I got a Nexus 7 2nd-gen tablet.

Hello. I'm Androidboy. Yesterday I got a Nexus 7 2nd-gen tablet.
Because both Nexus 7(2012) and Nexus 7(2013) had the same device model
number, it made me crazy. I had to fix optimization of Nexus 7. I had
calibrated my tools on it carefully. I'll update the apps one by one.
Have a SMART day~

The hidden trap of innovation shortcuts

I've worked with a wide range of companies to help define and build innovation capabilities - teams, processes and cultural change.  Innovation has significant promise, to create valuable new products, services and business models that can drive new revenues and profits, differentiation or the entree to a complete new market or customer segment.  But doing innovation well requires doing it thoroughly, and no matter how often we build innovation processes and coach innovation projects, inevitably we find innovation teams taking shortcuts, skipping important innovation steps, assuming they "know" something about the customer or market.  When these shortcuts are taken, the result is almost always a "me-too" product.  You must either commit completely to the work that will help you achieve your goal, or admit upfront that you'll settle for something less than your goal.

Let's consider why shortcuts are so dangerous for innovation.

The future is now!

One of the steps that many innovation teams try to skip completely, or will shortchange, is understanding current trends and what those trends say about the future their products and services will compete in.  No one wants to spend time thinking about future conditions, because they can't be predicted with absolute certainty.  Therefore, many innovation teams identify needs that exist today and build products to meet those needs, only to find that when the products are released years later the needs or conditions have changed.  Investing time now to understand the potential future and what it may mean for your new product or service is vital if you truly desire differentiation.

What we think we know about needs

Far too many firms are far too arrogant about their understanding of customers and their needs.  The longer the involvement in a market, the more paternalistic a company becomes.  Product managers and marketers begin to assert needs that customers and consumers have, rather than going out and meeting customers on their own terms, where and when they use or consume a product.  It's far too easy to skip any investigation into needs, and assert the needs that have "always" existed and still exist today.

Letting others do the work

As a consultant, it may surprise you to learn that I think far too many organizations outsource far too much of their innovation cycle.  Companies rely on third parties for market research, defining product needs, interacting with customers and channel partners, product requirements and design, market development and other tasks.  Too many innovators, product developers and product managers live in a bubble, carefully fed information by third parties about the needs of their customers.  It's become far too easy to allow others to do the work, and become removed from the real investigation and discovery necessary to innovate.


It's all about speed

Of course every firm is focused on speed and efficiency.  How quickly can we complete this project so we can move on to the next one?  Are we working at peak efficiency, which is typically defined as moving as quickly as possible with as few resources as possible.  Innovation doesn't work to a stopwatch, and may often be iterative, inefficient, uncertain and require, gulp, actual learning.

So, when you combine an ill-prepared innovation team, uncertain about the tools and roles of innovation, with the pressure to create a new innovation quickly, and compound that by placing other demands on the team and downplaying any new insights or time to learn, the teams take shortcuts.  They skip critical steps, assert industry and segment knowledge, and end up repeating the same projects over and over again, using the same people and the same data.  That's not innovation, that's insanity according to Einstein.

Innovation isn't a race to efficiency and speed

Unlike every other activity in a modern corporation, innovation shouldn't be measured by a stopwatch.  Innovation should be carefully defined, carefully considered, and approached with the requisite investment in skill development it deserves.  Rather than skipping steps and activities, asserting that we "know" data, we should have the patience and humility and sense of discovery to engage customers and prospects with an open mind.  Since many innovation projects aren't a repeat of activities or projects a company has carried out before, the projects and activities should be carefully planned and each phase completely exercised.  There really is no cookie cutter approach to innovation, and many organizations lack any institutional memory about previous innovation activities or attempts, except for the attempts that failed.

When you skip steps, assume information, ignore blindspots and speed through an innovation process you miss opportunities and narrow the range of outcomes and scope of activities.  This inevitably results in incremental, me-too innovation.  Worse, it repeats a mistake and costs money and resources that with just a bit more focus and time could have delivered a far better result.  The difference between a very mediocre innovation activity that's rushed and delivers incremental results and an incredible innovation activity full of discovery that's patient and delivers disruptive results is very small, in both time and costs.

As a company gains experience and innovation maturity, the innovation teams may be able to assert knowledge, repeat processes and skip steps, but even experienced innovators will tell you that there are opportunities to discover new needs and learn new things about consumers in every innovation activity.  Mark Twain recognized the intelligence of experience when he said about his father:
When I was a boy of 14, my father was so ignorant I could hardly stand to have the old man around.  But when I got to be 21, I was astonished at how much the old man had learned in seven years.
When nascent innovators skip innovation steps, against the advice of years of innovation experience, they are like the boy of 14.  As a firm matures, it may discover that the advice was more valuable than expected.


Creating jobs with innovation

There's been a slight ripple in the blogosphere force.  A ripple caused by a careful inward look at the results of automation, technology and, yes, innovation.  What's clear is that these forces are creating a bifurcated population.  One segment of the population is highly compensated, creative, analytic and sustains an excellent lifestyle and is very employable.  The other segment of the population is poorly compensated, focused on manual labor or services that can't be outsourced.  This segment faces little upward mobility, and constant pressure from new entrants who are willing to do their work for even lower wages, creating great job insecurity.  Increasingly, we see the population sorted into an hourglass shape, with highly educated workers at the top, and individuals with less education at the bottom.  This has always been the case, but what's different is the middle.  In the past 100 years or so a "middle class" formed, that was a bridge between the two classes.  The middle class is slowly being squeezed out of existence as jobs and businesses change and efficiency, automation and innovation force changes to businesses.

How innovation and technology wreck the middle class

On Sunday in the New York Times, an op-ed was published that is entitled How Technology Wrecks the Middle Class.  It is an honest examination of the impact that technology has had on middle class jobs.  Automation, information technology and robotics have led to less need for a middle class that translates executive instruction into meaningful work.  As the middle class often served as a bridge between the "labor" class and the "creative" class, forces that impact the middle class tend to create a chasm between the other two classes and make the transition from labor to creative class difficult.  Of course in the recent recession we've learned that some "creative class" jobs or individuals can make the unfortunate transition to the "labor" class, because all jobs and titles are subject to disruption.

These factors shouldn't come as a surprise.  Schumpeter and others have written about the nature of  innovation, technology and automation as "creative destruction".  When the Luddites attacked the looms they were fighting a losing battle against automation.  Jobs and the nature of work changes as technology, automation, innovation and a growing educated populace rises everywhere.  There is some good news however.  For every job innovation, technology or automation destroy, they often create several other jobs.  When a robot on a shop floor replaces a worker on the line, jobs are created to design and build the robot, to create and maintain the software necessary to manage the robot, to maintain and upgrade the robot and to install the robot.  But efficiency and automation are always focused on doing more with less, so even if innovation creates new jobs, there are two problems:
  • efficiency, technology and automation are destroying jobs 
  • the jobs innovation creates are typically ones that require creative or analytic skills
There's another factor at play as well - political forces.  As more regulations are created, as health care, pensions and labor laws increase, labor becomes increasingly expensive and inflexible.  As these factors occur, executives resist hiring full time employees and run on the bitter edge of productivity, supplementing with contractors, consultants or part-timers.  Today, with an uncertain economy and significant regulatory burden, there's little incentive to hire at any level, especially when the promise of more automation or efficiency should reduce many jobs in the next few years in the labor class.

Does innovation offer an answer?

This question was posed by Paul Hobcraft recently.  Can innovation offer solution that both provide customer and corporate value AND create new job opportunities?  As I've noted before, disruptive innovation creates new jobs, but those jobs are typically in the "creative" or analytic fields.  Incremental innovation is at best job neutral or perhaps a job killer, in that incremental innovation seeks to sustain an existing product or service and make it either more attractive or less expensive.   If innovation has an answer to creative destruction, we need to turn our attention to disruptive innovation, and most likely to business model innovation.  Business model innovation has the potential to kill categories or industries, and at the same time create new jobs in all segments of society.

