Competition in Context: Workers

In a recent post post I outlined five points about competition that tend to go overlooked in economic discourse:

• The amount of things we are competing for changes over time.
• The future amounts of things we are competing for are uncertain.
• The things we are competing for may be created by the competitors themselves.
• The amount of things we are competing for may be artificially constrained (this is basically a roundabout way of describing the way we often create markets using public or non-rivalrous goods).
• The current allocation of things we are competing for may have important effects on the ability of competitors to compete for more of them (this is basically a roundabout way of describing things like economies of scale, network effects, path dependency, and first-mover advantage).

I want to take these ideas and look at what they can mean for competition situated in various contexts. What does it mean for a country to be competitive as compared with a competitive business or a competitive worker? I don't want to give a full account of how competition in these areas works, rather to think about why the points I've made above are important.

In all three of these competitive arenas, competitiveness comes from offering more value than competitors are offering. Typically 'offering value' means selling similar (aka substitutable) products or services more cheaply than a rival worker, firm, or country. Although these three realms of competition are similar in the abstract, they compete to provide that value in different ways. This post looks at how workers compete.

Workers

Workers compete against other workers but they also compete against technologies, such as machines or more efficient processes. In other words, workers are competing against substitutes for the labor they provide, whether that means their neighbors, robots, or their department being made redundant after a merger. As part of the overall production process, however, they further compete with firm owners and managers for the value that the firm receives in exachange for its production.

Firms want workers that will provide surplus value. Firms in turn sell to consumers or other firms. Economic models assume that workers are paid the wage that is equivalent to the value workers provide for the firm, but of course firms would not hire workers if that were exactly true: workers have to provide more value than they are paid or else there is no point in hiring them. The amount of the "surplus" value that workers are able to capture depends on their bargaining power, and worker bargaining power depends on the availability of substitutes for labor and the demand for pay. A worker may accept less pay if it knows a robot could do its job more cheaply. A business will have to pay more if its potential workforce can easily find better pay elsewhere.

Do we overlook the same points about worker competition that we do about other types of competition? Economics does pay attention to changes in demand for workers, and to the pay that workers receive in exchange for filling that demand. Changes in labor demand can be seen through surveys of firm hiring, changes in wages, or even instruments as broad as GDP growth. All these measurements have been linked to the labor markets through extensive study. For example, it is something of a stylized fact in economics that periods of significant overall growth in the economy are the only times when wages increase for the bottom half of the income distribution--this is one common rationale for the gospel of growth. Within-industry trends are also well-studied. It is common to hear where new jobs are expected to be created and which old jobs will be destroyed.

Despite the attention that economists and the general public pay to changing worker incomes, competition is can be hard to understand in aggregate terms. A single unemployed worker might know that competition for work in their occupation is harsh, but it can be hard to see the structural and macroeconomic causes. Economists might see the effects of a bad economy, but the complex array of causes means that they may have little idea why things are bad. For example, experts are still arguing over whether the current high level of unemployment is structural or cyclical.

The idea that competitors shape the size of the pie they are competing for is perhaps most obvious when looking at individual workers, because workers are the ones actually engaging in production. If workers work hard or if they are well trained or just good at their job, they will produce more. If they are unemployed, they will produce nothing. But what determines how productive those workers are?

Competition between workers can in theory help increase productivity: if I will lose my job to someone else for not picking enough tomatoes, then I will pick more tomatoes. I might also go to school and learn things that make me productivity in order to get a better job, and if lots of people do this they may increase overall economic output significantly. Or I might work hard so I can get promoted so that my friends will respect me.

But there is also good evidence that many of the ways we compete --in particular, for money-- are demotivating and could therefore be hurting productivity. Inequality is another possible demotivator, if we don't think we have a fair shot at "making it". My earlier posts on opportunity address this issue from a slightly different angle.

