Biological evolution: Dissipative structures

In the preceding sections, we discuss the origin of life and the appearance of molecules that, through some crude memory and replication capability, sustain their non-equilibrium structure and create and use sources of free energy or economic value in the environment. The analysis highlights autocatalysis, self-replication, information storage and communication, as key drivers in addition to scarcity of resources leading to competition and selection. It shows that the organized entities have two basic functions. Firstly, they contain the information, the genotype, for the construction of their own structure, the phenotype. Secondly, the structures translate the information into the vehicle allowing interaction and competition with other structures and other aspects of the environment.

As an intermezzo, we return to the time when Darwin first publishes his theory of evolution.

In those days, the present perspective on the role of the information sets in the mechanism of evolution does not exist. The role of the information carrying genome becomes clearer after the work of Mendel (Mayr (1985)) and finds its culmination in the discovery of the nature of the information carrier DNA. In the days of Darwin, two dominant approaches to biological evolution exist. These are the Darwinian perspective and the Lamarckian approach (Dawkins (1987)). The combination of the theory of Darwin and the genetic evidence on the role of information carrying genes leads to the Neo-Darwinian synthesis (e.g. Lewin and Foley (2004)). Today we know that the information that codes for the phenotype of an organism passes on from the parents to the offspring in the process of reproduction. The genetic code that passes on to the next generation provides a blueprint for the developing offspring. Of course, in higher animals a process of teaching and learning influences the development of the offspring in addition to the information the genome contains. However, these so-called acquired traits do not feed back into the information that transfers to the next generation through the process of reproduction. As far as acquired traits are concerned each new generation starts with a clean sheet. Of course, after the birth of the new generation processes of teaching and learning are instruments by which the collective acquired information conserves in the developing offspring, this represents the contribution of exogenic evolution to the development of the species and for that matter its culture and technology.

From the Lamarckian perspective, acquired information does feed back into the information set the parents directly transfer to their offspring, i.e. the new generation acquires it at conception. In this way, exogenic evolution does not result from other means of communication of information than the process of reproduction. Of course, when we adopt the broader definition of the genotype including the transfer of the exogenic part of the information set, the Lamarckian perspective again enters the picture, albeit involving a way of communication different from the original ideas of Lamarck.

It is important to note that the transfer of information from parent to offspring is the dominant but not the exclusive mechanism for the communication of information in the evolution of life. It is commonly indicated by the term vertical transfer of information. There exist, particularly in bacteria, but also, albeit to a lesser extent, in the more complex eukaryotic organisms, a mechanism of so-called horizontal transfer of information between organisms beyond the transfer in the reproduction cycle. This involves communication of information between organisms of the same species or even differing species. We will not go into detail

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about the variety of mechanisms that developed in biological evolution, we only want to stress that such mechanisms exist. This matter is relevant when discussing the differences and similarities between the evolution of organisms and organizations like firms, particularly when discussing the relevance of mergers, cooperations and acquisitions as a driver of industry evolution.

The first crude replicator molecules combined the functions of transfer of information and being the vehicle that competes for resources in the environment. Quite early in the evolution of life on earth, bacteria trace back at least 3 billion years, the functional structure and the information carrier become different chemical entities. These molecules successfully discover the beauty of cooperation in the quest for and development of sources of free energy. In biological systems, nucleic acid polymers of the DNA and RNA types take up the role of information carrier and processor.

Microorganisms, plants, animals and humans, i.e. the overwhelming diversity in the biosphere on earth, are products of the versatility of the genetic code and the translation process.

The mechanism that leads to the sustained evolution of the biosphere largely rests in the creative power of the infidelity of the copying process when combined with competition for scarce resources resulting in selection. The imperfect copying of the code leads to a constant exploration of the vast diversity of structures that can derive from the coding mechanism. In this way, new structures constantly appear and challenge the existing structures. The interaction with the environment, both in terms of resources as of other structures that compete, decides whether a mutant copy replicates faster than the mother copy. If it happens to replicate faster, it gradually but inevitably replaces the mother copy and its functional structure. One could say that the codes engage in a gaming or experimentation process in which, by learning by doing, more optimal ways develop to take better advantage of the opportunities in the environment and to create new opportunities. The environment starts to co-evolve with the structures.

An aspect of the process described above is that the coding versatility of even a limited stretch of genetic information allows the creation of far more structures than can be tested in the lifetime of an evolution, even in the case where bacteria appeared on earth earlier than 3 billion years ago.

The room for further evolution is therefore endless and new structures, unexpected to the observer, continue to appear.

The fidelity of the reproduction of the code is, although of limited accuracy, still high. This means that the mutant species that develop from the mother copy inhabit only a limited part of the space that contains all possible copies. A mutant copy will be selected and replaces the mother copy if it outperforms the mother copy. The likelihoods that this will happen is, given the rather high copying fidelity, limited in a short time horizon, but it increases in a longer term perspective.

In the way described above many of the species that we observe in the present biosphere and that evolved in the past, largely disappeared or will disappear in the future. In the early biological evolution, the coding function of DNA was the main source of storing and communicating information.

The divorce between the molecules active in storing and transmitting information and those involved in the embodiment of the functional structure proves by no means the only specialization trick the biosphere has up its sleeve. A new approach results with the invention of the brain that, e.g. in mammals, equips organism to store, process and communicate information by other means than the genetic hardware in the nucleic acids. This allows organism to adapt their behavior and to learn beyond the limitations of that genetic hardware.

