Seeking Sustainable Disequilibrium
In the industrial perspective, the economy was a machine
that was to be tweaked to optimal efficiency, and once finely tuned,
maintained in productive harmony. Companies or industries especially
productive of jobs or goods had to be protected and cherished at all
costs, as if these firms were rare watches in a glass case.
As networks have permeated our world, the economy has come
to resemble an ecology of organisms, interlinked and coevolving,
constantly in flux, deeply tangled, ever expanding at its edges. As we
know from recent ecological studies, no balance exists in nature;
rather, as evolution proceeds, there is perpetual disruption as new
species displace old, as natural biomes shift in their makeup, and as
organisms and environments transform each other.
Even the archetypal glories of hardwood forests or coastal
wetlands, with their apparent wondrous harmony of species, are temporary
federations on the move. Harmony in nature is fleeting. Over relatively
short periods of biological time, the mix of species churns, the
location of ecosystems drift, and the roster of animals and plants
changes as they come and go.
So it is with network perspective: companies come and go
quickly, careers are patchworks of vocations, industries are indefinite
groupings of fluctuating firms.
Change is no stranger to the industrial economy or the
embryonic information economy; Alvin Toffler coined the term
"future shock" in 1970 as the reasonable response of humans to
an era of accelerating change.
But the network economy has moved from change to flux.
Change, even in its shocking forms, is rapid difference.
Flux, on the other hand, is more like the Hindu god Shiva, a creative
force of destruction and genesis. Flux topples the incumbent and creates
a platform for more innovation and birth. This dynamic state might be
thought of as "compounded rebirth." And its genesis hovers on
the edge of chaos.
Donald Hicks of the University of Texas studied the
half-life of Texan businesses for the past 22 years and found that their
longevity has dropped by half since 1970. Thats change. But
Austin, the city in Texas in which new businesses have the shortest
expected life spans, also has the fastest-growing number of new jobs and
the highest wages. Thats flux.
The number of old jobs lost increases, but not as fast as the number of
new jobs created. More important, the spread of gained jobs over lost
Hicks told his sponsors in Texas that "the vast
majority of the employers and employment on which Texans will depend in
the year 2026or even 2006do not yet exist." In order to
produce 3 million new jobs by 2020, 15 million new jobs must be created
in all, because of flux. "Rather than considering jobs as a fixed
sum to be protected and augmented, Hicks argued, the state should focus
on encouraging economic churningon continually recreating the
states economy," writes Jerry Useem in Inc., a small-business
magazine that featured Hicks report. Ironically, only by promoting
flux can long-term stability be achieved.
When flux is inhibited, slow death takes over. Contrast
Texas and the other 49 states with the European Union. Between 1980 and
1995 Europe protected 12 million governmental jobs, and in the process
of fostering stasis lost 5 million jobs in the private sector. The
United States, fostering flux, saw a staggering 44 million old jobs
disappear from the private sector. But 73 million new jobs were
generated, for a net gain of 29 million, and in the process the United
States kept its 12 million government jobs, too. If you can stand the
turmoil, flux triumphs.
This notion of constant flux is familiar to ecologists and
those who manage large networks. The sustained vitality of a complex
network requires that the net keep provoking itself out of balance.
If the system settles into harmony and equilibrium, it will
eventually stagnate and die.
Innovation is disruption; constant innovation is perpetual
disruption. This seems to be the goal of a well-made network: to sustain
a perpetual disequilibrium. A few economists studying the new economy
(among them Paul Romer and Brian Arthur) have come to similar
conclusions. Their work suggests that robust growth sustains itself by
poising on the edge of constant chaos. "If I have had a constant
purpose it is to show that transformation, change, and messiness are
natural in the economy," writes Arthur.
The difference between chaos and the edge of chaos is
subtle. Apple Computer, in its attempt to seek persistent disequilibrium
and stay innovative, may have tottered too far off-balance and let
itself unravel toward extinction. Or, if its luck holds, it may discover
a new mountain to ascend after a near-death experience.
The dark side of flux is that the new economy builds on the
constant extinction of individual companies as theyre outpaced or
morphed into yet newer companies in new fields. Industries and
occupations also experience this churn. Even a sequence of rapid job
changes for workerslet alone lifetime employmentis on its
way out. Instead, careersif that is the word for themwill
increasingly resemble networks of multiple and simultaneous commitments
with a constant churn of new skills and outmoded roles. About 20% of the
American workforce already have an arrangement other than the
traditional employee relationship with one employer. And 86% of them
claim to be happy about it.
Nowhere is this trend toward constant flux more evident than
in the entertainment industry centered in southern California.
