The horizon is not so far as we can see, but as far as we can imagine

The Economic Cyle of Innovation in Brief

When an industry matures you can move it out to the hinterland. That’s what is happening in the US – that’s outsourcing. All these industries are mature – they don’t need to be located in the US anymore – you can stick’em elsewhere. Being in Silicon valley isn’t necessary in semis and tech anymore, the information you gain, the speed and access to the brightest minds in concentration, as well as the small custom suppliers – they aren’t necessary.

When an industry consists of a myriad of small firms they are dependent on each other and geographical proximity is greatly to their advantage. When it narrows down to just a few firms, with a few other firms supplying their services, or with supply chains vertically integrated within the few remaining big firms, they can move to cheaper domains.

Economic cycles in geographic locales that are economically fertile (basically metropolitan regions) operate on a cycle. For a lot of them that cycle involves import replacement. They import goods, then they learn how to make them, then they use the money they saved to buy other things, then they replace them and so on. This is going on very strongly in China right now – and it’s creating a boom; even an overheated economy.

The areas at the leading edge of the economy create new work – new products and services and ideas; they create new things to export that no one else has exported before.

That was a large chunk of the US for a long time.

If you lose that, well, the reason you were so well paid was in part because of it. The economies that fed off of the US had lower GDP per capita.

That’s what’s going on in the US. To move to the next boom, to keep your place in the sun – you have to lead the next revolution; the next time when being close to suppliers and the bright minds and where the action is – to failing to get to market in time being more disastrous than getting to market with a more expensive product.

It’s not hard. The next revolution is the energy revolution. Solar cells, wind, hydrogen fuel cells, passive solar. The technology isn’t mature and that’s good, but it is at the point where with the right incentives, it becomes feasible.

Crisis = danger and opportunity. The rising energy prices, the coming Hubbert’s peak, are not just a crisis – they’re an opportunity.

Take it and you’ve got the next fifteen to twenty years of the US’s economic prosperity.

Let someone else take it and you’ll move off the bleeding edge, move into replacing other people’s exports – or, because your economy can’t really do that because it’s geared to the high expenses of being the leader, find that you can’t even do that and watch an economic slide of startling proportions.

It shouldn’t be a hard choice.

(Originally published at BOPNews back in 2004.  Other nations have now moved even farther ahead on energy than the US.)


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  1. Quiddity

    Unlike computers (and computer services) and unlike manufactured goods of the old kind, energy is a rather simple commodity. Sure, there will be some sub-categories (e.g. small batteries) that call for specialization, but overall, once the big breakthroughs are made, I don’t see energy as a big driver of employment.

    If you get the wind farm technology down, then it’s straightforward installation. Where’s the need for labor beyond maintenance?

    I think a good historical example are hydroelectric dams. They took up a lot of employment for construction, but very little after that. And the construction requirements for 21st century energy is going to be a whole lot less than for hydroelectric dams.

    I think the U.S. has totally lost the middle class via globalization. I’m foursquare for high tariffs and other protectionist measures against low-wage countries. That’s how you empower labor domestically.

  2. Ian Welsh

    Solar energy, geothermal, wind power, tidal energy, etc… I think there’s enough there for one cycle. And that cycle breaks the oil dependence which is currently hobbling US economic policy choices in other ways.

    That said, you may be right. Stirling believed that absent the telecom oligopoly and all money going to the stupid wars that telecom was due a convergence moment which simply didn’t happen.

    In any case, the US needs another burst. But it’s not clear to me that it has one in it.

  3. Quiddity

    I’m not sure either, but you may have something regarding breaking the oil dependence. That could have interesting results throughout the globe. I have no idea what would happen, but I wouldn’t be surprised if some amazing results followed. (If energy can be had for nearly nothing – an ideal, I admit – then everybody would get pretty much every manufactured good they’d ever want. It might be nirvana!)

  4. DWCG

    I wouldn’t underestimate the amount of labor and time to transform an energy grid.

    There’s the technology then there’s the implementation of that technology on a large scale. Retrofitting cars, upgrading transit, etc.

    And then of course there is perfecting the technology – the 500 mile battery, 10-min recharge, 5-min recharge, etc.

    Afterward, staying on the global warming trend, there’s still water reclamation.

  5. Ian Welsh

    Water’s the big worry. There’s going to be massive shortages in large parts of the US, Africa, China and India.

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