Tonight Mr Obama will expound on his economic theories that will restore the American economy and put everyone back to work. Word has it that he will use variations on the word 'innovate' ad nauseum – telling us that we need to out-innovate the rest of the world to prosper.
Let's take a look at 10 of the big time innovators:
Amazon
Apple
Dell
General Electric
HP
IBM
Intel
Microsoft
Collectively they employ 607,825 people in the United States, or an average of 61,000 people per innovative company. That is slightly less than the 71,500 people who work for Dollar General. In fact, the Aramark food service folks employ more than twice as many people as the biggest innovative darling. To put it in proper perspective, there are 29 people working at Walmart for every one person working at each big time innovative company. There are two people working in a Disney park for every one at the average big innovator. These guys do a lot of things well, but they do not create jobs.
The business mode of the innovators is to create amazing technology, outsource the software work to India and the manufacturing to China where they can find desperate people who will work for nearly nothing, avoid US labor and environmental regulations, and then bring the work product back to the US at virtually no import tariff. Wall Street makes a boatload of money on the deal – good for them. But job creation? Not hardly.
If Obama wants to create jobs, rather than simply boost the Dow Jones Average, he will start listening to the privately held business community – the thousands of small to medium sized American firms that actually create jobs. They will tell him to cut taxes, put the banks back to their regional structure, equalize the tariff levels, enact fairness in environmental regulations between the US and its attackers in the trade war we are currently losing, and a host of other things.
But innovate our way to prosperity? There is absolutely no data to suggest that innovation creates jobs – just quuick wealth for a narrow group of Washington insiders and Wall Street wizards. Building an economy on innovation is pure theory – and theory unsupported by facts, history, or even sound economic theory. Obama and the eastern elite economists who dominate Washington on both sides of the aisle are quick to cite David Ricardo – the English economist who conjured up Comparative Advantage – the theory most often misapplied but applied nonetheless in justifying sending manufacturing to China. In fact, Obama made Ricardo's theories central to his latest economic report to Congress. They really ought to read Ricardo's book before they bandy his name around so freely. Ricardo said, "The first man who knew how to soften metals by fire [the innovator] is not the creator of the value which that process adds to the melted metal. That value is the result of the physical action of fire added to the industry and capital of those who availed themselves of this knowledge [the manufacturers]" In short, the real value and economic growth is in manufacturing – not innovation. What is supported by fact and history is that the United States grew its amazing economy on the one-two punch of innovation and manufacturing.
Innovation without manufacturing will not save us. So when you hear Obama expound on innovation tonight, he may well be fooling himself and the rest of the DC crowd, but don't let him fool you.
Grigore says
Well… innovation creates jobs but in US case in China and India!
Jim Fernandez says
Right on Bill !!!
david foster says
Innovation should not be understood as only big, galactic ideas or as formal “R&D”. The industrial revolution was based not only on a few famous inventions such as James Watt’s steam engine and Richard Arkwright’s spinning frame, but on thousands of smaller inventions and incremental improvements. This is as true of process innovation as of product innovation. Much of it is highly specific and may never be used outside the factory or the company where it takes place, but in the aggregate these improvements are very important.
I don’t think Obama has any comprehension at all of this.
Bill Waddell says
David,
I don’t believe Obama is the only one who is interested only in the “big, galactic idea”. With Wall Street’s intense, short-term focus they only want to put capital into innovations that will propel the originator into the stratosphere immediately.
With the Obama Administration directing huge sums of capital only to game changers – primarily ones that advance their environmental agenda – and Wall Street only funding R&D with huge, near-term payoff potential, there is precious little capital left for anyone pursuing incremental, evolutionary innovations.
Cannon says
Jim Collins makes a very convincing argument with empirical data to support this theory. For example he points out that the top performing company in terms of shareholder return over the last 40 years has been Southwest airlines who built their entire strategy by copying other airlines. In the industry perhaps most prone to external blame by its leaders (think government regulation, weather, fuel prices, and unions), southwests employees have instead focused on delivering the same services as everyone else has more efficiently day in and day out.
When the world is turned upside down everyone wants “change” and a new direction but great companies (and countries for that matter) step back from the chaos and fall back on the principals that make them great in the first place. They don’t blame their predecessor. They understand customer (or citizen) value and deliver it in the most efficient and sustainable manner. There’s nothing sexy about this. There’s nothing “innovative.” If you read our founding fathers or business leaders such as Ford from 100 years ago, they were all talking about the same challenges we are talking about today. Partisanship, as John Adams warned, is the most dangerous threat to our democracy. Its just an excuse for politicians to hide behind their parties and protect the government bureaucracy instead of working together to deliver better services to taxpayers for what we pay. Any company that permitted its employees to stand on opposite sides of the organization and point fingers at each other would grind to a halt. So why do we permit our elected officials to act in such a juvenile manner while they’re spending OUR money? Unless our leaders (starting with our president) step up and get on the same team we’ll be arguing about the same things today 30 years from now while the rest of the world (China, India, Russia) fly by us.
Dugan says
You listed Walmart as an example of a non-innovative company? I think Sears would disagree.
Innovation can come in many forms other than new products.
Bill Waddell says
I agree with you completely, Dugan. But I don’t think Walmart is what the President had in mind, and it certainly has not been, nor is likely to be, the recipient of vast sums of government R&D money the President wants to “invest” in this – our “Sputnik moment”.
krinwis says
How about shutting off the export of American jobs? There is a good place to start