income inequality | Human-Centered Change and Innovation

New Skills Needed for a New Era of Innovation

GUEST POST from Greg Satell

The late Clayton Christensen had a theory about “jobs to be done.” In his view, customers don’t buy products as much as they “hire” companies to do specific “jobs” for them. To be competitive, firms need to understand what that job is and how to do it well. In other words, no one wants a quarter-inch drill bit, they want a quarter-inch hole.

The same can be said for an entire society. We need certain jobs to be done and will pay handsomely for ones that we hold in high regard, even as we devalue others. Just as being the best blacksmith in town won’t earn you much of a living today, great coding skills wouldn’t do you much good in a medieval village.

This is especially important to keep in mind today as the digital revolution comes to an end and we enter a new era of innovation in which some tasks will be devalued and others will be increasingly in demand. Much like Christensen said about firms, we as a society need to learn to anticipate which skills will lose value in future years and which will be considered critical.

The Evolution of Economies

The first consumer product was most likely the Acheulean hand axe, invented by some enterprising stone age entrepreneur over 100,000 years ago. Evidence suggests that, for the most part, people made stone axes themselves, but as technology evolved, some began to specialize in different crafts, such as smithing, weaving, cobbling and so on.

Inventions like the steam engine, and then later electricity and the internal combustion engine, brought about the industrial revolution, which largely put craftsmen out of work and reshaped society around cities that could support factories. It also required new skills to organize work, leading to the profession of management and the knowledge economy.

The inventions of the microchip and the internet have led to an information economy in which even a teenager with a smartphone has better access to knowledge than a specialist working in a major institution a generation ago. Much like the industrial era automated physical tasks, the digital era has automated many cognitive tasks.

Now as the digital era is ending we are entering a new era of innovation in which we will shift to post-digital computing architectures such as quantum computing and neuromorphic chips and enormous value will be created through bits powering atoms in fields like synthetic biology and materials science.

Innovation, Jobs and Wages

As economies evolved, some tasks became devalued as others increased in importance. When people could go to a smith for metal tools, they had no need to create stone axes. In much the same way, the industrial revolution put craft guilds out of business and technologies like tractors and combine harvesters drastically reduced the number of people working on farms.

Clearly replacing human labor with technology is disruptive, but it has historically led to dramatic increases in productivity. So labor displacement effects have been outweighed by greater wages and new jobs created by new industries. For the most part, innovation has made all of us better off, even, to a great extent, the workers who were displaced.

Consider the case of Henry Ford. Because technology replaced many tasks on the family farm, he didn’t need to work on it and found a job as an engineer for Thomas Edison, where he earned enough money and had enough leisure time to tinker with engines. That led him to create his own company, pioneer an industry and create good jobs for many others.

Unfortunately, there is increasing evidence that more recent innovations may not be producing comparable amounts of productivity and that’s causing problems. For example, when a company replaces a customer service agent with an automated system, it’s highly doubtful that the productivity gains will be enough to finance entire new industries that will train that call center employee to, say, design websites or run marketing campaigns.

Identifying New Jobs To Be Done

To understand the disconnect between technological innovation and productivity it’s helpful to look at some underlying economic data. In US manufacturing, for instance, productivity has skyrocketed, roughly doubling output in the 30 years between 1987 and 2017, even as employment in the sector decreased by roughly a third.

It is the increased productivity growth in manufacturing that has fueled employment growth in the service sector. However, productivity gains in service jobs have been relatively meager and automation through technological innovation has not resulted in higher wages, but greater income inequality as returns to capital dwarf returns to labor.

Further economic analysis shows that the divide isn’t so much between “white collar” and “blue collar” jobs, but between routine and non-routine tasks. So warehouse workers and retail clerks have suffered, but designers and wedding planners have fared much better. In other words, technological automation is creating major shifts in the “jobs to be done.”

A recent analysis by the McKinsey Global Institute bears this out. It identified 56 “foundational skills” that are crucial to the future of work, but aren’t in traditional categories such as “engineering” or “sales,” but rather things like self awareness, emotional intelligence and critical thinking.

Collaboration Is The New Competitive Advantage

The industrial revolution drove a shift from animal power to machine power and from physical skills to cognitive skills. What we’re seeing now is a similar shift from cognitive skills to social skills as automation takes over many routine cognitive tasks, increasingly the “job” that humans are valued for is relating to other humans.

There are some things a machine will never do. An algorithm will never strike out at a Little League game, see its child born or have a bad day at work. We can, of course, train computers to mimic these things by training them on data, but they will never actually have the experience and that limits their ability to fully relate to human emotions.

To see how this is likely to play out, simply go and visit your local Apple Store. It is a highly automated operation, without traditional checkout aisles or cash registers. Still, the first thing that catches your eye is a sea of blue shirts waiting to help you. They are not there to execute transactions, which you can easily do online, but to engage with you, understand what you’re trying to achieve and help you get it done.

We’ve seen similar trends at work even in highly technical fields. A study of 19.9 million scientific papers found that not only has the percentage of papers published by teams steadily increased over the past 50 years, the size of those teams has also grown and their research is more highly cited. The journal Nature got similar results and also found that the work being done is far more interdisciplinary and done at greater distances.

What’s becoming clear is that collaboration is increasingly becoming a competitive advantage. The ultimate skill is no longer knowledge or proficiency in a particular domain, but to build a shared purpose with others, who possess a diverse set of skills and perspectives, in order to solve complex problems. In other words, the most important jobs the ones we do in the service of a common objective.

