A Flash of Insight (Part 3)

Why do people develop new ideas?

Source: NOAA

It’s not enough to have folks who are able to innovate and who are encouraged to innovate. They have to want to innovate. When we look at the geography of innovation, we see dramatic disparities:

Source: Cityam.com

Last year over 15,000 new companies were started. The vast majority were founded in the US; a good number were sited in Europe and Britain; and then various cities around the world like Tel Aviv, Santiago, and Bangalore accounted for the rest. Why is it so different here?

An economist looks at incentives. What encourages innovation? Taxes, property rights, and regulation have a huge impact. If you can’t keep the fruits of your labor; if someone else can confiscate your work; or if potential competitors can enact legal barriers–these all stop people from branching out. We even see this with employment agreements: do you own their own labor, or can a former boss sue you for using your skills?

Lightning strikes when the conditions are right. And when the conditions are really right, it can strike in the same place. Again and again and again.

Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
Leave a comment if you have any questions—I read them all!

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