Thursday, October 30, 2014

Oil-based Economy versus Research-based Economy.

Most countries possess economies based on the amount of resources in the ground that can be extracted and sold.  I would like to call them oil-based economies although that could also include mining gold and so on. They should be called commodity-based economies but I want to make the distinction that the vast majority of commodity-based economies and the ills they give society are oil-based.

The basic dynamics of these economies are simple: the vast majority of investment, trade, and support business feeds the oil extraction, production, and shipping to resource users.  This is an economy based on how much resource is left in the ground and the current price vis a vis the supply and demand.  There is always doubt and deception used to prop up the value made from the resources; meaning that the supply is unknown and limited and those that make their living from the buying and selling of a resource bias the outcome in their own favour. So what? Well there is a limited amount of resource for the country to tax and exploit so the cheating in the capital system is like a loss to the overall good of the people.   Supplies are presumed to be limited, although there are some that claim fossil fuels might be made in the lower regions of the crust through massive pressures and temperatures.  To say that there is a limit on the amount of gold and silver this is also true. To say that building massive production plants takes years and billions of dollars to do so.

Now contrast this with an economy that bases its economic forecasting, investing, and activity on the value extracted from the creative minds in the economy. The vast majority of investment, trade, and support to the creation of new knowledge, the extraction of that creativity, the production of the products based on that knowledge, and the shipping to product users.  In this case, the supply of knowledge is infinite.  The problem space for mankind, from space travel to nanotechnology, to make products is infinite. The creativity produced is a by-product of a society that is designed to cultivate young minds and the extract and exploit the ideas that curious people offer society.  This economy would not be bound by the ebb and flow of commodity supply and demand.  There would still be losses to society by the middlemen that make their living biasing the supply and demand economy, but since the supply of research resources in question is far greater then the loss to society by ratio is negligible.  As referenced in the article, the flow of an idea from basic research to development to production would also take billions of dollars and tens of years.  So there would be no difference to the overall economy if a country adopted a research-based economy.

At the end of the day, where would you rather your government spend your tax dollars?  Today, most governments won't tell you how much they support the oil-based economy that they could redirect to other industries.

On the whole, any country could change from one to the other, but will the people understand they have the options? Will people see a new way to do business?