Global Markets & Complexity How Complex Systems, Chaos, and Shared Economics have become emergent factors in global markets

D’shaun Guillory

12/12/2013 Social Change

Dr Cindy Frewen

Final Paper

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Background

We live in a time where current economic models and the entire global economy, all

arguably face an historic threat, which include managing the rise of complex systems,

sometimes with the potential for chaotic behavior; as well as a seemingly new shared

approach to economics emerging that may be a credible alternative to the status

quo. Global markets are approaching the point in which these questions must be

considered. At the present, some managers simply lack understanding of complex

systems such as Big Data, which is increasing in veracity within many business entities.

An important factor with a high degree of uncertainty and instability in some

economies, businesses, governments, etc is chaotic behavior within these systems.

Trying to understand this chaotic behavior can potentially explain fluctuations in global

markets which can sometimes appear to be random.

Understanding this behavior could lead to the possibility of managing it while reaping

the benefits from so called managed chaos. The industrial economy has been primarily

based on production, with GDP as the key measure of economic activity. The shared

or collaborative economy feels very different. There are many innovators and

entrepreneurs that find this relatively new system appealing, in particular, its possible

impact on the essential issue of jobs in the digital and information economy. Given that

some public and private sector institutions may not create enough new jobs for a

growing global population, the shared or collaborative economy is one of the most

valuable ways for individuals to come up with innovative ways to exchange ideas and

reduce costs through sharing - this also includes improving the prospects of the

collective population. As it stands, the present global economic system, while still

experiencing relative growth into new emerging markets; there still lies a considerable

amount of complex change on the horizon, that for the most part, can hinder if not

completely derail future growth prospects. In this paper, I will analyze the growing

presence of complexity within global market economies, as well as the degree to

which shared or collaborative economics and chaos factor into the equation.

Change

Managing the emergence of complexity

In many companies and small businesses, managers are finding it very difficult to keep

up with fast changing, more complex systems. Political leaders are finding it increasing

difficult to legislate on complex systems to which they and their advisors do not

understand. Those who are already within the system struggle to adapt to new

technologies or ‘Big Data,’ all which enhance the degree of complexity within systems

such as the financial markets. For managers, new skills are becoming essential to

manage all of this Big Data: to determine what the analytics should be solving, to

decide what information is truly relevant to the enterprise and what simply constitutes

“noise” (Straub 1). This big data has become the leading impediment with the potential

for positive benefits to sustainable management in various sectors of the economy and

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parts of the government. These managing bodies simply cannot decipher these multi-

dimensional, interconnected, dynamic systems.

(Market Case)As for the financial system; maximizing shareholder value, which

determines so much corporate behavior, is a good example of a two pronged

approach by different entities. As for the status quo, it is very common for companies to

reduce investments to boost short-term profits. This is also the case when it comes to

divesting assets to show a better return on assets. This approach has damaged the

long-term health of various companies and has undermined a large portion of the

financial markets as a result. Managers, especially executives have come under fire for

these unsustainable practices; yet for the most part the trend continues.

By contrast, a complexity approach demands that competing values and priorities

remain in view and not just for the good of shareholders but for customers, employees

and society at large (Straub 1). This paradigm demands that management and

executive actions take a completely new approach. Companies such as Amazon and

Google have moved to adopt a more complex orientation. This includes leadership

style, management, executive actions, and so on.

There is also the issue of the human element, which is all too often disregarded or simply

not viewed as an important factor. Understanding that new technologies have

emerged as means to cope with such a rise in complex systems and the overall issue of

complexity; many business leaders, managers, public officials, etc have simply been

worn out or have been slow to tackle these emergent issues. This is heavily due in most

part to the fact that in many cases, the degree of complexity within these emergent

systems are simply just too much for untrained or inexperienced individuals. As a result,

in much of the current system as some business leaders, managers, public officials, etc

continue to avoid and resist emergent complexity.

