Updating Hayek: Can 'The Market' Prioritize Well?

Hayek viewed markets as distributed-intelligence systems that evolved to compute resource allocations. We can now update that view with ideas from computer science, biological signalling, and evolution.


This is diablog 9 between David Sloan Wilson (DSW) and me (JB).

1) JB: [Friedrich] Hayek, half a century ago, added key evolutionary ideas to economics, which you say need major updates.

2) DSW: Hayek had two way-ahead-of-his-time insights. First, that economic systems have a distributed intelligence that cannot be located in any individual. Second, that this intelligence evolved by cultural group selection. Contemporary science — complex systems and multilevel evolution — validate those claims. But Hayek fans are mistaken to believe that his insights mean markets should be unregulated.

3: JB: OK, markets use evolved distributed intelligence to compute resource allocations. So let’s add more computer science, and ideas about biological computation and signaling.

4. JB: Hayek’s right that no “central planner” can know what’s distributed among people in markets. But computer scientists have studied distributed processing’s limits. Many tasks can’t be efficiently distributed. Most still need central coordination. Aren’t market computations similarly limited?

5. JB: Plus, free markets “compute” using only one kind of data, in only one way. Their distributed intelligence is hardwired reflexively to local price signals. That’s like having no central nervous system.

6. JB: Central nervous systems evolved specifically to enable non-reflex, non-distributed responses and decisions that prioritize for the organism as a whole. But “the markets” decide musical toilets take priority over basic needs. Their distributed intelligence invests in lifestyle drugs (here's an example currently in the news) but ignores failing antibiotics. And a mindless markets mindset suggests we can’t save the planet unless that’s profitable.

7. JB: Imagine an organism that used only one price-like signal for all its internal coordination. Human blood-sugar allocation needs eight separately varying regulatory signals.

8. DSW: Comparing a healthy economy to an organism shows that Hayek was both right and wrong. Organisms regulate a mind-boggling number of processes to stay alive. Every one of them is a distributed process — even the central nervous system (viewed closely enough). Every one was produced by natural selection: The distributed processes that work better winnowed from the much larger number that didn’t. And distributed “invisible hand” processes aren’t all good.

9) DSW: We can draw two implications for economics. First, distributed processes that work often include both the public and private sector [both central and distributed elements]. It’s stupid to think the private sector works well and the public sector just gets in the way (see economist Mariana Mazzucato’s explanation). Second, more winnowing is required for economic processes to adapt to current and future conditions. Natural selection can’t work fast enough, so it will have to be policy selection informed by evolution and complexity science.

10: JB: Effective market regulation should heed biology’s regulatory lessons. Economies, like complex organisms, need distributed reflexes and a central nervous system. They need more than one price-like signal to prioritize and regulate for the whole, and to manage systemic risks. That doesn’t happen automatically. Take, for example, the 2008 crash, in which [Alan] Greenspan confessed: Self-regulation failed).

11. JB: Centrally guided and regulated doesn’t mean “centrally planned” (Hayek and [Adam] Smith both understood regulation’s role). It’s more like steering a ship, and adjusting for shifting conditions.

This is the last post in this diablog series. 

Earlier diablogs covered: (1) evolution’s score keeping (relative fitness), (2) its built-in team aspects, (3) its self-destructive competitions, (4) its blind logic, (5) how division of labor complicates, (6) why economics needs a version of evolution's "inclusive fitness," (7) why whatever your politics, you need needism, and (8) why biology shows relying on the “invisible hand” is a monumental mistake.

PS - Hat tip to Robert Kadar who provided input. 

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Best case: redrawing borders leads to peace, prosperity and EU membership. But there's also a worst case

Image: SRF
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  • The Yugoslav Wars started in 1991, but never really ended
  • Kosovo and Serbia are still enemies, and they're getting worse
  • A proposed land swap could create peace - or reignite the conflict

The death of Old Yugoslavia

Image: public domain

United Yugoslavia on a CIA map from 1990.

Wars are harder to finish than to start. Take for instance the Yugoslav Wars, which raged through most of the 1990s.

The first shot was fired at 2.30 pm on June 27th, 1991, when an officer in the Yugoslav People's Army took aim at Slovenian separatists. When the YPA retreated on July 7th, Slovenia was the first of Yugoslavia's republics to have won its independence.

After the wars

Image: Ijanderson977, CC BY-SA 3.0 / Wikimedia Commons

Map of former Yugoslavia in 2008, when Kosovo declared its independence. The geopolitical situation remains the same today.

