Edge 56

HOW TO GET RICH
A Talk by Jared Diamond

.....we can extract from human history a couple of principles. First, the principle that really isolated groups are at a disadvantage, because most groups get most of their ideas and innovations from the outside. Second, I also derive the principle of intermediate fragmentation: you don't want excessive unity and you don't want excessive fragmentation; instead, you want your human society or business to be broken up into a number of groups which compete with each other but which also maintain relatively free communication with each other. And those I see as the overall principles of how to organize a business and get rich.

DENNETT'S DEAL
Daniel C. Dennett

For several years, I have been posing the following choice for my fellow philosophers: if Mephistopheles offered you the following two options, which would you choose? .......

THE MILLION DOLLAR SCIENCE PRIZE
Mihalyi Csikszentmihalyi, Lawrence M. Krauss, Bart Kosko, Clay Shirky, Delta Willis, David G. Myers, Judith Rich Harris, Robert Provine

(Csikszentmihalyi:) I'd give the prize to the discovery of the human analog to what made it possible for single cells to coexist and collaborate in a multicellular organism, or for what made it possible for termites and bees to treat the individual as an extension of the colony — but without compromising the uniqueness of the single person.

(Krauss:) This is a uniformly bad idea. There are more than enough prizes. They are all arbitrary to some degree, and the prize alone generates nothing.

(Harris:) The most serious problems that face us today are psychology problems — they have to do with the way the human mind works, and with the ways in which different human minds work differently. The subject matter is complex in itself and is made more difficult by the fog of emotion that surrounds it. Psychology needs topnotch scientists. Psychology should have a major award to recognize its topnotch scientists.

In my book, The Third Culture (1995), philosopher Daniel C. Dennett talks about his friend and colleague Nicholas Humphrey, a research psychologist.

"Nick Humphrey is a great romantic scientist," Dan noted, "which sounds like a contradiction in terms, but it isn't....It's very clear that for Nick the Shakespeare style of creativity is more enticing than the Newton style, which is an unusual attitude in a scientist."

Recently, I suggested to Dan that "Would you rather be a Shakespeare or a Newton?" might be an interesting feature for Edge's "World Question Center".

"But it's not the right question," said the feisty philosopher. Let me tell you about 'Dennett's Deal.' " .....

Nick Humphrey observed in 1987: "In Two Cultures, C. P. Snow extolled the great discoveries of science as "scientific Shakespeare," but in one way he was fundamentally mistaken. Shakespeare's plays were Shakespeare's plays and no one else's; Scientific discoveries, by contrast, belong — ultimately — to no one in particular." This may be an exaggeration, but there's something to it. On the one hand, there is an individuality to the contributions of great artists that seems to be not just rare in science, but positively beside the point. The famous priority disputes in science, and the races for one Nobel Prize clincher or another, are ferocious precisely because somebody else could make exactly the contribution you were striving to make — and you won't get points for style if you come in second. These contests have no parallel in the arts, where a different set of goals reigns. The contrast is nicely illustrated by my own home field of philosophy, which uncomfortably straddles the two cultures.

For several years, I have been posing the following choice for my fellow philosophers: if Mephistopheles offered you the following two options, which would you choose?

(A) solve a major philosophical problem so conclusively that there is nothing left to say (thanks to you, part of the field closes down forever, and you get a footnote in history) or

(B) write a book of such tantalizing perplexity and controversy that it stays on the required reading list for centuries to come.

Many philosophers reluctantly admit that they would have to go for option (B). If they had to choose, they would rather be read than right. Like composers, poets, novelists, and other creators in the arts, they tend to want their work to be experienced, over and over, by millions (billions, if possible!). But they are also tugged in the direction of the scientists' quest. After all, philosophers are supposed to be trying to get at the truth.

Some scientists aspire to reach large readerships, and to delight the readers they catch, and the best write works of surpassing literary value. Darwin's books come to mind. But the goal of getting it right, of persuading the readers of a discovered truth, still comes first, as we can tell at a glance by comparing Darwin's The Voyage Of The Beagle with Melville's Moby Dick. One can learn a great deal about whales and whaling from Moby Dick, but Melville didn't write it to be an artful and persuasive — user-friendly — compendium of whaling facts.

Bearing in mind the difference between the goals of science and the goals of art, then, here is a question that appropriately parallels the teaser I ask my philosophical colleagues. If Mephistopheles offered you the following two options, which would you choose?

(1) to win the race (and the accompanying Nobel Prize!) for pinning down a discovery that became the basis for a huge expansion of scientific knowledge but that, in retrospect, epitomized Humphrey's epithet, belonging to no one in particular. (Crick and Watson come to mind, of course; there is scant doubt that if they hadn't won the race when they did, Linus Pauling or somebody else would soon have done so.)

(2) to propose a theory so original, so utterly unimagined before your work, that your surname enters the language–but your theory turns out to be dead wrong, though it continues to generate centuries of arguably valuable controversy (I think of Lamarckian theories of evolution, and Cartesian theories of the mind. The jury is still out on Chomskian linguistics. It certainly passes the originality test. Like the victory of the America in the race that gave the America's Cup its name, there was no second anywhere in sight when Chomsky burst on the scene.)

We honor scientists who are wrong in useful ways — recall Wolfgang Pauli's insult about the theorist who "isn't even wrong" — but forced to choose, would you trade being first and right for being original and provocative?

