1. Global Markets & Complexity
How Complex Systems, Chaos, and Shared Economics have
become emergent factors in global markets
D’shaun Guillory
12/12/2013
Social Change
Dr Cindy Frewen
Final Paper
2. 2
Background
We live in a time where current economic models and the entire global economy, all
arguably face an historic threat, which include managing the rise of complex systems,
sometimes with the potential for chaotic behavior; as well as a seemingly new shared
approach to economics emerging that may be a credible alternative to the status
quo. Global markets are approaching the point in which these questions must be
considered. At the present, some managers simply lack understanding of complex
systems such as Big Data, which is increasing in veracity within many business entities.
An important factor with a high degree of uncertainty and instability in some
economies, businesses, governments, etc is chaotic behavior within these systems.
Trying to understand this chaotic behavior can potentially explain fluctuations in global
markets which can sometimes appear to be random.
Understanding this behavior could lead to the possibility of managing it while reaping
the benefits from so called managed chaos. The industrial economy has been primarily
based on production, with GDP as the key measure of economic activity. The shared
or collaborative economy feels very different. There are many innovators and
entrepreneurs that find this relatively new system appealing, in particular, its possible
impact on the essential issue of jobs in the digital and information economy. Given that
some public and private sector institutions may not create enough new jobs for a
growing global population, the shared or collaborative economy is one of the most
valuable ways for individuals to come up with innovative ways to exchange ideas and
reduce costs through sharing - this also includes improving the prospects of the
collective population. As it stands, the present global economic system, while still
experiencing relative growth into new emerging markets; there still lies a considerable
amount of complex change on the horizon, that for the most part, can hinder if not
completely derail future growth prospects. In this paper, I will analyze the growing
presence of complexity within global market economies, as well as the degree to
which shared or collaborative economics and chaos factor into the equation.
Change
Managing the emergence of complexity
In many companies and small businesses, managers are finding it very difficult to keep
up with fast changing, more complex systems. Political leaders are finding it increasing
difficult to legislate on complex systems to which they and their advisors do not
understand. Those who are already within the system struggle to adapt to new
technologies or ‘Big Data,’ all which enhance the degree of complexity within systems
such as the financial markets. For managers, new skills are becoming essential to
manage all of this Big Data: to determine what the analytics should be solving, to
decide what information is truly relevant to the enterprise and what simply constitutes
“noise” (Straub 1). This big data has become the leading impediment with the potential
for positive benefits to sustainable management in various sectors of the economy and
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parts of the government. These managing bodies simply cannot decipher these multi-
dimensional, interconnected, dynamic systems.
(Market Case)As for the financial system; maximizing shareholder value, which
determines so much corporate behavior, is a good example of a two pronged
approach by different entities. As for the status quo, it is very common for companies to
reduce investments to boost short-term profits. This is also the case when it comes to
divesting assets to show a better return on assets. This approach has damaged the
long-term health of various companies and has undermined a large portion of the
financial markets as a result. Managers, especially executives have come under fire for
these unsustainable practices; yet for the most part the trend continues.
By contrast, a complexity approach demands that competing values and priorities
remain in view and not just for the good of shareholders but for customers, employees
and society at large (Straub 1). This paradigm demands that management and
executive actions take a completely new approach. Companies such as Amazon and
Google have moved to adopt a more complex orientation. This includes leadership
style, management, executive actions, and so on.
There is also the issue of the human element, which is all too often disregarded or simply
not viewed as an important factor. Understanding that new technologies have
emerged as means to cope with such a rise in complex systems and the overall issue of
complexity; many business leaders, managers, public officials, etc have simply been
worn out or have been slow to tackle these emergent issues. This is heavily due in most
part to the fact that in many cases, the degree of complexity within these emergent
systems are simply just too much for untrained or inexperienced individuals. As a result,
in much of the current system as some business leaders, managers, public officials, etc
continue to avoid and resist emergent complexity.
