Where are the gray suited diplomats holding each others forearms against a world map backdrop vowing to correct the world’s innovation system?  Where are the politicians joining across party lines about how to inject 700 billion dollars to fix the nation’s innovation system?  When will the Federal Reserve Chairman find the flaw in our national innovation system?  Hey, when will someone notice that we don’t have a national innovation system?

Schumpeterian Economics argues that corporations represent our nation’s innovation endowment. However, the primary function of a corporation is to make money, not explicitly to innovate.  Sure, they innovate if they must – most likely to beat down a more innovative competitor.  But, as soon as bad times hit, most will shift money from R&D to marketing.

If we look back only 400 hundred years, everyone on Earth lived on an average of about 500 dollars per year.  Then the innovations from the prior 2,000,000 years started to converge.  Counting backwards; the knowledge economy was “derived” from the information revolution, which was derived from the manufacturing revolution which was “derived” the Industrial revolution which was “derived” from the scientific revolution, which was “derived” from the agrarian economy.  Each revolution “Integrated” the tools of the prior revolution; The Knowledge economy integrated the tools of the information age and the information age integrated the tools of the manufacturing economy, etc.  By the way, the term “derived” is related to the term “derivative” – the primary hedging tool integrated in our current financial system.

Each economic revolution was marked by a tremendous increase in human productivity – we no longer need to milk our own cow. Victoria trades a dollar’s worth of her time as an airplane engineer for a dollar’s worth of the Robert’s time as an agricultural engineer.  Bill Gates is worth 50 billion dollars because he increased the productivity of a minimum of a billion people by a minimum of 50 dollars each.  I save 5 dollars in gas by not driving to the library when I can just search Google or Wikipedia.

The only way to “make” more money is to increase human productivity and the only sustainable way to increase human productivity is to find better ways of doing things.  Anything else is simply a transfer or redistribution of money.  Both are important – but often we confuse them under the same terminology: “making money”.  Or, we reverse the two by literally making (printing) money and then transferring it to corporations under the assumption that they will innovate enough to support everyone else plus the debt.  This system worked great for many years and in many political forms – it brought us from living in caves to a 65 trillion dollar global economy.  But like the economic revolutions before it, the current economic structure will soon give way to a new paradigm as we are forced to reach for higher productivity.

What the brilliant economist, Joseph Schumpeter did not have in his time was the technological breakthrough of Computer Enabled Society.  Taking a hint from the past; the new economic paradigm will be derived from the knowledge economy by integrating the tools developed during the knowledge economy. That is why we now have Linkedin, Facebook, YouTube – and all the rest.

Everyone agrees that information, knowledge, and innovation are profoundly related.  In fact, we can say that knowledge is derived from information and that innovation is derived from knowledge.  The new paradigm will be called the Innovation Economy and it will arise from the integration of the tools of the knowledge economy using social media. We see terms like open-sourcing, crowd sourcing, social networking, groundswells, innovation exchanges and a host of new Social Media Internet applications.  All of these have one thing in common; the tangibility of human knowledge.  This is the Holy Grail of modern finance and it is not a coincidence – it is now within our grasp.

In the past, human knowledge was only tangible inside the construct of a corporation – the corporate structure integrated knowledge assets to make things people want and need. However, with Social Media, knowledge assets will become tangible outside the corporate structure and integrated by knowledge communities, social networks, crowds, groundswells, etc. Knowledge communities will mix, combine, interact, and share knowledge; inevitably the end result is innovation – to make things that people want and need. These knowledge communities will become the next “corporation” acting directly as the integrator of human knowledge.  Ironically, Social Media “outsources” management.  Traditional corporations will not disappear as the agrarian economy never disappeared – they will just integrate.

Ideally, Wall Street is a simply a horse race where money is bet on corporations to fund innovation.  There is nothing wrong with that.  We don’t need a new financial system; we need a new and improved innovation system.  We have the technology; all we need now is the “integrator”.  The Ingenesist Project is the only viable comprehensive integrator now being proposed.  Perhaps it is not perfect, but the next economic paradigm will be certainly be derived from its improvement.