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Apple's trillion-dollar market capitalisation has hogged the headlines of late-thereby showing the strength of innovation in creating wealth. What is the underlying strength? Is it about selling the same product at a higher price generating more income? Is it about securing more funds from the government or venture capital firms or banks for subsidising products in expanding the customer base? Or, is it about the magical capacity of coming up with a great idea? Incentives drive human beings. Consumers demand better products at a lower price. On the other hand, producers are competing to earn a higher profit.
Availability of better products at a lower price increases the consumer surplus. It also makes the product affordable to a larger number of customers which leads to an increase in consumption. The acquisition of producers' ability to offer better products at lower cost also expands the producer surplus. Such generation of surpluses for both consumers and producers creates new wealth. But, generating greater profit by offering better products at a lower price appears to be a conflicting proposition. In the absence of acquiring this vital capability, our wealth creation ability reaches the level of saturation. On the other hand, firms as well as countries have opened up the endless frontier of wealth creation while succeeding in acquiring this capability.
As Professor Clayton Christensen stated, the purpose of innovation is about getting the job done better at lesser cost. For example, Motorola's cellphone DynaTAC hit the market in 1983 with a hefty price tag of $3,995. This was a woefully primitive device-you only had 30 minutes of talk time and a six-hour battery life with that 13-inch tall 1.75lb device. With this price tag, Motorola was able to sell the product only to a handful of customers generating tiny revenue. Since 1983, there has been an endless effort in making the product better as well as cheaper. One of the primary purposes of improving the device has been the innovation in getting the communication job done better.
The continued progression of offering better quality products at lower cost has been increasing both consumer and producer surpluses-thereby creating new wealth. Through the process, many roles often performed by users in the past like maintaining call logs or carrying an address book of frequently called numbers have been delegated to the handset. On the other hand, there has been increasing roles of machines or automation in making those handsets. Such a journey has created not only Apple a trillion-dollar company, but has also expanded the market of phone handset by manifold reaching nearly 1.49 billion units of smartphone shipment by 2018.
One of the underlying means in getting job done better has been through delegation of roles from human to machine. For example, human beings felt the necessity of having a mode of transportation at the very beginning of human existence on this planet. Accordingly, the journey started with kids, sick persons and/or elderly getting carried on the shoulder. Technology began to get introduced increasing the quality and reducing the cost, leading to emergence of rickshaw pulled by human beings. Horses were domesticated and eventually resulted in the introduction of horse-driven carriages. But human beings were looking for better means, leading to gasoline-powered automobiles. Despite serving an essential purpose for more than last one century, human-driven automobiles have become a major worry as far as road accidents are concerned.
Human beings take on an average 700ms to perceive a situation and take driving action, whether to apply the brake, blow horn or slowdown. During this 700ms, accidents take place pretty often. Human errors have been the major reason behind the death of millions of lives due to accidents. According to the World Health Organisation (WHO), more than 1.25 million people die each year as a result of road traffic crashes. It's also quite disappointing to observe that 90 per cent of the world's fatalities on the roads occur in low- and middle-income countries, even though these countries have approximately 54 per cent of the world's vehicles. These horrific crashes cost most countries 3.0 per cent of their Gross Domestic Product (GDP). Further delegation of roles from humans to automobiles appears to have an opportunity in reducing such loss. Full development of self-driving technology will likely lead to safer roads, less damage to lives and properties. The reduction of delay in responding to dynamic driving situation will also reduce inter-vehicle distance resulting in higher throughput on highways.
However, innovation has been the driver for creating wealth in advanced countries. For example, top 5 companies in the world by market value in 2018 are technology companies-having almost $4.0 trillion combined market value. Companies like Apple, Amazon, Alphabet, Microsoft, and Facebook are in the race of offering us better products at a lower price by taking advantage of innovation. Does it mean that only technology-centred product delivery can reap benefit from innovation? What about conventional wealth creating sectors like energy or agriculture? In the energy sector, innovation has been empowering the world for moving towards emission-free sustainable energy solution for all. The underlying technology progression is driving innovation in both solar and wind energy harvesting.
As reported by Bloomberg, "the price premium for new solar generation over coal in Asia has slumped, and gone negative in India." It's also being mentioned that "the highest-cost solar and wind projects in the US will now produce electricity at least as cheaply as the lowest-cost coal plants, according to a report last year by Lazard Inc." A similar development is taking place in farming. Technological innovation has been opening multi-dimensional opportunities for increasing yield, reducing inputs, and improving the quality of farming outputs. Often such change focuses on role delegation from human to machines. For example, instead of relying on human visits and intuition to determine the state of soil or hungriness of cattle, poultry or fish, the better option is to innovate machine to do those jobs with higher-level accuracy. For example, the delegation of roles from human workers to machine feeders reduced feed intake by more than 20 per cent in fish farming.
In developing countries, consumers are used to paying increasing price for locally produced industrial products. There is a common belief that you have to pay more in order to have a higher quality. But fortunately, technology and innovation are a blessing for us to turn this belief into myth. These countries should focus on enhancing innovation capacities and integrating them into productive activities for increasingly offering higher quality products at lower cost. In the absence of acquiring this capability, their wealth creation capability will face an insurmountable barrier. There could be a question of job loss too. But it's a myth as invariable innovation focuses on delegating roles to machines for improving efficiency, enhancing quality and reducing wastage. Instead of offering protection to jobs by throttling innovation, the smarter option is to expand wealth creation through innovation to meet growing consumption.
The human race is facing a critical challenge: produce more from depleting resources to meet growing consumption. Technology-driven innovation appears to be a crucial tool for us to meet this daunting challenge. In unlocking this opportunity, we have to increasingly delegate more roles from humans to machines; and we have to replace existing machines with the smarter ones. Moreover, market force appears to be in favour of us as innovation in products and processes to produce them offers the opportunity to provide better products at lower cost increasing both consumer and producer surpluses-consequentially opening endless frontier of wealth creation.
M. Rokonuzzaman, Ph.D, is academic, researcher and activist on technology, innovation and policy.