In the digital era, data is practically the air we breathe. So why does everybody treat it like a product to be hoarded and sold at profit? How would our world change if Big Tech operated on assumptions and incentives more aligned with the needs of a healthy society? Are more data — or are bigger models — really better? As human beings scamper around like prehistoric mammals under the proverbial feet of the new enormous digital monopolies that have emerged due to the Web’s economies of scale, how might we tip the scales back to a world governed wisely by human judgment and networks of trust? Would Facebook and Twitter be more beneficial for society if they were public services like the BBC? And how do we settle on the social norms that help ensure the ethical deployment of A.I.? These and many other questions grow from the boundary-challenging developments of rapid innovation that define our century — a world in which the familiar dyads of state and market, public and private, individual and institutional are all called into question.
Welcome to COMPLEXITY, the official podcast of the Santa Fe Institute. I’m your host, Michael Garfield, and every other week we’ll bring you with us for far-ranging conversations with our worldwide network of rigorous researchers developing new frameworks to explain the deepest mysteries of the universe.
This week on Complexity, we speak with two researchers helping to rethink political economy:
SFI External Professor Eric Beinhocker is the Professor of Public Policy Practice at the University of Oxford, and founder and Executive Director of the Institute for New Economic Thinking at the University’s Oxford Martin School. He is also the author of The Origin of Wealth: The Radical Remaking of Economics and What It Means for Business and Society.
Diane Coyle is the Bennett Professor of Public Policy at the University of Cambridge, and co-director of the Bennett Institute, whose latest book — Cogs and Monsters: What Economics Is, and What It Should Be— was published by Princeton University Press last fall.
In the first episode of this subseries, we spoke with SFI President David Krakauer about how the study of political economy has changed over the last two hundred years due to the innovation of new mathematical and computational methods. In this episode, we examine how the technological milieu that empowered these changes has also transformed the subject of study itself: digital surveillance architecture, social media networks, big data, and (largely inadequate) attempts to formalize econometrics have all had a profound impact on modern life. In what ways do new institutions beget even newer institutions to address their unintended consequences? How should we think about the complex relationships between private and public agencies, and what status should we give the data they produce and consume? What is it going to take to restore the trust in one another necessary for society to remain coherent, and what are the most important measures to help economists and policymakers navigate the turbulence of our times into a more inclusive, prosperous, and sustainable world?
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Mentions and additional resources:
Toward a New Ontological Framework for the Economic Good
by Eric D. Beinhocker
Complexity Economics: Proceedings of the Santa Fe Institute's 2019 Fall Symposium
edited by W. Brian Arthur, Eric Beinhocker, Allison Stanger
by Diane Coyle
The Public Option
by Diane Coyle
Common as Air: Revolution, Art, and Ownership
by Lewis Hyde
by Nick Hanauer
The Nature of Technology: What It Is and How It Evolves
by W. Brian Arthur
Geoffrey West on Complexity 35
Will A Large Complex System Be Stable?
by Robert May
Blockchain: Trust Companies: Every Company Is at Risk of Being Disrupted by A Trusted Version of Itself
by Richie Etwaru
Helena Miton on Complexity 46
The coming battle for the COVID-19 narrative
by Sam Bowles, Wendy Carlin
Recoupling Economic and Social Prosperity
by Katharina Lima de Miranda, Dennis J. Snower
Signalling architectures can prevent cancer evolution
by Leonardo Oña & Michael Lachmann
Why we should have a public option version of Google and Facebook (response to Diane Coyle)
by James Pethokoukis
Bryant Walker Smith on Complexity 79
“Premature optimization is the root of all evil."
— Donald Knuth
Eric Beinhocker (0s):
When we're all interacting and doing our thing in a society that you can have good and bad societies or healthy or unhealthy societies. And what's happening at that emergent level of society then feeds back and very dramatically affects the course of individual lives and happiness and opportunities to fulfill one's potential. So again, it isn't a question of societal welfare, individual welfare. It's understanding how these things fit together and dynamic emergent system and create a set of arrangements that enable human flourishing is what's called the eudemonic perspective.
Diane Coyle (34s):
There's a lot of inertia in institution arrangements. So we've got arrangements that were pretty good for the mid 20th century. And the character of the economy has changed so much that we need to evolve some new institutions, which can accommodate the ways that our individual decisions affect each other. And we build that into thinking about what better outcomes look like and have that period of institutional innovation for the digital economy.
Michael Garfield (1m 24s):
In the digital era, data is practically the air we breathe. So why does everybody treat it like a product to be hoarded and sold at profit? How would our world change if big tech operated on assumptions and incentives more aligned with the needs of a healthy society is more data or our bigger models really better? As human beings scamper around like prehistoric mammals under the proverbial feet of the new, enormous digital monopolies that have emerged due to the webs economies of scale, how might we tip the scales back to a world governed wisely by human judgment and networks of trust? Would Facebook and Twitter be more beneficial for society if they were public services like the BBC, and how do we settle on the social norms that help ensure the ethical deployment of AI?