A close look at NetFlix will explain my hypothesis.  NetFlix, through its original business model of  delivering movies through the mail, killed Blockbuster and its retail model.  Thousands of low tech, retail jobs were lost when Blockbuster closed, but a lot of new jobs were created in different fields as NetFlix grew. Retail jobs were lost, but jobs in distribution and information technology were created.  This cycle will continue as other firms like RedBox attempt to disrupt NetFlix, and movies and content are distributed directly to consumers. 

We should also turn our attention to disruptive innovation and its impact because we can anticipate seeing more disruptive innovation in industries and areas where it hasn't been a factor yet.  Places like healthcare and university education, where regulations and traditional business practices have stymied change.  The more we understand about the impact and possibilities of disruptive innovation, the more we'll be prepared for the "jobs of tomorrow".  These industries and others have exceptionally high barriers to entry and are protected from competition through regulation.  Increasingly the disrupters for these industries will be sited in places where regulations are different (Costa Rica or India for health care as an example). 

Preparing for the jobs

Here's another place where innovation can help create and prepare others for jobs - education.  Our educational system needs a significant revamp, and since the best jobs are in the creative economy, and require education, we need to rethink and revise our education process.

Today in the US our educational system needs rethinking from the bottom up.  We educate our kids on an agrarian calendar that worked when the majority of people were farmers, but today we sacrifice months of potential education time to summer vacation.  We must rethink the schedule, the content and curriculum that kids in kindergarten and first grade receive.  We need to reintroduce the creative arts - music, art, drawing, etc because creativity is vital to future jobs.  We need to experiment with a range of different class styles, educational programs and ramp up the expectations of all students.  This needs to start at the lowest levels and work its way up to secondary education.  And we need to demonstrate that while college is important for many people, deep skill building and expertise is important and valuable, so start many kids on a track to vital technological education very early, and raise the profile of that educational experience.

Then we can tackle what is the main driver and barrier of creativity and the foundation of the creative class:  college.  The collegiate education needs a rethink in terms of what people learn, how they apply what they learn, but more specifically the value and cost of the experience, and what that experience prepares people to do.  Too many people are leaving high school and college with no distinguishable improvement in skills or thinking capability, having matriculated but not learned or improved their skills.  We need far more innovation at the collegiate level, and MOOCs or other programs may become the tipping point that forces colleges and universities to change.

Amanda Ripley's book Smartest Kids in the World points out some key differences between educational systems in other countries and our own.  Some I've noted above, but perhaps the most compelling difference is the focus on the status of teachers.  We need to elevate the teaching profession and recognize the value of people who create the "raw material" that will become our new competitive edge.  Daniel Pink in his book A Whole New Mind demonstrated over a decade ago the importance of creativity, by noting that anything that could be outsourced or automated would be, leaving value in creativity, analytics, design and other fields that demand education.  Pink identified Asia (for outsourcing) abundance and, wait for it, automation, as the three factors that would transform our economy and place higher value on education and creativity.

In other words, we know how to change, and we know where innovation can help.  The resistors to the change necessary are enormous.  We're talking about hundreds of years of educational history and bureaucracy, being asked to adapt to rapidly changing conditions with very uncertain outcomes in a period where funding for education is being cut at the lower levels and being called into question at the collegiate levels.  This is the point where all the forces combine to create a singularity - the systems will actually fold in on themselves in the physical sense. 

The reality

Innovation, automation, efficiency and innovation technology are all job creators and job destroyers.  The creation/destruction cycle is simply speeding up, at a time when we are ill-equipped to deal with the speed and direction of the change.  Our educational processes, starting at the earliest ages, are configured for rote learning, with little deviance or creativity allowed.  Of course it would be very difficult to react to the rapidly changing circumstances, especially considering the size, funding and expectation of the educational systems.  But we need to place our bets somewhere, and a rapidly reconfigured and constantly evolving educational process is what I believe can create more jobs and more prepared workers and innovators.  If you want to see the place where innovation can create jobs, and the potential for more jobs and more wealth creation, focus your innovation attention on the educational process, from the ground up.


Is your innovation a step, jump or vault?

In hindsight, most new products or services that are created seem relatively obvious.  Consumers and manufacturers will wonder - why didn't we see this sooner?  Most really interesting innovations, however, seem paradoxical and strange as they are being introduced, even though many will be accepted and become part of the norm.  For example, consider cell phones.  During the period from 1990 to about 1997, it seemed the goal of all cell phone manufacturers was to shrink the size of the cell phone - to make it an accessory hanging off the ear, or to perhaps even eventually place it in the ear canal, out of sight, out of mind.  Enter the iPhone, and now the landrush is on in the opposite direction - cell phones as platforms for visual interaction and data presentation.

Which leads us to the question of how you frame your innovation activities.  When you organize your innovation teams, and ask for innovation outcomes as new products, services or business models, what picture do you paint for them?  Is the outcome you expect a simple "step" from the products and services available today, a modest "jump" from where expectations reside, or a significant "vault" to a completely new solution or market position?  While these three represent human activities, the energy, experience and enthusiasm embedded in the different outcomes presents real opportunities and challenges.  Without a clear definition, the vast majority of projects will be "step functions" because those are the fastest, safest and simplest, with the least amount of risk.  However, that's also exactly how all your competition views it as well.  Each of you is "doubling down" on the same opportunity!

Energy

Work is defined as force over a distance, and that's a great definition as a metaphor for innovation.  How much work is required to create a new innovation?  Some of that work is used up as force overcoming resistance and inertia.  Since force is often limited, the less resistance that must be overcome, the more distance can be covered.  Energy is required to do work, but energy is expensive and must be conserved.  Therefore, we want to do the most work possible with the least energy, and that often leads to the work with the least resistance - the "low hanging" fruit. 

You must create the energy necessary relative to the innovation outcome you desire.  You can accomplish that by either ramping up investments and energy, or by reducing work and resistance.  Most resistance is organizational, historical and cultural, so focusing on the rationale for the change, and communicating the potential outcomes while working to reduce risk is vital.

Experience

Most of us learn to walk about 12 months or so after birth, so taking a small step is something we understand.  You don't need a lot of training or practice to take a small step, in life or in business.  There may be physical, emotional or cultural barriers to that small step, but once you've overcome those you or your business can make them.  Jumping is something we learn soon after walking.  Jumping is a bit more risky - it entails leaving the ground temporarily and may require clearing a modest obstacle.  Jumping may require a bit more practice, but it's something that many people can do especially well without a lot of experience, especially when the landing spot is understood and visible.  Vaulting, on the other hand, is a completely new experience.

Vaulting is based on taking steps, jumping and at the same time thrusting oneself over a bar set very high.  It combines all of the first steps, but introduces a lot of new technique and risk.  No one vaults without extensive practice, to become good at what they do.  There's too much risk and uncertainty involved, yet good vaulters make it look easy.  Vaulting adds a significant height component to the basic jump, compounding risk and uncertainty, yet with practice, good athletes can learn to vault.

The various forms of innovation outcome, sometimes described as incremental, breakthrough and disruptive, are similar, and from the description of experience and energy you can begin to see why so many innovations are simply step functions from existing knowledge.  It takes energy and experience to jump, and even more to vault.  Yet the rewards are found in the jumping and vaulting, while a new red ocean is formed when the majority simply step.

There's one other component that's vital to success beyond the step function, and that's enthusiasm.  Anyone can take small steps, given enough prodding, and some may even make small jumps.  But no one vaults without confidence and enthusiasm.  Innovation is the same way.  Many people will generate incremental ideas, but only those with enthusiasm will imagine and have the energy to see truly new ideas through to fruition.

Much innovation success is based on where you start - the energy you create, the experiences you have or build and the enthusiasm you muster or find within your organization.  What outcomes do you want?  Low hanging fruit, while easy to grasp, is often a false peak.  Too many people spy the same fruit and end up recreating the common competition pool, while far too many good opportunities go missing because they require more energy and experience than a simple step.