Where competition in labor markets really gets interesting is when we think about whether or not the "size of the pie" is artificially constrained. We see this in the phenomenon of unemployment. Workers compete for jobs but if there are no jobs, on some level it is absurd that there is no work to be done. Of course there is work to be done--but for some reason nobody wants to pay these unemployed people to do it.

But is the opportunity for employment constrained artificially? What would that mean, exactly? Presumably it would mean restrictions on the ability of workers to produce value and receive value in return. The problem is how broadly the the word "restrictions" should be defined. We could imagine restrictions being anything from overtime laws to antitrust laws to public education: overtime laws because some workers may only be able to work a certain job if they are able to gain extra pay working overtime; antitrust laws because smaller producers may be less efficient and that inefficiency may be due to employing more workers; education because workers are only able to provide certain types of value if they have certain training, knowledge or skills.

These are just examples, but it should be apparent that the size of the pie--that is, the total output of all workers--can be constrained both intentionally and unintentionally. This flies in the face of the "lump of labor fallacy", which (controversially!) asserts that demand for labor increases in lock step as the availability of labor increases. For the lump of labor fallacy to truly be a fallacy, you have to assume that firms employ the available workforce fairly and effectively, that supply and demand consistently and quickly match each other. But in reality often the labor supply is extremely "lumpy", as businesses do not hire enough workers to employ everyone who wants a job for many different reasons.

Moreover, we have to remember that the labor market is shaped by laws, relationships, customs, technologies, and a million other things besides an ideally-responsive supply and demand equilibrium. We can do things to help that equilibrium come into existence, that harness competitive forces between workers, between workers and machines, and between workers and firm owners. But the how of it is never as easy as "unleashing competitive market forces" because those forces are only a byproduct of political, technological, and social forces. If we are not careful about where our competition is leading us there is no guarantee it will take us to a world we want to live in. Competition is not that simple.

Competition in Context: Firms

In last week's post I outlined five points about competition that tend to go overlooked in economic discourse:

• The amount of things we are competing for changes over time.
• The future amounts of things we are competing for are uncertain.
• The things we are competing for may be created by the competitors themselves.
• The amount of things we are competing for may be artificially constrained (this is basically a roundabout way of describing the way we often create markets using public or non-rivalrous goods).
• The current allocation of things we are competing for may have important effects on the ability of competitors to compete for more of them (this is basically a roundabout way of describing things like economies of scale, network effects, path dependency, and first-mover advantage).

I want to take these ideas and look at what they can mean for competition situated in various contexts. What does it mean for a country to be competitive as compared with a competitive business or a competitive worker? I don't want to give a full account of how competition in these areas works, rather to think about why the points I've made above are important.

In all three of these competitive arenas, competitiveness comes from offering more value than competitors are offering. Typically 'offering value' means selling similar (aka substitutable) products or services more cheaply than a rival worker, firm, or country. Although these three realms of competition are similar in the abstract, they compete to provide that value in different ways. Today's post is about competition between businesses.

Firms

Firms are more straightforwardly in competition for value than nations are. Unlike nations, there is no exchange rate for firms, so firms don't simply get poorer, they "lose"--broken apart in the messy death of bankruptcy. While nations could be said to compete for value only as a means to an end (such as citizen welfare), firms are competing solely for revenue. And by competing in more or less distinct markets for products and services, the competitive dynamics between firms are easier to see.

Those distinct markets are more volatile than the macro-level "markets" that national economies compete for, so firms face a greater degree of change in size in the markets they are competing in. A population of fish may collapse due to overfishing, or the demand for bottled water may increase exponentially--such changes are rarely so dramatic on a national scale. This uncertainty increases competitiveness between firms because it means that incumbent firms have to adapt to continue to "win".

