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. ooo For 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: 1940 Non-Agricultural FIN & SVC 14% MIN 3% GVT 13% MFG 34% TRADE 22% TPU 9% CONST 5%
U.S. EMPLOYMENT: 2005 MFG 11% CONST 5% TPU 4% SVC &FIN 45% TRADE 17% GVT 17% MIN 1% 0%
Percent Distribution of US Nonfarm Employment by Industry August 2006 Government 16.2% Construction 5.6% Manufacturing 10.5% Leisure and Hospitality 9.6% Education and Health Services 13.1% Professional and Business Services 12.8% Information 2.3% Financial Activities 6.2% Trade, Transportation and Utilities 19.2% Source: Bureau of Labor Statistics
Real Per Capita Disposable Personal Income 2005 dollars $35,000 $30,429 $30,000 25036 25374 28137 $25,000 23368 19416 20341 $20,000 16828 14692 $15,000 11420 9925 10909 12560 $10,000 $7,334 $5,000 $0 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Since 1940 U.S. Population has doubled. Real per capita Income has quadrupled.
2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 U.S. Immigration to Naturalization 1940 to 2005 2 0 0 4 2 0 0 2 2 0 0 0 1 9 9 8 1 9 9 6 1 9 9 4 1 9 9 2 1 9 9 0 1 9 8 8 1 9 8 6 1 9 8 4 1 9 8 2 1 9 8 0 1 9 7 8 1 9 7 4 1 9 7 2 1 9 7 0 1 9 6 8 1 9 6 6 1 9 6 4 1 9 6 2 1 9 6 0 1 9 5 8 1 9 5 6 1 9 5 4 1 9 5 2 1 9 5 0 1 9 4 8 1 9 4 6 1 9 4 4 1 9 4 2 1 9 4 0
2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 U.S. Immigration to Naturalization 1820 to 2005 1 8 2 0 1 8 2 5 1 8 3 0 1 8 3 5 1 8 4 0 1 8 4 5 1 8 5 0 1 8 5 5 1 8 6 0 1 8 6 5 1 8 7 0 1 8 7 5 1 8 8 0 1 8 8 5 1 8 9 0 1 8 9 5 1 9 0 0 1 9 0 5 1 9 1 0 1 9 1 5 1 9 2 0 1 9 2 5 1 9 3 0 1 9 3 5 1 9 4 0 1 9 4 5 1 9 5 0 1 9 5 5 1 9 6 0 1 9 6 5 1 9 7 0 1 9 7 5 1 9 8 0 1 9 8 5 1 9 9 0 1 9 9 5 2 0 0 0 2 0 0 5
Life Expectancy at Birth: 1930-2000 All race and both genders 80 68.2 69.7 70.8 73.7 75.4 77 70 59.7 62.9 60 50 40 30 20 10 0 1930 1940 1950 1960 1970 1980 1990 2000
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
Capitalism in Stages Industrial Financial Knowledge
Mr. Ford and His Industrial Miracle
Mr. Ford's Economies of Scale $1,200 $1,000 $5.00 Day $800 P ric e $600 $400 $200 $0 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927
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 20 th Century Farm Workers As % of Total Year US Employment 1919 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%
Greenville Employment Shares 1930-2000 80 70 60 50 share 40 30 20 10 0 1930 1950 1970 1980 1990 2000 Other M fg Ag.
U.S. LEADING INDUSTRIES 1860 1899 1920 1. Cotton Crude Iron Motor Car 2. Lumber Packing Iron 3. Boots Foundry, Mchy. Packing 4. Flour Lumber Printing 5. Men s Clothing Flour Petroleum 6. Iron Men s Clothing Electrical Mchy. 7. Machinery Printing Bread
The Agriculture Miracle
70 60 Share of Labor Force in U.S. Agriculture 1840-2000 50 40 30 20 10 0 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/El Apparel Apparel Apparel Autos Autos Machinery Machinery Paper Plast/Rubber Food Food Aircraft Food Fab. Metal Food Fab. Metal Chemicals Fab Metal Paper Paper Chemicals Machinery Iron/Steel Plast/Rubber Fab Metal Food Iron/Steel Food Plast/Rubber Glass Chemicals Chemicals Fab. Metal Chemicals Machinery Autos Autos Printing Machinery Printing Fab. Metal Food Printing Autos Plast/Rubb Paper Paper Chemicals Plast/Rubb Plast/Rubb Autos Iron/Steel Printing Paper Source: Economic Report of the President, 2005, and Federal Reserve Board.
