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Saturday, December 22, 2012

Relationship between Business and Jobs Explained

Finally, a business person, Harvard MBA professor Clayton M. Christensen, talking about how the two correlate. It's more complicated than just having capital, as is obvious by the past four years of businesses and banks flush with capital but high unemployment lingering, with more and more people leaving the work force permanently.
There are three types of innovations that affect jobs and capital: empowering innovations, sustaining innovations and efficiency innovations.
 
Empowering innovations transform something that is complicated and expensive into something that is so much more simple and affordable that a much larger population can enjoy it. The Model T did that, making an automobile affordable and accessible. Apple and IBM computers made it so all of us could have a computer. Google made it possible for almost anyone to advertise at low costs.
 
It turns out that almost all net growth in jobs in America has been created by companies that were empowering — companies that made complicated things affordable and accessible so that more people could own them and use them. When more people are buying them, more people have to be hired to make them and distribute them and to service them. Empowering innovations make up the core engine of economic growth.
(...)
In a healthy economy empowering, sustaining and efficiency innovations operate in balance. A healthy economy creates and sustains more jobs before squeezing out inefficiencies.
 
Over the past 20 years, however, there has been far less money flowing into empowering innovations and much more capital flowing into efficiency innovations and sustaining innovations. As a result, we are not creating new jobs at a rate that will sustain our economy.
And then he talks about why businesses/MBAs these days aren't focuses on restoring this balance. Fascinating! Rather than quote the entire remainder of his article to you, you should just read it yourself. Teaser: the Church of Finance.

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