Wednesday, December 13, 2006
The New Horizontal Thinking
A few months ago I suggested that saving, and even creating, new jobs in Michigan might not be in our best interest if they did not promote our transformation into a third-stage, upgrading economy. I’d like to push this assertion even farther by arguing that to survive, yes survive, we need to become a community of innovators.
How do we do this? It may be helpful to apply insights from the theory of evolution to the question. In a very simple form, organisms that adapt to new circumstances survive. Those that don’t, don’t. But some biologists suggest that in fact evolution is not a linear process. Instead, critical events lead to “punctuated equilibria” in which massive changes create entire new paradigms. Organisms that survive must change rapidly to survive. Then a period of stasis follows in which change happens primarily at the margins until the next critical event.
Economics might also work this way. Relatively long periods of stasis as one kind of economy gives way to another relatively rapidly. Interestingly, the period of stasis between critical events and the time it takes to move to a new paradigm have both shortened dramatically over time, putting increased pressure on firms, individuals, states, and countries to change ever more quickly.
We in Michigan are now facing just such a transformation. For almost an entire century we’ve benefited from a vertical agglomeration in a few industries, especially autos and agriculture. But then over a few short decades, the international economy changed. Oh, we knew changes were happening, but we didn’t really appreciate what they meant to us. Changes in consumer tastes, market access, technological capabilities, and foreign competitive capacity, among other things, have critically altered our system of wealth creation. So, what do we do next?
The answer is to strategically abandon our old economy and create a new one. Note the word strategic. We need to take our old, vertically integrated model of manufacturing and turn it into a new, horizontal model of innovation and capacity that can be applied to numerous industries and at numerous points in the production process.
In this new economy, value and wealth are created in the design and research phase. Agglomerations and linkages are based on talents, skills, knowledge, and capacity, most of it scientific. Centers of innovation emerge that produce knowledge applicable to numerous industries simultaneously. Industries are then linked horizontally: new generation automobile engines lead to alternative energy, which leads to advanced agriculture, which leads to pharmaceuticals, which leads to medical technologies, etc.
The same change can also be applied to humans. Global changes demand that unions remake themselves to be pertinent in this new economy. For example, in Singapore organized labor leads in training and skills development, recognizing that increased pay MUST be tied to productivity gains, not collective bargaining.
These changes undertaken in response to a shifting global economy will attract similar capacities, skills, knowledge, and capital. We must again become a capital, but one that produces ideas rather than cars.
