For the last year I have been working on a book that discusses the method by which innovation occurs. My observation is that the rules of evolution, as defined by Darwin to include heredity, random mixing, and environmental pressures leading to selection and extinction, not only apply to organic innovation, but identically apply to thoughts and the creation of new ideas whether they be inventions or new business models.
However, unlike organic innovation that is driven by reproductive cycles that are often tied to seasons and therefore annual, the innovation of ideas is driven by communication speeds that are directly influenced by technology, starting with Gutenberg's movable type press, and now extending to the Internet and Tweets. We refer to this period as the "Industrial Revolution" but its driven by communication improvements.
Therefore, the speed of innovation is now increasing exponentially, something that we can all feel every day in many ways including the rapid obsolescence of our smart phones, the loss of jobs related to automation, and the modification of business models as exampled by companies like UBER and AMAZON.COM.
If the life of a business, or even the life of an industry, is shortened through this rapid extinction driven by the creation of new species (of ideas) at unprecedented rates, then there is an increasing need for capital, since each now species requires the creation of an often expensive infrastructure. Or, stated another way, those who have money can make more money more easily than those who do not. Access to capital becomes the critical gate to growth and survival and, the rich get richer, while the poor lose their jobs to automation or outsourcing, thus exacerbating the division between rich and poor.
While UBER, Apple, Google and other companies press forward with the appeal of automatic driving cars, the real impact will be on three percent of the workforce that are in the transportation industry as truck drivers, taxi drivers, and the like. The salaries that were spread over this workforce will instead be collected by the transportation companies as additional profit, or the price of transportation will go down, leaving the extra cash in the hands of the riders or shippers. In any event, the wealth is moved from workers to stockholders and managers.
But we can also observe that while many large companies have amassed huge amounts of cash, they are nonetheless unable to figure out what to do with it other than to hoard it, or repurchase their own stock. This is a simultaneous crises in innovation in large companies that are unable to exploit the rapid changes in business models and products that are fostered by communication speed improvements. Often, the safeguards that stabilize large companies tend to stifle their ability to innovate and take risks.
So, it isn't all rosy for the large companies with lots of capital either. Over the past 50 years, the life expectancy for a fortune 500 company has shrunk from 75 to a mere fifteen years.
There is hope for both the large companies, and for some of the individual workers, but both need to think about innovation differently. One key may be to increase the collaboration between these two groups. Entrepreneurs need access to large company's capital, distribution and brand equity, and large companies need entrepreneur's innovation skills and risk taking.
However, for an ever increasing number of workers who are not particularly entrepreneurial the situation is more dire. The loss of jobs to automation and fundamental changes in industries like the movement to renewables from oil, gas and coal, is not so easily dealt with. For some of the workers, retraining into new industries is possible, but often, they are immobile because of homes, family and friends that aren't easily liquidated or abandoned and they are stuck in regions that don't have the opportunity for new jobs.
So while the stockholders and employees of the technology based companies reap the profits, further concentrating wealth, the workers in industries that are going extinct aren't so lucky. This is the split that we observed in the last election: the city folk with jobs based in the new economy, and the country folk with jobs that were based in the old manufacturing economy that is moving towards extinction.
We have seen this before when the country moved from an agricultural base to a manufacturing base. Many who lived on farms, moved into cities for new jobs. Those who had farming skills needed to be retrained into manufacturing jobs. Their families and homes were displaced, but the numbers were radically different. The growth of production line based manufacturing jobs created an enormous need for low skilled and moderately skilled jobs that farm workers could be trained quickly to do. Today, the gap between skills is greater, and the volume of jobs that are being created is nowhere near the numbers needed to absorb the manufacturing, mining and soon, transportation labor force that is being displaced.
One alternative that seems attractive is to place new economy innovation centers in old economy locations but this is unlikely to work, at least in the short term. Studies have demonstrated that innovation speed is also exponentially correlated to population density. So cities are more likely to create innovations than rural areas.
For the purpose of keeping civil peace, it may be necessary to redistribute wealth in a way that sustains those left behind in industries and jobs that are no longer relevant. The expectation would be that their children can be educated into new fields that make them a viable workforce for a new economy based more upon technology. And the children will need to relocated to new hubs that offer job opportunities.