Darwinism in economics: from analogy to ontology

Several social scientists, including ‘evolutionary economists’, have expressed scepticism of ‘biological analogies’ and rejected the application of ‘Darwinism’ to socio-economic evolution. Among this group, some have argued that self-organisation is an alternative to biological analogies or Darwinism. Others have seen ‘artificial selection’ as an alternative to natural selection in the socio-economic sphere. Another objection is that Darwinism excludes human intentionality. It is shown that all these objections to ‘biological analogies’ and ‘Darwinism’ are ungrounded. Furthermore, Darwinism includes a broad theoretical framework for the analysis of the evolution of all open, complex systems, including socio-economic systems. Finally and crucially, Darwinism also involves a basic philosophical commitment to detailed, cumulative, causal explanations. For these reasons, Darwinism is fully relevant for economics and an adequate evolutionary economics must be Darwinian, at least in these fundamental senses. However, this does not undermine the need for auxiliary theories and explanations in the economic domain.     

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.     

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.     

The evolutionary and non-Darwinian economics of Joseph Schumpeter

In a recent paper, Matthias Kelm (1997) accepts that `Schumpeter's definition of evolution does not contain any Darwinian mechanism such as natural selection or any other biological concept' and that Schumpeter `made no such attempt' to apply `Darwinian theory to economic evolution'. However, Kelm goes on to argue that Schumpeter would have been a Darwinian if circumstances were different. It is argued here that this contention is highly implausible because Schumpeter explicitly rejected biological metaphors and analogies in economics. Furthermore, Schumpeter misunderstood Darwinism. In his attempt to `interpret' Schumpeter as a Darwinian, Kelm himself misrepresents the three core principles of Darwinism. In addition Kelm's paper contains several misunderstandings and misrepresentations of the assessment of Schumpeter made by Hodgson (1993). This present response concludes that Schumpeter was indeed one of the greatest economists of the twentieth century and that he may legitimately be described as an `evolutionary economist'. However, he cautioned strongly against the use of biological metaphors in economics and there is no legitimate basis for describing his approach as Darwinian.     

Schumpeter and Steindl on the dynamics of competition

This paper compares and contrasts the contributions of Joseph Alois Schumpeter and Josef Steindl to the competitive paradigm. Both reject the static nature of traditional profit maximizing analysis and the analytical device of a representative firm. Instead they both opt for a dynamic framework in which there is a key role for innovation. Differences emerge in terms of the characteristics of individual firms that nurture the competitive struggle and are responsible for technical change. The maturation process of a capitalist economy, whereby a natural progression will involve an increase in concentration, as prescribed by Schumpeter and Steindl is also explored, as is criticism of their analyses. Finally the holistic approach to competitive modelling, a legacy of these two economists, is expounded and challenges for the future identified.     

Convergences with Schumpeter: An essay Hirschman has yet to write

The paper explores the contributions of Joseph Schumpeter and Albert Hirschman to our understanding of the dynamics of modern democratic capitalist economies and suggests that much of their respective work displays intellectual overlap and complementarity. It is primarily focused upon the role of economic and political processes as forces of change and adjustment and the necessary degree of built-in inertia required to permit orderly rather than chaotic responses.     

Where Schumpeter was nearly right – the Swedish model and Capitalism, Socialism and Democracy<--RID="*"-->

In Capitalism, Socialism and Democracy Joseph A. Schumpeter concluded that socialism would eventually displace capitalism in Western democracies. This would come about as a result of the superior performance of capitalism. We extract six “stylized” propositions that are essential elements of Schumpeter's prediction about the fate of capitalism. These propositions are confronted with the development of the Swedish economy. The three main results of the analysis are: (1) The evolution of the Swedish economy closely followed Schumpeter's predictions until about 1980: Large firms became increasingly predominant in production and innovative activity, ownership of firms became more and more concentrated, individual entrepreneurship waned in importance, the general public grew increasingly hostile towards capitalism, and by the late 1970s explicit proposals for a gradual transfer of ownership of firms from private hands were launched. (2) Design of tax and industrial policies fueled a development of the economy along the lines predicted by Schumpeter. In general, the policies discouraged private wealth accumulation. In particular, the policies favored concentration of firms and concentration of private ownership. (3) The turning point away from the path to socialism coincides with real world developments that disclosed two major flaws in Schumpeter's analysis. First, the ever more obvious failure of socialism in Eastern Europe went against Schumpeter's assertion that socialism can work. Second, Schumpeter, who thought that modern technology would make the giant corporation increasingly predominant, did not foresee the revival of entrepreneurship that took place in the Western countries around 1980.     

