How does innovation create jobs? – The Music Industry example

We’re likely to hear President Obama talk about the need to innovate and create jobs in his speech tonight. But how exactly does innovation create jobs?

An earlier post mentioned how Jack Welch talked about “expanding” the pie and merely increasing efficiencies could not help. Let’s think about this last bit -some more. If let’s say a worker produces 100 widgets a day and ups productivity to 110 widgets- costs decline  and with overall lower costs and prices  demand moves up, more global markets waiting for low cost options can become accessible.

But there comes a point when unless you change  the technology platform you can only do so much. My favorite example is the  vinyl records->music cassette -> disc-> MP3 music platforms. Just the number of songs you could fit in into a device has jumped exponentially, industries like cassette tape makers are extinct but their place is taken by an entire cell phone industry that offers MP3 music- famously led by the iPod and iPhone. New markets have appeared for all types of “long tail music” with an audience of perhaps only thousands in number. The music brick and mortar shops have disappeared and cell phone  makers are looking for batteries that last long and are able to support loudly playing music on cell phones in countries like India. Yes, if you observe- you’ll see some of the most unlikely  people ,like security guards at apartment complexes, enjoying loud music from their cell phones and hopefully being more alert and productive.

At a global and overall level- sure the world music industry and consumers benefitted a great deal from the vinyl records to MP3 journey. Employment effects (when you count niche musicians who got a market) also went up a great deal at a global level. 

At a country level, probably every country that was able to promote commercialization and diffusion for every technology from vinyl to MP3 , should have created more jobs and opportunity for its people. Something to think about…. Why does innovation create jobs?

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