Goodbye U.S. Innovation?

The NY Times asks a good question in Goodbye, Production (and Maybe Innovation) -- "Can invention and design be separated from production?" The question is being asked because some people are getting seriously worried that the United States is not making anything anymore. From the article:

Import penetration, as it is called, worried economists and policymakers when it first became noticeable 20 years ago. Many considered factory production a crucial component of the nation’s wealth and power. As imports gained ground, however, that view changed; the experts shifted the emphasis from production to design and innovation. Let others produce what Americans think up.Or as Mark Zandi, chief economist at Moody’s Economy.com, put it: "We want people who can design iPods, not make them."

But over the long run, can invention and design be separated from production? That question is rarely asked today. The debate instead centers on the loss of well-paying factory jobs and on the swelling trade deficit in manufactured goods. When the linkage does come up, the answer is surprisingly affirmative: Yes, invention and production are intertwined.

"Most innovation does not come from some disembodied laboratory," said Stephen S. Cohen, co-director of the Berkeley Roundtable on the International Economy at the University of California, Berkeley. “In order to innovate in what you make, you have to be pretty good at making it -- and we are losing that ability."

So, what do you think ... can you separate invention from design and production?

Absolutely, I believe you can. You don't necessarily have to make everything you invent (although I think the U.S. has gone too far in intentionally gutting its manufacturing base). But the mistake is not thinking that you can't separate these things, but believing that some things are innovative and some are not. In other words, the belief that design is innovative and production is not, that the special people -- the smart ones -- design things and the regular people make them, is wrong. Builders are just as innovative as designers and inventors. Don't think so? Ask the entire American auto industry. And a few other industries along the way (if you can find them). This knee-jerk "let-others-produce-what-Americans-think-up" mentality may lead to short term profits in some cases, but it has also increased the number of foreign disruptive innovators undermining the very industries doing the outsourcing. Wild. If that's not karma, I don't know what is. I'm not saying that all outsourcing is evil. I'm simply saying that what you outsource can potentially be just as innovative to your future competitors as what you choose to keep. Thinking otherwise is foolish.

Comments:

Jim,

It's sad that it takes living overseas for a while to realize that there are things that are fundamentally wrong about the United States. Keep bringing it on...

One day I'll expound on my theory about the parallels between Marx' Communism and the American Corporation.

Posted by christopher mahan on December 25, 2006 at 12:17 AM JST #

I've a very different take on the trade deficit. It isn't the result of American laziness, though it may well breed laziness for all I know. It's the result of economic imbalances, mostly abroad -- the U.S. economy has been through three cycles since the trade deficit began ballooning, which should have been enough to correct domestic imbalances that could have caused the deficit, but it hasn't been enough, strong evidence, IMO, that the imbalance is abroad. The primary effect of the trade deficit on the world has been to export economic growth, to pull the exporting economies. I'm not sure what the primary domestic impact of the deficit has been (poverty? I don't think so; laziness? maybe, but if so it won't end well). To some extent the trade deficit is a self-fulfilling prophecy: its shut down would lead to a tremendous recession in all nations that export a lot to the U.S., so drops in the value of the dollar tend to drive cost cutting elsewhere well before they drive production cuts, so prices fall but volumes grow don't and the trade deficit remains. This should stop when other nations begin to consume more of their products or even begin importing, then when the dollar drops it will lead to the deficit shrinking, as one would expect. If this is right, or close to it then the imbalance is of wealth, and its correction will be for other nations to become wealthier relative to the U.S.

Posted by Nico on December 25, 2006 at 04:44 AM JST #

Christopher ... I'd love to hear about "Marx' Communism and the American Corporation." :) On this blog, as soon as I read Mark Zandi's quote I just had to write something. I so completely disagree with that thinking, especially since I used to bang nails and dig holes for a living way out in the field far away from the smart ones.

Posted by Jim Grisanzio on December 25, 2006 at 02:58 PM JST #

Nico ... I fully support the notion of "other nations [becoming] wealthier relative to the U.S." Wealth itself is a relative term, though, but raising the standard of living in regions that so badly need it is a must. There will have to be a little less exploiting and a little more cooperating for that to happen, though. That's why I don't support the short term "outsourcing" crowd because most of it is mindless greed that most Americans don't support.

Posted by Jim Grisanzio on December 25, 2006 at 03:07 PM JST #

Jim, My business, these past decades, has been about evolving innovations for domestic production. GLOBAL wares are forthcoming during 2007, again, manufactured within the U.S.A. Might be RUSTY, but not broken, YET! Enjoy a Great Holiday and Best Wishes for 2007, (Now visiting Florida (Orlando-Davenport) this Holiday!)

Posted by William R. Walling on December 25, 2006 at 05:23 PM JST #

Jim, who's exploiting whom? (My answer: neither is the U.S. exploiting poorer nations nor the other way around.)

The current trade deficit situation will end when prices have fallen low enough that relative to them other nations will be able to import more so the U.S. has to import less. Of course, lower prices mean lower incomes for exporters, and earning nothing but slowly devalueing dollars doesn't help them now (though they may eventually revalue), which means... not that the U.S. is exploiting them, but that rich nations with high import barriers (hint: EU) will face more and more pressure, both from without (exporters) and within (consumers), to lower them. The biggest problem though is just how reluctant the EU is to import. It may be more a cultural issue than a political one: I suspect many Europeans are fully aware of how expensive life is in Europe, and they understand that more trade would lower their costs of living, but nonetheless either they fear change or are satisfied with the purchasing power of their currency when they travel abroad (but how often?).

Once Europe opens up or China and India become rich enough (is there any doubt that their lot is improving?) the trade deficit will vanish and Americans will have to make do. What's been great about the U.S. economy and culture is its ability to adapt to massive changes in conditions and technology -- assuming that this luxurious trade deficit hasn't spoiled the lot of us here then I predict that the end of the trade deficit will be just another positive transformational event (if we can term such slow developments "events"), just as the advent of that deficit was.

I know, I'm painting a rosy picture. We'll see how it turns out; I hope they turn out well.

Posted by Nico on December 27, 2006 at 06:33 PM JST #

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