Learning from Applying Universal Darwinism to the Dutch Greenhouse Horticulture Sector

Abstract

This thesis is concerned with the notion of Darwinism and its application outside of its traditional biological realm, to that of economics. The mechanism of natural selection is based on the co-­? existence of variational, hereditary and selective processes within a system (Cordes 2006). This context-­?independent description of natural selection has been coined ‘Universal Darwinism’, the extent and practical relevance of which is not thoroughly understood. This thesis has aimed to contribute to the understanding of this practical relevance by applying a framework of Universal Darwinism to a specific economic context, that of the Dutch horticulture sector. The innovation and adaptive complexity in this industry makes it highly suitable to respond to the notions brought forth by Universal Darwinism. The competitiveness of the Dutch horticulture sector is under pressure and ways are sought to formulate policies to improve it. By identifying national legislative bodies as the primary stakeholder, the practical relevance of Universal Darwinism is derived from its role in illuminating a deeper understanding of the drivers of economic change and its interplay with the competitiveness of the sector so as to facilitate the formulation of more effective policies. Through an agent-­?based simulation study that is thoroughly grounded in a Darwinistic ontology, answers are sought to these questions. The primary research question of this thesis has been formulated as: “How can the application of Universal Darwinism help inform policy formulation to improve the competitive position of growers in the Dutch Tomato Sector?” This research question covers a lot of ground and was identified as being the consolidation of three different themes: the Framework of Universal Darwinism, Competitiveness within the Dutch Tomato Sector and Sectoral Policy Formulation. On the one hand, sufficient insight into the framework of Universal Darwinism was required to understand how to apply it to the economy. On the other hand, the drivers of competitiveness for growers within the Dutch Tomato Sector were to be understood. Lastly, these two themes were to be combined within a sectoral policy formulation directed to improving the competitiveness of growers. Therefore, a deconstruction into three separate research questions was found to be appropriate. These were formulated as: “What is the structure of and what are the core drivers of competitiveness within the Dutch Tomato Sector?” (1), “How can a framework of Universal Darwinism be applied within the context of the Dutch Tomato Sector Economy?” (2) and “How do Sectoral policies, aiming to improve the competitiveness of the Dutch Tomato sector, perform and how does Universal Darwinism help interpret the insights achieved and shed light on policy formulation?” (3). In the methodological discussion, it was shown that the framework of Universal Darwinism showed considerable overlap with the ontological commitments of evolutionary economics. This allowed for a set of generalized conditions for evolutions could be identified that allowed for the transplantation of Darwinism to the economic realm. In this transplantation, three assumptions were made with respect to two themes. Firstly, ongoing difficulties exist around the appropriate ‘Unit of Evolution’ within economics. This thesis assumed as a unit of evolution a description of ‘company strategy’. Although many other definitions exist, this definition allows for an intuitive bridge between the behavior and selection of the growers in the model. Secondly, two assumptions had to be made with respect to the ‘Variability of the Selective Landscape’. If the environment of a company is too variable, both the description of evolution and the relevance of any policies derived from it would carry little meaning. These assumptions, together with the data requirements necessary for the model, led to a set of barriers to the practical relevance of Universal Darwinism within economics were constructed. For the current study goals, it was found that Agent-­?based modeling is the appropriate methodology because it is able to build a model of the economy on Darwinistic foundations. In discussing ontology of an evolutionary agent-­?based modeling, it was found that the ‘production of agent instructions’ was found to be the key link that distinguishes economic evolution from mere economic change in the economy. The model hypothesis were formulated as: “It is feasible to build an agent-­?based 4 model within the framework of Universal Darwinism (thereby distinguishing economic change from economic evolution)” (1), “The model can reproduce the stylized facts observed in the Dutch Tomato Sector” (2) and “The model is able to give insights into the relationship between policy formulation and the competitive position of Dutch Tomato Growers” These model hypotheses were chosen in order to collectively help reflect on both the primary research question, as well as the barriers to the practical relevance of Universal Darwinism within the field of economics as a whole. An extensive empirical investigation subsequently looked at the empirical foundations of the model by investigating the structure and core drivers of competitiveness within the Greenhouse horticulture Sector. The first research question was answered in the form of five different Stylized Facts’ of this particular economy and an overview of threats