The Butterfly Effect and Chaos in the system
Referring to destabilization within the system, this would merely have to derive from one
glitch in one part of a single economy, more or less. This type of disturbance to the
whole would be called “the Butterfly Effect,” which is the idea that a tiny event can
start a chain reaction and have large and wide-reaching effects (Kleintop 1). As a
foremost example, the continuous glitches on the U.S. stock market have caused major
volatility, not simply in one part of the world but the whole. Not unlike the tech sector,
the stock exchange has become heavily complex as many of the systems have been
automated, in many cases to make trading more efficient and eliminate human error.
Nonsensically, these same systems being constructed to eliminate human error are of
course designed and constructed by humans’ prone to error. In many cases, these
disturbances are caused by tech-glitches or design-flaws; all which stem from
individuals being unable to understand the true complexity of the system they seek to
control.
These glitches are not simply an issue of the stock market but extend into the chaotic
U.S. healthcare system, which as of late, has been on full display as the inability of parts
of the public and private sector not fully understanding the broad complex system that
is healthcare. The bumpy rollout of the Affordable Health Care Act (ACA) has been rife
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with glitches and sometimes complete system failure. There is also the issue of
cancelled or phased-out insurance plans that no longer meet the ACA requirements by
the Obama Administration. Of course, this would not be an issue if the newly uninsured
could simply shop for a new plan on the federal and state based healthcare
exchanges. The prevailing issue here is that the website does not function properly
which has left not only potential customers, but also insurers and healthcare officials
with few means of participating in the newly built market. Whether it is small but
manageable technology, glitches, or deep systemic problems, the chaos on one end
has caused a high degree of chaos within the U.S. healthcare market.
Emergence of the Shared Economy
As if there were not enough increase in complexity and chaos in the market, there
emerges the issue of shared or collaborative economies. This is an economic model
where ownership and access are shared between corporations, startups, and
individuals. This results in market efficiencies that bear new products, services, and
business growth (Wladawasky-Berger 1). Global competition continues to drive large
companies to aggressively focus on productivity, leveraging IT-based innovations to get
their work done with fewer employees. And governments will continue to shed jobs
given the pressures they face to reduce costs and slim down (Wladawasky-Berger 1). At
the moment, the state of the global economy is extremely lopsided, especially in some
parts of the world. The European Union (EU) continues its two-year long austerity plan
leading to public sector job losses and stagnation in the private markets. While the
emerging world appears to be booming, at least in some markets; national and
multinational companies based in these regions are growing with a slimmed-down
workforce in many cases. This leaves many absent from all the supposed economic
prosperity. Parallel to this mean emerges an alternative economic concept. Quoting
technologists and academic Dr. Irving Wladawasky-Berger:
“An entire economy is emerging around the exchange of goods and services between
individuals instead of from business to consumer. This is redefining market relationships
between traditional sellers and buyers, expanding models of transaction and
consumption, and impacting business models and ecosystems (Wladawasky-Berger 1).”
Some of these signs are emerging in today’s volatile market. Companies such as Airbrb,
have been one of the primary examples of a more shared economic business model,
where property owners rent out apartments, homes, and flats to those who are willing
to pay the set price. In many cases, it is far less expensive than booking a hotel or
renting out property through brokers and agents. This is has also become a reality in
bike and car sharing programs springing up in various major cities around the world.
Other than the obvious differences in economic functions, shared or collaborative
economics still do not dominate the global market. They are just beginning to enter the
marketplace which brings to question; how does this not cause an increase in further
complexity and potential chaos in a system that has yet to reach a sustainable level of
utility? These questions will be answered further on in the paper.
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Theory
Adam Smith: Theory of Moral Sentiments and Complexity
A prominent figure of political economics, Adam Smith has established many standards
to which many business and political leaders have followed. Most notably, Smith
emphasized individual actions as they apply to such structures as the economic and
political realm. Pertaining to is works “The Theory of Moral Sentiments,” Smith argued
that, on the whole, individuals tend to pursue their own interest without much sense of
any larger plan. He goes on to say in his book “The Wealth of Nations:”
“It is not from benevolence of the butcher, the brewer, or the baker that we expect our
dinner, but from their regard to their own interest. We address ourselves not to their
humanity but to their self-love and never talk to them of our own necessities but of their
advantages (Noble, 20).”
