CREATIVE DESTRUCTION AND THE KNOWLEDGE ECONOMY · 10/17/2006 · 11420 9925 10909 12560 14692...

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CREATIVE DESTRUCTION AND THE KNOWLEDGE ECONOMY

• Where people work and how it has changed.

• Creative Destruction & the Process of Change

• The Second Industrial Revolution & Agriculture Miracle.

• The Third Revolution & Services Economy.

• Looking for the Knowledge Economy.

But wait a minute.What is the Knowledge Economy?

• A situation where value lies increasingly in new ideas, software, services and relationships.

• An economy characterized by the recognition of knowledge as the source of competitiveness, the increasing importance of science, research, technology and innovation in knowledge creation, and the use of computers and the internet to generate,share and apply knowledge.

oOoFor countries in the vanguard of the world economy, the balance

between knowledge and resources has shifted so far towards the former that knowledge has become perhaps the most important factor determining the standard of living—more than land, than tools, than labor. Today’s most technologically advanced economies are truly knowledge-based.

U.S. EMPLOYMENT: 1940Non-Agricultural

MFG34%

CONST5%

TRADE22%

GVT13%

FIN & SVC14%

U.S. EMPLOYMENT: 2005

MFG11%

CONST5%

TRADE17%

0%MIN1%

GVT17%

SVC &FIN45%

Source: Bureau of Labor Statistics

Percent Distribution of Percent Distribution of US Nonfarm Employment US Nonfarm Employment

by Industryby IndustryAugust 2006August 2006

Government16.2%

Leisure and Hospitality9.6%

Education and Health Services

Professional and Business Services

Financial Activities6.2%

Information2.3%

Trade, Transportation and Utilities

Manufacturing10.5%

Construction5.6%

$7,334

114209925

1090912560

19416 20341

2503625374

$30,429

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Real Per Capita Disposable Personal Income2005 dollars

Since 1940

U.S. Population has doubled.

Real per capita Income has quadrupled.

U.S. Immigration to Naturalization1940 to 2005

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

1 9 4 0 1 9 4 2 1 9 44 1 94 6 1 94 8 19 5 0 1 9 5 2 1 9 5 4 1 9 56 1 95 8 19 6 0 19 6 2 1 9 6 4 1 9 6 6 1 9 68 1 97 0 19 7 2 19 7 4

1 9 78 1 9 80 1 98 2 19 8 4 1 9 8 6 1 9 8 8 1 9 90 1 9 92 1 99 4 19 9 61 9 9 8 2 0 0 02 0 022 00 4

U.S. Immigration to Naturalization1820 to 2005

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

68.269.7 70.8 73.7 75.4

1930 1940 1950 1960 1970 1980 1990 2000

Life Expectancy at Birth: 1930-2000All race and both genders

Creative Destruction

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.

This process of Creative Destruction is the essential fact about capitalism.

Joseph A. Schumpeter. Capitalism, Socialism and Democracy. 1942

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Capitalism in Stages

IndustrialFinancial

Knowledge

Mr. Ford and His Industrial Miracle

Mr. Ford's Economies of Scale

$1,000

$1,200

1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927

$5.00 Day

Mr. Ford’s Contribution

A Detroit newspaper as late as 1909 suggested that former coachmen made the best chauffeurs because of their ingrained habits of obsequious obedience; they would always know “exactly what is expected of them by their masters.”

It will be to Henry Ford’s undying glory that he ended all that, that he made the automobile perhaps the most powerful instrument of classlessness, of egalitarian American democracy. Any man who owned a car was on equal terms with any other. And virtually anyone could afford to own a car. The Model T could perform as well as any.

As Ford said in one of his moments of raw wisdom, unadorned by his hovering ghost writers:

Everybody wants to be someplace he ain’t. As soon as he gets there he wants to go right back.

Jonathan Hughes. The Vital Few. New York: Oxford University Press, 1986, 294.

The Wonderful World of Work

Agriculture in 20th Century

Farm Workers As % of Total

Year US Employment1919 32.8%1930 29.8%1940 25.3%1950 18.0%1960 11.5%1970 6.0%1980 3.9%1990 2.6%1999 1.3%

1930 1950 1970 1980 1990 2000

AgM fg

Other0

Greenville Employment Shares1930-2000

U.S. LEADING INDUSTRIES

1860 1899 1920

1. Cotton Crude Iron Motor Car2. Lumber Packing Iron3. Boots Foundry, Mchy. Packing4. Flour Lumber Printing5. Men’s Clothing Flour Petroleum6. Iron Men’s Clothing Electrical Mchy.7. Machinery Printing Bread

The Agriculture Miracle

Share of Labor Force in U.S. Agriculture1840 - 2000

1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Source: 1930 to 2000, Economic Report of President. 1840 to 1870. Jonathan Hughes, American Economic History, 1990. 1870, 1910-1929. Stephen Broadberry. Agriculture and Structural Change: Lessons from the U.K. Experience in an International Context, 2006.Other years are estimates.