DANIEL C. DENNETT, a philosopher, is director of the Center for Cognitive Studies and Distinguished Arts and Sciences Professor at Tufts University. He is the author of Darwin's Dangerous Idea, Consciousness Explained, Kinds of Minds, and Brainchildren, and coauthor (with Douglas Hofstadter) of The Mind's I.

I'd give the prize to the discovery of the human analog to what made it possible for single cells to coexist and collaborate in a multicellular organism, or for what made it possible for termites and bees to treat the individual as an extension of the colony — but without compromising the uniqueness of the single person. There should be a way to leverage the potentialities of the brain so that no one would think of destroying another life unless all options are exhausted. Of course, there's always the possibility that such an invention would spell the end of the race — but it would be worth to go down trying.

MIHALY CSIKSZENTMIHALYI is the Davidson Professor of Management at the Claremont Graduate University, in Claremont, California. He is author of Flow: The Psychology Of Optimal Experience; The Evolving Self: A Psychology For The Third Millennium; Creativity; and Finding Flow.

This is a uniformly bad idea. There are more than enough prizes. They are all arbitrary to some degree, and the prize alone generates nothing. Witness the largest prize in the world right now: The Templeton Prize. It encourages useless discussions about a silly topic. Fewer, rather than more prizes is a good idea..

LAWRENCE M. KRAUSS, the Ambrose Swasey Professor of Physics and chairman of the Physics Department of Case Western Reserve University, is the author of The Fifth Essence, Fear Of Physics, The Physics Of Star Trek, and Beyond Star Trek.

I would give the prize to the first person who produces any statement of fact that is accurate to at least one part in 10**20. Roger Penrose has observed that to date our most accurate statement of fact concerns the energy loss through gravitational waves of the Hulse-Taylor binary pulsar PST 1913 + 16 (two neutron stars that orbit each other). It is accurate to one part in 10**14. I have set the prize threshold at one part in 10**20 to account for the 10**6 dollars at stake.

Such a prize would remind us that binary truth is not a free good even if we have often and indeed habitually assumed so. We can produce binary statements of math or logic at will: "1 + 1 = 2" and "blue is blue" are two statements true 100%. But to show that the truth of a factual statement like "e = m c**2" or "Grass is green" is 100% true would require that we get the science right to not just a large number of decimal places but to infinitely many decimal places. That is a task better left to God. Indeed a God might be just such an entity that could draw perfect circles and produce binary statements of fact.

BART KOSKO is a professor of electrical engineering at the University of Southern California. His most recent books are the novel Nanotime, the textbook Fuzzy Engineering, and the nonfiction book The Fuzzy Future: From Society And Science To Heaven In A Chip (forthcoming).

I would forgo having my name on the prize and would call it the "Award for Post-Cartesian Understanding". The prize would be given in 2010 for the work in that decade which does the most to advance our grasp of the relationship between information and matter. So many of the most interesting problems of our era revolve around the mysterious boundaries between the physical and conceptual worlds, so the prize could go to a geneticist working on DNA as both a chemical and an informational entity (e.g. George Williams), a cognitive neuroscientist working on the mind/brain problem (e.g. Steven Pinker), a particle physicist working on the the informatics of the sub-atomic realm (e.g Roger Penrose), or even the philoshpher who does the most to suture up Descartes mind/body split (e.g Daniel C. Dennett).

CLAY SHIRKY (http://www.shirky.com/), is Professor, New Media Department of Film & Media Hunter College.

My first choice is a prize for the missing link, not simply because the search is so tedious and under-funded, but to bring attention to the question: what separates humans from animals? Is it the larger brain, in which case we might say the missing link has already been found in the form of the proconsul skulls from the Miocene, or the much younger apish skull found by Raymond Dart. Both were proclaimed missing links; there were so many skulls held aloft for this distinction that there is John Reader's book (now a fossil itself:) Missing Links. The tradition continues with recent discoveries: leg bones from Kenya, indicating the upright gait, also used as a definition for becoming human, long toe bones that could both walk upright and grasp a branch, and now another skeleton from Ethiopia, half a million years younger than Lucy, was found alongside stone tools, yet a third definition for human superiority. I don't think humans should be separated from animals, except at certain restaurants, and the choice could inspire greater public awareness of our superiority complex.

Now if the prize were a billion dollars, then I would go for the extraterrestrial search, because it would give even greater perspective to the arbitrary measurements of human intelligence; elephant and plenty of other species on earth are intelligent, after all. It would also be fabulous to see the different design solutions and adaptations on another planet; imagine a whole new world of plants, animals, and we gotta think, insects! But the key to both my prizes is to inspire debate about the dubious notions of human superiority. If we were half as smart as we thought we were, we wouldn't diminish the odds for other forms of intelligence, and who decides what is paranormal? If the rigors of science were applied equally to Area 51 as they should have been at the KBS site (a controversial fossil area in Kenya) the dangers are not in delving but fearing, or predicting, what you might find. Either prize would highlight what makes good science, and give a reality check to the observers.

DELTA WILLIS is the author of The Hominid Gang: Behind The Scenes In The Search For Human Origins, and The Sand Dollar & The Slide Rule: Drawing Blueprints From Nature.

One idea is to award the million dollar prize, as Stewart Brand suggests, for a medical advance that offers near-immortality. But considering the ecological consequences of that . . . and recalling Tuck Everlasting's depiction of what discovering a fountain of youth might mean . . . perhaps we should instead award it for what the cold fusion hype hinted at: the discovery of a clean, limitless energy source. If such a fantasy ever were to be realized, it should be, as your ground rules state, simply and objectively verified.

