Innovation, economics, and messy, complex truths

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Andy Kessler, whose take on things I generally like, recently wrote a piece for The Wall Street Journal called, “Robots, 3-D Printers and Other Looming Innovations.”

In it he posed the question of whether the internet and other disruptive trends have destroyed more jobs than they’ve created. Could innovation actually be fueling the stubborn unemployment that has persisted in much of the country?

But Kessler was merely tossing some rhetorical “chum” into the waters to bait naysaying Luddites. Sure, people are hurting now, Kessler noted, and probably more jobs have been destroyed than created, but eventually things will more than even out, so suck it up!

Kessler then delivered his list of future job creating “game changers” with the certitude of a preacher sermonizing to his flock (it’s WSJ, after all).

But, Kessler’s truth ignores a messy paradox; namely, that while the innovations of tomorrow are most certainly worth working toward, that doesn’t obviate the parallel truth that the depth and duration of pain being experienced throughout much of the country is chronic, systemic, and arguably, must also be dealt with.

Reassessing the calculus of ‘value’

There is a Koan that is running through my head. Maybe you can help me suss it out.

In an era where cheap, commoditized and free are celebrated as democratizing virtues of plenty, when does a shirt for $6.99 cease being an asset, and when does it become a liability?

One answer is that price is absolute, and that the consumer always wins when the price is lower.

But another, more nuanced take is that it depends on how much of that $6.99 actually stays in the community where that shirt was actually purchased, and to what extent that price contributes to the makers of that shirt being able to earn a living wage.

Let me put a bow around this idea. Kessler asserted (and I agree) that in the near term, low paying jobs will get squeezed or go away, but in the long run, new technologies and new industries will create far more high-paying jobs than they destroy. After all, this cycle has played out repeatedly in history, so it seems like a reasoned take.

Kessler even presents a George Gilder-esque proclamation about the importance of seeding and harvesting new systems that can grow into economic game-changers and job-creators by creating surplus where scarcity once existed:

“The trick is to lower the cost of new machines and inventions that can do things never before possible, making them available for wide use.”

But, again, this easy truth belies a more complex and “messy” truth; the sheer efficiency of such systems so fully pancakes entire categories of jobs (or downscales them into lower paying ones) that the net effect is to drive a stake into the heart of many local economies. What to do?

Presenting false dichotomies

In Kessler’s view, we can either stop trying to “do something” about the wobbly nature of jobs, jobs creation and economic mobility, and just let things run their course.

Or, government can “get in the way” by being paternalistic and bureaucratic, thereby screwing everything up.

This type of Either-Or narrative is a classic false dichotomy. How so? Let’s say, for example, that innovations like the Internet economy, digitization, globalization and offshoring are currently destroying more U.S. jobs than they are creating.

And let’s also say that in the long run that these innovations will catalyze the next great job creation engine.

But, let’s also acknowledge that this transition could take another decade to play out. What then? What happens in the intervening period? What does that scenario look like?

Broadband, after all, began to materially kick in around 2000, and 13 years later these trends are in the fuzzy midstream of playing out. Nobody really knows how long it will take to get to the other side from a net job growth perspective.

Given this backdrop, what is the right answer for the portions of the country getting absolutely creamed – with no end in site? I am talking places like Youngstown, Ohio, Central California, Muncie, Indiana, New Bedford, Massachusetts and Memphis, Tennessee.

Forget for a moment whether you are a Democrat, a Republican, left leaning or far right, and riddle me this:

  • Should we do nothing?
  • Should we revisit our current approach to policy and enforcement?
  • Should we create tax free zones and assume that business has all the answers?
  • Should we create public-private industry hybrids in the same way that local government jointly funds redevelopment plans with real estate developers?
  • Should we focus on addressing the skills gap by funding “applied” education?
  • How do you help those at the bottom who truly aspire to be upwardly mobile?

Do we need an uber strategy for this type of cyclicality? Would you feel differently if the creative destruction were a natural disaster instead of an economic one?

I guess my point is that (like Kessler) we all like easy-to-digest, black and white truths.

But increasingly, we live in a world of messy, complex truths.

What’s your take?

Mark Sigal is an eight-time entrepreneur, whose ventures have sold to Apple, IBM and Intel. He is chief product officer at Unicorn Labs, an eBooks and eLearning platform provider.

Photo courtesy of Shutterstock user kaarsten

14 Comments

netgarden

@scott, I appreciate the detailed take. One bit of data from today’s jobs report is particularly telling. The labor force participation rate fell to 63.2%, the lowest level since the summer of 1978. Think about that for a moment. That’s on par with the stagflation malaise that peaked during the Carter administration.

Scott

This is a good discussion of a neglected topic. Too few people are sufficiently patient with, or tolerant of, complexity (in economics, commerce, engineering, innovation, law, politics, whatever). Too many people want, expect, demand, fast easy solutions; but these are rarely available, and the pressure to implement a seemingly “fast easy solution” often invites bigger problems (perhaps often by shifting them to a different population).