Hollywoods "cultural-industrial complex" includes not
just film, but also music, multimedia, theme park design, TV production,
Giant film studios no longer make movies. Loose
entrepreneurial networks of small firms make movies, which appear under
the names of the big studios. In addition to various camera crews, about
40 to 50 other firms, plus scores of freelancers, connect up to produce
a movie; these include special effects vendors, prop specialists,
lighting technicians, payroll agencies, security folks, and catering
firms. They convene as one financial organization for the duration of
the movie project, and then when the movie is done, the company
disperses. Not too much later they will reconvene as other movie-making
entities in entirely new ad hoc arrangements. Cyberpunk author Bruce
Sterling has his own inimitable way of describing the flux of
"Hollywood film ad-hocracies." To make a movie, he says,
"Youre pitchforking a bunch of freelancers together, exposing
some film, using the movie as the billboard to sell the ancillary
rights, and after the thing gets slotted to video, everybody just
Fewer than ten entertainment companies employ more than
1,000 employees. Of the 250,000 people involved in the entertainment
complex in the Los Angeles region, an estimated 85% of the firms employ
10 people or fewer. Joel Kotkin, author of a landmark 1995 article in
Inc. magazine entitled, "Why Every Business Will Be Like
Show Business," writes: "Hollywood has mutated from an
industry of classic huge, vertically integrated corporations into the
worlds best example of a network economy. Eventually, every
knowledge-intensive industry will end up in the same flattened, atomized
state. Hollywood just has gotten there first."
Silicon Valley is not far behind. The ICE
businessesinformation, communication, and entertainmentall
rely on speed and flexibility to survive in a self-made speedy and
flexible environment. Things move so fast that even a
corporationany corporationseems too rigid and staid. You
cant alter bureaucratic structure fast enough, so dont even
build one to begin with.
Networks are immensely turbulent and uncertain. The prospect
of constantly tearing down what is now working will make future shock
seem tame. As creatures of habit we will challenge the need to undo
established successes. We are sure to find exhausting the constant,
fierce birthing of so much that is new. The network economy is so primed
to generate self-making newness that we may experience this ceaseless
tide of birth as a type of violence.
In a poetic sense, the prime goal of the new economy is to
undocompany by company, industry by industrythe industrial
In reality, of course, the industrial cortex cannot be
undone. But a larger web of new, more agile, more tightly linked
organizations can be woven around it. These upstart firms bank on
constant change and flux.
Change itself is no news, however. Ordinary change triggers
yawns. Most change is mere churn, a random disposable newness that
accomplishes little. Churn is the status quo for these times. At the
other extreme, there is change so radical that it topples the tower.
Like inventions that fail because they are way ahead of their times, it
is possible to reach too far with change.
What the network economy coaxes forth is a selective flux.
The right kind of change, in the right doses. In almost all respects
this kind of change is what we mean by innovation.
The word "innovation" is so common now that its
true meaning is hidden. A truly innovative step is neither too staid and
obvious, nor too far out. The innovative step is change that is neither
random directionless churn, nor so outrageous that it cant be
appreciated. We wouldnt properly call just another variation of
something an innovation. We also wouldnt call a shift to something
that only worked in theory, but not practice, or that required a massive
change in everyone elses behavior to work, an innovation.
A real innovation is sufficiently different to be dangerous.
It is change just this side of being ludicrous. It skirts the edge of
the disaster, without going over. Real innovation is scary. It is
anything but harmonious.
The selective flux of innovation permeates the network
economy the way efficiency permeated the industrial economy. The
innovative flux is not merely dedicated to devising more interesting
products, although that is its everyday chore. Innovation and flux
saturate the entire emerging space of the new economy. Innovation
New categories of products
New methods to make old and new products
New types of organizations to make products
All of these will twist and turn as change, dangerous
change, spirals through them. This is why there is such a maniacal fuss
about innovation. When management gurus drone on about the imperative of
innovation, they are right. Firms still need excellence, quality of
service, reorganization, and real time, but nothing quite embodies the
ultimate long-term task in this new economy as the tornado of
Because large systems must tread a path between the ossification of
order and the destruction of chaos, networks tend to be in a constant
state of turmoil and flux.
This is where life lives, between the rigid death of planned
order and the degeneration of chaos. Too much change can get out of
hand, and too many ruleseven new rulescan lead to paralysis.
The best systems have this living quality of few rules and near chaos.
There is enough binding agreement between members that they dont
fall into anarchy, yet redundancy, waste, incomplete communications, and
inefficiency are rife.
My own involvement in groups that launched successful
change, and my secondhand knowledge of many, many others involved in
world-changing innovation, convinces me that all of these ensembles
teetered on the brink of chaos at their peak performance. Whatever front
they put up to the public or investors, behind the scenes most of the
group ran around screaming "Its pathologically out of control
here!" Every organization is dysfunctional to some degree, but
innovative organizations, in their moment of glory, tend to slide toward
uncoordinated communication, furious bouts of genius, and
life-threatening disorganization. Everyone involved swears they will
institute just enough structure to prevent flameout in the future, but
Ive never seen radical innovation emerge from an outfit that
wasnt halfway to unraveling at the epicenter of change. Most of
the studies of optimal evolution in complex systems confirm this view.
The price for progressive change in maximum doses is a dangerous (and
thrilling) ride to the edge of disruption.
