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The Economics of Great Personalities

Some weeks ago, I was invited by a development bank to the Hotel Eden in Kvareli, Kakheti, where we discussed Georgia’s possibilities to develop economically. When we talked about the potential of the manufacturing sector, one of the attending bank employees said: “The problem is that Georgia does not have Rudolf Diesel and Nikolaus Otto.”

I think that there is some truth in this sentence, which one might alter so that it fits better to modern times: “The problem is that Georgia does not have a Mark Zuckerberg/Steve Jobs/Bill Gates/Larry Page” or, to remain in Eastern Europe, “Eugene Kaspersky.” Indeed, for a small country like Georgia, having just one great inventor who sets up their headquarters in Tbilisi would be a true game changer. Kaspersky makes annual revenues of about $700 million and employs about 3000 people, many of whom are highly-skilled (and highly-paid) specialists. If such an inventor, let us call him Kaspershvili, would start their business in Georgia, this would be even more relevant than for a huge country like Russia.

In the wake of the Kaspershvili Labs many other economic activities would emerge. Kaspershvili would demand services from other high-tech companies, some of which would be based in Tbilisi, and there would be positive spillovers to the rest of the economy. Many young Georgians would try to become excellent programmers in hope of finding a job with Kaspershvili, and this pool of highly qualified people would then attract other high-tech companies to set up their facilities in Tbilisi (local clustering is one of the characteristics of the high-tech industry – if one company sets up labs somewhere, other companies soon follow suit). Unfortunately, Eugene Kaspersky was born in Russia and not in Georgia. 

Thought experiments of this kind can be made for other people who had great economic impact. For example, it is interesting to speculate about what had happened if James Watt, the inventor of the steam engine, would have been French and made his invention in France. The steam engine was crucial for industrialization, which in the wake of Watt’s invention originated in Britain, not in France. Possibly, economic history of the world would have taken a completely different course if the great personality James Watt would have been a Frenchman.

Yet surprisingly enough, the impact of individual personalities on the economic fortunes of a country are largely neglected in standard economic thought. To understand the implications of this negligence, historical science yields some interesting insights.


HISTORICAL DETERMINISM

Traditionally, historians studied the lives of great people who were considered to have made a difference for humankind. In historical books from the 19th century, one will read a lot about Alexander the Great, Caesar, Charlemagne, and Napoleon. National Georgian history of that time would have focused on the lives of Queen Tamar, David the Builder, Erekle II, and Catherine the Great (the latter two being important for Georgian history even if not in a positive way).

However, in the early 20th century, history focusing on “great persons” started to become unfashionable. Inspired by Marx’s “historical materialism”, many historians began to see the course of history as a sequence of almost inevitable developments, brought about by the social and political conditions that prevailed in society, while the impact of individuals was diminished.

The most radical proponents of “historical determinism” would deny any historically significant impact of individuals whatsoever. If Alexander the Great would not have made his conquests, there would have been somebody else who would have taken Alexander’s role, leading essentially to the same historical outcome. Alexander’s military and political successes were not attributed to his personality but to the political weakness of the Asian empires, the technical and cultural superiority of the Greek world etc. Likewise, Erekle II had no choice but to sign the Treaty of Georgievsk – given the geostrategic squeeze Georgia was in, any other ruler would have done the same. Taking this view to the extreme, even the Nazis in Germany were just an inevitable outgrowth of a deep-rooted anti-Semitism in Germany, fueled by economic hardships and the perceived injustice of the Treaty of Versailles. Hitler’s personal contribution was negligible.

Yet people like Hitler and Stalin are clear-cut examples which, at least in my opinion, show that historical determinism is indefensible. Just considering Hitler’s influence on the course of the Second World War shows the importance of Hitler’s personal character traits. Several of his decisions, e.g. not to employ chemical weapons, were based on the experiences he made as a soldier in the First World War. Other decisions, like the militarily disastrous order for the 6th Army to hold out in Stalingrad and not to break through the lines of the Red Army, were rooted in his personal belief of racial superiority. Finally and most importantly, there is no reason to belief that every fascist leader of Germany would have been a genocidal anti-Semite. Mussolini, who was Hitler’s political idol during the 1920’s, disliked anti-Semitism, and many Jews played prominent roles in the Italian fascist party. If Hitler would have been a fascist of the Mussolini type, the Holocaust would not have occurred.

