More than one reader has asked me about Paul Ormerod. Is he an example of an economist who has been unjustly overlooked by the mainstream?
He has been overlooked by me, unjustly or otherwise. I have not read his books. From his web site, I gather that he believes, as I do, that trial-and-error learning and failure are important processes in the economy. However, he gets more excited than I do about statistical-mathematical characterizations of random learning.
I suspect that as a profession would be better off spending more time at the margin looking at ideas like Ormerod's, even if they ultimately prove unfruitful. There is plenty of stuff that we could spend less time on at the margin.
The Iron Law of Failure extends from the world of biology into human activities, into social and economic organisations. The precise mathematical relationship which describes the link between the frequency and size of the extinction of companies, for example, is virtually identical to that which describes the extinction of biological species in the fossil record. Only the time-scales differ.
We can readily adapt these major advances in biological theory to human systems, to companies, to governments, to explain the pervasive nature of failure. And to understand why failure is a precondition of success. In the real world in which strategies evolve and which is the outcome of a dynamic process of change, failure at the level of the individual component part can, paradoxically, enhance the fitness of the system as a whole.
Not all change is always and everywhere beneficial. It is still an open question, for example, as to whether the changes in Russia over the past 15 years will ultimately prove beneficial or not. The country went down a particular evolutionary path following the collapse of Communism, and the resulting changes have brought great hardship to large sections of the population. Again, there are clear parallels in biology. Most mutations, most changes from an established pattern, fail.
Yet the old Soviet Union is, par excellence, an example of a social and economic system which failed. Its rigidly planned economy was able to develop a primitive industrial economy based on iron and steel, and fight a major war in the 1940s. But it was completely unable to adapt to the more fluid environment of the second half of the 20th century, and eventually became extinct.