In 2002, a 14-year-old Malawi boy named William Kamkwamba built a windmill using items he collected from a scrap yard to power the electrical appliances in his family home. He did it through sheer ingenuity, without any formal training. His windmill made him famous, and he has since traveled all over the world speaking at leadership conferences. But one thing hasn't happened for William Kamkwamba: investors have not given him money to build more windmills and extend that electricity to his neighbors, and the entire village. Had he been born in Texas, he might be a young CEO running an energy company by now, because the funds would inevitably flow. But, in Malawi, most investors would be concerned about the fact that there's no legal system in place to protect William's ideas from his friends, who might begin to copy them.
There are so many stories like this in Ghana, Nigeria, and Angola. People like William are heralded as the future, but no one takes a financial risk on their ideas. Who would do that when there are no intellectual property right (IPR) protections? (Anyone can buy pirated copies of Microsoft Windows for $2 in most African cities.) Investing in innovators simply can't happen in markets with weak property rights.
I've traveled around the world and have seen smart people everywhere. No nation has a monopoly on great ideas. But nations are catalyzing global winners and losers by the policies they make. Let's look at what history has taught us: For the first 1,500 years of the last two millennia, man was generally poor. Though there were empires and kingdoms, the gross world product (GWP) was largely flat. For generations, people did not experience any major change in their living standards. Human productivity was low and few technologies, at large scale, were created. The GDP of China — the world's largest — in most centuries never exceeded $100 billion. The U.S. was recording its GDP in hundreds of millions of dollars — not billions. This lack of economic growth across the world was not due to a lack of ideas. There were inventors — people were developing fundamental ideas in physics and chemistry. But, there was a missing element that stymied the world commerce and industry.
And then something changed: the Western world introduced stronger property rights, including intellectual property rights, which allowed people to pursue new ideas, firm in the knowledge that success could bring financial rewards. By the time George Washington signed the first U.S. patent on July 31, 1790, there was a market for ideas and investing. A new America was born and, as this plot shows, the country GDP began to grow in multiples. By the late 19th century, the U.S. had overtaken China as the world's largest economy.
Today, all of the contemporary advanced economies have strong property rights, and data shows (PDF) a strong correlation between property rights, productivity, living standards and innovation. And while most nations are inventive, few innovate. An idea that becomes a Fortune 500 company in Texas could remain a hobby in Niger. That's because few are willing to risk their capital in economies that cannot guarantee that their investment will be protected.
As Africa, and indeed the entire developing world, looks for sustainable prosperity that is not dependent on minerals, they need to strengthen their IPR systems to be globally-competitive. The transition to a knowledge economy will never materialize without a legal system that protects property rights. Until this happens, the ideas people invent daily in Africa and other developing nations will have minimal impact — because investors have not been assured that there's any potential reward for risking capital.
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