Michael Garfield (2m 15s):
These and many other questions grow from the boundary challenging developments of rapid innovation that define our century, a world in which the familiar dyads of state and market, public and private, individual and institutional are all called into question. Welcome to Complexity, the official podcast of the Santa Fe Institute. I'm your host, Michael Garfield, and every other week, we'll bring you with us for far ranging conversations with our worldwide network of rigorous researchers developing new frameworks, to explain the deepest mysteries of the universe. This week on Complexity, we speak with two researchers helping to rethink political economy. SFI External Professor Erik Beinhocker is the Professor of Public Policy Practice at University of Oxford and Founder and Executive Director of the Institute for New Economic Thinking at the Universities Oxford Martin School.
Michael Garfield (3m 8s):
He is also the author of The Origin of Wealth, the Radical Remaking of Economics and What it Means for Business and Society. Diane Coyle is the Bennett Professor of Public Policy at the University of Cambridge and Co-director of the Bennett Institute whose latest book, Cogs and Monsters, What Economics Is and What It Should Be was published by Princeton University Press last fall. In the first episode of the sub series, we spoke with SFI President David Krakauer about how the study of political economy has changed over the last 200 years due to the innovation of new mathematical and computational methods. In this episode, we examine how the technological milieu that empowered these changes has also transformed the subject of study itself, digital surveillance, architecture, social media networks, big data, and largely inadequate attempts to formalize econometrics have all had a profound impact on modern life.
Michael Garfield (4m 5s):
In what ways do new institutions, beget, even newer institutions to address their unintended consequences? How should we think about the complex relationships between private and public agencies and what status should we give the data they produce and consume? What is it going to take to restore the trust in one another necessary for society to remain coherent and what are the most important measures to help economists and policymakers navigate the turbulence of our times into a more inclusive, prosperous, and sustainable world? If you value our research and communication efforts, please rate and review us at applepodcasts and consider making a donation or finding other ways to engage with us at santafe.edu/engage.
Michael Garfield (4m 53s):
You can find the complete show notes for every episode with transcripts and links to cited works at email@example.com. Thank you for listening. Diane Coyne, Erik Beinhocker, I'm honored to have you both here together on Complexity podcast.
Eric Beinhocker (5m 13s):
Thanks, Michael, pleasure.
Diane Coyle (5m 14s):
Yes, indeed. I think the honor is all ours.
Michael Garfield (5m 17s):
So why don't we start by providing a bit of exposition background on yourselves as minds and talk about how you have come to asking the questions that we all understand that we're going to be exploring on today's call. Eric, why don't you go first?
Eric Beinhocker (5m 39s):
Sure. Well, I guess I've done my career backwards. My education went into the tech and business world working with software startups and venture capital, and then a big consulting firm for many years. And then through twists and turns found my way back into academia, where I now had the program on the Institute for New Economic Thinking at Oxford University. But a key part of that journey was my interactions with the Santa Fe Institute. When I was at McKinsey, I got engaged with SFI and the program looking at complexity and the economy, and that basically turned my world upside down, or actually I should say it helped me explain the real world that I was in and showed me why there was a big gap between what I've learned in my economics training and what I'd experienced in my real-world jobs.
Eric Beinhocker (6m 26s):
And SFI helps bring those two things together and gave me a set of questions about how the economy works that I've been pursuing ever since. And in our group at Oxford, we have many collaborations with folks in the SFI community.
Diane Coyle (6m 42s):
I guess I've done my career backwards, too. I never thought of it like that. I was trained as a mainstream economist and then spent a long time working in both public policy world, treasury and various other bodies, such as the competition authority here in the UK. And also as a journalist writing about economic policy and then came back into the academic world. I'm an economist, but my Institute is a public policy Institute, relatively new, and we work very firmly to disciplinary way, which is a nice echo of SFI. And I suppose the question that motivates me is what does it mean to say, we want to make things better, better for whom and what does better mean and how do you think about bringing about change in a complex, messy, difficult to understand kind of system?
Diane Coyle (7m 33s):
I think I first came across Eric by sending fan mail about his marvelous book. So we are very much in sympathy in the way we think about things, but I guess I've come at it less formally through complexity, although we've done some work on complexity
Eric Beinhocker (7m 46s):
And I should just add that the fan mail came straight back at the tie-in for her many marvelous books and verticals.
Michael Garfield (7m 52s):
So in the reading I've done on both of you, you're aligned in your critique of GDP. I want to back up a bit and say, okay, so Diana, if you can talk a little bit please about the synoptic view, kind of like a Jose Luis
Diane Coyle (8m 34s):
Every discipline is trying to make sense of something that's messy and complex. You have to simplify in some way and economists have a very characteristic way of doing that. And it's modeling, it's finding a parsimonious number of relationships and series of data to construct a model economy, and also think themselves as understanding outside of that model. So here is a world where we've got millions of businesses and individuals making decisions, interacting with each other, and a discipline that in the mainstream had the social planner perspective that you can stand outside, look down and figure out the right interventions because you know what the best outcome looks like.
Diane Coyle (9m 15s):
And you can figure out what incentives will get people to behave in ways that will deliver that better outcome. And that's sort of bizarre in a way, because there's a parallel traditional economics of thinking about markets is very complex emergent systems, and that's much more in the sort of free market market, sort of things are better tradition. And the debate dates right back to the 1930s and the socialist calculation debate, where on the one hand you had people at the left who said, we can plan this, we can control it. We've got the social planet perspective. And then the other people have the right to set in their markets. We'll sort this out. And all of the information that's needed to get better outcomes is captured in prices and the government needs to step out of that.