More closely related to Georgian history, to my mind it is clear that a Soviet leader as ruthless as Stalin was not a historical necessity. His years as a communist partisan in the Caucasus had been formative, shaping his view that being merciless and uncompromising is a recipe for success. If somebody else would have succeeded Lenin, that person would not have had the specific biography as Stalin and by all likelihood would have pursued entirely different policies.

This is not to say that economic and social conditions do not play a role at all. If Stalin or Hitler were born, say, to smallholder farmers in South Sudan, it is unlikely that these destructive characters would have had such dramatic impact on World history.


HOPE FOR GEORGIA

While most economists believe in markets, competition and the like, in one respect they are very much like Marx: they subscribe to the view that there are underlying economic laws that more or less alone determine the success of a society. If a society creates the right economic conditions, chooses the right policies etc., it will be inevitably successful.

Yet in the same way as historical determinism is wrong also economic determinism is wrong. The economic development of most European countries as well as the USA is but a sequence of great persons who made pathbreaking discoveries and inventions, giving their countries a competitive edge for some time until other countries had caught up. Remove one of these unique individuals and economic development would have evolved differently.

What good economic policy can do, however, is to create conditions in which great personalities will unfold their talents. If Einstein was born to smallholder farmers in Ethiopia, it is unlikely that his great potential would have materialized. Georgia must make sure that all the Kaspershvilis, Einsteinshvilis, Dieselidzes and Gatesadzes that will be born in this country have a high probability to actualize their talent to the good of society. Schools and universities must inspire independent thought and not suppress it, education must be accessible to everybody, and the terrible nepotism that permeates Georgian society must be fought so that it will pay for people with exceptional ideas and talents to realize their potentials. However, all of this is just a necessary condition for economic success, not a sufficient one. Without great personalities in the first place, also the best politics will not help that much.

This sounds somewhat pessimistic, as the emergence of a great personality is a random event not under control of political decision makers. Yet as I have laid out in the first part of this article (“Economic Reflections in the Kakheti Mountains”, to be found on the ISET Economist Blog), it is far from clear that Georgia has structural advantages that will cause significant economic development just through good policy. In this situation, Georgia may still hope for great personalities. So, in my view, acknowledging the importance of great personalities for the economic fortune of a country rather fosters optimism, not pessimism.

Probably, there is one potential Kaspersky among every 100,000 babies, one Steve Jobs among every 200,000 babies, and one Einstein among every 1 million babies who are born. Georgia was home to many great personalities in the past, and one can be confident that there will be great Georgians also in future. Let us make sure that the conditions are right for these future geniuses to unfold their talents!

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Guest - RT on Monday, 15 December 2014 16:19

> If Einstein was born to smallholder farmers in Ethiopia, it is unlikely that his great potential would have materialized.

I heard late Kakha Bendukidze once say "I do not understand what a talented but unsuccessful entrepreneur means." That is something I disagree with for the reasons outlined in this blog entry.

> If Einstein was born to smallholder farmers in Ethiopia, it is unlikely that his great potential would have materialized. I heard late Kakha Bendukidze once say "I do not understand what a talented but unsuccessful entrepreneur means." That is something I disagree with for the reasons outlined in this blog entry.
Guest - Nino on Monday, 15 December 2014 16:29

Indeed, we need to get the institutional framework right.

Unfortunately, today people, who could be great personalities do not have incentives to stay in Georgia. They get educated elsewhere and even the most patriotic ones, who come back and are ready to work for ridiculously low salaries, compared to other countries of the world, are disappointed to see that there is no place for them to contribute to the well-being of their society.

Indeed, we need to get the institutional framework right. Unfortunately, today people, who could be great personalities do not have incentives to stay in Georgia. They get educated elsewhere and even the most patriotic ones, who come back and are ready to work for ridiculously low salaries, compared to other countries of the world, are disappointed to see that there is no place for them to contribute to the well-being of their society.
Guest - Florian on Tuesday, 23 December 2014 20:13

The problem is the vicious nepotism. If jobs are assigned primarily by connection, not by qualification, of course it is unattractive to come back to Georgia as a highly talented and skilled person. Your talents and skills will be less valuable than elsewhere.

The problem is the vicious nepotism. If jobs are assigned primarily by connection, not by qualification, of course it is unattractive to come back to Georgia as a highly talented and skilled person. Your talents and skills will be less valuable than elsewhere.
Guest - Nikita on Tuesday, 16 December 2014 08:04

Related to this blog post, here is an interesting paper by Ben Olken about the effects of (assassinations of) national leaders on institutional change and on war: http://economics.mit.edu/files/3055

In addition to the creation of a learning environment in which talents are not suppressed, I suggest to establish / to improve programs that proactively discover and foster individual aptitudes. Importantly, as no one knows today which aptitudes will lead to radical innovations in the future, scouts and educators should be open to look for and to help develop any talent that could benefit Georgia’s political, economic, cultural, ... development.

