Category Archive: Entrepreneurship
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What’s the evidence that economic freedom is beneficial for society? Prof. Antony Davies shows charts of the free market’s effects on unemployment, inequality, poverty, and even child labor.
Comments Off on Millennials are in a love triangle with capitalism and socialism
There’s been a lot of talk recently about how Millennials — the generation born between roughly 1980 and 2000 — think about economics. Much of it was sparked by the fanatical support for self-described “democratic socialist” Bernie Sanders from young people in the Democratic primary for president last year. Gallup found in April 2016 that whereas Hillary Clinton had a net favorability rating of -23 among 18–24-year-olds, Sanders’s score was +39.
A Harvard University poll administered at about the same time revealed how this has been translated into policy views. The survey reported that only 42% of Millennials supported capitalism. According to a contemporaneous Gallup poll, that was about 10 percentage points lower than the general population. The Harvard survey showed 33% of Millennials wanted socialism.
So Millennials have economic attitudes that are different from older Americans. But is their economic behavior different? Do they walk the socialist walk?
Here, the evidence is decidedly mixed.
Socialists tend to embrace public goods because all citizens can consume them. Millennials certainly like them. A Pew Research Center poll from June revealed 45% of 18–29 year olds favored a single-payer health care system. This was 14 percentage points higher than any other single age group.
Census data show millennials adopted health insurance more rapidly than any other age cohort when Obamacare began in 2014–15. I’m not entirely sure what kind of political philosophy this behavior illustrates, but it does seem to suggest Millennials embraced the Affordable Care Act, legislation most people believe moved health care in this country solidly to the left.
Recycling and Personal Consumption
Socialism, unlike capitalism, makes a virtue of constrained personal consumption. A major reason for this, of course, is that it is less suited to production. But the connection has helped fuse ecology to socialism in the platforms of left-wing parties across the globe.
You may have heard the argument that Millennials are more environmentally conscious than the rest of us—they don’t use plastic shopping bags or flush the toilet, etc. A survey commissioned by Rubbermaid reported earlier this year that two-thirds of Millennials would give up social media for a week if everyone at their company recycled.
Interestingly, however, the data on behavior do not bear this out. A 2014 Harris poll conducted for the Institute of Scrap Recycling Industries (ISRI) revealed that whereas roughly a half of respondents over thirty said they “always” recycled, only a third of the younger group did.
Millennials talk about saving the planet for humanity, behavior a socialist mindset deems heroic, but they do not seem to be doing more than anyone else to secure our world’s survival.
Millennials also use public transportation much more than other groups. Over one-fifth ride a bus or train on a daily or almost-daily basis according to a Pew survey from late 2015. This was nearly double the proportion of any other age group.
Indeed, younger people seem to have much less love than their elders for that ultimate of American private goods, one’s own car. The number of licensed drivers in both the 24-29 year-old and 30-34 year-old cohorts decreased by about 10% between 1983 and 2014 according to the University of Michigan’s Transportation Research Institute. The drop for 18 year olds was a fifth. At the same time, everyone over 45 continues their love affair with the automobile.
This seems consistent with the socialist rejection of material goods, but whether this is correlation or causation is unclear.
Moreover, Millennials have almost single-handedly nurtured the “sharing” economy — a marketplace in which peer-to-peer transactions are facilitated by a software platform that permits participants to divide consumption, as exemplified by Uber and Airbnb. According to Vugo, 57% of all ridesharing customers are aged 25 to 34.
The sharing economy may sound quite socialist because it seems to eschew private ownership. But as Duke professor Mike Munger has pointed out, people in general wish to consume the services that tangible goods provide, not the goods themselves. The sharing economy in fact provides access to the services of more material goods than the user would otherwise have — whether that’s a five-minute ride in a car or a two-day stay in a house. Its fundamental principles, therefore, are capitalist.
A 2014 Bentley University survey of Millennials reported that two-thirds of respondents expressed a desire to start their own business. But Millennial behavior is different. An analysis by the Wall Street Journal last year found that the proportion of Americans under 30 who own a business has dropped by 65% since the 1980s. Millennials might say they want to be Mark Zuckerberg, but they’re not particularly entrepreneurial.
There does exist therefore a disconnect between Millennial economic attitudes and behavior. What explains it? The generation is intrigued by the idea of socialism. It embraces many of its values and the public policies that would bring it about. But Millennials’ behavior is ambiguous. Entrepreneurship in private enterprise is not a particularly appealing career path to them in practice.
