Guest Post: The Jobs Plan We'd Get If Leading Innovation Scholars And Growth Economists Weren't Being Volckerized -- Part 1

Submitted By Frank Ruscica

The Jobs Plan We'd Get If Relevant Innovation Scholars And Growth Economists Weren't Being Volckerized (i.e., Ignored As Volcker Was Until Recently) -- Part 1

The Jobs Plan we'd get would leverage America's advantages to make America the Silicon Valley of the global market for customized education (CE).

Understanding why we'd get this plan starts with knowing that popular online markets for CE can be expected to catalyze the creation of many jobs.

From a November 6, 2009 article in the Wall Street Journal:

"According to the Census Bureau, nearly all net job creation in the U.S. since 1980 occurred in firms less than five years old. A Kauffman Foundation report released yesterday shows that as recently as 2007, two-thirds of the jobs created were in such firms. Put more starkly, without new businesses, job creation in the American economy would have been negative for many years."

From a 2005 report by The Nielsen Company:

"By enabling entrepreneurs to start a business online and immediately reach a market of 157.3 million registered users worldwide, eBay has become the best place to start, grow and operate a small business."

Harvard Business School professor Clayton Christensen is the originator of the canonical Model of Disruptive Innovation, and a co-author of the 2008 book Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns. From Disrupting Class:

"Students need customized pathways and paces to learn.

…The second [phase of the disruption of standardized education] will be the emergence of a user network, whose analogues in other industries would be eBay…"

Stanford economist Paul Romer is the originator of New Growth Theory, which updates growth economics for the information age. From Romer’s entry on Economic Growth in the 2007 edition of The Concise Encyclopedia of Economics:

“The country that takes the lead in the twenty-first century will be the one that implements an innovation that more effectively supports the production of new ideas in the private sector.”

“Perhaps the most important ideas of all are…ideas about how to support the production and transmission of other ideas…North Americans invented the modern research university…As national markets for talent and education merge into unified global markets, opportunities for important policy innovation will surely emerge.”

From The Mystery of Economic Growth, a 2004 book by Harvard economist Elhanan Helpman:

"Interest in growth theory abruptly revived…in the 1980s. The two key papers were by Romer (1986) and Lucas (1988).

…Romer (1990) also initiated the second wave of research on the “new” growth theory.

…A more detailed study of the U.S. economy is provided by Jones (2002). He found that between 1950 and 1993 improvements in educational attainments, which amounted to an increase of four years of schooling on average, explain about 30 percent of growth of output per hour. The remaining 70 percent is attributable to the rise in the stock of ideas that was produced in the United States, France, West Germany, the United Kingdom, and Japan."

So, again, popular CE markets can be expected to catalyze the creation of many jobs.

America is uniquely well suited to become the Silicon Valley of CE.

Understanding why starts with knowing that '1.0' versions of CE markets can be expected to attract many buyers and sellers of corporate training.

From a May 20, 2004 article in The Economist:

"There has been a huge swing to custom programmes,” says Fiona van Haeringen of IESE, who attended a recent annual conference of business-education providers in America…Looking to this year, most saw growth coming mainly from customised education."

From Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change, a 2004 book co-authored by Christensen:

"Modular, customizable corporate training has an advantage that interdependent M.B.A. programs can’t match — a product specifically designed for each employee’s needs.

…In contrast to the leading schools’ integrated structure, the on-the-job management education industry is a disintegrated one. Hundreds of specialized firms develop materials, others design courses, and others produce and teach them."

No other region in the world — more precisely, no other integrated set of regions — comes close to matching the quantity and quality of America’s post-secondary educators.

From The World Is Flat, a 2005 best-seller by Thomas Friedman:

"America has 4,000 colleges and universities…the rest of the world have 7,768."

Sean Gallagher, a senior analyst at Eduventures:

"U.S. education is perceived worldwide as the gold standard in higher education."

If American companies operate and supply popular '1.0' CE markets, America almost certainly will become a magnet for '2.0' CE talent and beyond (e.g., who specialize in serving students (who would otherwise be) in high school or college).

From Clusters of Innovations: Regional foundations of U.S. competitiveness, a 2001 report published by the Council on Competitiveness:

"Regional economies are the building blocks of U.S. competitiveness. The nation’s ability to produce high-value products and services depends on the creation and strengthening of regional clusters of industries that become hubs of innovation…These clusters enhance productivity and spur innovation by bringing together technology, information, specialized talent, competing companies, academic institutions, and other organizations. Close proximity, and the accompanying tight linkages, yield better market insights, more refined research agendas, larger pools of specialized talent, and faster deployment of new knowledge."

