What creates value

Although this is a pretty weak article from David Brooks, I found it interesting for this quote: "It would be embarrassing or at least countercultural for an Ivy League grad to go to Akron and work for a small manufacturing company. By contrast, in 2007, 58 percent of male Harvard graduates and 43 percent of female graduates went into finance and consulting." 


The real questions are: (1) Now we have outsourced our factories, what work is there for the people that used to work in those factories? and (2) What work creates economic value? Let's see.

If I lived in the woods by myself, I would stay alive with farming and hunting. If I needed something, like a table, I would make it. My life would be whatever I created with my own hands. Let's extend this idea to a village. Now I no longer make everything myself, but some of the things I make I exchange with you for something that you have enough of. Our lives will be richer, or at least a little bit easier. We will also be less different as we adopt part of each other's lifestyle. If nothing comes in or leaves the village, we again have a closed system with a fixed total value. The only way for me to get more is to take it from you. Once I have that power I can take advantage of it to the extend that you will allow me to. Of course, I will share some of that power with neighbors who also deserve more, because they make things that others want and are willing to pay for. This is more or less the capitalist economic system. We can expand this to states, countries and finally, the globe. In all cases, value is created and sold to those who want to own it and can afford its cost. 

At this point in history, most technology product ideas are developed in the West and Japan, while the actual products are more and more manufactured in the East, including Japan. It is not difficult to see that, although this is a two-way street, the West has become economically dependent on the East. More so if western educated citizens of the East start to develop their own product ideas that will have value for customers in the West. The East then will not only manufacture the products, but also develop them, thus profiting from production as well well as intellectual property rights. The question is how this picture can be balanced. 

In time the undervalued workers in the East will demand a larger share of the economic pie, making it more expensive to produce the products there. Thus, production will shift to another country or region with lower living standards. At some point in time this could, again, be the West. The question is, how does the West continue to create value in a global economy? The answer is simple, by better predicting the future. At the level of federal and state governments the difficulty in getting agreement about what the future will bring that stymies doing something about it. This should not be the case for companies and entrepreneurs, although somehow it seems to, but I admit that businesses do not speak with a single voice, as much as the Chamber of Commerce may want us to believe. In other words, entrepreneurs and businesses may already be developing new opportunities that in time will become clearly visible to us all.

What is likely to happen next? Of course, your guess is as good as mine, but let's look at what China is doing now. They are searching the globe for scarce resources. They are diving to the ocean floor with new submarines to not only hunt for minerals but also to seek new knowledge. They are investing in infrastructure, education, renewable energy sources, from solar to wind, technologies that we know we all need to keep us going in the long run. We don't know whether this will pay of, but we did not know that about the space program either. We just packaged the Man to the Moon as something we had to do to keep our adversaries in check.  

And what are we doing now in the West? We value that our brightest minds develop financial instruments that the CEOs of the companies they work for do not understand, but that brings them lots of money in the short run. We ask that our lives be extended with new medical treatments independent of the cost of those treatments. And we want those treatments for all, because we don't want to make them only available to those of us who can actually afford to pay for them. That would look like inequality in a society that holds that all men are created equal, which was only meant to say that we will be treated equally under the law. In reality we are not created equal, but even if we assume that we are, that does not mean that we stay equal or that we should do as if. This is how healthcare is rationed now. Costly new procedures are not accepted as part of healthcare insurance if 'we the people' cannot afford the cost of extending the procedure to all people. But I digress.

Some companies have laid off workers here to get the work done there at lower cost. Other companies just laid off worker to strengthen the bottom line in times of economic insecurity. Yet other companies merged or acquired adversaries. In other words, companies are doing fine financially and have bulked up to get ready to grab a larger share of the economic pie when the pie expands again. Some companies, like DuPont, are focusing on green chemistry, assuming that the future will bring more regulation to reduce the environmental impact of their activities. In a real way, companies like DuPont are shaping the future, while others seem more intend to defend the status quo. These are the stragglers, some very successful, but industrial equivalents of the remedial student who wants us to pay for his education. Companies should be looking for opportunities that may not be feasible now, but will be when  . . . (fill in the dots).

What is needed in a time of economic stress on the small business side? Well, for one, teach students to do their own cooking instead of spending their (parents) money in fast food chains. Put the emphasis on saving money and pitch the benefit of spending time with friends preparing a meal. When you own a coffee shop, give the unemployed half off if they consume in the store. There is a market out there consisting of millions of people who all look for work, who all have payments to make and less money to do it with. Make them your customers. 

The question remains, what work is there for the people who are no longer employed and want to work?  Are we retraining them, letting them learn new skills? What skills? What does the future need? What is today's equivalent of building the Hoover Dam? The least we can do is to make the unemployed work to earn their unemployment checks.