The Preface

The key instrument of the creative imagination is analogy.

--E. O. Wilson (1984)

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Capitalism, or the market economy, or the free enterprise system--whatever you choose to label it--was not planned. Like life on earth, it did not need to be. Capitalism just happened, and it will keep on happening. Quite spontaneously. Capitalism flourishes whenever it is not suppressed, because it is a naturally occurring phenomenon. It is the way human society organizes itself for survival in a world of limited resources.

A capitalist economy can best be comprehended as a living ecosystem. Key phenomena observed in nature: competition, specialization, cooperation, exploitation, learning, growth, and several others--are also central to business life. Moreover, the evolution of the global ecosystem and the emergence of modern industrial society are studded with striking parallels.

Briefly stated, information is the essence of both systems. In the biologic environment, genetic information, recorded in the DNA molecule, is the basis of all life. In the economic environment, technological information, captured in books, blueprints, scientific journals, databases, and the know-how of millions of individuals, is the ultimate source of all economic life.

As mankind's ability to copy and exchange information improved, first with the invention of the printing press and more recently with the creation of the computer, the accumulation of scientific knowledge quickened and then accelerated again. Today, a staggering profusion of companies--from fast-food chains to microchip makers to international airlines--convert fragments of this vast body of knowledge into goods and services that satisfy human needs and desires. Each organization strives to survive in its niche of the economic ecosystem.

Though the pace of economic change is amazingly rapid, its basic mechanics are remarkably similar to those found in nature. In fact, the chief distinction between the biologic and economic forms of evolution is speed. Technologic change happens roughly one million times as fast as genetic change. Imagine two copies of the same movie being projected onto the left and right halves of a theater screen. With the image on the left zipping by a million times faster, the audience never realizes it's watching the same story.

To make the necessary speed adjustments, the Introduction sketches the landmark events in the twin histories of genes and knowledge. Part I elaborates by tracing the development of our present ideas about organic evolution and economic change. For the last two centuries, from Darwin's predecessors to his current disciples, the idea of evolutionary change has itself undergone tremendous change. Today's version of Darwin's theory elegantly explains what would otherwise be a bewildering array of contradictory evidence.

By contrast, two centuries after the Industrial Revolution got rolling, economists are still baffled by the forces that propel economic change. To get their models to work, orthodox economists must assume that technology does not change. Unable to shed this absurdity, conventional economic theory has lost all touch with economic reality. Now, with technical innovation accelerating radically, an intimate understanding of the processes of economic change is more crucial than ever. But without an evolutionary perspective borrowed from modern biology, such comprehension is impossible.

After presenting an historical overview of evolutionary change in Part I, each of the book's subsequent seven parts explores a single theme crucial to both biologic and economic life. Juxtaposing descriptions of organisms and organizations, these sections of the book are part nature show, part tour of the modern business jungle--with appropriate forays into the world where economics meets politics.

In closing, the postscript fully distinguishes bionomics from social Darwinism and its modern incarnation--human sociobiology. For now, it is enough to say that social Darwinism was a deeply flawed attempt to apply the theory of evolution to human social questions. Ultimately, its perverted logic led to one of the greatest tragedies in human history--the Nazi Holocaust. Because of this horrifying result, biology became a taboo subject for economic thinkers. Many still close their minds to the idea that the insights of modern biology, properly applied, might explain the complexities of the economy.

In recent years, the notion of a relationship between biology and social questions has become even more confused by the rise of human sociobiology. Human sociobiologists employ far more sophisticated language than old-fashioned social Darwinists, but the core allegation is the same--people are born to behave the way they do. Proponents of human sociobiology see the diversity of human cultures as rooted in differences within the human gene pool. For them, culture does not emanate from the mind, but from the genes.

In sharp contrast, bionomics holds that economic development--and the social change flowing from it--is not shaped by a society's genes, but by its accumulated technical knowledge. Technology, not people, holds center stage in this view of economic life. Indeed, wherever advanced technologies have penetrated, cultural chasms once thought unbridgeable have narrowed to the vanishing point. Europe's current unification is but one example of this common process. Throughout human history, profound cultural change has been driven by the evolution of technological information, not the evolution of genetic information.