DAVID G. MYERS is a social psychologist at Michigan's Hope College. Among his dozen books are The Pursuit Of Happiness And The American Paradox (forthcoming).

I agree with Marc Hauser and Steve Pinker that the prize should be given in an area or for a purpose that previously lacked such a prize. Big, prestigious prizes already exist in physics, chemistry, math, economics, biology, and medicine. But there is none in psychology, and there ought to be. It should be the equivalent of a Nobel Prize, and (like the Nobel) should be given for an important achievement, not (like the MacArthur awards or research grants, which are already given in psychology) for potential achievement. Both theoretical and experimental work should be eligible.

There is no way to avoid interpretation or value judgments in awarding such a prize (or any prize), and that means — I don't see any way around it — that mistakes will be made. People who have a talent for impressing others or for gathering supporters or for doing work of a sort that is currently in vogue are more likely to be recognized. That's the way it goes. The ones who miss out will just have to console themselves with the thought that someday people may say, "What? So-and-so never got The Prize? Amazing!"

A million dollars is plenty. The purpose of the award should be, not to change the prizewinner's lifestyle, but to recognize the achievement. It's an honor, not an early-retirement package.

The most serious problems that face us today are psychology problems — they have to do with the way the human mind works, and with the ways in which different human minds work differently. The subject matter is complex in itself and is made more difficult by the fog of emotion that surrounds it. Psychology needs topnotch scientists. Psychology should have a major award to recognize its topnotch scientists.

JUDITH RICH HARRIS (http://home.att.net/~xchar/tna/) is a writer and developmental psychologist; co-author of The Child: A Contemporary View Of Development; author of The Nurture Assumption; winner of the 1997 George A. Miller Award for an outstanding article in general psychology.

The Regeneration Prize: The regeneration of body parts of adult humans would be one of the great achievements in medical history, ranking with the discovery of antibiotics and anaesthesia. Although regeneration is often the stuff of science fiction, actual feats of regeneration are found in the embryos of many species, including humans. Adults of many species can also regrate body parts. For example, amphibians can regrow missing limbs and goldfish can reform neural connections between eye and brain. The regenerative capacity of adult humans is limited to the more modest feats of wound healing and neuronal sprouting.

The challenge of understanding regeneration is great and requires an appreciation of both molecular mechanisms and the complex cellular ecology from which springs much developmental information. The difficulty of mastering both the molar and molecular is the main reason for the gulf between classical experimental embryology that enjoyed its golden age during the first half of this century andand its succesor, molecular biology. The two biological approaches are now coming together with the promise of great and immediate breakthroughs in developmental biology and medical science. The recent discovery of stem cells is one exciting step in this direction.

Because of the complexity of the regeneration problem, there probably
will not be a single, revolutionary breakthrough, but a series of incremental
contributions. Thus, the Regeneration Prize should be awarded periodically, perhaps every two years, to the individual making the most important contribution during that interval. Although a million dollar prize may not be extrodinary recognition of a scientific achievement that may win the Nobel or have billion dollar proprietary consequences, it would bring recognition of the problem of regeneration, attract the best and brightest, and accelerate work on this great problem.

ROBERT R. PROVINE is professor of psychology and neuroscience at the University of Maryland, Baltimore County.

Jared Diamond was in New York several weeks ago and we had an early dinner across the street from the Museum of Natural History where he was scheduled to speak later in the evening. Jared first visited the Museum in 1963, when he was 25 years old, preparing to go to New Guinea on his first expedition to study New Guinea birds. Subsequently he analyzed his bird collections in the museum where he is on the staff of the Museum's Department of Ornithology in addition to his position at UCLA.

Jared noted that "probably most lectures one hears at the museum are on fascinating but impractical subjects: namely, they don't help you to get rich. This evening I plan to redress the balance and talk about the natural history of becoming rich."

— JB

JARED DIAMOND, professor of physiology at UCLA Medical School, is the author of Guns, Germs, and Steel: The Fates of Human Societies, which won the Pulitzer Prize for general nonfiction in 1998 as well as Britain's 1998 Rhone-Poulenc Science Book Prize. He is also the author of The Third Chimpanzee, winner of the Los Angeles Times Book Award for the best science book of 1992 and the 1992 Rhone-Poulenc Science Book Prize; and Why is Sex Fun?

In Guns, Germs, and Steel I asked why history has unfolded differently over the last 13,000 years in Eurasia, in the Americas, in sub-Saharan Africa, and in Aboriginal Australia, with the result that within the last 500 years Europeans were the ones who conquered Native Americans and Aboriginal Australians and sub-Saharan Africans, rather than vice versa.

Most of that book, was concerned with comparing the peoples of different continents, but I knew that I couldn't publish a book comparing the histories of different continents and considering Eurasia as a unit without saying something about the fascinating problem of the differences of history within Eurasia. Why, within Eurasia, was it Europeans who conquered the world and colonized other people, rather than the Chinese or the people of India or the Middle East? I devoted seven pages to that subject at the end of Guns, Germs, and Steel, and I think I arrived at the correct solution. Nevertheless, since the publication of Guns, Germs, and Steel, I've received a lot of feedback, and the most interesting feedback has been about the implications of that comparative analysis of the histories of China, Europe, India, and the Middle East.