Additionally, Millennials’ reduced consumption is probably as much a function of economic necessity as it is a sacrifice of their personal wants to some grand social plan. The Great Recession has left them playing financial catch-up. A Pew analysis of census data reveals 15% of 25-to-35 year olds still live with their parents. Traditionally that fraction has been around one tenth. A 2016 study by the left-leaning Center for American Progress found that Millennials make less than Gen Xers did in their early 30s. They only earn about the same as Boomers, who are 30 years older and 50% less likely to have graduated from college.
So perhaps there’s another explanation: When they appear to be rejecting capitalism, it’s often because Millennials are simply adjusting America’s core economic principles to new technologies and economic realities.
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Tech inventors switched from making missile systems for the government to making personal computers thanks to tax cuts. Watch more with Dr. Domitrovic.
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Property rights in a market economy can help us overcome negative externalities and create value for each other. Learn more with Dan Russell.
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One entrepreneur’s invention cut world poverty and revolutionized manufacturing. Learn more with Steve Davies
Comments Off on Entrepreneurs are evading regulations to bring you beer and marijuana cleanses.
This summer I’ve been enjoying a lot of microbrewery tours — even though the main attraction isn’t the “tour” I pay for, but the free beer that comes with it. In fact, the breweries must know that’s why people come. So why don’t they just drop this tour façade and sell us the beer?
Regardless of which brewery you visit, you pay a mere $10 for a pint glass with the brewery’s logo on it. As a thank you for purchasing the pint glass, they then grant three tickets you can redeem for free “samples” — which are actually full-sized beers.
There are also usually food vendors and live music. This atmosphere combined with the inexpensive libations draw sizeable crowds to these “tours” — where only a handful of patrons actually tour the facility.
But why do the breweries insist upon selling us the pint glasses, when most of us only really want what goes inside?
In conversation with the brewery owners, I learned that the breweries in my town aren’t legally allowed to sell beer directly to consumers in the way a bar can. But there’s nothing in the law preventing them from giving their product away.
In response to those incentives, they sell customers a pint glass (or charge them for the “tour”) and rent some of their property out to food vendors to subsidize the cost of getting their product into the hands of eager consumers without technically charging them for it.
It’s far from an ideal situation for these businesses, but it allows them to introduce new people to their product and to earn some revenue in the process — even if it’s less revenue than they could earn if they were allowed to just sell people the beer. It’s a clever arrangement, and a perfect example of evasive entrepreneurship.
Evasive entrepreneurship is when individuals develop innovative ways to circumvent laws and regulations to pursue profit. When the formal rules of a society make it costly for individuals to voluntarily exchange with one another, it is not surprising that individuals begin to invest time and resources in figuring out how to sidestep these laws.
As in the brewery tour example, evasive entrepreneurship sometimes provides us with delightful products or services that may never have existed or found their market in the absence of certain rules. The citizen’s band (CB) radio, for example, became widely employed as a means to avoid cops during the mid-1970s after a national speed limit of 55 mph was implemented in an attempt to manage the oil crisis.
The low speed limit reduced the incomes of individuals working in the trucking industry, as slower travel speeds meant truckers could accept fewer jobs. Truckers soon began to utilize CB radios to communicate with one another and inform each other of police locations along the highway. Even non-commercial drivers joined in on the CB radio trend.
Now, the CB radio had existed for decades prior to the implementation of the national maximum speed limit, but consumers didn’t have much of a use for them before the appearance of that law. And the radios’ popularity rapidly faded after that law was repealed.
The Pot-Concealment Industry
Similarly, the federal prohibition of marijuana use has resulted in a wide variety of products that exist solely to help consumers hide evidence of their illegal activities. Hollow books, fake soda cans, and other creative containers allow consumers and distributors to conceal the product.
Consumers can also purchase cleansing drinks and other products that promise to help them pass a drug test. Without the laws that render recreational pot consumption illegal, consumers would not be willing to pay much for any of these things.
In the midst of an economy with institutions that are otherwise sound, evasive entrepreneurial activities can help facilitate mutually beneficial transactions between consumers and producers that are made too costly by certain aspects of the legal and regulatory code.
