Local economic development as an evolutionary process

Modern evolutionary economics is about 20 years old now, and many research programmes continue to add to the content of the subject. I think that development practitioners have a lot to learn from this subject. When we work at the local level, with local stakeholders and local resources, we are often confronted by the failures of traditional economic models (for instance the obsession with supply and demand). For instance, traditional economics often focus on distribution or allocation of wealth, while in evolutionary economics the focus is more on wealth creation. Traditional economic models assume that you can use the data of the past to make reliable predictions about the future. Just this simple insight will already change many LED approaches that emphasize working with the youth and the marginalised (solving an allocation problem) towards understanding the systemic interaction of economic technologies, social technologies and physical technologies that co-evolve to create wealth.

To be more precise, an economy should be recognised as a complex adaptive system (Beinhocker, 2007; Ramalingham, Jones, Reba and Young, 2008). This means that the economy is a system of interacting agents that adapt to each other and their environment in a complex way. Complex adaptive systems are sub-systems of open systems. It recognises that change and advancement are forces within the system created by the agents, and that it takes energy to create and process information, and to create order.

Dosi and Nelson (1994) explains that “evolutionary” implies a class of theories that tries to explain the movement or change of something over time. It furthermore involves both random elements which generate or renew some variables, as well as mechanisms that systematically create variation. Central to these theories are the concepts of deductive and experimental learning and discovery.

Beinhocker explains a simple formula that is common to all evolutionary systems. Firstly, a system needs to create variety (for instance through many innovators trying new things), and then there must be some selection or fitness criteria (often this is provided by markets). Next there is a selection process, where the ‘best’ or rather most-suitable designs are selected, and thereafter these choices are amplified or repeated (also known as imitated).

So if you think of your local economy, then consider how certain businesses came about. The variety of businesses is a direct result of novelty or variety creation, and how they ‘fit’ to the criteria of local consumers,resulting in these business models being ‘chosen’. Every now and then, a business person with a new or different idea comes along, and this in many cases may even result in local consumers changing their fitness criteria. This describes a process where economic resources (as well as labour and technology) are continuously being allocated to those who are able to combine or create new ideas, new products, and new business models.

In the next few posts I will try to delve deeper into this topic, as I believe that it holds many important insights to why local economies grow in such an unpredictable and dynamic way, and why so few local governments or organised business in Southern Africa struggle to have any real positive and leveraged effect on local economies.

References and additional reading:

BEINHOCKER, E.D. 2007.  The origin of wealth. Evolution, complexity, and radical remaking of economics`. London: Random House.

DOSI, G. & NELSON, R.R. 1994.  An Introduction to Evolutionary Theories in Economics. Journal of Evolutionary Economics, Vol. 4(3).

NELSON, R.R. 1995.  Co-evolution of industry structure, technology and supporting Institutions, and the making of comparitive advantage. International Journal of the Economics of Busienss, Vol. 2(2) pp:171-184.

RAMALINGHAM, B., JONES, H., REBA, T. & YOUNG, J. 2008. Exploring the science of complexity. Ideas and implications for development and humanitarian efforts.  Working Paper 285, London: Overseas Development Institute.

Bring back the ox and plough….Are you serious?

This morning I read the announcement by the Director General of Rural Development and Land Reform, Thozi Gwanya, that small and rural farmers should revert to the proven method of ploughing with oxen. My first response was “oh, come on! This is 2010!!!”. While making coffee to recover from my initial shock I started to doubt my own response.

Why my initial shock? Well, it seems like going backwards to return to such an age-old method. But then, I have also

Indonesian farmer with ox and plough

visited several rural farms where land transfers are taking place, where farmers were sitting on un-used lands because they were waiting for a ‘tractor’ contractor. The same happens with small farmers supported by several municipalities. So in these cases, using oxen to plough would already be a step in the right direction. However, then the Director General motivates this advice on the basis that using a tractor to till a small piece of land will emit to many gases. I am not so sure that many poor farmers would just give up farming with a tractor on this argument alone….

Furthermore, the news article makes reference is made to India. Well, I have seen farmers ploughing with oxen in Thailand and Indonesia as well. As long as they can keep their production costs below market prices, I guess it is worth pursuing. A huge visible difference between Southern Africa and Asia is that farmers in Asia seem to get by with extremely little government support, agricultural extension and modern farming equipment.

OK, so now that I have my cup of coffee in my hands I am willing to reconsider my initial response. Perhaps the Director General should have said “instead of waiting on someone else, use oxen!”.

Can any of the readers of this blog with more experience in rural development perhaps comment or contribute on this issue?

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