Wednesday, April 06, 2016

Destructive and Constructive Innovation

Today I read a long post that claimed that up to 30% of the banking jobs in the US would be "destroyed" by innovation.  No longer will we need bank tellers. Any job that can be automated or done by machines will be.  This is a classic case of creative destruction, described by Schumpeter as a component of innovation.  Innovation will always create disruption in existing conventions, economies and industries.  This means that it will also destroy EXISTING jobs.  It does not mean, however, that innovation is constantly destroying the net number of jobs.  This is what the media tells you, and it is wrong.  What does happen is that the type of job changes.

For example, at the turn of the 20th century something like 60% of the population lived on farms, and we could barely create enough food to feed ourselves.  Today, something like 2% of the population lives on farms, and we create enough food in the US to feed ourselves and to spark a world-wide obesity epidemic.  I'm sure that people in the 1920s, 30s, 40s, 50s and onward decried the loss of jobs in farming, but innovation - better equipment, better methods, better seeds, better fertilizer - meant that fewer people could be enormously more productive.  This meant that the marginal labor or unnecessary labor was sloughed off.  It wasn't always easy, but we can expect the same thing to occur in every industry, all the time.

Yet, if we take a close look at employment and overall job creation from the turn of the century to today, we see a steady increase in the number and range of jobs, and, until recently a rising income level.  If all those people had remained on the farm, if we resisted innovation and kept producing at the same levels as in the 1900s, we'd still have millions of people on farms, using mules as their tractors, barely subsisting.  Instead, many of those people left the farms and went to college or worked in industry, creating the largest manufacturing boom in the 40s, 50s and 60s the world has ever seen. And, yes, I'm ignoring the Great Depression, because it was a once in a lifetime confluence of a recession made worst by international trade practices and poor administration of the currency.

Innovation will always destroy existing jobs.  That's just a fact, and rather than get exercised about it we should understand it and expect it.  This doesn't mean that people should simply accept that their jobs are "going away" or, as we've seen with Carrier and Ford, going to Mexico, it simply means that older jobs and older skills will migrate to lower cost, lower technology areas.  This means that we all bear responsibility for constantly updating our skills, and understanding how rapidly the world around us is changing.

However, innovation also creates jobs.  For every teller job a robot takes away, the robot creates jobs in robot design, robot programming and testing, robot maintenance.  Every innovation destroys old jobs and creates new ones.  We need policies that help people whose jobs are destroyed, yes, but we also need to build capabilities to predict what new jobs are being created and help people prepare for those jobs.  And, just like the move from the farm to the factory, this will require more knowledge and skills.

Having grown up on a farm, I can tell you that tractors replaced mules (yes, I'm old enough to remember when my grandfather used mules) but they do the same things.  Farmers are definitely smarter than they were in my grandfather's time, but technology has simplified what they do, not replaced it.  Consider manufacturing and the amount of change.  The original mass production lines were divided into very discrete (and often manually intensive) activities. But as throughput increased, complexity increased and demands for quality increased, shop floor knowledge increased. Today you'd have a hard time finding a job in many factories without an associate's degree, because of factors like computerization, automation, statistical quality control and a host of other factors.  The demands for greater knowledge and capability only increase, they don't decrease.

We are in a significant transition, similar to the one from farm to factory, where we move from manufacturing work to knowledge work.  This will only accelerate innovation and exacerbate a problem our education system is slow to recognize - faster innovation requires faster knowledge development and better education.  The new jobs are out there, but our willingness to obtain the education necessary, and the education system itself is lagging behind.

Innovation isn't at fault - it is agnostic and systemic.  Innovation will continue and cannot be held back, as we've learned from the Luddites.  The question is:  are we creating awareness of the speed and depth of change in our culture?  Are we building the right basic, secondary and post-graduate education systems to meet the rapidly changing needs?  Because this creation of new jobs and destruction of the old is only increasing.  Bernie Sanders may rail about "good jobs" but many of those jobs are likely to disappear, replaced by jobs that demand more knowledge, more skill.  Rather than cling to the old jobs and become a stagnant economy, let's recognize that innovation is inexorable and build the culture, training and systems to meet or exceed its pace.
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posted by Jeffrey Phillips at 7:43 AM


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