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A Knowledge Economy

Here’s an exaggeration no greater than many other exaggerations designed to make vivid a valid point: there are two ways to see economic development.  One way is to see economic development as being chiefly a physical occurrence: valuable output X is made available when useful inputs A, B, and C are combined together in a way that generates X.  This first ‘vision’ of economic development makes such development appear to be an engineering outcome.

A second, and very different, way to see economic development is to recognize that the combination of A, B, and C into valuable output X is not the essence of development.  Sure, it and similar production processes are necessary, but they are not remotely close to being sufficient; they are not the essence of economic development – they are, instead, one of its results.

What is central to development, in this second way of seeing, are creativity (which itself cannot be engineered), consumer sovereignty (which is the only known means of reliably determining which outputs are truly worthwhile and which are not – and which requires freedom for both consumers and for producers), power-limiting institutions (such as – and most importantly – private property), and a culture that not only tolerates but celebrates innovation and material prosperity.  Too much discussion of economic development proceeds as if governments can achieve development simply by mimicking the material outcomes of genuine economic development: people in rich countries have lots to eat, so let’s give people in poor countries more food; people in rich countries have lots of paved roads, so let’s give people in poor countries lots of paved road; people in rich countries do not allow their children to work in factories, so let’s insist that people in poor countries act similarly….

Whatever the merits of people in rich countries supplying such things to people in poor countries, no such supplies will spark any development in poor countries.  It’s time for people to stop being misled – largely by a mistaken view of what it means to be scientific – into the habit of confusing results with causes.

Here’s a superb video, on this general topic, featuring George Gilder.


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