Two qualities are indispensable: first, an intellect that, even in the darkest hour, retains some glimmerings of the inner light which leads to truth; and second, the courage to follow this faint light wherever it may lead.
---Carl von Clausewitz
The reason the Western Pundits failed to provide a convincing explanation as to why the world failed to converge economically is because they had blinders on. There are things that seem very obvious but no one wanted to talk about them because they are politically incorrect or is offensive to certain countries or continents. I am sure I will have my own blinders and limitations, but hopefully, my blinders are different from the other Western Pundits such that a grain of truth could be uncovered. Here, I have listed the factors that made the United States such a economic power house, from the most important to the least.
1. Sizable and high quality Intellectual Elite.
2. A strong government
3. An independent foreign policy
4. The rule of law
5. A solid financial system
6. Social trust and cohesion
7. A strong education system
8. Industrious and driven population
9. Can do start up culture
In the next few posts, I will explore each of these topics. In this post, I would like to explore the first one. How does the size and quality of a country's intellectual elite impact its economy?
Of all the qualities of a nation, this one is hands down the most important for a country's economic development. Countries with enough bright people could overcome years of terrible indoctrination and bad government. Countries without an intellectual elite will fail to develop in spite of being endowed with good natural resources such as oil or having good government as a legacy of colonial rule. Yet, due to the politically correct Western Culture, This is the least appreciated factor of national development. I define intellectual elite as the portion of the population that has an IQ of over 130. In the United States, as is with the rest of the world, the intellectual elite runs virtually all the corporations, makes virtually all the discoveries and provide most of the driving force to push the boundary of our civilization forward. From the invention of the 30 year mortgage to the assembly line of Henry Ford to space travel, most of these have been achieved by our intellectual elite. Having an intellectual elite is the first prerequisite for economic development. Further, to sustain economic development, it is also important to have a large fraction of the population that are not quite but near our intellectual elite level. Any machine shop owner will tell you that having a couple of master machinists (IQ 120 or so) makes the entire crew much more productive.
When viewed in this light, many of the conundrums so puzzling to the Western pundits are no longer very mysterious. The Middle Income Trap, can now be considered as a sort of IQ ceiling. As we see that all the countries that made it past the mid income trap like Japan and South Korea belong to East Asian nations with 100+ average national IQ. The remainder of the third world countries that are stuck at the middle income level typically have a national average IQ in the eighties. Failure of globalization to make vast majority of the developing countries more economically advanced could at least be partially attributed to the lack of such an intellectual elite in these countries. African countries that failed to even make their first step in economic development have average national IQ in the seventies.
Due to the anti-elite streak in our culture, the United States have not taken much extra effort to develop our own intellectual elite in our primary education. Bright people are mostly left to find their own ways. Past high school, the United States has generally done a good job at recruiting the brightest to our best colleges, affirmative action not withstanding. As with the rest of the population, the good life has degraded the drive for our intellectual elite. There is the observation that compared to previous generation, the current crop of the students at our ivy league schools read fewer books and know less. However, we are able to attract the brightest people from the world over and are able to make very good use of their talent. The United States still provide the best opportunity in the Western World for bright people. Unencumbered by an ancient culture, we are open to learn from the best the world has to offer. We also have the most freedom and support for people pursuing ideas. When something of value is created, the creator gets to keep the fruits of his labor. As a result, bright people like Andy Grove come from world over to create world class corporations like Intel. They made the United States world's biggest power house in research and development. They also create new industries like drugs and the digital revolution that even most of the industrialized world failed to keep pace.
China, with 1.4 billion people with average 100+ IQ, has a large group of intellectual elite and near elite. They generally do a good job of filtering these intellectual elites into the best colleges based on their Gaokao score, which is a good proxy to their IQ. Unfortunately, the path to Gaokao was littered with the corpses of Chinese misspent youth. Youth driven with a singular purpose, to score the highest score during Gaokao. This produces good workers that can handle a lot of pressure, but lack initiative and the sense of wonder that allow that person to go down an unfamiliar path to blaze new trails. Today, the damage of this kind of unenlightened competition has done is still manageable, as China is still in a sort of catch up mode. Soon enough, we will see the limitation of this approach. As China moves from manufacturing to higher value added industries and more sophisticated research and development, they will need more people that can follow their own drum beats. As the Koreans and the Taiwanese have shown, one can get pretty far with this type of culture, but long before they reach parity with American level of productivity, they would run out of steam.
Like the United States, the smart fraction in China are put to good use. In spite of restrictions the government places on the internet and other media, the Chinese seems to be very up to date with what is happening in the world. They are still eager to learn from the best in the world. The brightest people are recruited to join the government. They ran the corporations, many of which are world class. They staffed the military industrial complex, which is rapidly catching up to the United States. They manned the increasingly sophisticated R & D activities, which are beginning to yield results.
On balance, I expect the Mainland Chinese to keep the juggernaut going for a lot further then the Taiwanese and the South Koreans. The biggest reason is the sheer size of the Chinese intellectual elite and the number of uber genius that is produced due to the size of the Chinese population. I will expand on this a bit more in an upcoming post about the Chinese start up culture.
Having a high IQ is a prerequisite but not the whole story. The Europeans have essentially the same people as Americans, but failed to converge to the same level of productivity. The Koreans and the Taiwanese have 100+ IQ but are stuck at even lower per capita GDP compared to their European counterpart. The Russians have a pretty high IQ, but failed to developed their economy beyond resource extraction and military. In the next few posts, we will explore other aspects that makes America such an economic power house.
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