The first thesis of 'How Transformative Innovations Shaped the Rise of Nations' is that economic growth, national dominance and global leadership are fueled primarily by embracing innovations, in particular transformative innovations.
A transformative innovation is one that changes the lives of people, reshapes the structure of society, disrupts the balance of power within and among nations, and creates enormous wealth for its sponsors. The adoption of a transformative innovation spawns numerous other related or consequent innovations. It provides a competitive advantage to a nation and may propel a small, backward region to world leadership in as short a time as a century. Further, the transformative innovation can sometimes itself promote the positive environment that leads to further innovations. Thus, embracing innovation can start a positive cycle of wealth creation, economic dominance and a positive environment for further innovation. This positive cycle continues as long as the environment that spawned the innovation remains supportive or until another transformative innovation arises elsewhere.
The second thesis of 'How Transformative Innovations Shaped the Rise of Nations' is that innovation is not adopted randomly across time and nations. Rather, it is sustained by an environment characterized by key institutional drivers within a country or region, three of the most important of which are openness to new ideas, technologies and people, especially immigrants; empowerment of individuals to innovate, start businesses, trade and keep rewards for these activities; and competition among nations, patrons, entrepreneurs or firms. Geography, resources, climate, religion and colonization probably played a role as well. However, past treatments of the rise of nations have overemphasized the role of these other factors; they have downplayed or ignored the role of innovations and the institutional drivers that led to their development and adoption.
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About the Author
Gerard J. Tellis is professor, Neely Chair of American Enterprise and director of the Center for Global Innovation at the Marshall School of Business, University of South California, USA. He is an expert in innovation, advertising, social media, new product growth and global market entry. Associate editor of the Journal of Marketing Research, Tellis is the author of 6 books and over 100 articles (http://www.gtellis.net) and has won more than 20,000 citations and 20 awards for his publications.
Stav Rosenzweig is assistant professor of marketing and business strategy at the Guilford Glazer Faculty of Business and Management, Ben-Gurion University of the Negev, Israel. An expert in innovation management and knowledge creation, Rosenzweig’s research focuses on the interrelations of innovation, knowledge and public policy in business strategy and consumer behavior.
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Global Influence of Transformative Innovation
In the three centuries BCE, several states flourished around the Mediterranean: Athens, Macedonia, Egypt, Carthage, Phoenicia and Rome. Yet only one of them, Rome, was able to create and efficiently manage a vast empire, for over 300 years, eventually extending from England to Persia and surrounding the whole Mediterranean (see Chapter 2). What caused Rome to become such a vast, encompassing and stable empire for so many centuries?
In the thirteenth century, a self-made leader from Mongolia, Genghis Khan, united disparate tribes and built an empire that stretched from Eastern China across Asia to Russia, Hungary and the Eastern Mediterranean (see Chapter 3). How did people from a relatively poor and technologically backward country of Mongolia come to overpower and rule so many rich, established kingdoms all over Asia and Eastern Europe?
In the early fifteenth century, China was the world's greatest navigational power. At its peak, its navy, under Admiral Zheng He, had over 300 ships, which were up to 400 feet long, with a crew of 37,000. It made multiple expeditions to the Far East, India, Middle East and Africa (see Chapter 4). Yet, when still at its peak, China abruptly stopped these expeditions, closed in on itself and fell behind. Many nations surpassed China as navigational powers. What caused China to fall behind these other nations?
In the fifteenth century, the city-state of Venice amassed great wealth and became the dominant power in the Mediterranean and probably the richest political entity in Europe. It monopolized trade between Europe and the East, especially the spice trade. In contrast, Portugal was a small, relatively backward country. Yet by the end of the fifteenth century, Portugal, and not Venice, discovered the sea route to India and the East that triggered the rise of the Portuguese empire and the eclipse of Venice as a naval and trading power (see Chapter 6). What led to the rise of Venice and subsequently that of Portugal?
In the seventeenth century, the relatively poor lowlands that now constitute the Netherlands united to form a great empire that at its peak controlled territories in the Americas, Africa, South Asia and East Asia (see Chapter 8). What led to the rise of the Netherlands?