Related to this blog post, here is an interesting paper by Ben Olken about the effects of (assassinations of) national leaders on institutional change and on war: http://economics.mit.edu/files/3055 In addition to the creation of a learning environment in which talents are not suppressed, I suggest to establish / to improve programs that proactively discover and foster individual aptitudes. Importantly, as no one knows today which aptitudes will lead to radical innovations in the future, scouts and educators should be open to look for and to help develop any talent that could benefit Georgia’s political, economic, cultural, ... development.
Guest - Florian on Tuesday, 23 December 2014 22:18

Hi Nikita,

1) Regarding the paper: I have serious doubts about that kind of "cute" research. Why is the connection between assassinations and institutions interesting? To my mind, this is all the same kind of paper as the one which relates economic growth to penis length (https://helda.helsinki.fi/bitstream/handle/10138/27239/maleorga.pdf).

2) Regarding your idea for talent scouts, I fully agree that one should think about how to detect and raise talents in a population. What you suggest reminds me of the Russians and Chinese, who got quite far with that approach, at least in chess, ballet, and gymnastics. Yet when it comes to really exceptional personalities, it is unclear whether they can be found in that way. By very definition, they are so revolutionary and "think outside the box" that you can hardly detect them by applying standard criteria. It is likely that most great personalities would not have done well by standard criteria and would not have been detected in that way. Einstein was just an average high school student.

Nevertheless, it is worthwhile thinking about it. Perhaps there are innovative ways how to solve that problem...

Hi Nikita, 1) Regarding the paper: I have serious doubts about that kind of "cute" research. Why is the connection between assassinations and institutions interesting? To my mind, this is all the same kind of paper as the one which relates economic growth to penis length (https://helda.helsinki.fi/bitstream/handle/10138/27239/maleorga.pdf). 2) Regarding your idea for talent scouts, I fully agree that one should think about how to detect and raise talents in a population. What you suggest reminds me of the Russians and Chinese, who got quite far with that approach, at least in chess, ballet, and gymnastics. Yet when it comes to really exceptional personalities, it is unclear whether they can be found in that way. By very definition, they are so revolutionary and "think outside the box" that you can hardly detect them by applying standard criteria. It is likely that most great personalities would not have done well by standard criteria and would not have been detected in that way. Einstein was just an average high school student. Nevertheless, it is worthwhile thinking about it. Perhaps there are innovative ways how to solve that problem...
Guest - makachitanava on Tuesday, 16 December 2014 19:18

Just one comment: instead of Einsteinshvili Einsteinava would sound better :)

Just one comment: instead of Einsteinshvili Einsteinava would sound better :)
Guest - Eric Livny on Wednesday, 17 December 2014 04:40

A brilliant idea, Maka, but how about Eisteiniani?

A brilliant idea, Maka, but how about Eisteiniani?
Guest - Saba on Wednesday, 17 December 2014 21:18

I am also for Einsteiniani :))

I am also for Einsteiniani :))
Guest - airth10 on Tuesday, 16 December 2014 21:19

The increase use of robotics is going to have a deterministic influence in shaping future economic policy, even in Georgia.

What if the leaders of countries like Egypt had incrementally reformed over the years, allowing for more economic freedom? No doubt Egypt would not be in the economic melee it is in today. What seems to have made it impossible for meaningful social reform is how traditionally and culturally intrenched it is. Egypt has lost many entrepreneurs because of this.

The increase use of robotics is going to have a deterministic influence in shaping future economic policy, even in Georgia. What if the leaders of countries like Egypt had incrementally reformed over the years, allowing for more economic freedom? No doubt Egypt would not be in the economic melee it is in today. What seems to have made it impossible for meaningful social reform is how traditionally and culturally intrenched it is. Egypt has lost many entrepreneurs because of this.
Guest - Florian on Tuesday, 23 December 2014 22:38

Airth, I absolutely agree on the robotics. That is a development at the doorstep and should be taken into account in any economic analysis. On the other hand, it is so difficult to predict that it is hard to take it into account, this is why I left it out in this article. If you haven't done so yet, please have a look at my article "Market Twilight".

