Friday, August 6, 2010

People Are Not (Statistical) Noise

Bill Easterly had an interesting post yesterday about individual creativity and economic growth. It concludes
I learned from Herr Mozart that musical creativity, like economic growth, proceeds in fits and starts, and we should not be so obsessed with short term fluctuations.

Also I would not dare apply the words “random” or “lucky” to The Marriage of Figaro. Bursts of creativity, like bursts of rapid growth due to, say, entrepreneurial breakthroughs, may be temporary but they are not “random” in any mechanical sense. They reflect the best of humanity’s purposeful activity, and they stay with us forever even if the original creative moment is fleeting.
Bill's post is written at the level of analogy, which is fine. But there is in fact a real-world connection between individual creativity and change at the scale of particular communities or even entire societies. The nature of that connection is not only an interesting puzzle to ponder, but in my view the fundamental question in the study of economic development.

There are at least two ways of posing the question. The first is: Are people just noise? Creativity fluctuates at level of individual, but simple laws of statistical aggregation might seem to imply that societal outcomes should be smooth. They are not. So why does the law of large numbers not apply in cases of discontinuous societal change prompted by individual action? How is it that small-scale fluctuations in talent and creativity, both among people and within a single life, end up having large-scale impacts?

There a lots of answers in theory to this version of the question--herding & other types of increasing returns, chaotic dynamics, self-organization. There is also a rich tradition of addressing something like the same question in philosophy and literature (best in my view: second epilogue to War and Peace and Nietzsche's "Philosophy of History"). I also started in this direction using a culinary, rather than musical metaphor, a while back. These ideas could the be subject of multiple future posts, essays, or books...or, maybe, none at all. Because I don't think that this version of the question is the most interesting.

The interesting version of the question is a much more practical one, namely: Are entrepreneurs just noise? Easterly's earlier post re. system change suggest that they just might be. His link bait for that post: "The most important thing I can ever say: development is NOT about solutions, it IS about problem-solving systems."

An excellent recent post by @penelopeinparis gives solution-finders a bit more credit:
I don’t know for sure, but I suspect that when a bunch of crazy French doctors decided to create Doctors without Borders during the Biafra war, everyone around them must have thought they were absolutely off their rockers.

What about Henri Dunant, the idealistic businessman whose disgust with the horrors of Napoleonic wars lead to the creation of the Red Cross? (Did you catch that? Henry Dunant was a businessman with no experience in anything remotely connected to humanitarian aid)

There are several types of aid entrepreneurs; a fact that sometimes seems to get lost on critics and supporters of NGO entrepreneurs alike. Not everyone is an Henri Dunant, Bernard Kouchner or Greg Mortenson,...

The real question, for me, is how do we support the kind of innovation that does create positive change, all the while weeding out all the useless and potentially harmful amateurish initiatives?
I fully concur that this is the real question. Indeed, the direction @penelopeinparis appears to be going is, well, music to my ears.

UPDATE: @bill_easterly offers this pithy rejoinder via Twitter: "My response on giant potential scale: hello nonrival ideas"


  1. It's the underlying question that hasn't been answered, and troubles me most: Is it even possible to systematically distinguish between the good and the amateurish?

    For any effort in this direction to be worthwhile we have to believe that we can consistently be right in our judgments (whether thats in the form of picking winners or correctly setting up and predicting the effects of policies.)


  2. Very interesting post. I think that both systemic change and change at the grassroots, individual level are two sides of the same coin, frankly. They are not fundamentally opposed to each other, and feed off of each other quite a bit. Entrepreneurs and individuals are not just "noise", for sure. Often, some of the greatest societal changes occured because of the convening power, charisma and strength of individuals leading the way (I'm reading MLK's autobiography right now, so this may be coloring my perspective a bit!)
    That said, like I mentioned in my post, there are instances where individuals cannot (and should not) be seen as the panacea. I can't help but think of celebrity aid.... Sean Penn in Haiti, for example. At the individual, entrepreneurial level, he's doing great work (let's be honest: he IS helping and making a difference). But it's when he tries to extrapolate his micro-level success to broader issues that he loses me, and loses credibility, IMO.
    It's also disconcerting that entrepreneurship and the power of the individual are discredited any time that someone fails... I hope we can learn to learn from our (and other people's) mistakes, rather than write off the potential of human creativity to make a difference every time we hit an obstacle.

  3. Happens all the time! It's called bankruptcy. But I suppose you're talking about NGOs--which of course was the context for Penelope's post. I was going to get into that, but my post was getting too long. My view on entrepreneurial free-for-all vs. "rigorous" assessment summarized in a prior post:

    Short ver: I'd say, refine, adapt, and scale what already works best, which is an equity- and mentorship-based model for investing in entrepreneurial ventures. (Ref. Aspen Network of Development Entrepreneurs.)

  4. I'd be happier with ANDE if it weren't such a closed system (which ironically it seems to me cuts them off from the market feedback that entrepreneurs need).

    More to the point, I actually wasn't thinking about NGOs. Yes, bankruptcy works but prima facie its a horribly inefficient system--in the US roughly 85% of entrepreneurs fail and those numbers haven't budged in recorded history regardless of efforts in education and policy. Depending on how you look at it, the vast majority of capital going into entrepreneurial ventures is just a "make work" scheme for people hired by small biz and doesn't add much long-term value to the economy (similar to or perhaps identical to necessity entrepreneurs in the GEM rubric). You could even call the system a transfer program moving funds from unsavvy small biz folks to bankruptcy lawyers.

    Is that the best we can hope for? Is it the worst system except for all the others?

  5. I think we need to accept the 85% failure rate in order to get the 15% that works. There is no system that will allow anyone or any organization or institution to decide what's good and what's not. It will have to be trial and error: any bureaucratic system will raise barriers to entry and stifle innovation.