Last week, the US Government reported the creation of 248,000 new jobs in September. Good news? The bad news is that many folks that got new jobs are being paid less than they were making before the financial crisis. So how do we resolve this? We see all of the new technology startups in the media getting funded, but where are all of the jobs? It seems that social media—all of this sharing and caring—is not creating the next economy that we want.
Like Tyler Cowen, author of The Great Stagnation, I argue that instead of historical game-changing innovations truly driving economic growth for the poor and the middle class, online social networking and sharing services permanently displace low-skill workers. The foundation of the next great economy will be created by impact investors deploying sustainable infrastructure—not VC’s looking for the next social media app.
Social media—all of this sharing and caring—is not creating the next economy that we want. Tweet This Quote
History shows that economic growth comes from job growth across the education spectrum. The most recent impact investment was the Internet in 1969, which resulted in significant IT investment and economic growth through the late 1990s. Before the Internet, in energy, the electrical grid was a game changer. In transportation, there was the advent of highway construction, the affordable car, and—more importantly—automobile financing, even for low-income families. These infrastructure innovations were game changers because they made everyday life easier and cheaper.
Each of these inventions did not create one industry; they created dozens of industries. Each created a new economy powerful and pervasive enough to employ millions of people—even high school dropouts and those without a college degree. And the people not working in these industries benefited through a lower cost of living.
The truth is that real game-changing investments, or impact investments, are harder to come by—this is the premise of Cowen’s book. Our economy’s “low-hanging fruit” is scarce.
The new brilliant business leaders in social media want people to think that what they do actually matters to the overall economy. A week after Thrive Capital’s investment in Instagram, Facebook bought Instagram for $1 billion in cash and stock. Paybacks like this are a dream to investors. They get a handsome return-on-investment and social media buffs get a cool new app. But do we end up with businesses that drive a new economy?
How do we shift the center of gravity away from Silicon Valley and investors interested in hype returns and into steady, infrastructure returns?
Instagram had about a dozen employees at the time of its sale. In theory, the acquired employees could be filling unnecessary or duplicated jobs at Facebook, contributing to a jobless economic recovery.
How do we shift the center of gravity away from Silicon Valley and investors interested in hype returns and into steady, infrastructure returns? Cowen suggests that we come up with innovations that look like infrastructure and that put people to work—lowering the cost of living in America.
This looks like scaling up technologies we invented in the 1970s that improve water, sanitation, transportation, electricity, and other core expenses of every household. Most importantly, they provide meaningful employment to the poor and the middle class—versus eliminating jobs by increasing efficiency. The opportunity and challenge with this area is that progress is measured in trillions of dollars of investment, not millions.
While folks like the International Energy Agency and others have identified $10 trillion in global infrastructure investments that pay for themselves with energy savings, the investments have to be pursued in a financially compelling way to inspire other mainstream investors. First moving, impact investors need to prove to other investors that they can provide:
- Compelling risk-adjusted returns for investors
- Solutions to social and environmental problems
- Measured social development and economic growth
- Sustainable jobs and sub-industries
Our next great frontier is deploying existing, decades-old technologies—not new ones Tweet This Quote
Our next great frontier is deploying existing, decades-old technologies—not new ones—in agriculture, transportation, building efficiency, and other areas. These stable investments generate 2X returns over 10 years. Funny enough, this return is far greater than the average venture capitalist’s return over the last 10 years.
These investments fit Thrive Capital’s definition of “rapid user and sales growth.” There are 1.3 billion people without access to electricity, clean drinking water, or suitable sanitation. We can rapidly reach them by 2030. Like Henry Ford before us, we must find financially compelling returns while increasing wages and lowering the cost of living.
We are at a critical tipping point: whether you are an entrepreneur concerned about climate change, a development expert working to meet the needs of our poor, a US citizen concerned about aging pipelines, a retiree looking for solid low-risk returns, or the US president looking for 4 percent GDP growth, deployment of existing solutions to resource efficiency solutions holds the key. To achieve this, we need smart Silicon Valley-type investors to admit defeat in their incessant pursuit of the “perfect game-changer” technology. We need to start deploying better, cheaper energy sources for the next generation and beyond.
Unleashing new economic opportunities requires business model innovation; not new technology. Tweet This Quote
Unleashing new economic opportunities require business model innovation; not new technology. I agree with Cowen that we need technology that looks like infrastructure—much of it has been waiting on the shelf, unused for 20 years. My company SunEdison helped unlock the multibillion dollar solar services industry in the US and globally through business model innovation. Converting 1973, Solarex technology from a capital purchase into a “pay as you save” services contract was the breakthrough. It has birthed hundreds of thousands of jobs that will last for decades.
There are urgent infrastructure needs—massive opportunities—for impact investors to work alongside entrepreneurs that will create our next economy. These impact investors will replace Silicon Valley investors as the catalyst for the next big wealth creation cycle, but only if they serve to unlock mainstream capital to unleash the next great economy—not another Facebook.