Thursday, October 25, 2012

Economic Complexity, Economic Inequality and Governance

The Economic Complexity Index (ECI) is a measure of the amount of productive knowledge that each country holds. It accounts for differences in national economies and is a driver of economic growth. It is an indirect measure of the amount of productive tacit and explicit knowledge and how the country can combine it into a larger variety of better products. The United States ranks 13th in ECI in 2008 and 72nd in ECI growth since 1964 among 128 countries.

Dealing with complex environments external to a country and its own complex economic system requires a new type of governance. A form of this new type is being developed in Singapore, which they call “a whole of nation” approach. It has some similarities to a military tactic “leading by mission”. Whole of government depends critically on people at all levels understanding how their roles fit in with the larger national aims and objectives. The economic system inside the country has to be at least as complex as the markets served by the country.

Economic inequality at the country level decreases the health and well being of its citizens (common weal), increases violent crime, decreases education equality, decreases social mobility, decreases economic complexity and can lead to political instability. Economic inequality is often measured using the Gini Coefficient, with a range of 0 (all incomes equal) to 1(all income in one person). The United States has a Gini Coefficient of 0.41 in 2007, the 44th highest in the world.

At the country level, counties with a lower Gini Coefficient (more income equality), generally have a higher ECI (economic complexity).