Notes on the Capitalist’s Dilemma

Clayton Christensen, the author of “The Innovator’s Dilemma” has been working on the idea that capitalism is having trouble in investing in the types of innovation that really count. Instead investing in those that are actually detrimental to the economy.

Coming from the most influential thinker on innovation, this idea should not be taken lightly. Harvard Business Review has recently published a summary of his work, and it is very much worth reading (the article is divided into many pages, so if that troubles you, I recommend the page optimized for printing.).

I’ll just jot down some things that I consider to be the key points;

  1. “The Capitalist’s Dilemma” is the reason why major economies around the world are experiencing “jobless recoveries” where the economy grows, but jobs are not being created.
  2. Not all innovations are equal. In fact, the majority of the innovations that are happening today are detrimental to economic growth. The authors dissect “Innovation” into three separate categories and argue that the one that create jobs (market-creating innovations) is currently being de-emphasized, while the one that eliminates jobs (efficiency innovations) is being highlighted.
  3. The reason that the wrong category of innovation is being pursued is because the approach to finance that is taught is wrong. Business schools are teaching students to focus on the wrong metrics for evaluating corporate strategy, and as these people end up running banks or businesses, this is hurting the economy.

As the authors’ work illustrates, we have very little understanding of what drives economic growth and the role that innovation plays in it. No wonder we are in this mess.