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January 15, 2004
The Economic Power of Innovation - Is the Glass Half-empty or Half-full?

Here are two nice pieces that dovetail nicely. The two sides of the coin of innovation if you will. In the first, Russell Roberts writes about the iTunes store receiving Time magazine's Coolest Invention of 2003 - why it is a valuable invention and that the future of the US is in the development of similar innovative products which have massive network economic effects:

Invention of the Year? When you think of an invention, you think of the light bulb, the cotton gin, the airplane, the television, the transistor, the cell phone. But an online Music Store? That's not a "real" invention, is it?

For the pessimists, honoring a software program that does nothing more than transfer music from place to place is just another sign of America's decline, another step on the road to an all-service economy where America makes nothing. Another step toward an economy where all we do is sell cosmetics or french fries to each other or try to sustain our standard of living by doing each other's laundry.

I'm a little more optimistic about the future. OK, a lot more optimistic. Some very talented people designed that iTunes Music Store. It works beautifully. It lets me buy a single song for 99 cents or an entire album for just under $10. I can listen to a sample of the music in advance. I can discover new artists by looking at what else people bought who like what I like. When I buy music at the iTunes Music Store, it's easy to keep it organized on my desktop or loaded on my iPod. The confluence of the iTunes software with the iPod is one step closer not to an all-service economy, but one step closer to the world where all the music ever recorded is stored on a single simple portable device. Someday, that device will be embedded in my toenail and by doing some simple dance step, the song I want to hear will reverberate through my brain at the same time a holographic display of the artist performing it is suspended in midair.
But in 2003, iTunes can be more profitable and enjoyable for humanity than a new way to work with cotton. We already are pretty good at cotton and shirt-making. Most of our shirts come from overseas and they're cheap because of technology that's already been developed that raises human productivity and lowers costs. There isn't much profit in making it a little bit better through some innovation. So in 2003, iTunes can be more profitable than a better cotton gin. If anything, it's a sign of our prosperity rather than a cause for alarm.

And while I like the convenience of iTunes and marvel at the aesthetics and ergonomics of the iPod, the iTunes Music Store is more than just a way of selling music. It's more important than just another music store opening at the nearby mall. By creating a profitable interface for downloading music via the internet, iTunes gives the musicians of the future an increased incentive to create new music and get it into listeners' ears with the click or two of a mouse. That's pretty important if you have a soul and music speaks to it. That's most of us.

We will never be reduced to only doing each other's laundry. That can only happen if laundry is all we know how to do. The road to prosperity in America will always rely on finding ways to leverage what we do best. And in 2003, what a lot of us do best relies on transferring information or using it in creative ways. Music lovers, rejoice.

On the glass is half-empty side of the equation, we have Richard Florida, author of the highly recommended "The Rise of the Creative Class", who is no less enamoured of the importance of innovation, taking a really substantive look at the flight of the "creative class" from the US to greener pastures, why it is happening and what might be done to reverse the trend.

Last March, I had the opportunity to meet Peter Jackson, director of The Lord of the Rings trilogy, at his film complex in lush, green, otherworldly-looking Wellington, New Zealand. Jackson has done something unlikely in Wellington, an exciting, cosmopolitan city of 900,000, but not one previously considered a world cultural capital. He has built a permanent facility there, perhaps the world's most sophisticated filmmaking complex. He did it in New Zealand concertedly and by design. Jackson, a Wellington native, realized what many American cities discovered during the '90s: Paradigm-busting creative industries could single-handedly change the ways cities flourish and drive dynamic, widespread economic change.
Peter Jackson's power play hasn't been mentioned by any of the current candidates running for president. Yet the loss of U.S. jobs to overseas competitors is shaping up to be one of the defining issues of the 2004 campaign. And for good reason. Voters are seeing not just a decline in manufacturing jobs, but also the outsourcing of hundreds of thousands of white-collar brain jobs--everything from software coders to financial analysts for investment banks. These were supposed to be the "safe" jobs, for which high school guidance counselors steered the children of blue-collar workers into college to avoid their parents' fate.