But if a society has weak property rights or dysfunctional political institutions, evasive entrepreneurial activities may manifest in less pleasant ways. For example, in a country with a burdensome maze of red tape standing in the way of entrepreneurs who want to open a business, bribery might become prevalent to the point that bureaucrats expect bribes and are unwilling to do their jobs without them.
Organized crime syndicates are another example of evasive entrepreneurship that became possible because of alcohol and drug prohibition. Because producers of illegal products cannot rely on ordinary police officers, lawyers, and judges to protect their property rights, they must come up with alternative ways of ensuring that people who steal from them are punished in such a way that deters others from attempting to do the same.
So, instead of pressing charges against thieves and using the court system, mafias and drug cartels invest in violence. The more violent and frightening their reputation, the more hesitant people will be to steal from them in the future. Without the laws prohibiting drug transactions, there would be little need to resort to violence.
Even when evasive entrepreneurship is targeted toward productive activities, it’s still important that it directs scarce resources toward rule evasion instead of other, more highly valued activities.
All of the workers, machines, and raw materials that go into the production of unwanted pint glasses and items that help people pass drug tests could have been channeled toward other uses (like making more beer). While it’s easy to identify the things that exist because of evasive entrepreneurship, it’s impossible to know which things that would have been made instead in a freer world. We will never be able to know what those resources would have been used to create if they hadn’t been used to evade.
Comments Off on Highlights from our Reddit AMA with Professor Michael Munger
Last week, Professor Michael Munger joined us on Reddit for an “Ask Me Anything” conversation as part of the Learn Liberty Reddit AMA Series.
Dr. Munger is an esteemed Professor of Political Science, Economics, and Public Policy at Duke University. He has authored/co-authored 7 books and over 200 scholarly articles. A long-time friend of the Learn Liberty project, he frequently contributes to our blog, and has starred in nine Learn Liberty videos.
Check out some highlights from the AMA below.
I think we have become more not less tribal. The Downsian conception of parties is as an information shortcut: people “choose” the party that on average is closer to most of their policy positions. But we seem now to have gone the other way: party allegiance is stronger, and prior. And THEN I infer my policy positions from my tribal allegiance. It really does suggest some problems for traditional rational choice theory. But that’s why Public Choice, and the work Bryan Caplan (for example) is so useful: we should expect that people are stupid about politics. But they aren’t stupid because they are stupid; they are stupid because they are smart!
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Israel Kirzner showed us how entrepreneurs make the world better: they specialize in discovering missed opportunities. To learn more about entrepreneurs, click to watch.
Comments Off on Reddit AMA with Professor Michael Munger of Duke University
This Tuesday, the Learn Liberty Reddit AMA Series continues with Michael C. Munger, Professor of Political Science at Duke University.
UPDATE: The AMA is now live!
Prior to his tenure at Duke, where he chaired the Department of Political Science for 10 years before coming to serve as Director of Undergraduate Studies, Professor Munger has also taught at Dartmouth College, University of Texas—Austin, and University of North Carolina—Chapel Hill, and served as a staff economist at the US Federal Trade Commission.
He is a long-time friend of the Learn Liberty project, a regular contributor to our blog, and star of a whopping nine Learn Liberty videos! Mark your calendar and join us for the conversation at Reddit.com this Tuesday, July 11th at 3:00pm ET where you’ll have the chance to ask him anything!
Comments Off on This company helps African farmers secure their land rights.
In Ghana, a for-profit firm called LandMapp is “unlocking land’s value” by helping to secure farmer’s unofficial land rights. These farmers may have customary or traditional rights to their land, but in many cases these rights are not formally recognized.
The company uses GPS-enabled smart phones to map the boundaries of farmers’ plots. They verify boundary information with farmers and their neighbors, and then they provide farmers with documentation, at relatively low cost, of their land holdings.
With this verified and accurate information, farmers may be better able to access credit or contract with commodity firms to provide cacao or shea nuts. LandMapp is trying hard to do what African governments have difficulty doing: providing dependable mapping and surveying services and evidence of legitimate land rights claims at a reasonable cost to families and communities.
Property Rights in Africa
In my last post, I talked about how, by devolving rights to manage and benefit from wildlife to historically disadvantaged black communities, the government of Namibia helped to increase wildlife numbers while simultaneously promoting economic development and new job opportunities for people living in rural areas.