More specifically, however, the dynamic nature of certain markets can create an interesting variety of competitive dynamics. Competition in growing markets is very different from "mature" or from shrinking markets, because firms can grow even if they might be a worse option than a competitor--witness all of the bad investments that were initially successful in the dotcom bubble. In a shrinking market, on the other hand, even competitive firms can get squeezed down to nothing. (e.g. Kodak in the consumer camera market as it lost ground to camera phones)

While firms compete in ways different from national economies, they are similar in that they are creators of the value (good and services) that they want to exchange for other value (revenue they then reinvest or pay to shareholders). As individual firms attempt to "build up" value by attracting it away from their competitors, this can increase the size of the overall pie that they are competing for. But it does not have to, as we will see below.

Firms build up value by organizing production and utilizing technology in ways that reduce costs; the firms that do this best are rewarded with more money from customers. They are rewarded with less money from each customer--because that is why the customers chose this particular firm's products--but more customers are paying so they have the potential to receive more value overall. By trying to provide the most value for the least in return, we see firms experiencing the same competitive dynamics as when national economies "race to the bottom".

In our previous posts about efficiency and costs, we discussed how some cost reductions are things we would think of as "effiency increases" while others simply shifting costs from one party to another.

This idea helps us see the two possibilities when firms reduce costs: if they truly increase their output per worker they increase the size of the pie that everyone is competing for; but if their cost reductions are based on redirecting value away from the "costs" of workers, purchasers of the product gain exactly the expense of the workers. Alternatively, businesses can inflate the "value" of their products if they are not facing adequate competition. I don't want to get into the issues associated with this pattern of loss/gain here; the point is that because of the fungibility of money, competition can incentivize increasing the size of the pie or it can also incentivize redirecting the value within the pie. And the latter can be problematic.

The final two misconceptions about competition are right on target here. Network effects and artificial scarcity are two important ways that firms can redirect flows of value toward themselves in defiance of what we might think of as an "ideal" market. Any attempt to use market forces for the public good needs to recognize these pitfalls.

Competition in Context: National Economies

In last week's post I outlined five points about competition that tend to go overlooked in economic discourse:

• The amount of things we are competing for changes over time.
• The future amounts of things we are competing for are uncertain.
• The things we are competing for may be created by the competitors themselves.
• The amount of things we are competing for may be artificially constrained (this is basically a roundabout way of describing the way we often create markets using public or non-rivalrous goods).
• The current allocation of things we are competing for may have important effects on the ability of competitors to compete for more of them (this is basically a roundabout way of describing things like economies of scale, network effects, path dependency, and first-mover advantage).

I want to take these ideas and look at what they can mean for competition situated in various contexts. What does it mean for a country to be competitive as compared with a competitive business or a competitive worker? I don't want to give a full account of how competition in these areas works, rather to think about why the points I've made above are important.

In all three of these competitive arenas, competitiveness comes from offering more value than competitors are offering. Typically 'offering value' means selling similar (aka substitutable) products or services more cheaply than a rival worker, firm, or country. Although these three realms of competition are similar in the abstract, they compete to provide that value in different ways. Today I'll write about competition in national economies.

National Economies

National economies compete with each other in a number of ways, most prominently in trying to attract international investment or run a positive balances of trade (by exporting more final and intermediate goods than they import from other countries). They also compete in other ways, by attracting immigrants or more overtly through war, but I will just consider trade and investment here.

Both investment and trade flows fluctuate significantly over time, and they do so in both net as well as gross terms. This fluctuation--the resizing of the pie the economies are competing for--can have important macroeconomic consequences for countries. These kind of changes in trade and investment are well-enough understood by economists, but they can be missing from popular rhetoric in important ways. For example, protectionist policies during the great depression are thought to have exacerbated the economic downturn, but were still pursued because lawmakers (evidently) failed to see how decreasing US imports could also eventually decrease US exports.

It is worth noting that since the 1970s competition between nations has had a sort of "equalizing" mechanism that should serve to dampen competition: free-floating exchange rates. In theory this means that nations are unable to trade their way into a larger stock of value--they are only able to trade for the value of what they are producing (or can convince other countries they will produce in the future). In basic neoclassical economic theory, therefore, countries are not "in competition" in the way that firms or workers are. In practice, however, trade flows can be heavily dependent on skewed terms of value exchange if exchange rates do not adjust flawlessly (or exist, in the case of Europe).

