Book Review

Title: Why Information Grows: The Evolution of Order, from Atoms to Economies
Author: Cesar Hidalgo
Scope: 5 stars
Readability: 3.5 stars
My personal rating: 5 stars
See more on my book rating system.

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Topic of Book

This book is foundational to the emerging field of economic complexity. This field starts with the assumption that humans are able to work collectively to make information grow and build that information into products that are sold on the market.

If you would like to learn more about the long-term causes of economic growth, read my book From Poverty to Progress: How Humans Invented Progress, and How We Can Keep It Going.

Other books by the same author

• The Atlas of Economic Complexity

Key Take-aways

• The basic laws of physics means that, given enough energy, information tends to grows. Given solids, that information can be stored.
• Humans have put this phenomenon to use and harnessed it to accelerate the growth of useful knowledge and skills by working together.
• This human ability is the foundation of the world economy and explains why some countries are rich and others are poor.

Important Quotes from Book

 “Humans are special animals when it comes to information, because unlike other species, we have developed an enormous ability to encode large volumes of information outside our bodies… what is the difference between us, humans, and all other species? The answer is that we are able to create physical instantiations of the objects we imagine, while other species are stuck with nature’s inventory”

 “Our society’s ability to accumulate information requires flows of energy, the physical storage of information in solid objects, and of course our collective ability to compute. The flow of energy that keeps our planet’s information growing “is clearly that coming from the sun.”

“But as a species, we have also developed an amazing capacity to make information last. We have learned to accumulate information in objects, starting from the time we built our first stone axes to the invention of the latest computer. The creation of these solid objects requires flows of energy, but also our distributed capacity to compute. Our species’ capacity to compute requires social networks to function, and it is therefore affected by institutions and technologies. These institutions and technologies involve the fragmentation of human languages, discrimination, trust, and communication and transportation technologies, among others. Inadequate institutions and technologies can trample our ability to form the networks we need to accumulate knowledge and knowhow, limiting the rate at which we can make information grow.”

 “economic development is based not on the ability of a pocket of the economy to consume but on the ability of people to turn their dreams into reality. Economic development is not the ability to buy but the ability to make.”

“In my talks, I often ask the attendees to raise their hands if they have used toothpaste that morning…. “I ask audience members to keep their hands up only if they know how to synthesize sodium fluoride. This shows that products give us access not only to embodied information but also to the practical uses of the knowledge that is required to make them. That is, products give us access to the practical uses of the knowledge and knowhow residing in the nervous systems of other people.”

“Products are magical also because they endow us with capacities that transcend our individual limits. Products augment us, and this is a great reason why we want them.”

“Without this physical embodiment the practical uses of knowledge and knowhow cannot be transmitted. Crystallizing imagination is therefore essential for sharing the practical uses of the knowledge that we accumulate in our mind”

“This is an interpretation of the economy as a knowledge and knowhow amplifier, or a knowledge and knowhow amplification engine: a complex sociotechnical system able to produce physical packages containing the information needed to augment the humans who participate in it. Ultimately, the economy is the collective system by which humans make information grow.”

“markets do not make us richer but wiser, since they produce wealth as long as they give us indirect access to the practical uses of the knowledge and imagination that our species has been able to accumulate.”

 “Yet in a world where knowledge and knowhow are trapped in social networks and are difficult to copy, we should expect large differences in countries’ abilities to crystallize imagination, since differences in the knowledge and knowhow available in a given country should be reflected in the set of products that each country is able to produce.”

“Information can be moved around easily in the products that contain it, whether these are objects, books, or webpages, but knowledge and knowhow are trapped in the bodies of people and the networks that these people form.”

“At the individual level, accumulating knowledge is difficult because learning is experiential. That is, we accumulate knowledge and knowhow mostly through practice, such as on-the-job experience.”

 “Knowhow, in particular, resides primarily in humans’ nervous systems. It is the instinctive way in which the musician plays guitar, the fluidity with which the artist draws, and the dexterity with which the truck driver backs up an eighteen-wheeler. It is not in books.

 “Ultimately, the experiential and social nature of learning not only limits the knowledge and knowhow that individuals can achieve but also biases the accumulation of knowledge and knowhow toward what is already available in the places where these individuals reside. This implies that the accumulation of knowledge and knowhow is geographically biased.

The social and experiential aspects of learning imply that there is a limit to the amount of knowledge and knowhow an individual can accumulate. That limit makes the accumulation of knowledge and knowhow at the collective level even more difficult, because such an accumulation requires that we break up knowledge and knowhow into chunks that are smaller than the ones an individual can hold.

Our collective ability to accumulate knowledge is therefore limited by both the finite capacity of individuals, which forces us to chop up large volumes of knowledge and knowhow, and the problem of connecting individuals in a network that can put this knowledge and knowhow back together.”

To amass large volumes of knowledge and knowhow we need to quantize both knowledge and knowhow, and two fundamental quanta of knowledge and knowhow were introduced for that purpose: the personbyte, which emerges from the finite capacity of humans, and the firmbyte, which emerges from the finite capacity of firms.”

 “Trust, which is an essential form of social capital, is the “glue” needed to form and maintain large networks. It is different from the knowledge and knowhow that we accumulate in these networks”

 “The bottom line is that there is a clear trend showing that the most complex products tend to be produced in a few diverse countries, while simpler products tend to be produced in most countries, including those that produce only a handful of products. This is consistent with the idea that industries present everywhere are those that require less knowledge and knowhow.”

“A useful mental picture that we can use to think about the evolution of a country’s industrial profile is a jigsaw puzzle. Indeed, moving a complex industry is like trying to move a jigsaw puzzle from one table to another. The more pieces in the puzzle, the harder it will be to move it, as the puzzle falls apart when we fail to move all of the pieces at the same time. So an easier way to “move” a jigsaw puzzle would be to just move a few pieces to another table where many of the other pieces of the same puzzle are already present and assembled.

“the gradual development of industries indicates that the accumulation of knowledge and knowhow at locations is slow and biased toward the knowledge and knowhow that are already present in those locations.

“One immediate lesson is that low salaries per se do not provide an economic advantage. An economic advantage exists only for those countries that have low salaries relative to the complexity of their economy.”

If you would like to learn more about the long-term causes of economic growth, read my book From Poverty to Progress: How Humans Invented Progress, and How We Can Keep It Going.