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I have just read an interesting article on Economist about Cherry Picking, which is a strategy used by consumers as well as companies for different purposes. The very act of cherry picking, this mecanisme, favors the evolution of businesses and societies at large. And evolution is a history of the survivors.

“It refers, for example, to customers who ignore products that are bundled together by a manufacturer (who in the process may disguise cross-subsidies between high-margin and low-margin components of the bundle). ” This is the cherry picking of the consumers. The objective of the cherrypicking consumer, in the end, is to find a bundle of products at the lowest price with the highest quality. It makes manufacturers to compete over quality as well price, creating a competitive market. Only the fittest manufacturers will survive the tests of consumers. Thus the evolutionary power of this strategy over corporations.

In a similar way, corporations can also pick customers. New comers in an established industry can sometimes cherry pick their way to success.  “The term cherry-picking is also applied to the behaviour of new entrants into old industries, firms which try to choose their customers carefully. By calculating which consumers are profitable (and appealing to them while ignoring those who are not) such a firm can sometimes rapidly gain market share.” “In car insurance, for example, cherry-picking in the UK pushed up the price prohibitively for young male drivers, the highest-risk group.” This is a typical evolutionary force at work where cherry picking has put young male drivers out of the race… In a way, I begin to understand why French banks prefer to lend to clients with little financial dynamisme. They are also cherry picking their customers. Those with little financial knowledge could accept offers with more margin, they may also be reluctant to move from status quo, say repaying a 25-year mortgage. While financial savys are smart enough to avoid traps and moves fast when opportunities occur, like interest rate moves lower, huge equity market opportunities in emerging countries, things like that. They are also less likely to be attracted by bland, non performing funds proposed by the bank. It is the same principle with the global free cash flowing around the world finding a place to invest. They seek profits. Yet as soon as the macroeconomic contexts are gone, they are gone, leaving behind projects suspended and stock markets in panic. From a broader view, these are all cherry-picking behaviour. Banks select customers, cash select investments, logic. All these contribute the evolution of … economics. ( like proposed by the Mckinsey book “Origin of Wealth”)

Further reflection of cherry picking connect me to another article on Captital on Dartybox, which is said to be a failure because of the fierce competition on the ISP market in France. Obviously Darty tries to cherry pick its customers, with a failure. The strategy is a good one in that it is a good way to crack an established market, yet their problem is that their target customer is not very well defined, so they find themselves eating a little part of the cake of everybody, not enough to retribute the investments.

Last word about evolution and competition: the survivorship bias, which is also mentioned by the economist article. It probably means, history is defined by the winners. Yes, indeed it is. The winners can define history, because, by all means their is no loser around the contest the truth.

The start of my reflections is the good old physics law learnt in the middle school: the energy conservation law, which postulates that energy can not evaporate nor be generated from no where. Physical actions only transforms energy from one form to another. Though I am not sure if it stills holds true in the light of modern advances in quantum physics, in my view, on the macro level, it is still of a truth considering the human beings in the equation. 

So on the left of the equation, we have only one energy source in this solar system: the sun, it is the energy source of everything, from rocks to trees to animals. On the right we have all the energy entities: rocks, trees and animals and human beings. From the birth of the race of human, we are constantly trying to transform the energy trapped in other beings: trees and animals into energy of our own. First by inventing tools like arches and spears to aid us in our hunting, then by inventing machines running on coal and oil to create electricity, the life blood of modern society. Looking at the human history, we find more and more advanced mecanismes to suck energy out of nature. And human appetite for energy increases exponentially with the pace of the advancement of the civilization. It is really increasing in that our computers, our televisions, our ipods, our pdas are consuming huge amounts of energy collectively, yet they are leaving not much after them. If we compare the energy footprint of a citizen of Western civilization with that of an emerging economy, we might have 10 fold differences. And the worst thing, or the best thing is, emerging country citizens are catching up… So we are potentially expecting 10 billion souls using energy at the rate of Western citizens… a horror! No wonder the world is desperately scrambling for alternative energy sources. Yet the left of the equation has never changed, the source of energy is always the SUN. The solar flux reaching the earth is about 1000W/m2. Taking the current energy efficiency of solar panels of 10% and the world land area of 148.94 million km2.  That would be 14.894 trillion KW. That means if we cover all the land of the earth with our current inefficient solar panel, we could have a generating capacity of 14.894 trillion KWH/3 =4.964 trillion KWh , because not all the land is lighted at the same time.  The 2007 electricity consumption of United States only, according to the CIA World Fact Book, is  3.816 trillion kWh. I like this kind of number work, here is an example.  What is sustaining the world economy now is in fact the millions of years of sunlight the earth has enjoyed before the advent of human kind. The energy is trapped in the crude oil, in uranium, in coal etc. From the above calculation, human development is simply not sustainable.

And what if the earth can not sustain this huge population with unprecedeted quality of life? Huge declines in population by natural disaster? Armageddon? Nature takes its revenge.