Technology Is Evolutionary, Entrepreneurship Is Revolutionary. In Combination, These Forces Change The Structure Of The Economy.

Technology evolves. It’s an unnerving thought. Technology is developing along pathways that are not necessarily planned or directed or even anticipated. Humans are not in charge of technology’s development. The emergence that occurs within complex adaptive systems delivers unexpected outcomes, including great leaps (sometimes called phase changes in the language of dynamic systems), changes in direction, and periodic irruptions and frenzies of development where intensity of investment results in surges of change. Carlotta Perez explains this in Technological Revolutions and Financial Capital.

This interpretation of technological change is the result of viewing the economy and markets and the technologies within them as ecosystems bringing new understanding. The ecology view establishes the system as the primary unit of analysis, asking how it operates, how it grows, how it keeps in motion, and where its energy comes from.

Economies and markets and technologies are a particular kind of system, called Complex Adaptive Systems (CAS for short). A CAS is a system that adapts to become better suited to its environment, and therefore to survive and thrive.

As Eric Beinhocker points out in The Origin Of Wealth, we can observe this evolution in real-time in our own lives.

….automobiles progressing from the Model T to a modern car jammed with microprocessors, or mobile phones progressing from suitcase size to “so small I forgot I had it in my pocket” size. (The) airplane is related to hot-air balloons, dirigibles, and hang gliders in a sort of phylum of artifacts for flying. 

Eric Beinhocker, The Origin Of Wealth, P265

Technological evolution works in both directions.

We can also observe technologies going “extinct.” For example, in the middle of Washington, D.C., one can find the remnants of an old nineteenth-century canal system that in its heyday was packed with barges full of coal, food, and other goods. Today, the canal is used as a jogging trail, but one can still see a few old barges tied along the side, lovingly preserved, like stuffed mastodons in a museum of extinct technology species.

Ibid

In biology, evolution is said to advance via mutations – new combinations of genetic source code that are generated randomly and survive, if they do survive, by proving their fitness, the capacity to thrive in a hostile changing environment. Plants and animals and all biological entities must become more efficient, more effective, stronger, tougher, faster, or whatever it takes to avoid predation and extinction. 

In technology, evolution progresses not so much via mutation as combinatorial tinkering. Everything in a new technology already existed in some form. The car jammed with microprocessors was new, but cars and microprocessors already existed. Some inventor combined them and some entrepreneurs took the combination to market as an innovation that made drivers’ capabilities greater and their lives better. Every component of Elon Musk’s reusable SpaceX rockets existed, but it took an inventor to conceive of and implement the idea of re-landing and re-using rockets, and an entrepreneur to implement it.

Brian Arthur writes:

If evolution in its fullest sense holds in technology, then all technologies, including novel ones, must descend in some way from the technologies that preceded them. 

W. Brian Arthur, The Nature Of Technology, P20

He explains how this “heredity” works.

Technologies inherit parts from the technologies that preceded them, so putting such parts together—combining them—must have a great deal to do with how technologies come into being. This makes the abrupt appearance of radically novel technologies suddenly seem much less abrupt. Technologies somehow must come into being as fresh combinations of what already exists.

Ibid

Economist Joseph Schumpeter realized that combination and recombination is the mechanism for economic growth and progress. He wrote that change in the economy arose from “new combinations of productive means.” In modern language we would say it arose from new combinations of technology.

Brian Arthur observes

that novel technologies arise by combination of existing technologies and that (therefore) existing technologies beget further technologies, can we arrive at a mechanism for the evolution of technology? My answer is yes.

I will call this mechanism evolution by combination, or more succinctly, combinatorial evolution.

Ibid

The SpaceX reusable rockets story reinforces the example of evolving technology through combination and recombination, while also illustrating a different point about markets and commercial innovation. While technology is evolutionary, its application in new forms of commerce and business is revolutionary. Relanding and reusing rockets is revolutionary if you are in the market for rocket-delivered payloads and logistics.

Similarly, electric vehicles – another Elon Musk initiative – is a further evolution of the automobile, but the autonomous vehicle will be revolutionary because it changes the market by eliminating the need for a driver, or for a driver to be unproductively engaged in piloting a car. Now users of cars will be able to spend their time more productively, probably connecting to knowledge and information that furthers commerce rather than reading a gas gauge and a speedometer and a trip meter.

It’s not the technology that changes human behavior, it’s the change in markets that incentivizes new behavior. The introduction of the mass-market automobile resulted in the creation of new roads, better tires, gas stations, new delivery routes, and new jobs for mechanics (once they learned the requisite new knowledge that the automobiles precipitated). Similarly, the introduction of steam locomotives for railways created a steel industry for rails, new goods delivery routes and delivery options, new settlements along the rail lines, as well as a components industry and a coach building industry. It made possible the shipping of refrigerated beef from the Midwest to the East Coast and oranges and orange juice from Florida to New York.

Behind all these innovations stands the entrepreneur. The entrepreneur often does not create the new technology – that’s usually an engineer or a tinkerer of some sort. The entrepreneur is the revolutionary, overthrowing the old way to introduce the new. As Schumpeter described it:

The fundamental new impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates … that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. .

Joseph A. Schumpeter (1942), Capitalism, Socialism, and Democracy: 82–84.

The entrepreneur is a revolutionary as a result of acting. The entrepreneur must bring into being a new act of consumer behavior. That in itself means their abandoning some other behavior. Another supplier was enabling the original behavior. That supplier’s business is now interrupted. So that supplier generates a new response, a new offering, another revolution. Entrepreneurship is continuous revolution in markets. Without entrepreneurs, technology would continue evolving because of the heredity principle of recombination, but markets would remain static without entrepreneurial introduction of new techniques and commercial methods that change people’s behaviors. Technology alone can’t do that.