In particular, in addition to the review of my book by Bill Gates, I've received a lot of correspondence from economists and business people, who pointed out to me possible parallels between the histories of entire human societies and histories of smaller groups. This correspondence from economists and business people has to do with the following big question: what is the best way to organize human groups and human organizations and businesses so as to maximize productivity, creativity, innovation, and wealth? Should your human group have a centralized direction, in the extreme having a dictator, or should there be diffuse or even anarchical organization? Should your collection of people be organized into a single group, or broken off into a number of groups, or broken off into a lot of groups? Should you maintain open communication between your groups, or erect walls between them, with groups working more secretly? Should you erect protectionist tariff walls against the outside, or should you expose your business or government to free competition?

These questions about group organization arise at many different levels and for many types of groups. They arise, of course, about the organization of entire governments or countries: what is the best way to govern a country? Remember the classic arguments about whether the best government is a benign dictatorship, or a federal system, or an anarchical free-for-all. The same questions also rise about the organization of different companies within the same industry. How can you account for the fact that Microsoft has been so successful recently, and that IBM, which was formerly successful, fell behind but then drastically changed its organization over the last four years and improved its success? How can we explain the different successes of what we call different industrial belts? When I was a boy growing up in Boston, Route 128, the industrial belt around Boston, led the industrial world in scientific creativity and imagination. But Route 128 has fallen behind, and now Silicon Valley is the center of innovation. And the relations of businesses to each other in Silicon Valley and Route 128 are very different, possibly resulting in those different outcomes.

Of course there are also the famous differences between the productivities of the economies of different countries: the differing national average productivities of Japan and the United States and France and Germany. Actually, though, there are differences between the productivities and wealths of different business sectors within the same country. For example, the German metal-working industry has a productivity rivaling that of the United States, so the Germans are certainly capable of organizing industries well, but the German beer-brewing industry is less than half as productive as the American beer-brewing industry. Or take Japan — we Americans are paranoid about the supposed efficiency of Japanese business, and the fact is that the Japanese steel industry is 45% more productive than the American steel industry. Why is it, then, that the Japanese food-producing industry is less than 1/3 as productive and efficient as the American food-processing industry? Still another example: in Korea, the steel industry is equal in efficiency to American steel making, but all other Korean industries lag behind the United States. What is it about the different organization of the German beer brewers and the German metal workers, or the different organization of the Japanese food processors and the Japanese car manufacturers, that accounts for the different productivities of these sectors within a given country?

Obviously, the answers to these questions about the different success of organizations partly depend upon idiosyncracies of individuals. The success of Microsoft must have something to do with Bill Gates. If an idiot were in command of Microsoft, then however superior Microsoft's organization, Microsoft would be unlikely to be a successful business. But nevertheless one can still ask , all other things being equal, or else in the long run, or else on the average, what form of organization of human groups is best? I'm sure that there are many of you here who are involved with businesses that would like to know the answer to that question.

I propose to try to learn from human history. Human history over the last 13,000 years comprises tens of thousands of different experiments. Each human society represents a different natural experiment in organizing human groups. Human societies have been organized very differently, and the outcomes have been very different. Some societies have been much more productive and innovative than others. What can we learn from these natural experiments of history that will help us all get rich? I propose to go over two batches of natural experiments that will give you insights into how to get rich.

The first batch of natural experiments concerns understanding the effects of isolation and of group size and of communication with other groups on the productivity of human societies. Let's learn from the extreme examples of isolation of human societies. If isolation has any effect on human societies, the places we're most likely to see that effect are the histories of those two islands off southeastern Australia called Tasmania and Flinders Island. They lie about 200 miles off the southeast coast of Australia and are separated today from Australia by Bass Straits, but those straits are relatively shallow, so their floor lay above sea level at glacial times of low sea level up to about 10,000 years ago. The Bass Straits between Tasmania and Australia were then dry land, and Tasmania was part of the Australian mainland, just as Britain used to be part of the European mainland. When the glaciers melted, sea level rose and cut off Tasmania from the Australian mainland. So when Tasmania and Flinders were part of the Australian mainland, Australian Aborigines walked down to Tasmania and Flinders from the mainland.

And then 10,000 years ago the glaciers melted, sea level rose, and Tasmania became cut off from mainland Australia by Bass Straits, which are really rough waters. In addition, the watercraft of the Tasmanians were wash-through rafts that got waterlogged and sank after about a dozen hours. The result was that the boats of the Tasmanians could not reach Australia, and the boats of the mainland Aboriginal Australians could not reach Tasmania.

Thus, for the last 10,000 years the Tasmanians represented a study of isolation unprecedented in human history except in science fiction novels. Here were 4,000 Aboriginal Australians cut off on an island, and they remained totally cut off from any other people in the world until the year 1642, when Europeans "discovered" Tasmania. What happened during those 10,000 years to that isolated 4,000-person society? And what about nearby Flinders Island, which originally supported a population of 200 cut-off Aboriginal Australians? — what happened to that tiny isolated society of 200 people during those 10,000 years?