Regarding the example of Egypt, I agree that the "cultural factor" is also of paramount importance. Also something often downplayed in mainstream economics. In Georgia, I think that it is not a problem as big as in Egypt, but also Georgians stick to some traditions that were useful in the past but detrimental or at best obsolete today.

Airth, I absolutely agree on the robotics. That is a development at the doorstep and should be taken into account in any economic analysis. On the other hand, it is so difficult to predict that it is hard to take it into account, this is why I left it out in this article. If you haven't done so yet, please have a look at my article "Market Twilight". Regarding the example of Egypt, I agree that the "cultural factor" is also of paramount importance. Also something often downplayed in mainstream economics. In Georgia, I think that it is not a problem as big as in Egypt, but also Georgians stick to some traditions that were useful in the past but detrimental or at best obsolete today.
Guest - Nikita on Thursday, 18 December 2014 05:05

Great Personalities or Great Teams?

I believe that your blog post gives too much credit to solitary geniuses. At least in the realm of technological innovation, the praise should go to team work and collaboration. Using Wikipedia and Joshua Shenk’s book “Powers of Two” I realized the following:

1. Nikolaus Otto worked with Eugen Langen.
2. Rudolf Diesel developed the Diesel motor together with engineers at MAN.
3. Steve Jobs worked with Steve Wozniak.
4. Mark Zuckerberg launched facebook with Eduardo Saverin, Andrew McCollum, Dustin Moskovitz, and Chris Hughes.
5. Bill Gates founded Microsoft together with Paul Allen.
6. Albert Einstein worked through the theory of relativity with Michele Besso.

Your policy suggestions – universal access to education, promotion of independent thought, and reduction of nepotism – do of course apply for teams as well as for individuals. However, if collaboration between great personalities drives (technological) innovation, then one should also promote cooperation, coordination, trustworthiness, and team competition among Georgian school and university students.

Great Personalities or Great Teams? I believe that your blog post gives too much credit to solitary geniuses. At least in the realm of technological innovation, the praise should go to team work and collaboration. Using Wikipedia and Joshua Shenk’s book “Powers of Two” I realized the following: 1. Nikolaus Otto worked with Eugen Langen. 2. Rudolf Diesel developed the Diesel motor together with engineers at MAN. 3. Steve Jobs worked with Steve Wozniak. 4. Mark Zuckerberg launched facebook with Eduardo Saverin, Andrew McCollum, Dustin Moskovitz, and Chris Hughes. 5. Bill Gates founded Microsoft together with Paul Allen. 6. Albert Einstein worked through the theory of relativity with Michele Besso. Your policy suggestions – universal access to education, promotion of independent thought, and reduction of nepotism – do of course apply for teams as well as for individuals. However, if collaboration between great personalities drives (technological) innovation, then one should also promote cooperation, coordination, trustworthiness, and team competition among Georgian school and university students.
Guest - Florian on Tuesday, 23 December 2014 22:47

I agree, in terms of policy suggestions it makes sense to foster the ability to cooperate and coordinate etc. However, I do not believe that duos drive world progress. This is a view very much in line with standard social science, which wants to attribute everything to groups, not to individuals. Within groups, be it duos or bigger groups, its always individuals who bring things ahead. I think that we should admit that individuals matter, not just "teams".

I agree, in terms of policy suggestions it makes sense to foster the ability to cooperate and coordinate etc. However, I do not believe that duos drive world progress. This is a view very much in line with standard social science, which wants to attribute everything to groups, not to individuals. Within groups, be it duos or bigger groups, its always individuals who bring things ahead. I think that we should admit that individuals matter, not just "teams".
Guest - Eric Livny on Thursday, 18 December 2014 10:42

"If I have seen further it is by standing on the shoulders of giants."

Isaac Newton

"If I have seen further it is by standing on the shoulders of giants." Isaac Newton
Guest - Zahra on Tuesday, 23 December 2014 04:09

If to take into account that most of the inventions were not made by one person, instead were just an improvement of already existing previous work then Marx ideas make a sense. But for motivating people to invent appreciation of personal contributions is important as well.

If to take into account that most of the inventions were not made by one person, instead were just an improvement of already existing previous work then Marx ideas make a sense. But for motivating people to invent appreciation of personal contributions is important as well.
Guest - Florian on Tuesday, 23 December 2014 22:49

I fully agree with you, Zahra. The best thing one can do to foster the realization of intellectual potential in a population is to allow gifted people to fully reap the fruits of their talents.

I fully agree with you, Zahra. The best thing one can do to foster the realization of intellectual potential in a population is to allow gifted people to fully reap the fruits of their talents.
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