dren, worked often in Dickensian conditions. This presented a strongly felt
need for reform, not only of “the moral conditions of the lower classes” but
of their safety as well.4 In due course the legal system responded with further arrangements, labor laws designed to prevent the worst of the excesses. And
the new working class began to demand a larger share of the wealth the fac-
tories had created. They made use of a means by which they could better their
conditions: trade unions. Labor was much easier to organize in factories than
in isolated cottages, and over the course of decades it became a political force (Chase, 2000; and Fraser, 1999).
In this way the original arrival of textile machinery not only replaced cot-
tage hand manufacturing, it set up an opportunity for a higher-level set of
arrangements—the factory system—in which the machinery became merely
a component. The new factory system in turn set up a chain of needs—for
labor and housing—whose solutions created further needs, and all this in
time became the Victorian industrial system. The process took a hundred
years or more to reach anything like completion.
The reader might object that this makes structural change appear too sim-
plistic—too mechanical. Technology A sets up a need for arrangements B; technology C fulfills this, but sets up further needs D and E; these are resolved by technologies F and G. Certainly such sequences do form the basis of structural change, but there is nothing simple about them. If we invoke recursion these
new arrangements and technologies themselves call for sub-technologies and
sub-arrangements. The factory system itself needed means of powering the
new machinery, systems of ropes and pulleys for transmitting this power,
means of acquiring and keeping track of materials, means of bookkeeping,
means of management, means of delivery of the product. And these in turn
were built from other components, and had their own needs. Structural
4. The quote is from M. E. Rose (1981). See also P. W. J. Bartrip and S. B. Burman (1983).
t He economy evolving [ 139 ]
change is fractal, it branches out at lower levels, just as an embryonic arterial system branches out as it develops into smaller arteries and capillaries.
And some of the responses are not economic at all. The very idea that
hand craft could be mechanized spread from textiles to other industries and
led to new machinery there. And again psychologically, factories created not
just a new organizational set of arrangements but called for a new kind of
person. Factory discipline, says historian David Landes, “required and even-
tually created a new breed of worker. . . . No longer could the spinner turn
her wheel and the weaver throw his shuttle at home, free of supervision,
both in their own good time. Now the work had to be done in a factory, at a
pace set by tireless, inanimate equipment, as part of a large team that had
to begin, pause, and stop in unison—all under the close eye of overseers,
enforcing assiduity by moral, pecuniary, occasionally even physical means
of compulsion. The factory was a new kind of prison; the clock a new kind
of jailer.” The new technology caused more than economic change; it caused
psychological change.
In talking about structural change then, we need to acknowledge that the
set of changes may not all be tangible and may not all be “arrangements.” And
we need to keep in mind that changes may have multiple causes and a high
multiplicity of effects. Nevertheless, I want to emphasize that we can think of the process of structural change in logical terms—theoretically if you like—
using the steps laid out for the evolution of technology. Structural change in the economy is not just the addition of a novel technology and replacement
of the old, and the economic adjustments that follow these. It is a chain of
consequences where the arrangements that form the skeletal structure of the
economy continually call forth new arrangements.
There is of course nothing inevitable—nothing predetermined—about the
arrangements that fall into place and define the structure of the economy. We
saw earlier that very many different combinations, very many arrangements,
can solve the problems posed by technology. Which ones are chosen is in part
a matter of historical small events: the order in which problems happen to be
tackled, the predilections and actions of individual personalities. The actions, in other words, of chance. Technology determines the structure of the economy and thereby much of the world that emerges from this, but which tech-
nologies fall into place is not determined in advance.
PROBLEMS AS THE ANSWER TO SOLUTIONS
I have talked about this unfolding of structure as a constant remaking of
the arrangements that form the economy; one set of arrangements sets up
conditions for the arrival of the next. There is no reason once set in motion
this remaking should come to an end. The consequences of even one novel
[ 140 ] Complexity and the Economy
technology—think of the computer or the steam engine—can persist without letup.
It follows in turn that the economy is never quite at stasis. At any time
its structure may be in some high degree of mutual compatibility, and hence
close to unchanging. But within this stasis lie the seeds of its own disrup-
tion, as Schumpeter (1912) pointed out a hundred years ago. The cause is the
creation of novel combinations—novel arrangements—or for Schumpeter
the new “goods, the new methods of production or transportation, the new
markets, the new forms of industrial organization” that set up a process of
“industrial mutation” that “incessantly revolutionizes the economic struc-
ture from within, incessantly destroying the old one, incessantly creating a new one.”
From within, the system is always poised for change.
