Sustainable with the art of economics

The times of digitisation were already exciting. No stone seemed to remain on top of another. Then came Corona and virtually overnight everything seemed to change. The same economic principles were and are at work in both cases. It is important to make use of these principles.

The process of digitisation is characterised by the terms disruption, business model innovation and, most recently, machine learning and artificial intelligence. As if the topic had not been at the top of the agenda everywhere for years, the world experienced a massive push in digitisation due to the COVID-19 pandemic. Suddenly, what was visionary before became possible. And it was difficult for new ones with visions. We no longer know what tomorrow will bring. At best, we might know that we know less about the future than we thought we did all along. This makes it all the more important to understand how this future is created in the first place.

Weg in eine ungewisse Zukunft
Steps to an uncertain future. Photo by Tomasz Frankowski on Unsplash

“The sun is new every day”, the Greek philosopher Heraclitus had already stated. Some time ago, the interdisciplinary research team of Roger Koppl, Stuart Kaufman, Guiseppe Longo and Teppo Felin published an article on the economics of a creative world that had received too little attention. This article not only gives cause for further research, it also makes it easier for anyone who has to make decisions about the future, whether entrepreneurial or political, to do so. Here are a few essential points.

John Maynard Keynes had already lamented the “lost art of economics” and advocated seeing economics as a form of art. Instead of using economics to understand what is, or to describe what should ideally be, the art consists of finding maxims that can be used to design.

The search for the adjacent possible

In order to make this possible, it is necessary in a creative world to constantly look for the “adjacent possible”, for the “bordering possibilities”. In a certain situation and at a certain time, some things are possible and some things are not. The dream of flying is probably as old as mankind, but the aircraft only became an adjacent possible when relatively light, strong and reliable combustion engines became available. This was the beginning of a rapid development of aviation. The more universal the technology, the greater the number of possibilities and the more dramatic the changes. This is demonstrated by the current phase of digitalisation: an enormous variety and complexity is continuously developing with high dynamics and yet remains simple and accessible through global division of labour and ever increasing specialisation. Whereas a few years ago well-stocked department shops had an impressive selection of a few tens of thousands of products, today an incredible 600 million products are available on Amazon. The cambiodiversity of business is developing in a similar way to the biodiversity of nature – under good environmental conditions.    

It is now crucial to understand that the newly created possibilities become “activating restrictions”, which in turn create new adjacent possibilities for the overall system. In other words, they enable economic and social actors to do something that was not possible before. The present is characterised by an abundance of such “enabling constraints”. The example of the smartphone alone shows how unpredictable the exploding and increasing combination possibilities are. And yet entrepreneurs and companies are each successfully opening up the future in their own specific field of activity by identifying and using adjacent possibilities. Within a few years, an iphone has become thousands of models from different manufacturers. A handful of the first apps have now grown to well over 2.5 million in the publicly accessible app stores alone. It is worth noting that this abundance is a challenge, because in a creative world many adjacent opportunities remain unused.

New restrictions create new possibilities

It goes without saying that the framework conditions and thus the restrictions for daily life do not change only through innovation. The most recent and most profound example of this is the COVID-19 pandemic with the resulting health and regulatory consequences. These new “governing constraints” have suddenly prevented us from doing certain things as usual, e.g. simply going to work and school as before. However, this was accompanied by an interesting phenomenon: previously hardly used but latently existing adjacent possibilities were suddenly recognised and the potential they offered was able to unfold, again creating a variety of additional possibilities as “activating restrictions”. An outstanding example of this is probably the shift from office work to the home office and, in connection with this, the use of and technical development of platforms such as Zoom, Teams, Slack and Webex. In Microsoft teams alone, the number of users doubled to 44 million within a few weeks in March of this year and had already reached 75 million by April. Within a very short time, the software has developed from an insider tool to an integral part of professional and family life. Here too, the number of apps is growing rapidly to currently more than 600.

word anywhere home office
Restrictions imposed by the pandemic make it possible for more people to work from home. Photo by Kevin Bhagat on Unsplash

In the crisis, a so-called “reframing“, a kind of reappraisal of the adjacent possibilities, takes place. Some actors succeed better than others and some do not even try to do so. The combination of the corona crisis and the drop in oil prices was largely a reaction of the multinational oil companies, which had dominated until then, to the crisis with austerity programmes and cost-cutting. The CEO of BP Bernard Looney, on the other hand, is using the opportunity to aggressively present his group as an “energy company of a different kind” and thus to tackle opportunities in the field of renewable energies and recycling management, for which smaller companies such as Neste Oyj from Finland have so far tended to stand.

Anyone who wants to help shape the future must therefore actively participate in the process of “novelty intermediation” described here, i.e. the development of new, but in some cases already latently existing, adjacent possibilities. These are to be understood as activating restrictions through whose novel combination the limit of what is feasible can be shifted. Lateral thinkers and team players are in demand, because similar to football, quick and precise passing creates new spaces and ensures goals.               

Article by Prof. Dr. Dirk Nicolas Wagner, Professor of Strategic Management.  

Koppl, R., Kauffman, S., Felin, T., & Longo, G. (2015). Economics for a creative world. In Journal of Institutional Economics 11, pp.1-31.

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