From Neil Niman’s article Sexual Selection and Economic Positioning:
If economic agents earn the market clearing wage or the normal rate of return, it becomes difficult for an individual to stand out relative to one’s peers. Yet it is the ability to distinguish one’s prosperity and prospects that lead to reproductive success—a level of success that ultimately determines which genes are passed along from generation to generation. Thus, if the economic agent is to maximize the probability for survival of the gene through time, it cannot be a passive ‘price taker,’ but rather must be an active seeker of relative success. For employees, relative success often comes from actions designed to gain above average wage increases within a particular organization. In the case of entrepreneurs, market power is created by either holding back the forces of competition within an existing market, or as the result of inventive activity that ultimately results in the creation of entirely new ones.
The typical economic story of competitive markets is that only the lowest cost producers survive in the long-run. This tends to result in a uniformity in the market. However, pulling the other way are the efforts of entrepreneurs and other market players (ultimately, all of us) who are trying to distinguish themselves to achieve greater status and reproductive success. Niman describes the tension between these forces:
The market as a social institution is designed to maximize the continuation of society by ensuring the survival of its members through a process that promotes uniformity in an effort to achieve an efficient allocation of resources. Individual action on the other hand, in so far as it is motivated by the desire to maximize the survival potential of the gene, in many instances is designed to disrupt the workings of the market to ensure a non-level playing field so that relative position can be preserved or enhanced. Thus individual decision-making at the level of the survival of the gene may lead to choices that foster the achievement of social status (Castronova 2004) at the expense of social well-being.
I would describe the process somewhat differently, as it is the actions of the entrepreneurs that develop the low-cost efficient solutions that will eventually spread to all market participants. It is the disruptive activity of the individual agents that makes markets so powerful. I’m also somewhat reluctant to ascribe a purpose of “the continuation of society” to markets. However, I like Niman’s characterisation of entrepreneurs being engaged in a Red Queen process where they must constantly run to stay ahead.
The successful entrepreneur, able to earn an above normal profit, gains not only a superior economic position, but also a relative advantage in the sexual selection process. However, success is often only temporary as the forces of competition work aggressively to undermine the superior position of the entrepreneur. Hence the entrepreneur is forced to constantly reinvent both his product and his firm in an effort to hold back the forces of competition or fundamentally change the rules to forestall the need to compete. This creates its own ‘Red Queen’ process where the degree of relative success depends upon how well one can constantly raise the bar for success and stay ahead of competitors who are constantly nipping at one’s heels. Therefore the same ‘Red Queen’ process that drives the need for ever newer combinations of genes to ensure the survival of the species provides the dynamic force that motivates the actions of the entrepreneur who creates new combinations that drive entire economies.