Saturday, July 25, 2015

Economic Complexity: The Best Solution

The more economic possibilities available to any individual in the marketplace, the greater the chances of positive outcomes. Even so, how could economic complexity be considered the best solution for corruption? For one thing, economic complexity is quite different in nature from legal complexities, for it implies diversity and greater choice. While legal complexities limit marketplace options and mean more wealth for those who hold power, economic complexities generate wealth creation potential for the average individual. And when more economic options exist, the incentive for corruption is vastly reduced.

However, reforms in favor of economic complexity get short shrift. Instead, arguments for greater economic diversity are tossed aside, by arguments to supplement income for those who still have some degree of economic access. In particular, arguments about "helping the poor", tend to short circuit into limited approaches such as EITC, which is little more than further income compensation on the part of government, rather than one's employer.

Noah Smith is only the latest in a line of economists in recent years to defend this approach. But the earned income tax credit is only about alleviating the circumstance of those who already have work, rather than making certain that the marketplace remains viable and diverse wherever people live, and for all who seek economic access. I don't believe it makes sense to pay people for not working. But why is it proving so difficult, to talk about how people could be compensated for helping one another?

Unfortunately it is human nature to approach policy with an eye to alleviating the "bad", instead of finding ways to create more good - an approach which gets discounted as "planning". How is it that proactive policy is less desirable than policy which seeks more marketplace limitation because of negatives? The best approach is to provide more positive options, so that more individuals will ultimately be less inclined to choose negative options for survival. Ricardo Hausmann makes some related points in "Fighting Corruption Won't End Poverty".
It is easier to mobilize against injustice than for justice. We are more enthusiastic to fight the bad - say, hunger and poverty - than to fight for, say, the kind of growth and development that makes food and sustainable livelihoods plentiful...But we should remember that casting the bad into the sea does not imply the sudden appearance on the shores of the good that we need.
Instead of constantly focusing on the bad and trying to "nudge" people towards the good, create environments which are capable of encouraging good action from the outset. Societies especially need simpler options for protecting the weak, disadvantaged and marginalized - options which do not continuously tax either governments or charity. The best way to do so, is to create simple legal and economic frameworks which allows individuals to gainfully assist one another.

No nation can remain strong, when it becomes divided against itself. But it is too easy to forget this, when reacting to the bad is inevitably the first response. Instead of reacting to the bad, it's time to focus on the good. It's time to get serious about economic complexity.

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