From many perspectives, we can divide the world. From the perspective of wealth creation, it divides into two halves. The first half supplies ideas to process objects supplied by the other half. Increasingly, the first half is getting stronger as the role of ideas is growing in economic outputs. On the other hand, ideas determine the market value of objects like labor and natural resources. As a result, idea-supplying countries are increasingly setting global rules. Moreover, idea suppliers are also blocking the graduation of object suppliers. Object supplying countries are increasingly making themselves caught into inescapable growth traps. Hence, the word ‘developing’ no longer makes sense. These countries cannot find a scalable growth path out of their objects. Consequentially, the world divided into two halves is increasingly getting solidified. This is a new form of colonization. Unfortunately, it’s perceived as a path of prosperity.
To make it worse, these object supplying countries are increasingly buying the prescription of imported idea-based development programs. They are busy in borrowing and preparing land, roads, ports, and power network to host idea-owning companies. It makes them happy to supply labor and natural resources to these idea-owning multinationals. They are liberalizing all trade issues to facilitate importing ideas from advanced industrial countries. Ideas are entering in the form of consumable products and capital machinery. On the other hand, these object supplying countries have no time to look into capacity development to generate ideas and create the demand for them. To make it worse, top-notch development scholars are suggesting that this is the right path. As opposed to embarking on idea economy, poor countries should keep focusing on supplying objects. Is it a modern model of colonization or slavery?
The genesis of the journey to have the world divides into two halves
More than 500 years ago, every major geography had an economy based on its own ideas and objects. The cross-border trade of ideas and objects was very limited. Trading of natural resources initialed cross-border trade. Eventually, it expanded to trading labor, often in the form of importing slaves from Africa. During that time, ideas had a very low-scale advantage, as they were mostly based on intuition, tinkering, and tacit knowledge. The situation started to change in the 17th century. Europeans started absorbing and advancing the science base created by the Muslims during the 8th to 13th centuries. Instead of being driven by the curiosity of knowledge, they focused on turning science into technological inventions. Subsequently, they started developing ideas and making them scalable with the continued scientific progress. They also formulated patent laws to encourage idea generation and profiting from their trading.
They assigned roles to their colonies for supplying natural resources. Colonies were happy in engaging their labor in producing and exporting natural resources to Europe. For example, Bangladesh found the role of supplying jute fiber. In Europe, industries started growing to process colonies supplied natural resources with their ideas and labor. Among many industrial belts, Dundy of the UK became famous for processing jute supplied by Bangladesh. Europeans had the ideas of both products and capital machinery to process natural resources to produce those products.
After independence, former colonies wanted to build an industrial economy. Unfortunately, they relied on the ideas of Europe. They started importing both designs of products and capital machinery. Hence, they voluntarily took the role of supplying objects like natural resources and labor. Such a role has expanded through export-oriented manufacturing, multinationals’ entry to offer products for the domestic market, and negligible investment in R&D.
Establishing the belief in imported ideas
To make the situation worse, development thinkers are preaching with observations like “People in the industrial nations of the world already possess the knowledge needed to provide a decent standard of living for everyone on Earth.” Further observation, “Citizens of the poorest countries in the world can benefit enormously from the Knowledge of industrial nations if they give the holders of this knowledge an incentive to put it to use in their countries.” Hence suggestions include liberalizing “Machinery imports and direct foreign investment increases the international flow of ideas.” It’s also being promoted that ideas have no opportunity cost. It’s being argued that “Transmitting ideas to close a gap generates gains from trade that can be shared by the recipient country and the supplying firm.” But does it offer the path to developing countries for sustained growth, reaching high-income country status?
Unfortunately, it underscores the process of seeing the world divides into two halves. As a matter of fact, an idea import-driven development journey appears to be a fallacy. It’s also aggravating poverty in developing countries.
Focus on loan, infrastructure and generic education to be preferred object suppliers
To be preferred object suppliers, developing countries are in a race to borrow money from idea suppliers to develop their physical infrastructures. They are also giving generic education to the next generation. This generic education and also skill development make them more productive labor suppliers. However, they have no emphasis on idea development. Partly, perhaps, this is due to ignorance. It’s also due to the fact that lending agencies are willing to offer loans to import ideas, and to supply objects. For example, developing countries are investing in economic zones to make them attractive to supply labor to produce outputs to facilitate the trading of foreign ideas.
To be more specific, Nike’s ideas of sneaker design are converted into products with the labor of Indonesia. In the absence of low-cost labor or Indonesia, Nike faces a limit in trading ideas. In the process, plants in Indonesia also import ideas in the form of capital machinery from idea supplying countries like Germany, Japan or Taiwan.
Hence, we have been observing the expansion of loan portfolios, economic zones, and generic education to increase the supply of objects. But there has been virtually no progress in the patent portfolio. For example, patent filling by local firms and individuals in Bangladesh, India, Pakistan, or Indonesia is virtually negligible and also stagnant. It seems that they are happy to be object suppliers in the world divided into two halves.
Labor is losing market value and faces limit
Labor-based value addition, whether working in factories or IT professionals, shows a linear revenue generation model. Total revenue or per capita income depends on the per-unit market value and total labor units available. Due to automation, both in physical and knowledge work, there has been a decreasing demand for labor. This trend will likely keep continuing. Hence, labor suppliers will be increasingly in weaker positions to add value to economic outputs. On the other hand, idea suppliers in the form of product designs, robotics, automation, and capital machinery will keep gaining upper hands. There seems to be no concern among developing countries as the world divides into two halves.
The value of the natural resources is volatile, and stock is finite
On the one hand, natural resource stock is limited. On the other hand, ideas determine market value. For example, Middle Eastern countries’ economic status not only depends on the oil stock but also on the future of electric vehicles (EV) and renewable energy ideas. The idea of an internal combustion engine-driven automobile created the demand for fossil fuel. The emergence of EV idea poses a threat to those economies, even before they run out of stock. On the other hand, the idea of EV is showing bright prospects to Cobalt suppliers of Africa. However, once the idea of using alternative materials shows up, the cobalt market value will likely start evaporating.
On the other hand, idea producers are shining brighter. American stock market is indicating that idea suppliers are getting increasingly prosperous. For example, companies based on ideas are rising at the top. Apple, as opposed to Exon-Mobile, is the most valued company.
As the world divides into two halves, the barrier to be idea supplier is growing
On the one hand, developing countries are busy developing infrastructure, skill development, and generic education to be preferred object suppliers. On the other hand, the entry barrier to be an idea supplier has been expanding. For example, through tinkering, Thomas Alpha Edison entered into the light bulb business. But to create an entry opportunity in the light bulb business, Japan’s Nichia corporation had to make a Nobel Prize-winning scientific discovery of LED. Similarly, Carl Benz’s tinkering idea started the automobile business. But to make the idea of autonomous driving a profitable opportunity, already more than $80 billion has been invested in R&D. Often it needs decade-long R&D to generate ideas and create a profitable business from it.
Does it mean that developing countries have no hope of graduating as an idea supplier? If they fail to do so, will they keep growing? The challenge of entering into the idea economy has been increasing. Developing countries should carefully understand the dynamics of the idea economy. It’s no longer a magical journey. Instead, it requires a serious understudying and well-managed approach. First, a critical mass of the population of these countries should have the capability of interpreting the past, comprehending the present, and predicting the unfolding future of innovation dynamics. In the absence of it, these countries will not be able to have a long-term commitment to creating the entry opportunity.