— Article courtesy of the Digital Tonto blog
— Image credit: Unsplash

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We're Disrupting People Instead of Industries Now

In 1997, when Clayton Christensen first published The Innovator’s Dilemma and introduced the term “disruptive innovation,” it was a clarion call. Business leaders were put on notice: It is no longer enough to simply get better at what you already do, you need to watch out for a change in the basis of competition that will open the door for a disruptive competitor.

Today, it’s become fashionable for business pundits to say that we live in a VUCA era, one that is volatile, uncertain, complex and ambiguous, but the evidence says otherwise. Increasingly researchers are finding that businesses are enjoying a period that is less disruptive, less competitive and less dynamic.

The truth is that we don’t really disrupt businesses anymore, we disrupt people and that’s truly becoming a problem. As businesses are increasingly protected from competition, they are becoming less innovative and less productive. Americans, meanwhile, are earning less and paying more. It’s time we stop doubling down on failed ideas and begin to right the ship.

The Productivity Paradox

In the 1920s two emerging technologies, internal combustion and electricity, finally began to hit their stride and kicked off a 50-year boom in productivity growth. During that time things changed dramatically. We shifted from a world where few Americans had indoor plumbing, an automobile or electrical appliances to one in which the average family had all of these things.

Technology enthusiasts like to compare the digital revolution with that earlier era, but that’s hardly the case. If anybody today was magically transported 50 years back to 1970, they would see much they would recognize. Yet if most modern people had to live in 1920, where even something as simple as cooking a meal required hours of backbreaking labor, they would struggle to survive.

The evidence is far more than anecdotal however. Productivity statistics clearly show that productivity growth started to slow in the early 1970s, just as computer investment began to rise. With the introduction of the Internet, there was a brief bump in productivity between 1996 and 2004, but then it disappeared again. Today, even with the introduction of social media, mobile Internet and artificial intelligence, we appear to be in a second productivity paradox.

Businesses can earn an economic profit in one of two ways. They can unlock new value through innovation or they can seek to reduce competition. In an era of diminished productivity, it shouldn’t be surprising that many firms have chosen the latter. What is truly startling is the ease and extent to which we have let them get away with it.

Rent Seeking And Regulatory Capture

Investment decisions are driven by profit expectations. If, for instance, a firm sees great potential in a new technology, they will invest in research and development. On the other hand, if they see greater potential influencing governments, they will invest in that. So it is worrying that lobbying expenditures have more than doubled since 1998.

The money goes towards two basic purposes. The first, called rent seeking, involves businesses increasing profits by the law to work in their favor, as when car dealerships in New Jersey sued against Tesla’s direct sales model. The second, regulatory capture, seeks to co-opt agencies that are supposed to govern industry.

It seems like they’re getting their money’s worth. Corporate tax rates in the US have steadily decreased and are now among the lowest in the developed world. Occupational licensing, often the result of lobbying by trade associations, has increased fivefold since the 1950s. Antitrust regulation has become virtually nonexistent, while competition has been reduced.

The result is that while corporations earn record profits, we pay more and get less. This is especially clear in some highly visible industries, such as airlines, cable and mobile carriers, but the effect is much more widespread than that. Keep in mind that, in many states, legislators earn less than $20,000 per year. It’s easy to see how a little investment can go a long way.

Decreasing Returns To Labor

With businesses facing less competition and a more favorable regulatory environment, which not only lowers costs but raises barriers to new market entrants, it shouldn’t be surprising that the stock market has hit record highs. Ordinarily that would be something to cheer, but evidence suggests that the gains are coming at the expense of the rest of us.

A report from MicKinsey Global Institute finds that labor’s share of income has been declining rapidly since 2000, especially in the United States. This is, of course, due to a number of factors, such as low productivity, automation, globalization. Decreased labor bargaining power due to increased market power of employers, however, has been shown to play an especially significant role.

At the same time that our wages have been reduced, the prices we pay have increased, especially in education and healthcare. A study from Pew shows that, for most Americans, real wages have hardly budged since 1964. Instead of becoming better off over time, many families are actually doing worse.

The effects of this long-term squeeze have become dire. Increasingly, Americans are dying deaths of despair from things like alcohol abuse, drug overdose, and suicide. Recent research has also shown that the situation has gotten worse during Covid.

We Are Entering A Dangerous Decade

Decades of disruption have left us considerably worse off. Income inequality is at record highs. Anxiety and depression, already at epidemic levels, has worsened during the Covid-19 pandemic. These trends are most acute in the US, but are essentially global in nature and have contributed to the rise in populist authoritarianism around the world.

Things are likely to get worse over the next decade as we undergo profound shifts in technology, resources, migration and demographics. To put that in perspective, a demographic shift alone was enough to make the 60s a tumultuous era. Clearly, our near future is fraught with danger.

Yet history is not destiny. We have the power to shape our path by making better choices. A good first step would be to finally abandon the cult of disruption that’s served us so poorly and begin to once again invest in stability and resilience, by creating better, safer technology, more competitive and stable markets and a happier, more productive workforce.

Perhaps most of all, we need to internalize the obvious principle that systems and ideologies should serve people, not the other way around. If we increase GDP and the stock market hits record highs, but the population is poorer, less healthy and less happy, then what have we won?

— Article courtesy of the Digital Tonto blog
— Image credit: Pexels