The Butterfly Effect and Chaos in the system

Referring to destabilization within the system, this would merely have to derive from one

glitch in one part of a single economy, more or less. This type of disturbance to the

whole would be called “the Butterfly Effect,” which is the idea that a tiny event can

start a chain reaction and have large and wide-reaching effects (Kleintop 1). As a

foremost example, the continuous glitches on the U.S. stock market have caused major

volatility, not simply in one part of the world but the whole. Not unlike the tech sector,

the stock exchange has become heavily complex as many of the systems have been

automated, in many cases to make trading more efficient and eliminate human error.

Nonsensically, these same systems being constructed to eliminate human error are of

course designed and constructed by humans’ prone to error. In many cases, these

disturbances are caused by tech-glitches or design-flaws; all which stem from

individuals being unable to understand the true complexity of the system they seek to

control.

These glitches are not simply an issue of the stock market but extend into the chaotic

U.S. healthcare system, which as of late, has been on full display as the inability of parts

of the public and private sector not fully understanding the broad complex system that

is healthcare. The bumpy rollout of the Affordable Health Care Act (ACA) has been rife

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with glitches and sometimes complete system failure. There is also the issue of

cancelled or phased-out insurance plans that no longer meet the ACA requirements by

the Obama Administration. Of course, this would not be an issue if the newly uninsured

could simply shop for a new plan on the federal and state based healthcare

exchanges. The prevailing issue here is that the website does not function properly

which has left not only potential customers, but also insurers and healthcare officials

with few means of participating in the newly built market. Whether it is small but

manageable technology, glitches, or deep systemic problems, the chaos on one end

has caused a high degree of chaos within the U.S. healthcare market.

Emergence of the Shared Economy

As if there were not enough increase in complexity and chaos in the market, there

emerges the issue of shared or collaborative economies. This is an economic model

where ownership and access are shared between corporations, startups, and

individuals. This results in market efficiencies that bear new products, services, and

business growth (Wladawasky-Berger 1). Global competition continues to drive large

companies to aggressively focus on productivity, leveraging IT-based innovations to get

their work done with fewer employees. And governments will continue to shed jobs

given the pressures they face to reduce costs and slim down (Wladawasky-Berger 1). At

the moment, the state of the global economy is extremely lopsided, especially in some

parts of the world. The European Union (EU) continues its two-year long austerity plan

leading to public sector job losses and stagnation in the private markets. While the

emerging world appears to be booming, at least in some markets; national and

multinational companies based in these regions are growing with a slimmed-down

workforce in many cases. This leaves many absent from all the supposed economic

prosperity. Parallel to this mean emerges an alternative economic concept. Quoting

technologists and academic Dr. Irving Wladawasky-Berger:

“An entire economy is emerging around the exchange of goods and services between

individuals instead of from business to consumer. This is redefining market relationships

between traditional sellers and buyers, expanding models of transaction and

consumption, and impacting business models and ecosystems (Wladawasky-Berger 1).”

Some of these signs are emerging in today’s volatile market. Companies such as Airbrb,

have been one of the primary examples of a more shared economic business model,

where property owners rent out apartments, homes, and flats to those who are willing

to pay the set price. In many cases, it is far less expensive than booking a hotel or

renting out property through brokers and agents. This is has also become a reality in

bike and car sharing programs springing up in various major cities around the world.

Other than the obvious differences in economic functions, shared or collaborative

economics still do not dominate the global market. They are just beginning to enter the

marketplace which brings to question; how does this not cause an increase in further

complexity and potential chaos in a system that has yet to reach a sustainable level of

utility? These questions will be answered further on in the paper.

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Theory Adam Smith: Theory of Moral Sentiments and Complexity

A prominent figure of political economics, Adam Smith has established many standards

to which many business and political leaders have followed. Most notably, Smith

emphasized individual actions as they apply to such structures as the economic and

political realm. Pertaining to is works “The Theory of Moral Sentiments,” Smith argued

that, on the whole, individuals tend to pursue their own interest without much sense of

any larger plan. He goes on to say in his book “The Wealth of Nations:”

“It is not from benevolence of the butcher, the brewer, or the baker that we expect our

dinner, but from their regard to their own interest. We address ourselves not to their

humanity but to their self-love and never talk to them of our own necessities but of their

advantages (Noble, 20).”