In the sixteenth century, the lands that now constitute Germany were four times the size of England in terms of gross domestic product (GDP). Germany was ahead of England on most metrics of economic activity. It enjoyed a larger land mass, more forests, more arable land and more minerals (especially coal and iron) than England. Yet, by 1820, England's GDP was one and a half times as large as Germany's (see Chapter 10). What caused England to speed ahead of Germany?
In the early nineteenth century, Brazil, Mexico and the United States were similar nations with abundant resources and sparse populations. In 1800, the per capita GDP of the United States was about the same as that of Brazil and only twice that of Mexico. By 1913, the per capita GDP of the United States grew to be about four times that of Mexico and about six times that of Brazil. The United States had become a far bigger economy than either Brazil or Mexico and a major world power. By 1900, it even surpassed England in GDP (see Chapter 11). What caused this dramatic divergence in the economies of the United States, Brazil and Mexico?
The above cases show that economic and global leadership in the world has shifted from nation to nation. No one country has persistently led the world in terms of innovation, wealth and power. It is fascinating to see how just in the last 500 years, leadership in these areas has swung from Mongolia to China to Venice to Portugal to the Netherlands to England and to the United States. The Ottomans from Turkey and the Mughals in India also became dominant powers in between. Yet, no nation held sway permanently. Why did this constant change in global leadership occur?
Scholars in various disciplines have provided numerous explanations for the rise of great nations, as in the cases above. These explanations include advantageous geography, natural resources, climate, religion (especially Christianity), Western culture, colonization or luck. Many of these explanations have been deep, scholarly studies of one or some of the above cases. However, a robust explanation is one that can cover all the above cases, preferably with a single explanation. Most of the prior explanations, while good for one or a couple of cases, fail when applied to all of the above diverse cases, as we discuss later in this chapter. In particular, the rise of economic and world powers in the above cases occurred over time, often when geography, climate and natural resources remained essentially the same. So, these three factors cannot be a sole or primary explanation. Also, across the above cases, religion and culture varied substantially. Indeed, the rise of Rome, the Mongols, China and the Ottomans occurred without the aid of Christianity. Moreover, among Christian states, some rose and fell, while others stagnated. Some were Catholic (Portugal and Venice), while others were Protestant (the Netherlands and England). Thus, neither Protestantism nor Christianity can be the primary explanation for the cross-country rise of nations. So what factors explain the rise of the nations listed above? Are these factors similar across these diverse cases?
The first thesis of this book is that economic growth, national dominance and global leadership are fueled primarily by the embrace of innovation. In particular, the rise of nations in the cases above was probably due to the embrace of what we call transformative innovations. However, other prior, parallel or supporting innovations were also adopted in an environment that was conducive to innovation. A transformative innovation is a product or process that uses a completely new technology as opposed to existing products and processes, provides users with substantially superior benefits over existing products and processes, and provides adopting nations with a substantially superior edge in relative wealth or power compared to non-adopting nations. By this definition, transformative innovations are relative to the time and region in which they emerge. Once they are widely adopted and become pervasive, they are no longer innovative.
The adoption of a transformative innovation spawns numerous other related or consequent innovations. It provides a competitive advantage to a nation and may propel a small backward region to world leadership in as short a time as a century. Further, the transformative innovation can sometimes itself promote the type of positive environment that leads to further innovation. Thus, embracing innovation can start a positive cycle of wealth creation, economic dominance and a positive environment for still further innovation. This positive cycle continues as long as the environment that spawned the innovation remains supportive or until another transformative innovation arises elsewhere.
What are these transformative innovations? They are concrete for the Roman Empire, swift equine warfare for the Mongols, shipbuilding for China, Venice, Portugal and the Netherlands, the patent system and the steam engine for England, and mass production for the United States (see Table 1.1). Simultaneously, innovations in gunpowder gave various rival nations a critical edge, albeit for a relatively short time, because diffusion and imitation of this technology was rapid. Summaries in this chapter and details in subsequent chapters explain the role of these transformative innovations in the rise to dominance of select nations.