Diane Coyle (9m 58s):
And yet at the same time, economics as a discipline, being very focused on markets as a means of bringing about good things and yet not at all social planets. So there's this sort of tension in that. And of course in digital, the dream of social planning has kind of been revived in the idea of seeing rumors. One of our literal advisors described it where you can get much better data, you can use big data. So finally we can achieve this dream of managing things to get better outcomes. And yet at the same time, in a serious doubt about, could you ever do the amount of calculation that's needed to make that possible? And by the way, what about all that stuff about markets working and also by the way, actually digital marketers don't seem to be working very well.
Diane Coyle (10m 43s):
They're not very competitive and we've got dominant players that we're worrying about. So it's analytically a bit of a mess. And Eric and I have been talking about, we need to get some people together to talk about what does better look like and how should economists start thinking about evaluating policies and policy makers.
Eric Beinhocker (11m 2s):
Yeah, of course there's an old cliche in business that you manage what you measure and GDP and the other associated metrics that we use to understand and measure and simplify the economy is important and how they shape people's decision-making and the goals that policy makers pursue, how the media reports on the economy, and so on. I think is Diane very eloquently described, some ways we know there are many problems with GDP as a metric, but it is a bit more of a symptom rather than a cause. And the deeper issue is how we're conceptualizing and thinking about the economy and as Diane notes in her wonderful book, GDP and a section in history it does what it says on the tin and there is useful information to be added in it.
Eric Beinhocker (11m 48s):
And if it's used appropriately, but the deeper problem is this question of understanding what kind of system is the economy and how does it actually work. And then in that system, as Diane noted, what does better mean, what do we want to do better? And then given our understanding of that complex system, how would we get to better, and what kind of changes and policies and behaviors and cultural norms and institutions and all of these things that make up the economy, what would have to be different to get to better? And so I think that's the kind of bigger journey that we're all on and connected very deeply to that. Our questions of understanding what wellbeing is, what people's normative and ethical behavioral moral frameworks are.
Eric Beinhocker (12m 31s):
What are one of the great mistakes of economics in the 20th century was to separate economics from morality and ethics. The origins of economics, the two fields were very closely fused. And one of the great founders of economics, Adam Smith made major contributions on both subjects, but there was this idea that economics could be a kind of antiseptic science without values or moral judgments, technocratic, highly mathematical field. And that's led to a big decoupling between how the economy works and how many people feel that it impacts their lives and their wellbeing, whether it's on issues of climate change or economic justice or racial equality, or many other issues.
Eric Beinhocker (13m 15s):
And so part of the work that, and I, and others are doing are trying to bring those agendas back together.
Diane Coyle (13m 21s):
And I think things are changing. I've just finished teaching class on competition policy, which is one of the domains where we thought we had technical answers. We knew how to do this analysis. We could figure out how to make markets work better in the sense of more competition among different companies, providing high quality goods and innovating. And that really has been politicized. And you can see that. In fact, there's a debate now between Chicago school who say it's enough to look at the prices consumers pay, and if they're low, what's the problem. We don't care if therapy, big companies. And on the other hand, what's been labeled the Neo Brandeisian say these are big and powerful companies, power matters structure matters, and we need to start thinking about it like that.
Diane Coyle (14m 3s):
So here's one technocratic domain that has again become political economy, but a lot of economists, a lot of us still describe ourselves as engineers or plumbers or dentists with the sense that there's a technical answer and you can fix it. A lot of people think GDP is a real thing, but it's an idea. And it's an idea that was created for one purpose and has been used for the completely different purpose of measuring progress in society. But as Eric says, actually to do that, you've got a lot of ethical issues to bring into the discussion.
Michael Garfield (14m 34s):
You talk about how this idea that we think of data as property and yet data is non-rival, it's inherently relational. It's social. I'm thinking about Lewis Hyde's history of the Common as Air, his book, where he talks about the enclosures of first the forest in which everyone hunts, and then the intellectual commons. And then there's a speculative third enclosure of the commons. And clearly the public private divide is something that bears heavily in these considerations. So clearly it's not just more data is better. It's what kind of data, and then how are we conceiving of it?
Michael Garfield (15m 18s):
How are we thinking about it? What metaphors are more appropriate to use? And then how can we go about actually regulating this because the fact is that we have enormous market forces that are on a runaway terror, and it's not clear to me that it's an easy thing to reconfigure the way that we imagine the use of these metrics.
Diane Coyle (15m 46s):
We've got a very individualist tradition in economics and in law. And we also have this conception of property, definition of property rights as being the way that you both have a legal order and make markets work effectively. The markets work best when you've assigned those property rights. And these have both been applied to the data economy with a presumption that the people accumulating lots of data, thereby become the owners of it. It's their property. And even some of the solutions that are talked about data as labor. So you get paid for providing some of your data. That's an individualist solution as well, sees it as a property transaction. And for me, that's the wrong way to think about it because it is a crystallization on a computer of social relations and no data, very little data is useful by itself.
