Last week I wrote about Cloud, Services and the Transformation of Production, based on Part I of Escape from the Commodity Trap: Will the Production Transformation Sustain Productivity, Growth and Jobs?, a paper by UC Berkeley professor John Zysman. Part II of the paper deals with the economic and policy implication of this ICT-based production transformation.
“For the advanced industrial democracies to expand the real income of the citizens and sustain growth in employment and productivity, their economies will have to escape from the commodity trap,” writes Zysman in the paper’s abstract. “The commodity trap is the price-based competition throughout markets for standard goods and services, which puts pressure on wages and profit margins alike. Clearly, the way out of this trap is to create distinctive high value added products - both goods and services. The emerging transformation of the production of goods and services is dramatically altering what is produced, where, how, and who captures the value. It creates opportunities and challenges.”
Early in the Industrial Revolution , the so-called Luddites smashed the new textile machines that were threatening their jobs. Zysman reminds us that while many of the Luddites lost their jobs, the overall English economy prospered and the average standard of living went up. “It is easier to identify the jobs that are destroyed,. . . than to imagine the ways new jobs will be created. Of course, the character and location of those jobs may advantage some communities and disadvantage others.”
Disruptive innovations, - like the power looms allegedly smashed by protesting Luddites, - have been displacing human labor for the past two centuries. These periods of creative destruction, - when new technology-based innovations led to painful transitions in once-dominant companies and jobs, - eventually worked themselves out. Over time, these same disruptive innovations rejuvenated the economy, and led to the creation of new industries and jobs.