But the argument I am giving implies more—quite a bit more—than
Schumpeter said. The coming of novel technologies does not just disrupt the
status quo by finding new combinations that are better versions of the goods
and methods we use. It sets up a train of technological accommodations and
of new problems, and in so doing it creates new opportunity niches that call
forth fresh combinations which in turn introduce yet further technologies—
and further problems.5
The economy therefore exists always in a perpetual openness of change—
in perpetual novelty. It exists perpetually in a process of self-creation. It is always unsatisfied. We can add to this that novel technologies of all degrees
of significance enter the economy at any time alongside each other. The result is not just Schumpeter’s disturbance of equilibrium, but a constant roiling of simultaneous changes, all overlapping and interacting and triggering further
change. The result is change begetting change.
Curiously, we may not be very conscious of this constant roiling at any
time. This is because the process of structural change plays out over decades, not months. It is more like the slow geological upheavals that take place under our feet. In the short term the structure in place has a high degree of continu-ity; it is a loosely compatible set of systems within which plans can be made
and activities can take place. But at all times this structure is being altered.
The economy is perpetually const
ructing itself.
Could this process of constant evolution of technology and remaking of the
economy ever come to a halt? In principle, it could. But only in principle. This could only happen if no novel phenomena from which to create technologies
in the future were to be uncovered; or if the possibilities for further combinations were somehow exhausted. Or if our practical human needs were some-
how fulfilled by the available technologies we possessed. But each of these
5. See Rapp (1989) for a similar idea.
t He economy evolving [ 141 ]
possibilities is unlikely. Ever-open needs and the likely discovery of new phenomena will be sufficient to drive technology forward in perpetuity, and the
economy with it.
Coming to a halt is unlikely for another reason. I have been stressing that
every solution in the form of a new technology creates some new challenge,
some new problem. Stated as a general rule, every technology contains the seeds of a problem, often several. This is not a “law” of technology or of the economy, much less one of the universe. It is simply a broad-based empirical observation—a regrettable one—drawn from human history. The use of carbon-based
fuel technologies has brought global warming. The use of atomic power, an
environmentally clean source of power, has brought the problem of disposal
of atomic waste. The use of air transport has brought the potential of rapid
worldwide spread of infections. In the economy, solutions lead to problems,
and problems to further solutions, and this dance between solution and prob-
lem is unlikely to change at any time in the future. If we are lucky we experience a net benefit that we call progress. Whether or not progress exists, this dance condemns technology—and the economy as a result—to continuous
change.
What I have been talking about in this chapter is really the evolution of technology seen through the eyes of the economy. Because the economy is an
expression of its technologies, it is a set of arrangements that forms from the processes, organizations, devices, and institutional provisions that comprise
the evolving collective; and it evolves as its technologies do. And because the economy arises out of its technologies, it inherits from them self-creation,
perpetual openness, and perpetual novelty. The economy therefore arises ulti-
mately out of the phenomena that create technology; it is nature organized to
serve our needs.
There is nothing simple about this economy. Arrangements are built one
upon another: the commercial parts of the legal system are constructed on
the assumption that markets and contracts exist; and markets and contracts
assume that banking and investment mechanisms exist. The economy there-
fore is not a homogeneous thing. It is a structure—a magnificent structure—
of interacting, mutually supporting arrangements existing at many levels that
has grown itself from itself over centuries. It is almost a living thing, or at least an evolving thing, that changes its structure continually as its arrangements
create further possibilities and problems that call forth further responses—
yet further arrangements.
This evolution of structure is a constant remaking of the arrangements
that form the economy, as one set of arrangements sets up the conditions
for the arrival of the next. This is not the same as readjustment within given arrangements or given industries, and it is not the same as economic growth.
It is continual, fractal, and inexorable. And it brings unceasing change.
[ 142 ] Complexity and the Economy
Is there anything constant about structural change? Well, the economy forms its patterns always from the same elements—the predilections of human behavior, the basic realities of accounting, and the truism that goods bought must
equal goods sold. These underlying base “laws” always stay the same. But the
means by which they are expressed change over time, and the patterns they form change and re-form over time. Each new pattern, each new set of arrangements,
then, yields a new structure for the economy and the old one passes, but the
underlying components that form it—the base laws—remain always the same.
