Beyond natural selection and divine intervention: The Lamarckian implication of Adam Smith's invisible hand

Adam Smith's invisible hand metaphor (IH) is examined in light of two different accounts of the origin of traits: Charles Darwin's theory of evolutionary optimization and William Paley's theory of divine intervention. Smith's stand supersedes both accounts. For Smith, intermediating drives, such as the sexual one, neither arise accidentally and favored according to their fitness à la Darwin nor planted by the Deity à la Paley. For Smith, such drives are adopted in light of their ultimate end. Smith did not provide an account of how the drives are connected to their far-reaching, invisible beneficial ends or why do agents become dimly aware of that causality.     

The economic analysis of social customs: the case of pre-marital sex

This paper uses a sample of 18,876 adults aged 16-59 from to estimate logit equations of the determinants of support for the custom of abstaining from pre-marital sex. Three sets of equations are estimated separately for males and females; one set for disapproval of pre-marital sex, one set for disapproval of one night stands and another set for a proxy for involvement in pre-marital sex. These results confirm some expected male-female differences and also show a polarisation amongst the population in their support for, and observance of, customs and practices related to abstaining from sex before marriage.     

Interactive expectations

In modeling expectation formation, economic agents are usually viewed as forming expectations adaptively or in accordance with some rationality postulate. We offer an alternative nonlinear model where agents exchange their opinions and information with each other. Such a model yields multiple equilibria, or attracting distributions, that are persistent but subject to sudden large jumps. Using German Federal Statistical Office economic indicators and German IFO Poll expectational data, we show that this kind of model performs well in simulation experiments. Focusing upon producers' expectations in the consumption goods sector, we also discover evidence that structural change in the interactive process occurred over the period of investigation (1970–1998). Specifically, interactions in expectation formation seem to have become less important over time. RID="*" ID="*"We would like to thank Ulrich Witt, Director of the Evolutionary Economics Unit, The Max Planck Institute for Research into Economic Systems, Jena, Germany, for providing the intellectual stimulus for this project and arranging the necessary financial support from the Max Planck Society to facilitate our collaboration. Thanks are also due to the IFO Institute for providing the data for this study. However, the usual caveat applies.     

Modelling research and development: How do firms solve design problems?

One way of thinking about research and development is to recognise that firms are trying to solve particular design problems. We often build these design problems into our models, but are forced to oversimplify them in order to make the models solvable. The approach taken in this paper is to acknowledge that design problems are often insoluble using standard techniques and to model instead the process by which firms solve them. Two such processes are simulated in detail. The first, individual experimental search, is based on a problem-solving technique known as simulated annealing. The second, partial imitation, involves learning at a social level and is based on a problem-solving technique known as the genetic algorithm. Some economic implications of these processes are explored, including their application to stochastic learning curves, patent design and the importance of `technodiversity' in the introduction of new technology to developing countries.     

Democracy and capitalism: Are they compatible in the long-run?

Starting from a discussion of Schumpeter's analysis of the relationships of capitalism, socialism and democracy, it is shown that, in a complex society, democracy is only compatible with a decentralized market economy with safe property rights. But in time democracy shows a tendency to weaken the capitalist system by more and more regulations and an ever-increasing share of government (including the social security system) in GDP. This tendency is a consequence of political competition because of the development of interest groups and the presence of rationally uninformed voters. It leads to a weakening of efficiency, investment, innovation and thus to lower growth rates of GDP. But in time forces opposing this development arise. First, because of the negative consequences of growing government the welfare and regulatory state is bound to move into a crisis in the long run. Thus innovative politicians have a chance to win the support of a majority of voters for reform projects, who perceive finally the ever-increasing burden of higher taxes and regulations and realize that these burdens are not worth the benefits bestowed on them. In doing so, they may face, however, the competition of ideologies. Second, there are other states with lower taxes and less unnecessary regulations which show higher growth rates of GDP, and gain thus relative advantages in international political and military competition since they can command greater resources with the passage of time. To maintain their relative international power position, reforms are thus considered as necessary by rulers. This may be helped by pressure resulting from comparisons of the standards of living done by their citizens.     

The old and the new: the evolution of polymer and biomedical clusters in Ohio and Sweden

This paper examines the rapid growth of the polymer-based and biomedical clusters in Ohio and Sweden – two regions of similar size and with similar traditions undergoing similar industrial restructuring. Two issues are addressed: First, why has growth been so strong in these particular clusters, i.e., can we identify the sources of the growth and dynamics in these sectors? Second, why do these two clusters differ in Ohio and Sweden in terms of size, level and type of activity, number and composition of actors, size structure of firms and growth patterns over the last couple of decades? In particular, what is the role of public policies as well as cultural, historical, and geographic factors? Our main conclusions are (1) that there is strong path dependence in both clusters in both countries, and (2) that the key to rapid development is a high absorptive capacity combined with rapid diffusion to new potential users. Our policy discussion addresses these issues.     