Diane Coyle (16m 36s):
It needs to be matched up with something else that applies even to very personal data. Anybody who's going to be in a room with me in the pandemic might want to know what my temperature is, even though that's personal data and the use that we get out of it to make our lives better, develop businesses, whatever, depends on being able to match up different kinds of data. And that's not going to happen if we've got this property framing, we're going to have to pay the Googles and the matches for all the data, are we? So I think we need to think about it much more as in terms of rights of access, who is allowed to know what, and for what purposes, and we need both a technical and a legal framework that will make that possible so you can protect privacy where it's needed, but also ensure that the data is available to be used.
Diane Coyle (17m 20s):
And in some social sciences, there's this concept of privacy in public, which is exactly about limiting what you know about somebody for the purposes at hand. Whereas what we're seeing is all of the data about somebody being joined up by either big companies or governments in ways that are actually very privacy invading. So I would like to see a reframing of how we think about it, how we get to give them politics and law is a completely different matter, and I don't have easy answers to that.
Eric Beinhocker (17m 47s):
And just to build off Diane's answer, I would note that in addition to thinking or this conceiving of data through the lens of property, that more broadly, we've tried to understand data and technology from a kind of industrial era mindset, thinking of data as a kind of widget whose value is related to its price in the market and a set of inputs and costs and marginal cost, equally marginal revenue and stuff in standard economic theory, and with data in much of tech that doesn't really apply. And that's been quite confusing to a lot of people and myself and my co-author Nick Hanauer that actually we need to think about economic value differently in a more fundamental way. And we've had history for the last well over a century in economics of answering the question of what creates economic value with a very simple answer, price equals value that, whatever the value of something is just determined by whatever the market says it is equals demand.
Eric Beinhocker (18m 41s):
That's what it's worth, end of conversation. And because so many digital products and services are free to the end consumer, even if there's still a revenue model behind them, that's kind of way of thinking doesn't seem to quite work. And so we argue that value more fundamentally comes from what we call solving human problems that we're organizing the world in some way that meets our needs. And we do this in the physical world. We organize some molecules and energy into a nice meal or into a house or into a car, but in the digital world, we're organizing bits into something that meets our needs or provides service to us. And the thing about software that's different than much of the physical world is that organizing of things to meet your needs can happen at a much, much faster pace and rate.
Eric Beinhocker (19m 28s):
And actually Brian Arthur, Santa Fe Institute, wrote some very profound things about this and his nature of technology that all value creation processes are these kind of recombinant evolutionary processes of experimentation, trying different forms of organization order. And in this physical and social world those processes happen relatively slowly, but in the world of software, they can happen incredibly quickly. And the process of replication is essentially zero, zero cost. And one way to interpret what's going on in tech is that it's evolving value in a different and faster way than we've seen in the more physically based economy that we've had previously.
Eric Beinhocker (20m 8s):
And that looking at market prices alone is not necessarily a good indication of what's going on there. And this evolution is creating new concentrations of power just as Diane was saying, and looking at it through the lens of power is just as important as looking at it through the lens of price. And also looking at it through the lens of what kinds of problems is it solving versus what kinds of problems is it creating? Again, there's a tendency in standard economics. If it's got a price, it's gotta be valuable to society in some way. It's got to be in essence, good for society, but you can also have no products and services that create more problems than they solve. So when social media is damaging democracy, for example, maybe it's not creating value or society. This different way of thinking gives you license to ask a whole set of questions that the standard way of looking at through economics tends to dismiss.
Michael Garfield (21m 2s):
You brought up this kind of ratcheting, recombinant red queen arms, race thing going on here. You brought up Brian Arthur. In Diana in your piece on Daedalus you talked about the way that platforms will generally charge different prices to each side, often zero on the consumer side with the commission charge to suppliers, this reflects usually greater sensitivity of consumers to pricing. We do not have to go out to dine, but restaurants need customers to survive. So I'm thinking about this in terms of a kind of like food web in which there are these emergent kind of like predatory organizations and institutions, and it's all ratcheting faster and faster, can give a shout out to Geoffrey West and his finite time singularity this idea that there's an innovation crisis cycle that just keeps spiraling closer down the drain when you like throw a penny down, one of those like black holes simulators at the museum. So shout out to will a large complex system be stable. I have a question for you both about the scale of this and whether this is actually manageable. You know, when you think about the rhetoric of the 1990s and the web was seen as a global unifier, and it's clear now that people and states are retrenching into something less global. I'm wondering where you see the limits and where you see a sweet spot, perhaps in the actual order or structure of all of this and like how many layers are necessary in order to keep it working if it's going to continue at the scale that it's going now, I don't know who wants to take that first.
Diane Coyle (22m 56s):
It's an interesting question, isn't it? One of the features of the digital economy is that optimal scale is global if you've got zero marginal costs. And so that is this kind of impetus to become as large as possible, but that sense of the economic efficiency as Eric was saying previously rubs up against things that are not such good outcomes, democratic accountability, power, and all of those issues. So how do we trade off the economic efficiency against those other issues? Your question made me think also about supply chains, global supply chains, where again, the push for efficiency gave us incredibly complex set of relationships across national borders, which people don't even know about.