What factors characterize the conducive environment for the creation, adoption and further development of transformative innovations? The second thesis of this book is that the embrace of innovation does not occur randomly or by luck across time and nations. Rather, it is sustained by an environment characterized by key institutional drivers within a country or region. Three of the most important of these drivers are (1) openness to new ideas, technologies and people, especially immigrants; (2) empowerment of at least some individuals to innovate, start businesses, trade and keep rewards for these activities (e.g., through social status, property rights or patent laws); and (3) competition among nations, patrons, entrepreneurs or firms to enjoy the rewards from innovation. An explanation so simple across cases that are so diverse may appear sweeping or hasty. It is best to consider it as opening a debate about a general explanation for the role of innovation in the shifts of dominance among nations. Geography, resources, climate, religion and colonization probably played a role. However, past treatments of the rise of nations have overemphasized the role of these other factors. Past treatments have downplayed or ignored the role of innovation and the institutional drivers that led to their development and adoption.
The term institution means organizational structures that arise from the policies of rulers or governments. One may well ask why we refer to these as institutional and not cultural drivers. Cultural analogues of each of these certainly exist. However, culture is a term that is relatively ambiguous and difficult to change in the short term. Institutions are relatively better defined and can be changed in the short term by a change of laws or the dictates of a ruler. We focus on the institutional drivers that can and were changed within and between these countries, sometimes in a short time. More importantly, institutions shape culture, and these institutional drivers create a culture of innovation. Here we give a brief definition and theoretical explanation of these institutional drivers. Details are in subsequent chapters as well as the examples below.
By openness we mean the embrace of new ideas, technologies and peoples. One people or nation, limited as they are by their environment and numbers, cannot come up with every idea all the time. Innovation thrives on the integration of ideas and methods across geographic or cultural boundaries. Thus, to capitalize on advances made in other regions and countries, a nation needs to be open to such ideas from other nations or regions. We find that nations that are the most open to ideas and technologies, make the greatest advance in innovation, especially in transformative innovations that have huge payoffs. Less obvious than openness to ideas and technologies is openness to immigrants. We find that transformative innovations arose in nations around the same times as these nations had a big surge in immigration. We suggest that in numerous cases, expatriates stimulated, and were at least partly responsible for, innovation.
Why would immigration foster innovation? At least three reasons may account for such a causal relationship. First, immigrants typically enter a new nation either because they voluntarily left their home countries for better opportunities or they were persecuted in and expelled from their home countries. In either case, immigrants arrive in their new country at a great disadvantage, if not in abject poverty. This situation leads immigrants to be risk seeking and entrepreneurial because the disinheritance and poverty that accompanies immigration leaves them with few other options. The saying "necessity is the mother of invention," applies very well to immigrants. Second, immigrants bring knowledge or expertise accumulated in their prior home country. For example, Muslims and Jews who immigrated to Portugal in the fourteenth century brought expertise about navigation, commerce and finance that supported Portuguese innovations in navigation (see Chapter 7). Likewise, immigrants who fled Catholic countries for the Netherlands in the seventeenth century helped the Dutch innovations in trade, commerce and navigation (see Chapter 8). Third, immigrants facilitated the mix of cultures, people and environments that leads to cross-fertilization and innovation. Other factors that help immigrants become entrepreneurial and innovative are resilience through hardship, a better reading of social cues, and networks of other immigrants from the same country of origin. Along these lines, subsequent chapters show that openness to ideas and to immigrants is an important driver of innovation.
By empowerment, we mean the granting of rights by rulers to the ruled or at least to some of the ruled. Chief among these is the right to innovate, market one's innovation to others and keep the profits that accrue from the adoption of the innovation by others. Developing innovations involve costs and risks. Marketing innovations involve even more costs and risks. Thus, innovators are unlikely to incur all these costs and undertake all these risks unless there is some incentive at the end of the journey. Keeping the profits from innovations is such an incentive. The patent system is a modern formalization of the rights of innovators to profits. The development of the patent system is itself a major innovation, and is detailed in Chapter 9. However, financial profit is only one form of reward from innovation that has become pervasive in the last couple of centuries. Other incentives for innovation include gaining social status and power, promotion through the ranks of the military or bureaucracy, or recognition by those in power with titles and public honors.
