Drawing on current biology, we argue that the phase space of economic evolution is not stable. Thus, there are no entailing laws of economic dynamics. In this sense, economic dynamics are creative and the economy is not a causal system. Because economic dynamics are creative, the implicit frame of analysis for the econosphere changes in unprestatable and non-algorithmic ways. New-venture, social, and political entrepreneurs solve the frame problem of the econosphere. Economic evolution is unpredictable, not entailed, and the number of things traded (‘cambiodiversity’) increases over time. Our metatheoretic framework points out how institutions, entrepreneurs, and disparate actors enable what we call ‘novelty intermediation’. We provide examples of novelty intermediation from Rennaissance Italy to Silicon Valley. Our framework does not automatically provide clear policy prescriptions in part because our main result is negative. It may nevertheless provide a useful prolegomenon to a future economics fit for a creative world.

Critics of mainstream economics often argue that the mainstream does not recognize that the economy is dynamic, creative and evolving, and they base their criticism of it for its failure to recognize that. This paper argues that the mainstream does recognize that the economy is evolving, and changes its methods as new analytic technologies and computational methods develop. The paper suggests that a narrower critique of the mainstream is appropriate: It attempts to be too scientific, following a scientific rather than an engineering methodology. Thinking of applied economic policy as engineering, not science opens up new avenues of research, and will allow it be better deal with our complex world.

In this comment I discuss the excellent contribution of Koppl et al. (2014) to our understanding of the role of institutions in the economic system. Much that is offered by them reinforces and extends previous analysis by institutional and evolutionary economists. However, I argue that there are areas of evolutionary economics and complex economic system analysis that need to be integrated into their evolutionary economic perspective to make it more complete. Also, I argue that they are too kind to mainstream economists who purport to deal with institutions and complexity and that they should consider where the boundaries of science should lie in economics.

These notes on the article by Koppl et al. (2014) contain some agreements and some criticism. Written upon the invitation of the editor-in-chief of this journal, they express personal views of an economist who has been searching in a similar direction – that is, for a better economic theory, more relevant to problems of modern, innovative, and thus possibly called ‘creative’ economies than the existing theories – but in a somewhat different, less abstract, and to standard economic terminology closer style. The strongest agreements are with both parts of the article's objective: to move away from mechanistic economic models and toward a more evolutionary and institutional approach to economic theory and policy. The pursuit of the first part is most seriously criticized for two illegitimate extensions of initially sound arguments, and the pursuit of the second part, for climbing up to a too abstract metatheoretic level, from which it loses the view of the concrete results that modern economics has already obtained.

With its ability to incessantly create new actions and innovations the economy presents itself as an open, evolving (self-transforming) system. In their ‘economics for a creative world’ Koppl et al. (2014) try to account for the features of that system and discuss methodological consequences for its analysis. Claiming that ‘ . . . novelty and innovation are uncaused’ and that ‘ . . . no laws entail the evolution of the econosphere’ they hold that fundamental scientific principles do not apply. In the present comment it will be argued that both claims are difficult to defend. Causality and law-like hypotheses also apply to novelty and innovation.

In response to Pelikan, Witt, Foster, and Colander, we reiterate our main contributions: (1) our more careful demonstration of why ‘mechanistic’ models have limited application, (2) our account of novelty as a system-level phenomenon, and (3) our identification of ‘novelty intermediation’ as important to creative economic dynamics. We also address some of the criticisms raised by the commenters. Pavel Pelikan's idea of stochastic causality does not somehow eliminate unprestateable change. We do challenge certain strong notions of universal causation, as Ulrich Witt notes, but such notions are probably best abandoned. Although, we do not repudiate mathematical modeling as our paper suggested to John Foster, we may give less scope than Foster to such methods. Finally, we point out the extreme difficulty of implementing the sort of engineering vision Colander articulates.

A main instrument for better understanding the formation of institutions, and explaining the differences in their long-run development between periods and societies, would be to use history as a laboratory, allowing us to test the hypotheses developed in the social sciences. This paper discusses the study by Douglas Allen, The Institutional Revolution, in that context, in order to identify some of the pitfalls in the current attempts by economists to use historical analysis. Next, the paper places his English case into a comparative perspective, helped by the recent insights gained by economic and social history, to see how these pitfalls can be avoided. Based on this, I argue for comparisons at the regional, national and global levels, and for a multidimensional view which includes social contextualization, combined with an open eye for discontinuity in long-run patterns, in order to avoid one-dimensional and teleological approaches to institutional change.

Ronald Coase detested ‘blackboard economics’ and as a result was often criticized for being ‘against theory’. Coase has also been criticized for being overly descriptive in his institutional analysis. Here, I claim that Coase was both theoretical and interested in hypothesis testing. In order to do Coasean analysis, however, it is necessary to analyse a subject matter at the deep transaction level, given the definition of transaction costs. The rich level of detail required may give the impression of an absence of theory or testing. Here, I provide a number of real farm examples and contrast them with blackboard farm economics to make this point.

This paper contributes to the growing literature on the links between political regimes and economic development by studying the effects of years in office on economic development. The hypothesis is that dictators who stay in office for a long time period will find it increasingly difficult to carry out sound economic policies. We argue that such economic policies are the result of information asymmetries inherent to dictatorships (known as the ‘dictator dilemma’) and of changes in the personality of dictators (known as the ‘winner effect’). We call the combination of these two terms the ‘dictator effect’. We present evidence to suggest that long years in office impacts on economic growth (which is reduced), inflation (which increases) and the quality of institutions (which deteriorates). The negative effect of long years of tenure (i.e. the ‘dictator effect’) is particularly strong in young states and in Africa and the Near East.

A growing literature in the fields of economics and political science has identified the importance of culture for both economic development and good governance. In this article, we argue that a fundamental factor driving cultural traits conducive towards development and governance is inter-personal income inequality. Our empirical evidence from a cross-section of countries and based on measures of culture extracted from the World Values Survey, provides strong support for our argument even after controlling for the effect of an extensive range of potentially confounding variables and the possibility that our estimates may suffer from both measurement error and reverse causality.

This paper is a first attempt to apply a robust political economy framework to explain when Special Economic Zones (SEZs) can contribute to economic development. A robust political economy is one that channels the actions of self-interested individuals with limited information to promote economic progress. In the right institutional context, SEZs tend to promote economic growth. In the wrong institutional context, they can cause resource misallocation and rent-seeking. Policy makers introducing SEZs must overcome the knowledge problem to avoid misdirected economic planning. Yet, the scheme can only fulfill its purpose if it also prevents destructive rent-seeking behavior, both from businesses and from government authorities. The political economy framework of SEZs can be applied to judge their potential efficacy, something that orthodox studies of country features such as natural resources, infrastructure, and zone location fail to do. The Indian and Chinese experiences with SEZs illustrate these points.

Scholars argue that the New Institutional Economics (NIE) has not yet provided causal explanations on how long institutions persist or why and how they suffer dramatic changes. Others state that evidence is still inconclusive to define a theoretical justification on how changes and development occur. This article focuses on the institutions of the electricity sector in Brazil, aiming to heighten the body of empirical research in NIE and produce satisfactory explanations that motivate theory refinement. Based on a qualitative approach, we find that the drivers of the first institutional change in Brazil's electricity sector were related to market protection and domestic industrial support. For the second institutional change, economic recession (country at state of bankruptcy, debt crisis, and high inflation rates) and reliability of utility services were the driving factors. We hope this study systematizes historical facts and helps create grounds for our understanding of institutional evolution and economic growth.