Sunday, July 21, 2013

The darker side of innovation

I’ve read recently that the Philippines has been ranked 90th in the 2013 Global Innovation Index (GDI) published by Cornell University, INSEAD business school, and the World Intellectual Property Organization (WIPO). Compared with other countries, the study said that innovation in the Philippines is only at par with Uganda and Botswana.
With a rating of 31.2, the Philippines is way below the top-ranked countries which have an average rating of 60.5. Surprisingly, the Philippines did not fare well among Asian countries, with lowly Mongolia even passing the Philippines with a higher rating of 35.8 and was number 72 among all countries.
Innovation. Photo courtesy of Dubey Classes of Innovation.

What does this latest GDI say about the Philippines? A new strain of AIDS has definitely hit us – Acute Innovation Deficiency Syndrome.
It’s not that we’re lacking in innovation or creativity as a people, but it’s somehow misplaced on matters that do not lift us a society, whether in business, politics or other endeavours. We have, as Nick Joaquin rightfully pointed out, a heritage of smallness.
One of the 84 indicators used by GDI in measuring innovation is the quality of higher education available in a country. The University of the Philippines used to be among the top-ranked universities in the whole of Asia, maybe between 1900 and 1950 or later. Now, UP is nowhere to be found among the top 100 of the inaugural Times Higher Education Asia University Rankings for 2013, although it ranked 67th among the top 100 Asian universities in the QS University Rankings for Asia, 2013.
A consolation of sorts to all diehard UP students and alumni is the news that three students from the University of the Philippines Diliman (UPD) were crowned this year's Asian debate champions after beating the National University of Singapore (NUS) in the final round of one of Asia's biggest debate tournaments. Ah, debating, we’re good at this. Just look at our own Congress where there are plenty of debaters of different stripes who walk all over the place. Here they can debate to death whether to eliminate the pork barrel system of allotting government money to members of Congress that traditionally are earmarked for improvements in their bailiwicks but sometimes surreptitiously end in their pockets. We call it “pork barrel” while the US Congress calls it “earmarks.”
Another consolation of a kind, this time to diehard Marcos fanatics, is the renaming of the UP College of Business Administration to Cesar EA Virata School of Business. Those who are young not to remember, Cesar Virata was the prime minister and finance minister during the Marcos martial law regime. Even UP bureaucrats have short memories of the oppressive Marcos dictatorship that it would honour one of the dictator’s devoted underlings.
We’re not lacking in innovation, for sure.
But all this talk about innovation and creativity could be overrated. In his book Capitalism, Socialism and Democracy, the Austrian-American economist, Joseph Schumpeter, developed a theory of economic innovation and business cycle based on the early works of Karl Marx which he called creative destruction. Schumpeter adapted his theory of innovation derived from Marxist economic theory, where it refers to the linked processes of the accumulation and annihilation of wealth under capitalism.
According to Schumpeter, the creative-destructive forces unleashed by capitalism would eventually lead to its demise as a system. Marx implied in his early works, notably in the 1848 Communist Manifesto, that capitalism not only destroys and reconfigures previous economic regimes, but it also continuously devalues existing wealth through events such as war, dereliction or regular and periodic economic crises which are necessary for the creation of new wealth. In the Manifesto, Marx and Engels described the crisis tendencies of capitalism in terms of “the enforced destruction of a mass of productive forces.”
While Marx admired capitalism’s creativity, he strongly emphasized its self-destructiveness. On the other hand, as Schumpeter praised and glorified capitalism’s endless creativity, he treated its destructiveness as simply a matter that relates to the normal costs of doing business.
The spirit of creativity and the concept of creative destruction could also explain how the human imagination ceaselessly continues to destroy things only to create new ones. For example, the scarcity of wood as fuel forced the discovery and invention of substitutes, such as the use of coal for heating, or the invention of coke for the production of iron.
Schumpeter envisaged the “innovative entry of entrepreneurs as the disruptive force that sustained economic growth, even as it destroyed the value of established companies and laborers that enjoyed some degree of monopoly power derived from previous technological, organizational, regulatory, and economic paradigms.”
A modern example of how this creative destruction works is the story of Polaroid. Polaroid instant cameras have disappeared almost completely with the spread of digital photography.
As early as 1949, Schumpeter foretold the “railroadization” of the Middle West in America through the Illinois Central. While Illinois Central meant good business, it also spelled the demise of the old agriculture of the West.
Many companies that once revolutionized and dominated new industries have seen their profits fall as rival companies launched improved designs or cut manufacturing costs. Xerox in copiers is a good example. The cassette tape replaced the 8-track, only to be replaced in turn by the compact disc, which was undercut by MP3 players, which will in turn eventually be replaced by newer technologies. Companies which made money out of technology which becomes obsolete do not necessarily adapt well to the business environment created by the new technologies.
The power of the internet has acted as a catalyst for creative destruction. It has allowed businesses to compete in markets outside of their geographic location, reach more consumers, create efficiencies and cut costs in manual processes as well as pioneer new techniques for doing business.
Newsroom of the Future, courtesy of Pablo Maria Ramirez Banares.
Huffington Post and Zero Hedge have been creatively destroying the domain of the traditional newspaper. Many newspapers and magazines, such as the Christian Science Monitor, the Seattle Post-Intelligencer, and Newsweek, have stopped publishing their paper edition and gone online. Traditional alumni networks that typically charge members to network online are in danger of being wiped out by free professional networking sites like LinkedIn and Viadeo.
There is no limit to the human imagination. All because we put so much value on innovation and creativity. Anything goes, the sky is the limit.
This is true in our attitude to our environment and our resources. As Thomas Homer-Dixon wrote in The Ingenuity Gap, “the beliefs in the unlimited substitutability of resources, in the primacy of economic institutions and policies, and in the exceptionalism of human beings and their modern markets often combine to produce what I can call unbridled hubris.”
The steadfast belief in the market as the core of every economic activity drives the impulse for innovation. It also creates a sour distaste for government, that government and all its regulatory powers are the antithesis of the free market. We want innovation that is free from all forms of infringement and encroachment by the State. Little do we realize that new growth or progress, as Homer Dixon argues, is fueled not by just “ideas that reconfigure the rock, soil, wood, water and air around us into miraculous things that serve our needs” – but it is a consequence also of “social factors like the political struggles that shape market institutions and policies.”
The innovation powerhouse called modern science indeed plays a huge part in the story of human prosperity. The perils that innovation brings, which we simply ignore as the costs of doing business, may also be the engine to destroy those things we have created so we can keep our innovative spirit running. Innovation may be largely responsible for our extraordinary flexibility in overcoming resource scarcities and other technical challenges, but there are certain social consequences that can cause economic distress, such as layoffs and massive unemployment due to obsolescence of working skills, economic imbalance and disparity between countries as a result of globalization, and other hardships that could push the free market into periodic paroxysms of crises which we have experienced from the recent Wall Street meltdown.
Marshall Berman devoted a whole chapter on “Innovative Self-Destruction” in his book, All That is Solid Melts into Air: The Experience of Modernity, where he described the profound and cultural consequences of the processes at work within modernity.
Berman wrote: “The truth of the matter, as Marx sees, is that everything that bourgeois society builds is built to be torn down. All that is solid -- are made to be broken tomorrow, smashed or shredded or pulverized or dissolved, so they can be recycled or replaced next week, and the whole process can go on again and again, hopefully forever, in ever more profitable forms.”

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