Diane Coyle (23m 39s):
We don't monitor these in the statistics. Here in the UK we had a situation recently where the energy price rises led to the closure of one of two factories making fertilizer, which is very energy intensive. It turned out that one of the byproducts of that was carbon dioxide used in the food processing industry and packaging food. So there was a crisis about, could the foods continue to be supplied and neither party to that transaction, the finance director of the fertilizer company and the food companies, they didn't know that they had this interdependency and we seen it in the vaccine supply chains where it turns out to put vaccine in a vial and get it to people for injections is unbelievably complex across national borders.
Diane Coyle (24m 20s):
And so there too, I think there's a question about, have we got the scale wrong because we've not been thinking about the right trade-off between straight economic efficiency, lowest production costs and other things that we might care about more so, you know, whether it's national security or food security of supply. So that's my first riff on your question, interested to know what you think, Eric.
Eric Beinhocker (24m 42s):
Well, I'm very much aligned with your piece. Diane. I would note that economics is a long tradition of thinking of the economy as a self-stabilizing system, make it knocks out of kilter through exogenous shocks, but has this tendency to go back to some kind of equilibrium, but the complex systems perspective gives us another view on this that at least to me looks more consistent with the real world that as networks grow both in scale and complexity, these interdependencies just as Diane was describing in supply chains, but they also exist in other networks, physical infrastructure networks, social networks, financial networks, and so on. You get these effects, whereas in SFI and sometimes they're called complexity catastrophes where either the interdependencies get so interdependent that you get a kind of gridlock where the system just can't move or change or adapt, and then it becomes maladaptive to its environment.
Eric Beinhocker (25m 34s):
Or you get these situations where you have these cascades and fragilities and the network were just as Diane was describing and supply chains, a small change or vulnerability can every non-linear effects causing the network to kind of unravel in some way. And if we zoom back one way to think about the economy is it's been a many thousands of years kind of interplay between forces of human cooperation, which have built up these networks, businesses and cities and societies and supply chains and knowledge communities and so on over time and driving force of that increase of our scale and cooperation has been not just economies of scale which are important, but also really economies of knowledge that creating complex knowledge requires lots of diversity and lots of scale.
Eric Beinhocker (26m 23s):
Think of the knowledge that goes into making modern jet aircraft or the space station or an iPhone, and the competition between that growth in scale and networks and cooperation, but also versus competition within that, and also issues of pre-writing and bad actors and so on, game theory literature about how cooperation can be undermined by certain exploitative strategies. And so even though the macro trend has been increasing scale of cooperation over very long periods of time, we do have these periods of collapsing and retrenchment and unraveling as well. One could look at the current era and think that we're unfortunately in one of those phases at the moment.
Diane Coyle (27m 5s):
I was thinking just the other day about that wonderful Joseph Tainter book about the collapse of complex societies, which came to mind just thinking about the unraveling of the globalized production world that we saw go from 1980s.
Michael Garfield (27m 22s):
So, I mean, since we're talking about coordination and cooperation, let's talk about trust. Diane, you say in your piece on Daedalus “the trust networks or communities need to join market and hierarchy as a standard organizational form.” How do we scale this? I mean, Richie Etwaru has written about this, has proposed that distributed public ledgers are one way of doing this. Many people are skeptical of this at SFI. Helena Miton is looking at this. And I mean, honestly, probably the entire discipline of economics wouldn't exist if it weren't for the innovation of money as a way of scaling trust across communities. Given that we seem to be in a kind of transitional period here, what do you suspect might emerge as the means by which people are capable of trusting one another at the scale at which our civilization demands it?
Diane Coyle (28m 22s):
I don't have an easy answer to that, but I would observe that actually we know that we've had a very high level of trust because we've had these global transactions going on, where as an individual, buy something online, that's going to be delivered from somebody you don't know in Vietnam. And we have managed to sustain that very complex system of relationships of trust that make that possible. So I think part of the question is what do you think the problem is, is the problem that's breaking down and we want to be created in some way. It's not obvious to me that decentralization per se solves the problem because you still got to have trust at the end going in. There's still some authentications needed at some point in that chain. So I don't have an easy answer because I think we need to specify much more carefully what we think the trust problem is, and there are many, many examples of high trust activities going on, but that's small scale, but also at global scale, that was a of not answering the question.
Eric Beinhocker (29m 18s):
Well, what can think of trust is having kind of both a software and a hardware component to it. And the software starts with our intuitive behaviors and norms, and those evolved over a very long period of time as humans are a social species. And so our tightest circles of trust tend to be with our friends and family and people that we know personally and that kind of software interpersonal relationships can work. But you know, a key step in human development is what the economist Paul Seabright likes to call being in the company of strangers that we can transact and trust as Diane said, somebody on the other side of the world we've never met before, and it was set of social technologies, creating the hardware side of that, whether that's laws, institutions, practices, money, banking or in the more modern form for example.
Eric Beinhocker (30m 8s):
And there's been a long history of innovation of those mechanisms that have expanded those networks of trust, but they all have an inherent fragility to them in that they're emergent phenomenon. They kind of require everyone to believe in them. If everyone believes in the law or believes in buddy, it works, but if not people stopped believing in that, then it all kind of collapses. We've seen this in countries where we've had no state collapse and we're seeing something at the kind of global level in terms of unraveling of global trust in institutions and norms that supported that. So there's a couple of questions that might be asked in rebuilding that is, do we need new innovations in the kind of hardware side, new mechanisms, new institutional structures that can adapt to the world we're in today to rebuild and expand that circle of trust?
