There are three types of innovations. The first are “empowering” innovations. These transform complicated, costly products that previously had been available only to a few people, into simpler, cheaper products available to many. The Ford Model T was an empowering innovation, as was the Sony transistor radio.
Empowering innovations create jobs for people who build, distribute, sell and service these products.
The second type are “sustaining” innovations. These replace old products with new. The Toyota Prius hybrid is marvelous — yet every time a customer buys a Prius, a Camry is not sold. Sustaining innovations replace yesterday’s products with today’s products. They keep our economy vibrant — and, in dollars, they account for the most innovation. But they have a zero-sum effect on jobs and capital. The third type are “efficiency” innovations. These reduce the cost of making and distributing existing products and services – like Toyota’s just-in-time manufacturing in carmaking and Geico in online insurance underwriting. Efficiency innovations almost always reduce the net number of jobs in an industry, allow the same amount of work (or more) to get done using fewer people.
Pointer from James Pethokoukis.
Christensen says that you need a balance between “empowering innovations” and “efficiency innovations.” We have been getting mostly the latter, and that results in a net loss of jobs.
This sounds like a PSST story. However, I think that for the story to work, you need heterogeneity of labor. If you think of “labor” as homogeneous, then when workers in the “efficiency innovation” sector (say, manufacturing) are let go, there is some place where they could be hired (say, health care aides for the elderly). To get unemployment, you have to postulate that the adjustment takes a very long time, because labor is heterogeneous in some way. I think that’s a reasonable way to go.
Labor heterogeneity matters. The challenge is for entrepreneurs to find something profitable to do with the types of workers released by the efficiency innovations.
If government is going to fix the problem, it cannot simply throw some generic stimulus at it. The government has to figure out something that will employ the types of workers released by the efficiency innovations. To do this in a sustainable way, the government has to solve the problem better than entrepreneurs. Of course, that is unlikely.
Let’s say you have 3 paths and can pick one. The paths correlate to each of those three categories. All else being equal, why wouldn’t you pick the first one? I don’t think I’d call this charity as per the previous post, I’d call it a no-brainer. Of course, all things aren’t equal, but I can think of one of these off the top of my head. Why would we go with a high carbon tax when we could choose energy research?
Given the heterogeneity of labor, one important way to help improve the matching ecosystem is to publish comprehensive data about opportunities and candidates. Virtually all opportunities are available to anyone with web access, so companies are well represented. Data about candidates on the other hand is highly inconsistent and sometimes fraudulent. Despite the progress made by companies like LinkedIn to provide the two-sided platform, objective skills/knowledge/critical thinking testing for job seekers could improve matching and help overcome the biases of recruiters (expose idiosyncratic vs market skills). Government could have a role promoting testing standards and hosting the data for candidates without crowding out the jobs of recruiters. The candidate profiles could be a combination of test scores, degrees, certificates and candidate claims.
The government can at least stay out of the entrepreneurs’ way by not burdening them with regulations. But that’s a pipe dream.
“If *government* is going to fix the problem, it cannot simply throw some generic stimulus at it. The *government* has to figure out something that will employ the types of workers released by the efficiency innovations. To do this in a sustainable way, the *government* has to solve the problem better than entrepreneurs. Of course, that is unlikely.”
Rewrite:
If those who would use the instrumentality of “government” to fix the problem, they cannot use it as a means to simply throw some generic stimulus at it. They (real live people with motives) will have to figure something out that will employ the types of workers released by the efficiency innovations. To do this in a sustainable way, they, principally “managers” of a purposive Administrative State (*government*) have to solve the problem better than entrepreneurs and other managers. Of course, considering the differing roles of human motivations, that is unlikely.
I think ‘creative destruction’ is always a PSST story, but I’m not sure I buy his innovation categories. He presents the “empowering” Model T as a big win with no downside, but he seems to forgetting that there were something over 20 million horses in the U.S. when the Model T was introduced. The auto/truck/tractor industry wiped out the ‘horse’ industry, throwing people out of work whose livelihoods depended on raising, training, selling and renting horses, treating their maladies, shoeing them, feeding and stabling them, cleaning up after them, making saddles and harnesses, and so on. And very few of those skills would transfer to designing, building, and repairing automobiles. It seems to me that successful innovations always results in disruption of existing patterns.
So, that’s why the long face.
I don’t see why laying off some workers requires some place they can be hired, even if homogeneous. Some areas will be expanding and others retrenching even in the absence of innovation but that doesn’t mean there will be net growth elsewhere. Most other areas will already be in equilibrium to the extent anything ever is. Greater efficiency will result in higher profits first, but that doesn’t mean they will be invested in other areas than accelerating further efficiency, and the reduction in payroll along with more unemployed would suppress wage gains. Unless this investment furthers more empowering innovation, it will not generally lead to their re employment. Not that it is homogeneous, but the longer the time period, the more homogeneous it is. Beyond say, 20 years, I would expect full homogeneity.
” The government has to figure out something that will employ the types of workers released by the efficiency innovations.”
I call it “Voluntary National Service”, much like civilian military service — and sending many of the men and women workers who are available to help the elderly and the sick in hospitals, including cleaning up chamber pots and turning bedridden people so that they don’t get bedsores.
The gov’t does NOT have to make a profit, and does not have to be “sustainable” in the same way a private business does — if it pays low wages and the actual product of the worker in total public value is less, than it replaces the unemployment/ disability/ welfare check, returning 0 value, with a slightly or much higher work check returning the work output value.
Voluntary NS can and should also include on-line training, with some vocational apprenticeship where they can work for 2-4-8 months with gov’t subsidies as a trainee.
Start with gov’t guaranteeing a job, first, then look for ways to create the most value / have the lowest costs. This competes with temp work agencies and, wherever the less skilled can get jobs, increases the competition for those jobs.
But key, for the out of work persons, is that there is a “boss” telling them what to do, and often how to do it and where, so they need mostly to learn how to do the job, and then be willing to actually do the work. Once started, such a program will be the first rung on the ladder out of poverty for many who continue taking steps, some big but mostly quite small, slowly climbing out into a working class, and then a working middle class (home ownership).