“One of the challenges in life is to know the difference between a cyclical slump and a transformation that will permanently change a business, industry, economy, lifestyle, living standard, a family’s prospects or the future of a nation-state.
Harvard Professor Clay Christensen explained the difference, in the business world, with his 1997 breakout book “The Innovator’s Dilemma”. I interviewed him at Harvard in 2005 about his theory of disruptive innovation and how the failure to recognize the dangers, and opportunities, in changing circumstances have devastated many industries from steel to retail, telecoms, the media and others.
All these sectors failed to recognize the signs or patterns that revealed the fact that changes were permanent and required recalibration and reframing of the industry, business and mentalities of all involved.
Last week in Davos, Professor Christensen elaborate his theory to include macro-economics and markets. As with the invention of the PC or Internet or mini steel mill, the current economic conditions are transformative and require recalibration and reframing of strategies, policies and political judgment.
He calls it the “capitalist’s dilemma” and said that the relatively jobless economic recovery in the U.S. and elsewhere is the new normal, and presents serious political and social consequences. Some 204 million people remain unemployed worldwide, in large measure due to the 2008 meltdown, but there are other reasons, he pointed out.
“Whatever happens on Election Day,” wrote Christensen in the New York Times just before the voting, “Americans will keep asking the same question: When will this economy get better?”
Christensen is not an ideologue. He analyses facts, not opinions, and has figured out why low or no interest rates on capital has caused a timid recovery with mediocre job growth. The old paradigm was that give away cheap money and the enterprising, and enterprises, will innovate and create jobs and gobs of economic activity.
Perhaps the sluggishness is due to the fact that trillions in debts are being paid down after America’s spending binge. But that’s only a small part of the story, he said. Trillions remain on the sidelines earning low interest, or invested in stock markets with hedge funds.
“Even if there is robust growth there won’t be job creation,” he said.
This is because the challenge is not framed properly. Policymakers must differentiate – by providing tax or other incentives — between three categories of innovation in other to “unlock the type of innovation capital” that creates real wealth for an economy or industry or business….”
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