tag:blogger.com,1999:blog-4039434.post3053669011879396640..comments2024-02-26T06:46:53.171-05:00Comments on Rajiv Sethi: Innovation, Scaling, and the Industrial CommonsRajivhttp://www.blogger.com/profile/13667685126282705505noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-4039434.post-32351510214774100652010-07-09T15:53:45.340-04:002010-07-09T15:53:45.340-04:00The point that off shoring can reduce innovation i...The point that off shoring can reduce innovation is well taken. Ethnographic accounts of both the rise of Japanese manufacturing and of the U.S. manufacturing industry before it was dominated by publicly held companies discuss how important foremen and experience workers on the factory floor are to innovation.<br /><br />The literature of economic development is also replete with examples that show that communities of people in growing industries cross-fertilize ideas and encourage further growth. Workers in Asia and Mexico don't socialize and informally exchange information and connections with distant overlords innovators.<br /><br />Some of this happens in surprising places. For example, personal relationships with and an understanding of the businesses of small Jewish factory and store owners was important in the development of a cadre of Jewish lawyers in New York City who went on to become prominent innovators in that legal community. Similarly, in Silicon Valley and the biotech industry, financial backing at the key bridge stage between start ups and venture capital investment typically comes from people who made their wealth working in the industry and networking with others who did, so that they can invest with less risk of surprise because they understand to the work and know what questions to ask.<br /><br />The idea that customs duties are a good way to achieve the desired goal is doubtful by comparison. Centers of economically important regularized American innovation like the Bay Area, New York City, and Boston, for example, tend to be places with a high tax burden, not a low one. The same can be said of centers of innovation and economic development abroad. Tweaks in customs duties only impact marginal industries where a modest difference in price while move the playing field, but the innovative growth industries are high profit, not marginal profit industries.<br /><br />Rather than focusing on keeping the product of foreign labor out, we should focus on letting sources of innovation in. Our immigration laws should be welcoming anyone who can contribute to the economy and their families into it. The classic example is that in the run up to World War II and afterwards, many of Eastern Europe's great minds moved to the U.S., while the Communists got the investment in infrastructure that was left behind; with the U.S. getting the much better side of the deal.<br /><br />Unemployment is not about a shortage of jobs. Jobs can be created and destroyed quickly; it is not a fixed quantity. Unemployment is about a failure to find worthwhile things for the people that you have to do, a failure to creativity. The more talented people you have in a country, the more opportunities for job creation you have. <br /><br />At the tax level, a better incentive change is to rebalance tax incentives between physical capital and labor (which now decisively favor investments in physical capital). All other things being equal, if work can be done by a person or a machine at the same cost, the person may be the better choice, because the person can innovate and pass along ideas while the machine won't.<br /><br />Yet another way to encourage innovation is to reduce the cost of failure. Innovators often fail before the succeed. But, without a social safety net, and the U.S. safety net is particularly weak, the cost of failure can be excessively high; hence the anemic U.S. small and medium sized business environment compared to its competitors. We also need to develop tools that allow innovators to start businesses without excessive risk to their personal assets through a network of personal guarantees that make limited liability illusory.<br /><br />War is a poor metaphor for economic competition. Economics is about win-win solutions and about thinking about how to make yourself better off rather than worrying that someone else will also profit. Economics is fundamentally a collaborative and cooperative enterprise.Andrew Oh-Willekehttps://www.blogger.com/profile/02537151821869153861noreply@blogger.comtag:blogger.com,1999:blog-4039434.post-86589681238071641462010-07-05T12:54:58.290-04:002010-07-05T12:54:58.290-04:00While economists may not like protectionism for go...While economists may not like protectionism for good reasons, there is push back coming politically. The present course is politically unsustainable as unemployment remains stuck at high levels. There is an increasing demand to shut the borders and bring the jobs home. Unless there is a viable alternative, protectionism of some sort is in the cards without a timely recovery, which seems unlikely at this juncture.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-4039434.post-4046774718304887012010-07-04T00:34:18.706-04:002010-07-04T00:34:18.706-04:00I am glad that some economists (you, at least) are...I am glad that some economists (you, at least) are taking this seriously.<br /><br />I've been in Silicon Valley tech for 25 years and I've seen the outsourcing up close. <br /><br />The way economists have treated outsourcing reminds me a lot of the housing bubble. A seemingly invincible conventional wisdom turns back any and all common sense reports from the front. What is it with economics? When I have brought up the issues Andy Grove addresses with economists, I have gotten 'Ricardian equivalence' thrown at me, along with the earnest admonishment that it is really terribly difficult to understand, so I should take it on faith.<br /><br />I am an engineer and I don't take the applicability of 'Ricardian equivalence' on faith. I also understand it. <br /> <br />This gives you a sense of the scale of the devastation: "Today, manufacturing employment in the U.S. computer industry is about 166,000 -- lower than it was before the first personal computer, the MITS Altair 2800, was assembled in 1975. Meanwhile, a very effective computer-manufacturing industry has emerged in Asia, employing about 1.5 million workers -- factory employees, engineers and managers."<br /><br />The same people who have cheered this development puzzle about the demise of the 'Great American Jobs Machine.' It makes me sick to think about it. <br /><br />I have been skeptical since the inauguration that this administration understood what was going on with this economy. So far, I am proving right. I think unemployment will not get better, and in fact will slowly get worse until the system blows up. <br /><br />Sad, that.minkahttps://www.blogger.com/profile/04067741747813131873noreply@blogger.comtag:blogger.com,1999:blog-4039434.post-80571992736615086392010-07-04T00:33:56.260-04:002010-07-04T00:33:56.260-04:00I am glad that some economists (you, at least) are...I am glad that some economists (you, at least) are taking this seriously.<br /><br />I've been in Silicon Valley tech for 25 years and I've seen the outsourcing up close. <br /><br />The way economists have treated outsourcing reminds me a lot of the housing bubble. A seemingly invincible conventional wisdom turns back any and all common sense reports from the front. What is it with economics? When I have brought up the issues Andy Grove addresses with economists, I have gotten 'Ricardian equivalence' thrown at me, along with the earnest admonishment that it is really terribly difficult to understand, so I should take it on faith.<br /><br />I am an engineer and I don't take the applicability of 'Ricardian equivalence' on faith. I also understand it. <br /> <br />This gives you a sense of the scale of the devastation: "Today, manufacturing employment in the U.S. computer industry is about 166,000 -- lower than it was before the first personal computer, the MITS Altair 2800, was assembled in 1975. Meanwhile, a very effective computer-manufacturing industry has emerged in Asia, employing about 1.5 million workers -- factory employees, engineers and managers."<br /><br />The same people who have cheered this development puzzle about the demise of the 'Great American Jobs Machine.' It makes me sick to think about it. <br /><br />I have been skeptical since the inauguration that this administration understood what was going on with this economy. So far, I am proving right. I think unemployment will not get better, and in fact will slowly get worse until the system blows up. <br /><br />Sad, that.minkahttps://www.blogger.com/profile/04067741747813131873noreply@blogger.com