Evolution is like a miracle worker. Innovation is the

product of its spell. From the sorcery of the spider’s

web with its remarkable strength and flexibility, to the

mystique of the sonar system that enables dolphins

and bats to navigate with such precision, science

looks with envious eyes at the way nature has solved

the same challenges it faces.

It is the same with the economy. Most of the great

advances that have been mankind’s good fortune to

experience were not planned. They came by chance,

and were thrown up by the force of economic

evolution.

Yet we often fall into the trap of seeing evolution as a

metaphor for a straight line of unremitting progress.

It is not like that all.

Sometimes the world can change only very gradually.

In the case of nature, aeons; in the case of the

economy, centuries. Then something can happen, and

this in turn can spark off a new chain of events with

unpredictable results. Just as evolution sometimes

works in spurts, charged by some external shock, the

evolution of wealth creation is often dependent on a

form of trigger akin to a Darwinian economic shock.

We are in the process of experiencing such a shock

now. But the outcome is not easy to predict. We may

see a remarkable lift in the standard of living, or we

could plummet into chaos as if we had been riding the

greatest bubble of all, but which has burst in

terrifying fashion.

How can we manipulate this Darwinian shock to our

advantage? It seems we must first learn wisdom, to

recognize that trends change. To recognize that, on

close examination, what we thought were patterns

may actually be illusions. And above all, we must

learn to ditch our hubris without losing the magic of

our courage.

We are a gullible species.

If you go along with Mr Darwin’s theories, then you

probably believe we have been around for around

150,000 years, and most likely began our short

period of existence in the Rift Valley region of Africa.

‘Wise man’ – that’s what Homo sapiens means. Yet

for this modern, incredibly complex world we now find

ourselves in, we are terribly badly adapted.

The late journalist Miles Kington once described

knowledge as knowing a tomato is a fruit, and

wisdom as knowing not to put it in a fruit salad.

The truth, though, is that right now we are neither

wise nor knowledgeable.

Perhaps one of the wisest men who ever lived was the

Ancient Greek philosopher Socrates, and yet, his

special claim to seer-like wisdom was this: Socrates

claimed ignorance; to his way of thinking knowledge

was something we can rarely possess.

On the other hand, it may be true to say that wisdom

is a function of the scale of the survival challenge. In

the days when we were busy avoiding leopards and

dancing around a fire, we knew what we needed for

our communities of 150 or so souls to survive.

Wisdom was thrust upon the elders who, by the time

they had made old bones, appeared to know just

about all that could be known.

The laws of natural selection say we need to survive

only long enough to bring our children up to the point

where they are strong enough to look after

themselves. But maybe ‘wise man’s’ unique selling

point was that for him, or her, wisdom was a valuable

commodity. It was useful to have tribe members who

were old and wrinkled, and slow and oh, so very wise.

The world has changed profoundly since that time.

If wisdom is indeed built upon our past experiences,

then what use is this wisdom when experiences are

changing so fast?

They say history repeats itself, and yet the changes we

have seen in recent years are without precedent. Take

the credit crunch. Alan Greenspan called it a ‘once in a

hundred years credit tsunami’. Yet surely he was

wrong. For one thing, it seems the modern economy is

less than 200 years old. There simply isn’t enough data

to say whether the credit crunch is a once in a hundred

years event or not. Besides, there was nothing once in

a hundred years about it. The crisis had no precedent.

So, if wisdom is born of experience, how can it help our

understanding of this unique event?

Winston Churchill once said: ‘The further backward

you look, the further forward you can see.’ But on this

occasion, Britain’s war-time leader was only partially

right. History is the story of random events that were

unpredictable before they happened.

The economist Galbraith once cynically opined: ‘The

only possible benefit of economic forecasting is that

it makes astrology look respectable.’ The same can

be said of those who try to forecast the future by

looking into the past.

