Become complex or stay poor

Deeper analysis
However, the export tree-maps are only the beginning of the analysis. The Atlas is not intended to chart merely the level of diversification of an economy, but rather how complex its economic activities are. An economy could easily be very diversified, but all its activities could be relatively simple ones that do not draw on complex skills.

The reason for this stress on complexity is that economies with complex industries that require lots of different sorts of knowledge working together tend to grow much faster than others, and tend to be much richer.

The complexity analysis is based on the idea that where there are products that are complex to make, it is likely that the range of skills required to make those products is so great that they can probably be put to work making other complex products as well.

As the Harvard researchers say, what a society knows is very different from what an individual knows. Running an economy based on complex products is not about having a population rich in geniuses who know just about everything, but by having a lot of knowledge in many individuals who are able to work in teams to connect up the different sorts of knowledge.

Once there are enough connected individuals to make something like advanced machinery, they will probably find it relatively easy also to use at least some of the same skills to make chemicals or electronics as well.

On the other hand, there are some industries that do not connect well with others in terms of skills employed. Oil is one: the extraction of oil requires skills that are not much use for anything else. So a country may well have vast oil wealth and a huge oil industry, but that does not mean that it will be able to put that wealth to work in developing more complex industries.

In fact, to correct for this, the Harvard Atlas has the effects of natural resource wealth removed from the overall rankings, although the researchers say that even when resource wealth is included in the rankings of countries, it is still true that more complexity leads to higher growth and greater wealth.

But why is complexity important? The Atlas approach argues that it is not just a question of how diverse an economy is as reflected in its exports, but also how difficult it is to make the products it exports.

This level of difficulty is calculated very simply by looking at how many other countries can make and export the same thing. So for example the Atlas contrasts the cases of Egypt and Switzerland, the point of the comparison being that these two countries, although very different in terms of per capita GDP, happen to have about the same total GDP at purchasing power parity, and they export roughly the same number of different products, about 180 product categories in each case. But while Egypt exports goods that are also exported by an average of 28 other countries, Switzerland exports goods that are also exported by an average of 19 other countries – in other words, it is more difficult to make the things that Switzerland makes.

Add to this the fact that Egypt’s export competitors tend to be poorly diversified countries, while Switzerland’s competitors are very diversified, and the simple conclusion is that Switzerland exports more complex products. As it happens, Switzerland is eight times richer than Egypt in per capita terms.