Wednesday, July 8, 2015

Notes on Innovation, Rival and Non Rival Time Value

What to make of this rationale from the Organization for Economic Cooperation and Development?
We haven't stopped having good ideas, but those we do have aren't spreading as quickly as they once did.
 They explain further:
The main source of the productivity slowdown, is not so much a slowing of innovation by the most globally advanced firms, but rather a slowing of the pace at which innovations spread throughout the economy - a breakdown of the diffusion machine. 
Why is it becoming difficult, to realize further gains through the diffusion of innovation and knowledge? The pace of knowledge diffusion, depends on whether the results are tradable goods or (non tradable) time based service product. How much of a time based context is actually allotted for the latter? Even though time based product has become more important in recent decades, time value is still sought on the "more efficient" terms for time value which are required for tradable goods production. As a result, time aggregates in the workplace are gradually being shorted, in an ongoing institutional search for rival time value.

Because much of tradable goods production exists separately from time input, tradable goods production generally responds to scale. Not only does this process decrease costs, it results in a positive supply shock which reduces inflation. Time value as rival is helpful for tradable goods production, because differences in skills levels are paramount to the end product. Not only is less time input needed for tradable goods, this form of production provides gains in aggregate supply and demand. Whereas time based product can only provide gains for aggregate supply and demand, when time value also utilized in a non rival capacity.

Gains to scale aren't possible for time based services product. Consequently, internal cutbacks for "more efficient" labor force participation to increase profit structure, become cutbacks in both aggregate supply and aggregate demand. A lack of time based product in the marketplace translates into increased costs and higher inflation, due to an ongoing negative shock of constrained supply. Worse, these arbitrary limits on labor force participation, mean cutbacks to the time based settings where knowledge and innovation diffusion take place.

However the supply side response so far has been to diminish services growth - a misbegotten approach which leads to insufficient knowledge product - and participation - in the marketplace. Service product needs the innovation which time arbitrage could provide, through non rival time value. The time based value of service product, resides wholly in the moments during which it takes place, and the challenge is to acknowledge that reality. Without sufficient room for time value in the marketplace, innovation and knowledge are also lost.

When Paul Romer speaks of human capital as strictly rival, he is referencing gains which are the hallmark of tradable goods production. Rival time value can mean exponential differences for profit potential in tradable goods, but not time based services. Plus, consider what people tend to do with those profit gains: they "save" for what are eventual services needs. And these services needs now exist in a diminished marketplace which is also attempting to meet the service needs of lower income levels. When time value exists only in rival capacity for basic services, consumption smoothing becomes more difficult than would otherwise be the case.

Time value also needs a non rival context. Providing this would not only mean knowledge use gains, but also much needed growth in aggregate supply and demand. By making better use of aggregate time value, more ideas and innovation would have room to come into their own. Fortunately, there are ways to bring non rival time value back into the marketplace.

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