But the loss of some of these jobs is only the most obvious--and not even the most worrying--aspect of a much bigger problem. Other countries are now encroaching more directly and successfully on what has been, for almost two decades, the heartland of our economic success -- the creative economy. Better than any other country in recent years, America has developed new technologies and ideas that spawn new industries and modernize old ones, from the Internet to big-box stores to innovative product designs. And these have proved the principal force behind the U.S. economy's creation of more than 20 million jobs in the creative sector during the 1990s, even as it continued to shed manufacturing, agricultural, and other jobs.
But having talked to hundreds of talented professionals in a half dozen countries over the past year, I'm convinced that the biggest reason has to do with the changed political and policy landscape in Washington. In the 1990s, the federal government focused on expanding America's human capital and interconnectedness to the world--crafting international trade agreements, investing in cutting edge R&D, subsidizing higher education and public access to the Internet, and encouraging immigration. But in the last three years, the government's attention and resources have shifted to older sectors of the economy, with tariff protection and subsidies to extractive industries. Meanwhile, Washington has stunned scientists across the world with its disregard for consensus scientific views when those views conflict with the interests of favored sectors (as has been the case with the issue of global climate change). Most of all, in the wake of 9/11, Washington has inspired the fury of the world, especially of its educated classes, with its my-way-or-the-highway foreign policy. In effect, for the first time in our history, we're saying to highly mobile and very finicky global talent, "You don't belong here."

Obviously, this shift has come about with the changing of the political guard in Washington, from the internationalist Bill Clinton to the aggressively unilateralist George W. Bush. But its roots go much deeper, to a tectonic change in the country's political-economic demographics. As many have noted, America is becoming more geographically polarized, with the culturally more traditionalist, rural, small-town, and exurban "red" parts of the country increasingly voting Republican, and the culturally more progressive urban and suburban "blue" areas going ever more Democratic. Less noted is the degree to which these lines demarcate a growing economic divide, with "blue" patches representing the talent-laden, immigrant-rich creative centers that have largely propelled economic growth, and the "red" parts representing the economically lagging hinterlands. The migrations that feed creative-center economies are also exacerbating the contrasts. As talented individuals, eager for better career opportunities and more adventurous, diverse lifestyles, move to the innovative cities, the hinterlands become even more culturally conservative. Now, the demographic dynamic which propelled America's creative economy has produced a political dynamic that could choke that economy off. Though none of the candidates for president has quite framed it that way, it's what's really at stake in the 2004 elections.

Starting with trends corporate trends in outsourcing of software development and hardware design, the politicization of science in stem cell, security and environmental areas making research in the US difficult or impossible and exacerbated by a political climate that is making scientific conferences and university posts in Canada, Europe, and elsewhere more attractive because of the difficulting of obtaining visas.

Nor is this phenomenon limited to science; other sectors are beginning to suffer. The pop-music magazine Tracks, for instance, recently reported that a growing number of leading world musicians, from South African singer and guitarist Vusi Mahlasela to the Bogota-based electronica collective Sidestepper, have had to cancel their American tours because they were refused visas, while Youssou N'Dour, perhaps the globe's most famous music artist, cancelled his largest-ever U.S. tour last spring to protest the invasion of Iraq.

The Florida piece ends with excellent advice for both political parties:

Our only hope is to strengthen our creative economy so that it produces more jobs to replace the ones we're losing. That will require taking on the Washington lobbyists who put the fix in for established industries at the expense of emerging ones. Millions of new jobs in the wireless networking field, for instance, could be created if unused broadcast spectrum, currently controlled by TV networks and the military, could be freed up. When's the last time you heard a presidential candidate talk about that?
The challenge for the GOP, if it wants to avoid running the economy into the ground, is to stop sneering at the elites, the better to win votes in their base, and to start paying attention to economic policies that might lift all boats. The challenge for Democrats, if they want to win, is to find ways of reaching out to the rest of the country, to convince at least some of its many regions that policies which operate to the interests of the creative class are in their interests as well.

I'm punting this over to my bretheren and sisteren at Ideaflow and Moore's Loore, let's see what happens...

Posted by Jonathan at 11:10 AM | Email this entry | Category:

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