This is the virtuous cycle to create a super power. Many countries have one of it but not the other and fail.
Let us take European powers, they suddenly had surplus due to the discovery of the new world. Land was capital and that was an infusion in to their system.
Investment was a result of the demographic dividend due to late marriage in Europe as people consumed less as they had smaller families and saved more.
Innovation due to the industrial revolution gave avenues for investing those savings. The progress of the scientific method made innovation a systematic discipline that produced more and more productivity improvements. The invention of the textile mills is an example.
But that alone was not enough, they needed to scale up a good and productive idea. They had the colonial markets to do that.
Bargaining power due to political and military control, siphoned off the surplus and that started a virtuous cycle.
The case of United States, surplus and scale was due to the large size of the country. Innovation and investment was due to the system that came to be because of the founding fathers of the country and the general ethic of limiting consumption.
Asian economies generated surplus due to growth of exports arbitraging the cost differences. They invested, but when it came to innovation they have a huge hurdle to cross still as the institutions are still not mature to churn out inventions at the pace at which the West does. They do have the internal scale.
Russia, had the investment ethos as a communist regime, but innovation was limited to certain spheres. In-efficient non market system squandered surplus, limiting the capability to continue investing and lost leadership
European countries and Japan, have innovation capabilities, investment as a % of GDP was not as much an issue, but lacked scale once the Europeans lost access to colonial markets !
If Brazil and India need to achieve the super power status they need to focus on all four, generate surplus, invest it wisely, innovate to improve productivity of investment and then scale up to generate significant surplus once again !
Let us take European powers, they suddenly had surplus due to the discovery of the new world. Land was capital and that was an infusion in to their system.
Investment was a result of the demographic dividend due to late marriage in Europe as people consumed less as they had smaller families and saved more.
Innovation due to the industrial revolution gave avenues for investing those savings. The progress of the scientific method made innovation a systematic discipline that produced more and more productivity improvements. The invention of the textile mills is an example.
But that alone was not enough, they needed to scale up a good and productive idea. They had the colonial markets to do that.
Bargaining power due to political and military control, siphoned off the surplus and that started a virtuous cycle.
The case of United States, surplus and scale was due to the large size of the country. Innovation and investment was due to the system that came to be because of the founding fathers of the country and the general ethic of limiting consumption.
Asian economies generated surplus due to growth of exports arbitraging the cost differences. They invested, but when it came to innovation they have a huge hurdle to cross still as the institutions are still not mature to churn out inventions at the pace at which the West does. They do have the internal scale.
Russia, had the investment ethos as a communist regime, but innovation was limited to certain spheres. In-efficient non market system squandered surplus, limiting the capability to continue investing and lost leadership
European countries and Japan, have innovation capabilities, investment as a % of GDP was not as much an issue, but lacked scale once the Europeans lost access to colonial markets !
If Brazil and India need to achieve the super power status they need to focus on all four, generate surplus, invest it wisely, innovate to improve productivity of investment and then scale up to generate significant surplus once again !
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