This semester I am teaching the innovation half of a course on Entrepreneurship and Innovation at NYU’s new Center for Urban Science and Progress (CUSP). Teaching forces you to take a fresh look at the subjects you are covering, so I find myself revisiting questions I’ve long been thinking about: What is the essence of innovation in the digital economy and how does it differ from the industrial age innovation of the past two hundred years?
The bulk of the innovations in the industrial economy involved physical objects, physical systems and the physical world around us. Our biggest scientific advances were in the natural sciences, e.g., astronomy, physics, chemistry, geosciences and biology. In engineering, we made huge progress in applying science and technology to develop increasingly complex physical objects and infrastructures, such as railroads, cars, airplanes, chemical plants, refineries, power stations, bridges, skyscrapers, computers, microprocessors, and so on. Ever since the steam engine gave rise to the Industrial Revolution in the late 18th century, we’ve had major waves of innovation every 50-60 years, including railroads, steel, electricity and heavy engineering in the 19th century; and automobiles, airplanes and telecommunications in the 20th century.
The Industrial Revolution had a huge impact on all aspects of the economy and society. It totally transformed the composition of labor. In 1840, the vast majority of US jobs where in agriculture, with services accounting for roughly 20% of jobs. Those figures have been drastically reversing since then. According to 2009 statistics from the CIA World Factbook, only 0.7% of the US labor force is now involved in agriculture oriented jobs and roughly 20% work in the industrial sector. The bulk of jobs, almost 80%, are in services, with 3/4 of those service jobs based on processing information in one way or another, - e.g., managerial, professional, technical, sales and office. Similar changes in labor composition have been taking place in just about every country.
The emerging 21st century digital economy seems quite different from the industrial economy of the past two centuries. Dramatic advances in information and communication technologies are now enabling us to apply science, technology and innovation to improve the productivity of information-based service jobs, as well as that of sociotechnical systems, that is, systems in which people play a central role, such as business organizations, healthcare institutions and cities. Such systems are particularly hard to understand and control because of the complexities inherent in human and organizational behaviors.