Eric Beinhocker (30m 58s):
Or do we also have issues on kind of the more software side of culture, norms, behavior, frameworks, issues of identity and things like that never go away, but if not attended to, can either decay or can actually become toxic, for example, identity has in politics where we have very intense trust within groups and very intense distrust between groups.
Michael Garfield (31m 23s):
If there's a thread running through everything that's been said over the last, I don't know, 15 minutes or so, that points me back to Sam Bowles and Wendy Carlin, and the writing that they've done on the re-emergence of the civil society, the sense that the state and the market have hollowed out this mesocosms of mutual aid networks, neighborhood relationships, families, and communities of faith and practice and tribal governance and so on. And to kind of interleave this into your comments, Eric, on Katharina Lima de Miranda and Dennis Snower’s sage framework.
Michael Garfield (32m 7s):
I'd love to talk about the way to start thinking more rigorously about how to understand economics in a moral framing and what it means to really think clearly about wellbeing and the instantiation of the networks and processes by which wellbeing is accomplished in society. So I don't know if you want to start Eric and just lay this out.
Eric Beinhocker (32m 36s):
I think Sam and Wendy absolutely right brilliantly about these issues that states and markets tend to be built on what I call the kind of hardware side of trust. States control a lot of the institutions related to that. Market's kind of run on that infrastructure of laws and money and accounting and all that other stuff, but we have neglected this layer of community, social capital culture mutualism, and we've actually promoted to clean the U.S. as highly individualistic culture. That's actually quite antithetical, quite corrosive, bonds of trust and community. This kind of trust vacuum has been filled to a large extent by identity politics.
Eric Beinhocker (33m 17s):
It is naturally not any easy answer to this, but one important step is to actually understand the importance of these things. And as we try to analyze and measure and understand the economy to actually quite explicitly try to get at and start systematically measuring these things. So just as an example, you mentioned that paper by Dennis and Katharina, they propose a very nice framework for combining a set of harder formal economic measures with a set of more social measures and trying to explicitly get it indicators that could be proxies for that kind of social trust, social capital in societies. And it found some very interesting results from that research.
Eric Beinhocker (33m 58s):
I'm sure Diane and her work on economic metrics also thought a lot about how we get more of both the individual wellbeing, but also this kind of social health of an economy.
Diane Coyle (34m 8s):
It's been a kind of long quest to figure out how to define and measure better social capital. And there's a lot of interesting work there. There has been this long habit and economics of dividing the world into things market doesn't think the state does. And that was always reductionist because of course there are lots of economic institutions that are not either, companies as Herbert Simon pointed out and neither trade unions, babysitting circles, parent teacher associations, we've got a rich set of institutions that are part of the trust fabric of society. I think you can start to introduce some more rigor using Elinor Ostrom’s framework. And there's a lot of interest now in thinking about what are the resources, what are the characteristics, the economic characteristics of those resources?
Diane Coyle (34m 53s):
What are the terms of access through which you might govern those trust relationships that might make different models of using and allocating resources work effectively? So there's a lot of interesting work applying this to digital contexts, to think about them as a commons, as you raised earlier, and applying quite rigorous models based symmetries of information and access to resources to thinking about what kinds of institutional structures. Victorian eras saw huge institutional innovation at this kind as well. It was when we got mutual societies and copters and trade unions. So I think the challenge is for the emergence of those kinds of institutions for an economy, that's got different economic characteristics, which are much more in the nature of public goods.
Diane Coyle (35m 38s):
These non-rival things that you mentioned right at the start.
Michael Garfield (35m 41s):
I want to back up a little bit actually, because I think that this is a key concept for people who aren't familiar with this stuff. Eric, if you can talk about ontological stacks and the way that GDP rests on a series of assumptions about what matters and the way that there are other ways of applying these metrics. Many, many, many other forums have been proposed, but they are flawed. You mentioned for instance, gross national happiness, but what is happiness? And you talk about the difference between the hedonic and the eudaimonic. And so I think like that would be a really interesting pit to explore.
Eric Beinhocker (36m 23s):
Well, this idea of an ontological stack sounds like a pretty sort of obscure philosophical concept. It's actually pretty straight forward. So, our ontology, are set of concepts and language and ideas that help us kind of define and understand our role. And what's in that ontology plays a big part is how we see the world and how we act and behave in it. And in our economic ontology over the past couple of centuries, we built up when I call this kind of stack or like a layer cake of ideas that all sort of connect into each other. And so starting at the very bottom are a set of philosophical concepts rooted in utilitarian ethics in philosophy about human sort of goal of whites in essence is to maximize individual human happiness.
Eric Beinhocker (37m 8s):
And the goal of a society is to maximize the happiness for utility for the most people. This was, Bentham, Jeremy Bentham’s big principle. And philosophy this is called a hedonic view because it's focused on this idea of happiness or utility. And then economists kind of got in the picture and created a set of ideas and models building off of that, where they viewed humans as driven or motivated by this idea of maximizing and visual pleasure or happiness. And that was the key to understanding human action. And then we step up another level in the stack to the level of a system. You put a bunch of happiness pleasure maximizing humans together in something like a market. And you get a set of results about how markets work and how markets and maximize the welfare of society.