By competition we mean rivalry among nations (macro-competition) or among suppliers within a nation (micro-competition) to produce the innovation and profit from it. A great example of macro-competition is the development of gunpowder (see Chapter 4), which initially emerged in China early in the tenth century. Intense rivalry among nations in China and Eastern Asia was responsible for its early development until about the mid-fifteenth century. After that, China entered a period of relative stability with far less cross-national wars than in the prior 400 years. At about the same time, gunpowder reached Europe, probably through the exploits of the Mongols. While China experienced relative stability, Europe was immersed in intense warfare (see Figure 4.3 in Chapter 4). That intense competition led to numerous innovations in the development of gunpowder, each of which gave the nation that developed it a short-term advantage. In Asia and Europe, gunpowder did not lead to a long-term advantage, because innovations by one nation were quickly imitated by other nations.
Micro-competition is a natural consequence of the granting of rights to people or at least to certain individuals to innovate and profit from the innovation. If many or all individuals in a country have such rights, then the natural outcome is competition among these individuals to exploit the advantages from those rights. Why would rulers not allow competition? That could occur for at least two reasons. First, elites who gained power or profited from past innovations may have vested interests in the old and oppose new innovations by outsiders. Second, rulers themselves might benefit from large established organizations that grew from past innovations, through taxes, bribes or kickbacks. Thus, rulers could be opposed to new innovations that detract from the old. So, empowerment of individuals is not complete unless and until they also have the right to compete with each other or with established organizations that may supply consumers with goods that serve the same need as the innovation. A good example of micro-competition is that which existed in the United States in the nineteenth century, in contrast to the lack of such competition in Mexico and Brazil (see later in this chapter and in Chapter 11).
This book provides evidence about the role of transformative innovations in the dominance of nations and of the institutional drivers in their adoption and development. The depth of evidence varies with the age of the nation or the case under study. While the evidence may not be complete in every case, the pattern is suggestive. The strength of the argument lies in the description of a quasi-experimental situation, where two or more nations had similar starting points with similar opportunities yet vastly differing endpoints. For example, subsequent chapters discuss the rise of Rome versus other Mediterranean city-states, Venice versus Genoa, Portugal versus Venice, the Netherlands versus Portugal, England versus the Netherlands or Germany, and the United States versus Mexico and Brazil (see Chapters 2 to 11).(Continues…)
Excerpted from "How Transformative Innovations Shaped the Rise of Nations"
Copyright © 2018 Gerard J. Tellis and Stav Rosenzweig.
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Table of Contents
1. Global Influence of Transformative Innovations;
2. Roman Concrete: Foundations of an Empire;
3. Swift Equine Warfare and the Rise of the Mongolian Empire;
4. How Gunpowder Shaped the Fortunes of Nations;
5. Golden Age of Chinese Water Navigation;
6. Venetian Shipbuilding: Mastering the Mediterranean;
7. Portuguese Caravel: Building an Oceanic Empire;
8. Fluyt and the Building of the Dutch Empire;
9. Patenting: Institutionalizing Innovation;
10. Steam Engine and the Rise of the British Empire;
11. American Mass Production and the Rise of the USA;
12. Lessons; Index.
What People are Saying About This
“A refreshing perspective on the importance of innovation throughout history that provides deep insight that is relevant for technology strategy today.”
John R. Hauser, Kirin Professor of Marketing, MIT Sloan School of Management, USA
“This book is a timely reminder that the story of the world is one of eventual progress, powered by human ingenuity. […] Tellis and Rosenzweig offer powerful lessons from history for those who seek to drive progress and avoid the fate of those left behind. This is a path-breaking, gripping, energizing––and necessary––book.”
Rajesh Chandy, Tony and Maureen Wheeler Chair in Entrepreneurship; Academic Director, Wheeler Institute for Business and Development; Professor and Chair, Marketing Subject Area, London Business School, UK
“A brilliant and captivating journey of the rise of nations from ancient Rome to modern America due to transformative innovations nurtured by openness, empowerment and competition. The authors provide a compelling conclusion that no nation can sustain world dominance unless it extends the breakthrough innovation further.”
Jagdish N. Sheth, Charles Kellstadt Professor of Business, Emory University, USA; Author of Chindia Rising
“The intellectual and empirical sweep of this book is truly impressive. […] Gerard Tellis and Stav Rosenzweig have produced a tour de force that combines history and geography with economics, politics, business and innovation studies.”
Jaideep Prabhu, Jawaharlal Nehru Professor of Indian Business & Professor of Marketing, University of Cambridge, UK