Concerning the modern-day global economic and social order, this sense of structural

individualism appears to be our reality. This emergence of sorts implies that our moral

compass has gone from “we” to “me.” As a society, we seek instant gratification,

sometimes on the backs of others, to which we view as faceless servants there to assist

our daily needs. The current issue of global economic inequity stems from these

avaricious traits. The general rules of what is held to be good or bad, of right or wrong

conduct, emerge out of interaction. We soon become aware of how our actions

appear to others in our immediate circle (Noble 21). Based on this notion, our day-to-

day experiences are rooted in our constructed interactions with others. Referring to the

present society based on economics, it is divided by income, profession, specialization,

business sector, etc. In a sense, we have become far more Balkanized, particularly in

the area of economics.

Factoring management of complexity factor into this equation; if a sound economic

system is based upon superior behavior and moral principles, than humanity has a long

way to go. With newly developed and planned economic systems, they are complex

and command a high degree of proficiency to keep them functional. If they were to

behave fully the way in which humanity is at the moment, there would be epic global

economic and political chaos, as the system lacks the interconnectedness and

interactions required for the whole to function properly.

Pertaining to the Theory of Moral Sentiment and individuals, Smith notes that these

individual actors on the social scene are themselves the product of their time, their

upbringing, and their social origins. As obvious as this is to present society, it would

suggest that these events or occurrences are either cyclical or constantly evolving.

Based on the cyclical nature of our economic practices and moral sentiments, it closes

and widens with every passing era. The analogy here is that the present and Smith’s era

share similar social and economic changes.

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Adam Smith: Division of Labor and the Global Market

Smith would describe the Division of Labor as the subdivision, specialization of skills, and

the separation of trades (Noble, 24). The three ways in which the specialization

increases efficiency is we become more proficient, we focus on one thing, instead of

being multitaskers, and we automated many activities allowing for fewer workers per

task. (Noble, 25). Smith would imply that, with the free market, prosperity and

productivity can be achieved via the division of labor. Applied to the current global

economy, many industries have seen a rise in various trades and specialized careers. Of

course, the development has not equally been applied across the economy. While

many sectors are seeing a rise in IT, accountants, lawyers, stock brokers, et., there has

been continuous stagnation of highly demanded trades such electricians, plumbers,

and repair men/women. This is not to say that they are not specialized enough to be

viable in an evolving market place. In some communities, these trades are highly

needed, yet there has been little investment in training or priority given to them through

the market place. There appears to be some structural inequity or structural

differentiation in the way the global market place has emerged overtime. This cuts

across professions, income, and allocation of resources.

Chaos and the Global Economy

Chaos is a nonlinear deterministic

process which "looks" random

(Hsieh 2). As the diagram would

illustrate, the once stable

equilibrium begins to show signs of

fluctuation, which later translates

into chaos with little correlation to

the original mean or equilibrium.

As it applies to economic forces,

a once stable economy can

transition into a chaotic system.

This can be caused by various

external forces including, as

mentioned previously, technical

glitches, human error, consumer

behavior, climate change, civil unrest, global commodities, etc. Instability within any of

these factors can cause a shock to the system causing such levels of chaos and

fluctuations. These chaotic systems can be periodic and also pose some fundamental

limitations. Separate from a simple chaotic system, these deterministic factors can be

considered “clockwise” but projected or predicted. In principle, this would be virtually

impossible when dealing with random chaotic system. Investors can project volatile

swings in consumer behavior or political uprising in regions primed for investment. This

could not occur within a chaotic system which presents random behavior with sensitive

dependence on initial conditions. The theory of chaos as applies to complex global

economic growth or its immersion with shared economics is dependent on our

collective understanding of chaos and how to adapt to such behavior.

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Explanation

As time has endured, many of the changes mentioned previously such as management

of emerging complexity and shared economics, follow many of the characteristics

discussed in Adam’s Smith theories and the theory of chaos.

