by Adam Hartung | Nov 6, 2015 | Current Affairs, General, Lifecycle, Web/Tech
“As goes GM, so goes the Nation” is attributed to Charles Wilson, CEO of GM, in Congressional hearings 1953. His viewpoint was that GM was so big, and so important, that the country’s economic fortunes were inherently dependent on a robust General Motors.
And this was not so far fetched in the Industrial era. 1940s-1960s America was a manufacturing king. Following WWII industrial products dominated the economy, and post-war U.S. manufacturers made products sold around the world as other economies rebuilt and recovered, or just started emerging. With manufacturing the jobs and economic value creator, and GM the largest manufacturer and non-government employer of its time, what was good for GM was generally good for America.
But that tie has clearly broken. GM filed bankruptcy in the summer of 2009. From 2007 to 2009 American employment fell from 121.5M to just over 110M. Last month jobs rose by 271,000, pushing employment to a fully recovered 122M jobs. However, GM and its manufacturing partners have struggled to recover, as this economic expansion has largely left them behind.
We’ve seen a wild shift in the country’s economic base. In 1900 America was an agrarian economy. Over half the population lived on farms. Fully 9 out of 10 working people had a job related to agriculture and food production. But automation changed this dramatically. By 2010, fewer than 1 in 100 people worked in farming or agriculture. Farm incomes are at a 9 year low, and the future direction is downward. Rural towns have disappeared as people moved to cities, concentrating over half the nation’s wealth in just its 20 largest cities.
WWII marked the shift from an agrarian to an industrial economy for America. It was the industrial economy that pulled America out of the1930s Great Depression. The industrial revolution ushered in all kinds of mechanical automation, and it was applied to doing everything as labor shortages forced innovation to meet rising defense challenges. And it was the industrial economy that pushed America to the top. It was the industrial economy which trained most of today’s business leaders.
But we’re no longer an industrial economy. Just as the agrarian economy vanished, so too is the manufacturing economy. Manufacturing jobs have been declining since 1970, and by 2010 they represent only 13% of workers and 15% of the country’s GDP (Gross Domestic Product).
By 2000 we had started the shift from an industrial to an information economy. Digital bits replaced machines as the source of wealth creation. By 2010 it was services, and the huge growth in digital services, that caused the jobs recovery. Services now represent 84% of all jobs, and 82% of the economy. (Economic statistics from FTPress division of Pearson Publishing.)
Today the 3 most valuable companies in America are Apple, Google and Microsoft. Number 6 is Facebook. Their value (and in the case of Apple, Google and Facebook rather rapid value explosion) has been due to understanding how to maximize the value of information. They don’t so much “make things” as they make life better through products which are purely ethereal – rather than something tangible.
Today’s #1 valued retailer is Amazon, now worth more than Wal-mart. Amazon is largely a technology company, building its revenues by knowing more about the customer and what she wants, then matching that with the right products. All in a virtual shopping arena. No stores, salespeople and often no inventory needed. Its technology skills became so good the company has become the #1 provider of cloud services.
Tesla has done something everyone thought impossible. It has created a new auto company where many others failed (recall the DeLorean used in “Back to the Future”? Or the Bricklin?) But Tesla did this by building an entirely different car, one that is based on all new electric technology, that has far fewer moving parts, needs far less service, has better operating performance and actually bears little resemblance to the autos – or auto companies – of the past. Tesla is far more a technology company, designed for the information era, than what we would think of as a “car company.”
The ramifications of this are dramatic. Working class middle age white people are dying faster than any other demographic in America. Their death rates are up 22%, and continuing to increase precipitously. Cause: suicide, drugs and alcohol. This is the group that once found good paying jobs working machines in manufacturing. Now, untrained for the information era, they are unable to find work – even though demand for trained labor is outstripping supply.
Today’s growth companies, those powering the American economic engine, are filled with intellectual assets rather than physical assets. Apple, Google and Facebook (et.al.) are creating intellectual capital, and they need employees able to add to that capital base. it is not enough for job candidates to have a college degree any longer. Today’s job hunter has to be information savvy, digital savvy, tech savvy.
In the 1960s the gap widened dramatically between those in manufacturing and those in farming. By the 1970s farms were closing by the hundreds as value shifted out of agrarian production to industrial production. It was devastating to farm communities and farm families.
