• Adam Timlett

Risk and the problem of viable growth in biology and economics


The theme throughout this blog will be that human beings in economic systems are not the only students of risk, biological systems got there first (about 3.8 billion years ago), and so we have much to learn from our cousins on planet earth if we want to revise the way we study risk to cope with the challenges of the future, including of course, sustainable growth. The blog starts here, with growth itself and the concept of 'viability' which is so central to risk for biological organisms. You have to start somewhere.

An MIT bio-engineering paper by Jacob Beal demonstrates the idea of 'functional blueprints' for describing, in engineering terms, the process of growing something. He shows that, by growing, a system stresses other parts of the growing system and, via signals, promotes compensating growth or change elsewhere. This balances the growth overall and so it remains viable.

Beal's paper shows bio-engineers that by combining engineering with biological concepts we can consider the process by which sustainable growth occurs in organisms. I will argue via this blog that, like the MIT paper, we can and should apply lessons about biological growth to economic organisations and engineered systems which are the products of human organisation and industry. In other words, we should be studying biology to do economics, as naturally as we should study biological systems to create bio-engineered systems.

What are the limits to this sort of approach? Mainly our imagination and our ability to understand the complex world of biology. Therefore, this blog will try to cut through that complexity and showcase some of the most exciting research going on in biology to do with how biological systems manage risk. In the process I will be touching on issues in bio-engineering, a cutting edge technology, but also pure research in biology on development, morphogenesis and signalling. Are you excited yet?

Viability

'Viability' is an important concept in both nature and economic life, but has it been overlooked by economists? When considering the value of competition in economic life the necessity of allowing companies to fail is a central idea of a healthy market. Indeed, the seeming loss of this basic principle of allowing market forces to work was one of the criticisms of the response of governments to the 2008 crash which was to prop up the banks. Whether the banks were 'too big to fail', or not, is beside the point I'm making here. It is just salient that loss of viability of some organisms is 'good' for the market as a whole because it removes inefficient companies and creates space for better companies to fill the gap. This is something we learned from nature.

This principle holds in biology yet at the same time for individual organisations and organisms it is precisely the opposite: Viability (self-preservation) will be paramount, of course. The gain of viability to a system as a whole is an individual's loss. And that loss is fought against tooth and nail. Survival matters. One area where we can say that viability as a risk principle has been over-looked in economics then, is that profit-driven business strategic decisions are less about viability and more about short-term gain which can be a cause of company failure. Among SME's, loans combined with sudden short-falls in expected income growth are very often a cause of business failure. Bigger companies can also grow too quickly and become over-exposed to crashes, currency fluctuations, fraud, rare catastrophic events etc. What can we learn about 'balanced growth' and viability in biological systems?

In nature, the viability of organisms is paramount, whilst also allied to the imperative of reproduction. Whilst the principle of 'survival and reproduction' also weeds out the less fit and allows competition to act as a selection principle in the system as a whole, the need to reproduce encourages individual organisms to take risks beyond that which would be needed for their own survival (viability) and so a balance must be struck, rather like individual businesses in terms of risk about how to invest your resources. At the cellular level we also see tensions between growth and viability of the organism as expressed in the Jacob Beal's MIT paper mentioned earlier. Growth which is 'unbalanced' clearly threatens the viability of the organism and is controlled by signal transduction pathways which communicate stress to the system.

So in biology we start to see a picture where, just like economics, viability relates to the ability to respond to stress appropriately, given risk, and is balanced against growth which occurs too fast without the necessary compensation.

So, you might say: "What are the lessons we might be able to learn from biology, right now, without even much more complex research?"

Well, I'm glad you asked me that. Nassim Taleb argues in his book 'Anti-fragile' that, in nature, responses to stress tend to over-compensate in reaction to a stressor because rather than reacting to past performance nature knows that it doesn't know the size of the next stress event of that type. Accordingly, for economists to learn from biology, Taleb argues that the historical record of prior stress events is always inadequate for strategic planning for business survival. Instead, we must follow nature, over-compensating and creating resources and redundancy to allow for the 'black swans' which will eventually come our way. This is an obvious strategy in biology where our muscles over-compensate via the stress of a work-out by growing stronger than they were before.

So this simple initial insight highlights the potential value of looking more deeply in to how biological systems manage risk. It also raises themes that will be important in this blog, where I will showcase cutting edge research in to risk in biology that moves us beyond simple analogies like Taleb's. One idea which will occur over and over again in the research and raised by Taleb already, is the importance of a proper understanding of the value of 'redundancy' and structures in organisations that cope not only with the immediate stressor to the organisation but which can cope with the unexpected through apparently 'redundant' action and investments.

The concept of engineering systems to cope better with risk will also appear and will be one of the other main themes of this blog. Overall, I will be seeking to persuade you, the reader, that the approach to risk by biological systems is far more advanced and nuanced than is popularly realised, even in microbes, and the evidence for this is building fast. The lack of an appreciation at this moment in time, can only be to the detriment of social scientists and business managers, and especially economists who hope to build a better, more viable future.

So, more on this in the coming weeks where I will continue to blog about risk management in biology and how it applies to economics. Stay tuned for more posts and stay viable!

Towers Detail James Robert White

#risk #Taleb #antifragile #economics #biology

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©2017 by Adam Timlett.