Capitalism, Complexity, and Inequality

By Hodgson, Geoffrey M. | Journal of Economic Issues, June 2003 | Go to article overview

Capitalism, Complexity, and Inequality


Hodgson, Geoffrey M., Journal of Economic Issues


Under capitalism there is a potential for increasing socioeconomic complexity and greater specialization of skills. (1) One implication is that there is a potential for increasing inequalities of wealth, income, and power on both a national and international scale. What follows is an updated, broad-brush account of possible future developments in a knowledge-intensive capitalist economy. They can themselves be manifest in different ways, in a number of quite different institutional frameworks (Hodgson 2001).

Drivers of Capitalist Change

Capitalism is a social formation in which markets and commodity production are pervasive, including capital markets and labor markets. Capitalism is the most dynamic economic system in human history. Its driving logic involves the expansion and diversification of multiple markets. As it expands, corporations seek ever-new opportunities for trade and gain. As competition intensifies within particular markets, profit-seeking corporations innovate and diversify their products in unceasing creation of new market niches (Chamberlin 1933; Rueschemeyer 1986). The competitive pursuit of profit pressures firms to invest in new technology or new skills. In this quest for innovation, the frontiers of science and technology are advanced, leading to new fields of knowledge and enquiry. Services are generally more diverse than manufactured goods; hence, diversity also increases with the increasing relative size of the service sector. New and varied organizational forms are devised to increase productivity and to manage an exponentially expanding number of products and processes.

Accordingly, there is a long-run tendency in capitalist economic systems toward greater complexity, driven by powerful economic forces and leading to the widening of markets and greater product diversification (Warsh 1985). There are several meanings of complexity and the definition of complexity is problematic (Pryor 1996; Rosser 1999), but we can make an outline attempt. Complexity is not the same as variety (Saviotti 1996). Variety refers to a diversity of types. Complexity exists only when such variety exists within a structured system. In short, complexity in the sense used here is systemically interconnected and interactive variety. By this definition, increasing economic complexity means a growing diversity of interactions between human beings and between people and their technology. (2)

Improved global communications and increasing mobility can help to increase complexity and give a further impetus to product diversification. However, increasing complexity is not inevitable. It can be interrupted by political, economic, or environmental catastrophes. Joseph Tainter (1988) argued that the weight of complexity itself has helped to bring the collapse of civilizations. Nevertheless, it is reasonable to explore a scenario of increasing complexity, with its possible implications.

Can the growth of modern systems of communication and the development of new techniques of analysis help us to overcome the challenges of an increasingly complex world? Technology cannot make the problems of complexity go away. Innovation and change mean that there will always be new problems of analysis and the potential for cognitive and computational overload. Furthermore, the nature and dispersion of knowledge means that there will always be difficulties in dealing with tacit, idiosyncratic, and context-specific knowledge. The new information technology can help us deal with some but not all aspects of growing complexity, and it cannot neutralize its underlying forces.

Hence it is appropriate to consider possible scenarios involving increasing socioeconomic complexity. The central supposition is that in core sectors of the economy, the processes of production and their products are becoming more complex and sophisticated.

Changing Levels of Knowledge and Skill

We now consider the impact of growing complexity on the level, diversity, and distribution of skills within the economy. …

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