Number of U.S. Farms: 1910-2000

Real Product Prices Received by Farmers

Farm Income as Percent of Non-Farm Income

The Changing Industrial Scene

PRODUCTION-BASED INDUSTRY RANKINGS

1972 1980 1990 2000 2004 12.2005

Iron/Steel Iron/Steel Printing Comp/El Comp/El Comp/ElApparel Apparel Apparel Autos Autos MachineryMachinery Paper Plast/Rubber Food Food AircraftFood Fab. Metal Food Fab. Metal Chemicals Fab Metal Paper Paper Chemicals Machinery Iron/Steel Plast/RubberFab Metal Food Iron/Steel Food Plast/Rubber GlassChemicals Chemicals Fab. Metal Chemicals Machinery AutosAutos Printing Machinery Printing Fab. Metal Food Printing Autos Plast/Rubb Paper Paper ChemicalsPlast/Rubb Plast/Rubb Autos Iron/Steel Printing Paper

Source: Economic Report of the President, 2005, and Federal Reserve Board.

Industrial Production: 1980-2005Federal Reserve Index

y = 0.1916x + 48.061R2 = 0.9485

85M119

86M119

87M119

88M119

89M119

02M120

03M120

04M120

05M1In

Production of Autos & Parts: 1980-2005Federal Reserve Index

1980 M 11980 M 91981 M 51982 M 11982 M 91983 M 51984 M 11984 M 91985 M 51986 M 11986 M 91987 M 51988 M 11988 M 91989 M 51990 M 11990 M 91991 M 51992 M 11992 M 91993 M 51994 M 11994 M 91995 M 51996 M 11996 M 91997 M 51998 M 11998 M 91999 M 52000 M 12000 M 92001 M 52002 M 12002 M 92003 M 52004 M 12004 M 92005 M 5

Textile Mill Production: 1980-2005Feberal Reserve Index

1980 M 11980 M 91981 M51982 M11982 M91983 M 51984 M11984 M91985 M51986 M 11986 M91987 M51988 M11988 M 91989 M51990 M11990 M91991 M 51992 M 11992 M91993 M51994 M 11994 M 91995 M 51996 M11996 M 91997 M 51998 M 11998 M 91999 M 52000 M 12000 M 92001 M 52002 M 12002 M 92003 M 52004 M 12004 M 92005 M 5

U.S. Manufacturers are Disintegrating

• From doing it all to doing one thing• And bringing down costs• While maintaining world leadership

Manufacturing and Business Services Employment, 1980-2002

198019821984198619881990199219941996199820002002

Business Services

Manuf act uring

Total Manufacturing and Total Business Services Employment: 1980-2002

198019821984198619881990199219941996199820002002

Percentage Change in Manufacturing Employment1992-2003

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Data for The Netherlands and China are for 1990-2002.Source: W.A. Ward, Manufacturing Productivity and the Shifting U.S., China, and Global Job Scenes, 1990-2005. Center for International Trade, Clemson University, Clemson, SC.

Looking for the New Economy

Source: Bureau of Labor Statistics

US Unemployment Rate by US Unemployment Rate by Educational AttainmentEducational Attainment

December 2005December 2005

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0

Bachelor's degree andhigher

Some college or associatedegree

HS graduate, no college

Less than a HS Diploma

percent

Employment status of the civilian population 25 years and older by educational attainment

Education is the key to labor market success –The unemployment rate for persons with a bachelor’s degree or higher held steady at 2.2%.

PERCENT OF POPULATION 25 AND OVER WITH A COLLEGE OR PROFESSIONAL DEGREE IN 2000

Beyond 35.01%

31.01% to 35%

27.01% to 31%

23.01% to27% 19.01% to 23%

NET 1990-2000 INTERNAL MIGRATION,PERCENT OF 2000 POPULATION

6.01% plus

2.01% to 6.00%

0.01% to 2.00%

-2.99% to 0.00% Below -3.00%

NET 1995-2000 INTERNAL MIGRATIONOF PEOPLE WHO WERE 20 TO 34,PERCENT OF 2000 POPULATION

0.61% plus

0.171% to 0.60%

-0.34% to 0.17%

-0.8% to -0.35% Below -.8%

NET 1995-2000 INTERNAL MIGRATION OF PEOPLE WHO WERE 25-39, SINGLE & COLLEGE EDUCATED

PERCENT OF 2000 POPULATION

0.09% plus

0% to 0.089%

-0.1% to 0%

-0.2% to -0.11% Below -0.2%

1 to 10 (10 states)

11 to 20 (10)

21 to 30 (10)

31 to 40 (10) 41 to 50 (10)

CREATIVITY INDEX 2003 RANKINGS

U.S. ECONOMIC FREEDOM INDEX, 1999

1 to 10 (10 states)

11 to 20 (10)

21 to 30 (10)

31 to 40 (10) 41 to 50 (10)

U.S. FREEDOM FISCAL INDEX, 1999

1 to 10 (10 states)

11 to 20 (10)

21 to 30 (10)

31 to 40 (10) 41 to 50 (10)

What did we learn?

Go Getters are:• Highly attracted by service sector jobs.• Repelled by state taxes.• Attracted by “cool” locations.• Are not sensitive to high versus low

income locations.

CREATIVE DESTRUCTION AND THE KNOWLEDGE ECONOMY · 10/17/2006 · 11420 9925 10909 12560 14692...

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