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JOHN MASON: Economic growth and the new age of global enlightenment

Friend of the Peak John Mason on why economic growth depends on the sharing and creation of new information

BY: John M. Mason

Martin Wolf has written, in the Financial Times, about the need for productivity growth to support well-being around the globe. It is well worth a read.

The foundation of growing productivity is information. Knowledge and know-how must increase and spread. This is where increasing wealth comes from; where increasing physical and mental health comes from.

One of the major problems in the world today, according to Mr. Wolf, is that “the growth in labor productivity has slowed almost everywhere since 2004.”

The thing is, information does grow…and spread.

César Hidalgo of MIT has written a book titled Why Information Grows, which places this growth of information within its historical context. His argument is that the growth of information produces the building blocks of progress everywhere, in every time.

This growth in information is the foundation for advancement in the physical world, in the biological world, and in the social world.

Information spreads. That is the basis of global history. And, while humans can slow down the pace of this spread from time-to-time, information growth always wins out in the end.

This assumption really lies at the heart of the new, alarmingly optimistic book by the Harvard professor Steven Pinker titled Enlightenment Now.

In this book Mr. Pinker reviews history and wonders why we are so pessimistic at the present time. Mr. Pinker argues that if we look at all that humans have accomplished over the past two centuries, or so, one can only be astonished at how glum and pessimistic we are.

The progress that has been made is associated with the spread of information. As his subtitle presents, Mr. Pinker is arguing the case for “Reason, Science, Humanism, and Progress.”

The results, he concludes, are remarkable. We need to focus on what we can do, not the failures.

And, this is what Mr. Wolf is trying to do. Mr. Wolf is looking at where the slowdown has come and what can be changed to get the world back on a faster track.

One of the first things that Mr. Wolf identifies is the “shift in the location of innovation.” To examine this he looks at something called “patent families,” a piece of information identifying places in which patents are filed in more than one jurisdiction.

The data imply that “the annual rate of patenting…is soaring in the emerging world, and above all in China.”

In the big five advanced economies, “patenting is stagnant.”

One of the reasons for this is that we are going through a time period in which, he asserts,

“It is simply harder to make big breakthroughs, and the developed world relies more on these to achieve more advancements. Meanwhile, emerging economies are benefiting from applying already developed ideas within their own economies.”

Furthermore,

“The greater the knowledge inflow, the stronger becomes domestic patenting….if there is one lesson from two centuries of unprecedented economic growth it is that old knowledge ultimately becomes a widely-available commodity.”

So where do we go from here?

“The most important task for the advanced countries is to create useful new ideas. On that, will their futures ultimately depend. Achieving this will require not just well-designed intellectual property rights, but government support for fundamental science and breakthrough technologies, as was the case for the internet some decades ago.”

In other words, we must create an environment that produces more and more new information, the creates the opportunity for people to participate in the creation and application of new information, and we must allow information to spread, while still protecting those that create the innovation.

As suggested by Mr. Wolf, the pace of development in the advanced nations can be varied. At times the creation of new information will be breath-taking and productivity and economic growth will accelerate. At other times, it may be harder to “make big breakthroughs.”

For the emerging nations, accessibility to information is crucial. Mr. Wolf writes that “the global diffusion of knowledge is an important benefit of globalization.” As old knowledge becomes widely available, many can prosper.

Furthermore, the spread of knowledge not only helps to produce greater growth in the productivity of these emerging nations, but it helps them to develop more patenting themselves.

In other words, the spread of information according to Mr. Wolf, to Mr. Hidalgo, and to Mr. Pinker, is positive sum game. The spread of information can raise the standard everywhere.

And, I agree with Mr. Wolf’s conclusion: “A world in which innovation is more widely shared is both inevitable and desirable. This is a future we ought to want.”

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