Today the gap is widening between those skilled in manufacturing or general knowledge and those with information-based skills. The former are seeing their dreams slip away, while the latter are making incomes at a young age that are hard to fathom. Cities like Detroit are crumbling, while San Francisco cannot supply enough housing for its workers. The shift to an information economy is fully in force, and change is accelerating. For those who make the shift much is to be gained, for those who do not there is much to lose.
by Adam Hartung | Apr 4, 2012 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lock-in, Web/Tech
Understand your core strength, and protect it. Sounds like the key to success, and a simple motto. It's the mantra of many a management guru. Only, far too often, it's the road to ruin.
The last week 3 big announcements showed just how damning the "strategy" of building on historical momentum can be.
Start with Research in Motion's revenue and earnings announcement. Both metrics fell short of expectations as Blackberry sales continue to slide. Not many investors were actually surprised about this, to be honest. iOS and Android products have been taking away share from RIM for several months, and the trend remains clear. And investors have paid a heavy price.
Source: BusinessInsider.com
There is no doubt the executives at RIM are very aware of this performance, and desperately would like the results to be different. RIM has known for months that iOS and Android handhelds have been taking share. The executives aren't unaware, nor stupid. But, they have not been able to change the internal momentum at RIM to the right issues.
The success formula at RIM has long been to "own" the enterprise marketplace with the Blackberry server products, offering easy to connect and secure network access for email, texting and enterprise applications. Handsets came along with the server and network sales. All the momentum at RIM has been to focus on the needs of IT departments; largely security and internal connectivity to legacy systems and email. And, honestly, even today there is probably nobody better at that than RIM.
But the market shifted. Individual user needs and productivity began to trump the legacy issues. People wanted to leave their laptops at home, and do everything with their smartphones. Apps took on a far more dominant role, as did ease of use. Because these were not part of the internal momentum at RIM the company ignored those issues, maintaining its focus on what it believed was the core strength, especially amongst its core customers.
Now RIM is toast. It's share will keep falling, until its handhelds become as popular as Palm devices. Perhaps there will be a market for its server products, but only via an acquisition at a very low price. Momentum to protect the core business killed RIM because its leaders failed to recognize a critical market shift.
Turn next to Yahoo's announcement that it is laying off 1 out of 7 employees, and that this is not likely to be the last round of cuts. Yahoo has become so irrelevant that analysts now depicct its "core" markets as "worthless."
Source: SiliconAlleyInsider.com
Yahoo was an internet pioneer. At one time in the 1990s it was estimated that over 90% of browser home pages were set to Yahoo! But the need for content aggregation largely disappeared as users learned to use search and social media to find what they wanted. Ad placement revenue for keywords transferred to the leading search provider (Google) and for display ads to the leading social media provider (Facebook.)
But Yahoo steadfastly worked to defend and extend its traditional business. It enhanced its homepage with a multitude of specialty pages, such as YahooFinance. But each of these has been outdone by specialist web sites, such as Marketwatch.com, that deliver everyhing Yahoo does only better, attracting more advertisers. Yahoo's momentum caused it to miss shifting with the internet market. Under CEO Bartz the company focused on operational improvements and efforts at enhancing its sales, while market shifts made its offerings less and less relevant.
Now, Yahoo is worth only the value of its outside stockholdings, and it appears the new CEO lacks any strategy for saving the enterprise. The company appears ready to split up, and become another internet artifact for Wikipedia. Largely because it kept doing more of what it knew how to do and was unable to overcome momentum to do anything new.
Last, but surely not least, was the Dell announced acquisition of Wyse.
Dell is synonymous with PC. But the growth has left PCs, and Dell missed the markets for mobile entertainment devices (like iPods or Zunes,) smartphones (like iPhone or Evo) and tablets (like iPads and Galaxy Tab.) Dell slavisly kept to its success formula of doing no product development, leaving that to vendors Microsoft and Intel, as it focused on hardware manufacturing and supply chain excellence. As the market shifted from the technologies it knew Dell kept trying to cut costs and product prices, hoping that somehow people would be dissuaded from changing technologies. Only it hasn't worked, and Dell's growth in sales and profits has evaporated.