The net overall production equation MUST be allowed (encouraged) to evolve in response to changing circumstances (usually reflected in prices, elections, interest rates, wage rates, and other similar delta variables) . Legislating stasis, i.e. caps or freezes on these types of variables, seldom relieves problems without causing other, sometimes more serious, problems . You want to encourage sustainable changes in the production equation,…but you do not want to hold the equation static in most respects. in most cases, you want to make evolution easier, faster, more frictionless, with fewer, milder social dislocations.

What to do? Look for more to re-define what the nature of the problem is or could become. Some folks call this,…”let a 1000 flowers bloom”….meaning, try as many different approaches (re-conceptualizations) as possible,…this is a portfolio strategy. Individuals can practice this as well as social systems, such as corporations or non-profits or states or cities.

Try to visualize, or re-imagine the nature of the problem in a different perspective. As technology increasingly destroys un-skilled and semi-skilled jobs, youth needs to be warned about the consequences for them if they do not acquire sufficient skills with the ability to adapt For those who can’t evolve, despite society’s help,…what can they do to continue earning a basic living without burdening the rest of society unduly?

netgarden

@Todd, thanks for the perspective. A lot of this comes down to the precept that simple is best, a concept that is generally logical and sound, but one that makes it difficult for intelligent dialog on complex systems, like our economy.

@s20100, dead-on. I agree. I appreciate your take.

@Andrew, I appreciate your optimism. I am more optimistic than not, but would note that there is a yin-yang for everything. The $6.99 shirt is an example. Cheaper, well made shirt = good. Local jobs decimated by what it entails, and erosion of living wages, not so good.

@Jim, I agree with the sense that these these do/will shake out over a generation. My question is what happens during that intervening period, and what we should do about it? We already see an serious erosion of middle class, a slackening of social mobility, and numerous local economies falling off a cliff. In the scenario where this takes another decade to play out, what does the country look like? As to patent law reform, seems so obvious and inevitable until you see patent law as dictated by yet another lobby that has a vested interest in its perpetuation. Unspoken in this piece is how mortally conflicted governance has become by virtue of the power of the Lobby, and the revolving door between big business and government. I appreciate your assessment of things.

Jim Y. Li

Mark, there are so many different issues raised by your blog, and I agree that it is a complex problem.
The problem of technological shift tends to work itself out over a generation – i.e. as older workers leave the economic scene the problem will self correct to some extent. London used to have millions of horses as part of its economy prior to the industrial revolution, but now has basically none. Rapid shifts can lead to unrest, increased crime, and even war, but as long as a government can “borrow from the future” to pay out benefits to the present, things will continue to hum along. Population growth will, I believe, actually adjust to new realities and most likely continue to shrink as economies make it less attractive to have large families. Developed countries are already seeing population collapse, and will most likely continue in this direction as the cost of education, healthcare, living, etc. continue to rise.
Another factor, I believe that will be interesting to watch is the trend towards urbanization. TED calls the “City 2.0” the most important trend in the coming generation. Urbanization leads to new and more vibrant models of human interaction. To a large extent, that force will drive exciting new industries and modalities of economic activity even more than technology. One only needs to travel to mega cities in Asia such as Tokyo or Hong Kong to see what the future holds in that regard. There will clearly be less demand for long haul truckers, but more need for karaoke bars.
In terms of the “idea economy”, how it is being gamed to benefit entrenched players vs new entrants is worrisome. As we shift towards a knowledge economy we need to think long and hard as a society about our copyright and patent laws. Granting entities legal monopoly rights to trivial inventions like “rounded rectangles”, “1-click shopping” or “web voicemail” significantly destroys the incentive to innovate if trolls can easily come around and bully new entrants into bankruptcy for fun.

Andrew Teixeira

There is a great piece in the MIT Tech Review this month regarding a similar topic. I’m not certain a stable, capitalistic society is possible in the future largely due to technological innovation, but I don’t see this as a bad thing.

The base of recent technological advances are to connect us more, evolve old world paradigms and generally make life easier. Robotics and predictive intelligence plays a part in life. That paradigm is at odds with a capitalistic world where jobs equals money, therefore the ability to prosper. If technology is making life easier, why do we still assume society can function on the back of hard work. Tasks will become easier and life augmented – perhaps we need to think quite broadly about what exactly a job is in a new paradigm, and how the economics of our past can transform for a new economy.

Better, stronger, faster, and smarter – our socio-economic thinking has to be as well.

s20100

Very good post on society’s difficulty to accept and deal with complexity, we need more of this type of discussions.
Another element coming into play is the lack of abilities of many to handle complexity. As a direct outcome, comes the tendency to trivialise issues – either-or anyone? – or even better, the habit that when facing a complex issue, one invents a fake but far more simple issue. Why? First, it sounds simpler, then it is simpler, then it can be communicated in a much simpler manner, next one can focus all efforts into “solving” this fake issue, and last, most importantly, whatever you do, the issue will be solved … as it is a non-issue to start with.
Very smart survival instinct indeed. Only snafu is that someone else has to deal with the real issues, and short-termism & egoism win.

netgarden

@Shiggity, while I can agree with you that health care economics are askew, I think it’s overly simplistic to suggest that that’s the primary element. It’s one dynamic of a complex system, in the same way that a $6.99 shirt is a dynamic of a complex system.