By providing local people with secure property rights to wildlife, the government created positive incentives to protect and conserve animals. It also created incentives for local people to think entrepreneurially about how to benefit from the presence of these animals. Some communities enter into joint ventures with tourism companies to build lodges that earn income; others may allow limited trophy hunting. Namibia’s approach to wildlife has resulted in important environmental and economic gains.
Imagine, then, how this kind of approach could help to improve economic outcomes for people across Africa. What if local people had secure rights to manage and benefit from the use of forests, or pastures, or farmland? What kind of entrepreneurial activities would we see?
The Tragedy of the African Forest Commons
Unfortunately for Africans, these kinds of experiments are limited. By some estimates, nearly 98% of African forests are owned by the state. Although locals may have informal rights to forests and forest products, these weak and unenforceable rights mean that forests become de facto “open access” resources — free for all to use and misuse because governments have such limited capacity to monitor who may enter and withdraw timber, plants, bush meat, honey, and other forest materials. Local people have fewer incentives to conserve and protect forests than they would, either as individuals or as communities, if they were legally empowered to manage and benefit from the use of forests.Some countries have adopted community-based forest management practices and, depending on the specific institutional arrangements, this approach can help reduce deforestation rates and generate income. But to date, few African countries have devolved secure rights to manage forests to local people; top-down management strategies remain the favored approach.
The problem isn’t confined to forests: across Africa, a majority of governments legally own the surface land. But while governments may legally own the land (and the water and the forests and all the subsurface wealth), many rural people hold traditional, customary rights to this land. In practice, this means that many communities have chiefs or other traditional leaders who are responsible for allocating land-use rights to clan or tribal members as well as to newcomers (migrants) or to groups that use land seasonally (pastoralists).
Bottom-up and Entrepreneurial Solutions
These customary or communal systems of land holding have evolved over time and are fairly flexible — often adapting to rising population pressure or to the discovery of valuable resources. Not surprisingly, they differ from country to country and from region to region (and even from village to village). More problematic is that they exist alongside, and often compete with, the formal government system of land ownership.In fact, perhaps as much as 60% of the land in sub-Saharan Africa is held under these customary rules. Customary lands typically are not accurately mapped, and rights to these lands typically are not registered with the government, even though many African countries do have laws that allow for this (many people with customary rights choose not to register their claims because the process is too expensive and complicated). As a result, many people living in rural areas have insecure property rights in their land. This insecurity means they are less likely to invest to improve agricultural productivity, they can be thrown off land by more powerful people, and they are often in conflict with others — and sometimes that conflict is violent.
So, it is encouraging to see how private-sector solutions and including technology can help to address some of these problems. It’s not clear yet how scalable LandMapp is, or how applicable this approach will be in an environment where farmers grow maize (a subsistence crop) rather than cacao (a cash crop). But it certainly is encouraging that entrepreneurs are trying to solve this pervasive problem and bring the benefits of secure property rights to the millions of rural Africans whose land rights remain undocumented and at risk.
Comments Off on No, you can’t multitask. To succeed, you need to focus.
If you want a great career in the 21st century, you need to stop trying to multitask and start doing “deep work.”
That’s one of the big ideas from Georgetown University computer science professor Cal Newport. He urges us to be aware that “there are different types of work and some types have way bigger returns than others.”
In his book Deep Work: Rules for Focused Success in a Distracted World, Newport explains the difference between deep work and shallow work. You are doing deep work when your professional activities are “performed in a state of distraction-free concentration that push[es] your cognitive capacities to the limit. These efforts create new value, improve your skill, and are hard to replicate.”
In contrast, “shallow work describes activities that are more logistical in nature, that don’t require intense concentration.” Shallow work efforts, explains Newport, “tend to not create much new value in the world and are easy to replicate.” In other words, they’re the type of work efforts that make it easy for your employer to replace you.
Deep work, Newport explains, is rare.
A 2012 McKinsey Global Institute study found that more than a quarter of the average worker’s day is spent answering and reading emails. When you throw in other disruptions such as meetings, checking your phone (the average user spends over 2 hours a day in 76 interactions with their phone), and social media, it is easy to see why deep work is rare.
Yet, Newport argues, while deep work is becoming increasingly rare, “at exactly the same time it is becoming increasingly valuable in our economy. As a consequence, the few who cultivate this skill, and then make it the core of their working life, will thrive.”
