is evidence emerging that this model may be approaching environmental limits and planetary boundaries, and that the conversion of natural capital needs to slow down rapidly and then be reversed. Some commentators have asserted that in order for this to occur, we will need to stop growing altogether and, instead, seek prosperity without growth. Others argue that environmental concerns are low-priority luxuries to be contemplated once global growth has properly returned to levels observed prior to the 2008 financial crisis. A third group argues that there is no trade-off, and, instead, promotes green growth: the (politically appealing) idea is that we can simultaneously grow and address our environmental problems. This paper provides a critical perspective on this debate and suggests that a substantial research agenda is required to come to grips with these challenges. One place to start is with the relevant metrics: measures of per-capita wealth, and, eventually, quantitative measures of prosperity, alongside a dashboard of other sustainability indicators. A public and political focus on wealth (a stock), and its annual changes, could realistically complement the current focus on market-based gross output as measured by GDP (a flow). This could have important policy implications, but deeper changes to governance and business models will be required.
The rise of rentier capitalism in America, its relationship to inequality, and the need to re-inv... more The rise of rentier capitalism in America, its relationship to inequality, and the need to re-invigorate the middle class.
Neoclassical models of strategic behavior have yielded many insights into competitive behavior, d... more Neoclassical models of strategic behavior have yielded many insights into competitive behavior, despite the fact that they often rely on a number of assumptions—including instantaneous market clearing and perfect foresight—that have been called into question by a broad range of research. Researchers generally argue that these assumptions are “good enough” to predict an industry’s probable equilibria, and that disequilibrium adjustments and bounded rationality have limited competitive implications. Here we focus on the case of strategy in the presence of increasing returns to highlight how relaxing these two assumptions can lead to outcomes quite different from those predicted by standard neoclassical models. Prior research suggests that in the presence of increasing returns, tight appropriability, and accommodating rivals, in some circumstances early entrants can achieve sustained competitive advantage by pursuing “get big fast” (GBF) strategies: Rapidly expanding capacity and cutti...
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