Tijauna_slums_against_the_fence_largeThe early 1990’s saw the end of the Cold War,  spectacular advances in computers, the Evolution of the Internet, and a new world order fueled by commerce instead of warfare. Upon this landscape,  NAFTA is considered to be the Big Bang of modern Globalization. What is not often considered is how NAFTA, for better or worse, was to influence every free trade agreement that followed.  The Secret of NAFTA was the failure of engineering mobility and therefore the failure of real economic development.

What made NAFTA unique was the provision for the trade of services specifically, financial services and professional engineering services.  The former succeeded while the latter largely failed.  Herein lies the flaw that needs to be corrected.

Many people remember NAFTA as that giant sucking sound of US jobs going South of the Boarder. When I was a young and idealistic engineer I saw NAFTA as Mexico needing everything that US engineers provided. With the free trade of financial services, engineering projects could be capitalized – this had to be huge.

Intangible Assets are the REAL tangible assets

I found myself in Mexico in 1994 taking what was supposed to be a temporary assignment in a small engineering department of a private university right over the California border – I ended up staying 3 years.  This turned out to be the most profound experience of my professional career.

What struck me the hardest was how intelligent, resourceful, and creative the Mexican engineering students were.  By contrast, I saw the general stage of development of Mexico – at the time it was still being described by the Cold War label as a “Third World Country”.   Soon after, I witnessed a tragic devaluation of the Mexican Peso, where the local currency lost about 1/2 of it’s value against the dollar seemingly overnight.  To observe the reaction of the Mexican citizens, was simply indescribable.  I wondered how could money and jobs just disappear when there was so much work to do and so many people who could do it?

I decided that I’d like to test the Mexican engineering students against a known standard.  I developed a program that prepared a select group of 12 students to take the NCEES EIT examination (The Board Exams for US Engineers).  Their success rate was exceptional; 11 out of 12 passed.   Over the next two years we sent a random sample of over 250 Mexican engineers to the US Exams with a success rate comparable to the US engineers pass ratio.  If the engineers were equally intelligent and equally educated as US Engineers, then something else must be happening here.

Cause and Effect

I would later learn that economic development is a hugely complex subject.  However, at the time, I was deeply intrigued by the following idea:

If you throw economic growth (money) at a country are you guaranteed increased productivity?

The answer is NO. 

However, if you throw productivity at a country, are you guaranteed economic growth?  

The answer is YES.

Herein lays a tiny and nearly imperceptible flaw in NAFTA that needs to be corrected.

Technological change MUST precede economic growth. Economic Growth cannot precede technological change. 

We have gotten it backwards

Banks and and associated securities exists for the sole purpose of creating money to fund innovation. The REAL economy lives where the fact of innovation creates the REAL money.  This is the domain of Engineering, therefore, this is the direction that The Ingenesist Project has and will continue to focus on.

 


  1. There is a tiny flaw in Market Capitalism that can be easily corrected
  2. Technological change must always precede economic growth; we are going about the process of globalization as if economic growth can precede technological change.  We got it upside down, that’s all.
  3. Anything that can be made by allocating scarce land, labor, and financial capital can also be made by allocating abundant social, creative, and intellectual capital.
  4. For every dollar of tangible value, there is at least 100 dollars worth of  ‘intangible’ value that is really just ‘invisible’.
  5. The global debt is trivial in comparison to the invisible value that exists with no accounting system to represent it.
  6. There should be no economic incentive for anyone to make anything other than what they are most talented, interested, and passionate about.
  7. Nobody knows everything.
  8. Everybody knows something they can teach any other person.
  9. Students, by definition, hold an equity position in their teachers.
  10. Therefore, teachers should hold an equity position in their students – this will fix a lot of things.
  11. Nothing economic happens until two or more people get together and build something.
  12. Competition is over rated.
  13. Collaboration is under rated.
  14. All monetary things are valuable but not all valuable things are monetary.
  15. There is a perfectly legitimate market for everyone.
  16. A new currency will be the last thing that happens, not the first.
  17. You can’t eat Gold
  18. Information is proportional to the rate of change of data with respect to time.
  19. Knowledge is proportional to the rate of change of information with respect to time.
  20. Innovation is proportional to the rate of change of knowledge with respect to time.
  21. Wisdom is proportional to the rate of change of innovation with respect to time.
  22. If you want to create wisdom, go increase the rate of change of innovation.  If you want to create innovation, go increase the rate of change of knowledge, etc. Now, flip over the series 15-18 above.  See, you’ll do just fine.
  23. Money represents past, present, or future productivity – otherwise nobody would work for it (think about that ).
  24. Therefore, a currency backed by debt and a currency backed by innovation would become the mother of all hedge funds.
  25. Securitization is a miracle of scale if done correctly, a disaster of scale if not
  26. Time is the only valid basis of a currency.
  27. My singular objective and greatest aspiration is to make “intangible” value tangible.  I am confident that my children – and yours – will know what to do next.