Don't be confused. Buying Wyse has not changed Dell's "core." In Wyse Dell found another hardware manufacturer, only one that makes old-fashioned "dumb" terminals for large companies (interpret that as "enterprise,") mostly in health care. This is another acquisition, like Perot Systems, in an effort to copy the 1980s IBM brand extension into other products and services that are in like markets – a classic effort at extending the original Dell success formula with minimal changes.
Wyse is not a "cloud" company. Rackspace, Apple and Amazon provide cloud services, and Wyse is nothing like those two market leaders. Buying Wyse is Dell's effort to keep chasing HP for market share, and trying to pick up other pieces of revenue as it extends is hardware sales into more low-margin markets. The historical momentum has not changed, just been slightly redirected. By letting momentum guide its investments, Dell is buying another old technology company it hopes it can can extend its "supply chain" strenths into – and maybe find new revenues and higher margins. Not likely.
Over and again we see companies falter due to momentum. Why? Markets shift. Faster and more often than most business leaders want to admit. For years leaders have been told to understand core strengths, and protect them. But this approach fails when your core strength loses its value due to changes in technologies, user preferences, competition and markets. Then the only thing that can keep a company successful is to shift. Often very far from the core – and very fast.
Success actually requires overcoming internal momentum, built on the historical success formula, by putting resources into new solutions that fulfill emerging needs. Being agile, flexible and actually able to pivot into new markets creates success. Forget the past, and the momentum it generates. That can kill you.
by Adam Hartung | Sep 7, 2011 | Employment, Innovation, Leadership, Politics, Transparency, Web/Tech
Friday we learned, as the New York Daily News headlined, “August 2011 Jobs Report: NO Net Jobs Created.” U.S. unemployment, and underemployment, remain stubbornly stuck at very high levels. This situation is unlikely to improve, as reported at 24×7 Wall Street in “August Lay-off Plans Up 47%” with the latest Challenger Gray report telling us 51,144 people are soon getting the axe. No wonder we saw a dramatic decline of nearly 15 points, to 44.5, in the Conference Board’s Consumer Confidence Index – near record-low levels.
This has all the Presidential candidates talking about jobs, and President Obama signed up to deliver a jobs speech to Congress.
The problem actually goes beyond just jobs. Buried within consumer concerns lies the fact that for most people, their incomes are going nowhere. Adjusted for inflation, almost everyone is making less now than they did when the millenium turned. Generally speaking, about 15% less than 11 years ago! Most family incomes are about where they were in 1998. For the wealthiest, income since the mid-1960s has grown only about 1.5%/year on average. For everyone else the improvement has only been about .5%/year. And universally almost all of that increase occurred between 1992 and 2000 (for anyone who wonders about Bill Clinton’s resurgent popularity, just look at incomes during his Presidency compared to every other administration on this chart!)
Source: “U.S. Household Incomes: A 42 Year Perspective” Doug Short, BusinessInsider.com
But will anything the President, or the candidates, recommend make a difference?
So far, the politicos keep fighting the last war, and seem surprised that nothing is improving. The recommendations for putting people back to work in factories, such as autos and heavy equipment, or building roads simply defies the reality of work today. America has not been a manufacturing-dominated jobs country for over 60 years! All job creation has been in services!
Source:”Charting the Incredible Shift From Manufacturing to Services” Doug Short, BusinessInsider.com
For this entire period, productivity has been climbing. Just 50 years ago most people spent 1/3 to 1/2 their income on food. No longer. Today, few spend more than 5 to 10%, and everyone can enjoy an automobile, telephone, television and computer – regardless of their income! We have all the stuff anyone could want, and in many cases a lot more of some stuff than we need – or want!
The old notion of “what’s good for G.M. (General Motors) is good for America” is simply no longer true! As we recently witnessed, a multi-billion dollar bail-out of the largest American auto maker may have saved some unemployment – but it did not create an economic turn-around, or create a slew of jobs!
Today’s jobs are all in information – the accumulation, assimilation, analysis and use of information. Few “managers” actually manage people any more – most manage a data set, or a computer program, or some sort of analysis. The vast majority of “managers” have no direct reports at all! The jobs – and incomes – are all in information. Job growth is in places like Facebook, Google, Linked-in, Groupon, Amazon and Apple (the latter of which outsources all its manufacturing.)