It takes deep work to master hard things. To thrive in today’s rapidly changing economy requires a commitment to a never-ending process of deep work. Newport offers this example:
Intelligent machines are complicated and hard to master. To join the group of those who can work well with these machines, therefore, requires that you hone your ability to master hard things. And because these technologies change rapidly, this process of mastering hard things never ends: you must be out to do it quickly, again and again.
The importance of deep work is echoed by George Mason University economics professor Tyler Cowen in his book Average Is Over. What Cowen calls “quality labor with unique skills” will still remain scarce in this highly competitive global economy. Cowen offers up some questions to help us see if we will remain competitive:
Are you good at working with intelligent machines or not? Are your skills a complement to the skills of the computer, or is the computer doing better without you? Worst of all, are you competing against the computer? Are computers helping people in China and India compete against you?
Take a hard look at your work day. Are you honing your ability to do deep work? Your position in the labor force is likely to deteriorate if you are only capable of shallow work.
If you’re only doing shallow work now, what can you do about it?You can cultivate your ability “to focus without distraction on a cognitively demanding task,” explains Newport. One of his suggestions for engaging in more deep work is: stop trying to multitask.
Are you multitasking?
I write “stop trying” because research shows that human beings can’t multitask, they can only switch-task. Each time we switch-task, we lose the possibility of entering into a highly focused state, what psychologist Mihaly Csikszentmihalyi calls “flow.” Switch-tasking is so disruptive that it can reduce our productivity by up to 40%. You are literally working harder to produce less.
Echoing Csikszentmihalyi, Newport describes how good a state of flow in deep work feels compared to the stress of shallow work:
We know it’s satisfying to enter a state where you’re giving full, rapt attention to something that you’re good at…. [On the other hand,] someone who’s based mainly in shallow work, neurologically speaking, is going to eventually construct an understanding of their world that is stressful and fractured.
The late Stanford University communications professor Clifford Nass, along with his colleagues Eyal Ophir and Anthony Wagner, studied multitaskers with the belief that they would uncover cognitive powers of focus that multitaskers had that others didn’t. They couldn’t find such a power.
Not only do chronic multitaskers lose time switch-tasking, but they also alter their brains in not-so-salutary ways. In an interview, Nass explains, “People who multitask all the time can’t filter out irrelevancy. They can’t manage a working memory. They’re chronically distracted.”
The multitaskers “actually think they’re more productive,” but they are deluded. Nass explains why: “They initiate much larger parts of their brain that are irrelevant to the task at hand.… They’re even terrible at multitasking. When we ask them to multitask, they’re actually worse at it [than nonmultitaskers]. So they’re pretty much mental wrecks.”
Multitaskers claim, “When I really have to concentrate, I turn off everything and I am laser-focused.” But according to Nass, the truth is that “they’ve developed habits of mind that make it impossible for them to be laser-focused. They’re suckers for irrelevancy. They just can’t keep on task.”
In other words, multitaskers have lost the ability to do deep work. The way back to deep work takes time and commitment. As Nass explains, “When we try to revert our brains back, our brains are plastic but they’re not elastic. They don’t just snap back into shape.”
In a Microsoft study on shrinking attention spans — “the amount of concentrated time on a task without becoming distracted”—Microsoft CEO Satya Nadella observed that an important trait for success was becoming rarer: “The true scarce commodity of the future will be human attention.”
Stop making excuses.
Are you blaming your circumstances — for example, a demanding boss — for your choice to not engage in deep work? Are you keeping your eye on a future prize — for example, a promotion or a salary increase — rather than making the day-to-day choice to engage in deep work? Are you reading this article and thinking, “Easy for Newport to say, but he doesn’t know my world?”
In her book Rapt: Attention and the Focused Life, Winifred Gallagher offers this guidance: “Who you are, what you think, feel, and do, what you love — is the sum of what you focus on.” What are you focused on today? How much of your day is spent on emails, meetings, or social media? How you choose to spend your time today may be crowding out the uninterrupted time necessary for you to do deep work.
To make deep work the core of your working life, Newport suggests keeping a scoreboard:
It seems like a simple thing, but without it, it’s so easy to go through a week and just say, “Well, I was busy and I think I did some deep work in there.” Once you start keeping score, you look at it and say, “I did one hour out of a 40-hour week? I’m embarrassed.” A compelling scoreboard drives you to action.