FAQ of Smart Tools apps (日本語)

******************************* 一般的な質問に関し
て ******************************* Q. ライセンスの問題("ライセンスがあ
りません..."や、"接続できません...")が表示された場合。 A. このページを
参照ください。 http://goo.gl/i654E Q. ダウンロードの問題(エラーコード
907、924 など)が表示された場合。 A. 設定 > アプリ > Google Playストアを
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ドをオフにし、3G/4Gの回線を経由してアプリをダウンロードしてください。
Q. マニュアルはありますか? A. それぞれのツールには、個別のアプリマニュ
アルがあります。又は、ブログのホームページやYouTubeの動画もあります。

Innovation copy & paste

I read with some interest a good post by Jorge Barba, in which he writes about the difficulties of creating an innovation capability simply by copying what other firms are doing.  He argues that "step by step" recipes often don't work, that you can't simply copy what Google does without also copying the culture that made Google successful.  However, we've since learned that Google is going to abolish much of what we thought made it successful - the 20% time - but that's another topic for another day.

Jorge raises an interesting question for firms that are building innovation capabilities:  what can you copy from others, what are the universal best practices, what do you need to define and develop for yourself?  The question Jorge doesn't ask, but that is equally relevant is:  how much time and effort will it take to copy what can be copied, to develop that which must be developed?

Because if you can't simply copy and paste, which is quick and somewhat painless, that means you must invest and develop, which isn't quick and takes time and money.

What you can copy

Every innovation consultant will argue that their approach or methodology is the best one, and all of them are being a bit disingenuous.  Alex Osborn and his supporters at the Critical Problem Solving Institute developed the basis for what a lot of us preach and practice.  Beyond Osborn's methods there are a range of trend spotting and scenario planning methods, customer insight approaches, intellectual property methodologies and so forth.  You can find the "best" of these and determine which components meet your company's culture, perspective and needs most effectively.

When it comes to tools and methods, you can trust a best practice approach.  That doesn't mean you should follow a prescribed methodology because X company does.  You should implement any tool or methodology in light of the specific goals of your company, the experiences it has, the goals it has.  You should implement tools and processes to "fit" with your organization, but never to hamper those methods and process by forcing them to accept limitations your organization imposes.

What you must develop

If you've run an innovation project using borrowed or copied methods, two issues must have become clear:  how few people really engaged in the process or even understood what was going on, and how much the existing culture rebelled against the imposed methods and processes.  While you can copy tools and to some extent an innovation process, you can't copy and paste the experiences of the people and their relationship to the corporate culture.

For long term, repeated success, you must train your people and potentially recruit new skills in order for innovation to thrive.  You may be successful on occasion with untrained people using unfamiliar tools, but that rarely happens in a high pressure, high exposure project.  Further, those inexperienced people using unfamiliar tools and processes encounter real resistance from a culture attuned to efficiency, not innovation. 

How to develop what you must develop
From a people perspective, there are three actions you can follow:  you can recruit new people with innovation experience to join your team, you can retrain existing people to take on new methods and processes more effectively, and you can change reward structures for both your new people and your existing teams.  Or, you can simply outsource innovation to people who are experts.

From a cultural perspective, there are no shortcuts.  The more work you put into changing the culture, encouraging the organization to innovate, to accept tradeoffs between efficiency and variability, between certainty and ambiguity, between predictability and risk, the more ambidextrous and flexible the organization will become.  Rewards and recognition matter as well.  How people are evaluated, compensated and recognized will shift the culture, as will long term, continued management focus and communication.

What you can't copy and must have

Copying a "best practice" method or set of tools will take only a month or two.  Developing your people and changing a culture can take several years.  Here you begin to see the crux of the problem.  Management teams aren't especially good at long term thinking or committing to long term, slow change projects, especially ones with unpredictable outcomes.  Quick and dirty, aiming for the proverbial "low hanging fruit" will always win out over slow, careful, constant change.  But that slow, careful, constant change is what you can't copy, and must have, for innovation success.




Separating entrepreneurs from corporate innovators

It's probably a distinction without a significant difference, but I try to distinguish very carefully between entrepreneurs, inventors and corporate innovators.  While there are some significant overlaps in goals, purpose and intent, there are also some very significant differences which I'd like to explore.  Entrepreneurs play a vital role in creating new technologies and forming new companies, and corporate innovators play an important role as well, revitalizing and refocusing the energy of larger corporations.  But what they face in doing their work is very different, and both should be considered in isolation - in context of their environment.  While it seems counter-intuitive, I'll make the case that the corporate innovator, by and large, has the most difficult job.

What's common

Both innovators, entrepreneurs creating a new business or technology, and corporate innovators trying to disrupt an adjacent market or entice a new customer segment, face a daunting challenge.  Creating interesting, vital and relevant new products and services is not easy.  The vast majority of new products or services fail to achieve internal goals set by the innovation teams, much less create the hoped-for profits and revenue growth.  Developing a new technology or product is difficult, challenging work regardless of the team environment and structure.  Risk, uncertainty and doubt plague anyone who starts down the path.  Entrepreneurs and corporate innovators share the desire to create meaningful change, the ability to spot unmet needs and a passion for delivering value to customers.

What's different

Entrepreneurs are innovators who have bet everything on one idea.  Their business, their structures and processes (such as they are), their passions and their resources are all fully behind that one idea.  Nothing should deter or distract the team from their aggressive pursuit of their idea, and everything about the company should support the success of the idea.  All decisions about resources, funding, messaging and strategy should be made in support of the main idea.

Further, the idea needs to be disruptive to the status quo.  Entrepreneurs, especially entrepreneurs who seek VC funding must demonstrate a business that will grow quickly.  This means creating a completely new market or service, or significantly disrupting an existing market or service.  Few entrepreneurs will be successful pursuing incremental ideas or ideas that are "me too" in nature.  Entrepreneurs can't afford to spend a lot of time evaluating a significant range of options.

Corporate innovators, on the other hand, face a very different landscape.  They have choices - either to create incremental products in existing markets, disruptive products that may cannibalize existing products, or to enter adjacent or entirely new markets.  The risk factors associated with the latter two options often doom those approaches from the start.  While an entrepreneur faces significant risk in any decision, corporations are more comfortable avoiding or at least minimizing risk.  Corporate innovators often have to re-introduce the risk balance of risk and reward.  Further, corporate innovators can claim only a tiny portion of their organization's budget, time, resources and focus.  While entrepreneurs are "all in" on one idea, corporate innovators must understand the range of options and alternatives that any business can encounter, and understand that the idea they are pursuing is but one of many ideas that the organization can fund, along with the demands for funding by existing teams and products.  Corporate innovators face resource allocation issues, prioritization issues and tolerance of risk that entrepreneurs acknowledge but to a great extent escape.

Further, corporate innovators are rarely "all in".  Most corporate innovators have "day jobs" - that is, they have a regular 9 to 5 job in marketing or finance or engineering, and they double up by taking on an innovation activity temporarily.  While an entrepreneur eats, sleeps and breathes his or her one idea 24/7, a corporate innovator pays attention to his innovation task several hours a week at best.  Corporate innovators are frequently distracted and asked to balance a number of urgent, competing priorities.

Both face uncertain funding, but even here the differences are stark.  Entrepreneurs, especially those who are funded, face questions from their investors, but more stark is the question of burn rate.  Will the entrepreneur have enough money and time to bring the idea to market before the money runs out?  This creates a sense of urgency that is often missing in corporate innovators, where innovation activities run at the pace of business as usual.  Corporate innovators face funding issues as well - often receiving far less in available funds to do the work they need to do, and encountering the whims and demands of firms that report results quarterly.  Funds can be quickly shifted and projects halted with a minimum of explanation.

Who has the tougher job?

In my opinion, and in my experience, speaking as someone who as 1) been on the management team of a VC backed company 2) run innovation for a company and 3) been an innovation consultant, the corporate innovator has the more difficult job.  He or she has much of the same expectation as an entrepreneur in terms of challenge and growth, but often works with one hand tied behind his back, limited by the pace of the corporate behemoth and distracted by a day job.  While the cost of "failure" isn't as high as it is for an entrepreneur, the upside is often very limited and the experience can be frustrating. 