No President or economist can manufacture jobs today. As we’ve seen, interest rates are at unprecedent low levels – yet nobody wants to take a loan to hire a new employee! In fact, business productivity is at record high levels as business keeps accomplishing more and more with fewer and fewer workers!
Source: “Corporate Efficiency is Getting Absurd” BusinessInsider.com
Public companies aren’t going broke, by and large. Most have cash balances at record levels. Only they keep using the money to buy back their own stock! Every month sees a wave of new stock buy back commitments, as 24×7 Wall Street reported “August’s New Massive Stock Buybacks… Over $30 Billion!” Business leaders find it less risky to buy back their own stock (supporting their own bonuses, by the way) than invest in any sort of growth program – something that might create jobs.
So what’s the President to do?
We need to radically jack up the investment in innovation! Think about that last period of very low unemployment and growing incomes – in the 1990s. We had the explosion in technology as people began using PCs, the internet, mobile phones, etc. New technology introduced new business ideas (mostly services) and created a rash of growth! And that created new jobs – and higher incomes. Innovation is the jobs engine – not trying to save another tired manufacturing company, or pave another highway or extend another bridge! Today those projects simply do not employ very many people, and the “trickle down” affect of a highway project creating more jobs has disappeared!
Bloomberg/BusinessWeek reported in “Failing at Innovation? Bank On It“
- Government spending on higher education has been declining since the 1970s reducing the number of graduate students and innovation projects
- Federal share of R&D has been less than 1% since 1992 – all while corporate R&D spending has declined dramatically! The days of spending “to put a man on the moon” has disappeared, as we fairly quietly mothballed the space program and commence to dismantle NASA
- The number of entrepreneurs is actually declining! There were fewer startups with 1 or more employees in 2007 (before the financial collapse and ensuing economic mayhem) than in 1990
- New companies are not employing people. In the 1990s the average startup employed 7.5 people, but now the number is 4.9
- Meanwhile “infrastructure” spending today is the same as it was in 1968!
We’ve done a great job of cutting taxes, but we’ve simultaneoously gutted our investment in R&D, innovation and doing anything new! If you wonder where the jobs went it wasn’t oversees, it was into higher corporate cash levels, more stock buybacks, increased bank reserves and dramatically higher executive compensation!
We don’t need more tax cuts – because nobody is investing in any new projects! We don’t need more unemployment insurance, because that – at best – delays the day of reconning without a solution.
Here’s what we do need today:
- Implement a tax on corporate stock buybacks. At least as great as the tax on corporate dividends. Buybacks simply drain the economy of investment funds, with no benefit. At least dividends give returns back to shareholders – who might invest in a new company! And if buybacks are taxed, executives might start investing in projects again!
- Quit giving such large depreciation allowances for physical assets. We don’t need more buildings – we’re overbuilt as we are right now! Again, it’s not “things” that make up our economy, it’s services!
- Re-introduce R&D credits! Give businesses a $3 tax break for every dollar spent in R&D and new product development! Prior to President Reagan this was considered normal. It’s not a new idea, just one that’s been forgotten. If we can give credits for oil and gas drilling, which creates almost no jobs, why not innovation?
- Cut payroll taxes on the self-employed and small business. Today self-employed pay 2x the payroll taxes, so it’s a big dis-incentive to entrepreneurship. Give start-ups a break by lowering employment taxes on small employers – say less than 50 employees.
- Allow investors in start-ups to write off up to 2x their losses. It takes away a lot of the risk if you can get most of your money back from a tax break should your investment fail. And for all those corporations that abhore taxes this would incent them to invest in small enterprises that have new ideas they’d like to see developed.
- Remember the Small Business Administration (SBA)? Re-activate it by giving it $100B (maybe $200B) to guarantee bank loans of small businesses. Bank lending has ground to a halt as banks eliminate risk – so let’s get them back into their primary business again. In WWII the government guaranteed every loan for the construction of the Liberty Ships – and behold business built 2,751 of the things in 4 years!
