02 September 2011

The Simple, but Sweeping, Answer to the Question of How to Create More Jobs

The question, How do we create more jobs has a perhaps too obvious an answer. We need to become  more entrepreneurial.

The question, How do we become more entrepreneurial, is harder to answer. Still, that question is the one we should be asking. The answers to that question will do as much to transform and improve our economy as the question of how to make more capital and make it more productive was to the West from about 1700 to 1900. Or the question of how to make more knowledge workers and make them more productive was to the West from about 1900 to 2000.

The good and the bad news is that we’re living through a great economic shift. The bad news is that this means the old strategies are no longer enough. Strategies like focusing more on education, or subsidizing the growth of government, corporations, and debt just won’t work like they did in the last century. The good news is that if we adapt to this shift, we’ll come into a period of prosperity the likes of which have never been seen.

Since medieval times, the West has played host to three distinct market economies: agricultural, industrial, and information economies. The emergence of each has been wrenching, disruptive and created prosperity and opportunity never experienced by any previous generations. Now, a fourth economy is emerging. And to succeed in this new economy we’ll have to shift from focusing on creating more knowledge workers to creating more entrepreneurs.

When a new economy emerges, the shifts occur at about every level. I’ll use the story of Henry Crowell to give you an example of a shift from one economy to the next.

Henry might have been the first to use continuous production methods in a factory. Simply put, rather than have various stages of production in different places and worked by different people, Henry put all the production steps under one roof – creating continuous production. He did this for oats but within a half century the process would become the norm even for products as complicated as cars.

Henry’s great enterprise showed genius but it could have bankrupted him. His factory made twice as much oatmeal as Americans ate. Simply dumping that much product on the market could have driven down prices enough to ruin him.

So Crowell shifted his attention from the problem of how to make more to the problem of how to sell more. The task of making more was a problem of overcoming the limits of capital, of manipulating things and machines to stimulate more production. The task of selling more was a problem of knowledge work, of manipulating symbols to stimulate more consumption and open up new markets.

Crowell may have been the first to use scientific endorsements about the health benefits of his product; he advertised on the side of trains. He was probably the first to send samples to households, sending packages of oatmeal to homes throughout Portland, Oregon, turning his excess productive capacity into a marketing advantage. Furthermore, he created an image that “branded” his product into the American consciousness: the symbol on the side of his Quaker Oats products became synonymous with oats.

Soon, Crowell had stimulated demand enough to meet the incredible capacity of his factory. As he pioneered the process of managing demand, he created breakfast cereal.[1] Eventually, Kellogg, Post, and others were to duplicate—and even surpass—his enormous success.

As an affable-looking Quaker led America into mass consumption, the problem of increased production began to take second place to the problem of increasing sales through advertising, distribution, brand management, and consumer credit.  These new problems created a demand for communication and information technologies, and knowledge workers capable of understanding and using them. The limit to progress was shifting from capital to knowledge workers, from the ability to manipulate things to the ability to manipulate symbols of things. It was this shift that fueled the demand for office equipment and computers that would eventually make companies like IBM and Microsoft household names.

Crowell was one of the early pioneers of the information economy.

The shift required more than free samples and advertising. Making knowledge workers and making them more productive drove – and was driven by – lots of changes. Things previously reserved for the elites – things like access to credit and investment markets and advanced education – became common to the middle class. And big bureaucracies sprung up everywhere as companies and government grew to unprecedented sizes, giving these knowledge workers as specialists a place to work. (It’s worth remembering that in 1800, no employee in the US worked for an organization with 500 or more employees.)
But these kinds of strategies are becoming less effective.

More information, for example, is as likely to make knowledge workers less productive by distracting them as it is to make them more productive by informing them. As governments and corporations become larger, they are less likely to respond to customers and voters than dictate, and rather than provide a place for the knowledge worker specialist to be productive, they are likely to frustrate his efforts. Everyone seems to agree that more education would help but think about this: if we increased the level of education as much in this century as we did in the last, people would be graduating at 50. Last century’s productivity rose greatly in no small part because in 1900 only a fraction of 13 to 17 year olds were in formal education whereas by 2000, only a fraction were not; we’re unlikely to ever again see such a dramatic rise. Finally, since 1945 consumer debt has grown about 6 to 7 times faster than GDP; again, not a trend likely to continue.

What if the information economy is over and we now face a shift in the limit to progress – a shift like the one that faced Henry Crowell?

It might be time for us to take overcoming the limit of entrepreneurship as seriously as previous generations took the limits of capital or knowledge work. Among other things, this will mean that corporations will have to become serious about making all employees more entrepreneurial and making some employees actual entrepreneurs

The US – indeed all of the West and even the world – has enough creative and bright minds to find thousands of answers to the question of how to become more entrepreneurial. That is not the problem. The problem is that we aren’t systemically asking that question and – even more importantly – aren’t institutionalizing that question in our schools, our governments agencies and corporations.

In the last century, communities began to realize that they couldn’t just wait for people to come up with new technological inventions. R&D was institutionalized and now we regularly expect new product releases, the next generation of car or smart phone. We’ve institutionalized technological invention.

In this century, we will need to do the same thing with social invention, or entrepreneurship. Rather than just wait for individuals separate from any institution to create new businesses or schools, we need to encourage and support this. This will be one of the most important ways that we’ll see a growth in demand for jobs that matches – or even exceeds – the growth in the labor market.

There is more – much more – to the emergence of a new economy. Even casual students of history know that the emergence of the industrial economy disrupted and reinvented society at about every level. This new, entrepreneurial economy will do the same. But for now it is enough to take comfort in the fact that the stagnation of the West is not a sign of failure but success. Now that we’re on shore, it’s time to stop rowing.

Optimism has seemingly become taboo, proof that a person simply isn’t particularly aware. And yet no generation has had more cause for optimism than ours. We’ve repeatedly shown that we can solve problems. Now we just have to start solving the right problems.

Ron Davison is a business consultant and author of The Fourth Economy: Inventing Western Civilization, now available in paperback, for kindle, and nook

[1] Beniger, The Control Revolution, 265–66. 


Lifehiker said...

I would love to see this paradigm shift start with education, itself, becoming more entrepreneurial. As great as public schools can be in certain places, like my community, they simply aren't designed to foster the individual talents and interests of many students. Instead, they largely foster the interests of those who work in the schools. A great way to kick off big-time entrepreneurship would be to let anyone open a school for anything and let the students and parents choose the kind of education they want. But, I suppose that would be "too free".

Anonymous said...

I think we've reached a point where machines are doing so much work that we need to find a new way to distribute the wealth. There just isn't enough work to go around anymore, and the system we have now rewards game players more than hard workers.