A thought provoking article that throws light on how countries become wealthy
The most successful countries do well not because of their natural resources but because of their intangible ones. In affluent countries such as the U.S., intangible capital accounts for as much as 80 % of wealth. In poor countries, the %age is far lower--in fact, some such countries are so badly run that they actually have negative intangible capital.
The United States has become an idea-based economy, measured in very concrete terms.
One sign that the United States is truly an idea-based economy comes from Federal Reserve data, which show that since the mid-1990s, a majority of U.S. business investments have gone into intangible assets rather than traditional physical assets. These intangible assets include the traditional intellectual property of patents and copyrights; the broader intellectual capital of databases, general business methods, and research and development (R&D); and the firm-specific and task-specific knowledge and practices of managers and workers, or their “economic competencies.”
"Intangible" capital – in the form of trust among people in a society, an efficient judicial system, clear property rights or effective government, for example – boost the productivity of labour in a country and result in higher total wealth, according to a World Bank report.
We find that in 2011,
• The value of the intellectual capital in the U.S. economy has increased to between $8.1 trillion and $9.2 trillion; and
• The value of the intangible assets – which includes intellectual capital plus economic competencies – in the U.S. economy totals an estimated $14.5 trillion in 2011.
Consider the following:
Ø The natural wealth in rich countries like the United States is a tiny proportion of their overall wealth – typically 1 % to 3 %, yet they derive more value from what they have.
Ø Cropland, pastures and forests are more valuable in rich countries because they can be combined with other capital like machinery and strong property rights to produce more value.
One way to quantify intangible wealth is through the rule-of-law index, which measures individual variables on perceptions of governance:
Ø Switzerland scores 99.5 out of 100 on the rule-of-law index and the United States hits 91.8.
Ø By contrast, Burundi's score is 4.3; Nigeria's is 5.8; and Ethiopia's is 16.4.
Ø The members of the Organization for Economic Cooperation and Development (OECD) have an average score of 90, while sub-Saharan Africa's is a dismal 28.
That disparity contributes to the wide wealth gap between countries, says the World Bank:
Ø The average per capita wealth in the rich OECD countries consists of $10,000 in natural capital, $76,000 in produced capital, and $354,000 in intangible capital.
Ø By comparison, total wealth for the low income countries consists of $2,075 in natural capital, $1,150 in produced capital and $3,991 in intangible capital.
In fact, some countries are so badly run, they actually have negative intangible capital. Through rampant corruption and failing school systems, Nigeria and the Democratic Republic of the Congo are destroying their intangible capital and ensuring that their people will be poorer in the future, say the researchers.
Whether India can achieve this?
India is champion of reverse engineering and what we require is original research but our education system is geared for preparing more cyber coolies, Commerce & Finance Professionals and MBAs but not Scientists. Indian Service Sector is geared towards more of financial transactions and not scientific research. The field India can concentrate is Pharma & health care, renewable energy, next generation technology etc. We don't have people & vision to have platforms like FaceBook & Twitter of our own and this is so easy to develop. We are users and not creaters. We believe in Copy Paste culture, no respect for IPR Laws and our judiciary is pathetic, it takes decades to decide. Problem lies with our Society, Education System, grooming and aspirations of Family & Society for fast performance. In original Research, there will be failures and our system is ready to accept failures as we have become materialistic Society looking only for successes. Where is the funding for original Research? Everyone is in a mad rush for Unicorns and there is no aspiration for Innovation & Research.