But roughly speaking, diminishing returns hold sway in the traditional part of the economy-the processing industries. Modern economies have therefore bifurcated into two inter-related worlds of business corresponding to the two types of returns. The two worlds have different economics. They differ in behavior, style, and culture. It would appear that such industries belong to the diminishing returns, processing part of the economy. . .
Services belong to both the processing and the increasing returns world.
But their center of gravity is crossing over to the latter. The concept of increasing returns is the work of W. Brian Arthur of Stanford and the complexity theory think-tank, the Santa Fe Institute, who has again been passed over for the Nobel Prize. This year it went to a pair of individuals for devising stock market derivatives, of all things. The continuing anti-trust action by the Justice Department against Microsoft is to a great extent based on increasing returns. It is ironic that there is now case law based on nonlinearity, while its applications remain largely unrecognized in other realms.