- Increase funding for higher education. Increase the grants for science, engineering and new product research at America’s universities. Increase grants for students in science and engineering, and allow students to deduct out-of-pocket educational expenses from their taxes. Allow corporations to deduct all the expense of employee education – uncapped! Allow corporations to deduct the university grants they make!
- Invest in today’s digital infrastructure. Once we paid to send men to the moon – and a flood of innovation (from microwave ovens to powdered drinks and frozen food) followed. Today we should invest in a nationwide WiFi network that’s everywhere from rural forests to city buildings – and make it all FREE. Digital networks are the highways we need today – not concrete ribbons. Create tax deductions for people to buy smartphones, tablets and other products that drive innovation, and make it easy for innovators to network for solutions to emerging needs.
- Streamline the process for small companies to test and sell new bio-engineered products. The existing complicated process is a legacy of big companies and traditional pharmaceutical research. Make it easy for entrepreneurs to test and launch the next wave of medical technology based on the new bio-sciences. Offer federal-backed safety insurance to protect small businesses that show efficacy in new solutions.
These are just 9 ideas. I’m sure readers can think up 90 more (in fact, I challenge you to offer them as comments to this blog.) If we invest in innovation, we can create a lot of jobs. But we need to start NOW!
by Adam Hartung | Apr 11, 2011 | Current Affairs, In the Rapids, Innovation, Leadership
Today’s Guest Blog is provided by Mike Meikle. He offers some great insight to the declining value of manufacturing as producitivity continues to skyrocket, pushing all of us toward understanding and competing in markets where greater value lies in digital products rather than physical.
Summary
- Hyperdigitization is the economic shift toward “virtual” goods and services
- Manufacturing jobs have dropped 31 percent but output is at a near record $1.7 trillion.
- Economic output of Hyperdigitization is $2.9 trillion.
- Google, Facebook and GroupOn all have large revenue streams/valuations yet no physical product.
- Industrial Age economic model of static business models is rapidly fading.
- Organizations must release their innovative capabilities to survive and thrive.
Recently, I was engaged by ExecSense to give a Risk Management & Outsourcing Trends for 2011 webinar targeted for Risk Management executives. Since I only had an hour to cover a vast amount material, I could only briefly touch on some interesting topics. One of these was Hyperdigitization, a jargon-laden term that means economic output is moving toward “virtual” goods and services.
So how does hyperdigitization tie into outsourcing trends? As companies continue shift their business processes to outside service providers, firms will have to develop ways to protect their intellectual property and virtual output. Since intellectual property is data, risk managers will have to develop and monitor Key Performance Indicators (KPI) and Key Risk Indicators (KRI) to ensure their firm does not sacrifice their long-term competitive advantage for short-term cost savings. This penny-wise, pound-foolish strategy has been discussed previously by Mr. Hartung.
But before we dig further into explaining hyperdigitization, let us review an example of the current fading Industrial economic model. One of the chief laments heard throughout the Great Recession is that America doesn’t “make” anything anymore. Manufacturing jobs have left primarily to cheaper labor, less regulation, lower tax countries. Without construction jobs to fall back on, this has left a broad swath of the population unemployed. Unfortunately this high unemployment fallout is a result of our economic model shifting away from Industrial Age practices.
While the jobs may have left (down 31%) productivity boosts have pushed the U.S. manufacturing output to near record highs of 1.7 trillion dollars. We make more goods with less people due to technological advances. Contrary to the economic doomsayers this is a positive trend, one that has happened before (agrarian-based economy) and will undoubtedly happen again.
What does this hyperdigitization of economic output mean in real terms? Well, based on a Gartner report, about 20 percent of U.S. economic output in 2009 or 2.9 trillion dollars. That’s nearly double the U.S. manufacturing output. We are awash in virtual products and services. Think about Google alone. The company is worth $163 billion at last estimate and does not have one physical product.
Other examples are Facebook and GroupOn. Both are projected to be worth $65 billion and $25 billion respectively. Yet again, neither has a physical product. These three companies have based their business models on information arbitrage; the process of mining available data for new opportunities.
So where does all this intellectual property (data) that generates billions in profit come from? People, who are supported by a corporate culture that values innovation and measured risk taking.
