Years ago, a vice president at a high technology firm remarked, “We are the greatest destroyer of jobs on the planet.” He wasn’t referring to layoffs within the company itself. His point was the technologies that the firm created increased productivity and made many jobs unnecessary. Innovation can, under certain circumstances, create efficiencies that reduce the input required for an amount of output. I’m no economist, but I take this concept as cautionary in the face of enthusiasm for innovating to create new jobs.
Growth, in abstract terms, simply means that a value, as economists measure, is increasing for society. Efficiencies increase margins, making businesses happy. But efficiencies, in of themselves, would seem to stifle overall growth. After all, you’re producing goods and services they are only of value to the companies if they can be sold. And if unemployment is high — because fewer people are needed for production — there are fewer people buying the goods and services, right?
I found a good deal of argument regarding productivity and unemployment online, so I know that what I’ve said is a bit simplistic. However innovation does have the ability to create both jobs and growth when it occurs in new areas. (Here, I find myself in the slippery slope of what “new” means. Audiotapes and CDs both expand the market for mobile music and knocked people involved in the production of vinyl LPs out of business.) While what is new may need to be analyzed to avoid unintended consequences, the basic idea is worth exploring.
Certainly, providing for basic needs that are unfulfilled creates jobs. Part of the interest in emerging markets is that many of the basic needs that have been satisfied in the West remain to be fulfilled in these nations. The bonus on this is that much is already known about efficiently producing these goods and services. This is one of those cases where efficiencies actually to create jobs because they reduce prices to the point where more people can afford the product or service. (Of course, the pattern of lower prices creating new markets also fits what happens when new products–such as smart phones–go into mass production.)
Adding features to an end product, or sometimes just claiming that it is “new and improved,” can also extend the market, too. One of the more interesting ways that this goes into effect is by taking a product and increasing its usability. This sort of innovation almost always extends the market and promotes growth and employment because it brings in new buyers without depressing the prices.
Adding infrastructure can be innovative, but too often isn’t. Roads, plumbing and the means to deliver communications and energy tend to be tied up in tradition and laws. These often make them years behind other contributors to the economy. Here, there is the real possibility of doing something new, providing people with more access (and thus enlarging markets) with an outcome of more jobs and growth. Perhaps most visible example is the leapfrogging done in emerging nations where cell phones reach people who had never had landline phones.
Perhaps the most intriguing kind of innovation is one that emerges from a larger force of new understanding and emerging values. The most obvious example of this is the current drive in some sectors to create more efficient energy sources in the face of environmental concerns. This would seem to be one of those instances where good things happen all around. But change is difficult. I had a conversation once with an energy researcher who said that he always had sufficient funds when the price of crude oil was high. But every time he came close to finishing a project, the prices would fall again, and he would be reassigned. This is a specific, and I don’t know how general his experience was, but it is certain that even if the entrenched interest is not doing as good a job for society, it may have the means to resist innovation.
So, fulfilling old needs in a new market, improving what is produced (especially by making it more usable), providing infrastructure that extends access, and taking holistic approaches to fulfilling needs are some ways where innovation can promote growth while at the same time creating new jobs. Certainly, no one will lose interest in doing things more efficiently. Even as individuals we work to make the best use of resources at hand. But, as a society, including thoughts about how growth might support job creation is likely to be the most successful strategy in the long term.