Concerning the modern-day global economic and social order, this sense of structural
individualism appears to be our reality. This emergence of sorts implies that our moral
compass has gone from “we” to “me.” As a society, we seek instant gratification,
sometimes on the backs of others, to which we view as faceless servants there to assist
our daily needs. The current issue of global economic inequity stems from these
avaricious traits. The general rules of what is held to be good or bad, of right or wrong
conduct, emerge out of interaction. We soon become aware of how our actions
appear to others in our immediate circle (Noble 21). Based on this notion, our day-to-
day experiences are rooted in our constructed interactions with others. Referring to the
present society based on economics, it is divided by income, profession, specialization,
business sector, etc. In a sense, we have become far more Balkanized, particularly in
the area of economics.
Factoring management of complexity factor into this equation; if a sound economic
system is based upon superior behavior and moral principles, than humanity has a long
way to go. With newly developed and planned economic systems, they are complex
and command a high degree of proficiency to keep them functional. If they were to
behave fully the way in which humanity is at the moment, there would be epic global
economic and political chaos, as the system lacks the interconnectedness and
interactions required for the whole to function properly.
Pertaining to the Theory of Moral Sentiment and individuals, Smith notes that these
individual actors on the social scene are themselves the product of their time, their
upbringing, and their social origins. As obvious as this is to present society, it would
suggest that these events or occurrences are either cyclical or constantly evolving.
Based on the cyclical nature of our economic practices and moral sentiments, it closes
and widens with every passing era. The analogy here is that the present and Smith’s era
share similar social and economic changes.
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Adam Smith: Division of Labor and the Global Market
Smith would describe the Division of Labor as the subdivision, specialization of skills, and
the separation of trades (Noble, 24). The three ways in which the specialization
increases efficiency is we become more proficient, we focus on one thing, instead of
being multitaskers, and we automated many activities allowing for fewer workers per
task. (Noble, 25). Smith would imply that, with the free market, prosperity and
productivity can be achieved via the division of labor. Applied to the current global
economy, many industries have seen a rise in various trades and specialized careers. Of
course, the development has not equally been applied across the economy. While
many sectors are seeing a rise in IT, accountants, lawyers, stock brokers, et., there has
been continuous stagnation of highly demanded trades such electricians, plumbers,
and repair men/women. This is not to say that they are not specialized enough to be
viable in an evolving market place. In some communities, these trades are highly
needed, yet there has been little investment in training or priority given to them through
the market place. There appears to be some structural inequity or structural
differentiation in the way the global market place has emerged overtime. This cuts
across professions, income, and allocation of resources.
Chaos and the Global Economy
Chaos is a nonlinear deterministic
process which "looks" random
(Hsieh 2). As the diagram would
illustrate, the once stable
equilibrium begins to show signs of
fluctuation, which later translates
into chaos with little correlation to
the original mean or equilibrium.
As it applies to economic forces,
a once stable economy can
transition into a chaotic system.
This can be caused by various
external forces including, as
mentioned previously, technical
glitches, human error, consumer
behavior, climate change, civil unrest, global commodities, etc. Instability within any of
these factors can cause a shock to the system causing such levels of chaos and
fluctuations. These chaotic systems can be periodic and also pose some fundamental
limitations. Separate from a simple chaotic system, these deterministic factors can be
considered “clockwise” but projected or predicted. In principle, this would be virtually
impossible when dealing with random chaotic system. Investors can project volatile
swings in consumer behavior or political uprising in regions primed for investment. This
could not occur within a chaotic system which presents random behavior with sensitive
dependence on initial conditions. The theory of chaos as applies to complex global
economic growth or its immersion with shared economics is dependent on our
collective understanding of chaos and how to adapt to such behavior.
