An interviewer asked me what two lessons she would take away from my book, Mind Over Matter. It’s quite difficult to summarize a 340-page book in two lessons, but here’s what I said:
- There is no such thing as a natural resource.
- Ideas have always and everywhere been more valuable than the physical act of carrying them out.
Where is the Wealth of Nations?
I hope number one is obvious. The only true resource is the mind of man. Natural resources change constantly. The caveman had all the same resources we have today; the difference is we have more knowledge of how to use them effectively to satisfy our wants.
Oil used to be a nuisance to farmers, until man invented the combustion engine. Someday, we’ll find a replacement for oil making the remaining stock worthless, as we did with whale oil.
According to The World Bank’s report, The Changing Wealth of Nations, 80% of the developed world’s wealth resides in human capital. This is what Andrew Carnegie meant when he once stated, in total confidence:
“Take away my people but leave my factories, and soon grass will grow on factory floors. Take away my factories but leave my people, and soon we will have a new and better factory.”
It is number two that is far less intuitive.
Ideas vs. Execution
The old canard that good ideas and knowledge are everywhere and it is really execution that matters, would be relatively easy to overcome if only it were true. But it is not true; for if it were, we would have better movies (not remakes of Bewitched and The Dukes of Hazzard), books, and other products.
This is not to diminish execution, but there is no effective way to implement a bad idea, with history providing many lessons, from Napoleon invading Russia to countries attempting to implement socialism and communism. Were these bad ideas, or simply a case of poor execution?
The guy who invented the first wheel was an idiot. The guy who invented the other three, he was a genius.
As usual, economist Thomas Sowell eloquently explains the impact on a country’s standard of living between generating ideas and the physical act of carrying them out, in his seminal book Knowledge and Decisions:
“Many of the products that create a modern standard of living are only the physical incorporation of ideas—not only the ideas of an Edison or Ford but the ideas of innumerable anonymous people who figure out the design of supermarkets, the location of gasoline stations, and the million mundane things on which our material well-being depends. It is those ideas that are crucial, not the physical act of carrying them out. Societies which have more people carrying out physical acts and fewer people supplying ideas do not have higher standards of living. Quite the contrary. Yet the physical fallacy continues on, undaunted by this or any other evidence.”
In other words, economic growth revolves around the human mind and its capacity for invention, discovery, and the transformation of physical objects and ideas into valuable goods and services.
Animals, too, rearrange physical objects, often with incredible precision, with birds building nests and bees constructing hives. Yet ideas are cumulative since human beings have the infinite capacity to improve upon their circumstances.
Rival vs. Nonrival Assets
Ideas and knowledge are what economists describe as nonrival assets—meaning more than one person can use it at a time.
Contrast this with traditional rival assets, such as land, labor and capital, which can only be used for one purpose at a time, and are subject to diminishing returns.
If I give you the tie off my shirt, now you have it and I don’t; but when I give you an idea, now we both have it, can expand upon it, test it, and make it more valuable. Ideas and knowledge are subject to increasing, rather than diminishing, returns.
Charles Murray, in Human Accomplishment, explores fourteen of the world’s most important meta-inventions that occurred after 800 B.C. until 1950, essentially cognitive (not physical) tools for improving the world around us:
- Artistic realism
- Linear perspective
- Artistic abstraction
- The novel
- Arabic numerals
- The mathematical proof
- The calibration of uncertainty
- The secular observation of nature
- The scientific method
All of the above are nonrival goods, meaning we can all utilize them at the same time without their being diminished—your use of the alphabet does not inhibit mine.
These ideas changed the world, creating untold wealth. They were also the contributions of an incredibly small number of individuals—4,002 to be precise, according to Murray.
In the arena of business, ideas have an enormous capacity to apply knowledge to knowledge, thereby increasing innovation and wealth.
Business is about people, ideas, and things, not land, labor, and capital. Yet ideas are not easily measured or quantifiable, so they are not given the resources they deserve by many organizations. Creativity and dreaming take time, which does not enhance conventional efficiency statistics.
This is how you can state, with complete confidence, that ideas are always and everywhere more valuable than their mere execution.
How much of your firm’s human capital is devoted to creating and testing new ideas versus merely executing old ones? If you want to create wealth and remain relevant there may be no more important question to answer.