Diversity And Innovation

There’s an interesting post on the Harvard Business Review blog site by the founder of the Startup Genome project, which analyzes success/failure in new enterprises.  He titles it: “Reversing the Decline in Big Ideas”.  (See http://blogs.hbr.org/cs/2012/07/reversing_the_decline_in_big_i.html)

He notes that there seems to be a lack of big new ideas in the tech industry and suggests that this is because there is not enough diversity in the founding teams of new enterprises.

In a recent presentation, I noted that we’ve learned about the importance of cross-pollination among disciplines for true innovation.  And then I made the point that many of the “innovation clusters” planned by governments instead aim to drill down into one very focused domain of knowledge – which might mean they won’t get the innovation they expect.  

The author’s argument about the homogenous nature of Silicon Valley startups is perhaps another example of this pattern.  All of those public officials who have dreams of duplicating the past success of Silicon Valley should take note.

© 2012 Norman Jacknis on July 31, 2012

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Video: How To Get Fit For The Future Economy


A few weeks ago, in a post “How Intelligent Communities Get Fit For The Future Innovation Economy”, I summarized my keynote presentation at the Annual Summit of the Intelligent Community Forum.

If you’d like to see a video of the keynote presentation that ICF recorded, go to http://vimeo.com/45415273

Unfortunately, the ICF staff also cut out all of the brief video clips that engaged the audience, including holographic-like telepresence, laser projections on city walls, virtual/physical interactions on Times Square and the like.  (I suspect they were worried about copyright issues, although they needn’t have worried.)

If you’re interested in seeing those videos, in their full length, you can find them as follows:

As always, please send me your comments and observations (njacknis@cisco.com).

© 2012 Norman Jacknis

[http://njacknis.tumblr.com/post/27907953361/video-how-to-get-fit-for-the-future-economy-a]

The Three Legs Of Traditional Economic Development Strategy Are Breaking

I was asked to lead a panel on economic development at the Annual Meeting of the National Association of Counties last Friday.  My task was to provide some background on economic trends for the panelists who were to speak on what their communities are doing.

I presented what have been the three main legs of the traditional economic development strategy of state and local governments:

1. Provide incentives for big companies to bring lots of jobs to your community

2. Encourage the creation and development of physical clusters of the same kind of businesses

3. Subsidize the building of places that concentrate a large number of jobs, like office buildings, factories, etc.

Then I pointed out that these three parts of the traditional strategy are being undermined by the consequences of:

  • a shift in employment from making things and food to intangible services and digital goods and 
  • increasingly available communications

As a result, incentives to big companies don’t work well because those companies can no longer deliver or move lots of jobs.  In addition to explaining why this is, I gave examples of the failure of incentives.  

In a sense, there is a movement away from the world of Coase to the world of Shirky.  Ronald Coase, an economics Nobel Prize winner, developed the theory of the firm – why large enterprises emerged in the industrial era and were more efficient in many ways than the marketplace itself.  Clay Shirky of NYU has written about how the Internet can provide the means of collaboration today that only the large industrial corporation used to provide.

As a result, in their thinking about economic growth, governments should focus on small companies and fluid teams as the individual increasingly becomes the key unit of economic activity.

The second part of the traditional strategy has been to create clusters.  However, as some major economic studies have made clear, the value of physical clusters of the same industry is waning. Moreover, the more recent talk of “innovation clusters” would seem to fly in the face of what we have learned about how innovation happens.  Innovation is more likely to occur from people in diverse fields exchanging ideas than people who are all narrowly focused on the same domain of knowledge.

Then finally there has been the practical equation of real estate development with economic development. As noted in an earlier blog, companies require less commercial real estate space per employee.  Work at home and flexible co-working spaces are the substitutes and these don’t look like traditional office towers.  Physical real estate itself is changing and become more a blending of virtual/physical.  So perpetuating more traditional office or other industrial real estate projects would not seem to be a good future-proof investment of public funds.

I suggested that public officials needed to shift their thinking about what is economic success.  Is it the total revenues of companies that might happen to have an address in your county OR is it the amount of income and wealth of its residents?

To put it another way: if you had to choose, which is the better economic picture for your community – corporate skyscrapers or headquarters in downtown, but a median household income of $40,000 per year OR no skyscrapers, but a median household income of $100,000 per year?  To me the answer is clear – the latter option to both questions.

My talk was followed by presentations from the two coasts of the US.  First, Ira Levy of Howard County, MD described that county’s approach with its emphasis on entrepreneurs, education, etc.  We didn’t do any coordination ahead of time, but his presentation was very much in line with the ideas I presented in the opening talk.  And, of course, he had to point out that Howard County has a median household income of $105,000.

A similar story came from Robert Ross of the San Mateo (CA) Council, who referred to the trends that I had outlined.  These required a change in strategy even in the heart of Silicon Valley. 

Please feel free to contact me at njacknis@cisco.com if you want a copy of the details of the presentation.

© 2012 Norman Jacknis

[http://njacknis.tumblr.com/post/27476032969/the-three-legs-of-traditional-economic-development]

Why Do We Still Have Tax Brackets?

It must be the warm summer that has made me wonder about silly things like: why do we still have these tables of brackets that determine how much income tax we’re supposed to pay?

I can understand there was a time, many decades ago, that the government wanted to keep things simple so each person could easily determine the tax rate that would apply.  And I know that the continued use of tax brackets is not the biggest problem around,  However, tax brackets are just another symptom of government’s failure to see the widespread deployment of technology in the general public and its failure to use basic technology for simple improvements that are appropriate in this century.