The central concept proposed here--that a parallel relationship exists between an ecosystem based on genetic information and an economy derived from technical information--is fundamentally different from that argued by social Darwinists and human sociobiologists. In their view, human culture is not parallel to, but is an extension of human genetic information. For them, the tree of cultural evolution grows from genetic roots. In bionomics, genes and knowledge are not connected, they are parallel. Our genes do not program us to become capitalists. Capitalism is simply the process by which technology evolves.

By way of analogy, bionomics argues that, on a day-in, day-out basis, biologic and economic life are organized and operate in much the same way. Of course, when an analogy is purely coincidental and superficial, nothing can be learned from it. But if an analogy is close, detailed, and has a sound logical foundation, it may reveal a great deal about the hidden nature of things. The more precise the parallels, the more convincing the analogy becomes.

For the analogy between ecosystem and economy to be useful, it need not be perfect. Street maps are not exact replicas of cities, but they do help us find our way around in unfamiliar territory. Then again, streets are sometimes rerouted and maps occasionally have flaws that cause us to get lost. Though the analogy between genetic and technologic evolution is powerful, it is not perfect.

The analogy drawn here observes that organizations, like organisms, are built in complex hierarchies. One is made up of cells within tissues within organs within organisms within populations, while the other is comprised of work teams inside departments inside divisions inside businesses inside industries. Some organisms and some organizations, like bacteria and single-person offices, are miniscule but found in huge numbers and varieties, while others, like great blue whales and IBM, are massive and few.

Regardless of size, to persist every form of life tends to become specialized, developing a particular way of getting by that only a few direct competitors in its niche can match. Avoiding head-on competition--in the wild and in the marketplace--leads to diversity which, in turn, promotes interdependence. Mutually beneficial relationships, common among species in nature, are echoed in business, where the vast majority of affiliations are based upon mutual profitability. Taken over time, the twin phenomena of competition and cooperation have yielded the diversity and abundance of the earth's ecosystem in one realm and the complexity and productivity of the global market economy in the other.

The most difficult concept to accept about the natural world is that it runs itself. No conscious force is needed to keep the ecosystem going. Life is a self-organizing phenomenon. From the interplay of hormones in the human body to the expansions and contractions of the great Arctic caribou herds, nature's intricately linked feedback loops automatically maintain a delicate, yet robust balance. Markets perform the same function in the economy. Without central planning, buyers and sellers constantly adjust to changing prices for commodities, capital, and labor. A flexible economic order emerges spontaneously from the chaos of free markets.

Needless to say, this thinking bears little resemblance to conventional economics. Two centuries of economic thought, both capitalist and socialist, are based on the concept of "economy as machine" rather than "economy as ecosystem." Nonetheless, history has demonstrated that no economy behaves like a simple, cyclical machine. Like ecosystems, economies are spectacularly complex and endlessly adaptable. Consequently, it is bionomics--which studies economic relations among organisms and their environment--that offers the best vantage point for a total rethinking of the received economic wisdom. Sprinkled throughout the book, wherever appropriate, the bionomic approach is distinguished from those of traditional capitalists and socialists. But the acid test for any economic view is not how it differs from its predecessors, but how it would work if applied in the "real world."

As such, the closing chapters in parts II through VIII rely on the bionomic perspective to assess several of today's most pressing--and seemingly unrelated--economic questions: Why does America save and invest too little? How did Japan grab world economic leadership from the United States? Why did America lose the War on Poverty? Why does pollution get worse even as we spend more to stop it? Why are so many of America's public schools so awful? Why exactly did capitalism flourish while socialism collapsed? And, more important, given the underlying bionomic forces at work, which new policies can harness these forces and provide genuine solutions to these dilemmas?

For readers ideologically wedded to either end of the political spectrum, the answers to these questions will be disconcerting. While certainly not "pro" socialist, the argument made here is not "pro" capitalist in any conventional way. It regards capitalism as the inevitable, natural state of human economic affairs. Being for or against a natural phenomenon is a waste of time and mental energy. Like it or not, the sun rises in the east. Meaningful economic issues always boil down to: Given that capitalism exists, how can it be made better?

