Thursday, December 15, 2016

Can the Product of Time and Place, Benefit From Innovation?

Why do products that include highly specific time or place (time based services and real estate) pose such problems for truly productive innovation? In spite of the fact non tradable sectors tend to hold local customers "hostage", admittedly the product of time and place can be the most difficult scarcities to replicate on reasonable terms, for all involved. This will likely hold true, whenever organizational patterns for non tradable sector production are approached on exogenous terms - particularly where environment use patterns reflect international sets of resource capacity.

Also: given the fact this form of non tradable sector activity relies on preexisting revenue, it can gradually lose the capacity for further expansion, as total aggregate formation begins to displace that of primary markets at international levels. Indefinite expansion of secondary markets can be illusory, if primary markets are not able to maintain their first mover position for marketplace contribution. Is it possible to productively innovate the products of time and place, by means of a first mover position which would diminish the burden of secondary market dominance?

Clearly, not all kinds of innovation make this possible, as has already been shown. Consider a recent post from James Pethokoukis, who highlights Clayton Christensen's description of innovation differences:
There are three types of innovation. The first are "empowering" innovations. These transform complicated, costly products that previously had been available only to a few people, into smaller, cheaper products available to many...Empowering innovations create jobs for people who build, distribute, sell and service these products. The second kind are "sustaining" innovations. These replace old products with new...Sustaining innovations replace yesterday's products with today's products. They keep our economy vibrant - and, in dollars, they account for the most innovation. But they have a zero-sum effect on jobs and capital. The third type are "efficiency" innovations. These reduce the cost of making and distributing existing products and services. Efficiency innovations almost always reduce the net number of jobs in an industry, allow the same amount of work (or more) to get done using fewer people...Efficiency innovations are liberating capital, but that capital is being reinvested into still more efficiency innovations. Our economies are generating many fewer empowering innovations than in the past.
Should anyone attempt to (broadly) replicate the product of time or place on general equilibrium terms, the result would be massive disruption and major wealth loss, both for the owners of real estate and those with high levels of skill. Increasingly, these groups are the same. Since they are among the major anchors of general equilibrium, empowering innovation in this instance needs to be approached, so as not to distort already existing structural patterns.

Equilibrium dependence for secondary markets, especially makes them prone to the use of the third type of innovation described by Christensen: "efficiency" innovations which ultimately reduce jobs. These are consequently the groups most in danger of automation, should an insufficient amount of primary market activity be in place to provide the ongoing revenue needed to compensate time based product. This growing impulse to reduce employment where possible in services product, doubtless plays a role in the reluctance of today's high skill centers to increase population densities.

Automation need not destroy the jobs of the future. However, the best way to ensure this doesn't happen, is to restore a healthy balance between primary and secondary market formation, so that the latter will continue to have the necessary funding to maintain today's existing general equilibrium skills and asset formation. Fortunately, knowledge use systems have the capacity to generate new wealth via a first mover (primary market) position. By organizing as a single unit which coordinates a broad range of asset and services formation, the resources needed to fulfill these functions are recognized and recorded at the outset. Symmetric compensation would allow these groups to slowly - but surely - contribute to a healthier primary market balance, which otherwise has proven difficult to return to, on general equilibrium terms.

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