The innovation story is getting lost in the jobs story. Case in point was the critique by George Mason University economist Russell Roberts on a comment by President Obama on technology and jobs (Obama vs. ATMs–Why Technology Doesn’t Destroy Jobs – WSJ.com). Roberts takes the President to task for suggesting that some technologies replace workers and thereby create short term dislocation. Roberts discusses at great length the benefits to wealth creation of technology-induced productivity.
I agree with everything he said about the power of productivity (while I disagree with his political potshot at the President). But, when it came to tying technology to job creation, here is the best Roberts could do: “Somehow, new jobs get created to replace the old ones.”
If we can’t explain the “somehow”, we will lose the policy debates.
Roberts more detailed explanation given was this: “Fifty years ago, the computer industry was tiny. It was able to expand because we no longer had to have so many workers connecting telephone calls.” In other words, the computer industry grew because all those unemployed telephone operators (unemployed because of advances in computer technology) could all get jobs building the computers that replaced them.
Wrong. This is the fallacy of supply creating demand. Creative destruction is the process of new industries drawing resources from old industries. Freed-up labor doesn’t magically create new jobs. Free-up labor fills new jobs that are created by new opportunities. It is the new opportunities part that keeps growth going — not simply the higher productivity part. Higher productivity allows those workers greater output – thereby allowing labor to switch to other activities while maintaining the same or greater levels of production. But if it was simply greater output of the same old stuff, the system would grind to a halt with excess labor. This is the fear that has arise over the centuries.
Turns out these fears have not been realized — because of innovation. Innovation creates new demand as well as increases productivity. The new demand for new products absorbs the labor freed up by productivity gains in a virtuous cycle – each side reinforcing the other.
In a earlier posting on this blog, Stephen Ezel had a more nuanced version of the productivity story. But I believe even he missed the central point that productivity and innovation are a coupled process. Productivity frees up resources; innovation grows by utilizing those resources.
So, by getting the story only half right, Roberts got it wrong. If we are don’t pay attention to the innovation side of the equation, or economic prosperity will suffer. Here I agree with Stephen’s comments “what the U.S. economy needs to restore job growth is a serious national innovation and competitiveness strategy”.
But let me make one final point. It is not about technology; it is about innovation. The two are not necessarily the same. Innovation is broader concept. We need to focus on that broader concept of innovation in all its forms. Only then can we get the story right. And we desperately need to do a better job of telling the innovation story if we are to get the public policies in place to foster more sustainable economic growth.
Crossposted from The Intangible Economy