Theory of Economic Complexity
The theory of economic complexity postulates that the key to prosperity is in both accumulating individual capabilities and the capacity to aggregate those capabilities through networks to create complex products within a diversity of industries. It starts with a recognition that underdeveloped economies know how to make only a few things while developed economies know how to make many. Know-how is defined as an individual’s competency to perform a task. Collective know-how is the capacity to perform tasks that cannot be performed by an individual. They are team efforts. In pre-agrarian societies, an individual knows almost as much as the whole organization knows. But in advanced economies, we are able to make more things that are more complex because we all have different knowledge and we are able to create networks for integrating them into coherent functioning organizations. The more individual differentiated capabilities an economy has and the greater its institutional capability to integrate them, the more complex things it can make and thus the more advanced the economy can be said to be.