January 6, 2008
We must use all means at our disposal to continue our economic success.
I am writing this from the beautiful city of Mendoza in western Argentina. The city lies at the edge of the great Argentinian plain, just before the flatlands are shockingly interrupted by the vertiginous Andes which erupt out of the plateau, throwing up an immense natural wall between the pampas and the Pacific.
Mendoza is the sunniest, yet also the most verdant, of all Argentina’s cities. But how can this be? How can the city that gets the least rainfall in the country sustain boulevards with row after row of huge sycamores which give this parched metropolis the breezy feel of a well-ventilated city in northern Europe?
More importantly for the region, how can a place with a desert climate be the centre of Argentina’s water-hungry wine industry, the fifth largest in the world? Without proper rainfall, vines simply won’t grow.
Here, thanks to a most fascinating invention, nature provides all the sun the vines need, all the water their roots can drink, and – as a result of the abundance of trees in the city – all the shade that the locals require to sit outside, enjoy their cafes and still remain industrious in 90 degrees of heat.
The key to this lies in the city’s architecture. Mendoza’s streets are lined with deep canals between the footpath and the road.There are 4,000 kilometres of canals in all. Each canal is overflowing with freshwater, thanks to an invention that is over 1,500 years old. The inventors were the Huarpe Indians, the indigenous civilisation that thrived here before the calamitous arrival (for the Indians, at least) of the Spaniards.
The Huarpe dominated the region because their agricultural harvests were so bountiful, allowing them to increase their population rapidly and thus breed the manpower necessary to kick lumps out of their neighbours. The secret of their strength lay in the fact that they had figured out how to trap the melting snow from the Andes in a series of dams high in the mountains.
From these dams, they operated a sophisticated number of locks which they opened and closed when necessary, feeding into thousands of irrigated canals, allowing water to cascade down into the fertile valleys. In short, the Huarpe made the desert green, and their potato and corn crops yielded many times that of their parched neighbours.
The Spaniards and, later, the Argentinians adapted the ancient Huarpe innovation. Today, 70 kilometres outside the city, high up at 2,000 metres, a huge dam traps the melting Andes snow, releasing water into the city and the region, and ensuring that Mendoza is one of Argentina’s premier agricultural areas. The city is possibly Argentina’s finest.
The Huarpe system once again underscored how crucial innovation is to keeping a tribe, region, company or individual ahead of the pack. It also reiterates how the whole system of capitalism is one great battle between innovator and innovation, where the innovators are constantly trying to outwit the status quo.
Therefore, an economy is not in a state of equilibrium, as textbook economics suggests, but quite the opposite. The natural conclusion from ongoing innovation is that the economy is in a permanent state of change. We are in a state of almost constant chaos, where new products, techniques and ideas are constantly undermining existing ones.
This is what Joseph Schumpeter, the Austrian economist, termed ‘‘creative destruction’’. This implies that recessions are the necessary product of innovation, and what Schumpeter was implying was that capitalism eats its young and, in so doing, it constantly renews itself.
Think about the ‘‘new’’ iPod Nano, which was introduced this Christmas by Apple, one of the most innovative companies in the world. It set about replacing the last model, not because it was specifically designed to do so, but because innovation can’t do anything else. To be successful, it must cannibalise.
Schumpeter’s ideas are now becoming more and more mainstream. Many economists are hailing him as the biggest unrecognised thinker in the science. Larry Summers, the former head of Harvard, has suggested that ‘‘if Keynes was the most important economist in the 20th century, Schumpeter might well be the most important in the 21st century’’. (If you are interested in this carry-on, see a recent article by the influential J Bradford De Long, professor of economics at the University of California, Berkeley, entitled Creative Destruction’s Reconstruction: Joseph Schumpeter Revisited. )
For countries, the implication of both Schumpeter’s ideas and of the triumph of Mendoza in Argentina is that we shouldn’t be afraid of innovation. On the contrary, we should embrace it. Much of our political debate over the years has centered on how to protect certain sections of society from this ongoing process. But if you subscribe to the ‘‘constant flux’’ idea of capitalism, then the idea is to join the innovators.
This goes for every one of us, whether you are a teacher, a journalist, a bricklayer, a company man or a sole trader/investor trying to outfox the next lad: use the technology and think up new ways to communicate ideas and to execute plans. In other words, join the permanent revolution.
This idea has huge implications for the way we approach enterprise in Ireland. If we have signed up to a club which demands that all of us be in a permanent state of flux, then the state should be investing more and more in the creative talent of the population. This means that, in the years ahead, the most important ministry in the country will be the Minister for Enterprise, because he or she is the one who will facilitate a framework for national creativity.
The downside of this ‘‘creative destruction’’ idea is that there will always be losers. The people, like the Huarpes’ neighbours, who did not innovate, who saw the Andes as an inhospitable threat rather than an agricultural opportunity, will lose out.
Now that the world is open, new ideas are coming at us from all angles, and we in Ireland have to respond with financial, technological and material smarts, using everything at our disposal.
As the property mirage of the past five years evaporates, 2008 will be the year Ireland has to start thinking its way out of our present economic dilemma. I can’t imagine a more refreshing, challenging way to start the New Year.