I am in the innovation business, leading our clients through Lean Six Sigma improvement projects, occasionally running parts of their businesses, and even teaching them to do these things for themselves using our techniques. Our work exists because our clients rely on innovation, and Lean is a proven tool. We also innovate our own work by examining our performance, adjusting our methods, learning and improving. Like our clients, we must continue to build better mousetraps before somebody else does.
Whether you realize it or not, you are in the innovation business too. Unless you're oblivious to the outside world, you opportunistically adapt to change and adopt new habits in every aspect of your life. You might use a computer in your work; your parents can tell you about typewriters and slide rulesComputers are better, even if they do pose a whole new set of problems. You probably use a mobile phone, and if you still have a home phone it's not likely to have a curly cord connecting the base and handset. You might lust for a new HDTV, or a new hair style, or the latest Times best seller (or a Kindle to read it.) Every habit broken serves a common purpose: better, faster, cheaper.
Innovation is in our DNA. Better products and processes. Faster, cheaper transportation. New systems for communicating and collaborating. Cleaner energy. Cures for disease, and softer pillows on hospital beds. Billions of humans reaching for a better life. Untold million minds recombining knowledge in novel ways to create new industries overnight. If knowledge is power, then innovation is wealth.
But what is the nature of this wealth? Adam Smith speaks of marginal utility, the unending question of what an idea can do for us. Psychologists and philosophers debate the relationship between material wealth and happiness. As the juggernaut of innovation rolls across the world, many ask whether human happiness is a function of wealth and power. Are we really better off? Do we lead happier, more fulfilling lives? Is all this innovation good for us?
Technology is neither a blessing nor a curse, but merely a set of tools. The determinant of good and evil is what we do with our tools. We may all possess the same creative spark, but one person will use it to attack cancer while another creates the Improvised Explosive Devices that turn Iraqi roads into killing fields. We may indeed create toys too dangerous to entrust to our own childish hands. This reveals no inherent truth about innovation per se, but much about our species.
Any talk of progress must include a comparison of human suffering. Any assertion, for example, that American life in the 1850's was happier than present times must also address sticky details like dentistry, where modern innovation has surely reduced the average person's pain. So that seems like a good thing.
On the other hand, those 1850's folks had to depend on each other in different ways than we do nowadays. In fact, sometimes it seems that our rush toward convenience is leading us into an ironic state of hyper-connected isolation. We have 4-door cars, but most of the time we drive them by ourselves. We have 24/7 email access, but we seldom meet face-to-face. We can download movies to our phones, but we watch them alone. Isolation is the "i" in i-Tunes. Why? Because we can. Self-service gas stations weren't invented because people dislike interacting with others, but that's why they flourished.
So maybe progress is both a blessing and a curse. Where we might gain convenience and ease suffering, we may also lose our close connections to others and perhaps breed extremism. But that's not a matter of innovation, but of human character and frailty. In the end, for better or worse, we will be judged for what we are as people.
Thursday, January 14, 2010
Friday, January 8, 2010
Shopping with the children
Happy New Year! I hope everyone had a great holiday. For many people, last year was like the bad hangover that follows an all-night binge, so I'm certainly looking forward to a brighter 2010. But before we turn the page on 2009, I have one last story to relate from last month.
A few weeks before Christmas, I took my two boys shopping for gifts. We stopped at Best Buy and they immediately took off for the video game aisles. When I went to find them a little while later, they began asking why we couldn't buy ourselves some games. So I tried doing the dad thing and patiently explained that Christmas is about sharing with others, not getting stuff for us, et cetera. Besides, I told them, we can't just spend all our money on treats or we might get caught short if something bad happens.
My 10 year old son, who can talk a rabid dog out of a stew bone, wasn't about to give up on a new Wii game so easily. He told me he'd heard a news station encourage people to spend money and help the economy. "You do care about the economy, right Dad?"
I was immediately glad to discover he pays more attention to current events than I thought. However, this new tack disturbed me, so I asked him how spending money would make the economy better. He replied that if everybody bought lots of things, then people would get jobs making the stuff we buy. I told him to look closely at a nearby box of earphones, and he read "Made in China" on the back. I asked him who would get jobs if we bought that. He thought about it and replied that the Chinese would get jobs, but we might get some too. Fair enough. So I asked him where we would get the money to buy the earphones, and he smirked and said we have enough to cover the $27 price. I said ok, but one $27 set of earphones won't create enough work to fix the economy. How do we get enough money to buy stuff so everyone has a job?
Now he was closing in for the kill. He arched his eyebrow and replied, "that's why you and Mom have credit cards." He stood there, smug, waiting for my capitulation. See, the lad had sass.
I mentioned that we'd have to buy a few thousand boxes of earphones to pay for a single new job. Who would pay $27,000 back to the credit card company when all we created was one job? He looked at me quizzically and asked, "We have to pay them back?" Checkmate.
I shouldn't have been surprised that society is prompting my kids to spend money. Politicians, columnists and even some otherwise reasonable economists enjoy reminding us that consumer spending accounts for about 70% of the U.S. economy. CNBC regularly rants about how retail sales affects the S&P 500. Now, that's all technically true; Gross Domestic Product is the value of all the goods and services we create, and bigger GDP means more wealth. Economists will tell you that the easiest and best way to measure that value is by counting all the dollars we spend on stuff. They reason that if you buy it, somebody had to make it and that's what it's worth. That makes sense, sort of.
