The Innovation Cycle
All innovation is not created equal. This article identifies three different types, in chronological order:
- Empowering innovations “transform complicated and costly products available to a few into simpler, cheaper products available to the many.”
- Sustaining innovations “replace old products with new models.”
- Efficiency innovations “reduce the cost of making and distributing existing products and services.”
Something is empowering (the Model T created a whole new thing we could buy), then it continues as sustaining (a newer model car is better, but most people still only buy one car), then it undergoes multiple rounds of efficiency (using cheaper steel to make the car).
The first two types of innovation create jobs, while the last one eliminates them. The more efficiently we can make something, the less people we need to do it.
So efficiency is bad? Nope, it serves a purpose:
Efficiency innovations also emancipate capital. Without them, much of an economy’s capital is held captive on balance sheets, with no way to redeploy it as fuel for new, empowering innovations.
The idea is that we take the savings we gain from efficiency innovations and plow them into R&D to find the next greatest empowering innovation which becomes a job-creating engine.
Bad things happen to the American worker if businesses simply horde the money they gained from efficiency. The hope is that competing companies continue to innovate, so every company has to plow money back into creating empowering innovations just to keep up.
With any luck, the cycle starts over again.