Complex Questions

The new science of sponstaneous order

William Tucker from the January 1996 issue

(Page 3 of 4)

Not only are we at home in the universe, but we are far more likely to share it with as yet un known companions."

Carl Sagan, take heart.

Complexity research has quickly spread from the natural to the social sciences. "We are more convinced than ever that our greatest impact is going to be in the social sciences," says Santa Fe research director Simmons. "In the evolution of human culture and the adaptive learn ing that goes on within large organizations we expect to see significant discoveries very soon."

The most striking result so far: As computers have encountered complex systems, it has become clear that it is difficult, if not impossible, to plan their outcomes centrally. John Holland, the pioneering University of Michigan mathematician, built the first computerized "complex adaptive system" by mimicking the free market. Looking for a way to model the human brain, Holland found that efforts to create a "command-and-control" model had already failed at MIT. So he solved the problem by making each digital "synapse" into an economic unit. Individual synapses were paid off for solving problems, with a "bucket brigade" to distribute the rewards to participating units.

"Economic reinforcement via the profit motive was an enormously powerful organizing force, in much the same way that Adam Smith's Invisible Hand was enormously powerful in the real economy," writes Mitchell Waldrop in Compl exity, a 1992 book on the work at Santa Fe. "When you thought about it, in fact, the Darwinian metaphor and the Adam Smith metaphor fit together quite nicely."

Computer experts at the Palo Alto Research Center discovered the same principle in 1988 when Xerox tried setting up a system to maximize use of its computers. Engineers had tried a "command-and-control" system, but found it unworkable. The information needed to coordinate decisions quickly overwhelmed the central processor. So Xerox researchers invented SPAWN, a system in which individual computers are given "money" and instructed to maximize their bank accounts by taking on tasks and trading computer downtime among themselves. Without any external direction or control, the computers quickly optimize their own use by trading on this internally created market.

"All complex biological and economic systems work this way," says Tad Hogue, a member of the research staff at Xerox PARC. "If every human cell's protein production had to be pro cessed through the brain, the costs of coordination would quickly overwhelm the nerve cells' capacities. Consequently, most decisions are made within the cell, or by the internal communica tions of the endocrinal system, which bypasses most brain functions. Although we tend to think of ourselves being in complete command of our bodies, most of life's choices are made within the individual cells."

Stuart Kauffman advances the "patches" principle for solving problems in large organiza tions. Trying to find the best way for a large entity to solve a complex mathematical problem, Kauffman shows that if the entity is broken up into a grid of small "patches" and each patch is allowed to solve its own small portion of the problem, an optimal solution emerges. Kauffman even invokes Adam Smith by way of explanation: "Here we have another invisible hand in operation. When the system is broken into well-chosen patches, each adapts for its own selfish benefit, yet the joint effect is to achieve very good [solutions] for the whole lattice of patches. No central administrator coordinates behavior. Properly chosen patches, each acting selfishly, achieve the coordination." He suggests the finding has enormous implications for federalism and for decentralizing large corporate units.

On the surface, the computer-assisted discovery of spontaneous order would appear to be a triumphant vindication of libertarian social theory in general and the Austrian School of econom ics in particular. The term "spontaneous order," after all, was coined by Friedrich A. Hayek in his 1960 classic, The Constitution of Liberty. For most of this century, free market economists have labored to convince people that "economic planning" isn't necessary. Left to itself, they argued, the market economy will spontaneously optimize the wishes and desires of its participantseven though all are only pursuing their own self-interest.

"I am convinced that if [the market system] were the result of human design, it would be acclaimed as one of the greatest triumphs of the human mind," wrote Hayek in his landmark essay, "The Uses of Knowledge in Society" (1945). "Its misfortune is the double one that it is not the product of human design and that the people guided by it usually do not know why they are made to do what they do."

Yet for all their efforts in defending the spontaneous order of the market, neither the Austri ans nor their followers ever articulated in convincing mathematical terms just how spontaneous order arises. Astonishingly, the complexity theorists, with their digital organisms and time -compressing computer models, now seem to have provided the answer.

Brian Arthur, head of economics research at Santa Fe, readily acknowledges this prece dence. "Right after we published our first findings, we started getting letters from all over the country saying, 'You know, all you guys have done is rediscover Austrian economics,'" says Arthur, sitting in his book-lined offices at the Santa Fe Institute's sun-drenched hilltop mansion. "I admit I wasn't familiar with Hayek and von Mises at the time. But now that I've read them, I can see that this is essentially true."

Yet all this has not prevented Arthur and the other economists at Santa Fe from turning complexity into a rationale for government intervention. Arthur's basic concepts are "increasing returns" and "path dependence." In a series of papers (particularly "Increasing Returns and Path Dependence in the Economy," published in 1993), he has argued thatrather than the old Ricardo/Malthusian pessimism about "diminishing returns"technological innovation in the economy can produce cascading improvements that improve productivity beyond anyone's wild est dreams. Improvement leads to improvement, which interlock in an ever more interdependent network of improvementssuch as railroads leading to better transportation of food leading to improvements in agricultural productivity.

But Arthur also argues that, once undertaken, paths of innovation may lead to "technologi cal lock-in": Economies and societies may get frozen on technological paths that later become unproductive. He likes to cite the QWERTY system on the typewriter keyboard and the triumph of VHS over Betamax as instances where a possibly inferior technology has become enshrined by the market.

"Economies are complex systems and once they adapt it becomes difficult to change direction," says Arthur. "Nobody makes Betamax movies because people don't have the home equipment to show them and people don't buy the home equipment because nobody makes Betamax movies." To overcome this inertia, he argues, government intervention may be neces sary. (The specific examples of QWERTY and Betamax have been examined in detail, andconvincingly debunked, by economists Stan Liebowitz of the University of Texas at Dallas and Stephen Margolis of North Carolina State University.)