Eric Beinhocker

Traditional economics views the economy in a fairly mechanistic way. If people are rational and we want to change their behavior then we just need to change their incentives. Thus, a lot of policy is conducted through tinkering with the tax code or subsidies, for example if one wants more innovation, give an R&D tax credit; if one wants less smoking, tax it heavily. Of … [ Read more ]

How the Profound Changes in Economics Make Left Versus Right Debates Irrelevant

Economic thinking is changing. If that thesis is correct – and there are many reasons to believe it is – then historical experience suggests policy and politics will change as well. How significant that change will be remains to be seen. It is still early days and the impact thus far has been limited. Few politicians or policymakers are even dimly aware of the changes … [ Read more ]

Eric Beinhocker, Nick Hanauer

The great genius of capitalism—solving people’s problems—has, by necessity, a dark side: the solution to one person’s problem can create problems for someone else.

This is the age-old puzzle of political economy: how does an economic system resolve conflicts and distribute benefits? A fancy derivative product may help corporate treasurers solve their problem of managing corporate risk, and it might make bankers rich, but it might … [ Read more ]

Eric Beinhocker, Nick Hanauer

Elevating the creation of shareholder value to the status of primary objective is based on a faulty assumption—that capital is the scarcest resource in an economy, when in reality it’s knowledge that’s the scarce, critical ingredient in solving problems. […] This is not to say that shareholders or other owners are unimportant. But providing them with a return that is competitive compared with the alternatives … [ Read more ]

Eric Beinhocker, Nick Hanauer

The orthodox economic view holds that capitalism works because it is efficient. But in reality, capitalism’s great strength is its problem-solving creativity and effectiveness. It is this creative effectiveness that by necessity makes it hugely inefficient and, like all evolutionary processes, inherently wasteful. Proof of this can be found in the large numbers of product lines, investments, and business ventures that fail every year. Successful … [ Read more ]

Eric Beinhocker, Nick Hanauer

If prosperity is created by solving human problems, a key question for society is what kind of economic system will solve the most problems for the most people most quickly. This is the genius of capitalism: it is an unmatched evolutionary system for finding solutions. […] Human creativity develops a variety of ways to solve such problems, but some inevitably work better than others, and … [ Read more ]

Eric Beinhocker, Nick Hanauer

We typically talk about growth in terms of GDP, though it has been much criticized recently as a measure of progress. There have been a variety of attempts to make GDP account for things such as environmental damage, unpaid work, the progress of technology, or the development of human capital. In our view, the biggest problem with GDP is that it doesn’t necessarily reflect how … [ Read more ]

Eric Beinhocker, Nick Hanauer

Prosperity in human societies can’t be properly understood by looking just at monetary measures, such as income or wealth. Prosperity in a society is the accumulation of solutions to human problems. These solutions run from the prosaic (crunchier potato chips) to the profound (cures for deadly diseases). Ultimately, the measure of the wealth of a society is the range of human problems it has solved … [ Read more ]

Eric Beinhocker, Nick Hanauer

The essential role of capitalism is not allocation—it is creation. Life isn’t drastically better for billions of people today than it was in 1800 because we are allocating the resources of the 19th-century economy more efficiently. Rather, it is better because we have life-saving antibiotics, indoor plumbing, motorized transport, access to vast amounts of information, and an enormous number of technical and social innovations that … [ Read more ]

Eric Beinhocker, Nick Hanauer, Andy Haldane

Andy Haldane, the chief economist of the Bank of England, notes that the conventional theory views the economy as a rocking horse that, when perturbed by an outside force, sways for a while before predictably settling back down to a static equilibrium. But, as Haldane has pointed out, what we saw during the crisis was more like a herd of wild horses—something spooks one of … [ Read more ]

Eric Beinhocker, Nick Hanauer

For the past century, the dominant economic paradigm—neoclassical economics—has painted a narrow and mechanistic view of how capitalism works, focusing on the role of markets and prices in the efficient allocation of society’s resources. The story is familiar: rational, self-interested firms maximize profits; rational, self-interested consumers maximize their “utility”; the decisions of these actors drive supply to equal demand; prices are set; the market clears; … [ Read more ]

Redefining Capitalism

Despite its ability to generate prosperity, capitalism is under attack. By shaking up our long-held assumptions about how and why the system works, we can improve it.

Strategy at the Edge of Chaos

“Fishbowl” economics once provided the basis of corporate strategy, but no longer. New theories show that markets are “complex adaptive systems.” Can managers be more than blind players in an evolutionary business game?

Eric D. Beinhocker

A study of the performance of more than 400 companies over 30 years reveals that firms find it difficult to maintain higher performance levels than do their competitors for more than about five years at a time. Long-term superior performance is achieved not through sustainable competitive advantage but by continuously developing and adapting new sources of temporary advantage and thus being the fastest runner in … [ Read more ]

The Origin of Wealth

Accounting for the creation of wealth has long challenged humanity’s best minds. For business readers and academics, Beinhocker is a zealous and able guide to the emerging economic paradigm shift he calls the “Complexity Economics revolution.” A fellow of the economic think tank McKinsey Global Institute, he rejects traditional economic theory, based on a physics model of closed systems, in which change is an external … [ Read more ]