by Nathan Smith

“We’ve been focused on fixing the basics of the economy and laying the foundations to build the future,” Luxon wrote in a recent op-ed.

To explain all this boisterous new “confidence” in the economy, Luxon cites his government’s infrastructure investment, the reform of the Resource Management Act, and, you’re not gonna believe this next one, “rewriting outdated rules for Eden Park” so that more events can be held at the stadium.

Those aren’t the “basics.” They aren’t even close to being the “basics.” Those examples are the policy equivalents of a hammer seeing everything as a nail. Of course the government thinks building infrastructure and tweaking laws are key to economic growth because roads and laws are what a government does best. But the real “basics” go much deeper, into the minds of average Kiwis. It’s about how we think and dream. Progress, real progress, is about new ideas that can unlock new resources we didn’t know we had. It’s about creating the kinds of people who can come up with those new ideas.

This stuff isn’t easy, which is why governments never talk about it seriously. New ideas can only occur in the minds of individuals, not out of cultures or groups. This is because only an individual can become frustrated with an activity and look for ways to make it easier to achieve in the future. Each activity, at the micro level, can be performed by only one individual, which means every interaction with an activity generates a unique frustration for that individual.

Frustration leads to problem-solving since what is obvious to one person may not be to others, and the frustrating activity then changes from impossible to an easy fix. Maybe this easy fix will be a small innovation. Occasionally, it’s a genuine invention. What’s the difference? Innovation is making a better mousetrap. But how many people do you know who could invent a mousetrap if it didn’t already exist? We have a lot of dots, but very few of us are capable of connecting those dots.

The key to generating inventions is to expose people to more hands-on activities. The more frustrating (not necessarily complex) the activity, the better. Like throwing mud at a wall, someone, somewhere, will interact with the frustrating activity and think of an easier way to do it. A government cannot invent anything because the government is an abstract entity. But it can help create the conditions in which new ideas are more likely to be generated. An idea-rich economy is where many types of activities are available, and where people are encouraged to interact with others outside their chosen activities.

Proper invention feels like a lightning flash of insight. But Isaac Newton didn’t magically come up with the concept of gravity after an apple hit him on the head. No one is born on the shoulders of giants. You must climb your way up from the ankles to the knees, past the hips and over the chest until you can even think about crawling onto the shoulders. Newton was reading, practising and getting his hands dirty for years before the flash of insight. Newton did the work, got frustrated and found an easier way.

The thing is, you can’t do the work if it’s all being done in China. Luxon should know that this is the biggest problem facing our economy. Rather than fiddling around with regulations and widening “trade relationships,” he should be thinking of ways so that more Kiwis can get their hands dirty in frustrating activities.

It’s a strange notion to think that manufacturing isn’t a worthwhile part of an economy. We are told all the time not to compete in such a skill-less, low-margin activity. Far better to ship it all over to China. This is silly. In the age of AI, manufacturing is probably one of the safest sectors for employment. It also offers infinite opportunities for both innovation and invention. After all, robots will never replace the need for work. Today’s robots will be tomorrow’s obsolete junk the moment someone invents a better robot. But you actually need to be playing around with the old robots before you can come up with a new robot. Right now, China (and maybe Germany) is the only country getting its hands dirty playing around with robots.

We didn’t ship manufacturing to China for no reason. Businesses did it because they thought the only thing consumers wanted was cheap products. But what they didn’t realise is that consumers are producers as well.

Kiwis would be willing to pay $0.03 extra for a bar of soap if it meant they could create the soap at a factory in New Zealand. While making that soap, they would also be practising a skill that trains their brain to think. Some of those soap-making Kiwis will go home, tinker with their tools in the garage and come up with a new, smarter way to make soap. Or perhaps they might innovate a more efficient automation that cuts out steps in the emulsifying process. Or, better yet, a completely novel invention for generating electricity that could lead to a massive leap in human knowledge.

Unfortunately, it is impossible to quantify, in dollars, the specific dynamics of frustration that underpin every important innovation. This dynamic does not appear in any accountant’s reporting. As Peter Drucker said, you can’t manage what you can’t see. So, the CEO decides that, on the weight of the evidence presented in dollar form only, he will shift the factory to China to save $0.03 on soap. Consumers get (slightly) cheaper soap, but at the cost of an economic environment that could, one day, invent an incredible technology that makes soap obsolete forever.

And what happens to those workers when their soap manufacturing jobs go overseas? They don’t go to university and earn a PhD because if they were the kinds of people who earn PhDs, they would already have a PhD. No, they head to the local services company, which is the only part of the economy that Luxon seems to care about. Instead of practising a physical skill all day and getting their hands dirty with a frustrating activity, these workers end up cycling through computer-generated lists of lapsed customers before going home to watch Netflix or play games. The garage (if they have one) gathers dust.

Multiply this by millions of people over many decades, and there’s your answer as to why productivity is low, and no one seriously talks about “invention” anymore. All we do is create better mousetraps. But I don’t know anyone who is the kind of person who can get so frustrated over years with mice plaguing his cupboard that he sits down one day in his garage and comes up with this new idea called a “mousetrap.”

The Covid-19 crisis gives us a chance to rethink what kind of people we want to become. It might be a passable life to work 9-5 in a cushy service job so each of us can scoot home in mind-numbing traffic to spend maximum time watching TV or sailing our yachts. But we can’t really complain when no one is inventing things anymore.

I remember being on a tour of the Colosseum in Rome when I noticed all the pockmarks in the facade at weirdly uniform distances. The tour guide said they were holes left from when the invading Germanic barbarians tore out the bronze reinforcing struts to help repair other infrastructure. Despite having ruled Rome for centuries, the barbarians could not maintain the city. The barbarians called themselves consuls and emperors, but they were just hermit crabs living inside the hollow shell of Rome. They stopped getting their hands dirty. They stopped doing the work. Eventually, they forgot how to do something so simple as mixing copper with tin.

The longer we ignore the “basics,” the closer we get to a point of no return where our combined earthly resources are sufficient only to keep the ever-growing masses of consumers entertained, but any large-scale projects will be impossible. The moment of transition would be a quiet, invisible one, and that is what makes it so dangerous because it may already have passed. And by resources, I also include the mindset and capacity for grand visions.

Don’t get me wrong, infrastructure and regulation changes are great for managing an economy, but not for creating one. The real engine of progress must be a population that spends its days grappling with imperfect machines and frustrating activities. That is where the ideas are born, and ideas are the only way to solve any problem.

I guess what bothers me is that we have one shot at going interstellar. We can choose to build planetary-scale infrastructure and become fully spaceborne humans, or we can turn the world into one big Disneyland for a short period of time. But not both.

Originally published on The Good Oil.