History only repeats itself with the benefit of

hindsight. In other words, the repetition of history is

an illusion. But that does not mean there is no lesson

in history. If we take a broader view of how things

develop we can at least see recurring themes.

See it in musical terms. History is not like classical

music following a formal structure, but is more like

jazz, full of improvisation.

For that reason, Mark Twain was the closest to the

truth when he proclaimed: ‘History never repeats

itself, but it rhymes.’

And as we all know, for a rhyme to work, it must

follow a beat.

So maybe by listening to the rhythm of history, and

then by throwing in some ideas from economics and

evolutionary theory, we can start to understand – and

we can, after all, acquire wisdom. So, to recall the

words of the songwriters Jimmy Page and Robert

Plant: ‘If you listen very hard, the tune will come to

you at last ….’

Put yourself into these shoes. They contain the feet

of an investor about to step into a Californian elevator

during the height of the dotcom craze. These are feet

that belong to a cynic. The shoes may shine with

polish, but the soul of their wearer is pragmatic and

shrewd.

Into the elevator a couple of pairs of trainers also

tread. Both pairs support students, young, fresh

faced, with naïve charm. And as the nine of you,

that’s you, the two students and the six items of

footwear travel to the top floor a sales pitch is begun.

It’s the classic elevator pitch, and you are on the

receiving end.

These students have some hare-brained idea for a

search engine. For your pragmatic mind this is a no

go. Dotcoms are over priced, you correctly reason.

Not for you another investment into a wing and a

prayer and dotcom idiocy.

You are right, of course; dotcoms crash soon

afterwards, but you are right only up to a point. For

these two young men are none other than Larry Page

and Sergey Brin. The company they are trying to get

backing for goes by the name of Google. If only you

had been one of those early backers, then today you

would have seen a thousandfold return on your

money. Your shoes could have been coated in gold.

Innovation is like that. It is not predictable, and yet

there is a rhythm. We may not know what form it will

take, or where or when, but we do know that if we

set the right environment, the beat of innovation will

stretch on.

Imagine that the story of our economic evolution is

represented by a torch, the kind of torch we see

athletes carrying during the build up to the Olympic

games. Now, imagine that the torch from the time our

evolution diverted from the rest of the apes, through

to the point when many of our ancestors migrated

from Africa and then later into cities, and then right

on to the Industrial Revolution, was carried by a

tortoise.

Natural evolution operates at three speeds: slow,

dead slow and stop. It seems that for much of our

history the trajectory of our economic evolution was

akin only to the latter two of these categories.

Then, around 1820, something extraordinary

happened. It was as if a rocket was inserted inside

the tortoise’s shell, or perhaps as if the torch was

passed on to a hare. From that moment, it all seemed

to change. Most of the wealth creation that has ever

occurred took place over the last 190 or so years.

This begs the question, of course, what kind of hare

was it? Was it like the creature from Aesop’s fable,

which was moved by its arrogance to stop its run, so

that eventually the pace set by the tortoise proved

faster? Or for that matter, will the hare move so fast

that it fails to spot the road and the oncoming traffic,

and runs straight into an oncoming carbon-fuelled

disaster? Then again, it could pass the baton on,

perhaps to a cheetah, or even to a bird such as a

swift, which combines speed with stamina.

This is the story of why that change of pace

happened, and whether it will continue, stop or go

into shuddering reverse.

Evolution can be a gradual process, in which ideas

build upon ideas. This is what most of us think of if

the word evolution is mentioned.

It is like that with the economy, too.

But sometimes evolution can take us down a blind

alley. We can progress so far, and then stop. It is as

if we run into a kind of equilibrium.

Evolution is like Homer Simpson. The famous TV

cartoon character displays a personality which seems

preoccupied with the present. There seems to be no

memory, and absolutely no vision.

Evolution can only deal with the here and now. It has

proven to be an extraordinary mechanism, and has

thrown up adaptations that are the wonder of

science, and yet always it is limited to finding the best

adaptations for the current circumstances. As such it

is not perfect.