This innovation further develops with the appearance of the ancestors of humankind. After a while, these develop a much larger brain than the species from which they evolved. Relatively recently Homo sapiens appears, with a brain size of about 3 times that of the earlier ancestors, such as Australopithecus africanus. The human brain greatly enhances the possibilities to

79 analyze and understand reality. It introduces new ways of storing and communicating information with the emergence of spoken and written language and later on computers. This revolutionizes the so-called exogenic evolution of the human species and its society.

As an intermezzo, we refer to the concept of the “meme” as Dawkins (1976) introduces it in his inspiring work “The Selfish Gene”. Dawkins consider the meme as the exogenic analogue of the function of the gene in DNA based evolution. The meme is just as the gene a self-replicating information carrier that competes for a scarce resource allowing its replication and communication. He applies this to explain the evolution of cultural aspects of human society beyond the DNA based communication of information and consider it a next generation of self-replicating information just as we do in this work.

The brain makes it possible to develop tools and machines and is instrumental in the creation of science and technology. In addition, culture, arts and firms and economies, are products of this exogenic evolution. This resulted in new functional entities that are no longer part of the human body. Their contribution, however, to the competitiveness of the species is as real as the clutches and teeth of the large cats. It is a vital of evolution, just as that embodied in the DNA molecules.

The analogy extends further. The further evolution of our culture, including markets and firms and science and technology, follows the same general rules as the early stages of biological evolution. In fact, these are an instrument of further biological evolution. Human culture thrives on a new kind of dissipative structures. In addition to the information stored in our DNA, the information stored in our brains, the information stored in written forms, the information transferred by the spoken word, the information stored in computer systems are all part of the new information sets on which competitiveness relies. This information forms the basis for the creation of new functional structures that create and exploit sources of economic value in the environment. In fact, we learn to harvest economic value, in principle always available, but inaccessible to the more primitive structures of the past. New ways of communicating information develop in teaching and in scientific publications, to mention prime examples. Also for these complex structures, the competitive environment shapes new, more successful, sets of information. Sets of information evolve and increase in sophistication by learning by doing and scientific understanding and the resulting R&D activities that become a hallmark of the academic world and modern industry. Science based research in industry emerges in the 19^th century and increases in importance ever since.

Our information about what it takes to compete optimally in economic value space is never complete and it is impossible to specify the required information set with certainty. A considerable amount of information is lacking, as it is possible to access only a limited information set. There definitely exists a large uncertainty, i.e. significant statistical entropy characterizes our knowledge of the relevant reality. This leads to a situation in which taking risks is a necessary element of success. We live in a “no guts no glory” kind of reality.

The important point we reach in our discussion in this section and earlier sections is that biology as well as human culture exist of dissipative structure whose functionality derives from captive information that allows more or less successful competition for potential value in the environment made available as economic value for the more informed actors. In fact, this also holds for industry structure. Our industries are dissipative structures that thrive on and develop information to compete effectively. We further develop this perspective in Chapter 7.

6.11. Conclusion.

In summary, information is the prime resource that allows the creation of economic value from sources of value in the environment. This quantifies in terms of the statistical entropy of the picture of reality of the various actors. It leads to a situation in which forces exist or are created based on asymmetries in information and different perspectives on economic value. This allows

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transformation and transaction processes to take place that lead to the generation, growth, maintenance and decay of dissipative, information processing, structures. Biological evolution is a prime example and we generalize it to apply to large parts of human society. Limited fidelity copying, or alternatively phrased experimenting with the primary information code, shapes new dissipative structures better equipped to compete. New exogenic ways of storing progressing and communicating information appear and become a prime characteristic of the structures in human culture. Information and its transmission and perfection shows to be the prime competitive tool.

The process of evolution is not, or only limitedly, goal oriented both at the level of the global environment and at the level of the individual actors. This certainly largely applies to pre-human biological evolution, but also applies to entities like firms. Firms generally have explicit goals, but their fundamentally limited information leads to elements of uncertainty and risk that preclude strict goal oriented development. One can “roadmap” a strategy, but a roadmap is of limited use whilst walking in a swamp. However, evolution proceeds in the direction of extracting more of the value globally available as useful economic value. Bounded rationality and the intrinsic characteristic of the dynamics of complex systems, may lead to loss of stability.

Ups and downs in the economic value extracting process characterize a system in which interrelated dissipative structures operate in a competitive way in an environment that also is dynamic and in addition co-evolves with the system. An element of crisis and decay is as certain an aspect of sustained evolution as periods of sustained growth at the global level.

We revisit these matters in the next chapter in further developing the theory of competition and selection and further analyzing the nature of the firm.

81 CHAPTER 7. THE FIRM AND INFORMATION PROCESSING.

7.1. Introduction.

In the preceding chapters, we identified the forces driving maintenance, growth and decay of dissipative structures. Firms and other economic institutions are examples of such structures.

These structures take advantage of and create sources of economic value in the environment and couple to the resulting forces in an increasingly effective way. This chapter develops a description of competition and selection. It allows closing this chapter with a discussion of the nature of the firm and the relation, correspondences and differences between biological and economic evolution.

We borrow our approach largely from developments in physics of some 30 to 40 years ago. Our analysis derives from the work of Eigen and Schuster (1971, 1977, 1978a, 1978b). This treatment does not directly apply to firms and markets. We mainly introduce the material to show some general features of evolution under competitive pressure. This leads to observations that also apply to economic systems. Then we introduce an approach based on EVT using the concept of the linear value transducer as discussed in Chapters 5 and 6. We close this chapter by explicitly discussing the nature of the firm from the perspective of EVT. In addition, we highlight correspondences and differences between evolution in the socioeconomic sense and biological evolution.