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Explanation
As time has endured, many of the changes mentioned previously such as management
of emerging complexity and shared economics, follow many of the characteristics
discussed in Adam’s Smith theories and the theory of chaos.
The Theory of Moral Sentiments and Managing Complexity
As it stands today, there exists certain characteristics’ pertaining to Adam’s Smith notion
of moral sentiment such as self-interest and a lack of concern to some emergent
interactions. Where there exists an environment rife with complexity, some managers
along with others in leadership positions have created mechanisms and further
precedent that tries to undercut such change. It is much easier to make decisions with
fewer variables and a seemingly straightforward understanding of cause-and-effect
(Straub 1). This has of course created many problems within complex systems, as well as
with workers. Management has sought to achieve success in various ways, sometimes
with negative implications for the business, the worker, and/or the overall economic
system. Loosely speaking, it is not as simple as right or wrong when it comes to the
relationships that have manifested within many of these businesses and government
entities. This stems back to the way in which we have been taught and/or trained to
manage such entities and the economy as a whole by way of a particular set a
structural moral principles.
One manifestation of some moral principles as well as the adaptation to a more
complex orientation is of course Google and Amazon which were mentioned
previously. Since ones experience can sometimes be based upon ones behavioral
judgment in external entities, the end result for such interaction points to broad
implications for important factors like business productivity or in this case, adaptation to
a more complex orientation. In companies that thrive in a more complex environment,
there is a blend of self-interest with an appreciation of collective principles. The end
result is an emergent organization/entity that is well positioned to evolve with the ever-
changing technological environment or the complexities of big data.
Some markets embrace complexity, others not so much
In today’s market, some countries have yielded some positive results from best
practices and an adaptation to complex systems; others not so much. Based on the
report “The Atlas of Economic Complexity: Mapping Paths of Prosperity,” the findings
show the world’s economies that prospered based on productive knowledge and
product space are Japan, Germany and Switzerland (Hausmann & Hildago 22). This
should not come as a surprise to many countries like Germany which have been able
to weather the current Eurozone economic calamity. While many countries within the
European Union have seen their exports suffer, their debt devalued, and their economic
prosperity evaporate; Germany has been able to up its foreign export potential and
maintain its global manufacturing dominance. More recently Germany has been an
employment magnet for skilled and unskilled EU citizens that have been suffering from
chronic unemployment, especially in the southern member states. Japan, though still
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mired in a decade-long, stagnate economy, still manages to maintain a superior
technologically advanced economic system. In comparing two different economies,
Singapore which is 34 times smaller in population than Pakistan, is 38 times richer in per
capita terms. One primary factor is because Singapore exports are exported to highly
diversified countries, while Pakistan exports to poorly diversified countries on average
(Hausmann & Hildago 22). One reason for the success of some developed countries is
their ability to export highly complex products and knowledge from one diverse
economy to another. These economies do well because not only are they
understanding and adapting to more complex or diverse systems, they are trading with
those economies that share similar economic objectives.
While some lesser developed countries may be ambivalent or simply not up to pare
with advances in complex systems and market outcomes, that does not mean
developed countries are collectively gaining from such complexity. As was indicated,
Germany is prospering in this new environment of complexity, but the EU as a whole is
not. The same can be said for the U.S., as the economic infrastructure continues to
struggle under the weight of new technological advances, which of course can lead to
chaos in the overall system. This chaos can be caused by various external forces, but
can also include the essential internal infrastructure of the overall economy. For
instance, within the Nasdaq, the main impediments to understanding the markets’
behavior include the sheer complexity of the market infrastructure, rules, and behaviors
of the participants (Darley & Vincent, 1). There have been some methods employed to
not only understand these complications but to manage them. Based on the Nasdaq,
these changes include:
1) Changes in conceptual paradigm -
due to development of non-linear
dynamics, chaos theory, game theory,
agent-based approaches, the world is
more and more recognized as a
complex adaptive system, which
dynamics arises due to many factors
and their interactions - agents, their
behaviors and goals, interaction rules,
etc. Such systems exhibit emergent
properties - patterns of dynamics
behavior that arise from interaction of
their components, which (patterns) by
themselves are not properties of those
components (Darley & Vincent, 1).
