Geoffrey West shares some fascinating things that he and his team have learned about systems dynamics. (Click through on the subtitle to see his talk or scroll down to read the transcript.)
One, growth in cities provides some economies of scale. Give him the number of people in a city and he can give you the number of gas stations, miles of roads, etc. The good news is that these kinds of things grow more slowly than the population.
Economic activity, however, grows faster than the number of people. Incomes and innovation within a city grow faster than the population. This, too, is a good thing.
His team has recently analyzed data on companies and he's found a few odd things. One, the profits to sales ratio shrinks as a company gets larger. Two, the rate of innovation also slows. Three, the volatility of sales each year actually becomes greater than the profit percentage. (For instance, at a particular stage, volatility in annual sales of 10% might accompany a profit rate of only 5%.) Companies die as they become less tolerant of crazy ideas and crazy people (their rate of innovation, consequently, slows).
Oddly, as cities become larger they foster more innovation yet as companies become larger they become less innovative. This - it seems to me - has to do with how citizens are "managed" less than employees.
Oddly, as cities become larger they foster more innovation yet as companies become larger they become less innovative. This - it seems to me - has to do with how citizens are "managed" less than employees.
One of the things that makes this so fascinating to me is that it suggests that these dynamics explain more about rates of growth and life expectancies (yes, even of companies) than more traditional explanations like culture, history, and conscious policies. For me, it is further confirmation that an understanding of systems is not just going to be nice in this new economy: it will be necessary.
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