Evolutionary economics and economic geography

This article attempts to explore how key notions from Evolutionary Economics, such as selection, path-dependency, chance and increasing returns, may be applied to two key topics in Economic Geography. The first issue is the problem of how to specify the (potential) impact of the spatial environment on new variety in terms of technological change. Evolutionary thinking may be useful to describe and explain: (1) the process of localized `collective' learning in a regional context, (2) the adjustment problems that regions may be confronted with in a world of increasing variation, and (3) the spatial formation of newly emerging industries as an evolutionary process, in which the spatial connotation of increasing returns (that is, agglomeration economies) may result in a spatial lock-in. The second issue is the problem of how new variety may affect the long-term evolution of the spatial system. We distinguish three approaches that, each in a different way, apply evolutionary notions to the nature of spatial evolution. This is strongly related to the issue whether mechanisms of chance and increasing returns, rather than selection and path-dependency, lay at the root of the spatial evolution of new technology.     

Evolutionary macroeconomics: a research agenda

In this article, the goal is to offer a new research agenda for evolutionary macroeconomics. The article commences with a broad review of the main ideas in the history of thought concerning the determinants of economic growth and an introduction to the evolutionary perspective. This is followed by a selective review of recent evolutionary approaches to macroeconomics. These approaches are found to be somewhat disconnected. It is argued that the ‘micro-meso-macro’ approach to economic evolution is capable of resolving this problem by offering an analytical framework in which macroeconomics can be built upon ‘meso-foundations’, not micro-foundations, as asserted in the mainstream. It is also stressed that the economic system and its components are complex adaptive systems and that this complexity must not be assumed away through the imposition of simplistic assumptions made for analytical convenience. It is explained that complex economic systems are, at base, energetic in character but differ from biological complex systems in the way that they collect, store and apply knowledge. It is argued that a focus upon stocks and flows of energy and knowledge in complex economic systems can yield an appropriate analytical framework for macroeconomics. It is explained how such a framework can be connected with key insights of both Schumpeter and Keynes that have been eliminated in modern macroeconomics. A macroeconomic framework that cannot be operationalized empirically is of limited usefulness so, in the last part of the article, an appropriate methodology for evolutionary macroeconomics is discussed.     

Weber, Schumpeter and Knight on entrepreneurship and economic development

This paper interprets the discussion on entrepreneurship and economic development that started off with Weber's papers on the Protestant Ethic. Weber sought the reason for the relatively rapid growth of the Occident in the rational, Calvinist attitude to life. Calvinism – in his view – exactly suited a society of free labourers, who were not tied to master and soil by extra-economic considerations as in tribal and feudal societies. Schumpeter gave an alternative explanation, emphasizing the importance of innovation and entrepreneurship. Knight, who stressed neither rationality nor innovation but uncertainty and perceptiveness as the sole source of progress and profits, followed up German language writing on this subject. Only the investor who can detect hitherto hidden qualities in people can gain. The paper demonstrates how these three authors influenced each other. The debate between these three authors has raised many issues of governance and organization that feature contemporary thinking.     

Schumpeter and the revival of evolutionary economics: an appraisal of the literature

During the last two decades we have seen a revival of interest in the works of Joseph Schumpeter and “evolutionary” ideas in economics more generally. A professional society honouring Schumpeter's name has been founded, and linked to it we have had for more than fifteen years now a professional journal devoted to this stream of thought. However, it has been argued that, despite these developments, the link between Schumpeter's own work and the more recent contributions to evolutionary economics is in fact rather weak. This paper considers this claim. Based on an analysis of Schumpeter's contribution to economics the paper presents an overview and assessment of the more recent literature in this area. It is argued that although there are important differences between Schumpeter's work and some of the more recent contributions, there nevertheless remains a strong common core that clearly distinguishes the evolutionary stream from other approaches (such as, for instance, so-called “new growth theory”). RID="*" ID="*" Many people have contributed to this paper in various ways. Jon Hekland at the Norwegian Research Council started it all by asking me to make an overview of the contribution from “evolutionary economics” to our understanding of contemporary economies. Several people helped me on the way by supplying written material, comments and suggestions, and I am indebted to all of them. Brian Arthur, Stan Metcalfe, Keith Pavitt, Erik Reinert, Paolo Saviotti and Bart Verspagen may be particularly mentioned. A preliminary version was presented at the conference “Industrial R&D and Innovation Policy Learning – Evolutionary Perspectives and New Methods for Impact Assessment” organised by the Norwegian Research Council (“SAKI”) at Leangkollen, Asker, April 18–19.2002. I wish to thank the discussant, Tor Jakob Klette, and the participants at the conference for useful feedback. Moreover I have benefited from comments and suggestions from the editors and referees of this journal. The final responsibility is mine, however. Economic support from the Norwegian Research Council (“SAKI”) is gratefully acknowledged.     