Theoretical perspectives on strategic environmental management

Strategic Environmental Management (SEM) incorporates into firms' core strategies the transformation of products and processes that they believe an environmentally concerned society will increasingly demand. Significant threads have to do with the discovery of cost savings and market opportunities from reducing environmental impacts. SEM, like the environmental regulation hypothesis associated with Michael Porter, implies that society's efforts to reduce external environmental costs often lead to identification of hitherto-ignored or undeveloped profit possibilities. This would be surprising from the standpoint of neoclassical economic theory, to the extent that SEM utilizes available information about the potential costs and benefits of projects. Within the framework of evolutionary, capabilities-based theories of the firm, however, this discovery and its exploitation in SEM make perfect sense. Capabilities theory would imply that firms' intrinsic path dependence may previously have obscured such opportunities. This paper examines the theory of SEM, its implications for neoclassical and capabilities theories of the firm, and survey results drawn from the author's work with member companies in a regional pollution prevention roundtable. RID="*" IDI have enjoyed the able and insightful research assistance of Justin Vernon. Cooperation from the companies that participated in the survey, and financial support from Allegheny College and its Center for Economic and Environmental Development, are gratefully acknowledged. Reviewers for this journal provided numerous, valuable suggestions. Responsibility for the material herein remains mine alone.     

Transferring exploration and production activities within the UK's upstream oil and gas industry: a capabilities perspective

Following Richardson (1972), capabilities comprise tacit, personal, subjective and context-specific knowledge that may be shared in practice only with difficulty across small, task oriented groups within firms or other types of organisation, and are expressed in the form of activities. The definition has been influential, and its focus on tacit knowledge has, arguably, encouraged research activities in the form of studies adopting experimental and simulation techniques, while providing less impetus for complementary empirical inquiry. This paper presents an empirical inquiry into an aspect of the development of capabilities in the UK's upstream oil and gas industry promoted by the changing organisation of activities across oil companies and contracting and supply companies. The main argument is that researchers can gain partial and subjective access to capabilities – distinct from activities – because individuals involved in the industry articulate and codify understandings of capabilities through practical theorising and commercial experimenting. Such articulation and codification plays an important role in the development of capabilities in industrial contexts.     

Market institutions and economic evolution

Our cognitive limitations cause us to rely on institutions to guide reasonable behaviour; market institutions reduce the costs of search, negotiation, and monitoring entailed in making single transactions. The making of markets requires an investment of immaterial capital, the major share of which typically is provided by those who expect to be very active on one side of the market. This `external organisation' provides producers with information for the development of new products; by simplifying transactions it also allows consumers greater scope for developing consumption capabilities. Thus the evolution of institutions guides the evolution of goods and services.     

A comparison of diffusion approximations and actual limits in birth and death processes of noisy evolution

The stationary distribution of a birth and death process may not be approximated by a diffusion. The general situation is illustrated on the “musical chairs” model by Binmore et al. (1995). This model is shown to generate outcomes which are not captured by the concept of the ultralong run equilibrium selection introduced in Binmore et al. (1995).     

Satiation in an evolutionary model of structural economic dynamics

This paper presents the problem of satiation of consumption and technology in relation to a model of evolutionary endogenous growth. The model represents an attempt to provide an evolutionary economic micro foundation to Pasinetti's scheme of the structural economic dynamics of an economy that is based on only labour and knowledge. The micro foundation is based on a set of rules that makes endogenous the demand coefficients, the labour coefficients, and the number of available sectors. Through process innovations firms increase their productivities with respect to individual goods, but a growth slowdown takes place unless the benefits from specialisation are exploited at still higher levels. Another cause for slowdown is related to an Engelian hierarchy of goods. As the standard of living grows, existing sectors and consumption goods satiate, so new sectors need to be provided by product innovations in a sufficient pace to keep up with the labour that is displaced from old sectors.     

Competitive selection, self-organisation and Joseph A. Schumpeter

Post-Schumpeterians have tended to use biological analogies to understand economic evolution, in contrast to Schumpeter himself. In this paper it is argued that the biological analogies used tend to be outdated and that Schumpeter espoused an intuitive understanding of the evolutionary economic process that is closely related to modern conceptions of self-organisation, suitably adapted for application in socioeconomic systems. Using a self-organisation approach, competition can be understood without recourse to biological analogy, in terms of general systemic principles that operate in the presence of variety. Viewing economic evolution in terms of complex adaptation in self-organising systems yields nonequilibrium and nonlinear perspectives that parallel Schumpeter's own intuitions, reinvigorating them as the basis of evolutionary economic thinking in the new Millennium.     

Consumption,preferences, and the evolutionary agenda

The purpose of this paper is to provide a preliminary evolutionary account of preferences, consumption and demand. This is particularly relevant for the study of innovation which offers consumers the opportunity to develop new behaviours. The paper approaches this question in two stages. First it recognises the importance of time as well as income constraints on consumer behaviour. Secondly, it develops a behavioural approach to consumption routines in terms of Herrnstein's concept of meloriation. In this account the focus is upon activities for which commodities and time are inputs and, with innovation, time is rescheduled on many fronts. Consumer learning is related to a replicator dynamic process. It is shown how changes in wages, prices and the time required to consume influence the demand for activities.     