National economies also reflect the uncertainty of competition (e.g. nations may embark on ambitious industrial planning that fails to come to fruition in the long term) and the "self-determining pie" nature of the value being competed for (e.g. nations may fail to create enough domestic demand to grow internally without relying on trade export surpluses, like China). These misconceptions about competition can have important consequences, like wasted public investment or beggar-thy-neighbor pursuit of competitiveness that ignores the importance of domestic demand. Attempts to promote competitiveness need to reflect the complexities of the real world.

Finally, competition between national economies is also powerfully affected by network effects, path dependency, institutional strength, and other forces acting on markets outside of normal supply/demand issues. This has been recognized by economics but it has been a struggle to put it into practice for many countries: some countries have been successful, such as the "asian tigers" and more recently the BRICs, but others have been unable to harness these positive externalities for their competitive gain. Economics has incorporated some of these ideas into standard trade models but overall they fail to capture many ideas useful for policy.

Production as Privilege: Thoughts on Competition

I started writing a post about mercantilism, but I realized I needed to do a bit more thinking about competition first. The last post on this blog was talking specifically about the effect of competition on how people consume, but this is looking more generally at the nature of competition within market. This post is part of a series called Production as Privilege, looking at the way that production relates to the distribution of wealth.

Conceptual Tool #11: Understanding Competition

Competition is a fundamental concept of economics but it is usually restricted to a simplistic market framework of buyers and sellers, or game theoretical choices and payoffs. Let's think a bit harder about what competition is: what we are competing for, who is doing the competing, what are we competing with, etc...

To start with, here are two basics we should be able to agree on:

Competition requires at least two entities. Usually these are firms or individuals, but we can also think about competition between other aggregations: classes, industries, cities or countries.

Competition must be for something that is limited in some way. In economics these are somewhat unhelpfully known as "rivalrous" goods. The point is that they can run out, and each competitor can't have as much as it wants. We don't have to compete for air unless we are underwater.

There are several ways in which we think about competition that are misleading.

First of all, we tend to think about it in static terms, with competitors gunning for a set quantity of stuff. This is rarely true: competitors are often chasing after expanding or contracting amounts of stuff--where "stuff" can be anything from wind-generating capacity to customers who want to purchase typewriters. People have recognized this dynamic element of competition and it gets reflected in business strategies like "blue ocean" strategy.

Once we recognize the dynamic nature of competition, it becomes clear that competition has a probabilistic component as well. We often compete to optimize our returns in the future, and such returns necessarily involve uncertainty. We compete for uncertain outcomes when we buy raffle tickets that might win us a new TV, or when we create export-processing zones that we hope will attract foreign investment.

The third thing we often fail to recognize, and this is perhaps the most interesting point I'm making, is the way that competitors' own actions can shape the availability of what they are competing for. That is, competitors may be competing for pieces of the pie, but the pie may expand or contract based on the actions of the competitors. This is because the fungibility of money converts many different types of competition into competition for value, and we produce value in order to exchange it for other value. This is not a trivial point: it is the crux of Adam Smith's (and all modern free trade supporters') argument against mercantilism (see here) and for the productive power of self-interest.

Fourth, we also forget that much of competition is for things that are artificially scarce. Certainly most newer digital products are kept artificially scarce through copyrights and other legal protections. What's less commonly understood is that compound interest on loans creates scarcity as well, by asking people to pay back more than their original amount. Some bankruptcies are thus actually required because not everyone can win. (Although it's also true that new loans can be created; so I'm not sure I fully understand the implications here.)

