Rethinking progress

We tend to think of innovation as a pipeline problem. If companies and Startups only manage to crank out the right innovations, the market will embrace them and demand will take off. The last ten years have shown that this way of thinking is most likely wrong. Despite a continuous supply of break through technology the demand has with few exceptions been lackluster. Researchers have suggested that the cause of all this is companies who don’t have the intention or ability to adopt innovations. Because demand is low across the board, CEOs are more interested in shares buyback than in investing in new knowledge and capabilities. The real reason why demand is flat could, however, be more profound than we first thought. Without improving people’s education, and that in the broadest possible sense, innovations will only be able to move the needle slightly.

The realization that demand, education and professionalism is profoundly connected is a big idea. The conventional approach has been to educate the top tier, the scientists and engineers that know what people in general need and should have. Productivity issues and markets that show serious signs of volatility suggest this simple view of supply and demand is wrong. A market must carry a substantial body of knowledge to be ready for new services, products and ideas. If a society isn’t educated on a broad scale, there is no need for high-tech products and advanced services. People who spend six hours a day working in the rice paddies know what technology can do for them in the form of a tractor or better jobs for their kids, but they have little need for digital photography or a personal computer. What all parents hope for is a good education and better jobs for their kids. This is the way progress works.

People who are educated and have a high degree of professionalism have higher standards. They know fairly well what they need and how a service should work. Settling for inadequate products and low-value services is not in their DNA. Professionalism is at the heart of what they are doing, and it will put requirements on products and services that will push boundaries. They show an awareness the average person seldom has. Price may still be an important part of a purchase decision, but other considerations weight equally heavy for a final decision. Consumers who don't possess this kind of awareness have no ability to shape a market, which will only lead to stagnation and economic decline. Without demand, companies have few choices but to cut costs and acquire other companies. The world can have 1% who designs and produces for the 99%, but such a society will sooner or later stagnate and eventually deteriorate.

What made the industrial revolution possible was partly public education. Countries educated their workforce so they could read, write and do basic math. But they also — unknowingly — educated a market. This is most evident when it comes to newspapers and print. The purpose of a state sponsored education may have been for factory workers to take instructions more effectively, or to introduce business accounting throughout a business, but the outcome was deeper and more profound than anyone could have imagined. When the disposable income rose, people already knew what they wanted, which increased the demand and acceptance for better products and services. When average people could read, they could also buy newspapers and books. A completely new market was established. The 1% model works as long as society evolves on a broad scale, but when education fails to deliver — which it has done for the last thirty years — the 1% model will also fail. This can be seen today, with productivity well below historic numbers. The way technology changed agriculture and industry has never been achieved in education. To make the argument even more compelling, countries who have chosen different paths when it comes to implementing an education system are facing different problems in the economy today.

The French education system was plagued by political faction since the French revolution. It was believed that control over schools and the indoctrination of pupils would decide the fate of the nation. The constant squabble resulted in an education system that was badly financed and spottily organized. The English education system was initially organized by the church through Sunday schools. As the system grew, the government assumed the sponsorship role and became the main organizer. Some would even argue that it was the English public school system that lay the foundation for the British empire. The German education system focused early on technology, which seems to have benefitted them to this day. The ”Mittelstand”, which is a large community of small and middle-sized, often family owned businesses, wouldn’t have existed without this core competence. It isn’t without pride Germans say, ”We build the things that go inside the things.”

Japan had two decades of extraordinary growth, starting in the 1970s. But then bad things started to happen, and now they are looking back at three decades of increasingly economic problems. Young men who can’t get a job despite a good education can’t raise a family. It has created a market for virtual girlfriends, which is funny at first, but not being able to raise a family has serious repercussions for demography and future prosperity. The Japanese education system is and has largely been based on tradition, with strict rules and discipline, collective thinking and emphasis on fitting in. It served them well, until the 1990s when it became increasingly evident that it couldn’t solve Japan’s growing economic problems. It is puzzling why a competitive education with lots of tests and preparatory classes suddenly stopped working, and it’s equally difficult to understand why such a system couldn’t be fixed. Critics have said the real problem is rules and discipline, the lack of free thinking and the emphasis on conformism, but the problems go much deeper than this. The introduction of Integrated learning in the 1990s, with a multidisciplinary approach that encourages different perspectives, will take time before it can have an effect on society’s social fabric. Meanwhile, economists search for a short-term solution, consisting of near zero interest rates and Quantitative easing, which they also believe will cure the long-term problem. Economists agree that more investments in infrastructure will not solve Japan’s economic decline, but believing that a cure that is supposed to solve short-term problems also will cure long-term problems is a stretch. An increasingly introverted Japan, plagued by economic problems, is not good news for the world.

While most who attend today’s education system would agree that it doesn’t tap very well into the world where we live and work, the real problem is that it doesn’t prepare students for future challenges at all. Key concepts like manufacturing, research, engineering and marketing aren’t addressed, more than briefly, which means that students will leave school without a good understanding how the world works. In addition to this, it is predicted that more than half of all future jobs will be creative jobs. Repeating what has succeeded in the past will therefore not work, unless you are a heart surgeon or work in administration or manufacturing. Failure is part of the creative process, and it will impact everything a company does.