120 100 80 60 40 20 0 Industrial Production: 1980-2005 Federal Reserve Index y = 0.1916x + 48.061 R 2 = 0.9485 2001M1 2002M1 2003M1 2004M1 2005M1 1985M1 1986M1 1987M1 1988M1 1989M1 1990M1 1991M1 1992M1 1993M1 1994M1 1995M1 1996M1 1997M1 1998M1 1999M1 2000M1 1984M1 1983M1 1982M1 1980M1 1981M1 Index
140 120 100 80 60 40 20 0 Production of Autos & Parts: 1980-2005 Federal Reserve Index 1984 M 1 1984 M 9 1 985 M 5 1 98 6 M 1 1986 M 9 1987 M 5 1 988 M 1 1 98 8 M 9 1989 M 5 1 990 M 1 1 99 0 M 9 1 99 1 M 5 1992 M 1 1 992 M 9 1 99 3 M 5 1 99 4 M 1 1994 M 9 1995 M 5 1 99 6 M 1 1996 M 9 1997 M 5 1 998 M 1 1 99 8 M 9 1999 M 5 2000 M 1 2 000 M 9 2 00 1 M 5 2002 M 1 2 002 M 9 2 00 3 M 5 2 00 4 M 1 2004 M 9 2005 M 5 1 980 M 1 1 98 0 M 9 1 98 1 M 5 1982 M 1 1982 M 9 1 98 3 M 5
140 120 100 80 60 40 20 0 Textile Mill Production: 1980-2005 Feberal Reserve Index 1984 M1 1984 M9 1985 M5 1986 M 1 1986 M9 1987 M5 1988 M1 1988 M 9 1989 M5 1990 M1 1990 M9 1991 M 5 1992 M 1 1992 M9 1993 M5 1994 M 1 1994 M 9 1995 M 5 1996 M1 1996 M 9 1997 M 5 1998 M 1 1998 M 9 1999 M 5 2000 M 1 2000 M 9 2001 M 5 2002 M 1 2002 M 9 2003 M 5 2004 M 1 2004 M 9 2005 M 5 1980 M 1 1980 M 9 1981 M5 1982 M1 1982 M9 1983 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 25000 20000 15000 10000 Business Services Manuf act uring 5000 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Total Manufacturing and Total Business Services Employment: 1980-2002 30000 25000 20000 15000 10000 5000 0 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02
5 0-5 -10-15 -20-25 -30 Percentage Change in Manufacturing Employment 1992-2003 Rate! " # $ %&' (( ("( # ' & $ )* 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
US Unemployment Rate by Educational Attainment December 2005 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%. Less than a HS Diploma 7.5 HS graduate, no college 4.6 Some college or associate degree 3.9 Bachelor's degree and higher 2.2 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 percent Employment status of the civilian population 25 years and older by educational attainment Source: Bureau of Labor Statistics
PERCENT OF POPULATION 25 AND OVER WITH A COLLEGE OR PROFESSIONAL DEGREE IN 2000 WA MT ND M E CA OR NV ID UT WY CO SD NE KS MN IA MO WI IL MI OH IN KY WV PA VA NY VT NH MA RI CT NJ DE MD AZ NM OK AR TN NC SC MS AL GA TX AK LA FL Beyond 35.01% 31.01% to 35% HI 27.01% to 31% 23.01% to27% 19.01% to 23%
NET 1990-2000 INTERNAL MIGRATION, PERCENT OF 2000 POPULATION WA MT ND M E CA OR NV ID UT WY CO SD NE KS MN IA MO WI IL MI OH IN KY WV PA VA NY VT NH MA RI CT NJ DE MD AZ NM OK AR TN NC SC MS AL GA TX AK LA FL 6.01% plus 2.01% to 6.00% HI 0.01% to 2.00% -2.99% to 0.00% Below -3.00%
NET 1995-2000 INTERNAL MIGRATION OF PEOPLE WHO WERE 20 TO 34, PERCENT OF 2000 POPULATION WA MT ND M E CA OR NV ID UT WY CO SD NE KS MN IA MO WI IL MI OH IN KY WV PA VA NY VT NH MA RI CT NJ DE MD AZ NM OK AR TN NC SC MS AL GA TX AK LA FL 0.61% plus 0.171% to 0.60% HI -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 WA MT ND M E CA OR NV ID UT WY CO SD NE KS MN IA MO WI IL MI OH IN KY WV PA VA NY VT NH MA RI CT NJ DE MD AZ NM OK AR TN NC SC MS AL GA TX AK LA FL 0.09% plus 0% to 0.089% HI -0.1% to 0% -0.2% to -0.11% Below -0.2%
CREATIVITY INDEX 2003 RANKINGS WA MT ND M E CA OR NV ID UT WY CO SD NE KS MN IA MO WI IL MI OH IN KY WV PA VA NY VT NH MA RI CT NJ DE MD AZ NM OK AR TN NC SC MS AL GA TX AK LA FL 1 to 10 (10 states) 11 to 20 (10) HI 21 to 30 (10) 31 to 40 (10) 41 to 50 (10)
U.S. ECONOMIC FREEDOM INDEX, 1999 WA MT ND M E CA OR NV ID UT WY CO SD NE KS MN IA MO WI IL MI OH IN KY WV PA VA NY VT NH MA RI CT NJ DE MD AZ NM OK AR TN NC SC MS AL GA TX AK LA FL 1 to 10 (10 states) 11 to 20 (10) HI 21 to 30 (10) 31 to 40 (10) 41 to 50 (10)
U.S. FREEDOM FISCAL INDEX, 1999 WA MT ND M E CA OR NV ID UT WY CO SD NE KS MN IA MO WI IL MI OH IN KY WV PA VA NY VT NH MA RI CT NJ DE MD AZ NM OK AR TN NC SC MS AL GA TX AK LA FL 1 to 10 (10 states) 11 to 20 (10) HI 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.