The "Innovation for Jobs" Chasm

04/04/2011 04:10 pm ET Updated Jun 04, 2011

"Innovation for jobs" is hamstrung by silos in governments and media, say Sven Otto Littorin, Swedish Minister for Employment 2006-2010, and David Nordfors, co-founder of the Stanford University Center for Innovation and Communication, suggesting principles for a Competitive Democracy.

Sweden handled the latest financial crisis better than most nations. Its growth rate is among the OECD's highest, the budget deficit should become a surplus in 2011, and unemployment is declining to 5%. What does the Swedish example show us, and what lies ahead? Sweden combined fiscal prudence with labor activism. The economy would have fared even better had labor and innovation policies meshed.

Politicians have started to discuss innovation as a job creator. This is logical. Innovation is the main driver of economic growth. But are countries organized to do anything about it? We think not.

All mature economies have ageing populations. Labor markets are growing too slowly to meet future challenges. Governments face the same dilemma as households: cut spending or raise income.

How should governments help people create wealth for each other? The simple solution: everyone, of any age or health, can create value for others. We 'only' need an economy that permits it.

The complex solution: today, many people able and willing to create value cannot enter the labor market because the economy is not organized to include them. The resources and the system are mismatched. Resources must be identified; systems, business models and policies must be designed to use them. Old best practices and policies may be enablers or obstacles. Each mechanism for creating or distributing value involves an ecology of stakeholders who resist change.

So it is as vital to unleash human resources excluded from the economy as it is to innovate -- the process of turning ideas into new value in the market. Introducing new value will always be challenged by powerful stakeholders.

Countries are struggling to implement major, politically difficult reforms to increase their labor pools. After the 2006 election, the Swedish government introduced a system of earned tax credits. The unemployment-insurance and social-security systems were reformed to get people back to work. In the late 1990s, major pension reform helped to increase the number of older people in the labor market.

These reforms were controversial. Reforms are rarely introduced in good economic times--public support for their perceived negative social consequences is negligible. In bad times, governments must solve other, short-term problems. Reforms generate similar public reactions: demonstrations, labor-market conflicts, poor opinion polls and election defeat for incumbents.

Sweden's lesson is two-fold: reforms work, and work even better if introduced early in the election cycle. But reforms to increase labor supply are not enough. Economic theory shows that long-term growth is determined largely by technological improvements and innovation. The core questions: can innovation-driven productivity growth be diverted into job growth? What policies can make this happen? What are the long-term effects on growth and prosperity, and on government finances?

We believe that a main reason for the lack of benefits from innovation lies in failing institutions and how we organize innovation policies. In most countries politics is 'vertical;' departments and ministries are separate. Even budgeting is vertical, as ministries ask the Ministry of Finance for funds.

In many countries innovation policies are lost between these vertical ministries. In some cases, innovation policies are seen as a part of the Ministry of Education but are lost in the academic maze. In other countries, innovation strategies belong in the Ministry for Industry, which often faces more important short-term issues. In both cases, theories on how and why innovations evolve have become more important than their effect on growth and their political impact.

Labor-market policies handle more workers in good times and more unemployed in bad times. Nowhere have innovation policies fought unemployment and exclusion from jobs.

Unfortunately, journalism is 'vertical,' drive by 'beats.' Journalists covering labor markets rarely cover innovation, and vice-versa. Verticals in politics and journalism reinforce each other, making it harder to bridge innovation and labor markets for the common good.

Without horizontal political debate and enlightened journalism to create bridges, innovation has become too theoretical. Building models to understand technological growth overshadows its importance for economic growth.

Innovation policies must be integral to job creation. Today, little collective knowledge exists on how to do so, what policy reforms can do or how decision-making is affected.

Combining innovation and labor policies is a complex issue, an open-ended challenge, with no clear definitions or solutions. Finding the right questions is as difficult as finding suitable answers.

So decision-making systems offering solutions to these problems, tailored by and for existing silos, executing these solutions linearly top-down, will likely fail.

Policy makers must interface specialized knowledge with broader perspectives, mix disciplines and bridge cultures. The challenge is like innovative product design, continously defining, researching, ideating, prototyping, choosing, implementing and learning. By iterating this process in multi-disciplinary teams, working across borders of innovation and labor policy, problems are framed, questions asked, ideas created, and the best answers chosen.

Collaboration can integrate innovation and labor policies, and make a democracy competitive in the global innovation economy.

A mindset:
Innovation needs investment, in R&D as well as in people. Job creation delivers ROI by letting more people creating more value.

For innovation policy makers:
We must develop reliable, quantifiable ways to agree on the success of innovative entrepreneurship in sustainable improvement in job creation, inclusion and job satisfaction.

For labor policy makers:
We need reliable, quantifiable ways to agree on the success of job creation in improving economic growth and fiscal balance.

For politicians and economists:
We must agree on and measure the success of combined innovation and job creation as sustainable improvements in family life, harmonious communities, physical and mental health, lifelong learning, creativity, aesthetics, and happiness.

For communicators:
common, relevant, simple language for discussing the connection between innovation, labor and quality of life, to enable constructive interaction across silos, and help democratic and business leadership compete for mandate from citizens, shareholders and customers, while maintaining checks and balances, and improving value creation for the constituents.

For all:
it's 'us and them,' not 'us or them.' Creativity and innovation work best, and yield the highest returns, with the fewest borders. Protectionism and barriers to the flow of ideas and people should be dismantled. Combining innovation and job creation is the opposite of a zero-sum game. A competitive creative player will always benefit from interaction with others, even if some encounters deliver a loss. A set of competitive creative players can all win, if a zero-sum game is avoided.
Sven Otto Littorin David Nordfors
Visiting Scholar, Center for Innovation and Communication, Stanford University

Minister for Employment of Sweden 2006-2010

President, European Council of Ministers (EPSCO) 2009

Founding Executive Director,
Center for Innovation and Communication, Stanford University