The Theory of Moral Sentiments and Managing Complexity

As it stands today, there exists certain characteristics’ pertaining to Adam’s Smith notion

of moral sentiment such as self-interest and a lack of concern to some emergent

interactions. Where there exists an environment rife with complexity, some managers

along with others in leadership positions have created mechanisms and further

precedent that tries to undercut such change. It is much easier to make decisions with

fewer variables and a seemingly straightforward understanding of cause-and-effect

(Straub 1). This has of course created many problems within complex systems, as well as

with workers. Management has sought to achieve success in various ways, sometimes

with negative implications for the business, the worker, and/or the overall economic

system. Loosely speaking, it is not as simple as right or wrong when it comes to the

relationships that have manifested within many of these businesses and government

entities. This stems back to the way in which we have been taught and/or trained to

manage such entities and the economy as a whole by way of a particular set a

structural moral principles.

One manifestation of some moral principles as well as the adaptation to a more

complex orientation is of course Google and Amazon which were mentioned

previously. Since ones experience can sometimes be based upon ones behavioral

judgment in external entities, the end result for such interaction points to broad

implications for important factors like business productivity or in this case, adaptation to

a more complex orientation. In companies that thrive in a more complex environment,

there is a blend of self-interest with an appreciation of collective principles. The end

result is an emergent organization/entity that is well positioned to evolve with the ever-

changing technological environment or the complexities of big data.

Some markets embrace complexity, others not so much

In today’s market, some countries have yielded some positive results from best

practices and an adaptation to complex systems; others not so much. Based on the

report “The Atlas of Economic Complexity: Mapping Paths of Prosperity,” the findings

show the world’s economies that prospered based on productive knowledge and

product space are Japan, Germany and Switzerland (Hausmann & Hildago 22). This

should not come as a surprise to many countries like Germany which have been able

to weather the current Eurozone economic calamity. While many countries within the

European Union have seen their exports suffer, their debt devalued, and their economic

prosperity evaporate; Germany has been able to up its foreign export potential and

maintain its global manufacturing dominance. More recently Germany has been an

employment magnet for skilled and unskilled EU citizens that have been suffering from

chronic unemployment, especially in the southern member states. Japan, though still

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mired in a decade-long, stagnate economy, still manages to maintain a superior

technologically advanced economic system. In comparing two different economies,

Singapore which is 34 times smaller in population than Pakistan, is 38 times richer in per

capita terms. One primary factor is because Singapore exports are exported to highly

diversified countries, while Pakistan exports to poorly diversified countries on average

(Hausmann & Hildago 22). One reason for the success of some developed countries is

their ability to export highly complex products and knowledge from one diverse

economy to another. These economies do well because not only are they

understanding and adapting to more complex or diverse systems, they are trading with

those economies that share similar economic objectives.

While some lesser developed countries may be ambivalent or simply not up to pare

with advances in complex systems and market outcomes, that does not mean

developed countries are collectively gaining from such complexity. As was indicated,

Germany is prospering in this new environment of complexity, but the EU as a whole is

not. The same can be said for the U.S., as the economic infrastructure continues to

struggle under the weight of new technological advances, which of course can lead to

chaos in the overall system. This chaos can be caused by various external forces, but

can also include the essential internal infrastructure of the overall economy. For

instance, within the Nasdaq, the main impediments to understanding the markets’

behavior include the sheer complexity of the market infrastructure, rules, and behaviors

of the participants (Darley & Vincent, 1). There have been some methods employed to

not only understand these complications but to manage them. Based on the Nasdaq,

these changes include:

1) Changes in conceptual paradigm -

due to development of non-linear

dynamics, chaos theory, game theory,

agent-based approaches, the world is

more and more recognized as a

complex adaptive system, which

dynamics arises due to many factors

and their interactions - agents, their

behaviors and goals, interaction rules,

etc. Such systems exhibit emergent

properties - patterns of dynamics

behavior that arise from interaction of

their components, which (patterns) by

themselves are not properties of those

components (Darley & Vincent, 1).

2) Relatively recent developments in the

computer hardware and software just

recently reached a point where useful

simulations of systems described above

become possible. It is a confluence of

many advances: computers’ raw speed

and memory, object-oriented

technologies, development of software

frameworks and libraries, including

agent-based frameworks, parallel

processing, wider super-computer

availability, advances in software

design, and many other (Darley &

Vincent, 1).

