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%
TPU9%
TRADE22%
MIN3%
GVT13%
FIN & SVC14%
U.S. EMPLOYMENT: 2005
MFG11%
CONST5%
TPU4%
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
13.1%
Professional and Business Services
12.8%
Financial Activities6.2%
Information2.3%
Trade, Transportation and Utilities
19.2%
Manufacturing10.5%
Construction5.6%
$7,334
114209925
1090912560
14692
16828
19416 20341
23368
2503625374
28137
$30,429
$0
$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
0
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
0
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
1820
18
25
1830
18
35
1840
18
45
1850
18
55
1860
18
65
1870
18
75
1880
18
85
1890
18
95
1900
19
05
1910
19
15
1920
19
25
1930
19
35
1940
19
45
1950
19
55
1960
19
65
1970
19
75
1980
19
85
1990
19
95
2000
2005
59.7
62.9
68.269.7 70.8 73.7 75.4
77
0
10
20
30
40
50
60
70
80
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
$0
$200
$400
$600
$800
$1,000
$1,200
1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927
Pri
ce
$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
10
20
30
40
50
60
70
80
share
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
0
10
20
30
40
50
60
70
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
0
20
40
60
80
100
120
1980M
119
81M1
1982M
119
83M1
1984M
119
85M119
86M119
87M119
88M119
89M119
90M1
1991M
1199
2M1
1993M
1199
4M1
1995M
119
96M1
1997M
119
98M1
1999M
120
00M1
2001M
120
02M120
03M120
04M120
05M1In
dex
Production of Autos & Parts: 1980-2005Federal Reserve Index
0
20
40
60
80
100
120
140
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
0
20
40
60
80
100
120
140
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
0
5000
10000
15000
20000
25000
198019821984198619881990199219941996199820002002
Business Services
Manuf act uring
Total Manufacturing and Total Business Services Employment: 1980-2002
0
5000
10000
15000
20000
25000
30000
198019821984198619881990199219941996199820002002
Percentage Change in Manufacturing Employment1992-2003
-30
-25
-20
-15
-10
-5
0
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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
2.2
3.9
4.6
7.5
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
LA
ID
AZ
UT
MT
WY
NM
CO
AL
FL
SC
TN
KY
INOH
NC
SD
KS
NE
MN
WI
IA
IL
MO
AR
MS
OK
ND
OR
CA NV
WA
TX
MI
GA
AK
HI
PA
ME
VA
NY
CT
WVDE
MD
NJ
VTNH
MA
RI
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
LA
ID
AZ
UT
MT
WY
NM
CO
AL
FL
SC
TN
KY
INOH
NC
SD
KS
NE
MN
WI
IA
IL
MO
AR
MS
OK
ND
OR
CA NV
WA
TX
MI
GA
AK
HI
PA
ME
VA
NY
CT
WV
DE
MD
NJ
VTNH
MA
RI
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
LA
ID
AZ
UT
MT
WY
NM
CO
AL
FL
SC
TN
KY
INOH
NC
SD
KS
NE
MN
WI
IA
IL
MO
AR
MS
OK
ND
OR
CA NV
WA
TX
MI
GA
AK
HI
PA
ME
NY
CT
WV
DE
MD
NJ
VTNH
MA
RI
0.61% plus
0.171% to 0.60%
-0.34% to 0.17%
-0.8% to -0.35% Below -.8%
VA
NET 1995-2000 INTERNAL MIGRATION OF PEOPLE WHO WERE 25-39, SINGLE & COLLEGE EDUCATED
PERCENT OF 2000 POPULATION
LA
ID
AZ
UT
MT
WY
NM
CO
AL
FL
SC
TN
KY
INOH
NC
SD
KS
NE
MN
WI
IA
IL
MO
AR
MS
OK
ND
OR
CA NV
WA
TX
MI
GA
AK
HI
PA
ME
NY
CT
WV
DE
MD
NJ
VTNH
MA
RI
0.09% plus
0% to 0.089%
-0.1% to 0%
-0.2% to -0.11% Below -0.2%
VA
LA
ID
AZ
UT
MT
WY
NM
CO
AL
FL
SC
TN
KY
INOH
NC
SD
KS
NE
MN
WI
IA
IL
MO
AR
MS
OK
ND
OR
CA NV
WA
TX
MI
GA
AK
HI
PA
ME
VA
NY
CT
WV
DE
MD
NJ
VTNH
MA
RI
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
LA
ID
AZ
UT
MT
WY
NM
CO
AL
FL
SC
TN
KY
INOH
NC
SD
KS
NE
MN
WI
IA
IL
MO
AR
MS
OK
ND
OR
CA NV
WA
TX
MI
GA
AK
HI
PA
ME
VA
NY
CT
WV
DE
MD
NJ
VTNH
MA
RI
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
LA
ID
AZ
UT
MT
WY
NM
CO
AL
FL
SC
TN
KY
INOH
NC
SD
KS
NE
MN
WI
IA
IL
MO
AR
MS
OK
ND
OR
CA NV
WA
TX
MI
GA
AK
HI
PA
ME
VA
NY
CT
WV
DE
MD
NJ
VTNH
MA
RI
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.
