Does Innovation Disrupt Job Growth?
The other day I was chatting with an optometrist and asked how business was. “To be honest, I just sold my practice and felt very lucky to do so," he told me. "We make most of our money selling glasses, and a company called Warby Parker was eating my lunch. Young people weren’t coming into the shop to buy glasses anymore.”
That conversation got me thinking about innovation -- and job loss.
Full disclosure: I love Warby Parker, which sells affordable fashionable glasses directly to consumers. The founders wondered why glasses were more expensive than cellphones and found out that prices had been kept artificially high by a quasi-monopoly, Luxottica, which was marking glasses up as much as 2,000 percent at retail on its various subsidiaries: Lenscrafters, Pearle, Sunglass Hut, Oakley, Ray-ban, even the company that makes the lenses.
Warby Parker challenged the monopoly by going directly to consumers and manufacturing affordable glasses itself, resulting in lowered prices and an impressive social entrepreneurism project to donate glasses to the billion people worldwide that need them. The company's values are so strong that it's a certified B Corp, which imposes high standards of social performance, accountability and transparency. Warby Parker is by any estimation one of the best corporate actors you can imagine, and has created 500 jobs with many more to come. Luxottica's price-gouging also had to end.
Still, the optometrist's comments made me think about the job loss at offices like his in the years ahead. There are 33,340 optometrists around the country, and each retail location likely employs five to 10 full- and part-time workers. Retail businesses have narrow margins. If you cut off a flow of young consumers, it’s only a matter of time before the businesses struggle and fail.
The same pattern will likely play out with Casper and mattresses, where, just as in the eyewear industry, a handful of major companies control supply and impose high retail markups. Here again, a combination of affordability and service will likely win out: Casper will send you a mattress and let you try it risk-free for 100 days, minimizing the need to head to a store (Warby has a similar practice).
More affordable eyeglasses and mattresses are doubtless a good thing for the economy overall. But the shift will likely dislocate thousands of retail employees and even small businesspeople who have made a living on a decades-long status quo. The hope is, “Well, they’ll go find other, better things to do.” Which is sort of true, and the way the economy’s supposed to work.
But if you’re a retail employee, it’s not like there are a ton of other retailers out there growing. And some of the dislocated may not be directly able to take on different forms of work. The optometrist I talked to wasn’t sure what his next step was going to be; he was working part-time at another practice for some income. And he’s obviously highly educated.
These are some of the thoughts behind the pro-entrepreneurship organization, Venture for America, that I started, to encourage more of our young people to head to early-stage growth companies around the country. Our goal is to help create 100,000 new U.S. jobs by 2025. Venture for America operates in communities that could generally use more innovation: Detroit, New Orleans, Baltimore and other U.S. cities. So I’m obviously a big believer in innovation and progress as key drivers of economic growth and prosperity. As a society we can’t hide from the future; we have to build and own it.
But the optometrist’s story reminded me that certain forms of innovation and efficiency will often reduce opportunities for others who are generally less able to adapt. The market is going to be cruel to some. And as such, there’s a big opportunity and need for shifting and preparing our human capital for areas of growth, away from shrinking sectors. The need is only going to get more significant in the next few years.
The biggest change coming down the pike is the self-driving cars. There’s now a fake town in Michigan for self-driving cars to roam around so we can figure out how they can operate in snow, under difficult conditions, etc. The estimate for when self-driving cars will become mainstream is around 2035, 20 years from now. But for the moment, there are currently about 887,000 bus drivers, taxi drivers, and chauffeurs in the United States,, many of whom have been driving for years. What will they do when cars drive themselves?
If the above is freaking you out a bit, the answer lies in investing in different types of innovation.There are examples, like the ones above, of new companies disrupting an existing industry, setting off waves of job losses: Amazon eliminating bookstores around the country, and Craigslist and the internet in general making local newspapers obsolete are recent examples.
But not all innovations are going to eliminate jobs. Happily, there are some that are almost purely job-creating. Call these nondisruptive innovations, or job-creating enterprises.
Take LinkedIn. Before it existed, most business communications and recruiting happened over email and the phone. We maintained our "connections" in a physical Rolodex of business cards. Now, we more easily maintain our professional networks via LinkedIn and recruiters use the site to inform people of available positions. Salespeople solicit interested parties, etc. LinkedIn has lowered boundaries and made connections much more efficient. Instead of displacing recruiters, it made them more effective.
Starbucks, meanwhile, employs 182,000 people in the United States and around the world, and I’d argue that most of those jobs came about because they grew the pie and changed the culture. Before Starbucks, there wasn’t as much of a coffeehouse routine; we generally drank really cruddy diner coffee. Now, high-end coffee and a "third place" are baked into the national routine. While I’m sure some local cafes were displaced, Starbucks created even more jobs by creating a new demand and changing the culture.
Most any company that offers an innovative product or service is growing the pie, at least incrementally. One of our Venture America fellows, Brian Rudolph, started a company called Banza that makes gluten-free, low-carb, high-protein pasta out of chickpeas. It employs 12 people in a manufacturing plant in Michigan. Banza is expanding the market of consumers of pasta to include the health-conscious, gluten-intolerant, etc. Another set of fellows started Compass, which connects small businesses to freelance technologists to build their web presence, helping small brick-and-mortar businesses gain access to new customers.
For the future, the challenge is going to be balancing the pace of job-dislocating innovation with enough job-creating innovation to grow the pie and create opportunities in diverse places for people of diverse backgrounds. For every Whatsapp, the mobile messaging service which was acquired for $19 billion with only 55 employees (most of whom were highly educated and technical), we’re going to need hundreds of more companies like Starbucks and Banza that employ people from different walks of life.
It’s one of the challenges that results from centering innovation in a place like Silicon Valley -- where "disruption" occurs in a traditional sense.
This is not to say that companies that only employ college graduates and engineers don’t create wealth and opportunities for a variety of people. In The New Geography of Jobs, Berkeley economist Enrico Moretti estimated that every information-sector job supports between two and five other jobs in the community, ranging from bartenders, babysitters, hairdressers and landscapers to teachers, nurses and doctors. The hair salons in Atherton are a lot busier than those in Grand Rapids.
Some innovation, then, is going to destroy jobs; some is going to create them. We need to recognize the difference, and invest a ton in the latter to make the coming wave of dislocation as much of a positive opportunity as possible.
Related: What's on Tap for Google at I/O 2015
Andrew Yang is the founder and CEO of Venture for America, a New York City-based nonprofit organization focused on placing top-college graduates in startups for two years in emerging U.S. cities to generate job growth and train the next generation of entrepreneurs. He is also the author of Smart People Should Build Things.