2) Relatively recent developments in the
computer hardware and software just
recently reached a point where useful
simulations of systems described above
become possible. It is a confluence of
many advances: computers’ raw speed
and memory, object-oriented
technologies, development of software
frameworks and libraries, including
agent-based frameworks, parallel
processing, wider super-computer
availability, advances in software
design, and many other (Darley &
Vincent, 1).
The main focus of these approaches is to understand the individual components and
how they interact to influence, if not control the overall marketplace. The results of the
patterned behavior should emerge after close examination of these interactions over a
set period of time. Employing such methods and understanding these patterned
interactions should help to avoid a high degree of chaos. However, this can only occur
if there is an understanding of non-linear deterministic chaos. These complex systems
are developed with understanding that specialists will continue to evolve alongside
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them. As of late, that has simply not been the case as the Nasdaq has seen some levels
of volatility, that has negatively affected the financial markets.
Shared Economics spawned from the Division of Labor?
As an alternative to all of the chaos in the Nasdaq, there is shared or collaborative
economies which is an economic model where ownership and access are shared
between corporations, startups, and people. One major factor that appears to be
becoming all too common around the world is the rise of educated, highly skilled
individuals who as of late, have been causalities of global economic instability and high
unemployment in many places. The Division of Labor pertains to the specialization of
skills, and the separation of skills, and the separation of trades (Noble, 24). That being
said, how do these factors culminate into something sustainable or at least tangible?
With high levels of education an increased levels of demand for various products and
services globally; there is the rise of young educated or skilled entrepreneurs and
innovators. The difference being that these individuals have an entirely different
approach on growing the global economy or fostering prosperity.
Progressively, we as a society have used this new abundance of specialized skills to
create new industries, with emphasis on more sustainable, collective-oriented business
models. While there still remains a high degree of centralized control over some of these
new shared entities, many of them are indeed startups from those individuals willing to
take risk to start a business and offer an alternative experience to the status quo. While
the Division of Labor has caused some disruption to the current system; our dynamic,
resilient society has created a new one, possibly one that is far more sustainable and
equally distributed.
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Critique
Critics of Adam Smith’s Approach
Not surprisingly, Adam Smith had his critics, many which challenge his Theory of Moral
Sentiment. Based on the occurrence of individualistic and individualizing market-based
social relations on a broad scale, Smith and his unique take on the so called
“Constitution of Self,” In other words the means and foundations of the cognition of
one’s self and of the other selves (Gocmen, 20). Smith also tries to understand the
various dimensions of the self from an epistemological point of reference; mostly
pertaining to human nature. Overall, Smith’s all encompassing generalization of the
“self” and “human nature” has after a while, caused many to recoil over his unique
take on humanity and its actions.
In the present, we denote from this or at least assume that some of the critics may have
varying opinions on the human condition as far as micro and macro development
goes. While trying to understand the sense of self or at least our evolving social
structure; Smith focuses on our mutual sympathy as a foundation for human relations.
However, socially speaking, at this point in time, we cannot say that we have reached
such a level of infallibility. We are still driven to continuous change because as a society
we are obviously not satisfied with the status quo or at least the century’s long
precedent that Smith has established. Thus, we have others who are willing to
challenge many of these accepted memes.
Adam Smith in opposition to Karl Marx?
As it stands today, Smith’s supporters and detractors, all point to modern-day
interpretation of his legacy. Most of it encompasses the Laissez-faire economic and
political environment that has emerged overtime. The supporters credit Smiths
contribution to so called unfettered capitalism and prosperity of self, in opposite from
the collective. The detractors blame Smith for the current economic reality. However, it
is much more abstract than Smith being pro-capitalist or anti-collective.