Finally, while economics is well acquainted with problematic economies of scale and network effects, the extent to which there is free entry into markets and truly open competition is often overstated. Mass retail markets are dominated, perhaps by definition, by massive economies of scale. Many primary and non-consumer markets are basically oligopolistic--one rationale for deregulated trade is that national-level oligopolies will be replaced by more efficient international competition. And digital markets have entirely different economies of scale than the world has ever seen, where the tools of production and maintaining scarcity take almost any form we can imagine. Here is a fun TEDx talk highlighting network effects and describing the way we misunderstand them when thinking about economics.

When we put all these ideas together we get a picture of competition that doesn't look much like the basic perfect competition/monopolistic competition/oligopoly/monopoly models. Instead there is a dynamic ecosystem of not only firms and workers, but also financers and consumer preferences, and an infinite variety of markets that defy easy classification. Economists know this, of course--they just don't know a precise, mathematical way to think about it.

Competitive Consumption

Economics loves competition. It's what makes the economy go 'round. Without it, markets would fall flat on their faces and buyers and sellers would have their arms twisted into horrendous deals. We'd have to pay even more for our mobile phone service than Canadians do.

Most of the attention paid to competition, though, is about competition among firms. The basic types of market competition in econ101 are types of supplier competition. We worry about monopoly often enough, but who ever lost sleep about monopsony in a consumer market? (the standard monopsony example is a single employer in a labor market)

On the consumer side, it's just assumed that there will be many consumers and they will all want to pay as little as possible. These assumptions are generally true, of course, but they oversimplify things because they gloss over why we consume.

Economics 101 starts with the idea that we have unlimited wants, and then adds on some qualifying assumptions about how we prefer variety and get diminishing marginal utility from any single type of good. The idea of unlimited wants justifies not only what happens in the economy, but how we understand the whole enterprise of economic theorizing. They rationalize endless growth and the focus on consumption and tell us what economic policy is supposed to do: meet our unlimited desires with scarce resources.

This is handy logic, but it only takes you so far. You end up with a lot of consumers who want more of certain things because... well, because they want more of them. Metaphorically, we can think of this model as the "sky's the limit" model of consumption: more is always better. (And if something does start giving you decreasing marginal utility, it just means you want more of something else.) This is the common logic used by economists, but there is less explanatory power here than there might first appear. It does not explain, for example, why happiness does not increase beyond a certain income threshold.

How else are we to understand the motive behind our desires, then? The idea I'll call competitive consumption has some interesting explanatory power, and it also has some far-reaching implications for economic theory.

Competitive consumption is socially-motivated consumption, in a somewhat simplistic want-to-have-more-than-the-other-guy manner. We can also think of it as relative or comparative consumption, or consumption motivated by inequality. Inequality is a powerful motivator, as the right likes to argue. It doesn't have to be somebody getting paid 483 times more than I do, though--just a dollar an hour is enough to drive me into paroxysms of jealousy.

Standard economic theory has developed tools to represent competitive consumption, through ideas like positional goods and prestige markets. But these ideas are seen as exceptions to the norm, when in fact they can be fundamental forces in wide range of markets.

Positional goods are things that we buy because they are scarce--often artificially scarce--and their being scarce confers social status on us. Some goods, like loaves of bread perhaps, are not really positional goods, but most things have at least a positional component. Some are literally positional: a penthouse apartment or a front-row seat. Others are positional because the required expenditure of real resources keeps them scarce, such as weekend ski-trips to Vail or sailing around in giant yachts. Still others are positional because they are kept scarce artificially, like diamonds. Or, like spots in an elite school, by means of reputation and concentration of resources and attention. ?????

Most goods have a positional aspect because that aspect is what motivates, to a large degree, our consumption. Better position is often tied to a real increase in "use value", although economics has as good as given up trying to distinguish what that means. More expensive cars might drive better or more expensive fashion might look better, but these goods are also imbued with social value and that is a powerful reason they are consumed.

