Capitals of Innovation

Introduction

Welcome to the lecture on the Capitals of Innovation. This session will explore the key components that drive innovation, starting with a relatable example of microwave ovens and frozen burritos—innovations that transformed college cuisine.

The Evolution of Microwave Ovens

Discovery: Percy Spencer accidentally discovered the microwave oven in 1945 while working with a magnetron.
Impact: The invention significantly reduced cooking time, revolutionizing food preparation.
Time Price Analysis:
1979: Microwaves cost $400; with wages at $3.70/hour, it required 108 hours of work.
Today: Microwaves cost $74; with wages at $15.72/hour, it requires under 5 hours.
Resource multiplier: A 23x improvement in affordability.

Defining Key Concepts

Wealth: Anything that we value.
Economics: The study of how humans create value for one another.
Capital: Anything used to create something of value.

The Capitals of Innovation Model

The model consists of interconnected elements that facilitate innovation.

1. Human Capital

Definition: The foundation of innovation, as humans discover and apply new knowledge.
Components: Trust, health, skills, knowledge, personality, relationships.
Trust Elements:
Integrity Trust – Doing what one says.
Competence Trust – Ability to perform tasks.

2. Cultural Capital

Definition: How people treat each other within a society.
Key Factors:
Property Rights – Ownership and control over assets.
Rule of Law – A fair legal system where laws apply equally.
Example: North vs. South Korea’s economic divergence due to cultural differences.

3. Intellectual Capital

Definition: Accumulated knowledge, patents, and methods.
Significance: Encourages innovation through patent protections and shared knowledge.
Example: Thomas Edison’s patent for the light bulb.

4. Physical Capital

Definition: Tangible resources like buildings, materials, and time.
Example: Oil in Saudi Arabia, infrastructure, and natural resources.

5. Financial Capital

Definition: Money put at risk over time to support innovation.
Key Elements:
Savings and investment.
Insurance to mitigate risk.
Limited liability corporations to distribute financial risk.
Double-entry accounting for financial transparency.

6. Ideas and Inventions

Definition:
Idea: Thought on how to create value.
Invention: Proof of an idea in a tangible form.
Example: Steve Wozniak (inventor) and Steve Jobs (entrepreneur) working together.

7. Entrepreneurs

Definition: Individuals who take the risk of bringing inventions to market.
Role: Bridge between inventions and market acceptance.

8. Free Markets

Definition: Places where buyers and sellers discover value.
Key Attributes:
Price as an information system.
Freedom to enter and exit the market.

The Process of Innovation

Ideas arise from human capital.
Inventions are created from ideas.
Entrepreneurs test these inventions in free markets.
Successful inventions become innovations, leading to increased wealth and economic growth.

Measuring Economic Growth

Time Price: The time required to earn enough money to purchase an item.
Continuous Innovation: Reducing time prices and increasing accessibility to products.

The Role of Culture in Innovation

Encouraging trust and cooperation.
Countries with robust legal and economic structures facilitate innovation.

Summary

Wealth is anything valued.
Capital is anything used to create value.
Economic growth occurs through continuous innovation of capitals.
Innovation requires human creativity, supportive culture, and financial resources.

By understanding and leveraging the Capitals of Innovation, societies can foster economic prosperity and improve living standards.