When Europeans discovered Tasmania in the 17th century, it had technologically the simplest, most "primitive" human society of any society in the modern world. Native Tasmanians could not light a fire from scratch, they did not have bone tools, they did not have multi-piece stone tools, they did not have axes with handles, they did not have spear-throwers, they did not have boomerangs, and they did not even know how to fish. What accounts for this extreme simplicity of Tasmania society? Part of the explanation is that during the 10,000 years of isolation, the Aboriginal Australians, who numbered about 250,000, were inventing things that the isolated 4,000 Tasmanians were not inventing, such as boomerangs. Incredibly, though, archeological investigations have shown one other thing: during those 10,000 years of isolation, the Tasmanians actually lost some technologies that they had carried from the Australian mainland to Tasmania. Notably, the Tasmanians arrived in Tasmania with bone tools, and bone tools disappear from archeological record about 3,000 years ago. That's incredible, because with bone tools you can have needles, and with needles you can have warm clothing. Tasmania is at the latitude of Vladivostok and Chicago: it's snowy in the winter, and yet the Tasmanians went about either naked or just with a cape thrown over the shoulder.

How do we account for these cultural losses and non-inventions of Tasmanian society? Flinders Island was even more extreme — that tiny society of 200 people on Flinders Island went extinct several millenia ago. Evidently, there is something about a small, totally isolated human society that causes either very slow innovation or else actual loss of existing inventions. That result applies not just to Tasmania and Flinders, but to other very isolated human societies. There are other examples. The Torres Strait islanders between Australia and New Guinea abandoned canoes. Most Polynesian societies lost bows and arrows, and lost pottery. The Polar Eskimos lost the kayak, Dorset Eskimos lost dogs and bow drills, and Japan lost guns.

To understand these losses in extreme isolation, the easiest case to understand is Japan, because the loss of firearms in Japan was witnessed and described. It took place in a literate society. Guns arrived in Japan around 1543 with two Portuguese adventurers who stepped ashore, pulled out a gun, and shot a duck on the wings. A Japanese nobleman happened to be there, was very impressed, bought these two guns for $10,000, and had his sword-maker imitate them. Within a decade, Japan had more guns per capita than any other country in the world, and by the year 1600 Japan had the best guns of any country in the world. And then, over the course of the next century, Japan gradually abandoned guns.

What happened was that the Samurai, the warrior class in Japan, had been used to fighting by standing up in front of their armies and making a graceful speech, the other opposing Samurai made an answering graceful speech, and then they had one-on-one combat. The Samurai discovered that the peasants with their guns would shoot the Samurai while the Samurai were making their graceful speeches. So the Samurai realized that guns were a danger because they were such an equalizer. The Samurai first restricted the licensing of gun factories to a hundred factories, and then they licensed fewer factories, and then they said that only three factories could repair guns, and then they said that those three factories could make only a hundred guns a year, then ten guns a year, then three guns a year, until by the 1840s when Commodore Perry came to Japan, Japan no longer had any guns. That represents the loss of a very powerful technology.

This loss was possible only in Japan because of its isolation; there were no other neighbors threatening Japan. When firearms arrived in Europe, there were European princes who similarly banned firearms, and there were European princes who banned printing, but you can guess what happened. When a prince in the middle of Europe banned firearms, within a short time the prince next door who did not ban firearms either walked in and conquered, or else the prince who banned firearms quickly realized his or her mistake and reacquired firearms from next door. The banning of the guns could work only in isolated Japan, where there were no neighbors as a threat, and where there were no neighbors from whom to reacquire the technology.

So these stories of isolated societies illustrate two general principles about relations between human group size and innovation or creativity. First, in any society except a totally isolated society, most innovations come in from the outside, rather than being conceived within that society. And secondly, any society undergoes local fads. By fads I mean a custom that does not make economic sense. Societies either adopt practices that are not profitable or for whatever reasons abandon practices that are profitable. But usually those fads are reversed, as a result of the societies next door without the fads out-competing the society with the fad, or else as a result of the society with the fad, like those European princes who gave up the guns, realizing they're making a big mistake and reacquiring the fad. In short, competition between human societies that are in contact with each other is what drives the invention of new technology and the continued availability of technology. Only in an isolated society, where there's no competition and no source of reintroduction, can one of these fads result in the permanent loss of a valuable technology. So that's one of the two sets of lessons that I want to draw from history, about what happens in a really isolated society and group.

The other lesson that I would like to draw from history concerns what is called the optimal fragmentation principle. Namely, if you've got a human group, whether the human group is the staff of this museum, or your business, or the German beer industry, or Route 128, is that group best organized as a single large unit, or is it best organized as a number of small units, or is it best fragmented into a lot of small units? What's the most effective organization of the groups?

I propose to get some empirical information about this question by comparing the histories of China and Europe. Why is it that China in the Renaissance fell behind Europe in technology? Often people assume that it has something to do with the Confucian tradition in China supposedly making the Chinese ultra-conservative, whereas the Judeo-Christian tradition in Europe supposedly stimulated science and innovation. Well, first of all, just ask Galileo about the simulating effects of the Judeo-Christian tradition on science. Then, secondly, just consider the state of technology in medieval Confucian China. China led the world in innovation and technology in the early Renaissance. Chinese inventions include canal lock gates, cast iron, compasses, deep drilling, gun powder, kites, paper, porcelain, printing, stern-post rudders, and wheelbarrows — all of those innovations are Chinese innovations. So the real question is, why did Renaissance China lose its enormous technological lead to late-starter Europe?