@Connie, there **is** an obvious parallel here to the Industrial Revolution, where many low end jobs became dominant, and plenty of craft-driven industries were disrupted. However, the bigger picture is **also** that in the long run, a greater, wealthier economy with many diverse industries and relative economic durability emerged from that period. So, too, will be the case here. Therein, lies the paradox, is my point. It’s not an Either-Or; it’s more of a How, When, and What to do until Then.

Cheers,

Mark

Shiggity

It’s all about a healthcare system that is for profit. The easiest way to cut health care costs (the bulk of paying a human) is to not hire humans. A computer system doesn’t need a pension or severance or disability pay, etc etc.

The efficiency trend will only continue. Take Google for example. They generated almost 11 billion dollars of profit with 44,000 employees. If every company in the world operated at this efficiency (mostly robots / automation / software)…

You’re probably saying, but that doesn’t work for every industry. Not yet. Let’s take Tesla Motors for example. They have a market cap of 10$ billion and they have 3000 employees. More and more industries are turning this way.

As long as health care costs keep skyrocketing, the free market will only replace humans faster, and it is doing a really good job so far.

Todd MacDonald

Thanks Mark, I enjoyed reading your post.

I wish more leaders would take the time to embrace the true nature of complexity and the importance of understanding that simple does often mean easy. IMHO, many times the we should be working towards managing polarities vs.fixing problems. I refer to this broader paradoxical challenge as our “other” binary evolution. The more information we have (typically stored in binary form) the fewer options people seem willing to explore and the more likely we are to polarize.

The root of this is fear. Ironically it is a fear that is stirred when we get overwhelmed by all the data and it causes us to revert back to a simple 1 or 0, black or white position. We take a position and then back it up with the volumes of data that support “our side”. We become obsessed with wining vs. loosing, it becomes an “us” vs. “them” battle and we eventually completely dig in our emotional heels. At that point there is little opportunity for true exploration or innovation.

Steaphen Pirie

“I guess my point is that (like Kessler) we all like easy-to-digest, black and white truths. But increasingly, we live in a world of messy, complex truths.”

Agree. That either-or thinking is due to our cultural immaturity — the remants of the idealization of perfection that began with Plato. E.g. scientists believing in perfect knowledge of the physical world (it won’t happen, due to the Uncertainty Principle of quantum mechanics).

Presently we’re in late? adolescence, culturally speaking.

More at http://beliefinstitute.com/article/evolution-human-psyche

and

http://beliefinstitute.com/article/key-principle-life-life-no-2#either-or
and

Ankit Goswami

Andy Kessler sir i just want say that in todays era innovation are not making any jobs ,simple idea behind it companies are using the technology for innovation and technologies takes few people to work on it ……………………

Connie Huffa

Robots, 3-D Printers, and other innovations that streamline preproduction preparations before mass production take a few people with exceptional skills to program and develop sophisticated prototypes. The brain power that is put in on the front end by a few, actually takes that thinking skill out of the production work place for the vast majority. This means that who ever controls the prototype and its’ specs can produce the product anywhere on the planet. This usually means for the lowest bidder. This is for everything from mold injection to CNC, to assembly methods, pharma, to new textile applications that I work on personally. There are definitely jobs created that did not exist, but the ratio of engineering jobs to low or unskilled workers is quite significant.

Pratap Tambay

Since then I have written about a few other hard implications of technological change. Please see my blog at http://prataptambay.blogspot.co.uk/

I have currently written about the following
1. Intellectual property – where should one draw the line between individual property, community property and humanity’s property?
2. The problem of retaining human knowledge over generations and its implications for complex public and private systems
3. Humanity’s problems in the generation, management and distribution of knowledge
4. Should all humans have equal access to all the knowledge of humanity?

I intend to write next about a few more aspects of technology namely
1. The increasing incidence of rogue technologies (loss of humans on the cause-effect relationships in their technology environments) and their risk to our ways of life. – Essentially as we move from physical to intellectual in property, products, services, the technologies which structure our ways of living are particularly vulnerable. We take too much for granted on the basis of a few key technologies, which are vulnerable to viruses and/or other rogue technologies (which could be technologies in control of rogues).
2. The risk of assuming that technology effects on human society will be similar to the experience over the last 3000 years. I can’t condone such irresponsible nonsense, just because a few ivory tower idiots believe it. They are a façade for the interests of a few humans who believe they will be able to control technology to benefit themselves (and may be even the rest of us). Letting them risk the future of humanity is no longer ok.

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