One caveat: a scoreboard only drives us into action if we stop blaming, take a hard look at the consequences of our choices, and decide there is a better way. If we can honestly say, “My choices have left something to be desired, and now I am ready to make different ones,” then we are at the bus stop for real change.
Comments Off on What Charles Darwin owes Adam Smith
The following is a lightly edited, slightly condensed transcript of the talk “Adam Darwin: Emergent Order in Biology and Economics,” presented by Matt Ridley at the Adam Smith Institute in 2012.
I’ve called my lecture “Adam Darwin” to stress how congruent the philosophies of Adam Smith and Charles Darwin are. The common theme, of course, is emergence — the idea that order and complexity can be bottom-up phenomena; both economies and ecosystems emerge. But my purpose really is to explore not just the history and evolution of this shared idea but its future: to show that in the age of the Internet, Adam-Darwinism is the key to understanding how the world will change.
The Common Ancestry of Evolution and Economics
Darwin’s debt to the political economists is considerable. He spent formative years in Edinburgh among the ghosts of Hume, Hutchinson, Ferguson, and Smith. When he was at Cambridge in 1829, he wrote, “My studies consist in Adam Smith and Locke.” At his grandfather Josiah Wedgwood’s house in Staffordshire, Darwin often met the lawyer and laissez-faire politician Sir James Mackintosh, whose daughter married Charles’s brother-in-law (and had an affair with his brother).
On the Beagle, he read the naturalist Henri Milne-Edwards, who took Adam Smith’s notion of the division of labor and applied it to the organs of the body. After seeing a Brazilian rainforest, Darwin promptly reapplied the same idea to the division of labor among specialized species in an ecosystem: “The advantage of diversification in the inhabitants of the same region is in fact the same as that of the physiological division of labor in the organs of the same individual body — subject so well elucidated by Milne-Edwards.”
Back in England in the 1830s, through his brother Erasmus, Darwin fell in with the radical feminist and novelist Harriet Martineau, who had shot to fame because of her series of short fictional books called Illustrations of Political Economy. These were intended to educate people in the ideas of Adam Smith, “whose excellence,” she once said, “is marvelous.” I believe it was probably at Martineau’s suggestion that, in October 1838, Darwin came to reread Malthus (a person with whom Martineau was on very close terms) and to have his famous insight that death must be a non-random and therefore selective force.
Parenthetically, it’s worth recalling the role of anti-slavery in bringing Martineau and Darwin together. Darwin’s grandfather Josiah Wedgwood was one of the leaders and organizers of the anti-slavery movement, a friend of Wilberforce, and the maker of the famous medallion “Am I not a man and a brother?” which was the emblem of the anti-slavery movement. Charles Darwin’s aunt Sara gave more money to the anti-slavery movement than any woman in Britain. Darwin had been horrified by what he called, “The heart-sickening atrocities of slavery in Brazil.” Abolition was almost the family business. Meanwhile, Harriet Martineau had just toured America speaking against slavery and had become so notorious that there were plans to lynch her in South Carolina.
Today, to a bien pensant intellectual, it might seem surprising to find such a left-wing cause alongside such a right-wing enthusiasm for markets, but it should not be. So long is the shadow cast by the top-down determinism of Karl Marx, with his proposal that the state should be the source of reform and welfare, that it’s often forgotten how radical the economic liberalism of the political economists seemed in the 1830s. In those days, to be suspicious of a strong state was to be left-wing (and, if you’ll forgive the pun, quite right, too).
Today, generally, Adam Smith is claimed by the right, Darwin by the left. In the American red states, where Smith’s emergent decentralized philosophy is all the rage, Darwin is often reviled for his contradiction of dirigiste creationism. In the average British university by contrast, you will find fervent believers in the emergent decentralized properties of genomes and ecosystems, who nonetheless demand dirigiste policy to bring order to the economy and society. Yet, if the market needs no central planner, why should life need an intelligent designer, or vice versa?
Ideas evolved by descent and modification just as species do, and the idea of emergence is no exception. Darwin at least partly got the idea from the political economists, who got it from the empirical philosophers. To put it crudely, Locke and Newton begat Hume and Voltaire, who begat Hutchinson and Smith, who begat Malthus and Ricardo, who begat Darwin and Wallace. Darwin’s central proposition was that faithful reproduction, occasional random variation, and selective survival, can be a surprisingly progressive and cumulative force. It can gradually build things of immense complexity. Indeed, it can make something far more complex than a conscious deliberate designer ever could. With apologies to William Paley and Richard Dawkins, it can make a watchmaker.
