The Dynamic Composite of Teams and Economies

According to Martin Wolf, nations don't compete, companies do. Nevertheless, "American competitiveness" is much on the tongues of our cosmopolitan elite these days. The fear is that other countries, particularly China and India, are beginning to send the United States into an abyss of economic oblivion. This is quite redolent of the 1980s paranoia over Japan (when, I might add, members of that same Council on Competitiveness advocated American adoption of Japanese-style corporatism.)

Possibly the most frequently (over)used word in today's competitiveness conversations is "ecosystem"--what are the elements of an innovation ecosystem? How do we "architect" one? One of the most notable examples of this is a "Periodic Table of Innovation Elements" devised by ASTRA. It purports to list all of the, well, elements that are necessary to come together to form an economic ecosystem that is perpetually innovative. 

This is doubtlessly an innovative way to address competitiveness and economic policy. Unfortunately, it is also a bit misleading. Why? Well, let's see what baseball tells us!

One of the most fundamentally important questions that arises from our baseball analogy is, what explains the difference among teams and countries? If all baseball teams and national economies operate according to the underlying structure of rules, uncertainty, and interaction, why are some teams better than others and why do some countries grow wealthier than others? The answer lies not not only in the quality of players but also in the composite, the way the elements fit together.

Edmund Phelps, Nobel laureate in economics, has explained that a country's economic performance depends on both the strength of individual factors and its economic dynamism, the interlocking system of the relationships among those factors.

So that's obvious, right? We all know that Ernie Banks alone couldn't carry the Cubs to a championship. And isn't the Periodic Table of Innovation a way to express the elements together? Sort of. First, the analogy of the periodic table may be somewhat misleading; second, this reminds me of the Texas Rangers.

I already linked to this article, and I hate to confuse analogies, but we should be aware that the modern elements that make up the Periodic Table did not all appear at once. In fact, it seems that in the beginning there were only three. Trying to list all of the "elements" that make up an "innovation ecosystem" makes it seem like an organization (usually the government--ASTRA is a proponent of big-push federal initiatives) can simply step in and create de novo all these elements.

In 2000, the European Union announced its Lisbon Strategy, whereby it would spur innovation and entrepreneurship through heavy amounts of government-coordinated research and development. Obviously, R&D is critical to innovation. Economic dynamism, however, arises not necessarily from R&D or the generation of innovation, but from how a country makes innovation stick and build on itself.

In this way, the EU might be seen as the Texas Rangers of the international economy. For the past dozen years or so, the Rangers have poured nearly $100 million into big-name signings that translated into only four winning seasons. They haven't been able to put a consistently victorious team together, something that transcends individual players.

No one would argue that the New York Yankees' run of three consecutive World Series titles from 1998-2000 owed nothing to stellar players. But it remains disputed as to how to build such a dominant and consistent team, how to put the pieces together. The same applies to economic growth, and we shouldn't pretend that it is somehow akin to chemistry or physics (or what we think those disciplines are like), that we can simply build or "architect" growth.