An entrepreneur knows the risks and can commit all of his or her efforts behind the idea.  There are few people to reduce or constrain the breadth and scope of the idea, and no existing investments to protect.  All focus and energy is placed behind the idea.  The entrepreneur has a far greater sense of scope and control.

How can you incorporate the best of both?

Corporations need to emphasize much of what's right about an entrepreneur in their innovation programs.  Innovation needs to be more disruptive, more creative, more passionate.  Innovation needs to move at speeds dictated by the ideas, not by funding or approval cycles geared toward business as usual.  Innovators need opportunities to introduce more risk and have more time and control over their work.  They should be allowed to take greater risks and face both the potential upside of those risks and perhaps some of the negative aspects of the risks they create, as long as they also control the resources and direction of the innovation projects.

Further, organizations must be clear about how much innovation they want, the risks they'll tolerate or embrace and what they'll fund.  Corporate innovators work in the gray areas far too often, living on hints of funding and suggestions of scope.  These need to be more definitive for long term success.  Finally, corporations should encourage competition between good ideas, and stop thinking about innovation as a zero sum game with only one winner.  Every idea that is beneficial and expands valuable relevant offerings that customers want should get a voice.

Book Review: Inside the Box

I'm a constant reader, especially when it comes to books about innovation methods.  Even after a decade of innovation consulting, there is still so much to learn, and even old skills and knowledge can use refreshing.

There's a new book out, about a relatively old subject, that merits your attention.  The book, entitled Inside the Box, is about Systematic Inventive Thinking (SIT) and its predecessor, the ideas and concepts behind TRIZ from Altshuller.  Inside the Box presents itself as a bit controversial, arguing that you don't need to think "outside the box"for great new ideas, that often focusing on a "closed world" of working inside the box can create great ideas, when using the SIT formulation.

SIT

If you aren't familiar with SIT, that's because it is a relatively new technique for innovation, based on the work of Altshuller.  Altshuller and others popularized TRIZ, which was based on research into patents.  The team behind the SIT method conducted further research and felt that the "majority of new, inventive and successful products result from five templates:  subtraction, division, multiplication, task unification and attribute dependency."  Thus, these "templates" along with the concept of a "closed world" - working inside the box - form the basis of SIT.

The book notes that many people believe you have to get outside your current context to be innovative.  Classic brainstorming encourages a divergent and then convergent approach.  SIT suggests a "closed world" approach, requiring the innovator to work with what exists close at hand.

Inside the Box

On the whole, I found this book to be a good overview of the SIT method.  The different templates (subtraction, multiplication, task dependency etc) were well defined and the authors provided good case studies.  At the end of each chapter the authors provide basic step by step instructions on how to use each template, so any innovator or innovation team can pick up the tools quickly.

The book's focus on creativity and the nature of unbounded thinking is a bit of a strawman.  I've participated in many idea generation sessions and innovation projects, and very few programs suggest that completely unbounded thinking is beneficial.  Whether you are an "inside the box" guy or an "outside of the box" gal, most people recognize that some constraints on thinking actually aid innovation.

The challenge, for many organizations, is that thinking "in the box" often poses unintentional constraints. We are often asked by our clients to help their teams to think "outside the box".  By this the executives don't necessarily mean outside what SIT calls the "closed world".  What they really want are compelling new ideas that will solve customer challenges and drive new profits or revenue.  Their "box" is limited, cramped thinking based on cultural norms.

Inside the Box does an excellent job of describing the SIT approach, and provides detailed step by step approaches for each of the templates documented within the SIT methodology.  It is a valuable addition to any innovation bookshelf.

Quibbles

While Inside the Box is a good book, I have a couple of concerns about the positioning of SIT as a solution and how innovation and idea generation are presented generally.

Early in the book the authors present a study that indicates that brainstorming isn't a great option for idea generation.  Many innovation consultants and authors have lampooned brainstorming, and not without reason.  Not all idea generation is brainstorming, but brainstorming has its place as a tool or approach, not "the" tool, but "a" tool.  In my opinion, books lose credibility when they present a strawman that many people recognize is exaggerated to make the case for their preferred alternative.

Next, the requirement of a "closed world" means that every SIT project begins with an existing solution.  Many times, a radical rethink of an existing product or service is valuable, and SIT offers this methodology.  However, there are many situations where a disruptive new solution is required that demands capabilities outside the "closed world".  SIT doesn't work well in a truly disruptive or divergent setting.

Finally, I feel the authors fell into a trap that many who write about innovation tools encounter.  That trap is what I call the "one perfect tool" trap.  When there are so many innovation tools, methodologies and techniques, many authors writing about a particular tool present their favorite technique in relatively absolutists terms.  The authors of Inside the Box are no exception.  SIT is presented as a tool that is almost always the best tool, and several studies are presented to demonstrate why brainstorming or other creativity techniques aren't up to snuff.  I've got no beef with people who are passionate about a tool or methodology, but no innovation tool solves every requirement or situation.

Can you spare an innovation dime?

In the Great Depression - the real Great Depression in the 1930s - it wasn't at all uncommon to see able bodied men selling apples on a street corner, or worse, holding a sign asking for spare change.  The phrase "can you spare a dime" became synonymous with the era, as people sought any job, any way to earn money they could find.  Of course, back then a dime was real money.

Today, there's a new cry heard in many organizations.  Street corners aren't the only place where scarcity is found - most modern corporations are symbols of scarcity.  Today, the first issue anyone interested in innovation must face is:  can you spare a body?  What happens when money is cheap, and people are expensive?

The blessings of Efficiency

I come today not to praise efficiency but to bury it.  Because of efficiency and effectiveness, and their cohorts in crime, Lean, Six Sigma, downsizing, outsourcing and right sizing, most organizations run today on the bleeding edge of staffing efficiency.  This means that the bottom line in most corporations looks good, and the top line is often stagnant.  Firms have placed so much emphasis on efficiency and cost cutting that there's little time, focus or resource to think about growth.

Strangely, money is not the key roadblock - any corporation can find money to spend on innovation, whether that money goes to external consultants, or to fund research or acquire new intellectual property or ideas.  Money as the traditional barrier to getting things done has been supplanted.  Today, resources are the real barrier.

In work teams and business functions working on the bleeding edge of efficiency, there are simply no additional resources to place on inefficient, unproven innovation activities.  Anyone who is "freed up" to work on innovation activities is a "critical" component of an existing product or workstream, and their work must be taken on by other people.  There's no slack in the system, and further, rewards and compensation follow the individuals that sustain efficiency.

A new iron triangle emerges

As a young engineer, I learned the rule of the iron triangle - cheap, fast and reliable.  An engineer gets to pick any two, and the third is then dictated.  Choose cheap and fast, and you sacrifice reliability.  In the innovation world, the iron triangle is composed of three components:  people, money and ideas.  Today, ideas and money are cheap, people are expensive.  Yet without people to identify needs, generate ideas and build new products, innovation is virtually impossible.  The value of inputs has been completely inverted.  Time was that people were cheap and ideas and money were expensive.  As more education came online and trade barriers fell, ideas and intellectual property became cheap.  Even money is cheap, thanks to the Fed and the profit streams of many organizations.  That leaves only staffing or resources as the critical bottleneck.

While innovation relies on three components, the most important of the three - people, money and ideas - is people, yet that is the most difficult component to get in the right quantities and quality. 

Solving the People Problem

In any organization that hopes to innovate successfully, the availability problem must be addressed.  As many of you know, it's not just "any staffer" that can become a good innovator.  The people problem is compounded because innovation requires, demands the best people in your organization.  There are only a handful of methods to solve the problem:
  1. Add staff to create some slack in your resource system
  2. Ask the existing staff to do even more, to free up a few individuals to focus on innovation
  3. Outsource critical tasks or the entire innovation process
The first option, strangely, is almost a non-starter, even with the abundance of people available.  Most firms want to limit hiring.  It's become too hard to hire and to train, and too difficult to let people go as needs change.  The second option - shifting responsibilities - is what many firms attempt, but when people are already overtaxed, they struggle to do a good job at innovation in a very limited timeframe and with no training or tools.  This is why most innovation in incremental at best.