Eric Beinhocker (37m 52s):
And then you keep going up the stack to a set of normative statements. Now, what does that mean we should do in terms of policies that maximize that welfare for society. And then you go up to the top, well, how should we measure? Is society getting better or worse? And that brings us to concepts like GDP. And then finally at the very, very top of this stack, you get a set of narratives or means about how the society works or should work. My favorite example of that is from the 1980s movie Wall Street. The protagonist says “greed is good.” So that's an example of, I mean, one could interpret out of this system. And what I argue is that one of the reasons why we haven't had as much success yet as we'd like in shifting to a new way of thinking a new paradigm is we, haven't kind of built as a stack, that the existing system thought for all of its flaws and critiques, we've thrown at it as this wonderful coherence to it, but all the pieces kind of do fit together.
Eric Beinhocker (38m 45s):
And in the constructing of a new paradigm and Sam and Wendy have written about this as well, we need to start figuring out how to put the pieces together into something that's equally coherent and also can be used in a practical sense in the real world models and concepts and data like GDP and so on, had a big impact in our world.
Michael Garfield (39m 7s):
Diane, do you care to comment on that?
Diane Coyle (39m 8s):
So yes, this idea of thinking about changing the way that we think about things and having to do it at different ways is absolutely one that I agree with. I've thought about different metaphors for it, I suppose. I mean, one is kind of offering example. The weakest link is going to determine the outcomes for the whole system. I've also thought about it in terms of technological standards or the kind of standard where you say you drive on the right or you drive on the left. And if you want to switch to driving on the right, from driving on the left, you've got to get everybody to do it at the same time. So it's a similar idea of having to line up lots of different aspects of the system in order to get from where we are to where we want to be.
Michael Garfield (39m 50s):
So in keeping with that, it seems like a good time to discuss your piece, the public option, because if we're talking about everyone driving on the other side of the road, this is a piece in which you propose making social media a public service, and you compare it to the BBC and the way that certain things basically should not be in the jurisdiction of markets, because we were talking about earlier, if data is the air that we're all breathing, then what kind of sense does it make for a few people to be getting filthy rich over that? I'll let you lead that one in.
Diane Coyle (40m 28s):
So I like markets. I'm a very conventionally trained economist. I think markets can do some good things, but they need to be shaped. And the idea here is to think about how the BBC has shaped the markets in which it operates. It's the most trusted institution in the country. It's perhaps the most trusted in the world, highly trusted, particularly for its news. It has a very distinctive model in the British taxpayers fund it. And there is a governance structure that keeps it independent from government. So it's not a state broadcaster, but it's a publicly funded and in some sense, publicly owned podcaster and that different business model means that it's not in the business of trying to maximize advertising revenue or maximizing number of viewers per program, because that's what makes the money for many commercial book customers.
Diane Coyle (41m 18s):
So it's a different kind of beast and introducing a different kind of beast into a commercial market, which is thriving has meant that competition occurs in different ways than it would if you only had the one business model. And it's about quality. It's about standards of impartiality in truth and news, as well as making things that are really popular. So lots of people want to watch them. And so the analogy with social media is that actually part of the reason they're so toxic is that they've all got the same model and they're competing against each other to maximize number of clicks because that gets into the advertising dollars. What would happen if we introduced different kinds of body with completely different business model and set of principles, which was about maximizing truths or maximizing democratic accountability.
Diane Coyle (42m 5s):
And what would the institutional framework around that look like. I’m certain as I can be that if we had that kind of thing, it would change the dynamics of some of the online markets, some of the social media.
Eric Beinhocker (42m 15s):
I would pretty much agree with Diane's analysis of the issues, social media companies. There is a lot of evidence that if the root of the problems that are being created is this advertising model. And even there've been some interesting studies showing that in pursuit of clicks the algorithm, so tune the content to press our outrage buttons and trigger our kind of deep moral emotions in ways that are actually even mentally and physically harmful to individuals, but very, very toxic to society. And some AI researchers have even shown that the AI algorithms have actually tuned our brains to serve the algorithms interests in maximizing revenue, rather than the algorithms working for us, we're working for the algorithms.
Eric Beinhocker (42m 59s):
And that seems quite backwards. I think Diana's proposal that we need a structure that flips this model around so it's actually serving people and society is absolutely right. The BBC is one great model, but there are a variety of models for dealing with economic institutions that have negative characteristics that just left to the free market and where we need them to serve a social purpose. And it doesn't automatically mean it's under state control or anything like that. There are ways that these things can be structured. If we zoom out just a bit wider, we can also say that the traditional economic framing of markets and states as being these kind of competing institutions, is also just very misconceived.
Eric Beinhocker (43m 40s):
The sort of standard views is that we've got this big trade-off between markets which are efficient and so on and states, which are kind of interfering and inefficient and state action is only justified for very narrow cases of market failure, creating public goods and so on. An alternative view, a bit more of an SFI view is this is an ecology of institutions that are mutually interdependent and interacting, but collectively should be no serving the public good and human wellbeing and asking, do you prefer states or markets, or which is better or worse? Like in ecology, it's asking, should we have plants or animals? Well, no, you need both in a healthy ecology, but the question is how they're interacting to create a healthy ecology.
