MAJOR SYSTEMIC PROBLEMS

1. PATHWAYS TO SUSTAINABLE INDUSTRIAL TRANSFORMATIONS:Co-optimizing Competitiveness, Employment, and EnvironmentNicholas A. AshfordMassachusetts Institute of Technology

3. MAJOR SYSTEMIC PROBLEMS • Fragmentation of the knowledge base • Inequality of access to economic & political power • Tendency towards ‘Gerondocracy’ • Technological and political ‘lock-in’ • usually, but not always, accompanied by concentration of economic and political power • Market imperfections that externalize environmental and human costs • Limitations of perfectly-working markets • Disparate time horizons • Delay in recognizing problems (Limits to Growth)

4. Drivers of Economic Growth • Technological Innovation (Schumpeter’s ‘waves of creative destruction’) • Trade (Ricardo’s theory of comparative advantage)

5. Drivers of Economic Growth • Technological Innovation (Schumpeter’s ‘waves of creative destruction’) • exploiting innovative potential • Trade (Ricardo’s theory of comparative advantage) • exploiting excess capacity

6. GLOBALIZATION INDUSTRIALIZATION • Internationalization - expansion of product/service market abroad with the locus of production in the parent country • Multi-nationalization - production/service facilities in several places • Creation of Strategic Alliances -merging and sharing of technical and managerial know-how KNOWLEDGE AND INFORMATION MOBILITY CAPITAL MOBILITY

7. Sustainable Development • Development that meets the needs of both the present and the future generations (Brundtland) • Development that addresses needs and adverse effects within nations • Development that improves relationships among nations • Development, rather than Growth [Herman Daly]

8. Sustainable Development • Development, rather than Growth • Growth led by inadequately regulated markets • Development that meets the needs of both the present and the future generations • markets fail here • Development that addresses needs and adverse effects within nations • political systems fail here • Development that improves relationships among nations • world political instability

9. A BROADER DEFINITION OF SUSTAINABLE DEVELOPMENT Development that addresses: • needs/adverse effects of industrialization on subsequent generations, within, & among nations • available goods & services (distribution) • the environment (environmental justice) • (fair) working conditions/health & safety • (fair and meaningful) employment • (adequate and fair) purchasing power • Potential for self reliance, innovation and participation in trade

10. The Economy, Employment, and the Environment • Are affected by both technological innovation and globalized trade • Are in a fragile balance • Are inter-related and need to be addressed together in a coherent and mutually reinforcing way

11. Ecosystem integrity, Toxic pollution, Resource depletion, Climate change Environment Effects of environmental policies on employment and health & safety Uncoordinated environmental and health & safety policies Trade and environment Investment and environment Development and environment Rapid technological change & globalization Economy Employment Job skills, Number of jobs, Job security, Job satisfaction, Health & safety, Wages, Purchasing power Competitiveness, Productiveness, Use of physical, natural, and human capital, Financing development and growth Change in international division of labor, Contingent work, Change in demand for skills Source: Ashford .

12. Beyond Environment:Sustainable Development ● Co-optimization of Environment, Employment, and Competitiveness - drives sustainable development (SD) along different pathways and goes to different places than environmentally-driven concerns alone, which may require tradeoffs ● Environmental Policy vs. Sustainable Development - Two Contrasting Agendas - The latter (SD) focuses on ‘system changes’

13. AGENDA Competitiveness Environment Employment Current Improve performance Control pollution Reduce worker hazards Cut costs Make simple Dialogue with workers substitutions/changes Ensure supply Conserve energy and of adequately resources trained people Sustainable Change nature of Prevent pollution Radical improvement meeting market needs through system in human-technology through radical or changes interface (a systems disrupting innovation change) (a systems change) Decrease resource & Job creation energy dependence

14. Government is Essential • As a supporter of basic education and skills acquisition • As a provider of physical/legal infrastructure • To invest in path-breaking science and technology development – for both environmental improvement and job design • As an facilitator or arbitrator of competing interests to ensure a fair process • As a trustee of worker and citizen interests to ensure a fair outcome • As a trustee of new technologies • As a force to integrate, not just coordinate policies

15. THREE-LAYER POLICY APPROACH • Singular innovations • Creating a supporting innovation climate • System innovations

16. Strategies to Enhance Productiveness & Competitiveness • Innovation-based performance • enhanced by technological innovation and changing product markets • fluid, competitive production (lean production?) • upskilling of labor • important in both domestic and international commerce • Cost reduction strategies • enhanced by increased scale of production and/or automation (and excess capacity) • rigid, monopolistic production • shedding and deskilling of labor • shedding and deskilling of labor • where domestic markets are saturated/have excess capacity, trade becomes the major focus

17. Labor Productivity • Sources • increased worker skills • better hardware, software, and manufacturing systems • better matching of labor with natural/physical capital, and with information & communication systems

18. Theoretical implications of increased worker productivity for employment • Lower costs of goods and services • Lower prices • Increased demand and sale of goods and services • in the original industry/market • in new markets • More workers hired than displaced • Assumes a continual throughput economy with increasing consumption

19. Questions • Is labor valued, and paid, more or less after productivity improvements? • What are the effects on work content and job security? • Are more workers hired than displaced? • It depends on the source of increases in labor productivity and the basis of a nation’s competitiveness.

