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Thursday, November 08, 2012

Empowering, Sustaining, and Efficiency Innovations

Clayton Christensen, a Harvard business professor and author of "The Innovator's Dilemma" recently had a very interesting article in the NY Times.  He refines Schmupeter's Creative Destruction characterization of the economy into empowering, sustaining, and efficiency innovations where empowering innovations mostly generate new economic activity and employment, efficiency innovations liberate capital but reduce employment, and sustaining innovations have little effect on employment though they do increase wealth over time.  To create new jobs, one should therefore focus on empowering innovations.

He makes a second point as well: most government policy and private investment approaches were formulated when capital was extremely scarce.  Something has clearly changed in that the Fed is creating huge sums of money yet people are just sitting on the cash and not investing.  This implies that capital itself isn't nearly as scarce as it once was and that the policies and strategies of yesteryear no longer apply.  He makes some policy suggestions to push investors towards empowering innovations.

Definitely an interesting and well written read.


Hey Skipper said...

Capital can't be scarce.

I'm refinancing my house for 15 years at 2.95%.

Not being a monetary expert, I could well be entirely wrong, but I suspect in that 2.95% might be buried an expectation of inflation.

erp said...

There's plenty of capital. What's missing is optimism and incentive.