Friday, April 12, 2013

Do empowering innovations create jobs?

Recently, Paul4Innovating wrote an interesting blog that pointed to a Clayton Christensen article in the New York Times last year . There is also this video of Christensen at Davos.


There are three types of innovation in his view where jobs occur or are lost. These are summarized by Professor Christensen as:

Empowering innovations: these create jobs, because they require more and more people who can build, distribute, sell and service these products. Empowering investments also use capital — to expand capacity and to finance receivables and inventory. Empowering innovations are essential for growth because they create new consumption.

The second type is “sustaining” innovations: these replace old products with new models. They replace yesterday’s products with today’s products and create few jobs. They keep our economy vibrant — and, in dollars, they account for the most innovation. But they have a neutral effect on economic activity and on capital.

The third type is “efficiency” innovations: these reduce the cost of making and distributing existing products and services. Taken together in an industry, such innovations almost always offset the net number of new jobs, because they streamline processes. But they also preserve many of the remaining jobs — because without those, entire companies and industries would disappear in competition against companies abroad that have innovated more efficiently.

and then further down later ....

The need is to “unlock” the right type of innovation that creates a renewed, sustaining wealth for economic and industry revitalisation. There needs to be a shift from investing in efficiency innovation that tend to cut out jobs, where the focus is constantly on focusing on less capital in use and fewer people so that the extra release of capital is re-invested in more efficiency, not in disruptive or empowering innovation.
So then the question is empowering innovations create jobs?

So do empowering innovations create jobs
I certainly, agree there is a need to create jobs across the globe. This is an important issue and one it seems that is hard to prove one way or the other. But it seems there are some serious issues behind the assumption.

In the hard economy there have been various industries that act like massive hubs for the economy. If you look at an input-output table it is clear why so much political capital has over time been invested in the car industry. It has been one of these hubs. For many countries resource based activities such as food, and service based activities such as construction and finance are others. Construction and food have typically been local/national while auto and finance have been increasingly globalised through modularity.

But traditionally all four of these agglomerated activity.

What we are seeing with the digital economy is almost the reverse. Digital platforms offer the opportunity to create virtual marketplaces that disperse activity. Amazon and Itunes by increasingly removing an entire layer of economic activity have simultaneously put money into the pockets of consumers but in removing jobs are taking money out of the economy as well. By enabling outsourcing the digital platform has facilitated a massive global increase in jobs - just not in the west. These jobs have been across the economy; mfg and services. Just in time everything only works with incredibly efficient IT. 

So empowering innovations may create jobs but what disruptions will they cause on what timeline for existing industries. Even situated innovations like micro-energy generation - a huge innovation may create more jobs in the manufacturing businesses and construction jobs but against the losses in infrastructure maintenance, power station employment, and the carbon chain which will be the bigger employer?

So the followup question becomes even accepting the assumption that empowering innovations create jobs, where will they be? 

The answer is that many innovations will likely be increasingly unsticky simply because as complexity increases so then does the number of players involved. My focus for years has been understanding global trade patterns and value chains from a technological perspective and it is clear to me that the most high tech products are also the ones where it is very hard to capture value - apart from key architecture firms (Apple etc). Even with these architecture firms there time at the top is typically short lived.

Innovation alters every interaction in a macroeconomics spreadsheet. I think the trouble is that innovation thinkers still somehow are thinking about the economy of the 1990s - still largely based in industries, geography and scale. My primary frustration  is that in focussing on geography it still overlooks the dispersed nature of value. So what if patents generate a spiky global landscape (Richard Florida) - the wealth generated from those patents (and patents is a tidy share of innovation anyway) is spread thickly at first and then thinner and thinner across the globe. My second frustration is that this innovation model is still built on a growth model. There are serious sustainability limits which technology can leapfrog us beyond but they can not be simply wished away.

Thus, I am a skeptic that empowering innovations necessarily create jobs and industries and when they do, that those jobs will be sticky to any place in the world. 
I am a moderate optimist about the future but I feel we don't have the mental tools to understand the evolving economy yet. 

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