What is to be done?
Clearly this state of affairs cannot be allowed to continue. Some level of control is needed. But who is to do the regulating and on what principles is this to be based?
Ethical systems are not universal. Some were founded on taboos and religions. Western society, for example, combined the Judeo-Christian ethic with the fruits of Greek philosophy.
And what of ethical philosophers? The best they can do is to provide tools for analysis rather than a list of rules. They ask, as did Plato, if ethics can be based upon a series of universal principles encoded into the fabric of the universe. Or, following Aristotle, if they are the natural actions of good people. Kant on the other hand suggested that ethics is something that must be learned and leads to duties that must be carried out. The Utilatarians, John Stewart Mill and Jeremy Bentham did not feel that motives or principles were as important as simply calculating which actions would produce the greatest happiness to the greatest number of people. In short ethics could be positioned anywhere along that spectrum that leads from principles to actions to results and implications.
Our present dilemma is simple yet paradoxical, we badly need sets of ethical principles that can be agreed upon by all so that corporate behavior becomes more regular and predictable, uncertainty is reduced and the threat of economic chaos or collapse is avoided. Yet we do not know where to look for such principles.
Maybe the answer is to take another look at the market itself. When we do, we discover that the market is a non-linear self-organized system. In other words, it can behave in ways that are similar to population fluctuations in natural environments, weather systems, complex chemical reaction, metabolic processes within the body and so on. Therefore, by looking at such systems in nature we may be able to determine rules that would act to stabilize and render more predictable, the dynamics of the market place and the behavior of corporations within that market.
But what is a non-linear system? Think of the accelerator on your car, when you press it gently the car slowly gathers speed – a small cause produces a small effect in a linear system. But push the pedal a little harder and the passing gear may be engaged and the car suddenly lurches forward and accelerates. This is non-linear behavior characteristic of a non-linear system – while in some contexts small inputs produce small outcomes; in others they may produce very large or even unpredicted outcomes.
Non-linear systems come about when a number of components, or for that matter corporations, begin to interact in ways such that the outcome of certain actions or decisions feeds back or influences others. In this way the system becomes greater than the sum of its parts. It takes on new and unexpected forms of behavior and, in turn, individual components are now embedded in a larger system, which has an influence on the way they act.
And what is self-organization? This happens when something – matter, energy, information, or for that matter money – flows through the system. Under such conditions what was previously chaotic, or a collection of self-interested individuals suddenly becomes an entire system with its own characteristic structure, dynamical behavior and internal laws. Clearly if we are to adopt sets of ethical principles for corporations and global markets we must understand the nature of self-organization.
A very simple example is that of a heated pan of water. Warm water, being less dense, rises to the top while cold water falls to the bottom. The result is the chaotic movement of tiny regions of water in competition. But at a certain critical rate of heating self-organized behavior can occur. When this happens hexagonal cells of moving water appear in the pan – there is a region where warm water moves collectively to the top of the pan and other regions where cold water falls. Order has emerged out of chaotic competition.
Clearly the market place is vastly more complicated than a pan of heated water. In the market’s case, self-organization is being created by a number of different flow-throughs including raw materials, goods, money and information. In turn this creates what could be thought of as a rich dynamical landscape with mountains, ridges, rivers and valleys – although mathematicians prefer to use terms like bifurcation points and attractors and so on.
Let us, for a moment, take another simple system, which illustrates the notion of an attractor, A lake contains trout and pike. If there are many trout in the lake then pike have a great deal to eat; they become healthy, breed and increase their numbers. But this means that trout are now exposed to more predators and so their numbers drop. With fewer trout available for food the pike population begins to fall and in consequence the number of trout start to rise again. In what is technically know as a limit cycle, trout and pike populations rise and fall in very regular ways. All this has been well documented with other species as well. What is of particular interest in the context of the market place is that even when perturbed by external forces – i.e. stocking the lake with baby trout or attempting to remove many of the pike – the dynamics soon returns to its original pattern. In other words self-organized systems can be strongly resistive to external attempts at control. Maybe this should send a message of caution as to the potential difficulties of controlling markets only through top-down systems of regulation.
Behavior like this could be compared to a ball rolling around in a smooth basin. The ball is relatively free to move at the bottom of the basin but would require much more energy for it to climb up the wall and escape. This aspect of the landscape – the basin or valley – is termed an attractor. In terms of the market place, it would suggest situations in which a corporation is relatively free to take certain actions but will meet the resistance of strong market forces if it attempts to move to a new form of behavior.
Another feature of the market landscape is a ridge that rises between two valleys. A ball placed on the peak of this ridge may be quite stable but the slightest puff of wind will cause it to fall down the ridge into one of the two valleys. This is known as a bifurcation point in which the slightest perturbation would cause a corporation, or some other aspect of the market to move into one or another radically new type of behavior, i.e. escape from the attractor.
Let me emphasize again that the market itself creates this landscape, through the interaction of feedback of all its components – corporations, investors, and speculators. In turn, this landscape with its bifurcations points and attractors now influences individual corporations in ways they may not have anticipated. What is more, certain dynamical aspects of the market may not be that easy to modify through the application of external forces.
As to feedback itself. This is key in the establishment of self-organized systems. Feedback occurs when part of the output of a situation feeds back into the way the next decisions are made. Positive feedback has the effect of amplifying things and operates when a new product enters the market. Take, for example, the Betamax and VHS systems of videotape and video players. Both competed for the same market and engineers felt that Betamax was the superior system. But in its early days the market was very sensitive to ways in which a consumer chose either system. Through positive feedback, tiny market fluctuations caused VHS to have slightly more of the market, in turn more movies became available on VHS, more people bought VHS players and yet more movies were available to buy. In this way positive feedback allowed VHS to dominate the market.
However, once the market is established, negative feedback now begins to operate and smoothes out fluctuations in demand so that VHS continued to be the only player in town until the appearance of CD-ROM technology. Again it is the large-scale operation of negative feedback loops – consisting of goods, money and information – that stabilize the market and could render it resistant to exterior control.
Up to know I have used rather simplistic examples from natural systems. Let us move to something more complex – a deserted and vacant piece of land. This is a combination of natural resources air, water and earth and flow-through of the sun’s heat. Through self-organization, a percentage of these raw materials will be turned into something highly complex and sustainable.
At first the sun warms the bare earth, but this heat is radiated away at night. Yet gradually weeds and grasses grow, small bushes are found, then shrubs and even small trees. Dead leaves fall to the ground and become food for worms and insects which, in turn till and aerate the soil. Rotting vegetation also support fungi and other organisms. Gradually the complexity of the area begins to increase and shows even greater diversity of plant, insect and animal life until it reaches a position of maturity where the self-organized system will continue to sustain itself – powered by the heat of the sun – indefinitely.
And what of the sun’s energy? Now only a percentage is being radiated away at night. The rest is being used in photosynthesis to help the trees and plants to grow. In turn, some of this matter is used as food for insects and small animals that till the soil. Other parts of the matter rot to make the soil more fertile. These in their turn are food for larger predators whose droppings provide nutrients for plants. What happens is that energy is being circulated through a complex series of feedback loops where it becomes trapped, transforming matter in a complex series of ways.
The lesson to be learned from this system is that:
a) input is being shared as it passes through the system
b) the system survives because of its diversity
c) while individual components of the system may be in competition they are also contributing to the survival of the entire ecosystem as a whole