Sunday, 21 June 2015

Can Corporate Control or the "China Model" Heal the World?

by Dirk Helbing

It seems the world is changing at a rapidly increasing pace and getting ever more complex. This calls for a new and more efficient approach to decision-making. However, today's democratic institutions are slow, and they are expensive, too. In the meantime, most countries have piled up debt levels that can hardly be dealt with. In order to cope with this, two concepts have been around for some time: (1) the "China model", as China has developed much faster than Western countries recently,[1] and (2) giving more control to multi-national corporations, as they tend to be more efficient than government institutions.

The China model

Has the French Revolution been a tragic historical accident that is now making our lives more difficult? Are democratic decision-making procedures outdated and blocking our way into a better future? Would it be favorable to have more top-down control? This might certainly accelerate decision-making, but would the resulting decisions be better and sustainable, too?

If we implemented the Chinese approach in Europe or the USA, we could easily decide to build a road over here, a shopping mall over there, and even new city quarters or entire towns. Moreover, these projects could be realized in just a few years. This may sound tempting to decision-makers. However, improving a system becomes more difficult the better it is, and given the many interdependencies, any improvement in one part of the system comes with undesired side effects in another part. Over time, many decisions turn out to be less favorable than expected, and quick decisions often result in mistakes. For example, there are many "ghost malls" in China, which almost nobody wants to use, and empty "ghost towns", too. Moreover, environmental pollution has become a serious issue. Some cities are now suffering of smog levels that imply considerable risks to health and make them almost dysfunctional.

At the same time, even though China has quickly developed, the satisfaction of its people with politics has not everywhere increased. Due to the world economic crisis, China is even seeing a dangerous reduction in its economic growth rate, and it must reorganize its economy. To reduce the likelihood of protests, information flows to and from the country are increasingly controlled by the government. In other words, China shows worrying signs of destabilization.[2] India's democracy, in contrast, is doing increasingly well.[3] Also in Europe, federally organized systems such as Germany and Switzerland are performing better than more centrally governed countries such as France and Spain. In fact, it can be said that the most advanced economies in the world are the most diverse and complex economies.[4]

Can corporate control fix the world?

As the governments around the globe have often failed to find solutions to problems such as climate change, companies are often demanding more control. This is probably what the free trade and service agreements, which are currently under secret negotiation, are about: governments will give up some of their power and hand it over to corporations.

Would it be better to run the world by multi-national companies? In fact, companies are often more efficient than governments in accomplishing specific tasks that can be well monetized. However, if we look at maps of what regions of the world are controlled by what companies, it does not look less fragmented than the map illustrating the hypothetical "clash of cultures". So, can we really expect that corporate control would result in more agreement in the world?

While large corporations have certainly a lot of power to move things ahead, they often have low innovation rates and tend to obstruct innovations of others. It even happens that the value of own inventions isn't recognized. For example, Xerox did not see the value of the Windows software they invented. The value of the mp3 music file format was underestimated, too, and nobody expected text messaging to become important. To compensate for their innovation problem, large corporations often buy small and medium-size companies. Nevertheless, this typically does not help them to stay on top for a long time. Within a period of just 10 years, 40 to 50 percent of top 500 companies disappear. Given such high takeover and "death" rates, societies would be extremely unstable if run by corporations. In contrast, countries and cities persist for hundreds of years, exactly because they are governed in a more participatory way, unlike corporations.

In summary, there is little evidence that companies would solve the problems of the world. I don't deny that many companies have laudable goals. The use of self-driving cars, for example, intends to eliminate accidents, which have killed a lot of people in the past. Moreover, by means of personalized medicine, genetic engineering and biological enhancements, some companies want to overcome death altogether. However, none of these ambitious goals have been accomplished yet. I might start to believe in corporate control of our globe, if we had a perfect world everywhere within a 100 kilometer radius of Silicon Valley, but this is far from being true. There is a lot of light, but a lot of shadow too. So far, not a single city in the USA is in the top 20 list of most livable cities. In other words, we need new approaches to solve the world's ills. Will an evidence-based approach using the wealth of today's data be able to heal the world?

[1] D.A. Bell (2015) The China Model. Political Meritocracy and the Limits of Democracy (Princeton University).

