Innovation comes only from government and big business
Ken Rau argues that innovation comes from government funded research and from big business. He seems to be talking only about technological innovation, not process innovation. Peter Drucker, in his 1985 book Innovation and Entrepreneurship lists a number of different types of innovation. Process innovation is likely to come from a veteran of an industry who realizes something can be done a better way, and then strikes out on his or her own to build a company around that business. It seems to me that process innovation may or may not fit the model that Rau is describing here.
In my experience (and everything that follows here should be prefaced with that caveat), the source of most meaningful innovation that gets translated into jobs comes from either University research (through funding by government or sometimes private sector grants) or R&D efforts by large corporations. It’s just that, in most cases, neither of these sources, because of policies or politics, is able or interested in pursuing the most promising of the innovations they try so hard to identify. Instead, it is up to an entrepreneur working in that environment to recognize the true potential of an innovation, leave the environment where it was created, and strike out on his or her own to pursue the innovation. The entrepreneur recognizes the worth of the innovation and, because of frustration with the bureaucracy, politics or getting cross-wise with management of the organization, decides to take the plunge and pursue the innovation on his/her own. Credit cards are maxed out, second mortgages taken, and sometimes, in the case of the experienced entrepreneur (more on this later), venture capital obtained. The innovation is adapted, applied, engineered and pursued. In so doing, jobs are created, revenue is generated, and, sometimes, even profits are made.
Note however, this scenario describes the application of an innovation, not its creation. A technicality? I don’t think so. Innovation is the product of universities and large corporations, not small businesses. Small businesses generate jobs based most often on the innovations they liberate from other sources.
And what of the jobs they create? Are they real, permanent and enduring or just transitional? First of all, the job of the entrepreneur and the cronies he takes with him from the source of the innovation are a job loss to the source and a job gain to small business. This on its own does not represent a net gain in jobs for the economy. Second, those people hired by the small business from the ranks of the unemployed can be tabulated as job gains to the economy, but for how long? The fate, or maybe even the purpose of most small business startups, is to prove an innovation’s merit and then, if successful, be acquired so the entrepreneur(s) become wealthy and can say, “I told you so.” (If the venture is unsuccessful, all jobs are lost.) Once the value of the innovation is proven, a feeding frenzy among large corporations ensues in an attempt to acquire the small business. The entrepreneur and most of the employees of the small business are amply rewarded for the risk they have taken, but at whose expense? Entrepreneur and employees are absorbed by the acquiring corporation who then most often proceed to squander the value of the innovation that has been acquired. Costs are cut, layoffs ensue, and often the quality of the acquired product diminished under the guise of improving efficiency. Discouraged and unable to fit into the inherited corporate culture, most of the remaining acquired employees who have not been laid off as part of the acquisition leave and appear as a net loss of jobs by the corporation.