Review of The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World (Hardcover)

The book is a thoroughly researched, eloquently argued and highly persuasive piece. It's central thesis is that technological innovation is a complex, multiplayer game in which America still leads the world by a long way. American scientific, technological and economic pre-eminence are thus not going away anytime soon. The book goes on to argue that "neo-protectionist" fears are unwarranted, and shows how they will probably undermine America's economic might in the long run.

The book comes with impeccable credentials. It is authored by Amar Bhide, the Lawrence D. Glaubinger Professor of Business at Columbia University. Prof Bhide is also a co-researcher of Edmund Phelps, 2006 Nobel Laureate in Economics who is an authority on, among other things, the relationship between investment in education and research on the one hand, and economic growth on the other.

And Prof Bhide could hardly have chosen a better time to weigh in, as anti-offshoring rhetoric can be expected to rise over the next few months. It must be noted that the primary purport of the book is not to support outsourcing or offshoring,and I am sure nothing could be farther from the author's mind than to be painted as a torchbearer for the outsourcing brigade. Nonetheless, the arguments presented therein can be read as making a substantial case for a more liberal approach toward outsourcing.

The author marshals an astonishing array of evidence in supporting his thesis, stitching together data and information from diverse disciplines. He presents data to show that protectionistfears inthe 1980s that the US would soon be overtaken by Germany and Japan, which focused on rigorous planningof their scientific manpower, proved baseless asthe US prospered whilethe ostensible aggressors largely floundered.He says things are no different this time, with China and India.

Thebook'sargumentscanbroadlybesummedupasfollows:

*Wealtharisesnotsomuchfromcreatingnewtechnologicalbreakthroughsasfromthecapacitytobenefitfromthosebreakthroughs.

*This'capacitytobenefit'isahigherordercapacitythatincludeselementssuchastheabilitytocreateproductsbasedonthosetechnologicalbreakthroughs,theabilitytomarketthoseproductswell,theabilitytotakeriskandfreedomfromover-regulation. Inparticular,"venturesomeconsumption"-thepropensityofconsumerstoembraceproductsbasedonnewtechnologies-isvital.
*TheUShasmostpartsofthisdiversepuzzle-particularlyventuresomeconsumption-andishencebestpositionedtobenefitfromnewtechnologies.Thisistrueevenofnewtechnologicalinnovationsproducedabroad.Asanexample,theauthoravers,theexceptionalabilityofUScompaniestouseIThasbeenastrongreasonwhyUSproductivityhasoutpacedthatinEuropeinJapan.

*Henceallowingtechnologicalbreakthroughstohappenabroadcertainlydoesnothurt,andpossiblybenefits,theUS.TheauthorofferstheexampleoftheiPod,muchofwhosetechnologyoriginatedinEuropeandAsia,butwhichwouldn'thaveachievedthesuccessithaswithoutventuresomeUSconsumers-whohaveinturnreapedhugebenefitsbysoconsumingthedevice.
*Thishigher-ordercapacityisdeeply rooted in various economic, social, cultural and psychological structures and is hence highlysticky, which makes it difficultfortheUStolose it -andforothercountriestoacquire it.

Theauthoralsointroducesthenotionof"nondestructivecreation"(innovationthatcreatesnewproductsandserviceswithoutdisplacingexistingones)inadditiontothefamiliarSchumpeteriancreativedestruction.Suchnondestructivecreationcreatesnewjobswithouteliminatingexistingones.Atleastinthenontradableservicessector,thesenewjobswillhavetostayintheUSandcannotmigratetolowcostlocations.

Thus,Prof.Bhideassuresus,thereisunlikelytobeagiantsuckingsoundanytimesoon.

Onepotentialobjectionthatoccurstome,thatprotectionistsmayraise:relyingtoostronglyonthe'nontradableservices'argumentmayamounttostandingonshiftingsandsatbest.Severalservicesthoughttobenontradablehaveturnedouttobetradableafterall.ITservicesthemselveswerethoughttobenontradableforlong,untilIndianITservicecompaniesshowedtheycouldcrossborders.Evenadvertising,whichishighlyculture-andcontext-specific-hasbeenoffshored(LenovohasheadquarteredallitsmarketingactivitiesoutsideChinainBangalore).

Thebookalsoperhapsbypassesonemajorthemeonthesubjectof'howinnovationsustainsprosperityinaconnectedworld'(andthisisalsomyfavoriteargumentinfavorofwhydevelopedeconomiesincludingtheUSshouldnotbecharyofallowinghigh-endwork-andhigh-payingjobs-toflowabroad):alotoftheprosperitythatso'leaksaway'fromdevelopedeconomiescomesrightbackintheformofdemandforproductsandservices.Asanexample,IndianIToutsourcingcompaniesareperhapsthelargestairlinecustomersintheworld,astensofthousandsofworkerstraveleachyearbetweenIndiaandthecountrieswhereclientsarelocated.TheseairlinessuchasUnitedandLufthansaaremostlyheadquarteredindevelopedcountries.Similarly,thesameIndia-basedoutsourcerslapupthelaptops,PCs,serversandnetworkingequipmentmadebyDell,SunandCisco.TheyarehugebuyersofsoftwareproducedbyMicrosoft,IBM,OracleandSAP.Thesecompanies(andtheiremployees)cansafelybeassumedtohaveaninsatiableappetiteforthelatestcellularphonesandsoforthfromthelikesofApple,NokiaandRIM.Thesecompaniesalsoemploylegionsofworkersatorclosetoclientlocations-workerswhopaytaxesandpumpmoneyintolocaleconomies.Many of these companies are listed on US and European stock exchanges, allowing people there to participate in their wealth creation. Thus,prosperity'leaking'abroadcontributestoprosperityinthedevelopedeconomies-notinsomenebulous,long-termsensebutinawaythatisdirectandalmostimmediate.

Thesearebutminorquibbles-thebookcutsawideswatheinmakingitselaborateargumentconvincing. Alongtheway,theauthorexploresthequestionofwhycompaniesbuyIT.Thenotorious'Productivityparadox',whichheldthatIThasnotcontributedtoproductivitygainsinbusiness-isfirmlylaidtorest.HeaversthatIThasbroughtnewwaysofdoingbusiness,andalsodeliveredsignificantbenefitstothecustomersofthosebusinessesthatusedIT,whichareignoredbyconventionalproductivitystatistics.Anotherinterestingtopicexaminedisthatofwhypeopleacquireeducation(particularlyhighereducation),andhowuniversitiesperceivetheeconomicvaluetheyimparttotheirgraduates.



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