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Another sign of the Big Disrupt

An essay in the New York Times Magazine by Adam Davidson describes the stark contrasts seen outside the train window during a journey from New York to Washington, DC.  While the trip connects the American center of commerce with the national center of power, what lies in between shows how the economy has changed.

“The real value in America was created in Newark’s machine shops and tanneries, Trenton’s rubber and metal plants, Chester’s shipyard, Baltimore’s steel mills. That’s where raw material was turned into valued products by hard-working people who made decent wages even if they didn’t have a lot of education. Generation after generation, and wave after wave of immigrants, found opportunity along the corridor. Washington collected the taxes and made the rules. Wall Street got a small commission for turning the nation’s savings into industrial investment. But nobody would have ever confused either as America’s driving force.”

But as Wall Street learned to flex its muscle, the economy flipped. Instead of the financial system serving the nation’s industrial base, it became that companies served the needs of Big Finance. Stocks are more valuable than the factories. Derivatives are more lucrative than making actual stuff.

The author then goes on to make an interesting point: American manufacturing still thrives.  The value of US manufacturing output is on the same order of magnitude of that of China, but now it is specialized and automated, and therefore much more job-efficient.

So why do politicians of all stripes, whether at the federal, state or local level (in the US or Canada) still power their stump speeches with bombastic promises to bring back manufacturing jobs?

I believe that the manufacturing job will become as extinct in the mid 21st century as the need for farmers diminished from the mid 20th. Farmers are still vitally needed. However, their productivity, measured in output per job, has soared, thanks to mechanization, automation and modern techniques. The same can be said about manufacturing. This is good news, not bad, because it means we are not stuck in the past, we are evolving as a society.

So what does this mean for you and me? The “Big Disrupt”, at its core, is about how the measures of economic value and wealth are becoming obsolete, and that we have no tools to measure the new productivity.

We are moving from an industrial to an experience economy. The trend lines show that we want less stuff, but more experience from the stuff we have: look at the value premium we place on Apple products compared to competitors which do the same thing. Now, what counts is not what you do, it’s how you do it, and especially, how people feel about how you do it.

Enormous value is being created by visionary startups who use the virtual world of bits to find new ways of using the stuff we already have. The “sharing economy” exemplified by social media, Craigslist, AirBnB, Uber and car sharing apps means that we don’t necessarily have to make stuff to create value.

This is a huge problem for economists, financiers and accountants, because the dashboards we have created in the last century don’t work.

And that’s why I am very excited about the future, because there is a whole new reality to create.

For more information:

“The Empire of In-Between” by Adam Davidson (NYTimes.com, November 2, 2012)

Image credit: Lindsay Sorenson via Flickr
Direct link: http://www.flickr.com/photos/dystopian/21061326/
Used under Creative Commons licence

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