The third option is the easiest but often the most dangerous.  Outsourcing innovation to consultants or designers means that your internal organization never learns to innovate, never gains skills or capabilities.  You can easily become dependent on third parties who don't share your perspectives or who want to re-use insights or ideas from other clients.  Yet outsourcing is fairly common, when people are expensive and money is cheap.

There's a final option, which is to make innovation so central to your activities and processes that it everyone is doing it all the time, almost effortlessly.  I've written before about shifting your "business as usual" to incorporate innovation, so that innovation is "business as usual".  When everyone is doing it and innovation is part of the fabric of how you work, the people problem won't disappear, but it will become far less of a concern. 

The natural rate in pure exchange, intertemporal models

One more clarification on the previous discussion about the natural rate in Austrian models. In his reply,  Mr. Rallo suggests (in Spanish) that I confused the natural rate that can be derived from a barter economy with the one derived from intertemporal equilibrium model. So let's start by clarifying that barter refers to whether there is money or not, while the notion of intertemporal equilibrium is associated to the nature of equilibrium, whether it is short-term or long-term.  You can have an intertemporal model of equilibrium with barter as several Arrow-Debreu models actually are.

Traditional notions of equilibrium, like the classical authors had, are not intertemporal, but several of those were based on barter ideas. Equilibrium in classical economics is a tendency associated to the process of competition that leads to a uniform rate of profit. Some authors had the real (meaning non-monetary) rate of profit govern the system and also the rate of interest, like Ricardo, while others like Tooke suggested that the rate of interest governed the rate of profit, and arguably there are elements in Marx analysis that suggest the possibility of an independent rate of interest.*

The notion of intertemporal equilibrium is relatively new and was developed by Hayek, Hicks, Lindahl, and Myrdal (see Milgate here; subscription required)  in the 1920s and 1930s, before it become common after the capital debates on the basis of the Arrow-Debreu model. Intertemporal models do not require the notion of a uniform rate of profit, and some authors have suggested that as such they are not open to the capital critique. Because they do not require a uniform rate of profit these models are short-term.

So the relevant point is the notion of equilibrium and not whether it is a barter or credit system [additionally that would bring about the way money is introduced in the economy, as mere toke for exchange, or as a unit of account in which agents want to accumulate, but that is a different issue]. Mind you, one might think that Mr. Rallo is suggesting that in a short-term model (with no tendency ot a uniform rate of profit) there is no need in marginalist models for a natural rate of interest (although we'll see that's not his point).

Yet, the point made by Garegnani and Petri is that in an intertemporal mdeol with disaggregated means of production (capital goods), it is still necessary for the equilibration of aggregate investment to full employment savings, and that requires a measure of the quantity of capital, and that means, and by necessity a rate of interest. That rate of interest that equilibrates savings and investment is a natural rate.

Mr. Rallo seems to believe that there is a difference between a situation in which there are "lenders (savers) lending at 5% for a year, and investors that demand 5% for 30 years" (or in Spanish "ahorradores que prestan al 5% a 1 año e inversores que piden prestado al 5% a 30 años"), which would be different if both lenders and borrowers had the same time period in mind, but different rates.
Again, this involves not the intertemporal nature of the model, but the term structure of interest rates.

So taking away the adjustment for risk associated to the longer-term that financial capital would be tied to investment, in the neoclassical theory arbitrage should still work. So presumably the rate would be more than 5% for the 30 year loan. This has nothing to do with the necessity in Austrian theory, as in any type of marginalist model, of a quantity of capital and a natural rate of interest. Neither barter nor the term structure of the rate of interest (or the more relevant discussion of the short-term nature of intertemporal models) relieves the marginalist (and Austrian) theories from a need for a natural rate of interest.

The only consistent way to get rid of the notion, is to abandon the marginalist approach, and like Sraffa assume that one distributive variable, in his case the monetary rate of interest, is given exogenously. Savings then is adjusted to investment by the multiplier process (i.e. Keynes and Kalecki's Principle of Effective Demand).

* Panico (1980, p. 269 here; subscription required) argues that: "Marx's analysis of the factors determining the rate of interest, he rejected any attempt to explain the determination of the average rate of interest on the basis of'laws of necessity'. He proposed instead, to investigate it by means of qualitative description, of those economic, conventional and institutional factors that, from time to time, affect this variable." So while its clear that Marx thought that the rate of profit determined the rate of interest, it is also reasonable to argue that there are contradictory propositions that suggest a determination of the normal rate of interest that is independent from the rate of profit.

PS: Thanks to Franklin Serrano for pointing my mistake on Quesnay (deleted; yes there is money in the Tableau as there is in Marx's simple reproduction system, derived from Quesnay) and the causality in Marx. Also, forgot the link to Milgate's paper, which is now in place.

A note on profit-led/wage-led growth models

By Sergio Cesaratto (Guest blogger)

As a follow up on Matías' post on real exchange rate (RER) and growth I want to make a point about "profit/wage led growth", although this is not central in the discussion about RER/Exports.

1) Profit-led growth:

Variations of the normal rate of profit, as such, have no direct and mechanic influence on gross investment, as often argued by post-Keynesian authors of various persuasions. As such, variations of rn only concern the sphere of income distribution. The latter can in turn influence investment decisions:
  • by affecting expected effective demand: a higher/lower rn might, for instance, negatively/positively affect consumption demand if this is affected by lower/higher real wages; or 
  • by being connected to the relative bargaining power of the working class and to the necessity for the ruling class to discipline it by regulating the labour reserve army; but this is generally done by using fiscal, monetary and exchange rate policies and not as a coordinated decisions of capitalists to regulate the accumulation rate.
Therefore, a rise of rn, as such, for no reason would positively affect investment. Likewise, a lower rn will, in general, leave gross investment unaffected as long as capitalists fear to bequeath market shares to competitors: each capitalist is homo homini lupus with respect to her classmates. Ça va sans dire that a rise/fall of ra above/below rn will just signal that actual capacity utilization, ua is above/below the normal one, un. In both cases gross investment will vary in order to readjust the degree of capacity utilization and normal profitability - while the long trend of investment is still set by demand for products associated to normal profitability).

A quote from Franklin Serrano* is timely here: “although politically entrepreneurs prefer higher profit margins and normal profit rates, capitalists do not ‘invest as a class’ but according to the existing investment opportunities and the pressure of competition. Their investment decisions are not an inverse function of the level of the normal rate of profits but a positive function of the size of the market. In the long run the size of lucrative investment opportunities depends on the level and rate of growth of effective demand- the demand of those who can pay normal prices (that price that allow firms to obtain the normal rate of profits, which defines the minimum accepted standard of profitability). If effective demand is expanding, whether normal profit margins and rates happen to be ‘high’ or ‘low’, competition and the search for maximum profits impel the firms collectively to expand productive investment.”

2. Wage-led growth:

Level effects, but not the growth effects as in the neo-Kaleckian model. A lower marginal propensity to save will induce be a temporary faster growth, but once capacity has adjusted to the new higher level of effective demand entailed by the stronger Supermultiplier , the economy will return to the former normal growth rate determined by the growth rate of autonomous expenditure. Of course, "temporary faster growth" might be very relevant. But no-wage-led growth, at least in the long run. The reason: wages are an induced component of aggregate demand, therefore they cannot be the driver. Given the other, well known, shortcomings of neo-Kaleckian models, I would conclude that the very concept of profit/wage led growth should be abandoned (sorry!). So Matias is totally correct on this point.

Not sure about his view about the main issue RER/exports. I may agree that sound and fair growth cannot be led by RER devaluation. Though, growth depends also on preserving a competitive RER, as we well (and sadly) now in Italy after the Euro.

PS: My paper on "Neo-Kaleckian and Sraffian controversies on accumulation theory" is here (version June 2013).

* Serrano, F. (2006), "Power Relations and American Macroeconomic Policy, from Bretton Woods to the Floating Dollar Standard," available here.

