‘Complex products require elaborate networks of teamwork, and only a few places manage the trick’
Is economic life getting more complicated? In some ways, no. It’s much easier to use a computer than it used to be, or to make an international phone call, or to buy avocados. But, in many ways, complexity is on the rise.
This is true for products. When once we used to buy simple chunks of matter, such as copper, tin or wheat, now we buy smart watches, movie downloads and ready meals — these are things whose structure is a vital part of their value. You can melt and cool copper, or scatter and then rebuild a pile of wheat, and no great harm will come to either. Put your phone into a blender and you’ll find it has changed in ways that matter a great deal.
Scientific ideas are also becoming more complex. Benjamin F Jones, an economist, has used large databases of academic articles and patents to show that researchers and inventors are getting older and have narrower specialisations. This seems to be because there is much more science to be known, and scientists must devote more time to mastering what is already known before they can contribute original research.
César Hidalgo, a physicist at Massachusetts Institute of Technology and author of Why Information Grows, coins the word “personbyte” to describe the amount of knowledge that one person can reasonably know. The personbyte isn’t getting any smaller but — relative to the knowledge that needs to be mustered to produce a modern scientific paper, or a computer, or a car — the personbyte looks ever more inadequate.
The way to escape the constraint of the personbyte is to work in larger teams, and this is exactly what Jones finds in academic and patent databases: research teams are bigger than they were 40 years ago. This is a natural consequence of the fact that a personbyte isn’t big enough to process the knowledge required for modern science or engineering. One person cannot hold all the necessary know-how in her head, so she must work together with others.
How easy is this collaboration? It depends. Some knowledge is easily copied. Once someone has invented the wheel, anyone else can simply copy the idea and no more elaborate teamwork is needed than that. Other knowledge can be embodied in a product and widely dispersed. I don’t know how to make a laptop computer but I know how to use one. In a sense, I am standing on the shoulders of Ada Lovelace, Alan Turing and Bill Gates. But I do not need to spend any time in meetings with these people, which is just as well. Better yet, my laptop is built from simpler standalone modules, such as the central processing unit, the keyboard, the operating system and the hard drive. Individuals — or teams, or firms — can work on these modules even if no organisation has mastered the skills necessary to build every part of the laptop from scratch. The modular nature of the computer makes it straightforward to use earlier knowledge.
But some knowledge requires far more challenging collaborations. This knowledge is tacit, hard or perhaps impossible to describe. It may be easy to send data around the world but data may not be enough. Knowledge may be weightless in principle but, as César Hidalgo points out, we find it easier to move heavy copper from mines in Chile to factories in Korea than to move manufacturing know-how from Korea to Chile.
Hidalgo argues persuasively that networks of people and companies with such tacit knowledge are an essential part of a modern economy. They form essential capabilities: how to make a plasma display, or champagne, or a financial derivative. Simpler products require simpler networks of collaboration, and can be produced almost anywhere. More complex products require elaborate networks of teamwork, and only a few places manage the trick.
More than 20 years ago, economist Michael Kremer published “The O-ring Theory of Economic Development”. His title refers to a simple seal whose failure destroyed the Challenger space shuttle and killed seven astronauts. Kremer wanted us to think about weak links. A string quartet is not much better than its worst player. A gourmet meal could be ruined by a clumsy chef, a faulty oven, a rude waiter, a decaying ingredient, or a rat scurrying across the dining room. These are O-ring products.
The logic of an O-ring world is that the most skilled workers end up collaborating with each other, using the best equipment. Chef Heston Blumenthal does not work at Burger King. It makes more sense for Joshua Bell to play a Stradivarius and for a street busker to play a worm-eaten fiddle than for the two musicians to swap.
Inequality soars in O-ring worlds because the more complex a product or service, the greater the value of someone who can avoid errors. And a weak link somewhere in your economy can spread like a cancer. Why should a young person in Nigeria study hard if her efforts will be dissipated by electrical blackouts, criminal gangs or corrupt officials?
The economic world is unlikely to become simpler. But we may rise to the challenge better if we think about both the social and institutional support that helps make complex collaborations possible — and the simple modular engineering that makes complex collaborations unnecessary.
Written for and first published at ft.com.