A partnership of HuffPost and the

Elevator Assets and the Rules for the New Mercantilism -- Israel, Russia, China and the United States

How do you measure a country's wealth? One way traditionally was to look at a country's industrial strength, how many hard and fixed assets it had such as steel mills, auto factories, or oil wells. Today, a nation's wealth, and its potential is as likely to be measured by the percentage of that country's economy that replicates Silicon Valley as by the amount of steel mills it has.

Unlike auto factories, the key assets of the knowledge-based industries are not fixed; they are highly educated engineers and entrepreneurs. People who, if the political climate in the country becomes too arduous, or the rule of law a sham, can easily get on an elevator in their building, go to the ground floor and walk out.

Economists and business executives call moveable assets such as this "elevator assets." In a world where a nation's rival is also its joint venture partner, where economic sustainability and competition for markets and technology are determinants of success, the proper maintenance of elevator assets is vital to a nation's future.

The control of knowledge-based capital has always been an important consideration in international rivalries. There are few better examples of this than when the United States and the Soviet Union competed with each other to "capture/attract" various German scientists at the end of World War II such as the renowned rocket scientist Wernher von Braun. The difference today is that with the fusion of technology and globalization, countries are much more dependent than ever on human, intellectual capital, while at the same time, this same capital has become easily transferable, moveable.

It is as though the 18th century concept of mercantilism has been revived. But instead of a nation acquiring and maintaining as much gold as possible as in traditional mercantilist theory, the goal today is to acquire and retain as much intellectual capital as possible. High tech engineers and entrepreneurs are the new high-priced commodity.

Israel, dubbed the "Start Up Nation," with its increasing economic dependence on technology, could be the first nation to see the beginnings of this covert clash between its human assets and its state policy.

Israel is rightfully proud of the many ways it has become the second Silicon Valley, but in order to maintain that role, Jerusalem might be forced to modify its stance in negotiating with the Palestinians. If life becomes too difficult for the engineer in Tel Aviv, if he or she becomes worried that a son or daughter during military service will confront a new intifada, it becomes very easy for them to take the elevator down in their building in Tel Aviv and get on a plane to San Jose.

So, in essence, Israel's technological boom is totally mercurial, dependent as much on coming to terms with Palestine as it is on its brilliant engineers.

The irony here is that for the Palestinians, a society that has not yet reached Israel's level of technological achievement, the problem of elevator assets is irrelevant. Thus the real issue for the Israeli politicians should not be how to placate the members of the various settler parties in the Knesset, but how to insure that the "Start Up Nation's" engineers and entrepreneurs will not vote with their feet.

Israel of course is not the only nation in this situation. It is just that the comparative rapid development of its tech industries and the strength that those industries represent in the economy, combined with its confrontation with Palestine, puts it in the forefront of this issue.

One could easily see Russia and China being in a similar situation. There are however four basic guidelines to maintaining elevator assets: 1) guarantee the rule of law over the rule of personality, group or ideology, 2) knowledge must be open and transferable while at the same time the rights to an idea must be protected, 3) insure peace and tranquility, 4) have a private and transparent Venture Capital system that will make investments -- and reap the benefits from those investments -- based on the value of the project not on whether the project is politically well-connected.

Notwithstanding the fact that neither Russia's nor China's economies are now technology dependent, their inability to deliver on the above points puts in doubt how much further they can grow their knowledge-based industries. In addition, assuming that emigration remains possible in these countries, at what point will the elevator factor click in?

Ironically and very foolishly, the United States has the opposite problem with elevator assets. The United States is the place that skilled engineers and technology entrepreneurs want to immigrate to, but where they are not necessarily welcomed with open arms.

America's comparative advantage today is its knowledge-based industries. But like many issues, Congress has not caught up with the importance of global movements in human intellectual capital and with how that will affect these industries and the geo-political standing of the United States. They appear not to understand that knowledge-based elevator assets are the new hot commodity and represent an inflow of investment into the country.

So, although the United States in general allows unrestricted flows of actual capital into the country known as foreign direct investment (FDI), Congress has limited the flow of modern-day capital -- skilled engineers and tech workers -- by putting a cap on H-1B visas, at a level that is believed to be too low by many -- if not all -- American technology companies.

Whether it is the United States and Israel with their advanced technological industries or China and Russia, globalization and technology has partly redefined what capital is as it relates to the wealth of nations. Knowledge-based/elevator assets are now equivalent in value to auto plants and steel mills. They are an asset class that no country can afford not to maintain and acquire.

Subscribe to the World Post email.