Ascent to idea economy: an alternative to income graduation hypothesis

It has become customary to assess development progression through income classification. The World Bank classifies economies into four income groups: low, lower-middle, upper-middle, and high income. As economic value creation depends on natural resources, labour pool, knowledge, and ideas, not all economies experience income growth for the same reason. Hence, income level does not necessarily reflect development progression.
Middle Eastern countries, for example, enjoy high per capita income due to the commercialisation of petroleum resource stock. On the other hand, despite poor natural resource possession and high wages, Taiwan's per capita income has been growing due to the production and conversion of ideas into economic value. Through export, India has successfully transferred information technology knowledge into high-income jobs. And Bangladesh has been gaining income growth through the commercialisation of low-skilled labour, whether through ready-made garments export or remittance earning. Do all these four means of achieving income growth indicate the same type of development maturity of economies? Do they enjoy the same level of scalability of income growth for reaching and, most importantly, sustaining the income status? If not, should we look for alternatives to assess development progression?
In the early 20th century, Middle Eastern petroleum-rich economies were in the low-income category. But due to the invention, advancement, and diffusion of automobile ideas, the demand for petroleum started rising. As American and European companies succeeded in commercialising the petroleum deposit of these economies, per capita income in the region began growing. Is it the measure of development progression? These economies risk sudden income erosion due to the drying of natural stock or the advancement of electric vehicles and renewable energy ideas.
Apart from this, Bangladesh's labour-based economy risks weakening due to the aging population and the rise of labour-saving technologies. Furthermore, the rise of demand for low-skilled labour has been due to the advancement of production technologies, leaving only innate abilities for humans to supply. Hence, is the recent income growth of Bangladesh a measure of development progress? How far such a path of increase in in income is scalable, making Bangladesh a high-income country? There could be an argument that the growing student population will find another wave of growth through the commercialization of knowledge. Unfortunately, software-based automation has been shrinking the market value of practicing existing codified knowledge in creating economic value.
Furthermore, economic value creation opportunities from natural resources, labour, and knowledge depend on ideas. For example, due to the idea of automobiles, demand for petroleum has been created. Similarly, due to the idea of lithium-ion battery-based electric vehicles, there has been a sudden surge in cobalt demand, increasing the income of a few African countries. On the other hand, in the 1970s, Bangladesh suffered from high unemployment among the unskilled labour force. But over the last 40 years, this workforce has been finding growing employment opportunities. It has happened due to the idea of streamlining manufacturing production and automating codified knowledge and skill, leaving only innate abilities to a low-skilled workforce to supply. Ironically, further progression of automation ideas will lead to turning the low-skilled labour role in production irrelevant. Similarly, the idea of information technology (IT) has opened the scope for IT-based remote service delivery, creating the demand for knowledge workers in India and a few other countries. Furthermore, the progress of robotic process automation (RPA) ideas has been reducing such demand, causing job-loss in India's IT and business process outsourcing services.
It appears that ideas are at the root of creating economic value. Ideas create and destroy the demand for natural resources, labour, and knowledge. Besides, ideas are scalable, offering a continued path of progression. Hence, how far an economy succeeds in producing and exploiting ideas should be the measure of development maturity or capability.
Unfortunately, the world has been divided into two halves-idea exporters and importers. It appears that idea-exporting countries are advanced economies. These countries also dictate and determine the progress of idea-importing countries. Hence, unless idea-importing countries graduate as idea producers and exporters, they cannot find a sustained growth path.
The questions could be-- why ideas are so powerful and how ideas can open endless growth paths. First, ideas use natural resources, labour, and knowledge better. They also substitute the demand for other production elements. Hence, due to the flow of ideas, we succeed in creating increasing economic value from the same inputs. Furthermore, we need a flow of ideas to keep growing and benefitting from a great idea. For example, over the last 100 years, automobile innovators have been creating and adding ideas to increase value from the idea of the automobile. Hence, a stream of ideas offers a highly scalable growth path, often lasting decades and centuries. Of course, such a stream matures and saturates, ceasing the option of creating additional value.
However, further scientific discoveries lead to finding better alternatives to existing matured technology core, opening a new wave of economic value creation through another flow of ideas. Hence, due to the immense latent potential of scientific discoveries, all products, more or less, have been evolving through a series of reinventions, expanding the scope of growing economic value creation out of additional ideas. For this reason, ideas offer scalable, endless paths of growth.
In development literature, we notice the middle-income trap phenomenon. It occurs due to limited scalability of economic value-creation opportunities out of natural resources, labour, and knowledge. We need to tap into the highly scalable path of wealth creation from ideas to avoid it. For example, although over 100 economies have desperately tried to keep graduating income levels to attain high-income status, only Japan, Taiwan, and South Korea have succeeded over the last 70 years. The underlying reason has been the success of these economies to graduate to idea economy. Notably, Japan and Taiwan meticulously pursued the graduation of the idea economy.
On the other hand, despite having substantial natural resource stock, import substitution strategy, surplus labour, and sound education system, countries like India and Brazil could not graduate to high-income status. The underlying reason has been that they have not succeeded in increasingly creating economic value from the growing flow of ideas. They have not succeeded in graduating from idea importer to producer and exporter.
The objective of the development programme has been creating a scalable growth path for reaching and sustaining high-income status. Of course, natural resources, labour, and knowledge contribute to income growth. But they do not offer a scalable way of growth. Furthermore, they often suffer from saturation before helping economies reach high-income status. Hence, instead of using the income hypothesis to assess the development maturity, we should focus on evaluating the progress in creating economic value out of idea production-opening the scalable growth path for reaching and sustaining high-income status.

M. Rokonuzzaman, Ph.D is academic, and researcher on technology, innovation and policy.
zaman.rokon.bd@gmail.com