and opportunities / policy measures available to enhance the competitiveness of the Dutch Tomato grower. The stylized facts related to differences in the particular production systems used within this economy, an observed trend of increasing concentration and scale in the market, a positive relationship between performance volatility and company size, the particular price and volume contracting behavior observed between growers and retailers and the importance of company innovation and knowledge exchange within the sector. In the model conceptualization phase, a connection was sought between the economic characteristics of the sector (structure and stylized facts) and the ontological foundations of an evolutionary agent-­?based model. In addition to formulating model assumptions that set the ground for the model boundaries, the model objective and the concept of grower competitiveness were identified. Grower competitiveness was defined through the notion of the ‘selection of individual tomato growers’ in the model. In this definition, competitive Tomato growers stay ‘alive’ or ‘economically viable’ while uncompetitive Tomato growers go bankrupt or ‘die’ in the model. As such, the model objective was identified as giving insights into the relationship between policy formulation and the selection of individual Tomato growers. A set of 10 different model scenarios were constructed to help illuminate the relationship between policy formulation and the selection of individual Tomato growers. While some of these scenarios rested primarily on the notion of economic change, others included strong elements of economic evolution, thereby giving insights into the role of evolution in the economy. The base case model simulation simulated the stylized facts in the economy well and formed the reference model for subsequent model scenario comparisons. From these comparisons, conclusions were drawn. It was found that innovation stimulation for northern markets for the benefit of competitiveness can only be (initially) effective if the innovation is of such a type or sufficient measures are taken to limit or delay the transplant ability of innovation to southern regions of production while maintaining diffusion in the northern region. The effects of knowledge diffusion were very strong in the model, creating both opportunities and risks for the competitiveness of the northern grower. Further more, Resource and Credit support were found to be an effective policy mechanism to help improve the competitive position of Northern growers. Expansion stimulation , on the other hand, seemed to require very prudent investment and expansionary grower strategies to be effective. Northern growers appeared to do well in case the retailers were more selective in their pricing demands from the growers, indicating the power of innovation as a way of maintain close ties with retail partners. The simulation results led to two pieces of advice for stakeholders in the greenhouse horticulture sector: “Investigate the potential benefits of future sectoral innovation (both incremental in terms of production efficiency gains as well as radical in the form of new market creation). If there seems to be limited innovation possible in the sector, the competitiveness of Dutch Tomato growers runs a serious risk of declining in coming years (or be very costly to maintain) and competition with 5 southern growers is to be avoided using other means (such as assuring other markets than purely northern European ones).” Determine the ease of knowledge diffusion in the sector. The diffusion of knowledge regarding production efficiency depends on the barriers to transplantation that exist either intrinsically in the type of knowledge that is shared or the difficulty of incorporating such knowledge into effective business operations or extrinsically in the ease of information flow between different companies. In terms of study limitations, several barriers and model assumptions and limitations were identified. The most important two barriers were data availability and the environmental variability of an economic system. In terms of the first, several model assumptions and limitations had to be made with respect to different model components due to lack of data availability (for example in how companies change their reactive behavior towards their economic environment over time). In terms of the second, it was observed that data requirements increase as we are forced to take processes into account that are relevant or shorter-­?time-­?scales. As such, a balance needs to be found between the time scale of the model (from minutes to years to centuries), the data availability for the model (the shorter the time-­?scales to be included, the more data required) and the validation of the model (leaving out too many descriptions of reality will limit the model validation). In the conclusions, the study findings were decontextualized from the particular economic context of this study and transplanted upon the research problem initially identified: “What is the practical relevance of US in economics?” Three practically relevant contributions of this a cross-­?disciplinary bridge were identified: UD helps economists to “structure economic phenomena into a coherent system of interaction” (1), “Identify the scope and limitations of a model, thereby illuminating policy generalizability (2) and “Allow for cross-­?discipline system comparison, thereby utilizing economic of scope within the realm of science” (3).