Friday, September 23, 2011

The dark side of innovation.

Amazon is making Kindle-compatible e-books available at libraries.

The introduction of the Kindle, the biggest-selling e-reader, opens up library e-books to a wider audience, heightening the fears of publishers that many customers will turn to libraries for reading material. If that happens, e-book buyers could become e-book borrowers, leading to a potentially damaging loss of revenue for an industry grappling with a profound shift in consumer reading habits.

Innovation is called "Creative Destruction" for a reason: it relentlessly destroys business models built on older technologies. If you see a major wave of innovation coming, this means a major destruction is underway somewhere else. People who happened to be on the wrong side of innovation are going to lose big in the process of restructuring. In his book The Great Stagnation, Tyler Cowen argues that America has been stagnating (since the early 1970s) because there was not enough innovation. I think it is a bit misleading.
There's been tons and tons of innovation, but, as a side effect, there's been tons and tons of destruction. For example, the revolution in container shipping of the 1960s enabled transfer of manufacturing jobs first to Europe, then to Asia. Similar creation-destruction cycles happened in communications, capital and knowledge transfer. As a result, American workers today have no productivity advantages over their foreign counterparts in terms of education, capital equipment, software, communications, business methods, government institutions, and etc. Long-term population trends (the baby boom related growth) created demand for housing that masked the ongoing destruction of competitiveness. Now, when the housing bubble is gone, the lower middle class has nowhere to go. Even the "green jobs" program turned into an employment disaster because it was more efficient to create those jobs elsewhere (the Solyndra vs Chinese manufacturers case).

Innovation by itself is not going to pull the country out of this hole. What we need is  long-term program of innovations that do not result in the import of destruction.

tags: creativity, economics, trends, education, system, model, battle

1 comment:

PatH said...

Perhaps the innovation of the technology must be followed (quickly) by an innovation of utilization.
The problem becomes: Who is responsible for training the workers who are displaced by the technology innovation? Ultimately it should be the government whose economy is being impacted.
If a company changes to a different technology, then they SHOULD retrain their affected workers.
In the case of the publishers' demise from eBooks in libraries, the printers are the ones left out. Perhaps they could get jobs printing books the government uses in re-training classes. The government is the last to use new technology.