The author is a managing director for GfK – Center for Market Research, in Zagreb, Croatia. The author would like to thank Stanley Salthe and Velimir Pravdić for their invaluable suggestions and improvements to the text; two anonymous reviewers for their comments; the editor for his flexibility and understanding; Vicki Taggart for a great job in editing the text, and the GfK Group for making this research possible. All the remaining errors are the author’s. 1 ©2010, Journal of Economic Issues / Association for Evolutionary Economics JOURNAL OF ECONOMIC ISSUES Vol. XLIV No. 1 March 2010 DOI 10.2753/JEI0021-36244401XX Economic Complexity and the Role of Markets Igor Matutinović Abstract: When used in those spheres of life where attaching a price tag or making an economic calculus is impossible or loses any meaning, markets usually under perform and disappoint. In addition to empirical shortcomings of markets, the unrealistic theoretical assumption and poor predictive and explanatory value of neoclassical equilibrium theory provides fertile ground for critics of the institution of markets. Complexity theory provides a theoretical framework that enables us to analyze the role of markets from a radically different perspective than that offered by neoclassical equilibrium theory and, therefore, to reach very different conclusions about the role of markets in industrialized economies. Keywords: complex systems, market economy, market efficiency JEL Classification Codes: B41, P17, P50 The critique of capitalist society, markets, and the neoclassical equilibrium theory has a long history and still represents a hot issue in academic debates. The current financial crisis and the sharpest recession since WWII in the United States and elsewhere in the Western world adds to the relevance of debate. 1 However, these three separate themes are often blended together in an unfortunate way thus confusing ideological, empirical and purely theoretical issues. For economists who belong to the neoclassical school of thought, markets embody economic and, consequently, social efficiency – they believe that the operative logic of markets can be equally well applied to commodities, environmental protection, and marriage. Being well aware that markets do not always perform according to theoretical expectations, economists introduced concepts like “negative externality” and “market failure,” which pointed to the fact that in order to work efficiently real markets should closely follow the technical precepts of the equilibrium