Each time a baby is conceived, 20,000 genes turn each other on and off, in a symphony of great precision, building a brain of 10 trillion synapses, each refined and remodeled by early and continuing experience. To posit an immense intelligence capable of comprehending such a scheme, rather than a historical emergent process, is merely to exacerbate the problem — who designed the designer?
Likewise, as Leonard Reed pointed out, each time that the pencil is purchased, tens of thousands of different people collaborate to supply the wood, the graphite, the knowledge, and the energy, without any one of them knowing how to make a pencil. Says Smith, if you like, “This came about by bottom-up emergence, not top-down dirigism.” In both cases, nobody’s in charge, and crucially, nobody needs to understand what’s being done.
Why Innovation Happens
So far, I’m treading a well trodden path in the steps of Herbert Spencer, Frederick Hayek, Karl Popper, and many others who’ve explored the parallels between evolutionary and economic theory. But the story has grown a lot more interesting in the last few years, I think, because of developments in field of cultural and technological evolution. Thanks especially to the work of three anthropologists — Rob Boyd, Pete Richardson, and Joe Henrich — we are beginning now to understand the extraordinary close parallels between how our bodies evolved and how our tools and rules evolve. Innovation is an evolutionary process. That’s not just a metaphor, it’s a precise description. I need you to re-examine a lot of your assumptions about how innovation happens to disenthrall yourself of what you already know.
First, innovation happens mainly by trial and error. It’s a tinkering process, and it usually starts with technology, not science, by the way, as Terrence Keeley has shown. The trial and error may happen between firms, between designs, between people, but it happens. If you look at the tail planes of early airplanes, there’s a lot of trial and error, there’s a lot of different designs being tried and eventually one is decided.
Exchange is crucial to innovation, and innovation accelerates in societies that open themselves up to internal and external exchange through trade and communication — Ancient Greece, Song China, Renaissance Italy, 16th century Holland, 19th century Britain — whereas innovation falters in countries that close themselves off from trade — Ming China, Nero’s India, Communist Albania, North Korea.
More ever, every innovation, as Brian Arthur has argued, is a combination of other innovations. As L.T.C. Rolt, the historian of engineering put it, “The motorcar looks as if it was sired by the bicycle out of the horse carriage.” My favorite example of this phenomenon is the pill camera, which takes a picture of your insides on the way through. It came about after a conversation between a gastroenterologist and a guided missile designer.
Adam Smith in other words, has the answer to an evolutionary puzzle: what caused the sudden emergence of behaviorally modern human beings in Africa in the past hundred thousand years or so? In that surprisingly anthropological first chapter of The Wealth of Nations, Smith saw so clearly that what was special about human beings was that they exchanged and specialized.
Neanderthals didn’t do this — they only ever used local materials. In this cave in Georgia, the Neanderthals used local stone for their tools. They never used tools from any distance away, from any Neanderthal sites. But when modern human beings move into this very same area, you find stone from many miles away being used to make the tools, as well as local stone. That means that moderns had access to ideas, as well as materials from far away. Just as sex gives a species access to innovations anywhere in its species, so exchange gives you access to innovation anywhere in your species.
When did it first happen? When was trade invented? At the moment, the oldest evidence is from about a 120,000 years ago. That’s when obsidian axes in Ethiopia and snail-shell beads in Algeria start traveling long distances. These beads are made from marine shells, but they’re found a hundred miles inland. And we know from modern Aborigines in Australia that long-distance movement of man-made objects happens by trade, not migration. So it’s not that people are walking all the way to the Mediterranean and picking up shells and walking all the way back again; they’re getting them hand-to-hand by trade.
Now that’s 120,000 years ago — ten times as old as agriculture — but I suspect it goes back further still. There’s a curious flowering of sophisticated tool kits in Africa around a 160,000 years ago, in a seashore dwelling population, as evidenced by excavations at a place called “Pinnacle Point.” It came and went, but careful modeling by some anthropologists at the University College London suggests that this might be a demographic phenomenon: a rich food supply led to a dense population, which led to a rich toolkit. But that’s only going to be true if there is exchange going on, if the ideas are having sex — dense populations of rabbits don’t get better tools. Once exchange and specialization are happening, cultural evolution accelerates if population density rises, and decelerates if it falls.
