Rainforest Business Ecosystems

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Peter Turchin:

“ read The Rainforest: The Secret to Building the Next Silicon Valley by Victor Hwang and Greg Horowitt. Now, Hwang and Horowitt are not scientists, and their book is not a rigorous scientific study. But they spent decades bringing together venture capitalists and entrepreneurs, both in their native California and all over the globe—“Japan, Taiwan, Scandinavia, and New Zealand, … Mexico, Egypt, Kazakhstan, Colombia, Saudi Arabia, and the Palestinian Territories.” Given their enormous experience, the empirical base, with which they operate in the book, transcends the dismissive academic characterization as “anecdotal.”

A central theme that recurs throughout the book is that successful entrepreneurs, and the successful innovation systems in which they operate, such as the Silicon Valley or Route 128 in Massachusetts, are the antithesis of the rational businessperson postulated by Branko, one who is solely motivated by money. In fact, “Rainforests [their term for successful innovation systems] depend on people not behaving like rational actors.” “For Rainforests to be sustainable, greed must be restrained.” “Predatory venture capitalists might win a few in the short run, but they do not last long in the business and are unable to build lasting firms.”

The evolutionary logic of entrepreneurship, according to Hwang and Horowitt, is precisely the opposite of that posited by Branko. Predatory, super-competitive individuals and firms are eliminated by natural selection, and only cooperative ones survive.

They write:

Extra-rational motivations—those that transcend the classical divide between rational and irrational—are not normally considered critical drivers of economic value-creation. … These motivations include the thrill of competition, human altruism, a thirst for adventure, a joy of discovery and creativity, a concern for future generations, and a desire for meaning in one’s life, among many others. Our work over the years has led us to conclude that these types of motivations are not just “nice to have.” They are, in fact, “must have” building blocks of the Rainforest.”

This is why when governments and corporations try to incentivize innovation by focusing on financial mechanisms, the overall result is failure. By the end of the book, Hwang and Horowitt boil down their own recommendations as to what makes successful “Rainforests” thrive. They are four. First, diversity, which brings people with very different knowledge and skills together, such as a scientist, a venture capitalist, an engineer, a sales specialist, and an administrator (a CEO).

Second, extra-rational motivations, because self-regarding rational actors are simply unable to cooperate to launch a successful innovation enterprise. Third, social trust, because successful cooperation is the only way to beat the terrible odds against a successful innovation startup, and cooperation requires trust.

Fourth, a set of social norms that regulate the behavior of various cooperating agents, and willingness both to follow them and to enforce these rules by various sanctions.

In other words, Hwang and Horowitt describe a system that uses precisely the same components to bring about cooperation that have been studied in other settings (a foraging group, a military troop, a religious sect, and a state), and in the abstract, by cultural evolutionists. The Rainforest, then, provides ample empirical material to reject the theory that economic growth, which is based on innovation, is moved by self-interested rational agents. But—and it was one of the real eye-openers for me—it also explains why this is so. “ (http://peterturchin.com/cliodynamica/does-capitalism-destroy-cooperation/)