What is Obama’s real economic problem?

Does economic growth in the US really depend on who wins the US Presidential election this Tuesday? No.

How much can President Obama or Republican candidate Mitt Romney do for the economy? No.

How can the US or any economy create real sustainable job growth? Empowering Innovation.

The New York times article today highlighted a growing concern by economists as highlighted by Clayton Christensen, business professor at Harvard and author of “The Innovator’s Dilemma.” Either way says Christensen the winner of the election must face “the capitalist’s dilemma.”

What is the Capitalists Dilemma?

Christensen says a new economic doctrine which embraces measures of profitability that guide capitalists decisions away from investments that can create real economic growth.

He further explains the three types of innovations:

  1. Empowering innovations create jobs, because they require more and more people who can build, distribute, sell and service these products. Empowering investments also use capital — to expand capacity and to finance receivables and inventory.
     
  2. The second type are “sustaining” innovations. These replace old products with new models. For example, the Toyota Prius hybrid is a marvelous product. But it’s not as if every time Toyota sells a Prius, the same customer also buys a Camry. There is a zero-sum aspect to sustaining innovations: They replace yesterday’s products with today’s products and create few jobs. They keep our economy vibrant — and, in dollars, they account for the most innovation. But they have a neutral effect on economic activity and on capital.
     
  3. The third type are “efficiency” innovations. These reduce the cost of making and distributing existing products and services. Examples are minimills in steel and Geico in online insurance underwriting. Taken together in an industry, such innovations almost always reduce the net number of jobs, because they streamline processes. But they also preserve many of the remaining jobs — because without them entire companies and industries would disappear in competition against companies abroad that have innovated more efficiently.

We definitely need more empowering innovation by the likes of the HP and IBM computers which have helped create hundreds of thousands of people to make and sell PC’s. These companies then designed and made better computers — sustaining innovations — that inspired us to keep buying newer and better products. 

Without this businesses as well as investors will sound like the Ancient Mariners, who complained of “Water, water everywhere — nor any drop to drink.”

It is a great article and encourage you to read it in its entirety at the NY Times

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