What is Cognitive Capitalism?
Why are some nations wealthier than others? Different theories suggest different reasons. Traditional economic theories posit wealth arises from a nation’s institutional, political, geographical, and historical factors. On the other hand, human capital theories suggest individual abilities and technological prowess as the main reasons for the growth of nations. While economists and legislators are more accustomed to traditional economic theories, it is increasingly becoming important to recognize individual competences in the creation of wealth. Individual competence and ability are predicted by an individual’s cognitive ability or IQ.
Heiner Rindermann and James Thomson emphasize the importance of cognitive ability to a nation’s wealth. They believe a nation’s cognitive elite comprising those with IQs above the 95th percentile is an important cohort that determines a nation’s wealth. Rindermann and Thomson call this idea cognitive capitalism, which they summarize as follows:
Cognitive Capitalism refers to the idea that the cognitive ability of the society as a whole, and of its cognitive elite, in particular, is prerequisite for the development of technological progress, for the historic development of modern society with its increased cognitive demands and complexity, and for the wealth furthering norms and institutions that form the core of the capitalist system.
Cognitive ability is defined by the individual’s ability to think, his store of true and relevant knowledge, and the intelligent use of that knowledge. It increases the individual’s “understanding of concepts and causal relationships, increases insight, and rationality” all of which are contributory factors to an individual’s productivity.
While it seems straightforward that smart people are important for any nation, cognitive capitalism takes the idea further and suggests the very smartest in a society are the most important demographic in determining its economic development. Having an IQ of 100 is good, but 110 is even better, and above 125 is the best.
The more intelligent a population is the wealthier the nation is. The difference between just smart and too smart is significant. Studies suggest even within the top 1% of the cognitive elite, the individuals on the top quartile (99.75) in IQ were more productive than their counterparts in the bottom quartile (99.25) in STEM publications and patents. It shows how significant a small fraction of IQ can be to the wealth of a nation.
Mediating cognitive ability and economic growth is technology, which as Rindermann suggests, are complimentary. To understand how cognitive ability influences a nation’s economic growth we have to assess the interaction of its cognitive elite with technology.
The studies by Rindermann and Thomson used path analysis and correlations to predict how strongly the different IQ levels influenced STEM achievement and consequently wealth and GDP.
High cognitive ability led to high STEM achievement, which led to more patents, high tech export rate, more scientists, and a higher Nobel prize rate. Both the standardized path analysis and correlational coefficients showed a stronger and higher connection between all the variables caused by cognitive ability e.g. STEM achievement; than they did for the nation’s average cognitive ability. The chart below shows the level of intelligence needed for various professions. STEM courses like physics and math require the most intelligent individuals. Courses like linguistics require higher IQs but they have no impact on a nation’s economic development.
To become wealthy nations require technological development which consequently requires a high cognitive ability to pursue. By understanding this causal relationship we infer the supreme importance of cognition in the wealth of nations. Even with a high mean national IQ, nations are developed more by the elite comprising those with IQs above 125. These are the individuals capable of handling STEM courses like computer science, software engineering, and theoretical physics. Rindermann and Thomson summarize it as follows:
…the cognitive level of the intellectual class and its relative size is more important for economic development than the mean cognitive level and relative size of lower-ability groups.
In abstract numbers, just one-point increase in IQ in the intellectual class raises the average GDP by $468 in the US, while a one-point increase in IQ in the cognitive ability of the mean raises the average GDP by $229 in the US. This effect is confirmed among twins in a family, whereby, 1more IQ point in one twin led to an increase of $810 annually by the age of 35.
To wit, it’s better to have 20 geniuses in a room whose average IQ is 90 than to have 5 geniuses in a room whose mean IQ is 105. The first room with 20 geniuses will be more productive in the long run than the second room which has a fewer number of geniuses but a higher mean room IQ.
Even without abundant natural resources, human capital theories suggest it’s possible for a country to become wealthy by fully utilizing the intellectual resources of its people; more importantly that of its intellectual class. The smart fraction in the population pursues STEM disciplines, gather more patents, is entrepreneurial, creates more complex commodities for exports, and publishes more scientific papers; all of which create more wealth for the nation. Highly intellectual politicians and business people compound this effect by creating better policies, better infrastructure, and better environments for growth.
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