Mere quantity can have a powerful impact on positionality as well. Having two or three or four cars can be handy, but it can also show status. Of course, people don't go around saying "I can't believe Rupert only has one car! What a low-class person!" But your kid might hate you if you can't take him to all his after-school activities because your spouse drove the car to work, and the other parents might think you are not a good parent. Use value has its own social implications.

Producers are quite good at exploiting consumers' competitive urges and are able to extract consumer value by providing various "qualities" of a different product that are available at different prices. Alcohol is a perfect example, with quality increasing almost imperceptibly as prices skyrocket. Countless brands also have clearly differentiated models (of cards, computers, headphones, suits, etc...) that are less a reflection of higher costs of production than of the nice infinite ladder of consumer prestige. No matter what your budget is, you can spend it all--and it will never be enough. Part of the reason is simply because we have an extremely wacky (and malleable) idea of what things are worth, but many expensive things have inherent value purely through their expensiveness.

What does it mean to take positional goods seriously and really look at the implications of competitive consumption?

First of all, competitive consumption doesn't mean that consumers are competing to buy a given good--it means that consumers consume for competitive reasons. An extreme conclusion of this idea is that demand can be infinite without increasing welfare. We can consume and consume but our utility, on the aggregate, cannot improve if utility is based on our relative position.

Second, static equilibrium analysis seems woefully inadequate. If goods are positional, then the demand for a good can (and probably does) change every time it is purchased. That is, my purchasing a new BMW might raise the overall demand for BMWs (or lower it, more likely). This is Keynes's "animal spirits" writ large across the entire consumer economy. For marketers this idea may be common sense, but economists rarely take it seriously.

But if we do try to do static analysis, what might our market even look like? A demand curve for a given good is supposed to represent the aggregation of different individuals' "willingnesses to pay", with a few people willing to pay a lot for a good and a lot willing to pay a little for it. So it slopes downward:

Competitive consumption, however, could drive consumers to create that downward slope simply for the sake of having a downward slope. That is, with no variation in preference or anything to do with willingness, demand would still sort itself along a curve reflecting little more than the ability to pay. Everybody wants to be at the top, but they can only get as far as their incomes will take them. (Note that this is looking at demand in the aggregate; assuming consumers have varied preferences, then demand with individual product markets may still be differentiated based on how much consumers want a product. But if we look at all products together we can assume people simply want "more".)

This has important implications for social welfare analysis. Economists generally just look at the area under the curve and call that the social welfare effect. (See the wikipedia article on deadweight loss for some nice graphs.) There are already powerful critiques against this type of analysis (Brad DeLong's "non socratic dialog" is one of my favorites), but if the downward slope of the demand curve is simply an artifact of consumer competitiveness, it leaves welfare analysis on even flimsier footing. If one person's utility is another person's disutility, consumption adds no value.

As mentioned above, the constructed nature of the demand curve is not a passive phenomenon. Marketers understand the competitive nature of consumption and are happy to oblige and encourage consumers' pursuit of utility in a zero-sum game.

Competitive consumption is not the only reason for consumption, but to the extent that it does reflect real motives for consumption it can have real implications for economic theory. And thus also for economic policy. Taking competitive consumption seriously requires us to rethink our ideas about equality and welfare, and the effect of consumption on happiness and aggregate utility. We have built our thinking and our policies on assumptions about human psychology and welfare that are suspect, and we will have a difficult time escaping from our current growth patterns without a better understanding of who we are and what we need. One way to do that is to take competitive consumption seriously.

The Good, The Bad, the Optimally Efficient in a Given Environment Subject to Change

This is a guest post today from our friend "Blue". Enjoy!

Economists are often accused of physics envy. This is likely valid. Often the alternative suggested is meteorology, implying a limited capacity to forecast the future. That may be a useful perspective as well, but I’d like to suggest a better, and what I consider more realistic, academic brother: genetics.

Like the economy, genetics is concerned with the survival of entities in a competitive environment. They both attempt to explain the behavior of those entities in terms of what is efficient or useful for their success. They both use lots of statistics and game theory, so at minimum you know they are fun.