The main focus of these approaches is to understand the individual components and

how they interact to influence, if not control the overall marketplace. The results of the

patterned behavior should emerge after close examination of these interactions over a

set period of time. Employing such methods and understanding these patterned

interactions should help to avoid a high degree of chaos. However, this can only occur

if there is an understanding of non-linear deterministic chaos. These complex systems

are developed with understanding that specialists will continue to evolve alongside

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them. As of late, that has simply not been the case as the Nasdaq has seen some levels

of volatility, that has negatively affected the financial markets.

Shared Economics spawned from the Division of Labor?

As an alternative to all of the chaos in the Nasdaq, there is shared or collaborative

economies which is an economic model where ownership and access are shared

between corporations, startups, and people. One major factor that appears to be

becoming all too common around the world is the rise of educated, highly skilled

individuals who as of late, have been causalities of global economic instability and high

unemployment in many places. The Division of Labor pertains to the specialization of

skills, and the separation of skills, and the separation of trades (Noble, 24). That being

said, how do these factors culminate into something sustainable or at least tangible?

With high levels of education an increased levels of demand for various products and

services globally; there is the rise of young educated or skilled entrepreneurs and

innovators. The difference being that these individuals have an entirely different

approach on growing the global economy or fostering prosperity.

Progressively, we as a society have used this new abundance of specialized skills to

create new industries, with emphasis on more sustainable, collective-oriented business

models. While there still remains a high degree of centralized control over some of these

new shared entities, many of them are indeed startups from those individuals willing to

take risk to start a business and offer an alternative experience to the status quo. While

the Division of Labor has caused some disruption to the current system; our dynamic,

resilient society has created a new one, possibly one that is far more sustainable and

equally distributed.

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Critique Critics of Adam Smith’s Approach

Not surprisingly, Adam Smith had his critics, many which challenge his Theory of Moral

Sentiment. Based on the occurrence of individualistic and individualizing market-based

social relations on a broad scale, Smith and his unique take on the so called

“Constitution of Self,” In other words the means and foundations of the cognition of

one’s self and of the other selves (Gocmen, 20). Smith also tries to understand the

various dimensions of the self from an epistemological point of reference; mostly

pertaining to human nature. Overall, Smith’s all encompassing generalization of the

“self” and “human nature” has after a while, caused many to recoil over his unique

take on humanity and its actions.

In the present, we denote from this or at least assume that some of the critics may have

varying opinions on the human condition as far as micro and macro development

goes. While trying to understand the sense of self or at least our evolving social

structure; Smith focuses on our mutual sympathy as a foundation for human relations.

However, socially speaking, at this point in time, we cannot say that we have reached

such a level of infallibility. We are still driven to continuous change because as a society

we are obviously not satisfied with the status quo or at least the century’s long

precedent that Smith has established. Thus, we have others who are willing to

challenge many of these accepted memes.

Adam Smith in opposition to Karl Marx?

As it stands today, Smith’s supporters and detractors, all point to modern-day

interpretation of his legacy. Most of it encompasses the Laissez-faire economic and

political environment that has emerged overtime. The supporters credit Smiths

contribution to so called unfettered capitalism and prosperity of self, in opposite from

the collective. The detractors blame Smith for the current economic reality. However, it

is much more abstract than Smith being pro-capitalist or anti-collective.

Current business leaders, conservative thinkers, and economists would scoff at the

slightest mention of Karl Marx or his ideals. While Smith is considered or at least

perceived to be a keen to social and economic conservatism; Marx is perceptive to be

a pure leftist on social and economic issues. However, Marx owed many of his debts to

the analysis of the Wealth of Nations and have attributed to Marx an originality for ideas

extensively borrowed from the Scot (or Smith) (Noble, 19). By this measure, there is a bit

of a juxtaposition between Marx and Smith. While, Marx may have formed some of his

opinions around Smith’s Wealth of Nations; apparently, it was credible enough for left-

leaning Marx to borrow some of Smith’s ideals in his own right. In a sense, two parties

extracting from the same pool of ideas; well at least in the case of Marx. This would

make them, at least theoretically, not as far apart has some today would like to

believe. Pertaining to the Division of Labor, the disparities continue between Marx and

Smith. Based on the current reality of the Division of Labor, these two could not be

further from an agreement. While Smith believed it was a social good; that emerging

society would adopt new specialized skills and new trades, making the economy

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prosper - Marx argued that increasing the specialization may also lead to workers with

poorer overall skills and a lack of enthusiasm for their work. He described the process

as alienation: workers become more and more specialized and work becomes

repetitive, eventually leading to complete alienation from the process of production.

