"Betamax/VHS, AT&T, & Integrity"
(a lesson in economics)

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Singular Dynamics - Plural Interactions

I turn for a moment to applying Integrity Dynamics to the field of economics. A dilemma a in recent years which threw the community of complexity socio-economists into turmoil because of an event that shattered the developing conventional wisdom of how products are brought to market and how technology is accepted, demanded and molded by consumer populations. They had focussed all their theories on the intuition (and mathematical models) that a "best" product will always find demand in the market place and that in a straightforward competitive situation, the "best" will win out over any other. (This being an attempt to simplisticly adapt Darwinian "survival of the fittest" to socio-economic situations.)

The event that trigger this was the atypical success of VHS over Betamax. It was indicated that, for technical merit and quality, Betamax was far and away superior to VHS. The companies knew it, the public knew it. Yet, in the end, Betamax fell by the wayside and VHS dominated the home-use market. Economists were aghast, and basically retreated back to academia to re-evaluate things and come up with some new model for economic behavior.

Now, I am not an economic pundit. I only know what I read and hear in the media. Yet I knew well the reason VHS beat out Betamax. It was a reason that was openly discussed in the financial media. It was a reason that fits perfectly with the Integrity Paradigm, albeit, the real way that Darwinism operates in the economic world. It had to do with the disparate gradient survival goals of those two competitors, and the mechanisms that were chosen to gain those ends.

In an openly interactive environment, an entity can ensure its dynamic stability by several possible mechanisms. One, is to limit interactions, to avoid negative situations which would destroy or diminish the entity (in this field, such a process is spoken of as "counter-productive" (sic)). Another, is to actively control all those interactions - or as many as feasibly possible. That way, anything not beneficial can be avoided or effectively diminished in affect. A third, is to establish a smooth flow of energy and information with the rest of the environment, in a stable but dynamic "econiche".

Remember, in our new linguistic environmental scenario, "eco-" can as viably be "eco-nomical" or "eco-logical".

In the economic market place, companies businesses producers and consumers do not exist in isolation. They are all looking for ways to "stay alive". The way products get to market in the modern world is through "middlemen", agents of transfer. These people or organizations are out to protect their own "best interests". In commerce that means accumulating the most money and financial resources reasonably possible. That is the incentive of the market place. It keeps businesses functioning and provides the resources to acquire food shelter comfort security happiness and the general welfare of the people involved...for themselves and their families. We do not each farm our own land, make our own clothes or directly produce the myriad other things necessary to survive in the world. We employ other processes for "acquisition" of needed products and services.

When the two electronics developers presented their products, the consumer population (and that included these middlemen who determine if a product will help them make money or not) got a chance to make a choice. All things being equal, the superior technology or product surely wins out. In this case, however, things were not equal.

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Balancing "Control" with "Freedom" -

Competing Integrities, Blending Integrities

The difference was that the companies which controlled the Betamax and VHS designs had thoroughly different points of view about what it would take to succeed (read: "survive") in the market place. The Betamax people wanted to stay in total control of their product. Whether this came about because of previous business decisions that were successful using this approach and which had helped the company grow, or whether it was some personal bias on the part of someone such as their Chief Executive Officer, is not known. An example of this technique was used by the Atlantic and Pacific Tea Company aka "A&P" a grocery food chain which ran successfully in the greater part of the 1900's in the USA. A&P was a grocery chain providing food to the general market. A&P's growth and success was based on the fact that they owned outright most of the farms and sources for the products they sold, as well as the transportation equipment and network necessary to move those products around. Instead of being subject to the price whims of suppliers or food processors, they assured their desired profit margins by having iron-fisted total control - from source to final sale - of most of their inventory. Changes in US business regulations (anti-trust and anti-monopoly acts) and world-wide competition finally forced them out of existence in the early 1970's. Their tight vertical stacking meant that difficulties arising in any one sub-management or production area reverberated through the entire company. Because of forced divestiture, the company as a whole found it impossible to re-integrate with the rest of the competitive economic market.

Even with such an example preceding them, the Betamax people thought it would still be in the best interest of their company to totally control the development and distribution of their product. They wanted to be the sole producer and definer of the market, and force the rest of the world to come pleading for their "better" technology. The VHS group, on the other hand, chose a different approach to get their product out. They weren't threatened by "lack of control", or the need to absolutely maximize an immediate return on their development expenditures. They saw decentralization as the better mechanism. After all, what was the net desired goal? .... to "control" the market, or, to make a quick-fix for their cash flow, or, to firm up "on-going marketing" and establish a continual active producer-consumer situation?

