Is the world really flat?

A provocative new book, The Venturesome Economy, argues that the world isn’t flat at all, says HBS professor Jim Heskett.

Innovation—and an economic edge—needs high-level ideas, which can be developed anywhere. But what matters equally is where ideas and know-how are applied.

What do you think?

HBS Faculty Member James Heskett

James Heskett is a Baker Foundation Professor, Emeritus at Harvard Business School.

That’s the question posed by Amar Bhidé in his new book, The Venturesome Economy. Disputing Thomas Friedman, author of The World is Flat, Bhidé concludes that: (1) it isn’t, and (2) arguments by Friedman and others—whom he labels as “techno-nationalists”—fail to recognize how innovation that matters really occurs and aren’t always helpful to long-term global or even U.S. development.

Bhidé’s conclusions are based on interviews with a large sample of start-up entrepreneurs as well as economic analysis.

He’s concerned with the complex set of relationships in a three-by-three matrix composed of high/mid/ground-level products and services and high/mid/ground-level know-how—for example, developers of high-level (think microprocessors), mid-level (motherboards), and ground-level (laptop computers) products and services as well as high-level (solid state physics), mid-level (circuit designs), and ground-level (management of a specific fabrication plant) know-how for each product or service (in this case, microprocessors).

His conclusions are, among others, that:

(1) it doesn’t matter where in the world high-level research takes place, because

(2) its findings travel easily and at relatively low cost, but that

(3) as one progresses from high-level to ground-level products and services and from high-level to ground-level know-how, ideas travel less easily. The work associated with them is more localized and less exportable. Thus, concerns about “brain drains,” the proportion of foreign students studying in U.S. institutions of higher learning, or the likelihood that the U.S. will continue to lose its dominance in the development of new high-level ideas and know-how are overblown.

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Instead, Bhidé concludes that the edge in economic development from the “innovation game” comes from the kind of entrepreneurial behavior that adapts and combines high-level ideas and know-how, adjusts them to the needs of particular markets, and actually sells them to willing buyers. Without these capabilities, high-level ideas, as was the case with the development of transistors, can take decades to develop.

Of course, the development of high-level ideas is critical to this process as well, but if it is less and less possible to hoard such ideas, where they are developed is of less importance than where mid-level and ground-level ideas and know-how are applied. The iPod, for example, was an example of purchased (largely non-U.S.) technological innovations combined with Apple design capability and knowledge of the U.S. market, where the vast majority have been sold.

If one agrees with these hypotheses, what does this mean for investments in basic science on the part of any government? Would some of that money be better deployed in supporting education in areas such as marketing and entrepreneurship that fosters entrepreneurial thinking and behaviors, providing credit to entrepreneurs and small businesses, and instituting tax policies that encourage the provision of venture capital? Or is the world really flat? Do the “techno-nationalists” have it right? What do you think?

Tina-Berning-Trendbuch

Amar Bhidé, The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World (Princeton: Princeton University Press, 2008).

Thomas L. Friedman, The World is Flat: A Brief History of the Twenty-first Century (New York: Farrar, Straus and Giroux, 2006).

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Art work: Tina Berning