Michael Garfield (44m 23s):
So kind of orthogonal to that, listening to you speak on this I took as a critique of libertarianism, your comment on Katherina and Dennis's piece where you say “wellbeing at the individual level may or may not imply a healthy system that will sustain flourishing tomorrow.” I'm thinking of Michael Lachmann's work on the evolution of costly signaling in the body as a cancer prevention mechanism, and the way that to your comments earlier, Diane, about supply chains, that there's a sense in which convenience comes at extraordinary cost. So I think maybe to bring this into a landing here, I'd love to hear the both of you riff on the tensions, not between institutions and other institutions, but between humans and the institutions that we've created and within which we are embedded and where we may be inclined to give people too little or too much agency with that respect and how to think more clearly about that particular rat king, if you will.
Eric Beinhocker (45m 29s):
Well, maybe just to kick things off on this again, I think the debate between kind of a libertarian individualistic view and more silent view is another one of these false dichotomies or false debates. What I would think of as the classical liberal tradition, individual rights, and essentially the great breakthrough of the classical liberals was this idea of moral equality, that we all have an equal right to a good life and that every human life is of equal value, which was a pretty radical statement at the time. And that is foundational belief and value of Western society, but we're the kind of extreme libertarians get it wrong is that society is not just a kind of linear adding up of everybody's kind of individual happiness or rights.
Eric Beinhocker (46m 12s):
And this is where the kind of SFI perspective comes in. There's also this emergent property of when we're all interacting and doing our thing in a society that you can have good and bad societies or healthy or unhealthy societies. And what's happening at that emergent level of society then feeds back and very dramatically affects the course of individual lives and happiness and opportunities to fulfill one's potential. So again, it isn't a question of societal welfare, individual welfare. It's understanding how these things fit together in a dynamic emergent system and create a set of arrangements that enable human flourishing is what's called the eudemonic perspective.
Diane Coyle (46m 50s):
I think that's absolutely right. And there's a lot of inertia in institution arrangements. So we've got arrangements that were pretty good for the mid 20th century and the character of the economy has changed so much that we need to evolve some new institutions which can accommodate the ways that our individual decisions affect each other. And we build that into thinking about what better outcomes look like and have that period of institutional innovation for the digital economy. So I think we're in the early days of thinking about that, people are starting to recognize it does require different kinds of analysis, including complexity analysis. And so I guess I'm broadly optimistic that we could do that really good people as we've been discussing throughout are starting to think about aspects of this, but it's quite a big thing, changing institutions.
Diane Coyle (47m 38s):
And it requires as well as the thinking about it and the academics doing analysis, the politics of it, the political economy of it and bringing all of that together. So back to that question about how do you get people to stop driving on the left and start driving on the right?
Michael Garfield (47m 52s):
So just in closing, I'd be curious to know what the two of you think are the questions that we haven't asked on this call that we should have, or perhaps what are the questions that other people thinking about this do not seem to be asking and should in your estimation be asking about these matters? Like how do we steer research specifically fundamental research on these topics in a way that can yield insight to all of the puzzles that we're grappling with here.
Diane Coyle (48m 24s):
I'll try one answer. It's very social science answer and that's about participation. To what extent can we even begin to answer questions about what makes a good society if we don't have more participatory ways of doing the research about it. And this is particularly true of economists who think downloading a data set and doing econometrics is the right way to answer questions. But I think when you're bringing the models, the ethics back into questions about progress, we should be doing more about how do we ensure that people have a voice in that.
Eric Beinhocker (48m 55s):
And I would just have this new understanding of the economy and bringing the kinds of tools and ideas that SFI is pioneered in the conversation. Isn't just kind of academic, nice to have, and something interesting for all of us to chat about, but really is existential. We're coming into a period of change in the economy, particularly with climate change, but also with the exponential advances in technology, we haven't even talked about the impacts of AI, let alone what we're experiencing today that much of economics was developed as a tool for understanding marginal change. In fact, the originators of many of the ideas we still use today were called the marginalist their key insight, but the world we're going into is not one experiencing marginal change.
Eric Beinhocker (49m 39s):
It's experiencing transformation at a systems level, the human level. And so our best hope of getting to a place that's better is if we can deeply understand that complex system and across seeds of change.
Michael Garfield (49m 53s):
Well, this has been awesome. Thank you both so much for the time that you've given to this conversation. We'll link to all these papers in the show notes at any closing remarks,
Diane Coyle (50m 3s):
Exactly the right kind of discussion to be having. So it's been ingrained. Thank you.
Eric Beinhocker (50m 7s):
Yeah. And just to say, thanks Michael, for pulling this together and Diana, it's always just a huge pleasure to get to talk.
Michael Garfield (50m 15s):
Excellent. Thank you for listening. Complexities produced by the Santa Fe Institute, a nonprofit hub for complex systems science located in the high desert of New Mexico for more including transcripts research links and educational resources, or to support our science and communication efforts. Visit Santa fe.edu/podcast.