Innovation, Disruption and ‘Anti-fragility’

Jill Lepore has a much-discussed article in the latest New Yorker about innovation, in particular the book “The Innovator’s Dilemma” by Clayton M. Christensen and the theories it contains and the influence those theories have had. She gracefully debunks the ideology of disruption, pointing out that many of its claimed successes are, on closer inspection, nothing of the kind, and that the whole premise of widespread disruption leading to greater efficiency and generating better economic performance is built on very shaky foundations.

‘Disruption’, in its most common usage, seems to be closely related to Schumpeter’s idea of ‘Creative Destruction’* – the idea that markets need to clear by ruthlessly burning away dead wood, or failing businesses, to spur future growth. And of course Schumpeter’s analysis of the business cycle and ‘Kondratiev Waves’ anticipates the idea of disruptive or path-breaking new technologies leading to economic expansion. It’s surely no coincidence, then, that as the venerable economist’s ideas have resurfaced – (e.g. in a recent Nesta report: )** – this has coincided with the ubiquitous deployment of the terminology of disruption and the worship of disruption among hungry start-ups and new businesses keen to do away with the old behemoths and inherit their customers and profits.

Why is this idea, this way of thinking about business and the wider economy, so powerful? Why does it have such an appeal to the instincts of aggressive entrepreneurs and investors, as opposed to the much more successful and widely accepted (at least in academic circles), Keynesian model of the economy which has in fact helped to moderate recessions and depressions, create greater employment, keep inflation low, reduce inequality, etc… for extended periods of time?

Perhaps it is because some of those people see markets, and much of life, as a simple competition. They do not understand Ricardo’s idea of comparative advantage, nor do they understand the concept of counter-cyclical fiscal policy and management of aggregate demand. They just think that business is a race, and that only the fittest can, or ought to, survive. And as long as they simply believe that and carry out that work, they go a long way to fulfilling their social function. From the perspective of the rat, the experiment looks like a labyrinth, and so it should. The problem comes when rats (so to speak) think they can be scientists, and lobby for the re-arrangement of the labyrinth to suit themselves.

The concept of simple competition, and the accounting concepts of debt and credit, are easy to grasp. They do not require any real mental effort. They are intuitive and ‘make sense’ on the basis of personal experience. On the other hand, advising a government to spend money that it (apparently) doesn’t have seems counter-intuitive, and grasping why it might ultimately be the best policy requires an understanding of sophisticated financial relationships, in both real and nominal values. Thinking of debt not as an accounting identity or a fixed, real value, but as a concept that is somewhat malleable, a social and cultural as much as a financial construction, is difficult (although anyone who has read David Graeber’s excellent ‘Debt: the first 5000 years’ will have a massive head start in this respect).

Simple, clear, intuitive concepts are easier to sell, easier to explain, and easier to spread, than subtle, nuanced and counter-intuitive ones. And this partly explains what Paul Krugman likes to refer to as ‘zombie’ arguments and why they keep reappearing long after they have been comprehensively refuted. This is also perhaps why such weak, unoriginal or generally uninteresting ideas seem to find currency in financial circles. And perhaps this is why the idea of disruptive innovation is now so ubiquitous and so much unwarranted, and uncritical, respect is paid to it.

Nassim Nicholas Taleb’s book ‘Antifragile’ is another example of the way in which this kind of idea gains traction. Taleb is one in a long line of successful investors who want to credit themselves not just with the ability to pick stocks, but to draw profound philosophical lessons from their ability to do so. Success leads them to conclude that they do actually know the secrets of the market, and that they can establish a coherent system by which the movement of markets (and by extension a great deal of human behaviour and psychology) is to be understood. George Soros, with his theory of ‘reflexivity’, has made similar claims.

‘Antifragility’ means thriving in situations of extreme turbulence or violence which are generally destructive or ‘disruptive’. To be antifragile is not just to be tough, to be able to endure powerful destructive forces, or enormous change, but to be able to profit from them and grow as a result of them. An example of an ‘antifragile’ organism might be thermophilic bacteria who live in vents near the ocean floor where they grow in conditions of extreme heat and pressure. For Taleb, these adaptations make the bacteria extremely tough and resilient, and allow them to survive and even flourish where other species cannot.

Taleb argues, at wearisome length, that investors can make themselves somewhat antifragile by adopting certain positions in the market, allowing them to profit massively when the vast majority of people are losing money. Not only being resistant to stock market crashes, but thriving in them. This is an extremely grand and long-winded way of expressing  a fairly simple concept. But precisely because the insight is a simple one it can quickly be understood and establish itself as a meme with widespread influence.

Innovation is a treacherous concept, and because the word and its denominals are so widely used and applied to so many objects, events, and processes, it has lost much of its meaning. There is a distracting obsession with degrees of innovation, with just how new and original something is. Apart from the fact that this is almost impossible to judge, and almost entirely subjective, it doesn’t really matter. What matters is surely not just how different something is from what went before, but the degree to which it improves things. A modest reform or update may bring far more benefits than a radical one. Does it matter which is the more ‘innovative’ approach if the one that is most helpful requires less change, less disruption to the status quo ante?

It is a mistake simply to associate upheaval with progress. It is a mistake that Josef Schumpeter made, and many of his intellectual descendants continue to make.


* An idea which had its most famous, and notorious, expression in Treasury Secretary Andrew Mellon’s advice to Roosevelt in the depths of the Great Recession: ‘Liquidate the farmers…’ Quite how this policy was supposed to work in practice (and not lead to mass starvation) is a mystery.

** The idea of applying Schumpeter’s ideas (which in and of themselves are a bit zany, and mostly untested, and apply in any case largely to a specific analysis of the business cycle in the private sector) to the provision of public services is, in my view, just, well, a little bit misguided.

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