Current business leaders, conservative thinkers, and economists would scoff at the
slightest mention of Karl Marx or his ideals. While Smith is considered or at least
perceived to be a keen to social and economic conservatism; Marx is perceptive to be
a pure leftist on social and economic issues. However, Marx owed many of his debts to
the analysis of the Wealth of Nations and have attributed to Marx an originality for ideas
extensively borrowed from the Scot (or Smith) (Noble, 19). By this measure, there is a bit
of a juxtaposition between Marx and Smith. While, Marx may have formed some of his
opinions around Smith’s Wealth of Nations; apparently, it was credible enough for left-
leaning Marx to borrow some of Smith’s ideals in his own right. In a sense, two parties
extracting from the same pool of ideas; well at least in the case of Marx. This would
make them, at least theoretically, not as far apart has some today would like to
believe. Pertaining to the Division of Labor, the disparities continue between Marx and
Smith. Based on the current reality of the Division of Labor, these two could not be
further from an agreement. While Smith believed it was a social good; that emerging
society would adopt new specialized skills and new trades, making the economy
11. 11
prosper - Marx argued that increasing the specialization may also lead to workers with
poorer overall skills and a lack of enthusiasm for their work. He described the process
as alienation: workers become more and more specialized and work becomes
repetitive, eventually leading to complete alienation from the process of production.
The worker then becomes "depressed spiritually and physically to the condition of a
machine" believed it would create more harm than good (Marx, 72). Marx thought
these specialized skill sets would essentially create an increased divide within the class
structure. As it stands today, neither Smith, nor Marx’s ideals have fully come to fruition.
While specialized skills and new trades have led to great wealth and prosperity for some
around the world. Many have been alienated from this reality as Marx would indicate.
However, this does not endorse Marx’s theory either. While work has become repetitive
in some specialized areas, workers have become more productive and innovative.
Assumptions to current market trends
As it stands today, must established economics assume that money or at least current
forms of currency and gold are the main drivers of modern society. For the most part,
up until recently, this has been the primary means of developing wealth in growing the
world economy. However, even as the emerging world continues its ascendency, there
are obvious gaps in the system. As technology continues to outpace other forms of
social change, namely current market-based economies; this neo-capitalistic means of
development is sure to evolve into something else. One prime example is shared or
collective economics, which are beginning to generate waves in the overall global
economy. But the assumption that this new approach to economics is highly
speculative and we still do not know if society or even the powers that be are willing
allow the old system go so easily. The Golden Rule of economies is being challenged,
but it is not going out without a fight.
Google’s embrace of chaos
As one might assume, based upon information mentioned previously about the
negative aspects of chaos, that may not be telling the full story. In 2006, a report by
Fortune Magazine expounded upon the confusing disorder and uncertainty from within
Google. The report makes it known that while chaos on the surface may come across
as being a destructive force, Google thrives in this environment. On its face, this would
appear to be the ultimate paradox from most other business and market approaches.
As an example, Sheryl Sandberg who is a 37-year-old, vice president at Goggle, whose
tasks also includes the company's automated advertising system.
Sandberg recently committed an error that cost Google several million dollars -- "Bad
decision, moved too quickly, no controls in place, wasted some money," is all she'll say
about it -- and when she realized the magnitude of her mistake, she walked across the
street to inform Larry Page, Google's co-founder and unofficial thought leader. "God, I
feel really bad about this," Sandberg told Page, who accepted her apology. But as she
turned to leave, Page said something that surprised her. "I'm so glad you made this
mistake," he said. "Because I want to run a company where we are moving too quickly
and doing too much, not being too cautious and doing too little. If we don't have any
of these mistakes, we're just not taking enough risk” (Lashinsky, 1).