The value of innovation and quality training

I want to talk today about building skills through training.  This particular post about training has a dual purpose.  It's first purpose is to address my position as one of the ASQ's "influential voices".  Each month the CEO of the American Society for Quality presents a key topic, and those of us who are featured voices are asked to respond.  As you know, I'm probably the cuckoo in the nest, since I focus on innovation rather than quality.  But this is a topic where I get a twofer:  I can write about the differences between quality training and innovation training.

The importance of training

As Paul points out, training is vital to good practice.  For quality folks, he presents a graphic that describes the percentage of firms offering quality training in categories (Six Sigma, Lean, auditing, etc) to their employees.  The numbers look impressive, but my experience tells me that while many programs are offered, there are far fewer takers.  Unfortunately, in tough times training is one of the first cost centers to get cut, and while internal training is often adequate, it can become very quickly stale, and interacting with new trainers and new colleagues is often half the benefit of training.

Even people with deep experience need to refresh their skills.  As we say in innovation circles, it's a journey not a destination.  That is, even people who have years of experience can learn something new to apply if they are willing to open up their minds.  Developing skills and extending or refining skills and knowledge is vital, especially as we are increasingly in a knowledge based economy.  Training is vital - in quality or in innovation, but the depth and type of training in these fields rapidly diverge.

Quality versus Innovation Training

The quality folks have a real "leg up" on innovation teams where training is concerned.  Most of the methods for quality (Lean, Six Sigma, TQM, etc) have been in practice for a long time and have a robust body of knowledge associated with them.  Further, since much of quality is based on repeatability and statistical control, there is real science behind much of the content.  Further, there are organizations which present themselves as "the" arbiter of what is Lean, or Six Sigma, although there are still significant differences.

Contrast that with innovation.  Innovation is still mostly a free-for-all, with dozens of different methods, styles and techniques, often hawked by the inventors of the technique.  Training is mostly offered by the developer of a tool or technique, so it is hard to judge the value and depth of the training or the knowledge imparted.  There really are very few "standards", so you can't compare techniques to each other or even training on one technique to another class on the same technique.

For these reasons innovation training is less formal and more difficult to compare.  When you compound these facts with the fact that many people don't believe innovation can be taught, it's difficult to convince internal training teams or purchasing managers to fund innovation training.  If these challenges weren't enough, many organizations don't have internal innovation training programs so the costs and risks rise as teams must seek outside support.

The fundamentals

Until an organization settles on its key processes and methods (for quality or for innovation) training is mostly a hit or miss opportunity.  When an organization settles definitively on a defined set of tools and processes, I think it's more effective to structure the training to that modified set of tools and processes.  In other words, cobble together your own training based on your knowledge of your processes and tools, and supplement with external sources to ensure you keep abreast of new tools and new perspectives.

Another factor that many in both camps miss:  there are thousands of books published about many of these techniques, and many of  the books are very good and can form the basis of a training program.  Many people actually teach themselves these skills at home off-hours, and that training has the best components - someone who is interested and passionate enough to search out tools, who trains themselves as they do their work.  Mastery can come when they train others.

Paul asks, do you pursue training on your own?  In his case he was talking about quality training, but I can assure you the best innovators in your company are building their own knowledge by reading all they can.  They can't afford to wait for HR to approve a training program, because the needs are simply too immediate.  I suspect the same is true for quality folks.  They are training themselves with the best books and content on the web they can find, because the courses that are offered come too late, and aren't fully configured to their needs.

The net takeaway for both quality and innovation is that training is vital, and skills and knowledge need to be constantly reinforced.  I think that training is easier to justify and more readily available, and more "trusted" in the quality space than in the innovation space, which simply makes innovation more difficult to sustain.

Disclaimer
I’m part of the ASQ Influential Voices program. While I receive an honorarium from ASQ for my commitment, the thoughts and opinions expressed on my blog are my own.

Paul Krugman's The Phony Fear Factor

Much has been said on how economic demagoguery continues to reign supreme, particularly by heterodox writers, so I won't delve much into this topic. Nevertheless, it is interesting to see that in his NYT op-ed, Paul Krugman, a pretty mainstream economist, disparages the 'confidence fairy' by citing Kalecki's “Political Aspects of Full Employment” (a Monthly Review link, interestingly enough). Though, Krugman somehow can't see much of Marx in Kalecki...does he not want to see it?

From the article:
"We live in a golden age of economic debunkery; fallacious doctrines have been dropping like flies. No, monetary expansion needn’t cause hyperinflation. No, budget deficits in a depressed economy don’t cause soaring interest rates. No, slashing spending doesn’t create jobs. No, economic growth doesn’t collapse when debt exceeds 90 percent of G.D.P. And now the latest myth bites the dust: No, “economic policy uncertainty” — created, it goes without saying, by That Man in the White House — isn’t holding back the recovery. 
First, however, I want to recommend a very old essay that explains a great deal about the times we live in.The Polish economist Michal Kalecki published "Political Aspects of Full Employment" 70 years ago. Keynesian ideas were riding high; a “solid majority” of economists believed that full employment could be secured by government spending. Yet Kalecki predicted that such spending would, nonetheless, face fierce opposition from business and the wealthy, even in times of depression. Why?"
Read rest here.

PS: Check also this earlier entry on Kalecki's paper.

"The Endless Crisis" reviewed in Marxist Sociology Section (ASA) Newsletter


Book Review: The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China, by John Bellamy Foster and Robert W. McChesney

Review by David Fields and Daniel Auerbach
The Monthly Review, since its inception, has been carrying on some of the best works in Marxism. The analytical foundations of what has come to be called the Monthly Review School were set out by the economists Paul Baran, Paul Sweezy, and Harry Magdoff. The lucidly rich works like Monopoly Capital by Baran & Sweezy and Magdoff’s piece on Imperialism (along with Harry Braverman’s work on Labor and Monopoly Capital) have sustained Marx’s invaluable insights into the twentieth and twenty-first centuries.
Read rest here.

Innagural Issue of Marxist Sociology Section of American Sociological Association Newsletter


Colleagues,
I am sure many of you would be interested to know that the Marxist Sociology Section of the American Sociological Association has relaunched its monthly newsletter, of which yours truly is a co-editor (and wrote an introductory essay). Our inaugural issue can be seen here. Our website is here

Why did Marx understand America better than Europeans do today

I somehow didn't see this one before. On June 28, James Galbraith delivered a keynote lecture to the 50th anniversary symposium of the John F. Kennedy Institute for North American Studies, Freie Universität Berlin. The talk is titled "How Come Europeans Understood the Political Economy of America So Much Better in 1861 than Today, and What Did Karl Marx Have to Do with That?" Listen to the audio here.

On Austrians and the natural rate of interest

I don't often write about Austrians. As I noted before the reason is that, as a school of thought, Austrians are kind of irrelevant. They are part of the marginalist mainstream, but are often confused as heterodox (sometimes even Austrians don't know that they are neoclassical). In fact, Hayek was for the most part forgotten after Sraffa and others showed the inconsistencies of his theories in the 1930s, and if Austrians understood the consequences of the capital debates, their come back in the 1970s would seem even less reasonable.

Throughout their underground period, from the 1940s to the 70s, they were part of 'secret' societies in which only the initiated (complete adherence to the ideology) could participate, like the Mont Pèlerin Society, and creating think tanks, like the conservative Institute for Economic Affairs (IEA), to promote the laissez faire ideology (note this had no basis in theory, since they cannot prove that markets produce efficient allocation of resources with a uniform rate of profit, but I'll get back to that below).

It was the rise of the conservative movement, a sort of Polanyian reaction to the Welfare State, that brought back all sorts of laissez faire cranks, and brought in the coattails Hayek and his disciples. In contrast to Milton Friedman, that used a fairly regular ISLM cum Phillips curve model, with the added natural rate, Hayek produced no relevant innovation, besides some poetry about the complexity of markets and uncertainty (which is why some confuse him with an heterodox author; blame Shackle for this).

Sissela Bok, the daughter of Gunnar Myrdal,* co-winner of the Sveriges Riksbank Prize with Hayek in 1974, recounts in her biography of her mother Alva [Alva Myrdal, Gunnar's wife received a real Nobel, the peace one in 1982] that the prize was given to Hayek by the Swedish economics establishment as a way to demean the prize. And if this is not enough, the guy that was supposedly for freedom, and for economic freedom because that one is central for political freedom, defended Pinochet. So really there is no economic or moral reason to take Austrians too seriously.