VHS production was franchised and parcelled out to other manufacturers. Many companies were allowed to participate and reap the financial rewards of getting a popular product to home consumers. These "middlemen" had an incentive to participate and produce a product. The VHS creators settled for a little bit less of the economic cash flow, but they were ensuring a longer lasting and broader based and faster arrived at consumer group. The product may not have been technically "the best" but as far as benefits received for everyone involved, this was far and away the best alternative.

Every level benefitted. A usable product went to market...with a diversified production, distribution and consumption base. The creators of VHS are still collecting royalties to this day and are involved in the support technology : production of the tapes used in machines of their design. There are small manufacturers and companies around the planet making money for themselves and their employees. Betamax is essentially defunct. And new technologies are on the horizon. Able to outperform either of their predecessors, they will probably be marketed along the economic networks established by VHS! A dynamic system of financial "energy" flow ... using the impetus of localized negentropic nodes ... establishing a stable process marked by myriad small transfer points ... that created several levels of energy cycles. On the overview scale, we see that the natural entropic diffusion of currency through these inter-feedback processes (which included situations where stock-holders are also consumers ... money invested in support of a company, feeds back profits which investors use to purchase products which creates profits, and so on. {it is obviously more complicated, but this is essentially the process}) creates ... negentropy ... a localizable closely defined looped system. "Autocatalytic" in a sense (grin). (Hmmmm, I apologize for this moment of academic satire, but the possibility becomes apparent to call every essentially closed loop feedback system, "autocatalytic". The metabolic Kreb Citric Acid Cycle being a prime example. The process loop constantly remakes every molecular form in the loop...each one being the "creator" of the next. <not "actually", yet "perceivable as">. Without having an "end" or "beginning" ... such loops are "autocatalytic" (sic).)

Entropy co-establishes negentropic complexity. The boundaries are affected by the rates and quantities of the items/energy exchanged and by the quantity and quality of the nodes ... the extent of their intrinsic stability/ies.

The idea I want to stress is that an environment - whether ecological, economic, or what have you - is the on-going interaction of diverse denotable "entities", each striving <functioning> to maintain and ensure dynamic "survival" ... Integrity. Each "organism" or denotable entity encounters its environment, evaluates itself in that regard (according to the capacity of its structure to process different types of information), and responds with actions and behaviors it concludes are in its own best interest. On the simplest levels of organization, there is no "conscious" conclusion, but there are responses ... defined by how a thing is constructed and organized. A billiard ball "responds", even if its structure limits it essentially to strict thermodynamic constraints and considerations. Atoms and molecules do much the same. Up until a given organizational "structure" has the capacity to intake or output more "degrees of behavioral freedom"....information per se, and information in excess of minimum maintenance.

This is the only "sure thing" in the whole panorama of trying to deduce patterns of behaviors, or cause-and-effect situations. The rule is firm, the interaction set is wide open. In some cases, such as the Betamax/VHS competition, the affect a singular seemingly inconsequential choice-reaction can have on other interacting systems can be enormous. But never confounding.

The Betamax marketing choice may have been a corporate collective one. It may have been a single person's decision...reasoned or arbitrary. It might have been the result of the corporate President not having been able to get his car repaired that day, and being so disgruntled for being out of control of that situation, that he vowed to himself to not let anything similar occur to him and his company. Ever. These are the kind of variable inputs that we as examiners of a process cannot predict, but, we can be aware of their presence, and we can keep abreast of known policy standards and actions available to organizations and organisms. Such as the kinds of laws, regulatory controls or market mechanisms available. Understanding the nature of control gates, shunts, and flowpaths of energy and information; recognizing the impact that each mechanism has in the dynamics of interactions. Some are effective enhancers of system performance, some are limiters. Some support a local sub-system. Some improve the energy flow through the network as a whole. In the overall though, there is constant adaptive coordination of entropic and negentropic gradients.

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AT&T - Taking control of Self/Else Entropies

Another example I am fond of deals with 20th century telecommunications. Under the standard model of supply and demand, the telephone giant AT&T in the second half of the 1900's had a firm grip on the United States communications network ... under the guise of being a "public" utility. They controlled near the entire market, and produced products that were the minimum necessary for adequate performance. It was a marvelously conceived and run enterprise that included support of some of the most innovative research this planet has ever seen outside of the military establishment in the modern era, or the burst of individual creativity that came out of the Industrial Revolution.