The worker then becomes "depressed spiritually and physically to the condition of a

machine" believed it would create more harm than good (Marx, 72). Marx thought

these specialized skill sets would essentially create an increased divide within the class

structure. As it stands today, neither Smith, nor Marx’s ideals have fully come to fruition.

While specialized skills and new trades have led to great wealth and prosperity for some

around the world. Many have been alienated from this reality as Marx would indicate.

However, this does not endorse Marx’s theory either. While work has become repetitive

in some specialized areas, workers have become more productive and innovative.

Assumptions to current market trends

As it stands today, must established economics assume that money or at least current

forms of currency and gold are the main drivers of modern society. For the most part,

up until recently, this has been the primary means of developing wealth in growing the

world economy. However, even as the emerging world continues its ascendency, there

are obvious gaps in the system. As technology continues to outpace other forms of

social change, namely current market-based economies; this neo-capitalistic means of

development is sure to evolve into something else. One prime example is shared or

collective economics, which are beginning to generate waves in the overall global

economy. But the assumption that this new approach to economics is highly

speculative and we still do not know if society or even the powers that be are willing

allow the old system go so easily. The Golden Rule of economies is being challenged,

but it is not going out without a fight.

Google’s embrace of chaos

As one might assume, based upon information mentioned previously about the

negative aspects of chaos, that may not be telling the full story. In 2006, a report by

Fortune Magazine expounded upon the confusing disorder and uncertainty from within

Google. The report makes it known that while chaos on the surface may come across

as being a destructive force, Google thrives in this environment. On its face, this would

appear to be the ultimate paradox from most other business and market approaches.

As an example, Sheryl Sandberg who is a 37-year-old, vice president at Goggle, whose

tasks also includes the company's automated advertising system.

Sandberg recently committed an error that cost Google several million dollars -- "Bad

decision, moved too quickly, no controls in place, wasted some money," is all she'll say

about it -- and when she realized the magnitude of her mistake, she walked across the

street to inform Larry Page, Google's co-founder and unofficial thought leader. "God, I

feel really bad about this," Sandberg told Page, who accepted her apology. But as she

turned to leave, Page said something that surprised her. "I'm so glad you made this

mistake," he said. "Because I want to run a company where we are moving too quickly

and doing too much, not being too cautious and doing too little. If we don't have any

of these mistakes, we're just not taking enough risk” (Lashinsky, 1).

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Granted, Sandberg’s mistakes resulted in costly outcomes. However, her mistake was

not met with immediate termination, as would be the end result in most other

companies of comparable size and importance. In a sense, her mistake is a factor of

what not to do or what to avoid in a similar situation. Ostensibly, this is taking risk. While

this may be viewed as foolish that Sandberg continues to be employed by Google, her

actions could result in far less incidents occurring in the future now that it is established

that these are the wrongs. Conversely, other companies do not follow the same

doctrine. They would rather prefer to control any risk of failure at all points, mainly

because they fear the negative implications. What many businesses fail to

acknowledge is that sometimes it takes major risk, failure, or possibly even limited chaos

to test the long-term viability of the entity. Google being worth up to 300 billion dollars

market value shows that a little bit of chaos never hurt and can be beneficial.

Forecast/Solutions

Systems Innovation in the Market Place

Moving forward, businesses, organizations, and government entities are going to be

forced to function multi-dimensionally or at least have an in-depth understanding of

complexity. Within these entities, there needs to be room for innovative and creative

thought. As was previously mentioned, big data has become the foremost impediment

to sustainable management in various sectors of the economy and parts of the

government. To manage this change, the most common approach is relentless,

incremental innovation to drive a system to higher levels of performance (Mulgan, 45).

The growing clout of information and communication systems as such mobile devices

and cloud computing suggests that most, if not all of our daily actions will generate

information to be logged on systems. Many commercial decisions from the shares that

investors buy to the stock that shops reorder are made with the help of software

algorithms (Mulgan, 7). We complain about systems being cumbersome and callous.