The History of Financial Innovation

The invention of the wheel, wedge, and pulley came long before the invention of credit scores, CDO’s, and International Trade Agreements.

Technological Change must always precede economic growth – economic growth cannot sustainably precede technological change. If you throw money at a problem, you are not guaranteed technological change.  If you throw technological change at a problem, you are guaranteed money.

The Tiny Flaw of Market Capitalism

We are going about the process of globalization as if economic growth can precede technological change.  This is the tiny flaw of market capitalism and it is unsustainable.  In short, we’ve gotten it backwards and continuing on this course prevents us from seeing the future.

The flaw is easy to correct. The Ingenesist Project has specified two for-profit business methods, “The Value Game” and “Zertify.com” which if deployed today in Social Media could accomplish this.  These business methods are committed to the public domain.  The only thing standing in the way is a social agreement.

Let me know if you agree


The bad, the good, and the ugly

The bad news is that United States has a global comparative advantage in producing bullshit. The good news is that we may actually be able to till it into fertilizer for the Innovation economy.

America’s financial crisis was caused by money created from money which was in turn a derivative of wild-eyed speculation in assorted proxies for real productivity, including real estate.  Stock prices were supported by imperfect information in a Tickle-Me-Elmo culture while broker fees are embedded in every conceivable transaction.

America has become a world leader in hype, marketing, lawsuits, and fantasy. None of these industries actually produce anything yet nobody can say they are not immensely creative, induce sweeping social movements, and their propagation demands extraordinary intellectual resources, flexibility, and adaptability.

The Theory of Comparative Advantage

It is not efficient for, say, Ghana to produce rice and Vietnam to produce cocoa. If they each produce their natural endowments and then trade the differences, fewer resources are expended to produce more goods.  This theory is the basis of global free trade and the efficiencies are irrefutable so globalization is here to stay.

Meanwhile, the literature on the subject of innovation agrees that innovation is maximized as a function of endowments in social capital, creative capital and intellectual capital.  Silicon Valley is widely held as the poster child for emerging from the deep social movements of the 1960’s attracting an inflow of diverse people where high tolerance, creative art and music were abundant in close proximity to intellectual centers of Stanford and Berkeley.

Comparative Advantage for Innovation:

By the theory of comparative advantage, if a country does not possess a comparative advantage in intellectual capital, creative capital, and social capital, they would not hold a comparative advantage in an innovation economy.

For example; China has a huge endowment of intellectual capital and throughout history they have been an inspired creative force.  However, the current government thwarts social capital.  Therefore, whereas China has a comparative advantage in a manufacturing economy, they would not necessarily have a comparative advantage in an innovation economy.

Many other countries have endowments of intellectual capital as well as democratic governments, but cultural norms may still constrain diversity related to gender roles, social classes, lifestyle tolerance, or the acceptance of “outsiders”.  As such, they may have comparative advantage in a knowledge economy, but the relative deficiency in creative capital would inhibit a comparative advantage in an innovation economy just as quickly.

The Fertilizer Economy:

That said, the United States has a vast abundance and tremendous economies of scale in social capital, intellectual capital, and creative capital in comparison to any other country in the world.  The problem is that these assets are sequestered behind the corporate veil, suppressed from true wealth creation by the priorities of a financial system built to produce nothing except analyst expectations.  Like sugar calories, lots of energy is delivered, but sustainable health is not.

The harvest in the wind

The brokers, speculators, and marketers are not bad people – in fact, they are brilliant.  They are simply stuck with the wrong set of incentives.  The Ingenesist Project dramatically changes the incentives and promises a far better allocation of intellectual capital, social capital, and creative capital.  By making such assets tangible outside the construct of the Wall Street, the comparative advantage of the United States in an innovation economy will be astonishing.

Where there is fertilizer in the wind, Wall Street will lead. Where there is a harvest in the wind, Wall Street will follow.


INGENESIST PROJECT: Submission to the 10^100 Innovation Contest; www.project10tothe100.com

Single sentence:
The Ingenesist Project is an open source economic development program to induce the Innovation Economy utilizing Social Networks.

