The Impact of Technology and Motivation on Economic Growth

I am very curious about the factors that drive the economic growth of countries. Unfortunately, during my student years I paid little attention to economics, so now I’m catching up in adulthood. Today I want to share with you a couple of illustrative examples. But before we begin, remember that the global economy is a rather complex system. Nobody knows all of its interconnections with certainty, so unexpected effects are always possible. Still, it is useful to understand how individual factors can have an impact.

Since Ask VC is about startups, let’s start with the role of technology. Imagine an ancient village with three people living in it. They decide to build a stone house, and all three of them carry stones from the surroundings with their bare hands. As soon as they bring a stone, they immediately place it on the wall. And so they spend the whole day. They eat whatever they can find, because by the evening they are exhausted.

One of them invents a cart with wheels. Naturally, his companions complain while he spends time tinkering with his invention instead of carrying stones. Sound familiar? :) Then one day he brings back with his cart several times more stones than all three together could manage using the old method. The others scratch their heads and decide that one will bring stones, another will build the wall, and the third, now with more time, will go hunting. Now the house is built faster, and the food becomes tastier and more plentiful. This is how the introduction of technology led to higher labor productivity and greater output of goods.

Now imagine another situation: once again, one of them returns with his cart full of stones, but his companions sit gloomily, doing nothing. He asks what’s wrong, and they reply: “What’s the point of all this?” The reasons can be both positive and negative. For example, they may fear a volcanic eruption or hostile neighbors who might destroy everything. Or perhaps the sun is shining too brightly, they don’t feel like working, and would rather relax. He tries to motivate his companions, but they refuse to act. Then he begins laying the wall himself and cooking dinner. Naturally, productivity drops. After some time, he either gives up and leaves to build a house elsewhere, or succumbs to their pessimism and abandons the project too. The technology is there. The resources are there. The labor force is there. But motivation and optimism are missing. And everything comes to a halt.

This is a vivid demonstration of why positive expectations are so important for the economy. That’s precisely why central banks and governments devote so much effort to shaping a vision of a positive future.

How can this abstract sketch be useful for startup founders? First, I often see entrepreneurs who don’t really understand how the economy works, so some effects catch them completely by surprise. Second, a company is essentially a micro-economy. No matter how great your technology is, it doesn’t matter if your team is demotivated or if your clients fear the future and are unwilling to spend money.

I hope you enjoyed this article. I’m planning to create a series called “Economics for Startup Founders.” Let me know in the comments what other topics you’d like me to cover.