We humans are hardwired to love correlation. Our brains are excellent at spotting patterns, and we use those patterns to help make sense of the world around us more quickly and efficiently.
Unfortunately, correlative hardwiring can sometimes get us into trouble. This lesson was made clear to me recently when I had the chance to spend time with a friend whose toddler son was just beginning to learn how to communicate. To start with, my friend and his wife taught him a few hand signs, including a gesture to signal the word “please.”
The kid is sharp, and it didn’t take him long to notice that using the sign for “please” often correlated with desirable outcomes, whether it be his dad making him something to eat or his mom getting out a toy for him to play with. The lesson was clear: do this gesture, and people will give you what you want. Quite logically, within a short time he began using the “please” sign nearly constantly.
Much to this child’s chagrin, his “please” signs soon began yielding diminishing returns. He grew frustrated when, despite his gesture, his dad didn’t stop working mid-afternoon to take him to buy a toy at the store, or his mom failed to make the rain clouds go away that were preventing him from playing outside. Because he didn’t fully understand what “please” meant, he didn’t understand that it’s only useful when someone else has the power to do something for you, and it should ideally signal respect for the needs of that person too. He understood that the gesture correlated with outcomes he wanted, but he didn’t understand the mechanism by which it caused them to happen. Lacking a good causal theory, he frequently used the gesture under the wrong circumstances, and it failed to produce the desired result. He’d skipped straight from correlation to action.
Even as adults, skipping directly from correlation to action often results in disappointing outcomes. As Professor Clayton Christensen often pointed out, it was this same type of thinking that led medieval inventors to build themselves feathered wings and leap from tall buildings after noting the correlations between feathered wings and flight in birds. It wasn’t until humans understood the theory of lift—what actually caused birds to fly—that they conquered flight.
The human tendency to use correlation rather than theory to inform our actions helps explain the prosperity paradox that my colleagues wrote about in their book of the same name. Observing that robust infrastructure, well-developed institutions, healthcare, and universal education correlate with prosperity, the global development community has spent more than $4.3 trillion in official development assistance over the past 60 years pushing these “solutions” into poor countries. However, progress has been much less effective than it could be—many of the world’s poorest countries in 1960 are still among the poorest today. In fact, some are even poorer today, even after receiving billions in aid.
Global development needs good theory—a solid understanding of the causal mechanism behind prosperity, not just what correlates with prosperity. Correlation is often where the process of creating good theory starts, but it shouldn’t be where it ends.
So what causes prosperity to take root? Although no silver bullet exists that will transform poor countries into prosperous ones overnight, a key catalyst to development that’s too often missing from the equation is market-creating innovation.
When innovators create new markets to serve nonconsumers—people who’d benefit from certain products or services but haven’t had access to them in the past—these markets become enduring engines that pull new populations of people into an economy. As they do so, innovators must create new jobs and often need to invest in things like infrastructure, education, or healthcare in order to sustain the market they’ve created and the people that make it function. In contrast to many government or philanthropy-led development projects, stakeholders in new markets have a clear, financial incentive to maintain the infrastructure they’ve developed.
The more we at the Christensen Institute study the impact of market-creating innovation across the globe in the past and the present, the more assured we become of its vital causal role in creating prosperity. If governments, development organizations, and investors can rethink their strategies and channel their resources into the creation of new markets, it will be a turning point in the global quest for prosperity.
As my friend’s son has gotten older, he’s grown to better comprehend the word “please.” Today he doesn’t just understand its correlation with good outcomes, but also why and under what circumstances it produces those outcomes. As a result, he’s become increasingly effective at achieving the results he wants.
It’s time to move to a new chapter in the story of global prosperity too—one in which theory, not correlation, guides action. Just like humans conquered flight, we can vanquish poverty too, but to do it, we need to rely on sound theory.