Institutional Economics Assignment 2

Sergio Tzotzes 5770653

Assignment:
Analyze whether the process of economic and technological change can be
better described in terms of a Darwinian evolutionary process, a Lamarckian
evolutionary process or a more generalized theory of cultural evolution.

Describing change is, by definition, a particularly messy subject, and that does not change if we confine the
term to economic and technological change. The short and poetic answer to the question posed is “The good,
the bad, and the ugly” but I think have to illustrate it a bit.

Nowadays illustrations, links even direct analogies from biology are used in economics. There is a hot debate
going on around this issue and as one can easily foresee all kinds of views have been expressed. Views have
been quite polarized as to whether a Darwinian or a Lamarckian evolutionary process can be best used to
describe economic and technological change. What can be taken for granted is that this kind of work looks
promising and is definitely gaining approval amongst colleagues. All this while it’s proceedings certainly
sound really good and are pretty catchy with the general public. There is simply a ton of sound looking
analogies just waiting to be made, something which on it’s own is a very good reason for some economists to
enforce theories from biology into economics and what’s more, by doing that, we are definitely intrigued and
fascinated by the possibility of coming closer to the one unified theory - truth and explanation for the world.
Have we at last reached the garden of Eden or that is simply wishful thinking?

It is my opinion that a reality check is necessary at this point, and the best one would be to test the above
methodology and it’s proceedings. The test I could think is the biologist test. It is my firm belief that even the
most refined and masterly told direct analogy in order to describe technological end economical change with
theories of biological evolution though it would possibly sound ok to the most of us, all biologists would find
it almost from the beginning unacceptable and totally on the wrong track. That would be the case, because our
colleagues will have not doubt, in whatever way they have constructed their analogy, mutilate some of the
main concepts and points of the biological theories.

This happens for no other reason that there are some fundamental incompatibility issues which arise from the
completely different subject matters. In whatever way one constructs his analogy it is quite difficult to fit in
some key concepts like the distinction between generation, the genotype phenotype distinction, and the
existence of inheritance. Noticing , the subtle but important, points made above makes any direct enforcement
of a biological theory to economics problematic to say the least. What is more, the environment is completely
different with economic and technological change being of an extremely turbulent nature something which
equates that whatever is supposed to be the unit of selection it cannot be expected to show as much inertia as
it’s biological analogue. Furthermore whatever we pick up as the units of question they are by definition of a
completely different nature. My point here is that strictly speaking, directly applying in a mechanical way,
biological theories to economics is, for me at least, out of the question.

The next question that we have to answer is whether they can applied in a more broad way and if then one
theory is better that the other. If applied in a broad sense, Darwinism and Lamarckism are not mutually
exclusive though the Darwinian approach has a little bit more to offer since its core concepts are broader and
reproduction does not hold –comparatively at least- such a central role. In a modern definition of the term, a
Darwinian process requires the schema of self replication/inheritance, variation and selection while Lamarck
is usually remembered for his belief in the inheritance of acquired characteristics, and the "use and disuse"
model by which organisms developed their characteristics. The question is now transformed on whether these
theories are capable firstly of describing and then explaining economic and technological change if they are
applied broadly and not mechanically. Unfortunately the problems discussed above still remain and though
they may be assumed away by broadly applying these theories what we are left with is an explanatory
framework built for a completely different purpose which has some things to offer but on the whole is
insufficient since a spine in Galapagos is still pretty different and straight forward compared either to a firm or
to individuals or to homo economicus. Analogies with biology can be quite enlightening when used in a broad
way in order to describe some aspects only, of economic and technological change, but since they are not
adequate to capture the complexity and the broad spectrum of underlying casual factors which exist in them,
they obviously fail in terms of prediction and explanatory value. What’s more, these analogies though they
may be useful they can end up misleading because we may fell satisfied with them end give up the search of
understanding what is really under the hood of economic and technological change. In other words, obviously
some variation and some selection takes place, while the useful aspects-assets-ways-outlines-routines get
promoted over the ones not used but what is exactly happening in the economy; The spines of Galapagos and
their great contribution to science are unfortunately of no use for us further along in our quest.

But I think its time to start defining who is who in the “good the bad and the ugly” analogy. The bad one
would be then I guess, to directly apply evolution theories because it is methodologically completely on the
wrong track, the ugly would be applying them in much more broader sense because it may stand in some
aspects but is actually misleading because though it might describe some existing situations in economics it
cannot suffice to actually grasp the gist of the situation. So then, we are left with the question who’s got the
good role in this analogy; That is no other than the fact that by trying to apply theories of biological evolution
to economics, something with its direct results range from completely wrong to misleading –the bad and the
ugly we have just seen- , it’s indirect results are much more important, and breathtaking. The main one of
them is no other than providing the most concrete illustration of the necessity there is for us economists to
find some way to deal with change and evolution other than assuming them away or defining them as
exogenous. If change is defined away then how are we expected as economists to provide advice regarding
how to achieve development and prosperity?

By definition change is very difficult to model and that may explain partly why it was traditionally assumed
away in mainstream economics. Unfortunately for us, the real occurring economy and not the one in the
course books, is none the less, all about evolution, drastic changes, unexpected technological booms ,constant
destruction and creation which results in the survival of some against some others in a continuous
multidimensional struggle. The phenomena in question which we have to address as economists are very
complex, a complexity which derives from the wide spectrum and the multilevel interaction of their casual
factors. What’s more the units studied in each science, who take part in the evolutionary phenomena, are of a
completely different nature. A spine hardly resembles a firm, and the latter may prove a little bit trickier for
humanity to study.
What contributes for example to the creation of technological innovations and how can if we can predict
them; Though it will be likely prove to be difficult to arrive at commonly agreed answer to the question
above, most answers would include a variety of casual factors, firstly regarding environmental variables and
then accompanied possibly by some concepts derived from biological evolution like selection, variation and
use and misuse.

Taking all the above into consideration, it is my view that Economic science is in desperate need for a more
generalized theory of cultural evolution. We have to describe technological and cultural change but we simply
cannot enforce theories of biological evolution at economics in an “as is” manner. Some concepts of biology
might indeed prove very useful, and when used in conjunction with different variables they might even give
us the capability to make sound predictions. That is why a more generalized theory of evolution which would
take into account cultural, social and other aspects of real economies would best describe economic and
technological change. Regarding economic and technological change we have to take into account not only
that institutions matter, but also that complex reality matters so we have to take into consideration many
factors, quite different between them. Our evolutionary theory for economic and technological change has to
take into consideration the main affecting environmental factors who contribute to change while we still have
to search in the fields of sociology and psychology for answers, since the simplest unit of the economy, the
individual remains more complicated than the spines, we have to take into consideration variables such as
communication, information, rule of law, reward for incentive and innovation, environment, culture, tradition
and so on in order not only to describe superficially with a catchy analogy economic and technological change
but to describe it in a way which helps us to really understand the underlying mechanisms.