But as most parents must eventually explain to our kids, what we produce and what we consume are two very different things. Production, the value we create, puts money into our pockets. Consumption is the opposite of production, and takes money out. (You might argue that some spending is really investment, but few of us would successfully argue that their new 54-inch flat screen HDTV "investment" is creating anything except a bigger Visa bill.)
Calling the wealth we create in a given period equal to what we spend is like assuming that we bought a new house with last week's paycheck - it's simply not realistic. We don't just spend the cash in our pocket. What we have available to spend relates not only to what we created in any single year, but also to wealth accumulated from the past and to loans we take that are payable into the future.
And that's where the whole idea of stoking consumer spending to increase GDP gets hairbrainy. Spending versus making will prop up GDP in the short run, but spending anything more than the real value created eventually dissipates wealth and leaves a pile of bills to pay. So by mortgaging our homes to buy HDTV's, we make the economy look good today but deplete our assets and future wealth. In short, GDP only looks at the income statement without checking the balance sheet. Managing a household on that basis would put us onto the street; managing the whole country that way is bad policy leading to bankruptcy.
So with that in mind, how does a few points of GDP growth look against the $1 Trillion of new debt we spent to get it? Are you any more confident in your job prospects? Are you better off financially?
Like my kids, sometimes even reasonably intelligent adults will trade reason for immediate gratification. But perhaps we'd be less inclined to spend if someone reminded them that the trillion dollar credit card must eventually be paid.
A few weeks before Christmas, I took my two boys shopping for gifts. We stopped at Best Buy and they immediately took off for the video game aisles. When I went to find them a little while later, they began asking why we couldn't buy ourselves some games. So I tried doing the dad thing and patiently explained that Christmas is about sharing with others, not getting stuff for us, et cetera. Besides, I told them, we can't just spend all our money on treats or we might get caught short if something bad happens.
My 10 year old son, who can talk a rabid dog out of a stew bone, wasn't about to give up on a new Wii game so easily. He told me he'd heard a news station encourage people to spend money and help the economy. "You do care about the economy, right Dad?"
I was immediately glad to discover he pays more attention to current events than I thought. However, this new tack disturbed me, so I asked him how spending money would make the economy better. He replied that if everybody bought lots of things, then people would get jobs making the stuff we buy. I told him to look closely at a nearby box of earphones, and he read "Made in China" on the back. I asked him who would get jobs if we bought that. He thought about it and replied that the Chinese would get jobs, but we might get some too. Fair enough. So I asked him where we would get the money to buy the earphones, and he smirked and said we have enough to cover the $27 price. I said ok, but one $27 set of earphones won't create enough work to fix the economy. How do we get enough money to buy stuff so everyone has a job?
Now he was closing in for the kill. He arched his eyebrow and replied, "that's why you and Mom have credit cards." He stood there, smug, waiting for my capitulation. See, the lad had sass.
I mentioned that we'd have to buy a few thousand boxes of earphones to pay for a single new job. Who would pay $27,000 back to the credit card company when all we created was one job? He looked at me quizzically and asked, "We have to pay them back?" Checkmate.
I shouldn't have been surprised that society is prompting my kids to spend money. Politicians, columnists and even some otherwise reasonable economists enjoy reminding us that consumer spending accounts for about 70% of the U.S. economy. CNBC regularly rants about how retail sales affects the S&P 500. Now, that's all technically true; Gross Domestic Product is the value of all the goods and services we create, and bigger GDP means more wealth. Economists will tell you that the easiest and best way to measure that value is by counting all the dollars we spend on stuff. They reason that if you buy it, somebody had to make it and that's what it's worth. That makes sense, sort of.
But as most parents must eventually explain to our kids, what we produce and what we consume are two very different things. Production, the value we create, puts money into our pockets. Consumption is the opposite of production, and takes money out. (You might argue that some spending is really investment, but few of us would successfully argue that their new 54-inch flat screen HDTV "investment" is creating anything except a bigger Visa bill.)
Calling the wealth we create in a given period equal to what we spend is like assuming that we bought a new house with last week's paycheck - it's simply not realistic. We don't just spend the cash in our pocket. What we have available to spend relates not only to what we created in any single year, but also to wealth accumulated from the past and to loans we take that are payable into the future.
And that's where the whole idea of stoking consumer spending to increase GDP gets hairbrainy. Spending versus making will prop up GDP in the short run, but spending anything more than the real value created eventually dissipates wealth and leaves a pile of bills to pay. So by mortgaging our homes to buy HDTV's, we make the economy look good today but deplete our assets and future wealth. In short, GDP only looks at the income statement without checking the balance sheet. Managing a household on that basis would put us onto the street; managing the whole country that way is bad policy leading to bankruptcy.
So with that in mind, how does a few points of GDP growth look against the $1 Trillion of new debt we spent to get it? Are you any more confident in your job prospects? Are you better off financially?
Like my kids, sometimes even reasonably intelligent adults will trade reason for immediate gratification. But perhaps we'd be less inclined to spend if someone reminded them that the trillion dollar credit card must eventually be paid.
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