[2] Based on a statistical analysis of J├╝rgen Mimkes, China will now undergo a major transformation towards a more democratic state in the coming years. First signs of instability of the current autocratic system are visible already, such as the increased attempts to control information flows. The following recent articles support the conclusion regarding increased instability in China (please use, for example, Google Translate where needed):

[4] C. Hidalgo et al. (2007) The product space conditions the development of nations. Science 317, 482-487.

Wednesday, 17 June 2015

DEMOCRACY AND FREEDOM: Outdated concepts?

By Dirk Helbing

These days, many people seem to be asking: "Are the concepts of freedom and democracy obsolete?" 

Let us look into this. The "freedom of will" or "freedom of decision-making" has, in fact, been questioned many times and for various reasons. For example, some religions believe that our destiny is predetermined. If this were true, then our life would basically be like playing back an enhanced 3D movie. We would not have any possibilities to choose, but also no responsibility for what we do. Consequently, people would be sent to prison not for wrongdoing, but for disturbing public order. There would be also no freedom of press. However, in such a framework, business leaders and policy-makers couldn't take any decisions as well. We would just all have to accept what is happening to us.

In other cultures, it is being recognized that people may make their own decisions, but everyone is expected to subordinate personal decisions to the interests of higher-level institutions or to those who are more powerful. These societies are hierarchically organized. The caste system in India is a good example of this. Compared to this, in Western democracies, the power of people and institutions has been restricted by law in favor of individual freedom, which boosted entrepreneurial activities, growth, prosperity, and social well-being.

Now, however, countries such as Singapore and China are experiencing larger economic growth rates, even though they restrict individual freedom. Should other countries copy their model? I don't think this would be a good idea. Firstly, a political system must be culturally fitting. Secondly, these countries are net importers of new ideas. If every country would be run like Singapore and China, we would probably lose a lot of innovation capacity (see figure below). Generally, countries supporting individual freedoms are better at boosting new ideas (see the green bars in the graphic below), while others are better at applying them (red bars). Moreover, it is known that the most diverse economies are the most developed ones. [1]

Figure 1.2: New scientific ideas are produced primarily in democratic societies supporting freedom of thought, speech, and markets.[2]

Recently, new critique of the "freedom of decision-making" comes from neurobiologists. Their experiments suggest that the feeling of free decision-making arises after the decision was actually made in the brain. However, this does not prove anything. Decision, execution and conscious recognition are separate things. [3] The feeling of having taken a free decision might be just a conscious confirmation of execution.

Of course, our decisions are often influenced by external factors. However, the old idea of behavioralism that people would be programmed like a computer (by education and other external influences such as public media) and that they would execute what they have been programmed for has failed long ago.

There is little doubt that most people can learn to take different decisions in identical situations (if they are not in a deprived state). A conscious decision resulting from a deliberation process compares possible alternatives from a variety of perspectives, before a decision is made. In a sense, it is the art of decision-making to consider many aspects that might matter, and some people are very good at simulating possible decision outcomes in their brain.

From a societal perspective, however, it does not matter much whether different decision outcomes resulting in practically identical situations are the consequence of free will, randomness, or other mechanisms (such as "deterministic chaos" or "turbulence"). What really matters is to have socio-economic institutions that support innovation and the spreading of good ideas.

If we want to master the challenges of the future, we must produce more ideas that help us to adapt to environmental, social, economic and technological change and to accelerate their application. So, rather than a predictable society we need one that can cope with surprises and benefit from it. Pluralism, diversity, and participation shouldn't be seen as concessions that democracies have made to their citizens. They are ways to produce innovation and collective intelligence, in other words: to generate better solutions. Certainly, democracies, like all other political regimes, can (and should) be further improved. 

If we want to solve the world's problems, we must increase our problem solving capacity. We must get more efficient in taking the best ideas on board and combining them. There is little doubt that those societies will be leading, which manage to activate the motivation, skills, ideas, and resources of everyone in the best possible way and to create a win-win-win situation between business, state, and citizens. For this, we need to figure out what roles "participation", "interoperability" and "externalities" can play.

[1] C. Hidalgo et al. (2007) The product space conditions the development of nations. Science 317, 482-487.
[2] Reprinted with kind permission from A. Mazloumian et al. (2012) Global multi-level analysis of the 'scientific food web', Scientific Reports 3: 1167.
[3] This becomes clear when we consider the example of a boss who asks his or her staff to do a certain job and to report back after execution.