We blame our misfortunes on ‘the system’ being an abstract influence on our lives. But

rarely are systems simply our adversaries. When a system breaks down, it does not take

long for someone to complain: ‘if only there were a system.’ Yet many of these systems

we rely upon are in deep trouble. The financial crisis was caused by systemic failures in

an increasingly interconnected and complex banking system. Our resource-hungry

systems of energy, transport and production need to be redesigned to minimize waste

and prevent catastrophic climate change. In the emerging economies of the

developing world it is a different story. There fast growing cities are contemplating the

creation of new systems on a vast scale for housing, transport, communications,

education and health. These cities have the opportunity to create new generations of

systems, which are configured to be more environmentally sustainable (Mulgan, 7).

As emerging markets gain economic parity with the developed world, market

competition can be expected to only become more rigorous. In a recent article by

Forbes, the executives interviewed, perceive the United States as the most innovative

country on the planet. The interviews, however, point to far more innovative attitudes,

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and practices, elsewhere. The report gives top marks to Vietnam, Nigeria, Canada,

China and Brazil for recognizing innovation as a top executive priority. The biggest

champions of big data as a source of innovation are Mexico, Brazil, Turkey and Nigeria.

China, Vietnam, Russia, India, Mexico, Brazil all score highly when asked if they strongly

agree that using collaboration to innovate is likely to grow revenues. The USA is at the

lower end of this trend. 23% strongly agree compared to 41% in China (Shaughnessy, 1).

Being that China and India are two of the United States’ largest economic rivals now

and into the future, there is potential for negative implications within the U.S. economy if

companies are more globally mobile. If China and Brazil recognize innovation as a top

priority, companies have the option to simply go offshore, inevitably harming American

workers and potential talent. Additionally, long-term planners and strategists can

expect to see increased complexity within various systems, particularly technology. Of

course, this increased complexity hinges upon the growth of the economy and future

progress. If these factors falter, many drivers of complexity may simply be rendered

moot, experiencing a degree of negative feedback.

Managed Chaos: The Google Way

Google’s relative success can be attributed to company management’s willingness to

embrace experimentation, adapt to external changes, and to take a complex-aware

approach. There is a growing movement in development which rejects the common

view that there is a simple, replicable prescription for development. One must also take

into account the diversity of development programs, and the need for a more

experimental approach in the face of complex problems (Barder, 1). Google’s

approach is experimenting with risk by allowing some room for failure. While there are

some short-term consequences to this factor, the company becomes better for it.

Chaos, if managed properly, is one plan moving forward as applied to new start-ups

and companies seeking to remain competitive. Many new entrepreneurs and

innovators entering this complex economy understand that the status quo or the old

way of management is not sustainable long-term. These will be the individuals

managing the future of complex economies.

Adaptation to a Shared Economy

Another part of the complex economy is shared or collaborative economics, which

shows promise in the coming years. However, there is still the issue of regulation and/or

government’s adaptation to an alternative economic system. What all sharing-based

economy startups have in common is the ability to connect sellers with consumers on a

scale that is astronomical in comparison with what was possible even a few years

ago(Jones, 1). If governments are not able to adapt or continue levying burdensome

regulations to the new market; this could encumber the exuberance of sharing. One

thing that has made the sharing economy so appealing is the ability to flout some rules

that only apply to normal businesses. These rules include taxes and licensing

requirements by national, local, and states/regional governments. On the contrary, as

many established businesses have pointed out, winning on an uneven playing field is

essentially cheating (Jones, 1). This is where government comes into fold as to level the

playing field so there is equal footing within the market place. But even this is a

balancing act due to the fact the some governments do not always have the best

track record when it comes to such regulation of a particular economy. The end result

14

in some cases is the picking of winners and losers or the soliciting of favors in exchange

for a minimal regulatory burden. Going forward, governments will require the creation

of a common or equitable platform in which both the established and the shared

economies can both prosper.

2020: Complex Economies

According to the Atlas of Economic Complexity, as of 2008, most of the western world

which includes China, all exhibit high or moderate levels of economic complexity (Atlas,

67). (Map1)

Aside from current global economic

instability, these high ranking nations all

have in common diverse economies.