As the global economy gets exponentially more competitive, organizations need to be fast, flexible and innovative; a near polar opposite of the Industrial Age business model. A large percentage of companies are still mired in outdated business practices that protect the status-quo (Extend & Defend), squash risk taking and stifle innovation. This has especially become prevalent in the era of downsizing culminating in the practices of the Great Recession.
In order to compete in an economy driven by hyperdigitization, the human capital of an organization has to be made a priority. Developed nation’s economies are shifting away from static business models that produce generic widgets and services. To thrive in the hyper competitive, constantly shifting global economy, organizations will have to create and promote a culture that emphasizes and values the Information Age success triumvirate of risk taking, innovation and rapid-execution.
Thanks Mike! Mike Meikle shares his insights at “Musings of a Corporate Consigliere” (http://mikemeikle.wordpress.com/). I hope you read more of his thoughts on innovation and corporate change at his blog site. I thank Mike for contributing this blog for readers of The Phoenix Principle today, and hope you’ve enjoyed his contribution to the discussion about innovation, strategy and market shifts.
If you would like to contribute a guest blog please send me an email. I’d be pleased to pass along additional viewpoints on wide ranging topics.
by Adam Hartung | Mar 25, 2011 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership, Lock-in
It is unlikely anyone in business or government thinks productivity is a bad thing. Productive students get their homework done faster, and learn more in the available time. Productive musicians make more recordings, and tend to learn more over their careers. And productive companies produce more goods and services with less inputs – like labor – thus offering more to customers at lower cost while making more money for investors. At a national level, the more productive we are at everything from growing wheat to making cabinets to writing smartphone apps improves the quantity of goods available to our population – growing the gross domestic product (GDP.) Improving productivity is one of the most critical activities to creating and maintaining a healthy economy, improving incomes and generating wealth.
Then why is American policy so anti-productivity?
American manufacturers today are about the most productive in the world. In the Wall Street Journal's "The Truth About U.S. Manufacturing" we learn that American factory workers are producing triple the output of 1972. The use of ever more sophisticated equipment, often with digital controls, and a higher trained workforce has made it possible to make more and more stuff with less and less labor. While considerable manufacturing has gone offshore, it is not because our workers are competitively unproductive. To the contrary, productivity is amongst the highest in the world!
Unfortunately, most of America's business/economic policy at the government level has been trying to preserve jobs that are, well, not that productive. Take for example agriculture subsidies. They pay farmers to produce less and otherwise make less productive use of land, feedstocks, grains, etc. By giving farmers (most of which are now huge corporations, not the "family farm" circa 1970 and before) subsidies it actually lowers agricultural productivity.
Similarly, bank and auto bailouts (and all subsidies to any manufacturer) in effect lowers productivity. It gives money to a bank, which makes nothing. Or to an unproductive manufacturer to keep its plant operating when the value of the output is insufficient to cover costs. These spending programs serve only to defend and extend the least productive jobs in society – jobs that are economically unviable. By spending money in these areas the government attempts to preserve the old (companies such as GM and Chrysler) at the expense of productivity.
America can create highly productive jobs
"Amazon.com On Hiring Spree" is the Seattle Times headline. Amazon has revolutionized book retailing, publishing and is changing a number of other markets as well. The result is a far more productive workforce in these industries than previous competitors. Borders, to cite a recent example, could not be nearly as efficient selling or publishing books with its out of date model, so it recently followed 90% of other book sellers into bankruptcy. The more productive company, Amazon, is hiring people as fast as it can to grow its business. Its productivity allows Amazon to sell more and create jobs.
Had the government chosen to bail out Borders there would have been a public outcry. Why should we protect the jobs of those store shelf stockers? Likewise, as the number of printed books drops, replaced by digital books, should it be government policy to subsidize book (or magazine, or newspaper) publishers/printers? Whenever a business is no longer competitively productive – whether it be agricultural, manufacturing or anything else – bailouts serve only to keep the unproductive competitor alive. Which actually harms the more competitive company that subsequently must fight the subsidized competitor.
The right policy would be to subsidize Amazon. Amazon is growing. Theoretically, the more money Amazon has the faster it could grow and the more jobs it could create. But, of course, nobody feels good about subsidizing a growing, profitable concern. And Amazon isn't asking for subsidies, anyway.