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Granted, Sandberg’s mistakes resulted in costly outcomes. However, her mistake was
not met with immediate termination, as would be the end result in most other
companies of comparable size and importance. In a sense, her mistake is a factor of
what not to do or what to avoid in a similar situation. Ostensibly, this is taking risk. While
this may be viewed as foolish that Sandberg continues to be employed by Google, her
actions could result in far less incidents occurring in the future now that it is established
that these are the wrongs. Conversely, other companies do not follow the same
doctrine. They would rather prefer to control any risk of failure at all points, mainly
because they fear the negative implications. What many businesses fail to
acknowledge is that sometimes it takes major risk, failure, or possibly even limited chaos
to test the long-term viability of the entity. Google being worth up to 300 billion dollars
market value shows that a little bit of chaos never hurt and can be beneficial.
Forecast/Solutions
Systems Innovation in the Market Place
Moving forward, businesses, organizations, and government entities are going to be
forced to function multi-dimensionally or at least have an in-depth understanding of
complexity. Within these entities, there needs to be room for innovative and creative
thought. As was previously mentioned, big data has become the foremost impediment
to sustainable management in various sectors of the economy and parts of the
government. To manage this change, the most common approach is relentless,
incremental innovation to drive a system to higher levels of performance (Mulgan, 45).
The growing clout of information and communication systems as such mobile devices
and cloud computing suggests that most, if not all of our daily actions will generate
information to be logged on systems. Many commercial decisions from the shares that
investors buy to the stock that shops reorder are made with the help of software
algorithms (Mulgan, 7). We complain about systems being cumbersome and callous.
We blame our misfortunes on ‘the system’ being an abstract influence on our lives. But
rarely are systems simply our adversaries. When a system breaks down, it does not take
long for someone to complain: ‘if only there were a system.’ Yet many of these systems
we rely upon are in deep trouble. The financial crisis was caused by systemic failures in
an increasingly interconnected and complex banking system. Our resource-hungry
systems of energy, transport and production need to be redesigned to minimize waste
and prevent catastrophic climate change. In the emerging economies of the
developing world it is a different story. There fast growing cities are contemplating the
creation of new systems on a vast scale for housing, transport, communications,
education and health. These cities have the opportunity to create new generations of
systems, which are configured to be more environmentally sustainable (Mulgan, 7).
As emerging markets gain economic parity with the developed world, market
competition can be expected to only become more rigorous. In a recent article by
Forbes, the executives interviewed, perceive the United States as the most innovative
country on the planet. The interviews, however, point to far more innovative attitudes,
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and practices, elsewhere. The report gives top marks to Vietnam, Nigeria, Canada,
China and Brazil for recognizing innovation as a top executive priority. The biggest
champions of big data as a source of innovation are Mexico, Brazil, Turkey and Nigeria.
China, Vietnam, Russia, India, Mexico, Brazil all score highly when asked if they strongly
agree that using collaboration to innovate is likely to grow revenues. The USA is at the
lower end of this trend. 23% strongly agree compared to 41% in China (Shaughnessy, 1).
Being that China and India are two of the United States’ largest economic rivals now
and into the future, there is potential for negative implications within the U.S. economy if
companies are more globally mobile. If China and Brazil recognize innovation as a top
priority, companies have the option to simply go offshore, inevitably harming American
workers and potential talent. Additionally, long-term planners and strategists can
expect to see increased complexity within various systems, particularly technology. Of
course, this increased complexity hinges upon the growth of the economy and future
progress. If these factors falter, many drivers of complexity may simply be rendered
moot, experiencing a degree of negative feedback.
Managed Chaos: The Google Way
Google’s relative success can be attributed to company management’s willingness to
embrace experimentation, adapt to external changes, and to take a complex-aware
approach. There is a growing movement in development which rejects the common
view that there is a simple, replicable prescription for development. One must also take
into account the diversity of development programs, and the need for a more
experimental approach in the face of complex problems (Barder, 1). Google’s
approach is experimenting with risk by allowing some room for failure. While there are
some short-term consequences to this factor, the company becomes better for it.
