The Idea Equation

In our final video on growth and the economics of ideas, we're going to look deep into our crystal ball. Given that ideas are the key to long-term economic growth, what are the prospects for future growth? Is the future bright or dim? To help answer, let's summarize the economics of ideas in a simple formula. Ideas are equal to Population times Incentives, times Ideas per hour. Now this isn't a precise formula, but it's more of a tool to help us think about the key factors in idea creation.

We're going to start with what economist Julian Simon called "The Ultimate Resource" -- people. World population is increasing. But even more importantly, the population of idea creators is rapidly increasing. As I pointed out in my TED Talk, as China, India, and other parts of the world become rich, they contribute more and more to the production of new ideas, ideas which benefit everyone.

Here's some data showing the population of researchers in a sample of countries around the world. In the United States today, about 4 people in every thousand are involved directly in idea creation. Not that many people really, especially when you think that a large fraction of economic growth comes from new ideas. The number of idea creators per thousand -- it's a little bit higher in a few other countries like Finland and Japan, and about the same in other developed countries, such as Canada, Germany, and Australia.

Now take a look at China. In China, only 1 in every 1,000 people is a researcher. Still, combined with China's total population, that makes China a research leader. But what's even more remarkable is how quickly the number of researchers in China is increasing. In 2000, China only had about half a researcher per 1,000. So, China has doubled the number of idea creators in just about 10 years. As China and other countries become increasingly well-educated and wealthy, the number of idea creators in these countries is increasing to the benefit of everyone. Remember, ideas are built to be shared.

Next up in our equation is a measure of institutions and incentives. How well are countries incentivizing idea creation? The news here -- it's also pretty good. As I discuss in my TED Talk, we're globalizing markets, making markets larger, and that increases the profit from R&D. In addition, institutions across the world -- they're getting better. There's positive movements towards better property rights, honest government, political stability, and a dependable legal system. All of this helps to incentivize the production of good ideas.

We can see the effect of better institutions in a remarkable fact. As late as 1990, just seven nations accounted for 92% of the world's spending on Research & Development. Just seven nations! But today, those same nations account for only 56% of R&D. Overall, the world is investing much more in Research & Development than ever before, because the original seven -- they've now been joined by other R&D powerhouses, like China, Korea, and Brazil.

The last factor in the equation is the number of ideas per hour. Assuming that we've got lots of idea creators and the right incentives, how productive can those idea creators be in producing new ideas? Now, this variable is the most mysterious and uncertain. Is it possible that idea production could run into diminishing returns? Diminishing returns in idea production would mean that we need more researchers and better incentives just to keep up. And it does seem that today we rely less on lone geniuses and more on big teams to make new discoveries. There's some evidence that it's becoming more expensive to produce new ideas, at least in some fields.

But it's also possible that we'll see the opposite, Increasing Returns. We now have lots of technologies that make idea production easier. Take the internet, for example. It makes it easier to find and build upon old ideas. And how about online education? That makes education much faster and better. The internet has also opened up the world to more idea creators. Today, someone in Zambia can get access to a large fraction of the world's knowledge using just their cell phone. That's incredible! And a new technology may soon revolutionize the production of ideas. Artificial intelligence could speed up the production of new ideas dramatically.

So, nothing is guaranteed, but there are good reasons to be optimistic about the future of economic growth, especially if we continue to educate the world, globalize markets, and produce new technologies that make idea production even easier.