Capitalism, profits and innovation in the new techno-economic paradigm

Innovative profits (of the kind conceptualized by Schumpeter) are today being increasingly created through international corporate networks for technological development. Such profits through innovation are encouraged by newer more flexible organizational forms, and further encouraged (unlike in the conventional perspective on profits and on the incentive to innovate) by knowledge flows between firms. Our empirical evidence, based on US patent data, shows that multinational companies are currently more likely to develop abroad technologies which are less science-based, and less dependent upon tacit knowledge. However, within the science-based industries firms may generate abroad some technologies which are heavily dependent on tacit knowledge, but normally in fields that lie outside their own core technological competencies. We find some evidence of a convergence in corporate technological diversification across large firms, facilitated by the now common spread in the use of information and communication technologies (ICT) as an integrator of formerly separate technological systems. This has led smaller firms to diversify, but giant firms to consolidate activity around those technologies that have become most interrelated.     

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.     

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.     

Bringing institutions into evolutionary growth theory

Classical economics was both evolutionary and institutional. With the rise of neoclassical economics, both the evolutionary and the institutional aspects were squeezed out of main line economic theory. The last quarter century has seen a rebirth of both traditions, but as minority intellectual positions, and to a considerable extent separate ones. This essay argues the need for a rejoining of evolutionary and institutional economics, and suggests a way to bring the two strands together in a coherent way.     

Schumpeter’s core works revisited

This paper organizes Schumpeter’s core books in three groups: the programmatic duology, the evolutionary economic duology, and the socioeconomic synthesis. By analysing these groups and their interconnections from the viewpoint of modern evolutionary economics, the paper summarises resolved problems and points at remaining challenges. Its analyses are based on distinctions between microevolution and macroevolution, between economic evolution and socioeconomic coevolution, and between Schumpeter’s three major evolutionary models (called Mark?I, Mark?II and Mark?SC).     

A resource-based view of Schumpeterian economic dynamics

This paper seeks to offer a theoretical platform where the modern “resource-based view” of the firm might meet with evolutionary economics and the study of entrepreneurship, and with the economics of industrial organization. It does so by proposing the concept of the “resource economy” within which productive resources are produced and exchanged between firms. This is presented as the dual of the mainstream goods and services economy – where the “resource economy” captures the dynamic capital structure of the economy. The paper is concerned to bring out the distinctive principles governing resource dynamics in the resource economy, capturing competitive dynamics in such categories as resource creation, replication, propagation, exchange and leverage; evolutionary dynamics in terms of resource variation, selection and retention; entrepreneurial dynamics in terms of resource recombination and resource imitation, transfer and substitution; and industrial organizational dynamics in terms of resource configuration, resource complementarities and resource trajectories.     

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.     

Evolution of harvesting strategies: replicator and resource dynamics

Abstract. Economic theories of managing renewable resources, such as fisheries and forestry, traditionally assume that individual harvesters are perfectly rational and thus able to compute the harvesting strategy that maximizes their discounted profits. The current paper presents an alternative approach based on bounded rationality and evolutionary mechanisms. It is assumed that individual harvesters face a choice between two harvesting strategies. The evolution of the distribution of strategies in the population is modeled through a replicator dynamics equation. The latter captures the idea that strategies yielding above average profits are demanded more than strategies yielding below average profits, so that the first type ends up accounting for a larger part in the population. From a mathematical perspective, the combination of resource and evolutionary processes leads to complex dynamics. The paper presents the existence and stability conditions for each steady-state of the system and analyzes dynamic paths to the equilibrium. In addition, effects of changes in prices are analyzed. A main result of the paper is that under certain conditions both strategies can survive in the long-run. Correspondence to: J. Noailly