We can get insight by seeing why China lost its lead in ocean-going ships. As of the year 1400, China had by far the best, the biggest, and the largest number of, ocean-going ships in the world. Between 1405 and 1432 the Chinese sent 7 ocean-going fleets, the so-called treasure fleets, out from China. Those fleets comprised hundreds of ships; they had total crews of 20,000 men; each of those ships dwarfed the tiny ships of Columbus; and those gigantic fleets sailed from China to Indonesia, to India, to Arabia, to the east coast of Africa, and down the east coast of Africa. It looked as if the Chinese were on the verge of rounding the Cape of Good Hope, coming up the west side of Africa, and colonizing Europe.

Well, China's tremendous fleets came to an end through a typical episode of isolationism, such as one finds in the histories of many countries. There was a new emperor in China in 1432. In China there had been a Navy faction and an anti-Navy faction. In 1432, with the new emperor, the anti-Navy faction gained ascendancy. The new emperor decided that spending all this money on ships is a waste of money. Okay, there's nothing unusual about that in China; there was also isolationism in the United States in the 1930's, and Britain did not want anything to do with electric lighting until the 1920s. The difference, though, is that this abandoning of fleets in China was final, because China was unified under one emperor. When that one emperor gave the order to dismantle the shipyards and stop sending out the ships, that order applied to all of China, and China's tradition of building ocean-going ships was lost because of the decision by one person. China was a virtual gigantic island, like Tasmania.

Now contrast that with what happened with ocean-going fleets in Europe. Columbus was an Italian, and he wanted an ocean-going fleet to sail across the Atlantic. Everybody in Italy considered this a stupid idea and wouldn't support it. So Columbus went to the next country, France, where everybody considered it a stupid idea and wouldn't support it. So Columbus went to Portugal, where the king of Portugal considered it a stupid idea and wouldn't support it. So Columbus went across the border to a duke of Spain who considered this stupid. And Columbus then went to another duke of Spain who also considered it a waste of money. On his sixth try Columbus went to the king and queen of Spain, who said this is stupid. Finally, on the seventh try, Columbus went back to the king and queen of Spain, who said, all right, you can have three ships, but they were small ships. Columbus sailed across the Atlantic and, as we all know, discovered the New World, came back, and brought the news to Europe. Cortez and Pizarro followed him and brought back huge quantities of wealth. Within a short time, as a result of Columbus having shown the way, 11 European countries jumped into the colonial game and got into fierce competition with each other. The essence of these events is that Europe was fragmented, so Columbus had many different chances.

Essentially the same thing happened in China with clocks: one emperor's decision abolished clocks over China. China was also on the verge of building powerful water-powered machinery before the Industrial Revolution in Britain, but the emperor said "Stop," and so that was the end of the water-powered machinery in China. In contrast, in Europe there were princes who said no to electric lighting, or to printing, or to guns. And, yes, in certain principalities for a while printing was suppressed. But because Europe in the Renaissance was divided among 2,000 principalities, it was never the case that there was one idiot in command of all Europe who could abolish a whole technology. Inventors had lots of chances, there was always competition between different states, and when one state tried something out that proved valuable, the other states saw the opportunity and adopted it. So the real question is, why was China chronically unified, and why was Europe chronically disunified? Why is Europe disunified to this day?

The answer is geography. Just picture a map of China and a map of Europe. China has a smooth coastline. Europe has an indented coastline, and each big indentation is a peninsula that became an independent country, independent ethnic group, and independent experiment in building a society: notably, the Greek peninsula, Italy, the Iberian peninsula, Denmark, and Norway/Sweden. Europe had two big islands that became important independent societies, Britain and Ireland, while China had no island big enough to become an independent society until the modern emergence of Taiwan. Europe is transected by mountain ranges that split up Europe into different principalities: the Alps, the Pyrenees, Carpathians — China does not have mountain ranges that transect China. In Europe big rivers flow radially — the Rhine, the Rhone, the Danube, and the Elbe — and they don't unify Europe. In China the two big rivers flow parallel to each other, are separated by low-lying land, and were quickly connected by canals. For those geographic reasons, China was unified in 221 B.C. and has stayed unified most of the time since then, whereas for geographic reasons Europe was never unified. Augustus couldn't do it, Charlemagne couldn't do it, and Napoleon and Hitler couldn't unify Europe. To this day, the Europe Union is having difficulties bringing any unity to Europe.

So, the lesson I draw is that competition between entities that have free communication between them spurred on Europe. In China one despot could and did halt innovation in China. Instead, China's experience of technological innovation came during the times when China's unity fell apart, or when China was taken over temporarily by an outside invader.

You've seen that effect even in modern times. Twenty years ago, a few idiots in control of the world's most populous nation were able to shut down the educational system for one billion people at the time of the Great Cultural Revolution, whereas it's impossible for a few idiots to shut down the educational system of all of Europe. This suggests, then, that Europe's fragmentation was a great advantage to Europe as far as technological and scientific innovation is concerned. Does this mean that a high degree of fragmentation is even better? Probably not. India was geographically even more fragmented than Europe, but India was not technologically as innovative as Europe. And this suggests that there is an optimal intermediate degree of fragmentation, that a too-unified society is a disadvantage, and a too-fragmented society is also a disadvantage. Instead, innovation proceeds most rapidly in a society with some intermediate degree of fragmentation.

Okay, let's now start to apply all this to what we should do if we want to try to go out and get rich. Let's apply this to some affluent modern industries and companies. I'll give you two examples. The first example concerns that image of productivity that we Americans have as we look toward Japan. We fantasize that the industrial productivity of Japan and Germany is greater than that of the United States. And that's not true. On the average, American industrial productivity is higher than the industrial productivity of either Japan or Germany. But that average figure conceals differences among the industries of the same country, related to differences in organization — and those differences are very instructive. Let me give you two examples from case studies carried out by the McKinsey Corporation, an economics study industry based in Washington. These two examples involve the German beer industry and the Japanese food-processing industry.