There are some problems that brackets cause.   Politicians, like Steve Forbes and Rick Perry, who advocate a single flat tax rate often start with the argument that their approach would be so simple people could just send in a postcard.  Putting aside the merits or demerits of a flat tax, there is, of course, something really backward about telling people to use a postcard.  From 2000 to 2010, postcard usage dropped by half, an even greater drop than in first class envelope mail.

There are also those who observe people trying to game the system by adjusting their income so they don’t get into a higher bracket.  Those who argue for lower taxes in the higher brackets implicitly say that people will work less if it means an obvious jump in tax rates by shifting into a higher bracket.  Similarly, US News published a story earlier this year on “How to Avoid a High Tax Bracket in Retirement”.

With the current set of progressive tax rates, your percentage of tax goes up as your income goes up.  There is nothing in today’s world that requires the use of brackets in a progressive tax system.  Indeed, a system based on a formula instead would eliminate the negative impacts of bracket-avoiding behavior that critics of progressive taxation point to.

There are a few possible formulas that might work.  The most complex would be a logarithmic or exponential curve, which is nevertheless easily computed by a computer.  If you want to make it even simpler, another formula would set the percentage tax rate as a percentage of income.  (Remember school math?  TaxRate = m * Income where m is some small fraction.)

No matter the formula, computers can handle it.  The IRS could make a formula available on line or over the phone – just enter your taxable income and it will tell you what you owe.  It can be built into the calculator function of cell phones.  We no longer have to assume we live a world limited to paper-based tables.

While we’re at the effort to bring government into the modern technological era, why do we still have fixed budgets?  This budget reform from the 1920s was also developed in a world that did not have the ability to dynamically make calculations.  So every year, government officials make their best guess on the condition of the economy, the demand from an unknown number of potentially needy citizens and other factors that determine the ebb and flow of public finances.  Since the budget process is lengthy, they make this guess well ahead of time so they could be trying to predict the future more than 18 months ahead of time.

A rolling budget would work better by automatically adjusting each month to the flow of revenue and the demands on government programs – and all you need is a big spreadsheet on a not-so-big computer.  However, the budget makers would have to decide what their priorities are.  For example, for every percentage of unemployment, we need to put aside $X billion dollars for unemployment insurance payments.  It would take work to do this for each of the promises the government makes – although maybe not as much work as trying to guess the future.  

(Of course, the real obstacle to a rolling budget model is that policy makers would be forced to make more explicit their priorities.)

I could go on, but you get the idea.  It’s about time that government not only buys technology (which it does, sometimes, in large volumes), but also brings that technology into its thinking.

© 2012 Norman Jacknis

[http://njacknis.tumblr.com/post/26971606341/why-do-we-still-have-tax-brackets]

Does Innovation Cluster?

Last week, the BBC had a report on New York City’s award to a consortium of universities, led by Cornell, for the building of a new applied science university that would focus on a couple of key industry clusters.  The goal of the city is to encourage innovation and businesses that could be spun off of the university research.

The article (http://www.bbc.co.uk/news/business-18497565) went on to say that other city governments around the world, including London, are hoping to imitate New York City.  London even has an online map showing its “technology ecosystem” at http://www.techcitymap.com/index.html#/

The dots on this map and others like it from other cities don’t necessarily imply the ecosystem functions the way people think nor is the real ecosystem limited to the dots that are on the map.   These maps sometimes are like Rorschach tests that reflect the mental model applied to them.

The mental model at work here is that government can build an innovation cluster around a narrow domain of knowledge, whether it’s biotech or information technology or whatever.  The city leaders hope to have their own version of Stanford University, which has had the reputation as the ideal of 20th century innovation.  Of course, it is an open question as to whether that 20th Century model is the best approach for the 21st Century. 

This open question will be answered, in part, by knowing whether innovation clusters.  

So consider this news story from Europe: 

“Business clusters could be less relevant as drivers of innovation than has been commonly assumed. The Stavanger Centre for Innovation Research analysed 1,600 companies with more than 10 employees located in the five largest Norwegian city-regions. Rather than national clusters, international cooperation or global pipelines were identified as the main drivers of innovation.”

(The full article is at http://www.proinno-europe.eu/inno-grips-ii/newsroom/study-norwegian-companies-finds-business-clusters-are-irrelevant-innovation the research page http://ideas.repec.org/p/imd/wpaper/wp2011-05.html and the research report http://repec.imdea.org/pdf/imdea-wp2011-05.pdf )

Also, in what could be described as the de-clustering of the financial industry, the New York Times this week reported (http://www.nytimes.com/2012/07/02/business/finance-jobs-leave-wall-street-as-firms-cut-costs.html) that many “Wall Street” firms were moving substantial number of employees far away from Wall Street or even Manhattan.  Clearly they don’t necessarily think that physical clusters are required for business success or innovation. 

Indeed what we know about how innovation occurs would lead us to believe that a narrow focus is the wrong approach.  Instead, innovation is most often the result of cross-pollination across disciplines.

With that in mind, perhaps these cities would be better off providing their residents with connections to the flow of new, diverse and cross-cutting ideas that are already occurring around the world – and the business services that will help turn those ideas into successful businesses.  I doubt this 21st Century model would take the parochial form of a large, institutional building project.

©2012 Norman Jacknis

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