We can see this clearly from more recent archeology in a study by Melanie Klien and Rob Boyd. In the Pacific, in pre-Western contact times, the sophistication of fishing tackle depends on the amount of trading contact between islands. Isolated islands, control for island size, will have simpler fishing tackle than well-connected islands. And indeed, if you cut people off from exchange networks, human progress not only stalls, it can go backwards.
The best example of this is Tasmania, which became an island ten thousand years ago when sea levels rose. Not only did the Tasmanians not get innovations that happened after this time, such as the boomerang, they actually dis-invented many of their existing tools. They gave up making bone tools altogether, for example. As Joe Henrich has argued, the reason for this is that their population was too small to sustain the specialization needed to collaborate in the making of some of these tools. Their collective brain was not big enough — nothing to do with their individual brains, it’s the collective intelligence that counts.
As a control for this idea, notice that the same thing did not happen in Tierra Del Fuego. The Fuegan Indians continue to progress technologically. The reason for this is that the Magellan Strait is narrower than the Bass Strait, so trade continued and the Feugan Indians had access to a collective brain the size of South America. Whereas, as the Tasmanians had access to a collective brain only the size of Tasmania.
The Collectivism of Markets
Now for me one of the most fascinating implications of this understanding of the collective brain is just how touchy-feely liberal it is. I’m constantly being told that to believe in markets is to believe in selfishness and greed. Yet I think the very opposite is true. The more people are immersed in markets, the more they collaborate, the more they share, the more they work for each other. In a fascinating series of experiments, Joe Henrich and his colleagues showed that people who play ultimatum games — a game invented by economists to try and bring out selfishness and cooperation — play them more selfishly in more isolated and self-sufficient hunter-gatherer societies, and less so in more market-integrated societies.
History shows that market-oriented, bottom-up societies are kinder, gentler, less likely to go to war, more likely to look after their poor, more likely to patronize the arts, and more likely to look after the environment than societies run by the state. Hong Kong versus Mao’s China, 16th century Holland versus Louis the XIV’s France, 20th century America versus Stalin’s Russia, the ancient Greeks versus the ancient Egyptians, the Italian city-states versus the Italian papal-states, South Korea versus North Korea, even today’s American versus today’s France, and so on.
As Voltaire said, “Go into the London stock exchange and you will see representatives of all nations gathered there for the service of mankind. There the Jew, the Mohammedan, and the Christian deal with each other as if they were of the same religion, and give the name of infidel only to those who go bankrupt.”
As Deirdre McCloskey reminds us, we must not slip into apologizing for markets, for saying they are necessary despite their cruelties. We should embrace them precisely because they make people less selfish, and they make life more collective, less individualistic. The entire drift of human history has been to make us less self-sufficient and more dependent on others to provide what we consume and to consume what we provide. We’ve moved from consuming only as widely as we produce to being much more specialized as producers and much more diversified as consumers.
That’s the very source of prosperity and innovation. It’s time to reclaim the word “collectivism” from the statists on the left. The whole point of the market is that it does indeed “collectivize” society, but from the bottom-up, not the top-down. We surely know by now after endless experiments that a powerful state encourages selfishness.
Let me end with an optimistic note. If I’m right, that exchange is the source of innovation, then I believe that the invention of the Internet, with its capacity to enable ideas to have sex faster and more promiscuously than ever, must be raising the innovation rate. And since innovation creates prosperity by lowering the time it takes to fulfill needs, then the astonishingly rapid lifting of humanity out of poverty that has happened all over the world, particularly in the last 20 years, can surely only accelerate. Indeed, it is accelerating. Much of Africa is now enjoying Asian Tiger-style growth. Child mortality is plummeting at a rate of five percent a year in Africa. In Silicon Valley recently, Vivek Wadhwa showed me a $35 tablet computer that will shortly be selling in India. Think what will be invented when a billion Indians are online.
In terms of human prosperity, therefore, we ain’t seen nothing yet. And because prosperity is an emergent property, an inevitable side effect of human exchange, we could not stop it even if we wanted to. All we could do is divert it elsewhere on the planet (which is what we in Europe seem intent on doing). “Adam Darwin” did not invent emergence: his was an idea that emerged when it was ripe. And like so many good ideas, it was already being applied long before it was even understood. And so I give you Adam-Darwinism as the key to the future.