Innovation is the Answer to America’s Economic Plight

The United States is a consumer driven economy that is based upon the purchase of product.  It cannot thrive without employment of most people at salaries that enable that continuing purchasing power. 

Henry Ford knew this when he started building the Model T.  “I will build a motor car for the great multitude,” Ford proclaimed in announcing the birth of the Model T in October 1908. In the 19 years of the Model T’s existence, he sold 15,500,000 of the cars in the United States, almost 1,000,000 more in Canada, and 250,000 in Great Britain, a production total amounting to half the auto output of the world. The expression fordize meant to standardize a product and manufacture it by mass means at a price so low that the common man could afford to buy it.

Whether it was cars, radios, televisions, or telephones it has been American consumerism that has driven our economy.  Michael Mandel, a noted economist who writes for BusinessWeek, says in this article posted on line “All told, household “out-of-pocket” spending drives roughly 40% of U.S. economic activity.”

Unfortunately big corporations do not see the benefit of high employment in the United States in their best interest.  Their primary interest is maximizing net income.  Recent corporate major growth has been outside the United States.  The reason is that this nation is a “mature” or “advanced” economy that already has an abundance of consumer goods.  After all how many more cars or televisions do Americans want or need?  Everyone in our household has a car and there are four televisions in our house.  There really are no specific things we are in the market to buy.  From now on it’s the replacement of old poorly functioning things and warn out clothes that will drive us to the mall or the car dealer.

Compare the United States with India, China, Brazil or other developing nations.  Those growing countries are looking for all the things that Americans take for granted.  Naturally corporations are going there to increase their net income.  In addition, those people will accept pay rates far below those required in our “mature” economy.  Europeans face the same dilemma as the United States.

The solution to the employment problem in the United States is innovation.  Alan Greenspan, former chairman of the Federal Reserve, guesting on last Sunday’s Meet the Press said exactly the same thing.  The problem is that the U.S. government does not have the right people in place to develop those new products.  People like Jeneanne Rae who is the co-founder and president of Peer Insight, a consulting firm focused on services innovation, points out The Problems with Obama’s Innovation Strategy in her BusinessWeek blog.

The government’s investment in companies like Fisker Automotive is the kind of step that the Chinese government makes in a big way to improve society by employing thousands of people.  Unfortunately too many members of congress are not sufficiently knowledgeable in the business arena to understand the actions needed to change America’s current path.  That results in the bureacracy Jeneanne Rae discusses.  That leaves the rescue to American business.  This situation will require action by the likes of Google to change America’s direction.