PATHWAYS TO SUSTAINABLE INDUSTRIAL TRANSFORMATIONS:Co-optimizing Competitiveness, Employment, and Environment

Nicholas A. AshfordMassachusetts Institute of

Technology

Extractionindustries

ManufacturingAgriculture

TransportationEnergy

ServicesHousing

ICT

SOLUTIONSIndustry Initiatives

Government Intervention/RegulationStakeholder Involvement

Financing Sustainable Development

Climate

ChangeResource

CompletionEnvironmental

InjusticeEconomic

Inequity

Employment/Purchasing

Power

Consumer Consumption

Commercial Consumption

Government ConsumptionPROBLEMS

Inadequate Goods & ServicesToxic PollutionClimate DisruptionResource DepletionBiodiversity/Ecosystem IntegrityEnvironmental InjusticeEmployment/Purchasing PowerEconomic Inequity

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)

Drivers of Economic Growth

Technological Innovation (Schumpeter’s ‘waves of creative destruction’)

Trade (Ricardo’s theory of comparative advantage)

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

GLOBALIZATIONINDUSTRIALIZATION 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

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]

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

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

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

Environment

Employment

Rapid technological change &

globalization

Economy

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

Ecosystem integrity, Toxic pollution, Resource depletion,

Climate change

Effects of environmental policies on employment and health & safety

Uncoordinated environmental and health & safety policies

Trade and environment

Investment and environment

Development and environment

Change in international division of labor,Contingent work,Change in demand for skills

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’

 

AGENDA Competitiveness Environment Employment

Current Improve performance Control pollution Reduce workerhazards

Cut costs Make simple Dialogue with workerssubstitutions/changes

Ensure supplyConserve energy and of adequatelyresources trained people

Sustainable Change nature of Prevent pollution Radical improvementmeeting market needs through system in human-technologythrough radical or changes interface (a systemsdisrupting innovation change)(a systems change)

Decrease resource & Job creation energy dependence

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

THREE-LAYER POLICY APPROACH

Singular innovations

Creating a supporting innovation climate

System innovations

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

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

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

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.

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

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

R e g io n a l s y s te m b o rd e rs

Basic and appliedresearch

Development+Production+

CommercializationDiffusion and

adoptionResearch rate

Developmentrate

Diffusion andadoption rate

Technologicalchange

Outside knowledge and technology

Knowledge andtechnology transfer

Knowledgetransfer Technology

transfer

T h e b a s ic m o d e l o f th e [re g io n a l] in n o v a tio n s y s te m

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

Requisites for Technological Change

Willingness

Opportunity/Motivation

Capacity

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)

Economics and Law as Competing Change Agents

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

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

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

● 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

The Role for GovernmentGovernment 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

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

Extractionindustries

ManufacturingAgriculture

TransportationEnergy

ServicesHousing

ICT

SOLUTIONSIndustry Initiatives

Government Intervention/RegulationStakeholder Involvement

Financing Sustainable Development

Climate

ChangeResource

CompletionEnvironmental

InjusticeEconomic

Inequity

Employment/Purchasing

Power

Consumer Consumption

Commercial Consumption

Government ConsumptionPROBLEMS

Inadequate Goods & ServicesToxic PollutionClimate DisruptionResource DepletionBiodiversity/Ecosystem IntegrityEnvironmental InjusticeEmployment/Purchasing PowerEconomic Inequity

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

Anonymous

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

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