Nature of Competition: Brain Power Rental
In the beginning there was Value. We in economics are interested in value particularly
associated with utilities, or “happiness” in the utilitarian language. Then,
the opening question in discourse of economic value might well be, “What kinds
of value are there in the beginning?” A fairly plausible answer will be, there
are two kinds, i.e. raw ideas and raw materials. The former are of us, the
humans, while the latter owing to Mother Nature.
In
old times, raw ideas were created and processed into knowledge at each
household. More publicly in modern times, the firm rents brain powers for
research in search of raw ideas. When potentially useful, a set of raw ideas is
patented and subsequently becomes a tradable asset, usually intermediate yet possibly final.
Again, the step-wise value-addition takes place generally through a (supply) chain of firms in the aggregate economy. Internally at the firm, of course, there is a chain of value-adding activities, sometimes called the “value chain” (to Michael Porter, 1985).
Market for the brain power. No
economist would claim that the marginal product of brain power diminishes.
Thus, there is no such thing as the unit-wise supply or demand curve as regards
such a power. More often than not, in practice, brain powers are rented in
group or as a team of human assets. In the first place, “two heads are better
than one,” the consequence of which is sometimes dubbed as “knowledge synergy.”
From
the perspective of the renter, the group of brain powers is usually the
marginal unit. From the individual lender’s point of view, the rental rate
would depend mostly on the bilateral “bargaining power,” so to speak. If
history is any guide, however, when indefinite without a clear metric, the power, or the stronger power to be
precise, rules everywhere.
All
in all, the typical market framework does not fit to the rental of brain powers.
R&D to technology. In
general, a raw idea goes through a value-adding process called “development” at
the firm or across a “development chain,” as it were, of firms. At the end of
value-adding chain, the idea becomes a final asset, sometimes called a “technology,”
to be lent and rented in the market. The rental rate is usually called “royalty.”
No to mention, the title can be
traded outright in the asset market.
On the site of practice, application skills are aggregated into “engineering.” Heard of STEM? All through this particular chain, the final “M for math” is only for the sake of Calculation, as opposed to “Theory and Practice” of STE.
Thou shalt not rely only on mathematics for the purpose of reasoning. Neither shalt thou create a GEM (general equilibrium model) on simultaneous equations of math, masses or messes.
R&D to a machine. At the end of the value-adding chain (usually a supply chain across multiple firms) many a technology crystalizes into a big or small machine, the prototypical physical asset. Then on, the machine is lent and rented as we are well aware by now.
R&D to a gadget. The
end result of all the value adding activities is often a tiny final product to be freely and voluntarily
traded in the market. The cell-phone might be an excellent example.
OIGE to RIP. By way of closing, we quote from J.S. Mill regarding the importance of the brain power in stabilizing (“Permanence”) and growing (“Progress”) the economy:
(Considerations on Representative Government, 1861)
Yes, “originality and invention” is it,
Sirs.
Apparently,
on the other hand, he rules out Permanence by and for itself, or “general equilibrium”
for that matter, over any meaningful run of time; as a collateral damage to macroeconomics
or otherwise. The economy is an organism,
which “would be finished if it finishes changing” (to Ben Franklin), whether in
the short or long run, if not
of space.
Lord
Oige (organism in general equilibrium), RIP!
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