The universe is made of energy, matter and information, but information is what makes the universe interesting. Without information the universe would be an amorphous soup. It would lack the shapes, structures, aperiodic orders, and fractal arrangements that give the universe both its beauty and its complexity. Yet information is rare. It hides in pockets as it battles the universe´s perennial march to disorder. the growth of entropy.
– Cesar Hidalgo, Why Information Grows, 2015, Prologue
What is economic growth? And why has it through history occurred in only a few places? Traditional efforts to answer these questions have focused on institutions, geography, finance, and psychology. But according to César Hidalgo, Assistant Professor at MIT Media Lab, understanding the nature of economic growth requires going beyond the social sciences and looking for a answers from the natural sciences of information, networks, and complexity.
To understand the growth of economies, Hidalgo argues, we first need to understand the growth of order. He attempts to explain this with the book Why Information Grows : The Evolution of Order, from Atoms to Economies which was published in May this year and reviewed by the Economist last week.
The books goal is to unite economics with biology and physics, through the common thread of big data information theory. By doing so, he extends our understanding of intellectual capital in a very exciting way, and as we in Bearing works with how to ignite economic growth through innovation, this book is an important read.
Hidalgo has previously compiled The Atlas of Economic Complexity together with Professor Ricardo Hausmann, a well known expert on economic development. The atlas attempts to measure the amount of productive knowledge that each country holds, by visualizing the differences between national economies, and it is available online from this link, leading to Harvard University’s website.
At first glance, the universe seems hostile to order. Thermodynamics dictates that over time, order-or information-disappears. Whispers vanish in the wind just like the beauty of swirling cigarette smoke collapses into disorderly clouds. But thermodynamics also has loopholes that promote the growth of information in pockets.
So, why does the US economy outstrip Brazil’s, and Brazil’s that of Chad? Why did the technology corridor along Boston’s Route 128 fail while Silicon Valley blossomed? According to Hidalgo, in each case, the key is how people, firms, and the networks they form make use of information.
Seen from Hidalgo’s viewpoint, economies become distributed computers, made of networks of people, and the problem of economic development becomes the problem of making these computers more powerful. Blending deep theory with detailed data, Hidalgo demonstrates that countries grow, firms prosper, and individuals thrive when they enmesh themselves in diverse, talented networks that produce complex physical order, i.e. information. So why do economies grow? Because information does and the intellectual capital which is developed fuels productivity and growth.
By uncovering the mechanisms that enable the growth of information in nature and society, Why Information Grows clarifies the origins of physical order and economic growth. Situated at the nexus of information theory, physics, sociology, and economics, this book proposes a new theory of how economies can do not just more things, but more interesting things. This beautifully written and carefully researched book may set in motion a paradigm shift in economic thinking.
Below is a video of Hidalgo explaining his thoughts from the book.