NAEC: Complexity and Policy Workshop

Opening Remarks from NAEC Complexity and Policy Workshop

We are delighted to work with our trusted partners, the Institute for New Economic Thinking (INET) Oxford, and the European Commission in establishing a programme to help policy-makers advance the use of complex systems thinking to address some of the most difficult challenges which confront us all.

This event follows up on a workshop held in October last year which explored new research on complexity and drew some important implications and tentative policy lessons. Over the next day and a half, we want to take the next step – to make the case for the use of complex thinking in policy.

This is important because we need to understand better how the economy works so as to better design policies. This is ultimately the aim of our New Approaches to Economic Challenges (NAEC) initiative which has been at the heart of our efforts to consider and address the unintended consequences of policies, while developing new approaches that foster more sustainable and inclusive growth.

The NAEC Initiative is helping the OECD take advantage of a quiet revolution in the social sciences. The availability of large-scale agent-based computing, computationally-facilitated network analysis, and ‘big data’ resulting from the internet has combined to forge a new kind of economics – complexity economics – which is more relevant for policy than traditional approaches.

The workshop will highlight cutting-edge policy applications of complexity thinking.

For instance, the study of complex networks provides a new and powerful perspective on the critical infrastructure of financial systems. Networks – broadly understood as a collection of nodes and links between nodes – offer a useful representation of financial systems. This is essential in better regulating the financial sector.

Cesar Hidalgo, Ricardo Hausmann and Luciano Pietronero have highlighted the importance of networks of capabilities where the  complexity of products produced and the “fitness” of an economy are essential in understanding future growth prospects.

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Lessons from biology and physics have been used to understand the dynamics of urban centres around the world which may help guide policy priorities.

Geoffrey West from Santa Fe Institute and his colleagues have discerned laws containing “universality” to cities. For instance, doubling the size of a city systematically increases income, wealth, number of patents, number of colleges, number of creative people, number of police, amount of waste… all by approximately 15%. These results have been observed in hundreds of cities all around the world.

Big data is being used to predict a range of phenomena from the spread of flu to movements in the stock market.

The OECD has started to embrace complexity and systems thinking with work on understanding complex global interconnections through the Trade in Value Added (TiVA) Database.

We are undertaking modelling work to link economic with other systems models. The Costs of Inaction and Resource scarcity: Consequences for Long-term Economic growth (CIRCLE) project aims to identify how feedback from poor environmental quality, climatic change and resource scarcity affect economic growth, and how policies may alter this. When devising new policies, it is essential to take a systems approach, and to understand the complex channels through which environmental change affects growth. It is also important to stress the inter-linkages among different environmental challenges.

Complexity thinking and models are already making a difference. But we should also think about how to better communicate complex policy messages. We have prepared an OECD Insights book “Debating the Issues: New Approaches to Economic Challenges” which describes the new approaches OECD is taking to policy in a complex world. We also have a background paper for the workshop containing “Insights into Complexity and Policy”. Copies of both are available at the back of the room.

I wish you all a productive discussion and by considering complexity, I hope we can stimulate new thinking, new policy approaches and ultimately as we say at the OECD,  better policies for better lives.

Learn more about the NAEC programme here

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