Our public investments are shifting in the wrong direction.
The right public policy is to invest in creating new Amazons. New businesses that create products and services which are desirable to customers, productively using resources and creating jobs. By helping these new businesses get going the government spending creates new markets. Government money "primes the pump" for investors. Early stage funding allows the business to get started, create a product or service, generate initial revenues, demonstrate a P&L and entice others to invest. The payback to society is a growing enterprise that creates jobs, both of which creates future tax revenues which repay the early investment funding.
The current administration touts investing in the tools for creating growth. In early February the MercuryNews.com reported on a Presidential speech in Michigan, "Obama Promotes Plan for Near Universal High-Speed Wireless." But, like previous Presidential administrations, this is just a lot of talk. While Mr. Obama may think national wireless technology to promote economic growth is good, there is no money for it. In the same article it is noted that Michigan congressional representatives, who resoundingly backed putting billions into the auto bailouts, question the efficacy of investing in emerging infrastructure tools. Protecting the past, while questioning (or opposing) investments in the future.
Unfortunately, for the last 50 years American policy has been headed in the wrong direction! Innovation investment projects peaked around the Kennedy administration (early 1960s) with several American efforts to dominate new technologies through programs such as the famous "space race." Since then, less and less has gone into America's future, and more and more has been spent preserving the past – through entitlements, military spending and tax cuts which provide less and less incentive to invest in unproven projects.
Source: Silicon Alley Insider Chart of the Day from BusinessInsider.com
Since 1953 government "pump priming" by spending on R&D for innovations has declined by 50%!!! No longer is even 1% of Gross Domestic Product spent on R&D. Businesses, which require an immediate return on investment and are generally loath to spend money on things which are uncertain, have been left to fill the vacuum. As a result, total spending has been stagnant. Worse, most spending by business is on sustaining innovations – improvements which defend and extend an existing business – rather than on breakthroughs which create new markets, and a lot more jobs (for more on sustaining innovation investments by business read Clayton Christenson's books including "The Innovator's Dilemma.") Investment in innovation has been woefully underfunded, allowing America's economic leadership position to shrink.
America is driving innovation offshore
The Wall Street Journal has reported "More Companies Plan to Put R&D Offshore." When things are equal, business will invest where the costs are lowest. With little incentive to undertake innovation in America, increasingly U.S. companies are moving their R&D — along with manufacturing, customer service, telesales, etc. — to emerging markets. And their plans are to increase this movement offshore by 50-100% by 2015!
![[EMERGING]](http://si.wsj.net/public/resources/images/MK-BK032A_EMERG_NS_20110221173344.jpg)
What will happen if innovation investments move from America into emerging markets? Will intellectual property remain an American advantage? Will new product development be done in America, or elsewhere? If the manufacturing is already in these markets, is it hard to predict that new products will increasingly be made offshore as well? Asked another way, if we outsource the innovation jobs – what jobs will America have left?
A dramatic change in American policy is needed
Last week America started bombing Libya. Part of protecting the national interest. But, this is not free – reportedly costing Americans $100M/day. Two weeks is $1.4B (probably a lot more, to be honest.). Let's not debate whether this is necessary, but rather recognize (as Roseanne Rosannadanna used to say on Saturday Night Live) "it's always something." There are programs, policies, military bases, agricultural lands, national parks and jobs to protect in every district of America – and its interests around the globe. And that's increasingly where America's money goes. Not into innovation.
So why are Americans surprised that job growth struggles? When the head of GE, a company that has moved manufacturing, information technology, engineering and R&D to offshore centers across the last decade, is made head of the U.S. jobs initiative is there much doubt? When the spending and incentives, as well as the selected leaders, have as their #1 interest preserving the past – largely in areas where American productivity lags – why would anyone expect new job creation?
America's protectionist mentality is causing its lead in innovation to slip away. The President, administration officials, Senators and Congresspeople needs to quit thinking that talking about innovation is going to make any difference in investments, or job creation. If America wants to remain globally economically vibrant it requires a change in investments – starting with more money for R&D via grants, subsidies and tax breaks.
If America wants jobs, and healthy economic growth, it needs innovation. Innovation that will create new, highly productive jobs And that requires investing in the future, rather than spending all the money protecting the past.
