No thief, however skillful, can rob one of knowledge, and that is why knowledge is the best and safest treasure to acquire. – L. Frank Baum, The Lost Princess of Oz
You have probably heard of The wealth of nations, one of the earliest books on what has become known as economics.
Three hundred years of economic theory have been built on it as a foundation, but is all that being swept away by the changes of the last decade or so?
David Warsh argues in his book, Knowledge and the wealth of nations, that the world has changed since then – but some of us just haven’t quite noticed yet.
You have to squint a little to see exactly when the change took place.
Consider the world of business, in particular, manufacturing.
The manufacturing industry is a creation of the old business model. You need land where you can build your factory, labour to work in it and capital to finance the whole project.
The businesses we see all around us have been created as a result of that model.
And some of them are not doing too well.
On the one hand, that’s just natural – new businesses replace old ones.
The Dow Jones Industrial Average, for example, was created in 1896, with twelve companies of the largest companies in the USA.
Of those, only General Electric, Thomas Edison’s firm, is still there.
The thing about old business is that it treats people as labour, as interchangeable, anonymous parts.
What matters is having money and land, and if you have those two you can buy labour.
And the point of such a business is that if you have more you can make more.
But what is it that such businesses make?
They make products that are “rival” goods.
An example of a rival good is an ice cream.
Once you make it and a customer buys it then that bit of ice cream is gone – it’s consumed.
Restaurants make rival goods and so how big they can become is limited to the number of covers they can serve in the space they occupy.
New business, on the other hand, increasingly makes “nonrival” goods.
An example of a non-rival good is a recipe – something that once created can be used and shared by lots of people without running out.
An example of a nonrival good is the output of a YouTube food and exercise star.
Such a person creates content and recipes and shares them – and there is no limit to who can view and benefit from the product that has been created.
In such businesses what matters is the recipe, the knowledge of what needs to be done – and what’s enabling them is the digital transformation taking place around us.
Warsh summarises the difference by saying that rival goods are objects and non-rival goods are ideas – ‘atoms’ and ‘bits’
What this creates is a different economic model – one that moves from an idea of scarcity to one of abundance.
And it should make you think differently about how you create your business.
After all, if you never run out of something even if you give it away to everyone who asks, what does that mean for what you do?
The things that matter, according to Warsh, become people, ideas and things – supplanting the old business basics of land, labour and capital.
Hiring and working with the right people becomes more important because what you’re after is the knowledge they have rather than the labour they provide.
The thing that differentiates your business is the ideas you have – how you use knowledge that’s available in new ways to create useful things – things that add value to customers.
Previously, you might build a product and then find customers you could sell it to.
Now, you find a need and create a thing to fill that need.
This formulation of people, ideas and things is still not well understood, Warsh writes in 2006, which is not that long ago.
You are still at the very early stages of a new economic model – and there is still lots of time to find your place in there.
And you can do that – as long as you let go of the ideas that built the past.
Especially ideas like you need money to make things happen.
Because you don’t.