See it like a chess player. The grand master may

plan several moves ahead; evolution can only make

a move which optimizes immediate benefit.

Evolution has no way of noticing that if it moves a

pawn to take the opposing side’s queen, the result

may be checkmate for its own king three moves

down the line.

Consider the account of Danny Hillis and the local

maxima. Hillis investigated whether he could generate

a number-sorting program through imitating the

mechanism of natural selection. He programmed his

computer to generate a large variety of mini-programs

by random. They were all hopeless for the task he had

in mind, but a handful were less inadequate than the

rest. Hillis introduced certain parameters. The ones

that were most able to sort numbers survived,

crossbred and mutated. The rest were deleted. After

a few thousand cycles, the computer created a

number-sorting program that was actually quite

effective. The program had evolved.

But alas, the program which resulted was only quite

good. It was inferior to code that could be produced

by a competent programmer. Hillis repeated the

experiment several times and always came up with

similar results.

His solution was ingenious. Hillis programmed a

predator into the system which could destroy code

that had stopped evolving. This forced the code to

evolve in more radical ways, and ultimately led to a

much superior number-sorting program.

In other words, the predator forced the evolution

process to go down paths it might otherwise have

rejected, and some of these alternative routes threw

up an even better adaptation down the line.

In short, sometimes we have to make something

worse before we can improve it. Evolution is not good

at allowing for this.

As a result, catastrophes can prove to be essential

tools for creating new adaptations. Extinctions can be

essential building blocks in evolutionary history.

Frequently, a major shock is the catalyst for change.

It may follow, then, that economic evolution is

powered by two forces. The slow, dead slow and stop

kind of force that Richard Dawkins referred to, and

then sudden change that may occur as if the torch

has been passed on.

This shock can be in the form of a new disruptive

technology, a change in global order, or merely the

coming together of two different cultures that were

formerly isolated. The result can be a puncture in the

equilibrium we had appeared to settle into.

But while history does not repeat itself, there is a

constant. Maybe this is the constant that gives history

its rhythm. The constant is called human nature.

It seems our wisdom is born from our experiences.

We acquire behaviour, we acquire our views. When

we lived a more simple life, the range of likely

experiences was more restricted than it is in the

modern age. But today we live in a global village

consisting of almost seven billion inter-connected

souls. Today, unlike in the past, a new innovation,

idea, or perhaps a new virus or disagreement

between two cultures, can spread and affect us all at

a pace that leaves us breathless. When risk goes

wrong, it can turn into a contagion.

Over the time of our existence the nature of risk has

changed. Yet we still have to make do with the tool

kit nature provided us with as we became human.

One of our most common habits is to extrapolate

trends and project them into the future. Maybe during

our hunter-gatherer days, when the environment

changed only slowly and the variety of each tribe’s

likely experiences was quite limited, this trait worked

to our advantage.

This characteristic is surely the reason why we have

bubbles. Bubbles occur when we see a trend and

expect it to continue, and our behaviour becomes

self-reinforcing until there’s a crash.

History tells us we are not good at spotting our error

until it is too late. As a bubble grows, we hear no end

of reasons why: ‘This time it is different,’ or ‘Why, it’s

a new paradigm now.’

Bubbles can suck the very life-force out of an

economy, and in a world of seven billion people where

risk is correlated, they could ultimately prove to be

our undoing.

And yet, within this Pandora’s box of ills that our

hubris can create, we find hope.

For the law of unintended consequences has been the

driving force of our social evolution. And just as

bubbles may be our undoing, our tendency towards

irrational exuberance may be our salvation.

Dolphin sonar

Charles Darwin

Rift Valley

Socrates

Winston Churchill

Shoes

Google logo

Olympic rings

Aesop

Homer Simpson

Game of chess

Richard Dawkins

Yep, that's us. Mike and Kenn. We wrote it :-)

Pandora and her box