Domestication and agriculture are very important areas of study. Humans began domesticating plants, animals, and even microbes roughly 10,000 years ago after the end of the last ice age. This had a profound impact on human populations and on the species which they manipulated. Domestication allowed massive population growth, but it did so at the expense of health. In addition, domesticator and the domesticated became heavily dependent on each other.
Business models are often domesticated by government in much the same way that humans domesticate plants and animals. A domesticated business model has one or more of the following characteristics: it is regulated, it receives capital from the government, the government absorbs risk of doing business, or the government manipulates other factors of the market to make it easier for the business model to survive and grow. Why government? Because while businesses can influence the evolution of other business models, much as different species impact others, the only entities with actual control over the market are governments. They “set the rules.”
While individual livestock benefit from domestication in that the created species survives and that the members are fed and maintained, overall domestication supports the domesticators. The results are often even harsher for species which are not selected for domestication. Many simply go extinct. In addition, domestication often results in a weakening of the species and a dependence on the domesticator.
East India Company
An early example of a domesticated business was the East India Companies. There were actually multiple companies which were referred to by this name. The one which I address in this paper is probably the one most people think of when they hear the name: The Honourable East India Company. The East India Company was an English joint-stock company. It, along with similar companies from other countries were government sponsored monopolies. Over time, it became the vehicle with which England controlled many of its colonies. It had its own army and coined its own currency. One of the ways in which the company maintained its position was through a legal monopoly on tea sales in Great Britain.
Yet another example of domestication is Walmart. It may seem rather surprising but Walmart receives a large amount of direct and indirect government support. Part of this support actually comes from welfare. Now it may not seem like welfare, a system which is meant to support the people, has a positive impact on Walmart but it does and does so on two different levels. People need to make a certain amount in order to survive. Walmart does not pay its employees enough to do so. Instead these employees rely on food stamps. Without food stamps, Walmart would have to pay its employees more or the employees would disappear. But those same food stamps, because Walmart caters to low income individuals, end up being spent at Walmart. In fact, according to the WSJ, roughly 18% of all food stamp funds are used at Walmart. (WSJ Article)
So if domesticated businesses models are what governments try to create, what about models which do not act the way governments want them to? They might as well be considered weeds. It’s important to remember that a weed is not necessarily a destructive or harmful plant. It is simply a plant that is growing where you do not want it. (Weeds) Weeds are problematic for agriculturalists and likewise they present many issues for governments and the domesticated businesses that they support. An extreme case of “weed” businesses are businesses which operate on the black market.
There are many cases where the impact on a species in intentional. There are other cases however where it is absolutely unintentional and even counter what we want. A perfect example is the evolution of roundup resistant weeds. It is not the intention of the agriculturalist to create such weeds. They are side effects of changes in selective pressures. This scenario occurs in markets as well. As a case study, we can consider prohibition.
During the prohibition, regulations were put in place which prevented alcohol from being produced. Alcohol producing companies became weeds. But it wasn’t long before bootlegging and secret bars became quite popular. These weeds found ways around the attempts made by government to control them. In fact, according to Miron & Zwiebel 1991, while alcohol consumption declined to roughly 20 – 30% of pre-prohibition era levels almost immediately after the start of the prohibition, within 4 – 5 years it reached 60 – 70% of its original level. In other words, within less than half a decade, the “weeds” had more or less adapted to controls put into place by the government. (Miron & Zwiebel 1991)
Of course, one example is not really sufficient. Are there any more? Yes. In fact, we can look at an even earlier relating to the East India Company. As mentioned earlier, the East India Company had a monopoly on tea sales in Great Britain. In addition, colonists, by law, could only import tea from Great Britain. This tea was not sold directly by the East India Company but through wholesale distributors. The monopoly, along with high taxes on tea, made black market tea sales very lucrative. Roughly 900,000 pounds of tea was smuggled into the Americas each year while legal tea sales numbered only 562,000 pounds, even though the legal tea was of higher quality. (Unger, pg. 148)
In contrast to a market which is composed primarily of domesticated business entities, a natural market is one which is made up of business entities which have not been influenced by the domestication process. While it is easy to argue that no such market exists, and it’s true, that is not the point. The point is that we can look at natural market dynamics in comparison to markets which have seen heavy domestication efforts.
Because natural markets are influenced by evolutionary dynamics and such dynamics do not need a rational actor, neither do natural markets. Since markets have limited resources, business models will reproduce and evolve to better utilize those resources. Note that monopolies, if they exist at all in a natural market, are going to be short lived. This is because of the basic concept that entities which reproduce outlast those that do not. Monopolies, by their very nature, do not reproduce and therefore will be outlived by those business models that allow other businesses to arise.
Here is where the analogy becomes really useful. No biologist would argue that natural systems do not self regulate. If they didn’t then we would need some kind of intelligent creator to have manipulated everything to get it to where it is today. That simply does not seem to be the case. Limited resources create selective pressures which drive evolution in a direction which is sustainable and efficient. Based on the analogy constructed in this paper, it is reasonable then to consider the possibility that markets can indeed self regulate, not because humans are in any way honest beings, but rather simply because markets are subject to the same overall dynamics as biological systems, which do clearly self regulate.
One argument that may be made against the analogy presented in this paper is that humans are sapient and therefore markets should act differently than biological systems. There are a few reasons why this argument is invalid. The most fundamental rebuttal against the argument is that the analogy is supported with real world examples which indicates that markets react the same way that biological systems do, regardless of the fact that sapience is involved in markets. But there are two other arguments. First, other animals do exhibit sapience to varying degrees. Second, there is a large amount of disagreement as to whether or not overall behavior in the market is rational.
1. Economy and Government: an Evolutionary Perspective (Politicoid)
2. The Honourable Company (Amazon.com)
3. Merchant Kings: When Companies Ruled the World, 1600–1900 (Amazon.com)
4. Unger, Harlow Giles. American Tempest: How the Boston Tea Party Sparked a Revolution (Amazon.com)
5. Noë, Ronald, Van Hooff, Jan A. R. A. M. Hammerstein, Peter. 2006. Economics in Nature: Social Dilemmas, Mate Choice and Biological Markets (Amazon.com)
6. Miron, Jeffrey A. Zwiebel, Jeffrey. 1991. Alcohol Consumption During Prohibition