Complexity scientists have long argued for the use of concepts such as nonlinearity and interconnectednesss to better understand economic phenomena, including growth, market failures and crashes. Ongoing research at the Harvard Center for International Development is taking this area of work forward in very promising ways.

In some ways, as Tim Harford has argued, the notion of complexity resonates closely with the classical roots of economic thinking. Adam Smith emphasised the importance of specialisation as a source of the wealth of nations, and “specialisation and complexity are closely linked: an economy with more specialists is one that requires more teamwork and more distinct interactions between individual activities.”

However, this is not how most economists – development or otherwise – have traditionally thought about growth. This may be about to change following ground-breaking work by researchers at the Harvard Center for International Development. Ricardo Hausmann and Cesar Hidalgo have been looking at economic complexity in a rigorous fashion in order to develop testable hypotheses about products, networks and self-organising processes of economic wealth creation.

The best introduction to this work is a thought-provoking TEDx talk Hidalgo gave in August 2010:

As Harford noted in his piece:

Development economists may find themselves paying more attention to such issues in future. We know very little about how to encourage an economy to become more complex and acquire new product capabilities. That may explain why we still have so much to learn about how to make poor countries rich.

There are of course downsides to complexity and interconnectedness, as the credit crunch and resulting global crisis has shown. Andy Haldane, director of the Bank of England,  put the case forward compellingly in a 2009 speech covered in a previous Aid on the Edge of Chaos post:

…interconnected networks exhibit a knife-edge, or tipping  point, property.  Within a certain range, connections serve as a shock-absorber.  The system acts as a mutual insurance device with disturbances dispersed and dissipated.  Connectivity engenders robustness. Risk-sharing – diversification – prevails. But beyond a certain range, the system can flip the wrong side of the knife-edge.  Interconnections serve as shock-amplifiers, not dampeners, as losses cascade.  The system acts not as a mutual insurance device but as a mutual incendiary device. Risk-spreading – fragility – prevails. The extent of the systemic dislocation is often disproportionate to the size of the initial shock…” (emphasis added)

The key may be to find the balancing point between the two: the point of ideal  trade-off between creativity and resilience – or what some theorists describe as the ‘edge of chaos’. This would seem to carry implications for economic development strategies used by international agencies. A follow-up post will look at how these ideas are being taken up in the IMF’s work on economic recovery in the wake of the crisis.

NB Interested readers can see previous Aid on the Edge of Chaos posts on the topic of complexity and economics here.

About these ads

Join the conversation! 3 Comments

  1. Hi Ben. Thanks for another great post (+ links that I wasn’t aware of. I see I have some reading to do.)

    For people interested in Hidalgo’s take on development in the TEDx speech but in a fashion further, less ‘orthodox economist’, I have to recommend the thinking of Alexander Bogdanov (which preceded von Bertalanffy’s by almost half a century).

    His theory works along the same lines as in the blog post but is additionally apt to include agency and power in the analysis

    Thisarticle by Arran Gare is the best introduction to Bogdanov I know of.

    Reply
  2. [...] Hausmann of Harvard and Cesar Hidalgo of MIT (whose work I have blogged about previously here) have just published the deeply impressive Atlas of Economic Complexity. It is built around an [...]

    Reply
  3. [...] This blog strives to connect those working in development and to “provide the latest, up-to-date information on initiatives, meetings and reports related to complexity sciences and international aid.” Some notable recent posts include Globalisation of Vulnerability, When Can Crowds Outperform Aid Experts? and Complexity and the Wealth of Nations. [...]

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

About Ben Ramalingam

I am a freelance consultant and writer specialising on international development and humanitarian issues. I am currently working on a number of consulting and advisory assignments for international agencies. I am also writing a book on complexity sciences and international aid which will be published by Oxford University Press. I hold Senior Research Associate and Visiting Fellow positions at the Institute of Development Studies, the Overseas Development Institute, and the London School of Economics.

Category

Economics, Evolution, Innovation, Networks, Public Policy, Self organisation, Technology, Trade