Competition in a capitalistic economy is often said to be beneficial because it follows a similar principle to competition in a natural system. The common wisdom of this notion is that the operation of either natural or economic forces will ensure the “survival of the fittest.” The phrase is derived of course from the work of Darwin in describing his interpretation of the result of natural selection working to winnow out animals or plants less-well adapted to their environment. Because of the natural variation that occurs amongst individuals within a species, eventually fitter species will either develop or overtake another species that is competing for the same critically important resource. In a very sloppy way, competition in a free-market economy is said to operate the same way as natural competition, winnowing out the corporations that do not compete successfully and leaving in their place more successful ones. Economists also use the word “adapt” to imply a similar process will also force a corporation to change to meet the challenges of a changing economic environment or die.
This uncritical comparison has become the foundation for a dogma that rules the thinking of many economists and therefore many politicians and the general public. The image of a well-balanced natural world with a remarkable and finely-tuned set of inter-relationships in an ecosystem is laid gently on top of the economic system as if it were transparent film to suggest that this is how free-markets and capitalism will end up if they are left to their own devices.
Darwin, despite his profound and stunning insight into the evolution of species was far too early in scientific knowledge to have an appreciation of the concept of “ecology.” As I listen to people who claim to understand economics, it is clear that they are not aware of any difference between ecology and evolution. Competition occurs in ecosystems as well as in evolution, but it has completely different results because the base of the competition is different. The uncritical use of terms in economics that are derived from science has drastic unanticipated consequences for the economic models.
In evolution, competition essentially works at the genetic level of individuals. Individuals that are well-adapted to the current circumstances survive and reproduce. Those that are not well-adapted either don’t reproduce or die. Individuals whose slight differences give them an advantage over others who survive and reproduce, tend to reproduce more rapidly. Over time, their characteristics become predominant. It is critically important to understand that it is not just the “survival of the fittest” that operates in evolution, the selective pressures are much more subtle than that statement implies. So far all I have described is the way evolution operates on a single species (a collection of individuals carrying DNA that is very similar) to modify that species over time to fit changing conditions or to better fit existing conditions.
The next question is how to get two species out of one species. Characters in movies or television reporters in interviews or news broadcasters that touch on evolution and natural selection — even if they refer to Galapagos and Darwin — display an astonishing lack of understanding of how one species becomes more than one species. Most see it as a spontaneous mutation that suddenly appears and springs immediately into a new species in the midst of the original species from which it was derived. So far no examples of a new species springing up amongst the original species in the real world have ever been found. When mutations occur in a population that mutation may or may not be introduced into the gene pool and survive, but it does not develop into a complete new species.
Getting two species from one requires one part of the population to become physically separated from the rest of the group of individuals that comprise the original species. The process further requires enough time for the two separated populations to react to the different environments in which they find themselves, so that with further reproduction and natural selection each population gradually begins to look and behave different enough that even if they were thrown back together again, they would not naturally reproduce.
Back to economics:
The interactions that economists talk about are nothing like what happens in evolution, despite the fact that the phase “survival of the fittest” applies in both cases.
Let’s try a thought experiment. Suppose the parallel is not to evolution, which operates at the genetic level, but instead it is to ecological competition which operates at the level of individual with consequences that are mediated by the species and visible to us at the level of the structure and diversity and of the ecosystem. This is a much more accurate comparison. In this case, we can see corporations as similar to individuals in a natural system. Competition acts directly on the entrepreneurs, the effects on the economic system (equivalent to the ecosystem) are mediated by the corporations, and we see the effects operationally at the level of the structure and diversity of the economic system.
Good! There are now lots of parallels that make sense. Corporations and living things both require a variety of resources and energy to survive. There are primary producers in both biological and economic systems transforming raw materials into commodities that can be used. In biology, plants are used by herbivores. In economies, processed raw materials are used to create finished products. There are predatory animals and predatory corporations. WE shouldn’t take this analogy too far, but at least it works to this level.
