From the iPhone and iPod to a…thermostat?
At a Silicone Valley start-up, a former Apple design leader has switched his focus to diminishing carbon emissions, decreasing electric bills, and moderating energy usage. He has changed from iPhones and iPods to thermostats.
Described in the NY Times, his firm, Nest Labs, has developed a “cool” thermostat. It looks great, has motion sensors that track you, can self-program, and with a click or two, does what you want. Knowing that existing digital thermostats are complex and/or boring, he wants to transform the experience.
Our bottom line? Incentive. Yes, even when we care about the environment, it takes the appropriate incentives to modify our behavior.
The Economic Lesson
Noted during a 60 Minutes segment, for personal computers, animated movies, music, telephone, retail stores, tablet computing and digital publishing, Steve Jobs made the past obsolete.
Now, maybe, it’s the thermostat? Like his former employer, Nest Labs founder is hoping for some of Joseph Schumpeter’s (1883-1950) creative destruction.
An Economic Question: Explain the following equation: incentive + green technology + creative destruction = Nest Labs’s thermostat
Just say, “More productivity, R & D and economies of scale,” and you are talking about large firms. New Yorker financial columnist James Surowiecki reminds us that too often we glorify small businesses and forget how A&P, Walmart and their large siblings stimulated economic growth.
On the other hand, economist Michael Mandel characterizes the small business as a job creation machine. Citing a 2009 Kauffman Foundation paper, he tells us that young firms, less than 5 years old, generated between 60% and 70% of all new jobs. Explained as a process constantly in motion, young firms are created, some fail, some grow and those that are the most innovative tend to be acquired by larger firms. For Mandel, though, the key is the innovation that began the process and the economic growth at the end.
Our bottom line? Innovation at older, large firms and young, small firms fuels job creation and economic growth.
The Economic Lesson
Firms with 2-19 employees, close to 90% of all businesses, far exceed the number of large establishments. However, in most other ways–revenue, payrolls, number of employees–the large firm is dominant. Slightly more than 40% of the labor force works for only .3% of all businesses. (From this Kauffman paper, pp. 2-3, based on BLS stats.)
An Economic Question: Do you believe that the legislation that Congress is considering, the Innovate America Act, creates the incentives that will lead to innovation, start-ups, and job creation?
During 1939, in a garage, Bill Hewlett and Dave Packard started a new firm. Also in a garage, several decades later Steve Wozniak and Steve Jobs started Apple. Yes, Walt Disney worked in his uncle’s garage and Mattel, the toy company that makes Barbie dolls began in a garage. Google did not begin in a garage but they did use one.
The Economic Lesson
For most of these garage stories the key actually was funding. In some way, they needed to secure the money to proceed. And that takes us to today.
With current unemployment high and growth sluggish, economists who disagree with a new Keynesian demand side stimulus are increasingly focusing on the entrepreneurs that have energized our economy. Nobel Prize winner Edmund Phelps suggests a First National Bank of Innovation that lends to entrepreneurs. Journalist Thomas Friedman quotes innovation experts when he recommends tax breaks for start-ups and a cabinet position that focussed on encouraging innovation. In a second column he says we need “More (Steve) Job, Jobs, Jobs, Jobs”.
These ideas remind me of Alexander Hamilton’s development program. Through a “Report on Manufactures” and a First Bank of the United States, in 1791, he too suggested a plan that would fund business development in order to stimulate and diversify U.S. economic growth.