Australia's economic complexity is fine, actually

Our economy could be more diverse, no doubt. But the headlines don't capture the full story. Less popular economic complexity measures put Australia in the top ten nations.

We all seem to just know that Australia has a big, dumb economy, mostly digging up dirt to put on ships and selling each other houses. I get it. Houses and holes and all that.

The headlines tell of a “dire state of economic complexity”. Depending on which complexity metric is used, we are either ranked 93rd in the world, behind Uganda and Pakistan, or 105th, behind Botswana and Zambia.

This is bad.

Fancy rich countries have big, complex economies that can produce many different types of products. We don’t have that. Australia can’t even produce cars anymore!

But does anyone truly, deep in their heart, believe Australia has a less complex economy than Zambia? I suspect the answer is no. We don’t really believe the hype. We just enjoy the political arguments.

I once had strong concerns about Australia’s declining complexity, too.

But like many economic issues, the more you dig into the details, the less the headlines match the reality.

What if declining economic complexity is just the latest trendy thing we say we want to gripe about social and economic decline? What if Australia’s economy is fine, actually?

Here, I will explain why the popular economic complexity metrics aren’t doing Australia justice and that perhaps we can take a more positive, or at least more reasoned, outlook on our economic prospects.

What is economic complexity?

Underlying these measurement approaches is an economic theory, or an idea about what matters and what economic observations mean. That theory supposes that economic development is a process of accumulating productive knowledge and capabilities. Our knowledge and capabilities are embedded in people, firms, institutions, and networks.

Sounds straightforward, but it is quite subtle. Let’s dig in.