Technology Isn't the Only Source Of Innovation

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The solution is to recognize the critical role of social innovation enabled by networked human and social capital.

To my general astonishment, my new book Get a Job, Build a Real Career and Defy a Bewildering Economy has remained in the top 10 of the Kindle Store category "Job Hunting" since its release four weeks ago. Some observers attribute this to the book's platitude-free action plan; maybe people are looking for a career guide that explains the economy we must work with if we are to prosper in the years ahead.

This week I've addressed the structural reasons for the decline of the middle class. As with all complex systems, there is no one cause--instead there is an interconnected web of causes:

The Decline of Small Business and the Middle Class
The Changing Nature of Middle Class Work
How the Middle Class Lifestyle Became Unaffordable
The Destabilizing Truth: Only the Wealthy Can Afford a Middle Class Lifestyle

So what is the solution to this decline? We face a double-bind dilemma: we are constantly reassured that technological innovation can provide the solution to all problems--yet the problem here is that technological innovation is destroying the need for costly human labor. Technological innovation alone can't solve the problem because it is a key cause of the problem.

As I have noted many times, the solution is not to limit technology--that only leads to impoverishment of the entire economy.

The solution is to recognize the critical role of social innovation enabled by networked human and social capital.

I have stressed that the purpose of work is to create value and solve problems. To understand what this means in the real world, let's look at two small-scale examples of how value is created in the emerging economy with social innovation.

Studies have found that human creativity is largely the result of sharing ideas and transferring innovations in one field to other fields. Innovation may arise from a single person, but its application requires human and social capital.

These local-economy examples illustrate how human and social capital works in conjunction with infrastructure, community and financial capital.

Example 1: Farming as currently practiced is overwhelmingly industrial, and few would see any application of knowledge to the sector as being useful except to further the mechanization/automation of agribusiness. Yet highly educated people are profitably truck farming by applying their knowledge of marketing, food preparation and the restaurant business.

For example, the trend-setting restaurant Chez Panisse in Berkeley, Calif., has a supply network of small farms, which in some cases are run by former employees of the restaurant. These small farmers are paid a good price for supplying very fresh organic produce. What is delivered daily sets the restaurant’s menu for that day's lunch and dinner.

The key value creation in this arrangement is trust (social capital), attention to quality, and the ability to fashion menus around a variety of seasonal produce and meats (human capital). The labor of raising the produce is essential but it alone doesn't create the value.

Example 2: Street-Level Cycles in Berkeley, Calif., is an organization that partners long-abandoned city property with private enterprise to offer classes in bicycle repair and free use of the shop’s tools to do-it-yourselfers who want to repair their own bikes. It also provides bike repair services and sells used bicycles. The income generated by the repair service and sales of used bikes supports a small staff and enables the free community use of the shop’s tools.

The amount of financial capital needed to start this enterprise was modest. The city-owned building was unoccupied for years. In exchange for use of the property, the city gets a self-funding, free community educational resource and service.

The enterprise serves a wide spectrum of the community: students, do-it-yourselfers, those needing bike repairs or an inexpensive used bicycle. In offering the free classes to students, the enterprise has no competitors. In selling repair services and used bikes, it competes with other local bike shops. If someone wants to learn how to repair bicycles, this organization offers a nexus of tools and opportunities to learn and practice.

This low-cost synergy of local government, private enterprise, education, community service and social and human capital did not require any technological innovation-- it required social innovation. It illustrates that the profit motive--often held up as the only motivator within capitalism--is not the only motivation for either innovation or enterprise.

These small-scale examples illustrate that innovation often takes what already exists in terms of financial capital and infrastructure and combines these ideas and resources into new methods of value creation. They also show that the key role of human and social capital in creating value via social innovation does not necessarily require more financial capital or infrastructure--and indeed may require less. This can be summarized as doing more with less.

Value creation and problem-solving arise from many sources, not just the technological innovations that receive media coverage. If we combine the many sources of value creation unleashed by digital technologies, we realize that ours is one of the great transformative eras in human history.

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ZerOhead's picture

So now people that can't afford cars can fix their bicycles so they can pedal their way to a "value added" organic meal at Chez Panisse that they simply can't afford.

That's your future folks... it doesn't work... and along with the implementation of the next generation of advanced robotics neither will you.

Quus Ant's picture

I've eaten at Chez Panisse a few times.  Out of towners always want to go there.  It's good- which it should be at $100 a plate, but a model for the rest of us? No

The solutions will only become apparent when the apparatus obstructing them is out of the way. Same as it ever was.