Schumpeter and the `Schmollerprogramm': integrating theory and history in the analysis of economic development

This essay addresses the historical and institutional aspects of Schumpeter's thought. It suggests that Schumpeter prepared a pluralist research agenda, formulated in accordance with the conceptual perspective of the German Historical School, as presented by major scholars such as Schmoller, Sombart, Spiethoff and Max Weber. Schumpeter's notion of development, with its emphasis on the correspondence of economic and socio-cultural evolution, is therefore to be viewed in the context of the comprehensive Schmollerian approach. Moreover the ethical-evolutionary components of Schmoller's ideas point at the vital role of the German Historical School in the elaboration of a modern evolutionary economics in Schumpeterian terms. The essay concludes that the Schmollerprogramm is going to inspire further developments in Schumpeterian economics, as the integration of theory and history continuously marks the research agenda of evolutionary approaches to economic development.     

Capitalism and democracy in the 21st Century: from the managed to the entrepreneurial economy*

 This paper explains how and why the developed countries are undergoing a fundamental shift away from a managed economy and towards an entrepreneurial economy. This shift is shaping the development of western capitalism and has triggered a shift in government policies away from constraining the freedom of business to contract through regulation, public ownership and antitrust towards a new set of enabling policies which foster the creation and commercialization of new knowledge. The empirical evidence from a cross-section of countries over time suggests that those countries that have experienced a greater shift from the managed to the entrepreneurial economy have had lower levels of unemployment.     

An evolutionary model of the size distribution of firms

An analytical study of the evolution of the distribution of firm size in an industry is presented. A drift-diffusion model is proposed to express the time-evolution of density of firm size within the industry. The model blends the conventional, more or less static, determinants with the kinds of dynamic considerations introduced by stochastic processes of evolutionary dynamics. The steady-state distribution as well as the dynamic behavior of the model are derived. Parameters in the resulting analytical expressions are then fit to a population of firms in the non-manufacturing service sector. The empirical portion of the paper validates the proposed evolutionary model.     

Knowledge and markets

An economy is a coordinated system of distributed knowledge. Economic evolution occurs as knowledge grows and the structure of the system changes. This paper is about the role of markets in this process. Traditionally, the theory of markets has not been a central feature of evolutionary economics. This seems to be due to the orthodox view of markets as information-processing mechanisms for finding equilibria. But in economic evolution markets are actually knowledge-structuring mechanisms. What then is the relation between knowledge, information, markets and mechanisms? I argue that an evolutionary theory of markets, in the manner of Loasby (1999), requires a clear formulation of these relations. I suggest that a conception of knowledge and markets in terms of a graphical theory of complex systems furnishes precisely this.     

Capitalism and democracy at a crossroads: the civilizational dimension

This paper evaluates Schumpeter's grand vision as reflected in his Capitalism, Socialism and Democracy, and elaborates it in conjunction with the so-called “globalization” trends characteristic of the wake of the twenty-first century. In addition to the evolutionary nature of his methodology, the institutionalist dimension of Schumpeter's definitions are brought to light. A case is made for a fundamental process of “uncreative destruction” as far as the institutional setup of the economy is concerned. The contention of this paper is that there is ample support in Schumpeterian analysis for a counterpoint to the liberal thesis that envisages the worldwide spread of individualism, market economies, and democratic forms of government.     

Knowledge of growth and the growth of knowledge

The central theme of this address is the complicated relationship between the growth of the economy and the growth of knowledge. This theme is explored with the help of a single concept “restless capitalism” which is used to capture the idea that capitalism in equilibrium is a contradiction in terms precisely because the growth of knowledge cannot be meaningfully formulated as the outcome of a constellation of equilibrating forces. This theme is explored through a discussion of growth accounting, the relationship between innovation, markets and institutions and, as an example, the development of innovation in the field of ophthalmology. We also discuss some pioneering contributions made by Simon Kuznets and Arthur Burns to the discussion of evolutionary growth. From this Schumpeterian perspective we see the economy as an ensemble not an aggregate entity and so see more clearly the importance of microdiversity in the relationship between growth of knowledge and growth of the economy.     

Technology transfer in United States universities

This paper examines the role of offices of technology transfer (OTT) in 12 U.S. universities in 1998 in commercializing research results in the form of patents, licenses, and start-ups of new companies. We study the organization and place of OTTs within the university structure, the process of technology transfer, and the staffing and funding of the office. Data were collected through a mail questionnaire followed up through telephone interviews. We also conducted a statistical analysis of data for 170 U.S. universities, hospitals, and research institutes for the period 1991–1996. Our findings suggest that technology transfer from universities to the commercial sector needs to be understood in its broader context. The primary purpose of a technology transfer program is for the university to assist its researchers in disseminating research results for the public good. Success in this endeavor is only partially reflected in income generated for the university or the number of business start-ups. The degree of success depends not only on the nature of the interface between the university and the business community but also on the receptivity in the surrounding community as well as the culture, organization, and incentives within the universities themselves.