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Can Darwinian Theory Explain the Rise and Fall of Businesses?

The fashionable field of organizational ecology says yes — organizations are like animals in nature

When you think of “business,” do you think of stuffy suits and boring meetings? But maybe that’s just a pose. Organizational science studies what makes businesses survive, thrive and die. The description makes businesses sound more like living, vulnerable animals, doesn’t it?

There is even a widely accepted subfield called organizational ecology, founded by Michael Hannan and John Freeman (1944–2008), which applies evolution theory to businesses. In 1989, Harvard University Press published their very influential book on the topic.

Organizational ecology applies a specifically Darwinian form of evolution theory to businesses. That is, the main driving force of change for businesses is seen as natural selection. The “ecology” part of organizational ecology is the idea that the ever-changing business environment selects the fit businesses and removes the unfit ones.

But an environment that selects must have something to select from. Where do the different forms of business — fit or otherwise — come from? Darwinian theory is not just “survival of the fittest,” as often thought. Rather, natural selection acting on random mutation is thought to produce the entire history of life. In the same way, organizational ecology proposes that the emergence of different types of business is essentially random. While the individuals inside a business push and pull one way or another, on the whole, they are thought to move randomly. Thus, the dynamic Darwinian duo of natural selection and random variation also explain all the diversity that we see in the business world.

Charles Darwin would be proud. A theory that began as a naturalistic explanation for the diversity of animal forms is now applied to the very different field of business. Yet, at what cost?

One cost is that organizational ecology misses the non-random fundamental driver of business, which is entrepreneurship. Entrepreneurship is the activity of thinking individuals as the source of economic change and disruption through their initiative and creativity. Creative individuals are not passively shaped by their environment.

In fact, many economists consider entrepreneurship and innovation to be the driving force of the economy. The well known venture capitalist Peter Thiel goes so far as to say (in purposefully controversial terms) that business success comes through intelligent design, not through Darwinian forces, in his book Zero to One.

We can see the dilemma here. On the one hand, the popular academic explanation for new developments in the business world is a form of Darwinian evolution. On the other hand, real business people describe their world in terms of purpose and design. Sound familiar? Organizational scientists would do well to read a page or two from intelligent design theorists like Michael Behe, design theorist William Dembski, and Steve Meyer if they want to study how a system infused by intelligence evolves.

You may also wish to read this piece by Eric Holloway:

Are we facing the next, very rapid stage of evolution, via AI? Prof. Mark Alan Walker: “Person-engineering technologies will make it possible to accomplish in a matter of years what evolution would take thousands of millennia to achieve.” No, the Singularity won’t happen. The Second Law of Thermodynamics eviscerates any technology we might invent.

Eric Holloway

Senior Fellow, Walter Bradley Center for Natural & Artificial Intelligence
Eric Holloway is a Senior Fellow with the Walter Bradley Center for Natural & Artificial Intelligence, and holds a PhD in Electrical & Computer Engineering from Baylor University. A Captain in the United States Air Force, he served in the US and Afghanistan. He is the co-editor of Naturalism and Its Alternatives in Scientific Methodologies.

Can Darwinian Theory Explain the Rise and Fall of Businesses?