- Traditional growth theory ignores the importance of the "economic web" of connections among various goods and services within an economy. In particular, economists have failed to recognize how much the structure of this economic web does to drive innovation and opportunities for future wealth.
- Successful innovation depends in part on bringing together goods and services in useful, unanticipated combinations. Because all the possible useful combinations can never be defined in advance, it's impossible to predict the future trajectory of innovation.
- Still, by analyzing the structure and diversity of an economic web, it's possible to determine whether one is "collectively autocatalytic" and will spontaneously expand to encompass additional economic niches.
- "Gales of creative destruction" blow through economic webs, eliminating some old goods and services as novel ones emerge. Details of a web's structure may determine how dynamically it balances between growth and collapse.
- The study of economic web behavior may offer insights into why some real-world economies have such difficulty prospering.
Editor's Note: Stuart Kauffman has a well-earned reputation as a scientific provocateur, albeit one with the weight of data and wisdom on his side. Kauffman, a complexity researcher and biologist of the University of Calgary and the Santa Fe Institute, has argued, for example, that self-organization—the propensity for systems to become more complex without outside guidance—was just as important as natural selection in shaping evolution. (Intelligent design advocates, take note.)
In his new book Reinventing the Sacred: A New View of Science, Reason, and Religion (Basic Books, New York; May 2008), Kauffman develops a larger argument: Understanding what's happening in complex systems could help modern science break free of what some consider its too-reductionistic underpinnings. One controversial idea that Kauffman develops in his book is that by failing to take this approach to economics, traditional economists are unable to explain something that seems obvious but isn't: How does innovation drive growth?
In this article, a rough draft of which appears below, Kauffman and his colleagues Stefan Thurner and Rudolph Hanel detail some of their thinking on the subject, which is sure to raise the hackles of some members of the economic community just as their ideas on biology have ruffled some scientific feathers.
- What are your reactions to their arguments here?
- Do you think economists have not formally incorporated innovation and its relation to the growth of wealth into their theories? If so, why?
- What are your thoughts on the proposed "grammar model" approach to describing how goods and services evolve as economies grow?
- Tell us why you agree or disagree with the idea that conventional economic theories fall short and that a new theory explaining the relationship between innovation and wealth will be economically useful?
Give us your answers to these and other questions raised by this provocative piece in our comments section below. Your feedback will be incorporated into a version of this article that will appear in a future print issue of Scientific American.
Economies have existed for as long as humans have relied on artifacts and trade. Fifty thousand years ago, the estimated diversity in the global economy might have been between 100 and 1,000 types of goods and services. Today, economist Eric Bienhocker of McKinsey and Company estimates the diversity of goods and services available in New York City alone at about 10 billion. Perhaps the most stunning feature of the economy over time is the explosion of goods and services. Yet contemporary economics has no adequate theory to understand this explosion or its importance for economic growth and the evolution of future wealth.
Economic growth theory is highly sophisticated about the roles of capital, labor, human capital, knowledge, interest rates, saving rates and investment in existing economic opportunities, or investment of savings in research to find novel goods and services. Yet the major conceptual frameworks that undergird contemporary economics (competitive general equilibrium, rational expectations and game theory) share a crucial failing. They assume that all the goods and services (as well as the relations between them) and all the strategies for engaging with them in a local or global economy can be "pre-stated"—that is, known in advance. In reality, novel goods and services may constantly enter markets, thereby requiring economic actors to develop ever more novel strategies: all the relevant variables cannot be pre-stated.