Tell us more (300 words)
The current financial system has reached the limits of its effectiveness. Interest on debt has exceeded the system’s ability to pay it off. But debt is simply a promissory note on future productivity – any caveman can tell us that the only way to increase productivity today is to innovate yesterday, not tomorrow.

In modern times, this means that the only way to sustainably create more money tomorrow is to innovate today. This is the flaw on Wall Street that Innovation Economics will correct.

Ingenesist has specified three simple web applications when applied to Social Networks, will allow Knowledge to become tangible outside of the organizational construct of a corporation, government, or academia. To develop these applications would unleash substantial innovation and wealth in society.

*The Knowledge Inventory
*The Percentile Search engine
*The Innovation Bank

Knowledge is an excellent tangible asset upon which to peg a currency – better than Gold, Silver, or Debt.

The factors of production for an Innovation Economy are Social Capital, Creative Capital, and Intellectual Capital. The knowledge Inventory classifies knowledge assets in social networks. The Percentile Search Engine assembles unique knowledge asset combinations and returns their probability of executing a given business objective. The Innovation Bank matches most worthy knowledge surplus to most worthy knowledge deficit. Finally, entrepreneurs elevate knowledge assets from lower states to higher states of productivity thereby creating wealth in communities.

By analogy; in the early 1800’s Eli Whitney performed a demonstration for members of Congress by disassembling 10 working muskets, scrambling the pieces and reassembled 10 working muskets. It may seem trivial to us today, but that simple feat astonished the world; it led to the industrial revolution, and unlocked a vast amount of innovation and wealth creation. Innovation Economics is the modern day equivalent.
What Problem does it solve (150 words)?

Technological change must always precede economy growth. We are going about the process of globalization as if economic growth can precede technological change. This simple reversal is the cause for much of what is unsustainable in the world today. Innovation Economics corrects this flaw.

To make knowledge assets tangible is the Holy Grail of financial accounting. The Ingenesist Project asserts that knowledge assets are not intangible, they are simply invisible – this is a much easier problem to solve. Innovation economics solves this problem.

True valuation of knowledge assets allows for direct capitalization of people and their social, creative, and intellectual capital. Networks of knowledge assets form a new type of corporation that is fault tolerant, self regulating, risk diversified, and responsive to social priorities. Wall Street becomes the steward instead of the master. The whole game changes.

If it becomes a reality, what happens (150 words)?
If Innovation Economics becomes a reality, Social Networks will become the driving force of economic growth because human knowledge (as social capital, creative capital, and intellectual capital) can be capitalized directly. Creative knowledge workers would benefit most initially.

Eventually, publically traded Innovation Bonds backed by productivity gains will replace venture capital at vastly reduced risk and cost thereby unleashing an extraordinary amount of primary and tangential innovation creating a virtuous circle.

Areas of low productivity, such as poor communities and under-privileged populations will become targets for highest returns on innovation applications. Millions of new-to-the-world businesses will emerge and nearly all existing businesses will become more efficient where human knowledge is tangible and free to assemble itself in infinite, diverse, and strategic combinations.

If done correctly, eventually most people on Earth would benefit by freedom from the shackles of debt economics.

What are the initial steps to make it happen (150 words)?

Phase 1: The initial steps are: publish our research to a wider audience, prosecute our patent application (USPTO: 20070226361), release it to public property, and begin receiving public input.

Phase 2: Publish several animated videos which describe step-by-step the role that Social Networks must play to induce the Innovation Economy. Collect more input.

Phase 3: Create an open source development platform where ideas can be collected from the global community on how to develop the three web applications specified herein.

Phase 4: Develop and release common architecture web applications for The Knowledge Inventory, The Percentile Search Engine, and The Innovation Bank.

Phase 5: Exist indefinitely as an NGO to keep the game fair and build out emerging opportunities as needed.

What is the optimal Outcome and how is it measured (150 words)?
The intended outcome is for the innovation economy to arise from the knowledge economy as the next level of economic development. The optimal result would be an improved wider distribution of wealth and the transfer of corporate prioritization to communities regarding what gets innovated and what does not. Or likewise, which existing markets dynamics are disrupted and which are not. The optimal outcome would be the emergence of sustainable enterprise over forest-to-dump consumerism.

Metrics are inherent to the algorithm of the Percentile Search Engine as follows: innovation is proportional to the rate of change of knowledge with respect to time and knowledge is proportional to the rate of change of information with respect to time. Differential Calculus is the mathematical tool used to monitor all performance indicators of this system. In fact, all of the analytical methods of finance similarly apply to knowledge assets, by design.