June 2009
One of the defining characteristics of the modern economy is that it’s awfully complicated. Even a fairly humble product such as a shirt might incorporate cotton from west Africa, oil from Indonesia to make the polyester in the button (manufactured in China), and designs sketched out by an Italian using American computer software. Then there is the sheer number of products: Eric Beinhocker, author of The Origin of Wealth, reckons there are probably 10 billion distinct products and services available in a modern economic environment such as London, Tokyo or New York. It’s a guess, but a fairly educated one. Beinhocker also estimates that for a traditional hunter-gatherer society, the number is closer to 300.
This would probably not have surprised Adam Smith, who emphasised the importance of specialisation as a source of the wealth of nations. Specialisation and complexity are closely linked: an economy with more specialists is one that requires more teamwork and more distinct interactions between individual activities.
Leaving aside a few complexity theorists such as Beinhocker, this is not the way that most economists think about what makes countries rich. It is not that they disagree, simply that they tend to focus on more easily measurable aggregates, such as the total stock of capital and labour.
The remainder of the article can be read here. Please post comments below.
Tim writes about the economics of everyday life. His 