Growth opportunities for subcritical and supracritical economies may be very different. Supracritical economies endlessly afford new economic niches that invite invention, local and foreign investment and the potential for great wealth creation. As old technologies die, capital can migrate to new sectors of the supracritical economy to drive further wealth creation. Subcritical economies appear not to have these properties. For instance, in Alberta, oil wealth currently yields a $7 billion (Canadian) surplus annually. But it seems reasonable that in several decades, alternative energy resources will be more than competitive and preferred by ecologically conscious consumers. Demand for Alberta oil may then decrease. As it does, where locally will capital migrating out of the dying oil industry go? In a subcritical economy, no major new investment opportunities may exist.
The speculative possibility that subcritical and supracritical economies have very different growth properties seems worthy of study. The persistent diversity of wealth in nations across the globe is a puzzle to many economists. If a distinction between subcritical and supracritical growth patterns has merit, what are the implications for attracting local and foreign investment into poverty-stricken subcritical economies around the world? If 45 percent of the world's population lives on a few hundred dollars a year, it seems worth exploring the implications of economic webs for economic growth. We may discover alternative ways of abetting economic growth.
Gales of Creative Destruction
The economist Joseph Schumpeter is famous for having introduced the idea of "gales of creative destruction." When the car replaced the horse, many old goods and services (such as horse-drawn buggies, saddleries and smithies) went virtually extinct, while whole new industries and communities grew around oil, gas, paved road, motels and suburbia. With our algorithmic model we are able to quantify Schumpeter's gales:
Let us return to the network of productive pairs we were considering earlier. Essentially all goods that are technologically possible are producing each other in self-sustaining patterns. There is no intrinsic reason why this pattern should ever break down. However, our model does not yet contain utility, which we may model as an external selection process. If then, as in human societies, some products go out of fashion because preferences shift (say, from horses to cars), then occasionally some goods will be cancelled in the fully self-sustaining network. We call such exogenously triggered extinctions "primary defects." With each such defect, about twice that many productive pairs with which this good was involved will also vanish on average. As long as a good gets produced by at least one productive pair it remains in the game. When a good loses all its productive pairs it too will vanish. This disappearance we call a "secondary defect."
It is intuitively clear that when the first primary defects are introduced into the system, the effect on secondary defects will be marginal. Most of the products born of defective productive pairs can still be created by alternative productive pairs. But at some point many goods can only be produced by a single productive pair, and all of a sudden a few more defects have devastating consequences. The whole system ceases to be self-sustaining and breaks down in a cascade of secondary defects–a gale of destruction.
Our idealized grammar table model yields Schumpeterian gales of creative destruction whose size follows a power-law distribution. Surrogate data, in the form of firm failures [over time?] in many countries, also follow a power law that is close to our predictions.
The basic conclusion is that catalytic economic systems have three dynamical regimes. In the sub- and supercritical regimes, the system is dominated by destruction or creation; although the system fluctuates, it essentially remains either in one or the other. However, when the system is prepared critically, we observe a different behavior wherein Schumpeterian gales of creation and destruction occasionally throw the system from one phase into the other.