The idea economy has been bringing prosperity to a few idea supplying countries. On the other hand, these ideas have been increasing inequality and also causing volatility to the value and demand of labor and natural resources. Furthermore, increasing dependence on imported ideas has been weakening the capability of developing countries to make optimum usages of their labor and natural resources. Besides, developing countries can also emerge as idea suppliers to the evolution of most of the industrial products.
Creating economic value out of an idea in a globally connected competitive market underpins the idea economy. Because of the idea, Apple has been the most expensive company–and Kodak is Bankrupt. Because of the idea of a solid-state switch, the information age unfolded—offering us prosperity. The idea is at the core of creating economic Wealth, driving prosperity, causing destruction, and also increasing inequality.
Unlike natural resources and labor, the supply of ideas appears to be endless. By born, everybody has the capability of producing ideas. However, creating economic value out of ideas seems highly complex, particularly in creating a scalable path. Moreover, the idea economy has been expanding inequality between firms and countries. Besides, the idea economy causes volatility in the market value of natural resources and labor–making the economic outlook uncertain. For example, the idea of gasoline-powered automobiles created the demand for petroleum and made many middle eastern countries rich. On the other hand, the idea of renewable energy and electric vehicles is posing a grave threat to the future of oil economies.
Praxis, Idea economy and organizing economic activities
The basic ingredients of economic value creation are natural resources, labor, and idea. We use ideas for mixing natural resources with labor. For meeting our growing consumption, we have the urgency of producing increasing economic value from the same amount of natural resources and labor. Hence, we look for ideas. Unlike the other two ingredients, the potential supply of ideas appears to be endless.
Idea production is human beings’ inherent characteristics. Carl Marx observed its repetitive presence in ancient philosophical writings. Human beings are after ideas for recreating the world around them and serving their purposes increasingly better. They have been pursuing ideas for innovating products and re-innovating them for creating better means. This endless journey of generating and exploiting ideas is our fundamental strength of offering an increasing quality of living standards to growing fellow human beings–from depleting resources. Broadly, human beings’ this trait is termed praxis.
One of the core challenges of organizing economic activities is to exploit the economic value creation from ideas. It has been found that profit-making competition offers incentives for producing, advancing, and exploiting ideas—as product and process features. Hence, the Market Economy adopted principles for encouraging profit-making competition out of ideas. On the other hand, a command-driven economy fails to derive value from ideas as ideas do not keep growing due to a lack of initiatives. Due to this reason, inequality between socialism and the market economy kept increasing, leading to the failure of command-driven economies.
Preindustrial to the fourth industrial evolution—idea economy in perspectives
In the preindustrial era, our ancestors were as creative as us. They used to gather knowledge in the form of art. However, the ideas of products and processes they used to come up with this art form of knowledge were not scalable. Besides, their tinkering and Craftsmanship approach could not implement them in an effective and efficient manner either. Hence, their ideas of Getting jobs done were not amenable to scaling up, making them increasingly better and also cheaper. Such a form of ideas is still in existence today. For example, the Innovation Foundation of India has come up with a database of more than 300,000 such ideas, which are now in operation today.
The transformation of the art form of knowledge—powering ideas of innovation—into scientific knowledge opens the path of making innovations scalable. It supports the formation of a Flow of Ideas for empowering great initial ideas to keep offering increasingly better and less cost innovation. Such advancement has been at the core of driving industrial revolutions. It began with the formation of the underlying science of the steam engine. Subsequently increasingly making better steam engine innovations. Similarly, the 2nd and 3rd industrial revolutions kept advancing science for creating the flow of ideas—fueling innovations. Hence, we have been getting increasingly better products, often at less cost, to better serve our purposes. Consequently, we have been enjoying increasing prosperity and a higher quality of living standards.
Value and demand of labor and natural resources depend on ideas
In the preindustrial age, the value of both labor and natural resources was quite low—because of the scarcity of ideas. Our ancestors had far great per capita natural resources, and they used to also work harder and longer than us. However, their quality of living standard was lower. Subsequent industrial revolutions have been increasing the value of labor. Per unit of labor produces far more value from natural resources than before. This difference is because of ideas.
Particularly, the job division and specialization, and organization of productive activities as production lines reduced the complexity of performing each task. This task simplification kept reducing the knowledge and skill requirements of the workforce. As a result, a few months of training became sufficient to make people productive workforce. Besides, growing quality and falling costs due to ideas led to the growing consumption of produced outputs. These two factors combinedly started an increasing number of jobs for factory workers. On the other hand, idea generation and organization of a large workforce also started creating high-paying professional jobs for scientists, engineers, and managers.
Ideas started creating and also destroying the demand for labor and natural sources. For example, the automobile idea out of the internal combustion engine created the demand for petroleum and automobile making while destroying the demand for horse feed and labor of blacksmiths making horseshoes. Similarly, the progression of automation and robotics is reducing the demand for labor. Besides, software-based automation of knowledge work is reducing the demand for white-collar employees at the middle layer. On the other hand, the uprising of renewable energy and electric vehicles is posing a threat to the petroleum economy.
Idea economy, sustained economic growth, and increasing inequality
Economic growth begins with the exploitation of natural resources and labor—with the help of ideas. Due to the non-scalability of ideas, economic prosperity was low in the preindustrial age, and the inequality between countries was also negligible. However, the creation of a flow of ideas and its exploitation did not start uniformly worldwide. It began in the UK. Hence, the UK got out of the limitation of non-scalable ideas. Its economy started growing faster due to the flow of ideas of the steam engine and its exploitation in productive activities. Subsequently, a few other countries also joined the race to produce ideas and turn them into economic value. But, most of the countries preferred to have the role of supplying natural resources, subsequently labor, to create wealth out of ideas of others.
As ideas offered endless growth opportunities, countries that made the effort to create wealth out of ideas experienced far higher sustained economic growth than countries supplying natural resources and labor. Hence, over the last couple of centuries, we have been experiencing increasing income inequality between countries. Even in the recent past, in the 1960s, Malaysia was richer than South Korea. However, South Korea is now far richer than Malaysia. This is due to the fact that Malaysia still has been fueling the economic value creation out of natural resources and ideas. On the other hand, South Korea has made a transition from natural resources and labor to ideas. Consequentially, South Korea has been enjoying far greater long-term sustained economic growth than Malaysia.
Development from importing ideas does not sustain
Most of the countries are pursuing the development model out of importing ideas. They have been importing ideas in the form of capital machinery, design of products, intermediary product, and also finished products. In exchange, they export labor and natural resources—whether as part of products or in raw form. However, the continued advancement of ideas is reducing the market value and also the demand for labor. On the other hand, it’s also making the demand for natural resources uncertain. Many of the ideas which support advanced countries are not equally supportive to labor and natural supplying countries. For example, the idea of labor-saving production machinery hurts the interest of labor suppliers to the global chain. Similarly, the idea of renewable energy and electric vehicle hurt the petroleum economies.
Hence, an idea import-driven development strategy does not offer a sustained growth path. Instead, idea importing countries should focus on producing complementary ideas for increasing the value of their natural resources and labor. Moreover, they should also focus on adding ideas for accelerating the evolution of most industrial products. In addition to labor and natural resources, they must create the entry for adding value out of ideas for offering successive better versions of existing industrial products. As all these products have been evolving, lateral entry is very much within reach for many countries. Moreover, such access will intensify competition in offering higher quality at a lower cost—making the whole human race better off.
