“Margaret Thatcher once said, ‘There is no such thing as Society. There are individual men and women and there are families.’ From the perspective of Complexity Economics, she was simply wrong. The interactions of millions of people, making decisions, engaging in strong reciprocal behaviour, acting out their cultural norms, cooperating, competing, and going about their daily lives, creates an emergent phenomenon that we call society – a phenomenon as real as the emergent pattern of a whirlpool. Within society are the constructs of states, markets and communities, the three of which together create the economic world that we live in. We may not be able to control or predict the future direction of society, but we can endeavour to ensure that these three elements work together to create wealth, social capital, and opportunity.”
Eric D. Beinhocker (2006), The Origin of Wealth
Complexity Economics has much to offer in its critique of the mainstream, and its incorporation of a plethora of ideas whose application the author suggests could mean ‘the end of left versus right’. There may be some truth in this. The rise of populism across the West and the policies espoused by our would-be political leaders are in some cases hard to categorise simply across the political spectrum. We have those from both the left and the right attacking liberal trade and immigration. Their support has at least partly emerged from the huge number who have grown disaffected with the establishment in the presence of rising income and wealth inequality and stagnant wages, with a small minority seeming to benefit disproportionately from globalization. Having said that, I don’t think the author had these developments in mind. He was writing before the Great Recession, and his vision is more one of states and markets as inevitably intertwined in promoting the common good, beyond ‘left wing utopias and free market fantasies’.
Overall Beinhocker’s book, the title a direct nod to Darwin, is a nice summary of one particular branch of modern economics that is progressing beyond the mainstream neoclassical paradigm. Some of its ideas are not new, but they have been repackaged into a relatively non-ideological form, which should appeal to those who are not wedded to any particular political programme: in other words, the (waiting to be persuaded) centre ground. However, for those wanting something more radical, this may not be enough.
In short, for Complexity Economics, economies are open, dynamic, non-linear, far from equilibrium, emergent systems, containing human agents interacting in a variety of networks. Macro behaviour is emergent from but irreducible to micro behaviour, and there should thus be no clear divide between the two. Wealth is economic value, fit for human purposes. Markets are seen as evolutionary search mechanisms, which reallocate resources from the unfit to the fit, promoting innovation and growth.
There is much in this to like, although I would add that human agency need not just refer to individuals, but also to groups and collective action. The argument in the opening quote that states, markets and communities need each other for successful socio-economic evolution is also persuasive, but they are not the only social categories that we could find useful to include for analysis. Standard economics looks at households as recipients of wages, interest, dividends, and welfare payments and as consumers and payers of taxes and interest. This category is neglected in the book. On the other hand, Beinhocker does spend some time analysing the role of businesses and other organisations that operate in the economy.
Complexity Economics also neglects some of the categories of political economy, such as power, class and ideology, in favour of a relentless focus on insights from ‘modern’ science. These categories remain important to a richer understanding of society, particularly in times of upheaval, although they remain controversial because they remove the division between facts and values and allow the world as we interpret it to become inevitably political. These factors aside, there is plenty of great interest in The Origin of Wealth.
In the end however, it’s all just a collection of models to aid our understanding and hopefully make a contribution to improving the lot of humanity in the widest sense, and one should keep this in mind.