The phone company was a "vertical" giant of the same nature as A&P. However, as a singular important social utility company, it had the unique benefit of not being allowed to deteriorate or go defunct. The nation, the government, et al. depended on communication and the one existing system that provided it. In this regard, the telephone company was allowed and encouraged to "survive" even as anti-trust forces were at work in the 1960's and 1970's to open up a more competitive market in communications.

Bell Laboratories (now: Lucent Technologies), an adjunct of the phone company, was at the heart of Information Theory as developed in the 1940's by their employee Claude Shannon. 1960's company managers were therefore familiar with the dynamics of information flow and control, as well as the dynamics of a supply and demand "free-market". . . which applies equally as well to "services" as it does to "products".

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Autocatalytic forms as "artifact", not essence

With forced divestiture looming on the horizon -- to the extent that legal court battles could fend that inevitability off -- the Telephone Company acted on its best options. Keep in mind, free market capitalism, which is a version of barter-exchange, can be viewed as a process which blends oppositely directed entropies. A product, negentropicly localized in one place, is entropicly distributed into a broader environment, while a corresponding product or analog (money) flows entropically from its region of accumulation into the function-space of the first-considered product (this region being part of a broader environment when seen from the perspective of the second-product or analog). This mutual but oppositely directed brace of entropies "binds" the two production sources together. As such an exchange process continues, it creates a nebulously determinable "entity" ... an exchange network or closed-loop feedback system. Possibly perceivable as a closed-loop autocatalytic strange attractor (especially when observed from a vantage point external to the exchange). However, it is more dynamically similar to the combining of atoms through the continual exchange of outer shell electrons. The attractor-dynamic model is, contraceptually, a heterotelic "set" in this regard. These mutual partial-systemic entropies create a dynamic stability. The Integrity of that stability rests on the constant flow and exchange of energy and information. The more cross-integrated the flow of energy and information, the greater the dynamic stability...the Integrity...of such systems.

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Requirements mixed with lattitudes -

Planck's Constant & Indexing

Other factors which could call this perspective into question are the aspects called "inflation" and "deflation". But those are just latitude-variables which show the correctness of the analog between entropic/negentropic behavior of electrons and of currency. The behavior of primary particles of the universe are more closely aligned with basic dynamic relations, undiminished by extraneous environmental information. The latitude of degrees-of-freedom of activity is more highly expanded once the complexity level of social organisms are reached. A wider latitude of energy exchanges is tolerated and allowed there. The price for a loaf of bread can reasonably vary on any given day, and the holistic system can adjust accordingly. But what would happen if the molecules of our bodies changed in chemical energy values each day? One day a certain vital chemical reaction required 50 calories, and the next day 300, or 7. The result would be exactly the same as if the comparative value of currency-per-product/service fluctuated beyond such system's ability to accommodate it ... an imbalance that would critically harm or disastrously disrupt the system.

What would happen if our bodies converted more adenosine mono- and di- phosphate to tri-phosphates (molecular metabolic energy sources), than it allowed triphosphate degradation (which releases energy)? Our bodies would simultaneously starve and consume themselves to death. The key in this instance is not whether a loaf of bread costs a nickel or three dollars, but the across the board value of all products and services and whether they serve the stability and ongoing functioning of the society.

During the 1973 energy crisis, we came to understand how economists translate this relative gradient of values into "efficiency" ... fixing the optimum amount of physical fuel and monetary fuel which internally mesh, serving to sustain an economic society. Yet, spiraling inflation, the economic equivalent of changing energy thresholds, has a number of limits to it. The fact that they are not rigid is the mark of humanity's ability to adapt to changing parameter adjustments; to grow in responsiveness and skills; to direct and be directed by changes in society, technology and international relationships; and to handle, adapt to and endure a wide spectrum of conditions. Exact price fixing is not important. Comparative valuations are. And even though those too should hold basically smooth, they must be flexible enough to allow for allowable fluctuations. Like the price of a horse vs a car....which was an important pricing comparative in the years of technological transformation.

