Musings on Entrepreneurship and Innovation
Sunday, May 30, 2004Tilt Theory of Economic Development
In his New York Times column today (registration required), Tom Friedman writes:
The Tilt Theory states that countries and cultures do not change by sudden transformations. They change when, by wise diplomacy and leadership, you take a country, a culture or a region that has been tilted in the wrong direction and tilt it in the right direction, so that the process of gradual internal transformation can take place over a generation.
Friedman is referring to the possibility of positive change in Iraq, but his "tilt theory" is relevant to regional economic development, as well.
A while back, I served on a statewide economic development panel convened by Montana's senior senator and a leading banker. Understandably, there was much discussion and concern regarding the fact that Montana's per capita income had fallen to the bottom of annual rankings of the 50 states.
Montana's decline in relative income from average to abysmal wasn't precipitous, nor was it tied to specific events. Rather, it was gradual. In the early 1980's real per capita income in the state was about equal to the national average. Over the subsequent twenty years, real income in Montana grew, but not as quickly as in other states. It was the accumulation of a percentage point or two of growth differential that made the difference.
A hole dug over the course of a generation isn't going to be filled overnight. Simple math shows that even if Montana's real per capita income grows at twice the national average, it will take another twenty years for the state to recover its middling relative ranking.
The evidence strongly supports the contention that the only way to achieve that kind of superior relative growth is to become adept at cultivating entrepreneurial growth companies. That requires a basic presumption that a positive sum, win-win game is not only possible, but necessary.
Easier said than done when the political and economic landscape resembles the tribalism that Friedman comments upon:
[D]emocracy is everyone's third choice. Their first choice is always: "My tribe wins and my rivals lose." Second choice is: "My tribe loses, so yours must lose too." Third choice is: "My tribe wins and so do my rivals."
I hope that the tilt is steep enough that we manage to back into that third choice.