In short, this book calls for a profound change in our expectations of government, for a new understanding of how it can and cannot be used to foster prosperity. Bionomics does not deny the need for a social safety net, but it compels a rethinking of the net's design. The traditional notion of government's economic role--pushing the buttons and twisting the dials of society's economic machinery--is replaced by a vision of government as the astute cultivator of society's economic ecosystem, patiently nurturing the natural processes of growth.

Bionomics is not a new "theory"--some new doctrine or ideology. There's already been entirely too much of that. Instead, this book offers a fresh new perspective, a new way of observing the facts before us. When you adjust the focus on a microscope, blurry images pop into vivid detail. In all its marvelous complexity and beauty, a world invisible to the naked eye suddenly becomes intelligible.

In a way, the bionomic perspective is an infinitely adjustable macroscope--an instrument for the mind's eye--able to scan the panorama of the global economy or zoom in on its finest details. It is an observational technique that, once learned, comes easily. Complexities that confound traditional approaches yield to its insights. At a time of stunning change in the world, when the inadequacies of long-accepted points of view have become obvious, a new way of looking at old problems may be just what is needed.

Introduction to Bionomics

Bionomics 101 by Michael Rothschild

(Note: This article appeared in Upside magazine in May, 1992).

Bionomics is a fundamentally new way of thinking about the economy. Several questions about the basic tenets of bionomics keep coming up, so I'll try to provide some succinct answers.

How does Bionomics differ from conventional economics?
To begin with, all traditional schools of economics are based on the concepts of classical physics, while bionomics is based on the principles of evolutionary biology. Isaac Newton described the universe as a perfectly predictable clockwork mechanism. And orthodox economics describes the "economy as a machine." Everyday, we hear about "jump-starting" or "fine-tuning" the "economic engine." We're told that the "economy is losing steam" or that the government needs to repair a failed "market mechanism." Like Charlie Chaplin in Modern Times, deep down we imagine ourselves as cogs in a vast, invisible economic machine.

Bionomics rejects "economy as machine" thinking?
Absolutely. Instead, Bionomics says that an economy is like an "evolving ecosystem." A modern market economy is like a tropical rainforest, populated by vast numbers of highly specialized organizations instead of highly specialized organisms. They're all linked together in an incredibly complex web of competitive and cooperative relationships. Each company works to survive in its market niche just as each individual organism works to survive in its ecologic niche.

How does the economy evolve?
All living things evolve. Over time, they become more complex, specialized and efficient. In nature, this happens when genetic code, the information recorded in the DNA molecule, undergoes mutation and natural selection. Biological evolution creates new species. Similarly, in our economic ecosystem, technological information recorded in books, databases, technical manuals, source code, and blueprints is altered by innovation and market competition. Technologic evolution creates new industries.

Are you saying that the economy runs itself?
For the most part, yes. Remember, even though the tropical rainforest is the most complex thing on the planet, nobody designed it and nobody runs it. Truly complex phenomena cannot be planned, they emerge spontaneously. They self-organize. Bionomics argues that the market economy is just such a process. No one planned the market economy and nobody's in charge of it.

Bionomics holds that capitalism is not an ism. It is not a belief system, like socialism. Instead, the market economy, like a tropical rainforest, is the product of a naturally occurring, spontaneous evolutionary process.

How do Bionomics and conventional economics differ on the process of technological change?
I know this is hard for non-economists to believe, but orthodox economics essentially ignores technological change. The first rule of economic modelling is "Assume technology holds constant." Once you make that assumption, you can make predictions; like a 1% rise in GNP will increase car sales by 1 million units and that steel production will rise by Y tons because the average car uses 1000 pounds of steel. It's all neat and tidy input/output tables.