Maintaining a stable comparative-cost network is so important that some nations in the 1970's and 1980's took to a formal policy of Indexing. Indexing spreads a given cost variance that might occur in one specific area during an economic year over the entire system, in order to keep everything on par, percentage wise. Most people know of them as "cost-of-living increases" and other such financial linkages, such as fixing general market interest rates in line with pan-economic Prime Interest Rates or Treasury Bill sales.

All this notwithstanding, whether we look at electron transfer or currency exchange, it is the behavioral similarities of the processes which are singularly identical. The only difference of any significance between the two levels of dynamic existence is their ability or limitation to process extraneous amounts of energy (information).

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One Source of Energy - Two Mechanisms and Pathways

According to our current understanding of dynamic systems, there is always friction and heat (energy) loss when systems operate. This was elaborated by Isaac Newton and his Laws of Thermodynamics, and by Carnot who analyzed the energy exchange in working systems. This means that there must be a ready source of some kind that provides the energy for exchanges to occur.

In systems above the atomic level, the energy required to change the direction and speed of things comes from the sun. It floods our planet with massive amounts of energy that moves the chemistry of life. On and within the atomic level, the nature of fundamental particles is such that they establish their own intrinsic momentum by their mere existence. In some cases, this momentum is sufficient to make things happen, such as the congealing of molecules, that is, if the individual atoms are moving slowly enough near each other so that quantum mechanical processes can take effect.

In essence, this is the only source of energy in the universe. When nuclear/atomic energy is negentropically (here, gravitationally) accumulated into such masses as the Sun, the radiated energy becomes a source "external" to the chemistry of a planet, and can thereby affect what goes on there from "the outside". Even though the net-source is exactly the same in type and quality, the differences are in location and quantity.

In this reticulum of differing processes, the planet-side locale needs the massive energy accumulation of the Sun, or planet-core energy induced by gravitational tidal-mechanisms (internal heat and magma) ... to act as the source for energy to drive the chemistry into complexity and dynamic interactions above only the very basic ones, do-able by the meager energy of shell electrons...such as crystal formation. In other words, the relationships and shell potentials of atomic electron clouds are just as potent a source of energy, information and work -- in small groups and assemblies -- as is any massive accumulation of them in cosmic bodies.

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Changing entropy flows -

Shunts that change Reticulation and Cost

In all systems there is a "cost" associated with something being accomplished. No one and no thing that is comprised of a varietal linkages of molecules can "fund" its own functioning indefinitely.

The same holds true for human commerce. This brings us back to the phone company scenario. There is always a cost. The more work that needs to be done, the more resources are needed to accomplish that. If you live in a rural area with no utility service, you must pay the associated costs for bringing the utility lines to you in order for you to have access to that service. Real estate developers know that all too well, and add that in to their "cost of construction" ... which ends up translating in to the final "sales price", which every homeowner pays. This is normal. This is standard. The cost is fixed by market valuations of supply and demand for what it takes to mine and manufacture the necessary components, as well as the cost of transportation, and the cost of the labor involved.

Well, something very interesting happened here regarding the Telephone Company. It was in a situation where it was about to be forced to essentially destroy itself, break itself into smaller rivals competing for market share, rather than remaining a single dynamically stable network providing community service and internally coordinated functioning nation-wide. A standard commercial process whereby moneys generated by people working in other jobs ... normal social and economic functioning ... were billed and applied to the crosslinked communications network. Communication worked in support of those efforts and the constant blend of entropies created a strong and vibrant nation.

Costs were accordingly apportioned. Local home services were nominal. Businesses paid more for higher volume use and most especially everyone paid more for long distance connections. A very obvious and normal arrangement. The farther you travel, the more you pay to go the distance. To go further requires more fuel which requires more money to pay for the fuel. Value for value. (I know that discounts were and are available, but I am speaking now about a basic operating relationship. A "discount" variant is related to what I will speak about next.)

Under the then existing phone market conditions: the historic rate structure pattern, the pending dissolution within the USA market, and the extent of the company's investments and controls and integration, ....AT&T had to find some other ways to function, otherwise the nation as a whole could have been in jeopardy though the loss of jobs and all the interactive support and dependencies.

In order to survive, they recognized that they could do so by changing the entropy dynamics of the services and the subscribers. Instead of having each subscriber fund their own use and portion of the service, the company could change the cash flow and thereby induce an extension of phone telecommunications out from the local domain ... the USA ...out to the rest of the world. At that time, the rest of the world could not afford to fund such efforts. The costs involved essentially acted as energy barriers that they could not get over. So, the phone company lowered the barriers. They lowered the cost of long distance calls, then the cost of international service, while steadily increasing the cost to local subscriber usage.

