The 3 Laws of Knowledge (That Explain Everything) [César Hidalgo]

Hidalgo introduces his framework of three laws governing knowledge: how it grows over time, how it diffuses across space and activities, and how to estimate its value. He explains why many economic development efforts fail by defying these principles, comparing such failures to building rockets without understanding gravity or aerodynamics.

• •Knowledge follows predictable laws similar to physical quantities like temperature
• •Development projects like science parks often fail because they contradict knowledge principles
• •Knowledge is non-rival (can be shared without depletion) but also non-fungible (highly differentiated)
• •Policy must incorporate these laws to succeed - failed projects involve vast amounts of wasted money

Knowledge exists in teams and organizations, not in books or documentation. Hidalgo distinguishes between factual, conceptual, and procedural knowledge, arguing that economic growth depends on procedural knowledge embodied in networks of people, tools, and practices - not abstract information that can be copied.

• •Books are archival records, not knowledge - you cannot have a conversation with a book
• •Knowledge only works when embodied in teams and organizations that can execute
• •Organizations are networks connecting people, tools, and ideas - learning happens through reconfiguration
• •Manufacturing an aircraft requires distributed knowledge across networks that no individual possesses

The story of Samuel Slater bringing water-powered cotton spinning technology from England to America illustrates that knowledge cannot transfer through hearsay or documentation alone. Despite having descriptions of the technology, Americans couldn't build functioning mills until Slater physically arrived with embodied expertise.

• •Slater worked 7 years in English mills before age 21, gaining experiential knowledge
• •Americans had tried for years based on descriptions but couldn't produce quality yarn
• •Slater committed treason by bringing embodied knowledge to America in 1789
• •Within one year of arrival, he built the first successful American water-powered cotton mill

Individual and team learning follows power law curves (fast initial learning that plateaus), but industry-level progress follows exponential curves like Moore's Law. The key is understanding how multiple generations of technology with overlapping learning curves create sustained exponential growth.

• •Thurston (1916) first mapped individual learning curves - power law shape like square root function
• •Wright (1936) showed aircraft production costs decrease as power law with experience
• •Rapping (1965) proved Liberty Ship learning was from experience, not capital or technology changes
• •Moore's Law emerges from envelope of multiple overlapping technology generations, each with own learning curve

Architectural innovation requires completely different organizational structures, not just new components. Barnes & Noble couldn't compete with Amazon despite having books expertise because shipping individual items to consumers required fundamentally different logistics, culture, and organizational design.

• •Component innovation (new engine in same airframe) is easy; architectural innovation (redesign everything) kills incumbents
• •Barnes & Noble optimized for wholesale distribution to stores, Amazon for individual consumer fulfillment
• •The organizational distance between the two models was enormous despite seeming similar
• •New technologies start worse than incumbents but have higher growth potential - creating disruption windows

Knowledge decays at 3-6% per month when not actively practiced, meaning organizations lose 50% of knowledge in a year of inactivity. The Impossible Project's attempt to restart Polaroid film production shows that even with original equipment and top workers, lost knowledge takes years to rebuild.

• •Liberty Ships study showed 3-6% monthly knowledge decay rate (50% annual)
• •Impossible Project had original factory, equipment, and A-team workers but still struggled
• •First films were black & white, took 30-40 minutes to develop, had aberrations
• •Took nearly a decade to approach 1970s Polaroid quality - knowledge must be continuously exercised
• •Ise Temple in Japan rebuilds every 20 years to preserve construction knowledge, not the structure

Knowledge diffuses more effectively at short distances through social networks and moves more easily between related activities. The 'product space' acts like a forest where companies are monkeys on trees - jumping to nearby trees (related products) is easier than distant ones.

• •Vietnamese boat people study showed exogenous migrant allocation predicted future trade patterns
• •Knowledge diffusion constrained by both geographic distance and activity relatedness
• •Vespa example: Italian aircraft engineers pivoted to scooters after WWII - similar companies worldwide made same jump
• •Product space geometry determines diversification paths - motorcycles were 'close' to aircraft in capability space

High-skilled migrants are disproportionately innovative (70% of US Nobel winners post-1970 were foreign-born) because they enable jumps to unrelated activities in the product space. Post-WWII development models failed because they assumed finance alone could replicate Europe's recovery, ignoring that Europe was already knowledge-rich.

• •Migrants better at developing unrelated activities; locals better at related entrepreneurship
• •~70% of US Nobel Prize winners after 1970 were born outside the country
• •Bretton Woods institutions succeeded in Europe because knowledge was already present - just needed capital
• •Same financial model failed in developing countries lacking knowledge infrastructure
• •Development requires both knowledge and institutions - sometimes one leads, sometimes the other

China's development wasn't just copying - it involved high-knowledge workers like fusion reactor physicist Chen Chunshan demanding institutional changes to enable entrepreneurship. Knowledge-intensive workers created demand for entrepreneurial institutions, showing knowledge can drive institutional change.

• •Chen Chunshan built China's first fusion reactor in 1970s after training with Soviets
• •Visiting US labs, he discovered small professor-entrepreneur companies, not huge factories
• •Advocated for professors to become entrepreneurs - faced severe opposition but eventually succeeded
• •His success in Zhongguancun triggered wave of entrepreneurship - knowledge workers demanded institutional change
• •China is 'a planet, not a country' - diversity comparable to Americas plus Western Europe combined

Traditional economic measures fail because knowledge is non-fungible - you can't add different types of knowledge like numbers. The Economic Complexity Index uses network methods to measure the diversity and sophistication of a country's productive capabilities, predicting future growth better than traditional metrics.

• •Knowledge is non-fungible like words in language - 'one plus one knowledge' doesn't equal 'two knowledges'
• •Economic Complexity Index measures both diversity and ubiquity of products a country makes
• •Countries making rare, sophisticated products have higher complexity scores
• •Complexity predicts future income growth better than traditional economic indicators
• •Method uses network analysis similar to PageRank - products and countries mutually define each other's complexity