While I agree that market creating innovations create jobs, many of the market creating innovations today – Advanced and Additive manufacturing, robotics, AR/VR – are birthing a gap in that job creation. Current jobs are being eliminated by technology, and the skills sets needed for the new jobs that are being created are not ones enough of the current workforce are trained with.
Some comments on renewing the system:
While the Tobin tax idea is a good one, to me it is not something that is likely to happen
L-Shares also a good idea but tough to implement especially in large firms. And would it move the needle at a place like GE? Not sure it would. Would be great to see an IPO that clearly stated they were going to use L Shares to reward long term investors and support market creating innovation.
The focus on shorter term returns instead of longer term investment is probably partially caused by the shift (in the 80’s) to more active instead of passive investing – 401k’s vs. Pensions. People have a closer eye on their investments, want to see the lever moving whereas pensions of the past were managed more passively. You trusted your company to manage your retirement. Longer life expectancy also makes it more important to actively manage your investments.
In terms of why capital is not being invested, one reason I don’t think you have given enough real estate to is Regulatory and Tax Policy issues. Before selling off GE Capital, GE had to have a certain amount of Capital on hand to satisfy the Fed’s Stress Testing regulations. This was not a GE Capital problem, it was a GE problem and kept a good deal of capital that could have been invested on the sideline. The tax regime in the US is also an issue and impacts investment.
There are two reasons why business leaders are driven to efficiency, or incremental innovations over market creating, or visionary innovations: 1. A side effect of Globalization: new markets have opened up thanks to globalization and small tweaks in products to satisfy regional preferences have allowed companies to get away from market creating innovations. In the past, a German company for example had a finite market: Germany, maybe extending into Western Europe. So once their market was saturated with current product, they needed to innovate a new product for their finite market. With globalization and the continual graduation of third world countries into emerging markets, existing products can be tweaked and sold to new customers. Once the global market is saturated, which has not yet happened for most products, companies will once again have to create new markets through innovation 2. Consumers are willing to pay for efficiency innovations. As long as we are forming lines to buy iPhones with efficiency innovations like wireless earbuds or higher resolution camera capabilities, Apple will continue to invest in those relatively minor tweaks.