Georgia_Boy's picture

An individualized artisan economy isn’t the answer, first because a lot of the economy can’t do that (individualized Boeing airplanes for everyone?). But more importantly, it’s more of the same problem, runaway individualism itself.

I think “social innovation” (to use that phrase another way) is as much a part of the problem as technology. We are “socially innovating” ourselves into destroying American families, churches, local schools, all the institutions that gave us a sense of community and identity and shared purpose, and replacing it with selfishness and beggaring thy neighbor.  This is the much deeper problem: commerce is not a substitute for community. And the new idea of community, i.e. getting rid of all the boring bigoted stuff like heterosexual monogamous marriage and church, is not helping, it’s just throwing ourselves headlong into hedonism and individuality and trusting that if we all do what pleases us now, everything will work out for the best.

I think the solution is we need to look back on the strengths of what we had before, and try to rediscover what about that worked, and how to preserve that. We need to get back to respect for community, not every legal decision is just a matter of individual rights. For example, don’t legalize polygamy, if you’re for that, you’re part of the problem, just considering everything as a civil rights issue and not thinking about the effect of what you do on other people.  Legalizing pot, letting investment banks do prop trading, I could think of lots of other examples, consider the welfare of the nation and not just retreat into atomized individualism.

Quus Ant's picture

The schlubs that came before weren't privy to some special knowledge.  They only lacked the means to wreak havok on our level.  Tell me your ideal era and I'll rattle off some atrocities. 

Yes, community-  but not a community that thinks it can "legalize" anything.  I am a divine creature.  My rights are not up for debate and are only sanctionable when they infringe on yours.  How do polygamy, homosexual marriage or pot affect you?  Other than your sensibilities, of course.  "Welfare of the Nation"; what does that even mean?

Many look backward.  Many look forward.  Few are here right now.

JLee2027's picture

 How do polygamy, homosexual marriage or pot affect you?  

They are immoral and a reflection of a society on the decline that will tolerate wickedness only goes deeper into the pit. Any honest study of humn history will tell you that.

Seer's picture

"Any honest study of humn history will tell you that."

And you are the arbitor of what is "honest?"

I'll take this one as being rather comprehensive:

And while you and others might conclude that Glubb supports your position I would caution to note that if you read close enough you'll see it as more a "symptom" than a "cause."

Rats in a cage can do some rather "interesting" things.  Is it the rats' fault or the cage's?

But, seriously, pot?  Like alcohol doesn't promote wickedness? Disclaimer: do not do either; I also have no financial interest in either.

Anusocracy's picture

So live in a society run the way you wish and respect everyone else's choice in what type of society they want to live in.

Of course most people are control freaks and can't possibly allow others to free of their control.

Quus Ant's picture

Well I guess that's, like, your opinion man.   History tells me humans lived in polygamy until very recently.  Even those ragtag semitic goat herders were polygamists. 


masterinchancery's picture

No advanced society has ever engaged in polygamy or serious inbreeding for any length of time.

laomei's picture

Apart from gay marriage, polygamy and pot have been around since forever, in fact NOT having polygamy and pot are the exceptional aberration here.  As for gay marriage, there have always been gays, there has always been gay sex, recognizing marriages is a new thing, but then again, so is discriminating financially based on marital status and social access rights.

Seeing Red's picture

Yeah right, ethical behavior and social responsibility aren't possible without going to church and whatnot.  Look, on this over-populated planet, our collective options are going to disappear as resources dwindle (this has been covered before I know).  We need innovation, creativity and flexibility, not platitudes.

Wait What's picture

"Out of towners always want to go there"

...until they realize most ppl's rez has to be made a month in advance, and much like the tour of The Rock, pushes more people away than it welcomes. usually right up the street to Cheeseboard, which creates some Apple-store-when-the-1st-iphone-came-out-long-lines.

Berkeley, like the rest of the bay area, is a great place to go once you're established, but is a perfect example of why 18-30 yr olds find it almost impossible to stay out of debt in California. overpriced in every respect you can imagine. that they've developed coping methods like cooperatives and small organic farming is only a reflection of how overpriced everything is, if not the ingenuity of the brainpower surrounding the school.

ChickenTrain's picture

If you wish to see the future of farming, look into aquaponics.  Low water usage combined with high density production..  it's a no-brainer really.  I'm embarassed for the author of this article.

