The Economic Web
A screw and a screwdriver are complements, used together to create value by, say, fastening two boards. A screw and a nail are largely substitutes: loosely speaking we can use one where we use the other. Now imagine all 10 billion or more distinct goods in the contemporary global economy as points in a large three-dimensional space. Join complements by green lines and substitutes by red lines.
This network is the economic web. We do not know its structure, but it exists. It evolves over time, although we know little about how. Do statistical laws govern its evolution? Are firms located near the center of the web (say, automobiles or computers) in a strategic situation different from those on the periphery, such as hula hoops?
The web of complements to a good forms a mutually self-reinforcing and cross-reinforcing subnetwork that enhances its own economic growth. For example, with the car came its complements, among them gasoline, paved roads, motels, fast food restaurants and suburbia. In turn suburbia gave rise to an enormous number of consumers of automobiles, gasoline, paved roads and so on. We might call such mutual cross-enhancement "collectively autocatalytic," in that each component helps create the economic environment and market for the others and all mutually benefit. In economic terms, we might call them collective webs of mutually positive "externalities" between complementary technologies. Such collectively autocatalytic webs of complements can drive enormous wealth production, provide a very large investment incentive and massively promote the evolution of future wealth possibilities.
In contrast, consider the hula hoop, which appears to have few complements. It may have made money for its producers, but it sparked no lightning in the form of complementary technologies or products that collectively drove an explosion of wealth. The hula hoop could come and go with little effect on the economy.
The preceding observations show why we must come to understand the structure, evolution and roles of the economic web. Of course, it is people who invent novel goods and services, but the structure of the web itself singles out where invention and investment are likely to yield a profit and drive growth.
Two further features of the web make us suspect that the diversity of the economic web drives its own growth autocatalytically. First, consider the Wright brothers' airplane: fundamentally, it is a recombination between an airfoil, a light gas engine, bicycle wheels and a propeller. The more goods and services that exist in the economy, the more recombinations among them are possible. Place an umbrella down the smoke stack of the old Queen Mary and you achieve a mess. Place it behind a landing Cessna and you have invented an airbrake.
Second, new goods and services typically enter the economy as complements or substitutes for existing goods and services. Call the set of goods and services that are complements or substitutes to a given good or service its economic niche. As the web grows, does it create new niches faster than it creates new goods and services? The general answer is not known, but the very large number of complements to the automobile and computer noted above, with their mutually cross enhancing externalities, suggest that the average number of new adjacent complements and services created per new good or service is greater than 1.0.
If so, then the growth of economic niches is indeed autocatalytic. The more goods and services that exist, the higher the diversity of the economic web and the faster the creation of new economic niches. Thus the very diversity of the economic web is almost certainly a major factor in creating the conditions for its own further expansion.
We do not yet know whether that is so, nor whether the average number of novel niches created per new good has changed since 50,000 years ago. Economic historians can discover the truth. But in the meantime, we note that these issues are not yet part of economic theory, and may be major, largely overlooked factors. If so, they may have practical implications and deserve detailed examination.