I-Open White Paper 4-1

OPEN INNOVATION MODELS OF ECONOMIC ANDWORKFORCE DEVELOPMENT

WHITE PAPER VERSION 4.1

Ed MorrisonInstitute for Open Economic Networks July 2008The contents of this white paper are copyright Ed Morrison and the Institute for Open EconomicNetworks. All materials are licensed under a Creative Commons 3.0 attribution license.www.i-open.org•telephone: 216-650-7267•edmorrison@i-open.org

Where We Stand

For at least three decades, we have heard stories plant closings and lost jobs. By now,these dislocations have touched every corner of our country. Old notions of career and jobsecurity no longer seem to apply. At the same time, a different economy is emerging across the country. Unlike the olderindustrial economy, this new economy is embedded in smaller companies with unfamiliarnames. These new companies share some common characteristics, however. They areﬂexible, adaptive, and connected. They innovate.Our challenge is to understand this innovation economy and embrace it. In the comingyears, we will continue to struggle with plant downsizing and closings. In most cases,these changes are unavoidable, as millions of new consumers and producers enter theﬂow of global commerce every year. At the same time, globally competitive regions will attract talent and support innovativecompanies and people. That’s where prosperity will emerge. This white paper exploreshow new approaches to economic and workforce development are stimulating innovationand building new pathways to prosperity.

Welcome to our grandchildren’s economy

Economies and markets go through cycles of rapid growth, maturity and decline. Oureconomy experienced dramatic growth in the early decades of the last century. During thisperiod of rapid growth, entrepreneurs from across the country planted seeds. Many of theseeds withered, but some took root. The successful ones grew into large and prosperouscompanies that built our communities with high income jobs and deep wellsprings of philanthropy.In this industrial economy, corporate managers transformed the insights of entrepreneursinto efﬁcient, centrally managed industrial enterprises. They designed stable businessmodels to guide large ﬂows of industrial and commercial products: steel, chemicals,automobiles, appliances. In the process, they generated enormous wealth with hierarchicalorganizations and no-nonsense, command-and-control management practices.

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New Models of Economic and Workforce Development2

Our strong industrial growth continued in the years after World War II, but the economicclimate began shifting. By the early 1960s, we started seeing transitions within the countryas Northern states -- where industrial growth initially took root -- faced stiff competitionfrom Southern states. The South emerged from World War II with a new economic dynamism. The growth of theInterstate highway system made it easier for manufacturing plants to move from the Northto the South. Company management, looking to reduce costs even further, foundopportunities in lower cost Southern states. (The move became easier when an inventionby Willis Carrier -- air conditioning -- took hold in the South after World War II.) In the spaceof ten years beginning in the mid-1950’s, for example, the New England states lost virtuallyall of their textile factories to Southern states.Beginning in the 1970s, our industrial economy faced another dynamic. New competitionsprung from abroad, initially from Japan, as global markets began to integrate. Changes intrade law, newefﬁciencies in logistics,and dramaticimprovements incommunications havedriven this integration.Now this First Curveindustrial economy isgiving way to a SecondCurve economy basedon knowledge andnetworks, powered bycomputers and theInternet. Wealth comes from our ability to generate and apply new knowledge to newproducts and services. On the Second Curve, different business models prevail. They arenetworked; they are agile; and they focus on learning quickly.Michael Porter, a professor at Harvard, was one of the ﬁrst academics to spot this shift. Inthe early 1990s, he pointed out that wealth arises from clusters of interconnected

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New Models of Economic and Workforce Development3

First Curve: Wealth driven by large "command and control"organizationsSecond Curve: Wealth driven by "link and leverage"networks

Our economic transformation involves movingfrom the First Curve to the Second Curve

Source: Ed Morrison