But once you allow technological change into the model, you've got unpredicatble complexity. For example, even as GNP rises, changes in travel patterns like telecomuting and air travel whittle away at automobile demand. Car makers keep substituting more and more aluminum and plastic for steel. Across the economy, new technologies keep changing the relative value of alternatives. In reality, all the input/output ratios are fluid and dynamic. Precise predictions become impossible. But rather than admit that, orthodox economists choose to ignore technological change. Bionomics, by contrast, pays primary attention to technological evolution.

Does Bionomics reach different economic policy conclusions than orthodox economics?
Yes, of course, and there is a consistent pattern to these differences. If you believe that the "economy is a predictable machine," then you logically assume that the government ought plan, control, manipulate, and repair that machine. There is a built-in bias toward intervention. If, on the other hand, you believe the economy is a like a rainforest, you'd be very cautious about intervening. You'd be "ecologically sensitive," careful not to damage the bionomic ecosystem. You wouldn't send the Army Corps of Engineers in to "fix" the Amazon rainforest, and you wouldn't use industrial policy to "fix" our high-tech economy.

Does that mean no role for government?
No, that's impossible. But instead of distorting and abusing the economy by constantly tinkering with subsidies, taxes, regulations, our government ought create a stable policy climate that cultivates spontaneous technical evolution and economic growth.

The tragedy of machine thinking is that it leads to a "command and control" mentality. Bionomics thinking leads to a policy approach which is patient and nurturing.

What specific economic policies would Bionomics challenge?
For example, the machine mentality, says we should use top-down regulation to force a clean up of the environment. And today we use state planning and a vast bureaucracy to get results. Bionomics says we should use markets instead. Organizations, like organisms, respond to feedback signals in their environments. In the economic environment those signals are called prices. Because the law says air and water are free, with a price set at $0, organizations overuse those resources. They resist regulations that close off access to those free resources.

But if the law said you had to own a permit to emit a ton of carbon dioxide, dumping CO2 would no longer be free, and companies would quickly find a new techniques to cut CO2 output and avoid the cost of buying CO2 permits. Pollution markets would harness the creative power of high-tech capitalism.

What does Bionomics say about U.S. competitiveness?
First, we have to realize that we already have an Industrial policy in the U.S. Unfortunately, it's an Anti-Industrial policy. Instead of encouraging earnings, savings, and investment, we tax them very heavily. At the same time, the Federal government hardly taxes consumption.

At the corporate level, most American executives think of their companies as profit-making engines. They work hard to get these machines to run just right, but the world around them keeps changing, messing up their plans. When I teach bionomic methods to corporations, I stress that a company is a living, learning organism. Everyone in a company must work continually improve its operating methods. Furthermore, to survive over time, a company must hold as much of the territory, or market share, in its niche as possible. This is the way Japanese executives think. Taking market share or capturing territory in a competitive landscape comes first. Profits will follow.

If we're going to turn around the American economy, it's going to take something much more profound than anything we've previously considered. At both the public policy and corporate levels, that process of reform will have to start with a fundamental rethinking of our most basic ideas about what a market economy is and how it works.

Statement of Purpose

Exploring the New Economics of the Information Age

A quarter-century after the microprocessor's invention, the world economy is in the throes of an epochal transformation from the Machine Age to the Information Age. Unfortunately, traditional schools of economic thought offer insufficient insight into the fundamental nature of the emerging Information Age economy. We are entering uncharted territory.

To meet this challenge, bionomics suggests a new economic paradigm. Where mainstream economics is based on concepts borrowed from classical Newtonian physics, bionomics is derived from the teachings of modern evolutionary biology. Where orthodox thinking describes the economy as a static, predictable engine, bionomics sees the economy as a self-organizing, "chaotic" information ecosystem. Where the traditional view sees organizations as production machines, bionomics sees organizations as intelligent social organisms. Where conventional business strategy focuses on physical capital, bionomics holds that organizational learning is the ultimate source of all profit and growth.

If the radical restructuring of business and governmental institutions now underway were informed about bionomics, the transformation would be far more effective and far less costly. Consequently, The Bionomics Institute seeks to educate corporate leaders, policy makers, and the general public about bionomics. The Bionomics Institute pursues these objectives through public conferences, executive seminars, and publications.