What about the German beer industry? Well, the Germans are very efficient in some of their industries. The German metal-working industry and the German steel industry are equal in productivity to those of the United States, but the German beer-producing industry has a productivity only 43% that of the United States. And it's not that the Germans make bad beer; the Germans make wonderful beer. Whenever my wife and I go to Germany, we take along an extra suitcase specifically for the purpose of filling it up with bottles of German beer, which we take back and dole out to ourselves for the year after each of our trips to Germany. Why, then, since the Germans make such great beer, and since their industrial organization works so successfully for steel and metal, can't they achieve a successful industrial organization for beer?

It turns out that the German beer industry suffers from small-scale production. There are 1,000 little local beer companies in Germany, shielded from competition with each other because each German brewery has virtually a local monopoly, and shielded from competition with imports. The United States has 67 major beer breweries, producing 23 billion liters of beer per year. Germany has 1,000 major beer breweries, producing only half as much beer per year as the United States. That's to say that the average brewery in the U.S. produces 31 times more beer than the average brewery in Germany.

That fact results from German local tastes and German government policies. German beer drinkers are fiercely loyal to their local brand of beer. And so there is no national brand of beer in Germany, analogous to Budweiser or Miller or Coors in the United States. Instead, most German beer is consumed within 30 miles of the place where it is brewed. And any of you who have been in Germany know that Germans love their local beer and loathe the beer that comes from next door. The result is that the German beer industry cannot profit from economies of scale. In the beer industry, as in other industries, production costs decrease greatly with size. The bigger the refrigerator unit for making the beer, and the longer the bottle-filling line, the cheaper is the cost of brewing beer. So these tiny German beer industries are relatively inefficient. There's no competition; there are just 1,000 local monopolies.

That outcome, of Germans having their local beer loyalties, is reinforced by German government law. The German government makes it hard for foreign beers to compete on the German market. The German government has so-called beer purity laws. The German government specifies exactly what can go into beer, and not surprisingly what can go into beer is what German breweries put into beer, and it's not what American, French, and Swedish breweries like to put into beer. So it's difficult for foreign breweries to compete on the German beer market. The result is that German beer is not exported very much. Any of you who like to buy Lowenbrau in the U.S. should look at the label in the supermarket: your U.S.-bought Lowenbrau is not brewed in Germany, it's brewed on license in the United States with American productivity and American efficiencies of scale.

The same inefficiency turns out to characterize some other German industries. The German soap industry and the German consumer electronics industry are also inefficient; their companies are not exposed to competition with each other, nor are they exposed to foreign competition, and so they do not acquire the best practices of international industry. But that disadvantage is not true for the German metal-producing industry or steel industry. There, big German companies compete with each other and they compete internationally, and therefore they are forced to acquire best international practices through competition.

There you have an example from the German beer industry about the disadvantages of having lots of small groups that are secretive and don't compete with each other. The other example that I want to tell you about is the Japanese food-processing industry. I mentioned that we Americans are virtually paranoid about the efficiency of the Japanese, and it's true for some Japanese industries, but not for their food-processing industry. Japanese processed food is produced with an efficiency 32% of American processed foods. There are 67,000 food processing companies in Japan; there are only 21,000 in the United States, although the U.S. has double Japan's population, so the average food-processing company in the United States is six times bigger than its Japanese counterpart. What is the reason why the Japanese food-processing industry, like German beer industries, consists of small companies with local monopolies?

It turns out to be basically the same two reasons as with German beer: namely, local tastes creating local monopolies, and government policies. The Japanese are fanatics for fresh foods. Any of you who have been to Japan, as my wife and I were in October, will remember what it says on Japanese containers. In the United States, when you go to the supermarket, there's one date on the container, the date by which you're supposed to throw away that bottle of milk. In Japan there are three dates on the container: there's the date when the milk was manufactured, and there's the date when the milk arrived at the supermarket, and then there's the date when the milk should be thrown away, and these dates are in big letters; the Japanese really care about the dates. So the result is that milk production in Japan always starts at one minute past midnight, so that the milk that goes to market that morning is today's milk. If milk had been produced at 11:59 p.m., the milk company would have to stamp on its container that this milk was made yesterday, and no Japanese person would buy it. The result is again that Japanese food-processing industries enjoy local monopolies. Obviously, a milk producer up in Hokkaido, northern Japan, is not going to be able to compete in Kyushu, in southern Japan, with a Kyushu producer, because of the several days in transit from Hokkaido. By the time a carton arrives in Kyushu, the people will read on the container that this milk is three days old, and no Japanese person would buy it.

So that's one thing that creates local monopolies for food production in Japan: Japanese fanaticism about really fresh food. And the second thing is Japanese government policy, which reinforces these local monopolies. The Japanese government obstructs the import of foreign processed food by slapping on a ten-day quarantine. And because the Japanese care about food that was produced that very day, naturally by the time that American beef, chicken, or whatever arrives at the supermarket and the date says ten days old, the Japanese are not very enthusiastic about buying those American products. And there are other restrictions that the Japanese government imposes on foreign imports.