In sum, Austrians are really the most ideological wing of the neoclassical school, with all the other theoretical problems that the mainstream has. There is not much relevant to discuss there. So you might ask what is the post doing here. The reason is that there has a been a debate between Lord Keynes (nope not that one, the author of the very good blog Social Democracy for the 21st Century) and a Spanish Austrian author, and I was asked about my opinion. So here it is.

Some Austrians seem to think that their theory does not require a natural rate of interest. This might be the result of an incomplete understanding of Sraffa's 1932 critique of Hayek, in which he showed that there were as many own rates of interest (Sraffa's term) as commodities. At any rate, in the this recent debate the Austrian author says that in order to have a cycle Austrian don't need a natural rate and that:
"it suffices with showing that there is a mismatch between the term and risk structure that the marginal lenders (savers) are willing to fund and the term and risk structure associated with investment taking place in the economy." Or in Spanish in the original post: "le basta con mostrar que existe una descoordinación entre el plazo y el riesgo de las inversiones que están dispuestos a financiar los ahorradores marginales y el plazo y el riesgo asociados a las inversiones que se están efectuando en la economía."
So basically you need a mismacth between savings and investment. And dude, yes at the actual intersection of these two curves (often well behaved with savings being upward-sloping and investment downward-sloping) is an equilibrium interest rate, that would eliminate the mismatch. That's your natural rate. So, yes Austrians do have a natural rate**, even if they don't know it. Note that the capital debates show exactly that the idea of natural rate of interest inversely related with capital abundance (supply and demand) is not tenable. The poetry on market efficiency depends on being able to prove that. That's why the neoclassical project, and with it Austrians, has been derailed. It is really zombie economics.

* Myrdal coined the term monetary equilibrium to refer to the Wicksellian notion of an equilibrium between the natural and monetary or bank rates of interest. He also was a proto-Keynesian, and the key economist in the initial social democratic governments of the 1930s.

** According to Garegnani, in fact, even the inter-temporal Arrow-Debreu models, which supposedly do not have a uniform rate of profit, require a natural rate of interest to bring about the equilibrium of investment with full employment savings.

Where is the elasticity? (or more on devaluation and growth)


Since 2007 mainstream economists, and often some heterodox (or more precisely eclectic) authors, have suggested that the Argentine economy is on the verge of collapse (see for example my good friend Bresser-Pereira here or this). A typical argument made by both orthodox economists (some of which favored the Convertibility Plan of the 1990s) and the more unconventional is that real exchange rate (RER) appreciation is at the heart of the Argentine problems and the more recent lack of growth.

I have discussed this before here with respect to the so-called Sustainable and Stable Competitive Real Exchange Rate literature (see here). The argument for a SSCRER was put forward by Frenkel and Taylor in a well-known paper, but the notion has many defenders (see the good paper by Blecker and Razmi from Setterfield's essential book on growth), including more conventional authors like Rodrik. At the risk of being repetitive let me point out the pros and cons of the arguments for devaluation.

Depreciation protects local industry and leads to a boost to domestic production, and also, by leading to an increase in exports, reduces the external constraint of the economy. That would be the substitution effect associated to the change in the relative prices. Yet depreciation also (everything else constant) reduces wages, increases the profits of exporters, and leads (yes, the economy is wage-led) to a reduction in spending and lower levels of activity. In this case, a depreciation does help reduce your external constraint, but by leading to a contraction. The second effect, associated to an income effect, was well-known by heterodox authors, having been developed by Albert Hirschman and Carlos Diaz-Alejandro (for the Argentine case) and then formalized by Krugman and Taylor (see here; subscription required).

At the end of the day it is an empirical question. All the evidence seems to suggest, at least for the Argentine case (here paper by Fiorito and others in Spanish; but it seems to be more general, see here) that income effects tend to be larger than substitution effects, and hence one might be concerned about possible contractionary effects of a depreciation.

In the case of Argentina, it is clear that the expansion of the volume of exports goes hand in hand with the expansion of the world GDP (Figure below).
The relation between the real exchange rate and exports is less clear. As it is shown below after the large real depreciation in 2002, growth in the volume of exports goes hand in hand with significant appreciation.
No doubt defenders of depreciation will argue that the big depreciation in 2002 was essential for export growth afterwards (see Rapetti here who argues that "competitive RER was a key factor behind Argentina’s recovery and growth"). But if you put the depreciation in the wider macroeconomic context of 2002, and compare with the current one, you are bound to have second thoughts.

The depreciated nominal exchange rate in a context of high unemployment (around 22%) did not lead to inflationary pressures, since wage demands were subdued (and hence the nominal depreciation translated into a large real one). Second, spare capacity meant that the protection afforded by the real depreciation led to a huge expansion of domestic production, spurred by the expansion of domestic demand (higher real wages and expansion of fiscal spending, particularly in social programs). Exports actually don't seem to move much with the depreciation. There is no econometric evidence for large elasticity of exports with respect to the exchange rate, in the short or long-run (if someone has it please, please, pretty please with a cherry on top share it; it's been frustrating to have an argument with people that argue a point for which there is no known evidence).

Note that all the above mentioned conditions are not in place now. Unemployment is considerably lower (around 7% or so), and the expansion of real wages and government spending have slowed down (so much so, that in the last year the economy has stalled). So maybe we need less Frenkel and Taylor and more Krugman and Taylor to understand what is going on in Argentina right now.


Who are my best innovators?

For years now I've had clients ask:  who are my best innovators?  And for years I've basically responded with:  let's find out.  Because when it comes to identifying the most likely innovators in an organization, there's never an easy answer.  Some of the best and brightest, who are on the fast track, should be good innovators but don't want the associated risk of failure.  Some of the people who are marginalized for constantly questioning the status quo could be good innovators, but have little organizational or social capital.  How do we find the best innovators in an organization?

I've  typically responded that the best innovators will reveal themselves, based on their engagement, passion, curiosity and risk taking.  These are attributes or characteristics that are often evident in hindsight - that is, you discover whether or not a person has these characteristics at the end of a project, not at the beginning.  It's easy to claim passion or the ability to take risks, but once demonstrated it is easy to believe.  Let's look at some of the methods we've used previously.

The Innovator's DNA
Gregersen, Dyer and Christensen addressed this topic in The Innovator's DNA, which is a fine book and identifies five attributes that many innovators share:  associating, observing, experimenting, open questioning and networking.  The challenge is that some of these are observable traits, and some must be experienced.  You must work with people for months if not years to understand if they are good at associating - holding two diametrically opposed ideas in their minds at the same time and finding associations or relationships. It's especially difficult to understand if people are good at observing and assessing behavior.  Many executives apply their well-worn templates and mental models, rather than truly engaging and discovering through observation.  Even when they are observing, they are rejecting more information than they are taking on.  So, the Innovator's DNA is valuable, but not the end of the story.

Assessments
 Those of you who follow this blog and our innovation consulting work know that we require all of our client teams to use the Foursight innovation assessment.  Foursight doesn't describe an individual's interest in innovation, as much as their specific capabilities within an innovation project.  Foursight indicates which of the four capabilities (Clarifying, Ideating, Developing, Implementing) an individual enjoys, so you can balance your innovation team effectively across these skills.  Other assessments exist, including the Kirton Adaption-Innovation Index, based on years of psychological research, and Creatrix.  These assessments are good for balancing the team and allocating roles and responsibilities, but don't necessarily identify who the best innovators are.

Identifying Innovators in the wild

Still, how do you identify the best innovators in your organization, and just as importantly, identify prospects and recruits who are likely to have more innovation skill and interest?  In my book Relentless Innovation, I discussed the need to make innovation part of your business as usual.  To do that you need people who are engaged innovators, what I'm going to call Relentless Innovators.  Maybe you see a trend here...