Although many groups experience these grand moments when
creativity flows and things get done well, the holy grail in business
and life is to find ways to sustain these periods of supreme balance.
Sustaining innovation is particularly tricky since it flows out of
To achieve sustainable innovation you need to seek
persistent disequilibrium. To seek persistent disequilibrium means that
one must chase after disruption without succumbing to it, or retreating
A company, institution, or individual must remain perched in
an almost-falling state. In this precarious position it is inclined to
fall, but continually catches itself and never quite topples. Nor does
it anchor itself so that it cannot tip. It sort of skips along within
reach of disaster, but uses the power of falling to propel itself
forward with grace. A lot of people compare it to surfing; you ride a
wave, which is constantly tumbling, and perched on top of this
continually disintegrating hill of water, you harness its turbulence
into forward motion.
Innovation is hard to institutionalize. It often needs to
bend the rules of its own creation. Indeed, by definition innovation
means to break away from established patterns, which means that it tends
to jump over formulas. In periods of severe flux, such as the transition
we are now in between a resource-based economy and a connected-knowledge
one, change enters other levels.
Change comes in various wavelengths. There are changes in
the game, changes in the rules of the game, and changes in how the rules
The first levelchanges in the gameproduces the
kind of changes now visible: new winners and losers. New businesses. New
heroes. We see the rise of Wal-Marts, and of Nucor steelmaking.
The second levelchanges in the rules of the
gameproduces new kinds of business, new sectors of the economy,
new kinds of games. From this type of change comes the Microsofts and
The third level of change, which we are now entering, whips
up changes in how change happens. Change changes itself. While the new
economy provokes change in the first two levelsall those new
business and business sectorsits deepest consequence is the way it
alters change. Change accelerates itself. It morphs into creative
destruction. It induces flux. It disperses into a field effect, so you
cant pinpoint causes. It overturns the old ways of change.
Change in technological systems is becoming more biological.
This will take a lot of getting used to. Networks actually grow.
Evolution can really be imported into machines. Technological immune
systems can be used to control computer viruses. This neobiologicalism
seeps directly into our new economy. More and more, biological metaphors
are useful economic metaphors.
The image of the economy as something alive is powerful. And
it is hardly New Age hokum. Adam Smith himself alluded to aliveness with
his unseen "hand." Karl Marx often referred to the organic
nature of the economy. Even the legendary no-nonsense economist Alfred
Marshall wrote in 1948 that "the Mecca of the economist lies in
economic biology." Marshall was writing at the peak of the
industrial economy. The first stirrings of the coming power of
information were just being felt.
Living systems are notoriously hard to model and theorize
about, and even more difficult to predict. Until very recently economics
has gravitated to an understanding that settled on an equilibrium,
primarily because anything more complex was impossible to calculate.
Ironically, the very same computer technology, which has roused flux in
the economy, is now used to model it. With powerful chips, dynamic,
learning, self-feeding theories of the economy can be mapped out.
Both in our understanding of it, and in reality, the network
economy is a place that harbors little harmony or stasis. Instead, it is
a system that will increasingly demand flux and innovation. The art of
judicious change, of the dangerous difference, will be rewarded in
Skate to the edge of chaos. Pay the price of radical
churn: endorse redundancy, inefficiency, and set the neatniks up in
arms. If people are not complaining about how chaotic the place is,
youve got a problem. It isnt necessary that the whole
organization be in chaos (one hopes the accounting department is
spared), but that key parts are. The duty may want to be rotated.
Realistically, disequilibrium is very difficult to maintain.
Exploit flux instead of outlawing it. The traditional
practice of telephony tries to eliminate noise and uncertainty by
creating an optimally short and uninterrupted circuit between caller and
callee. It assumes a stable route. The internet, on the other hand,
counts on chaotic change, and it will overtake the entire phone system
soon. It sends messages (including voice) in fragmented bits scattered
along redundant routes, and then resends whatever the haphazard process
loses to noisy lines. Rather than prohibit errors, network logic assumes
errors and learns from the chaotic flux. Find where the flux is, and
You cant install complexity. Networks are biased
against large-scale drastic change. The only way to implement a large
new system is to grow it. You cant install it. After the collapse
of the Soviet Union, Russia tried to install capitalism, but this
complex system couldnt be installed; it had to be grown. The
network economy favors assembling large organizations from many smaller
ones that keep their autonomy within the large. Networks, too, need to
be grown, rather than installed. They need to accumulate over time. To
grow a large network, one needs to start with a small network that
works, then add more sophisticated nodes and levels to it. Every
successful large system was once a successful small system.
Preserve the core, and let the rest flux. In their
wonderful bestseller Built to Last, authors James Collins and
Jerry Porras make a convincing argument that long-lived companies are
able to thrive 50 years or more by retaining a very small heart of
unchanging values, and then stimulating progress in everything else. At
times "everything" includes changing the business the company
operates in, migrating, say, from mining to insurance. Outside the core
of values, nothing should be exempt from flux. Nothing.