13 January 2008

National Wealth and Poverty In the Age of Knowledge

Richard Lynn and Tatu Vanhanen imply in Intelligence and the Wealth and Poverty of Nations, that nations whose average population IQs were less than 90 IQ points could not prosper in a high technology world. This idea was a clear divergence from Adam Smith's Wealth of Nations concept based on division of labour.Lynn and Vanhanen's ideas appear to be backed up by the graphic above, and by The Smart Fraction Theory of IQ and the Wealth of Nations. Still, as important as human capital is to a nation's wealth, there is more to human capital than a nation's population average IQ.
In Knowledge and the Wealth of Nations, David Warsh puts a new twist on long-standing pillars of economics:
Thus instead of land, labor and capital -- the traditional inputs of economic theory -- it was "people, ideas and things" that mattered, driving technological change and entrepreneurial creativity. "No longer were the advantages of technical superiority to be understood as a case of 'market failure,'" Mr. Warsh writes. "They were part of the rules of the game." Such superiority was by its nature temporary -- i.e., nonmonopolistic. New knowledge constantly trumped old, and the law (rightly) gave ideas only limited property-protection.

More and more, economists came to see that it was knowledge that made the difference in modern societies -- e.g., in software, drugs, industrial processes, biotechnology and other parts of the economy where the upfront costs were large, the payoffs enormous and the benefits widespread. Economists inevitably turned their attention to the institutions or invisible structures -- constitutions, customs, property rights, cultural sentiments (like trust) -- that help to generate knowledge and sustain its effects.

In his admirably compelling account of economic thinking over time -- from Adam Smith to the present day -- Mr. Warsh shows a certain partiality to abstract mathematical theory. He might have given more credit to the thinkers such as Friedrich Hayek, the great philosopher of freedom and opponent of central planning; or to historians such as Joel Mokyr, who has chronicled the effects (as the subtitle of one of his books has it) of "technological creativity and economic progress"; or to popularizers such as George Gilder, who has documented (and celebrated) the role of knowledge in economic growth, especially in our computer age.
If knowledge determines the wealth of nations in the global economy, why does GDP correlate so well with population average IQ (with a few easily explained outliers)? Clearly, knowledge and IQ are highly inter-correlated themselves.

Still, when you look at nations with GDPs well above what would be predicted from average population IQ, an important truth about "knowledge and the wealth of nations" jumps out. Nations that economically outperform their population average IQ have a market dominant minority to thank.
According to Chua, other examples of ethnic market-dominant minorities include Chinese people in Southeast Asia; "whites" in Latin America; Jews in Russia; Croats in the former Yugoslavia; and Ibos, Kikuyus, Tutsis, Indians and Lebanese, among others, in Africa

It is suggested that the USA (and to an extent the Anglosphere, Europe, and Japan) constitutes a global "market dominant minority" in the sense of setting the economic rules, providing the market infrastructure, and militarily protecting the trading routes of the world so the market can function.

An even more intriguing twist to this dynamic: if executive function (EF) is indeed more important to the success of individuals than their IQ, and if EF can be taught (unlike IQ), is it not possible that EF can be taught to entire nations of children, thus increasing the future prosperity of the entire nation? I suspect this possiblity is real.

This concept of a minority providing extensive unacknowledged benefits to the majority can help a larger audience begin to understand how a next level civilisation would benefit the much larger between-levels civilisation with which it would co-exist on the planet. The accelerated outpouring of revolutionary scientific discoveries and technological inventions from a next level civilisation would benefit the between-levels by creating a cleaner, healthier, more affluent environment for everyone.

The same idea holds in principle for a singularity civilisation guided by a "friendly artificial intelligence." The abundance created by a FAI would be there to be enjoyed by the masses, in theory. Even without FAI's, a world where abundant nano-assemblers can efficiently and economically produce essentially unlimited numbers of consumer goods and vital infrastructure, is a world unrecognizable to modern doomseekers of Peak Oil, CAGW, population crisis, and other neo-Malthusian congregations of Luddites.

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Blogger neil craig said...

A market dominant minority of particular interest here would be Ashkenazi Jews in Israel. I don't know if they are technically in a minority among the middle eastern Jews & significant number of arabs but they are very dominant & Israel does have a remarkable technological competence combined with an average IQ below wester European levels.

Thursday, 17 January, 2008  
Blogger al fin said...

Good point.

MDM's have always played an important role throughout human history. In today's globalised high tech economy, their importance becomes larger.

Thursday, 17 January, 2008  

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