From an article in the October 7, 2006 edition of The Economist:

"You might have thought that the advent of the Internet would have eroded the connection between place and talent. In fact, the opposite is happening. Bright people gather in university cities such as Boston and San Francisco, or in technology hubs such as Austin, Texas, or Redmond, Washington, or in rural idylls such as Camden, Maine, and Jackson Hole, Wyoming. They cluster together because they feed off each other’s intellect. Christopher Berry, of the University of Chicago, and Edward Glaeser, of Harvard, have studied the distribution of human capital across American cities. They found that in 1970 about 11% of people over 25 had a college degree, and they were fairly evenly distributed throughout the country. Since then the proportion of Americans with college degrees has more than doubled, but the distribution has become much more uneven."

So, again, America is uniquely well suited to become the Silicon Valley of CE.

Of course, subsidizing CE consumers, suppliers and market operators can expedite the popularization of CE markets.

Two obvious subsidies:

1.  vouchers for consumers (e.g., unemployed workers)
2.  investments on favorable terms for CE suppliers and market operators

To make these investments, Congress and the president can establish a venture capital (VC) firm that is similar in form to In-Q-Tel, a VC firm funded solely by America’s Central Intelligence Agency.

From a 2009 book by Josh Lerner, a professor at Harvard Business School:

"When we look at the regions of the world that are, or are emerging as, the great hubs of entrepreneurial activity – places such as Silicon Valley, Singapore, Tel Aviv, Bangalore, and Guangdong and Zhejiang provinces – the stamp of the public sector is unmistakable. Enlightened government intervention played a key role in creating each of these regions.
…It might be obvious to the reader why governments would want to promote entrepreneurship, but why also the frequent emphasis on venture funds as well? The answer lies in the challenges facing many start-up firms, which often require substantial capital. A firm’s founder may not have sufficient funds to finance projects alone, and therefore must seek outside financing. Entrepreneurial firms that are characterized by significant intangible assets, expect years of negative earnings, and have uncertain prospects are unlikely to receive bank loans or other debt financing. Venture capital – independently managed, dedicated pools of capital that focus on equity or equity-linked investments in privately held, high-growth companies – can help alleviate these problems."

Why, then, is making America the Silicon Valley of CE conspicuously absent from all talk of job creation?

A guess?  In two words? 

Banks, children.

The full thinking behind the guess will be detailed in Part 2, coming ASAP.

Teaser information:

From NurtureShock: New Thinking About Children, a 2009 book that appeared on the New York Times bestseller list for two months:

“When a child gets to choose, they presumably choose activities they’re motivated to do [says Dr. Silvia Bunge, a neuroscientist at the University of California at Berkeley]. Motivation is crucial. Motivation is experienced in the brain as the release of dopamine. It’s not released like other neurotransmitters, into the synapses, but rather it’s sort of spritzed onto large areas of the brain, which enhances the signaling of neurons.” The motivated brain, literally, operates better, signals faster."

From The Sandbox Investment -- The Preschool Movement and Kids-First Politics, a 2007 book by David Kirp, a professor of public policy at the University of California at Berkeley:

"The Seventeenth Congressional District [in Texas]…is among the most lopsidedly Republican in the nation...But in the race for a seat in the U.S. House of Representatives that same year [2004], a Democrat named Chet Edwards bucked long odds and won, running 37 percent ahead of the national ticket.

…Edwards’s opponent [was] Texas state legislator Arlene Wohlgemuth…The conservative establishment went all out to get her elected.

...What undid her were the cuts she’d inflicted on the budget of the Children’s Health Insurance Program, generally known as CHIP — 150,000 youngsters removed from the rolls, half a million denied any dental and eye care, all in the name of lean government. "Children were never my primary concern," she said. It was a remark she grew to regret.

…According to the exit polls, 11 percent of the voters — enough to swing the election — said that Wohlgemuth’s record on children had made up their minds. A quarter of those who supported Edwards said they were thinking foremost of children."

About guest blogger Frank Ruscica:

Set out to become a comedy writer, recognized the need to develop a comic persona, settled on an approach for doing so.  A byproduct of taking said approach: a business plan for establishing a popular CE market.  The plan has been praised by analysts at Microsoft, and top venture capital firm Draper Fisher Jurvetson???  The plan is adapted and expanded on at