If Economics is a Science, Darwin is an Economist
-Bhakti Rupika Anand
Now, before you come at me saying, “Economics is a social science”, “Darwin is a biologist”: I know. But have you noticed that economic systems also undergo evolution and adaptation to thrive? Well, Charles Darwin’s famous ‘Theory of Natural Selection’ seems to have implications extending beyond the realm of biology.
Why do some companies thrive while others scrape by on bare subsistence? Why do some firms keep increasing profits while others perish? What is the secret to survival? Darwin pondered over the same questions as he thought about biological species. In the twenty-first century, we see that the fundamental concept of “survival of the fittest”, rooted in competition, adaptation, and the propagation of advantageous traits, finds intriguing parallels in the world of economics.
Competition and Survival of the Fittest
In nature, species compete for limited resources, leading to the more dominant and adaptable species thriving. Similarly, economic systems involve competition among firms and individuals vying for market share and scarce resources. Companies that innovate, use refined strategies, and adjust their offerings in response to shifts in the market are more likely to succeed, much like organisms with advantageous traits survive and thrive in their environments.
In the business world, the “fittest” companies are those that can adapt and evolve to changing market conditions. The Darwinian concept of adaptation is mirrored in how successful businesses evolve to meet consumer demands. Competitive markets compel companies to continuously improve and enhance their services and products, leading to an upward trajectory of progress and growth.
Apple and Nokia: naam to suna hi hoga? Both compete in the same market: cell phones. Although Nokia was the first to introduce cellular networks to the world, it overestimated its brand and thought they could still win despite being late to the smartphone race. Nokia failed to create products competitive enough to compete with Apple, losing its position as the global leader in mobile phones.
Diversity and Specialization
Natural selection diversifies species as they adapt to differences in environment within their ecosystems. Similarly, economic systems thrive on diversity and specialization. Just as a varied gene pool safeguards a species against sudden environmental changes, a diverse economy is better equipped to weather economic downturns and fluctuations.
Kodak: The company that brought the first digital camera to the market. It remained too focused on the success of photography film, completely missing the digital revolution and going from the top of the photographic film market to filing for bankruptcy.
Change and Adaptation
Species evolve in response to environmental changes, ensuring their survival and success. In an econ-system, businesses must adapt to the ever-changing market conditions, technological advancements, and consumer preferences. The ability to be contingent and innovate is essential for businesses to remain competitive, echoing the adaptability seen in the natural world.
In 1997, Netflix started its life mailing DVDs to its customers. Back in 2001, CEO Reed Hastings had the vision to stream movies on the internet, rather than playing physical DVDs. Had Netflix not entered the digital world, it might have ended up on the shelf like Blockbuster.
Innovation as an Evolutionary Force
Evolution is driven by innovation, allowing species to develop traits that better suit their surroundings. Similarly, innovation fuels economic progress by encouraging the use and introduction of new technologies, products, and services. Businesses that introduce groundbreaking products, services, and technologies in the economy create positive disruptions that propel it (economies) forward. These innovative enterprises not only survive but also shape the economic landscape.
Outside of every stationary shop, you might have seen one word: Xerox. Although Xerox has left behind its name, bhaiya prints Canon se hi kar rahe hain. The management was convinced that the future of Xerox is in photocopiers, and going digital was way too expensive. They failed to understand that you can’t keep making money on the same technology.
Resource allocation and Efficient Markets
Natural selection emphasizes the efficient allocation of scarce resources to maximize survival and reproduction. This principle resonates in economics, where the allocation of resources is crucial for efficiency and growth of an economy. Markets allocate resources based on supply and demand, optimizing their distribution and utilization. Just as nature seeks an equilibrium in resource allocation, market economies strive for equilibrium where supply matches demand, resulting in stable prices and allocation of goods and services, thus, maximizing overall welfare.
Just as species evolve to survive change in environments, businesses and economic systems must adapt to ever-shifting market conditions. The interplay of competition, diversity, innovation, and resource allocation shapes economic evolution, reflecting the underlying principles of natural selection. By recognizing and harnessing these parallels, be it in the world of smartphones, copiers or film, we can gain valuable insights into the mechanisms driving economic progress and resilience in an ever-evolving world.
So, although Economics is not a science and Darwin is a biologist, there is quite a bit of natural selection happening in an Eco(nomic) system.