Chaos, if managed properly, is one plan moving forward as applied to new start-ups
and companies seeking to remain competitive. Many new entrepreneurs and
innovators entering this complex economy understand that the status quo or the old
way of management is not sustainable long-term. These will be the individuals
managing the future of complex economies.
Adaptation to a Shared Economy
Another part of the complex economy is shared or collaborative economics, which
shows promise in the coming years. However, there is still the issue of regulation and/or
government’s adaptation to an alternative economic system. What all sharing-based
economy startups have in common is the ability to connect sellers with consumers on a
scale that is astronomical in comparison with what was possible even a few years
ago(Jones, 1). If governments are not able to adapt or continue levying burdensome
regulations to the new market; this could encumber the exuberance of sharing. One
thing that has made the sharing economy so appealing is the ability to flout some rules
that only apply to normal businesses. These rules include taxes and licensing
requirements by national, local, and states/regional governments. On the contrary, as
many established businesses have pointed out, winning on an uneven playing field is
essentially cheating (Jones, 1). This is where government comes into fold as to level the
playing field so there is equal footing within the market place. But even this is a
balancing act due to the fact the some governments do not always have the best
track record when it comes to such regulation of a particular economy. The end result
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in some cases is the picking of winners and losers or the soliciting of favors in exchange
for a minimal regulatory burden. Going forward, governments will require the creation
of a common or equitable platform in which both the established and the shared
economies can both prosper.
2020: Complex Economies
According to the Atlas of Economic Complexity, as of 2008, most of the western world
which includes China, all exhibit high or moderate levels of economic complexity (Atlas,
67). (Map1)
Aside from current global economic
instability, these high ranking nations all
have in common diverse economies.
Not surprisingly, the emerging world is
mixed with some bright spots located
in Asia and Latin America, with few in
Africa. However, a large portion of the
world rank low, sometimes very low
when it comes to measuring complex
or diverse economies.
In the next seven years, there is
projected to be much economic
change, primarily in the emerging
world mentioned previously. By 2020,
most, if not all of the projected GDP
growth will occur in this region. Of
course, this all hedges on economic
activity and net economic output
(Atlas, 79). (Map2)
Maps from Center for International Development at Harvard University
Summary
In a 2011 Harvard Business Review article “Learning to Live with Complexity,” Gokce
Sargut and Rita Gunther McGrath offer this fundamental distinction: “The main
difference between complicated and complex systems is that with the former, one
can usually predict outcomes by knowing the starting conditions (Sargut and
Gunther, 1). Complex systems are simply the components or variables within a
system. Complexity does not always connote difficulty In contrast, “complicated” is
a high level of difficulty with the possibility of these parts taking longer to solve or
decipher. Understanding that there is a difference between “complicated” and
complex systems can make all the difference in a success business model.
Referring to the questions mentioned in the beginning of the paper; can they
manage the rise of complex systems? I believe despite current events, businesses
and government will be forced to manage complexity if they want remain solvent.
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In the end, particularly in the private sector, the bottom line is all that matters in most
cases, which means they will do what is needed to adapt. Will management be
able to adapt to a new complex reality, sometimes with the potential for chaotic
behavior? If Google is any indication of profitability and success by way of chaos
then I am sure many others will follow. Will a seemingly new shared approach to
economics emerge as a credible alternative to the mean? In essence, Yes! A
growing number of companies are explicitly embracing a shared approach to
doing business. If this is indeed the case for a long time to come, we need to
become a much more entrepreneurial and innovative society. Many of these
people will simply have to invent their own jobs, based on the new, sometimes
complex economic environment, leveraging the new digital markets and shared
platforms. I mentioned previously the contrast between perceptions of Adam Smith
and Karl Marx, essentially both figures play an important role in the future
development of society and the economy. But first, society must understand the
context in which both figures ideals and formulas for bettering the collective. It is
not as simple as Marx being a leftist and Smith being a lassie-faire capitalist. If
society is to ever reach the potential that these figures acknowledged, we must
take parts of these approaches. The future is projected to become far more
complex which means a variety of approaches must be employed.
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