Economies must crack the knowledge code
By Richard Walker
- Economies must crack the knowledge code
- Why is Switzerland so rich? Why is Portugal so poor?
- Breaking the anti-development cycle remains the biggest challenge for the world’s policymakers.
Why is Switzerland so rich? Why is Portugal so poor? And what exactly is the recipe for going from poor to rich? These are the sorts of questions that development economists and policy folk from a thousand think-tanks spend their days and nights puzzling over. But according to a group of economists and data-crunchers at Harvard’s Center for International Development, the answers may not be as elusive as some fear.
The Harvard researchers have spent the last few years developing a predictive data set that suggests that present and future prosperity is not much to do with natural resources, or location, or infrastructure. It’s not even directly to do with skills – a relatively poor country like South Africa can have a great record of producing Nobel prize-winners, and may have some unique high-level skills that no one else can match, and still stay relatively poor. Rather it is to do with complexity and knowledge – how many different kinds of skills there are in the whole economy, and how well they connect up. Complex economies do better at making their citizens wealthy.
This is the argument of the project known as the Harvard Atlas of Economic Complexity. The Harvard economists claim that the Atlas can predict growth patterns better than any other rankings, including the World Bank indicators on governance, the World Economic Forum’s competitiveness indicators, or other rankings based on education or on the availability of finance.
The Harvard project is led by the Venezuelan development economist Professor Ricardo Hausmann. In a recent interview Hausmann summarised the conclusions: “We take two measures. How much a country knows, and how easy would it be for it to know more. Together those variables can predict how fast it will grow. Not just the country as a whole – we can predict how fast an industry can grow in a given location. We can predict the complete appearances and disappearances of industries, and the results are five to ten times more accurate than random guesses.”
The most important insight of the Atlas is that it is not just human or infrastructural resources that determine future growth, but the inter-relatedness of those resources. Complexity is a measure not only of what knowledge resides in an economy, but also how productive it is and how easy it is for an economy that manages to produce one kind of complex high value product to also produce a related product. Once there are enough ‘connected’ individuals to make something like advanced machinery, they will probably find it relatively easy also to use at least some of the same skills to make chemicals or electronics as well.
Read more: www.capx.co