Balloon Kenya Week 1: Charlie Speaks

Balloon Kenya, or ‘doing’ Complexity Economics 

Charlie Satow, 2014 Kericho Fellow

When you live in a big city, you often get to know the geography of different ‘islands’ within it without being able to connect them in your head. When this eventually happens, and West and Central London lock together, it’s a good feeling. When this same thing happens with two ideas, the feeling is even better. When this happens with two ‘spheres’ of your life, say intellectual and professional, it feels bloody awesome.

I’ve recently begun a project with Balloon Kenya, an organisation which trains UK based students (a good mix of international and British) in entrepreneurship and uses their enthusiasm and skills to support aspiring Kenyan entrepreneurs. The approach to entrepreneurship they promote is based on the ideas of Sara Sarasvathy, who differentiates between ‘causal’ and ‘effectual’ reasoning. ‘Causal’ reasoning starts out with a “pre-determined goal and a given set of means, and seeks to identify the optimal, fastest, cheapest most efficient alternative to achieve the given goal”. It’s a planning mentality, where you break the problem down into its constituent parts, come up with some logical answers, build your product, and either sink or swim.

‘Effectual’ reasoning starts with the means and “allows goals to emerge contingently over time,” in an iterative method with a heavily action-oriented, trial-and-error-based mindset. Testing – and learning along the way – is key. It’s an exciting, and potentially revolutionary approach to unlocking the entrepreneurial instincts buried inside all of us. And it locks in perfectly to an evolutionary view of the economy as a complex adaptive system, my pet intellectual concept at the moment. Cue mental fist pump. In fact, complexity can explain why this ‘effectual’ approach to entrepreneurship is the most effective.

SAM_0249 SAM_0259 The Marshmallow Challenge demonstrates the difference between causal and effectual thinking. The aim is to build the tallest structure out of spaghetti, tape and a marshmallow – which has to go on the top.

 

As I’ve been reading recently in Eric Beinhocker’s ‘The Origin of Wealth’ the economy, in the evolutionary complexity-based view, is a system of millions of interacting, boundedly-rational agents; who are constantly learning and adapting their behaviour. This produces an economy that is dynamic and has ‘emergent’ properties which are more than the sum of its constituent parts. Its behaviour is non-linear, meaning that small changes can have huge effects (think the financial crisis or mobile money transfer cascading across the Kenyan economy)  All this makes it mighty hard to predict or plan, beyond human intelligence in fact. Alain Lewis, for example, shows that the perfect rationality required to process all the information in the economy is beyond a ‘Turing Machine,’ an imaginary, all-purpose, all-powerful computer. ‘Causal’ thinking for entrepreneurship here takes a big hit.

“Evolution is cleverer than you” says Orgel’s Second Law. And in the economy, wealth is created not by individual human rationality but by the operation of a simple evolutionary algorithm that differentiates, selects and amplifies successful models for conducting business, with the market as its ‘weapon of choice’. Essentially this algorithm ensures that those ’fit’ models best suited to the environment survive and therefore proliferate, whilst the unsuited die out.

Evolution basically says I will try lots of things and see what works and do more of what works and less of what doesn’t. The effectiveness of ‘effectual’ thinking makes total sense in light of the above. A customer-oriented approach – which takes the burden of selecting successful and innovative ideas from individual human brains and places it with ‘customers’ (Balloon Kenya’s terminology)  – aggregated into ‘the market’ (evolutionary economics-speak) is a formula for success.

For Eric Beinhocker, complexity economics pioneer and author of The Origin of Wealth, “Wealth is knowledge and its origin is evolution”. For Eric Ries, Balloon Kenya pin-up and author of the ‘The Lean Startup,’ “Value in a startup is….validated learning about how to build a sustainable business”.

West and Central London just locked together.

Charlie also writes about international development issues at http://bestofpossibleworlds.blogspot.com/

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