Thursday, January 24, 2013

Innovation Economy Is Dying

The rise and fall of an economic epoch is measured by employment. The convergence of agriculture and manufacturing don't concern production. When less people are needed to produce more goods, the economy has peaked. The workforce needs retraining. In his book "The New Geography of Jobs", Enrico Moretti argues that the Innovation Economy is still diverging. Regional job growth is dependent on creative industries such as Apple:

Apple, Moretti says, employs 13,000 directly in Cupertino but has spurred 70,000 indirect jobs in the region. Two-thirds of American jobs are in the local service sector, he writes, and “the almost magical economics of job creation” are that “for each new high-tech job in a city, five additional jobs are ultimately created outside of the high-tech sector in that city, both in skilled occupations (lawyers, teachers, nurses) and in unskilled ones (waiters, hairdressers, carpenters).” What’s more, innovation “has a disproportionate effect on the economy of American communities. Most sectors have a multiplier effect, but the innovation sector has the largest multiplier of all: about three times larger than that of manufacturing.”

Regarding economic development, the strategy is clear. Innovation jobs are the Holy Grail. That's great until the Innovation Economy starts converging. The Economist weighs in on this economic epoch's iconic company:

Yet even if it produces a cheaper iPhone, pushes deep into China and wows the world with a smart TV, its shares will not reconquer last year’s peak. Competition is now tougher in its core markets. Rivals will not let it disrupt new ones so easily. Apple may dip into its $137 billion cash lake to boost its share price by paying fatter dividends or buying back more stock. That would delight some investors, but others would see it as a tacit admission that the firm’s great innovation engine has stalled. Apple won’t crumble, but it has peaked.

Emphasis added. Since I've read Moretti's book, I've compiled a lot of anecdotal evidence that the Innovation Economy has commenced convergence. The conclusion that Apple has peaked is icing on the cake. Silicon Valley is the next Detroit.

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