20. Implications for Labor of Strategies to Enhance Productiveness/Competitiveness • Innovation-based performance • opportunity for skill-based competition • building optimal human-technology interfaces • Cost-reduction strategies • lean production and flexible labor markets • knowledge embodied in hardware and software, rather than in human capital

21. THE DYNAMICS OFTECHNOLOGICAL CHANGE • Invention (the first working prototype) • Innovation (the first commercially successful introduction) • Within the current/dominant technological trajectory ~ sustaining innovation • incremental innovation (adaptation) • acceleration of radical innovation already in progress • radical innovation • Outside mainstream development ~ disrupting innovation • Diffusion (wider adoption within an industry) • Technology Transfer • diffusion between industries or countries • lab to industry

24. An additional paradigm shift is needed • to explain why firms that listen closely to their customers both succeed impressively and fail miserably (Clay Christensen, The Innovator’s Dilemma: Why New Technologies Cause Great Firms to Fail) • sustaining versus disrupting innovation • Intrinsic innovation (e.g., the transistor) • Architectural innovation (e.g., the hybrid car) • either can be incremental or radical

26. Requisites for Technological Change • Willingness • Opportunity/Motivation • Capacity

27. Requisites for Technological Change • Willingness • Towards changes in production (flexibility) • Influenced by knowledge of options (diffusion) • Opportunity/Motivation • Gaps in technological capability (in existing markets) • Economic cost savings (in existing markets) • Regulatory requirements (making new markets) • Consumer/worker/societal demand (making new markets) • Capacity • Influenced by knowledge of options (diffusion) • Resident/available skills and capabilities (innovation)

28. ECONOMICS: Getting the prices right (pollution taxes, etc.) Ensuring competitive markets Increasing Demand for a Clean Environment, Product Safety, & Good Working Conditions through information & education LAW: Establishing minimum environmental and product safety standards Labor protection legislation Environmental reporting & labeling Encouraging technology development, transfer & infrastructure Economics and Law as Competing Change Agents

29. Alternative Roles of Government in Promoting Sustainable Development • Correct market failures by regulating pollution, and by addressing inadequate prices, monopoly power, uncompetitive labor markets, and lack of information • Act as a mediator or facilitator of environmental and labor disputes/conflicts among the stakeholders • Facilitate an industrial transformation by encouraging organizational learning, pollution prevention, and dialogue with stakeholders leading to win-win outcomes (Ecological Modernization/Reflexive Law) ~ evolutionary theory • Move beyond markets and act as trustee for minority interests, subsequent generations, and new technologies by forcing and encouraging innovation, through integrated regulatory, industrial, employment, and trade policy

30. A Implications of Alternative Roles of Government inPromoting Sustainable Development • Correct market failures by regulating pollution, and by addressing inadequate prices, monopoly power, uncompetitive labor markets, and lack of information • Achieve static efficiency through better working markets • Act as a mediator or facilitator of environmental and labor disputes/conflicts among the stakeholders • Achieve static efficiency through reducing transaction costs • Facilitate an industrial transformation by encouraging organizational learning, pollution prevention, and dialogue with stakeholders leading to win-win outcomes (Ecological Modernization or Reflexive Law) • Faith in rational choice and evolution • Move beyond markets and act as trustee for minority interests, subsequent generations, and new technologies by forcing and encouraging innovation, through integrated regulatory, industrial, employment, and trade policy • Transcend Markets, Displace Dinosaurs, Move toward Dynamic Efficiency, Change the balance of knowledge … and thus power

31. ● THE DIMENSIONS OF INNOVATION: technological, organizational, institutional, and social changes ● THE SCOPE OF INNOVATION AND THE IMPORTANCE OF ’DESIGN SPACE’ - the needed major product, process, and system transformations may be beyond those that the dominant industries and firms are capable of developing easily, at least by themselves - distinction between ‘sustaining innovation’ and ‘disrupting (radical) innovation’ - ‘design space’ refers to the dimensions along which the designers of technical/social systems concern themselves - expanding the available socio-technical design space includes consideration of the determinants of competitiveness, environment, and employment

32. The Role for Government Government needs to include, but go beyond simply creating a favorable climate for investment e.g., ● direct support of R&D and incentives for innovation through appropriate tax treatment of investment ● the creation and dissemination of knowledge through experimentation and demonstration projects ● the creation of markets through government purchasing ● the removal of perverse incentives of regulations in some instances and the deliberate design and use of regulation to stimulate change in others ● the training of owners, workers, and entrepreneurs, and educating consumers Government needs to create winning forces and scenarios, and provide an enabling and facilitating role by creating visions for sustainable transformations

33. POLICY DESIGN AND IMPLEMENTATION • Co-optimization ~ multi-purpose design of policies, mutually-reinforcing and integrated, not merely coordinated (‘opening up the problem space of the engineer/designer’) • Avoiding agenda and pathway capture/’lock-in’ • Government as trustee for new technology and needs • Picking winning scenarios ~ visionary leadership • New generation of ‘backcasting’ to encompass technical, organizational, & social transformations => requires more than one ministry/industrial department/sector

35. “The surest sign that intelligent life exists elsewhere in the universe is that it has never tried to contact us” Anonymous

36. WHY CAN’T SOLUTIONS EASILY BE FOUND?There are many more ways to do it ‘wrong’ than to do it ‘right’. • Market failure – wrong prices, monopolies (as distinguished from the inherent failure of a perfectly working market) • State failure (is government inherently prone to bureaucratic failure?) – capture/lock-in • Regulation usually conflicts with markets – ideology influences choices. • Promoting diffusion versus innovation • Single purpose design for complex problems • Dominance of future agenda by incumbent firms and institutions

37. WHY CAN’T SOLUTIONS EASILY BE FOUND?(continued) • National/sectoral policies favoring expanding existing markets through trade rather than investment in innovative performance. Evolution or revolution? i.e., management of evolution or displacement? Encourage regime changes or change regimes? • Focus on static efficiency or dynamic efficiency? • Need for technological, organizational, institutional, and social innovation • Growth & environment can’t always be decoupled • Production versus consumption side policies • Perverse incentives