Natural resources, labor, knowledge, and ideas are our means of creating economic value—driving prosperity. Due to the growing role of ideas in creating business successes, building an idea economy has been gaining traction. There are many indicators, such as the role of intangibles or trillion-dollar valuation of technology companies, to make a case that ideas have increasing roles in creating economic value. Hence, more or less all nations are after building idea economy.
It refers to creating economic value by producing and consuming ideas as product and process features—generating consumer and producer surpluses. But how to do it has been an issue. The often-practiced approach has been increasing the production of ideas and pursuing higher level protection. On the other hand, less developed countries have been after benefiting from the ideas of others through intellectual property infringement. But is there a natural correlation between these approaches and progress in building an idea economy?
Each of us is an idea producer, generating numerous ideas every day. Most of the ideas are discrete; they do not add up to create a cumulative effect. But a few show the amenability of growing by adding a flow of ideas, taking the shape of great ideas. Such powerful ones include light bulbs, electric motors, airplanes, automobiles, mobile phones, transistors, computers, and many more. Due to varying successes in developing and leveraging idea economies, there has been growing inequality in prosperity among individuals, firms, and nations.
Genesis of building idea economy—giving birth to grassroots innovation
Once we confront a situation, we produce ideas to organize whatever relevant things we find within our reach and device processes of their applications to get jobs done best and most efficiently. This is our inherent nature. The human race has been leveraging this vital innate ability from the beginning of its existence on this planet. Our ability to get jobs done better with ideas, and create economic value, depends on creativity, knowledge, urgency, belief, culture, strategy, and policy.
At the very beginning of human existence on this planet, the idea economy started as grassroots innovation. Still today, grassroots innovations have been playing a significant role in contributing to economic value creation worldwide. Notably, in less developed countries, the relative position of grassroots innovation in economic value creation is very high. Due to limited access to modern ideas, a large number of people in less developed countries rely on grassroots innovation.
But the scalability of grassroots ideas is very limited. Often, the idea producers are the only consumers. Or, at best, a small group of users adopt such innovations. Furthermore, due to the lack of flow of complementary ideas, these grassroots innovations do not keep growing in helping get jobs done better at increasing quality and decreasing cost. Hence, economic growth out of grassroots innovation saturates very early.
Due to limited scalability, there have been many grassroots innovators and a low monopoly in economic value creation out of ideas. Hence, more or less, all communities or countries in the past used to have self-sufficiency. Inequality was also low. But the scope of scalability through the cumulative effect of ideas has opened the door of monopolization and growing inequality—through the success of higher quality at less cost.
Scalability of ideas for building idea economy—demanding a flow of ideas in creating a cumulative effect
Ideas of using discarded plastic bottle as water sprinkler has limited value. Similarly, the ideas of the electric light bulb, gramophone, airplane, computer, or semiconductor also had limited or no capability to produce economic value at birth. But unlike the plastic bottle as a water sprinkler, all these ideas have been growing through the cumulative effect of a flow of ideas. In the absence of the flow, a single idea does not offer much value, irrespective of greatness.
The cumulative effect through a flow of ideas, increasing initial ideas’ economic value creation ability, is at the root of creating scale effect. As complementary ideas keep increasing quality and reducing cost, ideas like the light bulb or gramophone have been diffusing deeper into society, advancing economic value creation. Furthermore, systematic idea production has created high-paying jobs for university graduates. Consequentially, the journey of scaling up ideas has been driving financial prosperity, uplifting the quality of living standards of users, creating jobs, and building industries. On the other hand, due to lack of scalability, even instantly useful ideas like water sprinklers made out of plastic bottles could not scale up, creating jobs and driving prosperity.
Increasing idea production—is it good enough?
Often, we think that as the idea is the ingredient for creating an idea economy, let’s invest in increasing the production of ideas. Hence, from nurturing creativity to investing in higher education and research, we have started taking all possible measures to increase idea production. Therefore, there have been countless recommendations for improving R&D investment and nurturing creativity among students.
Unfortunately, discrete or isolated ideas do not create much economic value. Although ideas like water sprinklers out of discarded plastic bottles are instantly useful, its economic value creation ability is minimal—let alone creating high-paying jobs. Surprisingly, all the great ingestions started the journey with no or little contribution to economic value creation. Hence, the production of ideas is not good enough. Instead of randomly generating ideas, the focus should be creating a cumulative effect. Otherwise, creativity and R&D investment producing patents would not lead to economic growth.
Protecting ideas—does it slow down the idea economy?
For encouraging creativity and idea production, the focus goes on idea protection. The argument has been that such measures will ensure profit-making incentives for idea producers. But isolated great ideas do not create economic value. From light bulbs to computers, there have been many examples. To create economic value, the race to develop idea flow for unleashing the latent potential of ideas is essential.
Despite the positive role, patents create barriers to the growth of ideas through the cumulative effect of a flow of ideas. Often such a flow is created through the profit-making race of individuals or firms who did not participate in the invention. For example, Polish inventor Jan Szczepanik patented a color television system in 1897. But his patent did neither bring him fortune nor create the television industry in Poland. It needed an additional flow of ideas. It happened that American RCA invested more than $50 million in the 1930s and 1940s to grow the idea of color television into creating economic value. Since then, competitors have raced to produce ideas for unleashing increasing value from the concept of color television.
It has been found that growing economic value creation out of ideas has been encouraging patent lawyers to create barriers to creating a flow of ideas. Such a reality runs the risk of impeding economic value creation from the exploitation of ideas. Hence, a fresh look should be taken on idea protection to encourage creating a flow of ideas to unleash great ideas’ latent potential through competition.
Building idea economy through idea infringement—does it work?
There has been a strong belief that idea infringement could create economic value. If that were the reality, why could not software piracy develop the software industry in less developed countries? Similarly, through imitation, why could not Hong Kong or Thailand, among others, build a robust industrial economy?
Due to the potential of using additional ideas to make products better and also cheaper, imitators keep falling behind. On the other hand, idea producers also keep gaining economies of scale, scope, and network effect. Besides, brand value also keeps growing. As a result, imitators suffer from the high cost of copying and decreasing willingness to pay for imitated products. Therefore, idea infringement, even as import substitution, has been failing to drive economic prosperity.
Creating demand for ideas
For creating demand for ideas, the focus should be given to improving existing products and processes through cumulative effect. The targeted advancement could be incremental progression or reinvention. And in doing so, the focus should be on outperforming the leaders so profitable revenue could be generated from the idea production. Hence, the dynamics of the evolution of products and processes, technology maturity, and competitors’ response should be considered. Furthermore, import policies should also create the demand for local production of ideas.
Synchronized timely response for creating a snowball effect
As explained, mere creativity or random production of ideas does not lead to economic value creation—let alone building an idea economy. On the other hand, idea protection and infringement do not have substantial implications for building idea economy.
For driving economic prosperity out of ideas, the focus should be a timely synchronized response in creating a directional, snowball effect from a flow of ideas. Hence, the evolution of products and processes due to the directional flow of ideas should be considered in developing idea economy.