Complexity, economics, and innovation policy: How two kinds of science lead to two kinds of economics and two kinds of policy

Abstract

One interpretation of complexity science is that it distinguishes two types of science—an equilibrium science of forces, as begun by Newton, and a complexity science of rules, as exemplified by Wolfram (2002). If you accept that argument, then there are also two types of economics—an equilibrium economics in which forces move resources around the economy, and a complexity economics in which generic rules structure knowledge in an economy (Dopfer & Potts, 2008). However, this also implies two types of economic policy—a policy framework based on reallocating resources and a policy framework based on redesigning rules (Colander & Kupers, 2014). Modern economic policy generally engages in both, but we argue that this reflects the idea that modern economic policy has not caught up with complexity science. We illustrate how this difference plays out in the particular domain of innovation policy.