by Franz Gatzweiler (2025)

The economics and evolution of a systems approach is about why systems emerge from evolution or are intentionally built due to economic reasons. It requires a short clarification of what economics is, what economic value is and why both are involved in creating systems and vice versa. A system is a set of interconnected components, elements, variables or individuals that interact with each other to form a whole, which is more complex that its parts, organized to achieve a specific function or purpose. Progressing towards that function is considered economically valuable.

The economy is an order-creating system. Order in society comes along with complexity. Complexity is a condition of a system composed of interacting components whose collective behaviour is emergent and novel compared to the behaviour of its individual components. Complexity can reduce the operational costs of a system. Highly ordered systems are highly complex systems. Economic value is created by creating order and vice versa. Creating “value” serves a purpose for members of a (social) system, e.g., a city, and for the system as a whole. The members benefit from order that regulates exchange relations and creates certainty in those relations. The system as a whole might benefit from order as a precondition for existence or survival. The intention of living systems, such as cities, to survive might be a result of the second law of thermodynamics: They are dissipative systems that maintain local order by exporting entropy to their surroundings, in accordance with the second law of thermodynamics.

Creating social order comes at a cost (in form or effort, energy or money) and that cost also depends on the environment in which the system is operating. In an empty world environment, the system competes less for resources, energy and space. It is possible to externalize costs without feedbacks to the system. In an empty world environment, due to little competitive pressure from other groups, the complexity of a social system remains relatively constant over long time periods. Innovation and technological progress stagnate because doing things as they have always been done is good enough and investments into increasing complexity, e.g., spending more time to figure out how to come faster from one place to another, is not considered a better use of time than hunting. 

Multi-level selection (MLS) theory helps understand the economics of a systems approach. The essential logic of MLS theory is that selfish individuals outcompete altruists within a group, but altruistic groups outcompete selfish groups. Groups are social systems. Having better groups is therefore an advantage economically – up to a certain infection point, when it gets too expensive to increase the complexity of a group.

In an empty world environment, the system competes less for resources, energy and space. It is possible to externalize costs without feedbacks to the system. In an empty world environment, due to little competitive pressure from other groups, the complexity of a social system remains relatively constant over long time periods. Innovation and technological progress stagnate because doing things as they have always been done is good enough and investments into increasing complexity, e.g., spending more time to figure out how to come faster from one place to another, is not considered a better use of time than hunting.

In a full world environment, social systems compete more for resources, energy and space. As demand for them increases, competition pressure increases, they become more valuable as input (energy) to increasing the complexity of a system in order to have a competitive advantage towards other systems, like cities. Also, the ability to externalize costs without being directly or indirectly effected by them, reduces. That is why urban development during the Antropocene caused planetary health to decline, which again has unwanted effects on the health of people in cities.  It is now more likely that the pollution or damage a group causes from exploitation uphill, will have detrimental effects on the group or others, downhill. Now in a full world environment it becomes economically beneficial for the group, to invest in innovations that increase efficiency, reduce resource use er capita and avoid externalities. The system becomes more integrated, connected, intelligent, complex. Between groups, the same is valid at the group level and it becomes economically beneficial to increase efficiency and reduce resource use per group, e.g., at city or urban community level.

When creating social order becomes more costly (for the individual) than being beneficial, creating further order is of decreasing economic value. We talk about declining marginal returns to further investments in complexity. Those declining marginal returns occur with increasing connectedness of the system beyond an inflection point.

It is economically rational to increase complexity when more economic value can be expected to be created than with without. That requires a higher levels of investment in sophisticated interconnectedness and more effort in understanding, adjusting, rewiring and modifying a system. That investment is worthwhile up to an inflection point, because it also promises higher overall returns. Depending on the complexity condition of an urban system, additional efforts in either optimizing the system (before the inflection point) or in finding alternatives for transforming the entire system (beyond the inflection point) are appropriate in order to create value.

Deciding for one or the other option requires knowledge of the complexity condition, in our case, the urban systemic health condition and capacity of a system.

Further reading

Anderson, P.W., Arrow, K. and Pines, D.. (eds.). 1988. The Economy as an Evolving Complex System, Santa Fe Institute Studies in the Sciences of Complexity Proceedings, New York, Boulder: Westview Press

Arthur, W. B. 1999. Complexity and the economy. Science, 284 (5411), 107-109

Arthur, W. B. 2013. Complexity Economics: A Different Framework for Economic Thought. https://www.santafe.edu/research/results/working-papers/complexity-economics-a-different-framework-for-eco/

Bai, X., Surveyer, A., Elmqvist, Th., Gatzweiler, F., et al. 2016. Defining and advancing a systems approach for sustainable cities, Current Opinion in Environmental Sustainability 23: 69-78, https://doi.org/10.1016/j.cosust.2016.11.010

Dopfer, K. 2005 (Ed.). Economics, Evolution and the State. The Governance of Complexity. Cheltenham: Edward Elgar

Gatzweiler, F., Reis, S., Zhang, Y. and Jayasinghe, S. 2018. Lessons from complexity science for urban health and well-being, Cities & Health, 1:2, 210-223, DOI: https://10.1080/23748834.2018.1448551

Gatzweiler, Franz W, Saroj Jayasinghe, José G Siri, and Jason Corburn. 2023. "Towards a New Urban Health Science" Urban Science 7, no. 1: 30. https://doi.org/10.3390/urbansci7010030

Hodgson, G.M. 1987. "Economics and Systems Theory", Journal of Economic Studies, Vol. 14 No. 4, pp. 65-86. https://doi.org/10.1108/eb002655

Ostrom, E., 1998. Scales, polycentricity, and incentives: designing complexity to govern complexity. In: Guruswamy, L.D., McNeely, J.A. (Eds.), Protection of Global Biodiversity: Converging Strategies. Duke University Press, Durham, NC, pp. 149–167

Portugali, J. (ed) 2000. Self-Organization and the City. Berlin, Heidelberg: Springer

Prigogine, I. 1989a. Exploring complexity: An introduction. New York, NY: W.H. Freeman

Tainter, J.A. 1988. The Collapse of Complex Societies. New York, NY: Cambridge University.

Waltner-Toews, D., Kay, J.J. & Lister, N.-M.E., 2008. The ecosystem approach: complexity, uncertainty, and managing for sustainability, New York: Columbia University Press.

Wilson, D.S., Van Vugt, M., and O’Gorman, R. 2008. Multi-level selection theory and major evolutionary transitions: Implications for psychological science. Current directions in Psychological Science 17 (1): 6-9

Wilson, D.S., Wilson, E.O., 2007. Rethinking the theoretical foundations of sociobiology. Q. Rev. Biol. 82, 327–348

Wilson, E.O., Hölldobler, B., 2005. Eu-sociality: origin and consequences. Proc. Natl. Acad. Sci. 102 (38), 13367–13371