The economics we carry around in our heads is based on some pretty flimsy assumptions.

>> The notion that if we move toward “free markets” everyone will be better off.

>> The idea that markets have an equilibrium point where supply and demand curves cross.

>> The assumption that we act rationally to optimize our choices.

If traditional “neoclassical” economics is faulty, what replaces it?  Evolutionary economics and complexity economics offer some promising paths to the future. Both approaches discard the idea of market equilibrium and perfectly rational actors.

Instead, they focus on the underlying processes of innovation, experimentation, and adaptation. From this perspective, organizations are continuously searching for better “fitness” (better solutions) on a rugged, “dancing landscape” of possibility.

WHY IT MATTERS

The economic models we carry around in our head shape how we think about the world. Neoclassical economics leads us to think that efficiency is our primary goal. To get more economic growth, government should lower taxes, and businesses should manage costs. Importantly, neoclassical economics treats labor (people) as a cost, a fungible resource.

I saw this at work in the 1980s as a corporate strategy consultant working with General Electric. We focused on improving the efficiency of manufacturing small motors. The primary criteria: labor costs.If a maquiladora plant in Mexico paid a fraction of the labor costs in Springfield, MO or Owensboro, KY, why not move production to Mexico?

BUT WHAT IF WE ARE WRONG?

What if the economics we learned in college is wrong? What if market economics are not driven by scarce, fungible resources? What if markets evolve through our application of knowledge? Now we are in a completely different ball game.

DYNAMICS IN A KNOWLEDGE ECONOMY

Knowledge is not a scarce resource. Instead, it is dynamic, constantly growing and changing. It expands through sharing. New knowledge is not the product of a single individual. Rather, it grows out of recombinant innovation and collaboration, a creative process among equal partners. New knowledge requires continuous experimentation. Learning by doing.

These insights (and others) guided the development of Strategic Doing over the past three decades. This type of knowledge creation requires a new type of architecture. In the graphic below, I share the architecture I designed for Strategic Doing Our organizations face a similar challenge: a new type of architecture with continuous adaptation and new knowledge. (3,200)