To grow and sustain your innovation capability, you need to identify the best innovators in your organization, and attract and recruit the people with the best innovation skill sets and passions from outside.  To do that we need to identify key attributes, characteristics and attitudes that set these folks apart from other, equally valuable employees.

Survey
To that end I am running an innovator's survey.  If you or someone you know is a constant innovator, I encourage you to take this survey.  I am trying to identify attributes that will help an organization quickly assess its internal team and find the best innovators, even if they don't seem like the most likely innovators.

The survey is composed of approximately 30 questions.  It takes between 5-7 minutes to complete and you can answer anonymously.  If you'd like to participate on a deeper level, feel free to leave your contact details and I'll contact you.  My goal is to complete the survey before the end of September and analyze and publish the findings in late fall 2013.  I'd appreciate your help in publicizing this survey and attracting people in every country, every industry, every role who considers themselves to be a consistent innovator.


What killed theory? What theory?


So Noah Smith and Paul Krugman are again trying their hand at the history of economic ideas to understand what happened with the profession in the last three decades. Noah calls the changes in theory "more evolution than revolution," and suggests that the dominant view is still compatible with neoclassical economics, which is I think correct, even if it is more involution than evolution.

His understanding of the changes in economics is colored by his views on neoclassical economics, which are fundamentally flawed (see more here). He then brings back the issue of lack of theoretical papers and now refers to it as the "death of theory." He suggests that what led to the demise of conventional theoretical developments within the mainstream is behavioral economics (he might as well have said information economics; sure enough that's what Stiglitz claimed with his post-Walrasian/post-Marxist notion; subscription required).

In his words:
"Why did this happen? I'm not sure, but my guess is that the meteor that hit the economics dinosaurs, and set the field's evolution off in a new direction, was named Daniel Kahneman."
Again, utterly incorrect, and proof of why PhD students should get some history of economic thought (particularly with so many coming from other disciplines). Behavioral economics, as much as information economics, and all the new theories of the 1970s onwards (New Classical, New Trade, New Growth, New Economic History) are a response to the crisis of the mainstream brought by the capital debates (and Samuelson's admission of the failure of the research program), and go hand in hand with the demise of the political Keynesian consensus that allowed for progressive policies.*
 
The mainstream abandoned the core model, for the most part, and research was dedicated to the analysis of a series of imperfections, from information, to alternative ideas of rationality and so on. Krugman is in fact wrong to argue that in New Trade and Business Cycle the reasons for change differed. Yes the Dixit-Stiglitz model allowed for the formalization of imperfect competition, but the point remains that New Trade theory corresponded in the trade field to the New Keynesian imperfectionist arguments in macro.

The fact that the death of neoclassical theory (and the post-mortem was written by Samuelson, even if Sraffa is the one that fired that fatal shot, not Kahneman) led to a period of confusion or fragmentation, as Roncaglia calls it (in his good book on the history of ideas that Noah and Paul should read), is not new. And as I noted before, lack of publications on theory are to be expected for a research program that has been shown to be so problematic by the capital debates.

An equivalent period in the history of ideas occurred after the demise of Ricardian economics in the 1830s, before the rise of marginalism, in which no coherent or dominant approach was left in place. Stuart Mill represented a hybrid, with too many inconsistencies, and the field was dominated by vulgar economics defending laissez faire policies. Some if this issues are discussed in this paper.

* Note that, in fact, up to the 1970s heterodox groups were no segregated from the profession, and published in the same journals as the mainstream authors (the Journal of Post Keynesian Economics and the Cambridge Journal of Economics are from the 1970s). Also, crazy right wing economists like Hayek, that had vanished and were part of secret societies like the Mont Pelerin were brought back from the dead, in his case winning the Sveriges Riksbank Prize.

Picnic in the park

Today was Simcoe Day long weekend here in Toronto in honor of a lieutenant governor who initiated the end of slavery. Any long weekend in the summer is a chance for us to enjoy the beautiful weather and get in touch with nature...without getting stung by a bee or chased by the Canadian geese that is.

My husband and I decided to stop off at Jamaica Jamaica Jerk to get some delicious jerk chicken with rice and some coleslaw for our picnic. I have talked about all kinds of different foods here on my blog, from Thai to Italian and Indian but this restaurant sells my favorite jerk chicken in the city. They also sell other Jamaican dishes, none of which I have tried after having this jerk chicken.
You can find this restaurant at 2419 St Claire Ave West in Toronto


It was a beautiful day for a picnic!

This beautiful park in Etobicoke is called James Gardens






Demographic transitions, Malthusian traps and supply constrained growth

Gregory Clark's book The Farewell to Alms re-popularized the Malthusian model (for the relevant chapter go here). The basic idea is that population dynamics and the so-called demographic transition do have an important impact on economic growth. Robert Malthus' idea is relatively well known, even if there is an incredible amount of confusion in the way it is explained by modern neoclassical authors.

As all classical authors, Malthus assumed that real wages tended to be at subsistence levels. He emphasized more than others, eg. Smith or Marx, the physiological elements associated to subsistence, and his theory of population influenced David Ricardo (friends sometimes will push you in the wrong direction, but this should not be exaggerated; Ricardo was no Malthus). And this has nothing to do with some Iron Law of Wages (again this reflects the fact that mainstream authors like Clark have limited, to say the least, understanding of the surplus approach; for Ricardo and other classical authors on real wages see Stirati here).*

At any rate, Malthus notion was that if wages increased, population growth would ensue and bring them back to subsistence levels, hence real wages could not grow. In the mainstream story this is connected with lack of growth of income per capita. The economy would be in a Malthusian trap.** Population growth is bad in this Malthusian world, that is why the good reverend, like modern Republicans (and I would assume more than a few neoclassical economists), was for abstinence and delayed marriages.

The idea is that higher population, for a given technology, leads to more mouths to feed. Classical ideas that suggest that the extent of the market (and, hence, population) might have a positive impact on the division of labor (who said that?) are not discussed by modern neoclassical authors (also explains their dislike of Kaldor-Verdoorn Law). At any rate, the modern theory of economic growth is still dominated by supply-side explanations, in which technological progress is either exogenous (Solow) or endogenously determined by spending on education (or some variation of the topic in the endogenous growth literature).

Demographic transitions, in which the rates of mortality and fertility decline have in this view particular effects on growth. The notion is that the initial fall in fertility leads to a lower youth dependency ratio (less youngsters to feed), and is growth enhancing. Further, mainstream authors assume that workers in the labor force would have a higher savings rate (given life cycle hypothesis arguments) and that would lead to investment (yes, Say's Law). Jeff Williamson suggests (see here) that this, the so-called demographic dividend, in part explains the Economic Miracle in parts of Asia.

On the other hand, the same population dynamics leads to higher old age dependency ratio, and that should have (even if evidence is mixed on that) a negative impact on growth. Note that Eichengreen and his co-authors, suggest that slowdowns in growth are associated to falling productivity (not population dynamics), even if they measure that using Total Factor Productivity (which is not a measure of productivity, but of the changing patterns of functional income distribution; see here).

Mind you there is a more reasonable, demand-led, explanation for why population transitions might have an impact on growth. As the process of structural transformation from agricultural to industrial societies continues, more workers are incorporated in industrial jobs with higher pay, and even if income distribution might worsen, the expansion of urban population (and higher real wages) means an expansion of demand. Obviously once the transition is done, the expansion of real wages (not just from the rural workers moving into cities) must continue. In this case, the main cause for the limits to real wage expansion (demand expansion), and continued growth, come from the balance of payments, since higher wages and consumption lead to increasing imports.

There are many more limitations in the resurgence of Malthusian views in the mainstream. Including the Social Darwinist flavor of Clark's ideas, as noted by Deirdre McCloskey (here). But I'll leave those for another post.

* The main point that mainstream intepretations of classical authors miss is that there is no systematic decreasing relation between real wages and employment in Ricardo and other classical economists, something that Stirati makes clear.

** Note also that some authors suggest that this is the basis for Carlyle's epithet the 'dismal science' for Political Economy. As noted before by Vienneau (see here): "Thomas Carlyle did not coin the phrase 'The dismal science' to refer to Thomas Malthus's anti-utopian theory of population."