How The World Became Richer

Let’s continue the conversation where we stopped yesterday, on the road to Monday when the four-month long Tekedia Mini-MBA begins (registration still ongoing). We tried to understand why the “old world” was inventive even as the modern one is clearly innovative. Sure, there would not have been the modern world without the elemental pieces built in the old one: those math equations, science experiments, etc all contributed to the advancements we see today. But things do not just happen by chance all the time, and that brings me to the question today (in the mini-MBA’s Challenge assignment for Week 1, participants will examine this at the level of firms and business sectors).

For more than 17 centuries, from AD 1 (Year 0001), the gross world product (adding all the GDPs of all countries) was largely flat. There was minimal economic expansion or growth. But shortly after 1800, the GWP (gross world product) began to rise, in some cases exponentially, clearly showing an expanding world economy with massive productivity gains and human welfare. What do you think caused that?

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Let me attempt to answer: the world was changed on July 31, 1790 when Samuel Hopkins was awarded the first United States patent. In my 2009 book – Nanotechnology and Microelectronics – which received 2010 IGI Global Book of the Year award, I explained that the patent system with the broad intellectual property rights could be considered one of the greatest policy innovations in economic history. With the regulations in the books, merchants who had the money but preferred to put them in pillows started looking for scientists and inventors with good ideas they could make money on. 

Now those “financially poor” inventors and scientists would suddenly have funds to improve their works, and then make them relevant for the markets by solving people’s problems. Before the patent system, merchants kept their monies, as there was no drive to spend money, to take an idea on a lab shelf to the market, only for your neighbor to copy it for no consequence. But with the exclusivity period the patent law offers, they knew they could recover any investment before the patent expires. Magically, money flowed and inventors advanced and the world became better. Simply, the world became innovative: 

Innovation = invention + commercialization

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