What this effectively did was to change the entropy of cash flow dynamics of the phone service. Monies which once circulated solely or primarily within the relatively small borders of the continental system, were now channelled externally, and allowed an enlarged region (the rest of the world) to be part of a more functionally integral and accessible telephone service. AT&T headed into the world wide market, funded by a change in the cash flow and financial entropy of its eco-metabolism. International users now had access to US technology and markets. The limitations of mechanically-based marketing were about to come to an end for them (hand carried and ship/plane/overland transported mail {information} service). Not because the technology suddenly appeared out of no where, but because flow-entropies changed that enlarged the regions of functioning. More stuff could get "out" and more stuff could get "in".

When divestiture and reorganization finally came to the Bell system, the Integrity of the former-system was maintained, because it had found a way to adapt and evolve. It could give up centralized control of local markets, because it had accomplished several things. It had broadened its sphere of influence and operation internationally - finding new and ready markets in need of its services. Most important, it had re-focussed the foundation for its survival: to take a role as part of a larger and more vibrantly interactive economic environment rather than be the whole environment itself within the US economy. It no longer had to be the biggest fish in a nominal economic "pond". It could be a rather impressive sized fish (among others) in the largest pond available.

What was also accomplished was that no single person or group of persons were required to make perfect decisions always all the time to assure the continual operation and function of the company, the system, and reliant subscribers. Diversification and competition permits fluctuations in how well systems operate. Any mistakes in one are not disastrously disruptive to any other system, and the feedback to pinpoint errors and find remedies functions all the better because each competitor stands as a model guide for the others. There is a blend of dependence and independence.

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"Ownership" and "Control" are not the same thing -

Process viability is more important than any product

Another example occurred in the commodities markets of recent decades. Once the Hunt brothers were seen trying to maneuver and control (negentropically) the silver market, we immediately understood that their success or failure depended on how much knowledge and information about such an attempt is shared by the rest of the market process, be it the market-makers, the ore producers, the financial market regulators, the manufacturing companies, or the consumers, etc. (including academic or for-gain analysts). Once they were "caught", the market put into place some stabilizing controls to avoid further roller-coaster market fluctuations. The Hunt's were restricted from dumping their holdings even as the market plummeted in a smooth decline.

One more example about cross impact and interdependence vis a vis corresponding behavioral entropies in the financial markets, is Automated Computer Stock Trading. The technology for making stock trades began to far outstrip in speed and reaction time those more studied and carefully considered human evaluations that had preceded it. Feedback mechanisms that would have otherwise controlled wild market swings were set aside in the delight of new electronic toys that could help an investor or market maker get an edge on his competition. All in the effort to negentropically acquire and "make money...much more money" for individuals or their groups. The entropy gradients of the finances per se - the methodology of fund transfer - were no longer synchronized with actual production, actual services, or perceived potential of market supply and market demand. Financial markets became two-tiered and three-tiered removed from the assets and commodities they ostensibly controlled or related to. They became casinos rather than processors of economic metabolism.

To sum up my thoughts at the start of this section, if the theoretical economists truly understood the range and levels and interaffective Integrity dynamics involved with situations like VHS/Betamax - or program trading, they wouldn't have been caught napping in the revery of mathematical models. Thank goodness an un-modeled event did happen, though. If the Betamax group had chosen to license the production of their video-recorder more generously (a reasonable thing to have occurred), the economists would have assumed that their existing model was correct... albeit, that better product design is the only criteria in economic competition. They would still be asleep, to this moment. And the true essence of Darwinian fitness - as constant interaction of a multitude of levels of dynamic stability ... of localized as well as holistic survival -- would still go misunderstood.

It is apparent that we are continually dealing with several sets of kinetic systems which differ only by their points of view, their "frames of reference" and with the information sets considered. Each correct. According to the information assumed appropriate to the given form or topic or level of /functioning, and the gradient directions of energy, goods, services, information.

Keeping the universe in mind as on-going-kinetics, we must even apply these understandings to the primal "structures" of existence .... to Space and Time themselves. We must analyze Space and Time and dimensions in regard to "information". They are intrinsic components and sources of differential gradients themselves, along with "energy", and contribute to the total volume of "information".

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