On the occasion of Charles Darwin’s 200th birthday, let us reflect on the meaning of “survival of the fittest.”
Darwin did not coin the phrase; a contemporary, Herbert Spencer, did. Many people assume it encapsulates Darwin’s flagship theory of natural selection, but it also especially interests managers and investors today because so many firms seem to have a foot or entire torso in the grave.
With the benefit of hindsight, observers daub their eyes at a corporate corpse and mutter “survival of the fittest”–as if to say that its collapse was just the remorseless working of the capitalist system and that any dope could’ve seen it coming. Thus, it is argued, this idea explains the world well.
I take a different view, for five reasons.
First, like all schemes of social determinism (Marxist, Freudian) “survival of the fittest” doesn’t recognize the impact of individual will.
We have numerous examples of willful leaders or teams of executives who turned around firms in difficult straits. What about J. P. Morgan, who helped to rescue banks in the Panic of 1907? Or Intel’s gutsy abandonment of the DRAM product line in the early 1980s, or Corning Glass, which has reinvented itself at least once per generation? Business is about people and leadership.
Second, the popular use of the phrase conflates fitness with goodness. Does might make right? Moral discourse over the past few millennia would beg to differ.
Third, the phrase is inexact and too simple. Its enduring popularity reminds me of H. L. Mencken’s statement: “Explanations exist: they have existed for all times, for there is always an easy solution to every problem–neat, plausible and wrong.” To see this, consider each element of this phrase in turn.
In biological terms, “survival” suggests that your DNA doesn’t end with you; it is carried forward by your descendants. Survival means longevity of a genetic model, success in evolutionary terms.
But from a business perspective, mere longevity is hardly success. Do we build enterprises just to survive? Don’t we want to prosper? Is there no upside to being successful? Centuries of commerce suggest that to the victors belong the spoils. Much of what animates economic behavior is the possibility of gain.
At the other extreme, being less than the fittest is no guarantee of imminent death. We see many examples of marginal businesses that limp about, hoping to live another day and possibly prosper in the future. Think of the trunk airline industry in the U.S. and the Detroit Big Three.
Next, in terms of Darwin’s theory of natural selection, “fittest” means most adaptable or strongest. Managers sometimes confuse adaptability with opportunism: Show us a firm that loses strategic focus and we’ll show you a loser.
“Strength” is even harder to nail down in business terms. Might it be large size? But no: There is no guarantee of longevity for even the biggest firms. Of the 12 stocks in the Dow Jones Industrials of 1896–some of the biggest firms of that year–only one, General Electric, stands independent today. Joseph Schumpeter’s process of creative destruction is no respecter of size.
Maybe “fittest” refers to firms with plenty of cash and unused debt capacity. But over the years such firms draw raiders and restructurers the way honey draws flies.
In all probability, the best business analogue to “fitness” is economic efficiency, the deployment of capital at rates of return in excess of the cost of capital. This serves shareholders well, but shareholders are a fickle lot, driven to manias and panics, and they won’t necessarily reward fitness even if they can define it.
Fourth, even if we could agree on a definition of the phrase in commercial terms, business life offers glaring exceptions to the rule. Lots of outside forces derail commercial processes of natural selection.
Think of DARPA and the National Institutes of Health, which bestow grants of capital out of conceptions of public interest rather than return on investment. Government largess creates winners where there might have been losers. Monarchs favored certain courtiers with patents and land grants.
Think of special interests, such as unions and ethanol investors, who lobby governments to save failing businesses. The rescue of Chrysler in 1980 was substantially about saving jobs for a powerful political constituency.
Think of bureaucrats and regulators who believe they can allocate resources better than the private sector. How the government decided to favor the creditors of Bear Stearns but not Lehman Brothers will keep historians occupied for years. For much of the 1990s, Japan’s Ministry of Finance refused to seize “zombie banks” as a step toward economic recovery. And think of France, with its often unsuccessful attempts to create national champions.
Think of crony capitalists in developing countries–like Thailand and Indonesia in the mid-1990s–who tried to prop up the inefficient businesses of their friends.
Think of executives who shape their firms to stimulate government intervention. Today, some businesses seem too big to fail; for them, survival is a given, and it is not contingent on being fit.
Finally, survival of the fittest doesn’t help our understanding (of the business world, at least) because it is a tautology. As others have pointed out, it just asserts that those most likely to survive are likely to survive. Duh.
Let’s leave “survival of the fittest” to the natural world. It is an idea that isn’t very useful to explain the realities of market economies or the current economic crisis. Applying the phrase to firms and markets reflects our tendency to anthropomorphize animals and objects. For every Bambi or Harry the Talking Horse, there is “Mr. Market” or the talking tape. Please.
“Survival of the fittest” may be an interesting concept: It usefully suggests the fragility of business enterprise, particularly for the smallest firms, and it cautions the arrogant to think again. But it offers scant guidance for constructive action.
Robert F. Bruner is the dean of the Darden Graduate School of Business at the University of Virginia. He is the author, with Sean Carr, of The Panic of 1907: Lessons Learned From the Market’s Perfect Storm.