Not surprisingly, the emerging world is

mixed with some bright spots located

in Asia and Latin America, with few in

Africa. However, a large portion of the

world rank low, sometimes very low

when it comes to measuring complex

or diverse economies.

In the next seven years, there is

projected to be much economic

change, primarily in the emerging

world mentioned previously. By 2020,

most, if not all of the projected GDP

growth will occur in this region. Of

course, this all hedges on economic

activity and net economic output

(Atlas, 79). (Map2) Maps from Center for International Development at Harvard University

Summary

In a 2011 Harvard Business Review article “Learning to Live with Complexity,” Gokce

Sargut and Rita Gunther McGrath offer this fundamental distinction: “The main

difference between complicated and complex systems is that with the former, one

can usually predict outcomes by knowing the starting conditions (Sargut and

Gunther, 1). Complex systems are simply the components or variables within a

system. Complexity does not always connote difficulty In contrast, “complicated” is

a high level of difficulty with the possibility of these parts taking longer to solve or

decipher. Understanding that there is a difference between “complicated” and

complex systems can make all the difference in a success business model.

Referring to the questions mentioned in the beginning of the paper; can they

manage the rise of complex systems? I believe despite current events, businesses

and government will be forced to manage complexity if they want remain solvent.

15

In the end, particularly in the private sector, the bottom line is all that matters in most

cases, which means they will do what is needed to adapt. Will management be

able to adapt to a new complex reality, sometimes with the potential for chaotic

behavior? If Google is any indication of profitability and success by way of chaos

then I am sure many others will follow. Will a seemingly new shared approach to

economics emerge as a credible alternative to the mean? In essence, Yes! A

growing number of companies are explicitly embracing a shared approach to

doing business. If this is indeed the case for a long time to come, we need to

become a much more entrepreneurial and innovative society. Many of these

people will simply have to invent their own jobs, based on the new, sometimes

complex economic environment, leveraging the new digital markets and shared

platforms. I mentioned previously the contrast between perceptions of Adam Smith

and Karl Marx, essentially both figures play an important role in the future

development of society and the economy. But first, society must understand the

context in which both figures ideals and formulas for bettering the collective. It is

not as simple as Marx being a leftist and Smith being a lassie-faire capitalist. If

society is to ever reach the potential that these figures acknowledged, we must

take parts of these approaches. The future is projected to become far more

complex which means a variety of approaches must be employed.

Citations

Barder, O. (2012). Complexity, Adaptation, and Results. Center for Global

Development. Online Article. http://www.cgdev.org/blog/complexity-

adaptation-and-results

Bishop, P. & Hines, A. (2012). Teaching about the Future. PALGRAVE. Pgs 135-138. Print

Bustos, S., Chuang, S., Coscia, M., Hausmann, R., Hidalgo, C., Jimenez, J., Simoes, A.. &

Yildirm, M. (2013). The Atlas of Economic Complexity: Mapping Paths to

Prosperity. Center for International Development, Harvard University. Pgs 20-37;

67-79. http://www.cid.harvard.edu/documents/complexityatlas.pdf

Darley, V. & Outkin, A. (2007). A NASDAQ market simulation : insights on a major market

from the science of complex adaptive systems. World Scientific. Pgs 1-3. Print.

Fromm, F. (2004). The Emergence of Complexity. Kassel University. Online Article. Pgs 11-

14. http://www.uni-kassel.de/upress/online/frei/978-3-89958-069-3.volltext.frei.pdf

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https://faculty.fuqua.duke.edu/~dah7/jf1991.pdf

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Jones, M. (2013). How Capitalism And Regulation Will Reshape The Sharing Economy.

Forbes. Online Article. http://www.forbes.com/sites/ciocentral/2013/10/09/how-

capitalism-and-regulation-will-reshape-the-sharing-economy/

Lashinsky, A. (2006). Chaos by Design. CNN Money. Online Article.

http://money.cnn.com/magazines/fortune/fortune_archive/2006/10/02/8387489

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Markets. Business Insider. Online Article.

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Marx, K. (1844) (Proofed 2009). Economic and Philosophical Manuscript, 1844.

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