I am Jobe's picture

The Amerikan future as we know it is dead/gone/kaput

End of story


NoDebt's picture

No, just unavailable to most people.  Upward mobility is still there, but only to tens of thousands, not tens of millions any more.

We are headed rapidly back down towards the long term mean of most human societies throughout most of human history:  Small number of rich, larger number of poor and just enough middle class to service the rich.  The 20th centrury in the US was the anomaly, not the norm.

Seer's picture

Accepting this fact does not mean defeat, or that the "bad guys" won.  As you note, it's an historical norm that we must account for; and, I realize that there's the "well, we ought to organize and change that" mentality, but that in itself, no matter how well aligned humans could be, cannot overcome the constraints of a finite planet.

"The 20th centrury in the US was the anomaly, not the norm."

All due to the "energy slaves."

Quus Ant's picture

We are headed rapidly back down towards the long term mean of most human societies throughout most of human history:  Small number of rich, larger number of poor and just enough middle class to service the rich.

and guillotines.  don't forget guillotines.

all-priced-in's picture

Until they run out of water -

ZerOhead's picture

The $1T California Rehydration And Crony Kickback Pipeline... AKA the CRACKPIPE will take care of that.

Plus it can deliver fresh Columbia River salmon in season directly to "Chez Panisse".

I am Jobe's picture

Not so fast, the plant parts was sold to the Saudi's. I guess Harem needs white girls to fullfill the needs to get the parts back in time.

JuliaS's picture

If the right way of thinking was enough for getting people out of economic problems, 3rd world wouldn't even exist.

I am Jobe's picture

You mean to tell me Amerika isn't Third World? 

Pure Evil's picture

America a third world?

We'd be lucky to aspire to such heights.

Seer's picture

750 million people in India live on $0.50/day or less.  And something like 2/3 of the human population lives on $3/day or less.

Just to put things in perspective...  a LONG ways to fall...

ZerOhead's picture

50 cents a day is still about 50 cents a day more than our billionaire "job makers" say they can afford to pay.

CHX's picture

Find a sustainble society or perish - sustainble on all levels - financially, morally, socially, demographically, economically, environmentally, etc etc  Unfortunately, that's impossible, so in the long (though for some longer than others) run... 

slightlyskeptical's picture

Anyone who deems it is impossible is part of the problem. It should be an inspiration for all of to achieve.

Seer's picture

Given our propensity to grow I'd say that is IS impossible.

LIfe forms, however, tend to use the overrun-and-die-back method for "adjusting."  I figure that we're pretty much cast to do the same thing.  The "rich" will ensure that their genes are passed along, and they'll do it at the expense of your genes...

geoffb's picture

Good god man while capital is free, labor will suffer.

Peter Pan's picture

The real problem is that free capital is available to the wrong people.

By the way I gave you an up vote.

Peter Pan's picture

Who is the ignoramus who down voted you?

Don't they realise that fairly priced capital is the ony means that workers and savers have to get a return on their sweat which is tied up in bank deposits and retirement funds?

geoffb's picture

I was under the impression that posts aren't even worth reading unless Krugman downvotes them. I see you got one as well. Well played. ;)


Not only is capital flowing to idiots, in some cases, they don't even have to pay back the principal. I'm not sure how many bikes I will be required to fix in the future to compete with negative interest rates??

Pure Evil's picture

You won't have many bikes to fix because the building you leased from the government is located in a hellhole neighborhood populated by drug cartels and gangbangers.

A month after you've opened there is a drive by shooting where multiple victims are killed among them little children.

And, after that no one is brave enough to visit your little bike shop for fear of being killed by the local criminal element.

Wait What's picture

you're not kidding. west of San Pablo Ave. (which runs the length of the East Bay), is all ghetto. watched a guy drop trou, take a quick deuce on the sidewalk, then get up and walk away like nothing happened as I was riding through there once.

Seer's picture

City folks have it so tough!  No such constraints out here in the rural hinterlands.

OC Sure's picture




"As with all complex systems, there is no one cause--instead there is an interconnected web of causes..."

Yes, there IS always one cause that begets all that follow.

The reason for the decline of the Middle Class is always caused by the opposing cause of why they inclined in the first place.

The middle class inclines when the value of their wages rises; that is, their purchasing power is increasing and therefore the class is on the incline.

The middle class declines when the value of their wages falls; that is, their purchasing power is decreasing and therefore the class is on the decline.

Therefore, the cause of causes is the counterfeiting done by persons who produce nothing as a means to steal from those who produce anything.

Cut to the quick, man. Tyranny is upon us.