Working with the two models, we can see the most important difference is that when a herbivore or predator in nature eats a plant or an animal, it does not incorporate the living tissue in the same way as a corporation. If a wolf eats a rabbit, it does not become a “wolfrabbit”. An animal eats another animal or plant as a source of fuel, not to acquire its capital. A corporation by contrast acquires the capital and the end result is essentially the sum of the two original corporations. Energy to run corporations does not come from acquiring other corporations.
Resource use for primary producers in nature is competitive and competitive exclusion is the first strategy a plant or animal will use against its own and other species. In plants the strategies include such things as chemicals, crowding, and shading. In animals, it is expressed as territory, heirarchy, or inter-individual distances. Thus, in both ecosystems and economic systems, the concept of ownership can and does exist. Animals know where the boundary between adjacent territories is located and defend it against intruders that compete for the same resources. In some cases, like adjacent jawfish burrows, the owners will steal the same rock back and forth.
The result of these individually mediated competitive interactions is a neat division of the overall body of resources into small packages. This is true of the natural world and economic systems based on individuals such as the subsistence hawkers markets. All of this develops spontaneously. There is no central organizing body. They just develop spontaneously in reaction to competition and forces of selection (natural or economic).
Capitalism also developed spontaneously in society. No government imposed it. The strategy behind capitalists joining forces with each other is simple enough. Teams are more effective at controlling the resources and production in an economy. This improves the effectiveness of the exchange of wealth amongst the capitalists (owners) and it is at the expense of others’ access to resources. In a similar fashion, in nature, wolf packs, lion prides, chimpanzee groups, and many similar examples, lock away packages of resources for their exclusive use against other wolves, lions, or chimps.
Now we will start to see where the variables within the biological and economic models begin to differ and will ultimately produce different end results.
In biological systems, resources once used are returned to the system by excretion or by death and decomposition. By contrast, in economic systems, resources are not automatically transformed into packages that are easily recycled. Instead the finished products (model equivalents of plants and animals) when used up usually become waste and pollution.
In a biological system the division of resources can only take place in real terms, not virtual terms. The end result as observed in nature is that the resources are ever more finely defined for each species. In a system (in this case an ecosystem) where resources are finely divided and defined, the components of the system are almost as diverse as the division of resources.
But it is only in human economics where there is a system of tokens that stands for ownership but is not the real object. Bartering and exchange of tokens gradually, but spontaneously (not dictated by a higher power) replaced stealing and pillaging to allow more efficient exchange of material goods. Using tokens to represent resources means that relatively non-discriminant sequestering of resources is the norm. The simplest example is a property where forestry or mining takes place. All other human resource extraction activity is prohibited by the owner, even if the owner is not extracting more than the one resource useful to his production needs. The capacity of corporations to remove resources in large in-discriminant lumps simply means fewer and fewer corporations can figure out how to divide the resources, because they are locked away.
Ultimately, a capitalist system within a single economic system is driven by its nature to a smaller and smaller diversity of larger and larger corporations, whereas a biological system tends to be driven to a larger and larger number of species of smaller and smaller size.
Finally the lengths of time in which evolution and ecology operate are very different. Ecological changes happen in years, decades, and at the most in hundred year bites. This is a similar time frame to that in which economic changes occur.
By contrast, biological evolution requires at least thousands of years, sometimes tens of thousands or hundreds of thousands and at times, even millions of years to see significant changes. Individual economies never last anywhere near this time frame. I will examine the notion of evolution as it applies to economics in another blog.
In conclusion, if there is a model from nature that can be used to predict the behaviour of capitalism and free markets, it is likely to be ecological, not evolutionary. Furthermore, within this model, the behaviour of animals and corporations are different in a specific manner that means the prediction from the ecological model are not the same as the prediction from an evolutionary model.
The consequences of having made this mistake initially are profound in that the prediction of a finely divided economy efficiently using the resources is completely incorrect.
The prediction is that the accretion of capital into single competing entities (Capitalism) operating in a free market with no rules other than the right to life, liberty, and property will grow larger and larger by accretion sequestering entire resource bases away from other corporations so that the base cannot be divided efficiently. The system thereby becomes less diverse, not more diverse, exactly as observed in capitalist societies today with large corporations dominating and forcing smaller similar corporations out of business: “the survival of the fittest.”