The wealth of nations: Knowledge as a national resource

Abstract

For more than three centuries economists have measured the wealth of nations with three principal parameters: natural resources, population, and capital. Natural resources such as the coal in the Ruhr Valley, oil in the Middle East, or the plentiful minerals of North America were a major determinant of a country's status in the world economy. As Massachusetts Institute of Technology professor Lester Thurow has pointed out, the dramatic decrease in the cost of shipping natural resources during the last half of the twentieth century, the multiplicity of potential sources of energy, and the capacity of multinational corporations to produce at any location around the globe have dramatically reduced the relative impact of natural resources on a nation's economic standing. With an increase in automation, globalization of production, and the capacity to use workforces in any part of the world, the population size is no longer a critical determinant of the wealth of major nations. The Persian Gulf war exemplified the way in which military technology has replaced the size of armies in determining the outcome of a conflict. Because computer programs can be written by workers in Delhi, U.S. insurance forms are processed in Ireland, and The Gap can fill its clothing racks just in time by telecommunication with production units in China and Taiwan, the workforce of the world and the consumer appetite has now become global. The world watched as the currency crisis in Mexico unfolded at the end of 1994. In a matter of minutes, billions of dollars of investment capital were moved out of Mexico electronically by money managers in New York and Tokyo. Similarly, the banks of the world watched carefully the election in Argentina with the knowledge that decisions about investments of>$6 billion in capital would be determined within 24 hours of the outcome of that election. Natural resources, population, and capital no longer adequately describe the wealth of nations. In the new world order it is knowledge that will make the difference. If the United States is to maintain or improve its standard of living, its health, safety, and pros-