The New Arms Race

The next big trend we’re reading about is how Korean tech companies like Samsung are working overtime to protect their corporate secrets as Asian rivals try to poach their employees. This made me think about arms races over the years. An arms race is basically where two nations compete to build superior armies. For a long time, building a superior army was the way nations excelled and thrived. You had a big army and you went into a village, plundered it, pillaged it, stole all the women and children, enslaved half the population that you didn’t kill, and that’s how you created wealth. Over time, as commerce took hold, people realized that trading was better than stealing. They realized they needed a big army but didn’t really need a big local army. You just needed to join an alliance like NATO and get the United States to pay for everything to protect you and everything worked out.

But there is a new arms race. Now, a nation’s future, productivity, wealth and reason for being are, by and large, driven by access to talented employees, talented citizens, the educational level of its citizenry, and access to best practices and corporate ideas. That’s the new arms race: you need to know how to raise productivity, develop capital markets, open up markets and build supply chains. Those who have access to this knowledge will win the modern arms race.

You need big armies, but you can have a big army and still have a model of capitalism that doesn’t work, like the former Soviet Union. The modern arms race is about how talented people move around from company to company, even from country to country, and take intellectual property and sometimes documents with them. It’s something we don’t really talk about much, but with this audience, which is squarely in this category of being people who drive the wealth of nations, the question becomes: What can you take with you when you move from country to country, employer to employer?

Currently, how intellectual property laws work—and I would say the way that goodwill between companies works—is that you aren’t allowed to take an idea and use it. But even that is a bit fuzzy. If it’s patented, you can’t use it, but if it’s not patented, you can use it. That’s why patents exist. You’re not allowed to take documents, but you can take lots of other things with you when you leave, and there’s no way of protecting that.

Early in my career, I did a lot of work in emerging economies. I worked in some countries where it was the first engagement the firm had ever done, and we were working to help them structure their industries and come up with an industrial plan; in other cases, to come up with an incentivization model; and in other cases, to prepare to grow the wealth of the country—very important work. Assuming it was good work, it would have an enormous ripple effect for this country, not just for that period but for generations to come. The work is important. The transfer of knowledge is important.

The insight is that as you go about your work, it’s important to understand two things. One is that the role we play, not just as consultants but as educated elites—as many people would refer to us—is quite an important role. The movement of intellectual property dictates how nations, cities, states and countries will progress over time.

I read a story about how Taiwan built its semiconductor industry. It came down to one man whom the government of Taiwan encouraged to return to Taiwan from the US and start building a semiconductor industry. Of course, many people played a role, but he catalyzed it. I wonder what would have happened if this one man hadn’t returned to Taiwan? I’m sure they would have found other ways to do it, but how long would it have taken? What would Taiwan’s GDP be today? There are numerous examples like that in China, Korea, the Czech Republic, Israel, and Saudi Arabia. Every country has a story like that—someone seeds the knowledge.

The second insight is that as the movement of individuals and ideas becomes the lifeblood of nations—more so than it was yesterday, a year ago, five years ago—we’re going to see new rules that will guide the movement of intellectual property. I think the rules today about patenting ideas and not taking documents are a bit outdated. There’s so much you can take from one employer to another that is very valuable, and the laws are outdated. We’re going to see a lot of action on that front.

This is the “so what” of the insight: It’s going to be interesting to see how a company or region pulls in ideas as these laws come up to prevent the free flow of ideas. It will happen. It’s only a matter of time, but it’s a question of how we respond to that.

This is an excerpt from Monday Morning 8 a.m. newsletter, issue #16.