Peter Pan's picture

The middle class was reliant on a consumerist society giving them business but when they too fell for the consumerist crap by building mansions nd lifestyles that were over the top and allowing mnufacturing to be outsourced, that was the beginning of the end.

Their kids are now lumbered with education debt, no job prospects and declining freedoms.

I am Jobe's picture

So who does one blame. O yes the world , as they bought the bullshit dream. 

ebworthen's picture

"Therefore, the cause of causes is the counterfeiting done by persons who produce nothing as a means to steal from those who produce anything."

I hope you mean printing money while bailing out banks/corporations/insurers.  Throw in ending bi-metal currency backing to debase the currency and trampling the rule-of-law.

OC Sure's picture

Not precisely. The recipient of the counterfeit is not the cause; the counterfeit is the cause.

If it were not the banks/corps/insurers in trouble and it were someone else demanding the counterfeit for their own bailout then we could simply say "you mean printing money while bailing out %insert omg-I-F'd-up-crybaby-recipient here%.

So to address the recipient is to dillydally over the symptoms and not to attack the cause. We are dealing with a monster that has thousands of tenacles but only one head. The Fed is the head and requires decapitation. Only then will the blood sucking tenacles untangle, wither, and die.

ebworthen's picture

Thanks.  That was my point (money printing, bailouts, QE, no Gold standard, etc.).

End the FED!

Seer's picture

The entire notion of "classes" clouds us from seeing things clearly.  The very word causes us to constrain our thinking into compartments, and when one operates in compartments the BIG PICTURE is not visible.

2/3 of the world's population lives on $3/day or less.  Is this the result of tyranny or is it because there's insufficient natural resources in which to "elevate" people?

"Therefore, the cause of causes is the counterfeiting done by persons who produce nothing as a means to steal from those who produce anything."

And tyranny didn't exist prior to counterfeiting? (was there ever a time in which humans didn't devalue money?)

Let's suppose that everyone was "productive," and that there were no "non-productive" people.  Even IF everyone was "productive" it would not be possible for it to hold, not as long as we base everything on perpetual growth.

The BIG PICTURE has to do with available resources.  And since we're on a finite planet we have a bit of a problem with how we can perpetuate ourselves with finite resources.

The "problem" is the System, it does NOT have the solution to itself.

RaceToTheBottom's picture

Articles like this are off base.  It distracts from the real issue.

Much of the Employment problems are because people are trained or study the wrong stuff.

Technical degrees are hired, period.  STEM degrees get jobs.

Granted boatloads of cheap H1'whatevers are depressing the salaries but an engineering degree still pays more than a basketweaving degree and will always have less unemployment.

The technical world we live in requires more technical people.

The idiots that say we are not smart enough ought to be shot on sight

Quus Ant's picture

I look forward to the day basketweavers get the last laugh. 

ebworthen's picture

Parasitism is the problem.

Governments and corporations are happy to sell out the citizenry for the cheapest and most profitable path.

Why bring in H1's when you could train or educate someone in your own country?  It's cheaper and more profitable!

Pure Evil's picture

Having everyone get a STEM degree would only saturate the market driving down the wages of even those type of careers.

Same reason wages at MikeyD's start at the minimum wage. An over supply of labor with no skills and a minimal education. If the supply of unskilled labor were to dry up, not likely with the border between the US and Mexico flooding the US with unskilled labor, the wages of even fast food workers would rise to the point where more people would apply for those positions.

Right now in Florida, there's an oversupply of STEM applicants for each job opening. Wages are low and will stay that way until the demand for STEM applicants exceeds the supply.

But, that won't happen because they continue to bring in people on H1-B visas that are more than willing to take any new STEM field openings no matter what the pay.

Georgia_Boy's picture

When you get down to it, there are more than enough people to fill every kind of job with lots of unemployed left over.  The U.S. does not need, and cannot as a society afford, 300 million full time work-for-pay employees. Count me in among those who think the decline of the labor participation rate is not necessarily a bad thing, it depends on who leaves and why. Not all work should be commoditized and monetized and taxed, a big example of course being people living together in families and raising their own children and not all of the members of the household work outside the house. The government of course doesn't like that because it means less taxes, so I don't much think they'll help with any rediscovery of middle class values.

FredFlintstone's picture

STEM isn't a slam dunk anymore. If you didn't have an intership in college you probably will struggle to get a job right now out of school. I hire them and talk to them. My third child just graduated from a Big Ten engineering program with decent grades. 1 offer.