Complexity economics and hidden growth sources
Marina Boykova, HSE ISSEK Leading Expert and the Executive Editor of the Foresight and STI Governance journal, presented the emerging landscape of the complexity economics, its main players, concepts, new tools, achievements, and research areas. Academic publication statistics were shown, reflecting the exponentially growing interest in this emerging field. Its approaches and techniques allow to more accurately predict economic systems’ development paths, describe the patterns of their growth and decline in more detail and more comprehensively, respond as preventively and efficiently as possible, and avoid common mistakes. Leading development institutions (such as, e.g., the European Commission) and universities (Harvard, Massachusetts, etc.) have already established themselves in this field: they conduct research, develop policy evaluation tools, and prepare recommendations. Reputable journals, including Nature, regularly publish articles on the topic, while the Research Policy and Sustainability have published special issues.
Anastasia Likhacheva, Dean of the HSE Faculty of World Economy and International Affairs, spoke about one of the key complexity economics aspects, the “economics of mistrust”. Mistrust mainly arises when relationships with new partners are built, and in the perception of old systems losing their relevance. Under such circumstances, great opportunities open up for proxy (or trust) agents. Their positive experience in establishing strong, trusting relationships with various actors makes them a key economics of mistrust asset. The main research areas here comprise distrust growth markers, measuring willingness to take risks, determining optimal insurance premiums, indicators of setting up or dismantling cooperation chains, etc.
Anastasia Stepanova, Deputy HSE Vice Rector and Research Fellow at the HSE Faculty of Economic Sciences, spoke about applying complexity economics tools to make strategic corporate decisions. She gave examples of anomalous phenomena and behavioural patterns not taken into account in classical economics, and evaluated the potential of “traditional finance” to predict major crises at the beginning of the current century. As practice shows, markets have limited efficiency: managers and investors not always remain rational in their choices, cannot broadly evaluate the emerging trends and their prospects. To explain these phenomena, scientists develop alternative theories. The scope for modelling financial systems in the new conditions still remains limited, mainly reduced to suggesting amendments to classical models with the addition of specific behavioural characteristics. The complexity of the financial sector creates two contradictory cycles: the greater this complexity is, the more resources businesses get, and the faster they grow; but at the same time endogenous financial shocks arise, increasing income inequality and instability.
At least ten behavioural patterns have been identified by analysing international companies’ activities, significantly different in efficiency, risk level, growth rates, and stock returns, which do not match the sectoral division of the market. Interestingly, technology companies apply all of these schemes.
Dmitry Katalevsky, Senior Research Fellow at the Moscow State University, addressed the “waif” systems issue, which arise when their key participants refuse to perceive the system as a whole and, therefore, to take responsibility for its long-term stability. This problem was analysed using the Boeing case as an example. The system degrades into a “waif” state slowly; sometimes over decades, so analysing this process objectively is difficult. The values and fundamental principles initially embedded in the system gradually deteriorate, which is reflected in the organisation’s internal and external communications culture. The interests of key players in the system shift from a long-term horizon to a short-term one. As a result, in the absence of a “single system supervisor” the system becomes “ownerless”, and systemically “drifts” in the direction of the greatest “pressure vector”. To deal with the “waif” issue, complex systems must be seen holistically, which often requires access to a “supra-systemic” level, and reconfiguring the system on this basis. Some participants must be responsible for the system as a whole, not for its individual parts.
Helena Knyazeva, Professor at the HSE School of Philosophy and Cultural Studies, spoke about the foundation of the “complexity economics”: how complexity science helps to manage the nonlinear dynamics of economic processes. She compared the classical paradigm with the complexity economics (seeing economic systems as closed, homogeneous, and balanced or, on the contrary, as open, heterogeneous, and unbalanced; perfect vs. limited rationality of economic actors, etc.). New approaches of the complexity science are not limited to micro- and macroeconomic analysis, but focus on the meso-level. Uncertainty should be considered not just as a lack of quantitative information required to calculate the risks, but as fundamental randomness, an immanent property of economic processes, which in a state of instability, at a bifurcation point can give a chance to follow the desired development path. Rapid growth or decline in financial markets is inevitable, as non-linear positive feedback is at work there. However, modelling complex systems allows to detect weak signals - harbingers of catastrophes. The “planner paradox” applies to complexity economics, which implies choosing the right time for making an impact in time and space.
Igor Makarov, Head of the HSE Department of the World Economy, demonstrated the “complexity economics’” contribution to analysing environmental issues, and modelling “green development”. The established approaches are based on introducing fees for the use of natural resources and for environmental pollution, but their applicability is limited. They do not work when monitoring and control costs are too high, or under a strong path dependence or pronounced cultural patterns; when the international trade factor intervenes; or when the issue of optimising the use of exhaustible resources in the long term must be addressed. Complexity economics offers new approaches which allow, e.g., to introduce polycentric environmental regimes. We are talking about schemes under which not only the state, but all economic agents are involved in reducing emissions. Four scenarios for overcoming the crisis and promoting the green agenda were presented, which provide for different options ranging from accelerating the energy transition to curtailing the green course and returning to hydrocarbons. A lot depends on the emergence of breakthrough green technologies in the coming years, which would help the economy adapt to new conditions quickly. Otherwise, long-term hydrocarbon dependence will remain in place. Complexity economics also has a high potential to address climate change and income inequality issues in an integrated manner.
Liliana Proskuryakova, HSE ISSEK Leading Research Fellow, reviewed the current situation with, and development prospects for integrated approaches to the use of water, energy, and agricultural resources. Their application opens up new possibilities for solving complex problems, such as desalination and optimal distribution of agricultural land to grow food and biomass to produce fuel. The most effective management tools are based on combined natural and social sciences knowledge, qualitative and quantitative methods of analysis, and take into account behavioural aspects.
Nikolay Pilnik, Senior Research Fellow at the HSE Faculty of Economic Sciences, devoted his presentation to harmonising economic models from the complexity economics point of view.
The main problem with modelling is that due to the evolution of the economic system and the processes occurring in it, each subsequent model has to be created anew. Continuously emerging economic relations have different parameters and proportions, and require using new mathematical methods. Economic agents are constantly trying to find, or borrow from each other new ways to pursue their interests, such as technologies, trade relations, financial tools, or organisational techniques. The existing diverse economic models focus on separate perspectives of a complex system using their own sets of concepts, but numerous important phenomena, unaccounted for and “invisible”, remain outside each of them. Qualitative models not only describe system behaviour under the existing relations, but also set the limits of their own applicability, and of stability of the structure under consideration. By generating a large amount of empirical data, they serve as an alternative to controlled scientific experiments with complex systems.
Summarising the results of the round table discussion, one can say that its participants did contribute to the semantic content of complexity economics, outlined the prospects for further discussion, and for interdisciplinary studies of this topic.
The event was organised in the framework of a research grant funded by the Ministry of Science and Higher Education of the Russian Federation (grant ID: 075-15-2022-325).