The result is that Japanese food-processing industries are not exposed to domestic competition, they're all local monopolies, they're not exposed to foreign competition, and they don't learn the best methods in the international trade for producing food. And the result is that, in Japan, Japanese beef costs $200 a pound. My wife and I had heard about that before we went to Japan, but what we did not realize until we were brought into a supermarket by my wife's Japanese cousin is that chicken in Japan costs $25 a pound. The reason the Japanese can get away with that is that Japanese chicken producers are not exposed to competition with super-efficient American chicken producers.

Now all those features are not true for some other Japanese industries. The Japanese steel industry, the Japanese metal industry, the Japanese car industry, their car-part industry, and their electronic industries have productivities greater than our American counterparts. But the Japanese soap industry, and the Japanese beer industry, and the Japanese computer industry, like the Japanese food-processing industry, are not exposed to competition, do not apply the best practices, and so have ended up with productivities below those of corresponding industries in the United States.

Now let's finally apply these lessons to comparing different industries or industrial belts within the United States. I mentioned that when I was growing up, Route 128 outside of Boston led the world in productivity for an industrial belt, but Route 128 has now fallen behind Silicon Valley. Since my book "Guns, Germs, and Steel" was published, I've spent a lot of time talking with people from Silicon Valley and some from Route 128, and they tell me that the corporate ethos in these two industrial belts is quite different. Silicon Valley consists of lots of companies that are fiercely competitive with each other, but nevertheless there's a lot of collaboration, and despite the competition there is a free flow of ideas and a free flow of people and a free flow of information between these companies that compete with each other. In contrast, I'm told that the business of Route 128 are much more secretive, and insulated from each other like Japanese milk-producing companies.

Or again, what about the contrast between Microsoft and IBM? Again, since my book was published, I've acquired friends at Microsoft, and I've learned about Microsoft's organization, which is quite distinctive. Microsoft has lots of units, with free communication between units, and each of those units may have five to ten people working in them, but the units are not micro-managed, they are allowed a great deal of freedom in pursuing their own ideas. That unusual organization at Microsoft, broken up in to a lot of semi-independent units competing within the same company, contrasts with the organization at IBM, which until four years ago had much more insulated groups. A month ago, when I was talking in the industrial belt of North Carolina, the Raleigh-Durham area industrial belt, I met someone who is on the board of directors of IBM, and that person told me, Jared, what you say about IBM was quite true until four years ago: IBM did have this secretive organization which resulted in IBM's loss of competitive ability, but then IBM acquired a new CEO who changed things drastically, and IBM now has a more Microsoft-like organization, and you can see it, I'm told, in the improvement in IBM's innovativeness.

So what this suggests is that we can extract from human history a couple of principles. First, the principle that really isolated groups are at a disadvantage, because most groups get most of their ideas and innovations from the outside. Second, I also derive the principle of intermediate fragmentation: you don't want excessive unity and you don't want excessive fragmentation; instead, you want your human society or business to be broken up into a number of groups which compete with each other but which also maintain relatively free communication with each other. And those I see as the overall principles of how to organize a business and get rich.

But, let me conclude by emphasizing some obvious restrictions. I'm sure all of you are already thinking to yourselves, "But, but, but, he's forgot — but but but...."— Yes, let's go back to those but-but-buts. One restriction is, I mentioned at the beginning, "all other things being equal". Obviously the best organization is not going to help with an idiot as a CEO, and the success of Microsoft certainly depends, at least in part, on the unusual qualities of Bill Gates, as well as on the unusual organization of Microsoft.

In addition, I've been talking about conditions to maximize productivity and creativity and moneymaking ability. There are other considerations in organized human groups, and there are conditions under which productivity is not the thing you're most interested in. There are conditions where more centralization may be appropriate. For example, during a war, you do not want your air force, army, and navy to be fiercely competing with each other, but instead you want during a war more centralized control than you do in peace time. And there are also human groups for which productivity and differential money-making ability are not the overriding consideration. I don't want you to go home tonight and each of you to say to your spouse or significant other, "Darling, I've just heard this guy Jared Diamond, who says that within human groups competition is what spurs productivity and innovation, and so I think we need to follow his advice in our household. For the next month let's see which of us earns a bigger income, and at the end of the month the bigger income-producer will keep on with the job, and the one of us who has lower income and is less efficient can turn to scrubbing the floors and shopping at the supermarkets." That just illustrates: there are other considerations in a marriage than optimizing productivity.

Again, I don't want you to go home to your several children, and say, "Sweetie-pies, I heard this talk today by this guy Jared Diamond who enunciated some principles that I think would be really good for rearing children. We're going to see what your grades are at mid-term, and based on those grades, whichever one of you comes closer to getting all A's, that one we will support to the hilt, private schools, college, whatever you need, whereas those of you who get poor grades can start jobs as a shoe-shine boy or girl" — No! In a family, and in some other human groups, productivity is not the appropriate consideration for judging the best organization of the group.

Nevertheless there are some human groups where productivity is indeed a significant consideration. And that certainly includes businesses, industrial belts, and to a considerable degree, countries. In order to understand how to organize these businesses, we could perform natural experiments. We could set up, if we were rich enough, a hundred businesses, organized a hundred different ways, see which businesses went bankrupt, and after 20 years figure that we now have the correct industrial organization. But that's an inefficient way to do it. We can instead learn from the comparative approach, by looking to natural experiments of history. I hope that some of you will be able to apply these lessons to acquiring the wealth that has so far eluded me.