Economics as a discipline is often criticized because, unlike the “hard sci-
ences” of physics or chemistry, it cannot be pinned down to an unchanging set
of descriptions over time. But this is not a failing, it is proper and natural. The economy is not a simple system; it is an evolving, complex one, and the structures it forms change constantly over time. This means our interpretations of the economy must change constantly over time. I sometimes think of the economy
as a World War I battlefield at night. It is dark, and not much can be seen over the parapets. From a half mile or so away, across in enemy territory, rumblings are heard and a sense develops that emplacements are shifting and troops are
being redeployed. But the best guesses of the new configuration are extrapola-
tions of the old. Then someone puts up a flare and it illuminates a whole pattern of emplacements and disposals and troops and trenches in the observers’ minds, and all goes dark again. So it is with the economy. The great flares in economics are those of theorists like Smith or Ricardo or Marx or Keynes. Or indeed
Schumpeter himself. They light for a time, but the rumblings and redeployments continue in the dark. We can indeed observe the economy, but our language for
it, our labels for it, and our understanding of it are all frozen by the great flares that have lit up the scene, and in particular by the last great set of flares.
REFERENCES
Ashton, T. S., The Industrial Revolution, Oxford University Press, New York, 1968.
Bartrip, P. W. J. and S. B. Burman, The Wounded Soldiers of Industry, Clarendon Press, Oxford, UK, 1983.
Chase, M., Early Trade Unionism, Ashgate, Aldershot, UK, 2000.
Fraser, W. H., A History of British Trade Unionism 1700–1998, Macmillan, London, 1999.
Landes, David, The Unbound Prometheus, Cambridge University Press, Cambridge, UK, 1969.
Mokyr, Joel, The Lever of Riches, Oxford University Press, New York, 1990.
Rapp, Friedrich, in Paul. T. Durbin, ed., Philosophy of Technology, Kluwer Academic Publishers, Norwell, MA, 1989.
Rose, M. E., “Social Change and the Industrial Revolution,” in The Economic History of Britain since 1700, Vol. 1, R. Floud, and D. McCloskey, eds., Cambridge University Press, Cambridge, UK, 1981.
Schumpeter, Joseph, The Theory of Economic Development. 1912. Reprinted, Harvard University Press, Cambridge, MA, 1934.
t He economy evolving [ 143 ]
CHAPTER 9
On the Evolution of Complexity
W. BRIAN ARTHUR
We often take for granted that systems evolving over time tend to become more complicated. In 1994, when this paper was written, little was understood about what mechanisms might cause evolution to favor increases in complication. This paper proposes three means by which complication tends to grow as systems evolve. In coevolutionary systems it may grow by increases in “species” diversity: under certain circumstances new species may provide further niches that call forth further new species in a steady upward spiral. In single systems it may grow by increases in structural sophistication: the system steadily cumulates increasing numbers of internal subsystems or sub-functions or sub-parts to break through performance limitations, or to enhance its range of operation, or to handle exceptional circumstances. Or, it may suddenly increase by “capturing software”: the system captures simpler elements and learns to “program” these as “software”
to be used to its own ends.
Growth in complication in all three mechanisms is
intermittent and epochal. And in the first two it is reversible; collapses in complexity may occur randomly from time to time. Illustrative examples are drawn not just from biology, but from economics, adaptive computation, artificial life, and evolutionary game theory. This paper appeared in the book Complexity: Metaphors, Models, and Reality, edited by G. Cowan, D. Pines, and D.
Meltzer, Perseus Advanced Book Classics, Cambridge, MA, 1994.
It is a commonly accepted belief—a folk theorem, almost—that as systems
evolve over time they tend to become more complex. But what is the evi-
dence for this? Does evolution, in fact, favor increases in complexity and, if so, why? By what mechanisms might evolution increase complexity over time?
And can the process go in the other direction, too, so that complexity dimin-
ishes from time to time? In this chapter I will discuss these questions and, in
particular, three different ways in which evolution tends to increase complexity in general systems.
In the biological literature, there has been considerable debate on the con-
nection between evolution and complexity.1,11 But much of this discussion has
been hampered by the fact that evolutionary innovations typically come in the
form of smooth changes or continuous, plastic modifications: in the size of
organism,1 in the morphology of body parts,13 or in animal behavior,1 so that
increases in “complexity” are difficult both to define and discern. As a result, while most biologists believe that complexity does indeed increase with evolution, and particular mechanisms are often cited, the question remains mud-
died by problems of definition and observation, so that some biologists have
expressed doubts about any linkage between evolution and complexity at all.11
Fortunately, of late we are beginning to cumulate experience in evolu-
tionary contexts that are not necessarily biological. These contexts include
those of competition among technologies and firms in the economy, of
self-replicating computer programs, of adaptive computation, of artificial life systems, and of computer-based “ecologies” of competing game strategies.
Used as alternatives to biological examples, these have two advantages. Their
Complexity and the Economy Page 26