John Kay: The process of evolution is one of adaptation rather than improvement

John Kay points to the importance of the insights of evolution for the study of market economies and rightly recalls that “the process of evolution is one of adaptation rather than improvement”. Parallelism between the evolution of living beings and market economies especially fits with this idea because it leads to the conclusion that market success does not mean that businesses and firms that flourish in real-existing markets are really businesses and firms that maximize social welfare (the conclusion obtained by general equilibrium models based on the assumption of perfect competition). , the businesses and firms that will flourish in a market riddled with failures will be those that are adapted to these markets and take advantage of these failures making things worse by creating informationa assymetries and adding transaction costs. And the result, for social welfare, is random. If the market works well (as in the case of most consumer products), businesses and firms whose behaviour improve social welfare will flourish and society will enter into a virtuous circle in which innovations would solve the unresolved issues by the normal dynamics of the market. If market failures are widespread as, for example, happens in financial markets, forces of evolution can lead to an ecologic disaster and huge welfare losses. As Bookstaber puts it: 

"The objective in the design and marketing of innovative products is not market efficiency, but profitability for the banks. And market efficiency is the bane of profitability. The last thing a bank wants is a competitive, efficient market, because then it would not be able to extract economic rents. So the incentives are to create innovative products that reduce market efficiency, not enhance it.