Let’s back up, dear reader, and discuss the motivation for this discourse. Many economists believe that what economists are doing is describing inherent laws about the way exchanges work. The Austrians often call this “praxeology” which they roughly define as the deductive human behavior in exchanges (for “exchanges” think big markets where people are buying and selling stuff). Though they will say otherwise, the “human” part is not that all important. Rather the exchange itself gives rise to necessary actions a human must take. Thus the study of economics is, in their view, a study about the immutable characteristics of these markets, the laws that govern them and so on. We see when these exchanges/markets are functioning efficiently and say ‘this is good.’ Functioning well is good. The naturalness of it is right, it to behave as we are naturally intended to. While the Austrians are the easiest to pin down here, many, and in a way most, economists are sympathetic to this view, subconsciously if not explicitly. This is the physics envy, the aspiration of mathematical purity, the dogma.

Then there are the economists who say “whoa there buddy, ol’ pal, maybe it is not so immutable after all.” They suggest that perhaps the mathematical elegance of these endeavors should be put to the test. Let’s see how all that deduction matches up with the data, which is ultimately how physicists test their theories anyways. Of course it turns out most if not all of the theory is just awful at describing the real world. Capital flowing from poor countries to rich? Deregulation leading to more stability?

And these economists say, “well, maybe the immutable aspirations are a little too high, let’s just talk about what’s going on in the short run.” Here the models and theory are a little more useful. They seem to tell us how things work when everything is going fine, but of course they never see the crisis until it is upon us. Like meteorologists we know some immutable characteristics of what we are talking about, much as they know how high and low pressure systems will affect weather patterns, but when any specific storm will come is harder to say. This, to some extent is a legitimate aspiration for economists. Like detecting low pressure air, precipitation, temperatures, macroeconomists can say “ah, yes, look at all that accumulating debt, that hyper-inflated stock market and the exchange rate risk, a crisis is likely.” This seems to me useful. Though ultimately more art than science, it may at least have some claim to legitimacy. What is good then is nothing more than nice weather. We don’t want storms, we want pleasant skies and maybe the occasional breeze for kite flying.

But now, I’d like to turn to my proposal. Genetics. Why is this a better or more appropriate aspiration for economists? Let me first persuade you of its relevance. Both studies, economist and genetics, concern themselves with the dynamics involved in the competition of many heterogeneous entities in a given environment. Yes, genes look to replicate and businesses look to accrue profits, but exchange babies for wealth and we are starting to get there. Funny that both genes and socially constructed business strive for survival, immortality really, perhaps there is something philosophical to be said there, but I digress.

And what, then, if anything, can genetics teach economics? In genetics what is good in one environment may spell disaster in another. The march of evolution is not necessarily progress as much as it is adaptation. It’s contingent, conditional, contextual, the opposite of immutable. Indeed what evolution fosters is not necessarily good or bad; it simply creates utility at a given time and in a given environment. What is natural has no sanctity, it will save your life in the forest only to crush you on the grass lands. What is natural is neither good nor bad, it is simply happenstance, the accrual of millions of interactions between entities, their environment and randomness.

And so then the deep questions, the first principles of economics, are open once again for debate. What does a good economy look like? Just because something is good for an individual, does that necessarily mean it is good for society? What are meaningful metrics for these things (the average lifespan of a small business is 8.5 years)? Can a business live forever? What is similar or different about how humans and businesses interact with the giant, dynamic, evolving, idiosyncratic, instructionally contingent monetary environment we call the economy? Indeed.

At the Root of the Matter

The acts of exchange or accumulation are the building blocks from which economics is constructed, but the building blocks themselves contain the relationships of mutuality and domination that lie within, or below, all social life. At the root of the matter lies man, but it is not man the "economic" being, but man the psychological and the social being, which we understand only imperfectly.

Robert L. Heilbroner ~ The Worldly Philosophers (6th Ed.)