How do we fix our 21st century economy? Look to Darwin – The Guardian

Charles Darwin. Political economy would be revived as a rounded subject of inquiry, informed by understanding of the world and history. Photograph: Hulton Archive/Getty Images

In recent decades the world economy and society have been changing at an unprecedented rate. According to Unesco, the total number of qualified scientists and engineers undertaking research has soared to about 10 million, of which a fifth are in China. Technical inventions have emerged ever faster, providing us with new gadgets and machines, along with new ways of engaging with one another and organising the institutions within which we live.

This has brought us great benefits, but it has also brought dangers and damage: weapons of mass destruction, global warming, the economic bubble and collapse caused by new financial tricks, global tax evasion and tax avoidance, high-tech monopolies, and the diffusion of powers of information and misinformation resulting from new means of communication.

We need to put aside the long-established Newtonian vision of a harmonious economy with negligible innovations

To navigate these new conditions we need to be on the watch for innovations, technological and non-technological, and to analyse their probable consequences. We need to adopt a Darwinian vision of a restless, evolving economy and society that is shaped by competitive selection of successful innovations from the many that fail.

We need to put aside the long-established Newtonian vision of a harmonious economy with negligible innovations in which demand and supply tend to maintain equilibrium in markets and the whole economy. That vision of the capitalist system was plausible when it was expounded, in words, not algebra, by Alfred Marshall more than a hundred years ago. But it does not bear scrutiny today.

Since the crash of 2008, economists have tended tacitly to abandon the Newtonian model and turn to empirical studies. But these have concentrated on economic phenomena that can be measured in statistics among which links may be sought. The many unmeasurable aspects of social and economic phenomena have been largely ignored; and it has been assumed that if an association is discovered it will continue into the future.

The adoption of the Darwinian approach would liberate economists from this myopia. It would mean that the subject of study was social evolution and all its causes, measurable and unmeasurable. Political economy would be revived as a rounded subject of inquiry, informed by understanding of the world and history, as it was for its founder, Adam Smith. It would not promise a distant Utopia, as Newtonian economics and Marxism have done in their different ways. Instead it would invite study of what is happening and the possible responses to it, as a prelude to politico-moral debate by all-comers.

Here are three disparate examples of actual or potential benefits of the approach:

In my book, Public Corruption: The Dark Side of Social Evolution, I asked, Why was corruption cleaned up in northern Europe in the late 18th and 19th centuries?

If rulers gained and held power by corrupt means, for them to abolish corruption would have been political suicide. I found an evolutionary explanation in military-cum-economic competition: when the development of firearms gave advantage to costly, trained, standing armies, states that could raise tax and spend it on their army with least corruption (for example, the highly militarised Prussia as it expanded to become Germany), were at an advantage and expanded or induced their neighbours to clean up in competition with them a process that no longer operates since arms have become cheap relative to national income.

Before the financial crisis of 2008, economic forecasters, using models that projected past statistical relationships into the future, kept predicting that the boom would continue. They failed to see that it was being fed by a growing mountain of lending based on new financial tricks that were unsustainable. Had they been Darwinians, looking out for dangerous innovations and working closely with the bank regulators, the crisis and subsequent depression might never have occurred.

Economists are so steeped in the assumption that human beings are rational meaning they make choices only by pleasure-pain calculus that when confronted by evidence that that is not so, they commonly speak of deviations from rationality. They have ignored that our behaviour is governed by primal instincts as well as reason, and that denial of instincts has blinkered their understanding of incentives to work and other aspects of economic behaviour. A Darwinian would look at behaviour in the round as the product of past genetic and social evolution and current innovations.

In short, the adoption of Darwinism would be a return to reality, and morality.

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How do we fix our 21st century economy? Look to Darwin - The Guardian