The Ten-Day War cost less than 100 casualties. The other wars – in Croatia, Bosnia and Kosovo (1) – lasted much longer and were a lot bloodier. By early 1999, when NATO had forced Serbia to concede defeat in Kosovo, close to 140,000 people had been killed and four million civilians displaced.

So when was the last shot fired? Perhaps it never was: it's debatable whether the Yugoslav Wars are actually over. That's because Kosovo is a special case. Although inhabited by an overwhelming ethnic-Albanian majority, Kosovo is of extreme historical and symbolic significance for Serbians. More importantly, from a legalistic point of view: Kosovo was never a separate republic within Yugoslavia but rather a (nominally) autonomous province within Serbia.

Kosovo divides the world

Image: public domain

In red: states that have recognised the independence of Kosovo (most EU member states – with the notable exceptions of Spain, Greece, Romania and Slovakia; and the U.S., Japan, Turkey and Egypt, among many others). In blue: states that continue to recognise Serbia's sovereignty over Kosovo (most notably Russia and China, but also other major countries such as India, Brazil, Mexico, South Africa and Iran).

The government of Serbia has made its peace and established diplomatic relations with all other former Yugoslav countries, but not with Kosovo. In Serbian eyes, Kosovo's declaration of independence in 2008 was a unilateral and therefore legally invalid change of state borders. Belgrade officially still considers Kosovo a 'renegade province', and it has a lot of international support for that position (2). Not just from its historical protector Russia, but also from other states that face separatist movements (e.g. Spain and India).

Despite their current conflict, Kosovo and Serbia have the same long-term objective: membership of the European Union. Ironically, that wish could lead to Yugoslav reunification some years down the road – within the EU. Slovenia and Croatia have already joined, and all other ex-Yugoslav states would like to follow their example. Macedonia, Montenegro and Serbia have already submitted an official application. The EU considers Bosnia and Kosovo 'potential candidates'.

Kosovo is the main stumbling block on Serbia's road to EU membership. Even after the end of hostilities, skirmishes continued between the ethnically Albanian majority and the ethnically Serbian minority within Kosovo, and vice versa in Serbian territories directly adjacent. Tensions are dormant at best. A renewed outbreak of armed conflict is not unthinkable.

Land for peace?

Image: BBC

Mitrovica isn't the only area majority-Serb area in Kosovo, but the others are enclaved and fear being abandoned in a land swap.

In fact, relations between Kosovo and Serbia have deteriorated spectacularly in the past few months. At the end of November, Kosovo was refused membership of Interpol, mainly on the insistence of Serbia. In retaliation, Kosovo imposed a 100% tariff on all imports from Serbia. After which Serbia's prime minister Ana Brnabic refused to exclude her country's "option" to intervene militarily in Kosovo. Upon which Kosovo's government decided to start setting up its own army – despite its prohibition to do so as one of the conditions of its continued NATO-protected independence.

The protracted death of Yugoslavia will be over only when this simmering conflict is finally resolved. The best way to do that, politicians on both sides have suggested, is for the borders reflect the ethnic makeup of the frontier between Kosovo and Serbia.

The biggest and most obvious pieces of the puzzle are the Serbian-majority district of Mitrovica in northern Kosovo, and the Albanian-majority Presevo Valley, in southwestern Serbia. That land swap was suggested previous summer by no less than Hashim Thaci and Aleksandar Vucic, presidents of Kosovo and Serbia respectively. Best-case scenario: that would eliminate the main obstacle to mutual recognition, joint EU membership and future prosperity.

If others can do it...

Image: Ruland Kolen

Belgium and the Netherlands recently adjusted out their common border to conform to the straightened Meuse River.

Sceptics - and more than a few locals - warn that there also is a worst-case scenario: the swap could rekindle animosities and restart the war. A deal along those lines would almost certainly exclude six Serbian-majority municipalities enclaved deep within Kosovo. While Serbian Mitrovica, which borders Serbia proper, is home to some 40,000 inhabitants, those enclaves represent a further 80,000 ethnic Serbs – who fear being totally abandoned in a land swap, and eventually forced out of their homes.

Western powers, which sponsored Kosovo's independence, are divided over the plan. U.S. officials back the idea, as do some within the EU. But the Germans are against – they are concerned about the plan's potential to fire up regional tensions rather than eliminate them.

Borders are the Holy Grail of modern nationhood. Countries consider their borders inviolate and unchanging. Nevertheless, land swaps are not unheard of. Quite recently, Belgium and the Netherlands exchanged territories so their joint border would again match up with the straightened course of the River Meuse (3). But those bits of land were tiny and uninhabited. And as the past has amply shown, borders pack a lot more baggage in the Balkans.

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