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Electronics Production | October 19, 2009

The Tragedy of the Commons & job creation in electronics manufacturing

In another surprising move, the Nobel prize for economics this year went to Elinor Ostrum and Oliver E. Williamson, two academics whose work has little to do with complex financial models or market theories. What does this have to do with the electronics manufacturing industry, you might wonder?
Since the Nobel award carries great prestige and endows credibility and legitimacy to schools of thought, influencing public policy makers of the future, it's worthwhile to consider the implications of the award to Ms Ostrum and Mr Williamson.

For one thing, the award has never been given to a woman before, which is heartening for this writer. Some thought the favorite for the award was Eugene Gama, the University of Chicago professor known for the efficient market theory. Last year's award winner Paul Krugman, got the award for his theories on international trade. In his blog, he notes that the award represents a validation of New Institutional Economics, a term coined by Williamson. He had never heard of Elinor Ostrum before her win.

Since some of the theories of Laureate economists in the past are said to have caused the global economic meltdown, it is fitting the Committee look at a different approach. Some thought no economist should be awarded a Nobel prize this year, since arguably the field has caused misery rather than benefit to mankind in recent times.

What I find most interesting about Ms Ostrum's work is in regard to the concept of the 'tragedy of the commons.' To refresh, the tragedy of the commons is a political science concept taught to highlight what happens to shared resources such as water, wildlife, forests, and oil reserves. The theory posits that individuals acting in their own self-interest tend to destroy resources they share, necessitating either government intervention (socialism) or privatization to preserve them.

Ms Ostrum studied forests in South Asia and Africa, and water management in India and many other examples and found that the tragedy of the commons is not inevitable. Local communities that rely on scarce resources often manage them very well for long periods of time; government intervention and/or privatization many times hasten their destruction, rather than protect them. When people in the communities understand the problem thoroughly, they can solve it on their own using existing associations.

What does this have to do with job creation and the electronics manufacturing industry?
Most pundits agree that although the recovery may be underway it is threatened by lackluster job growth. The unemployment rate is officially at nearly 10%, and unofficially at 16%, and even higher in some areas. Demand for electronic products is not likely to improve until the unemployment rate goes down. Housing, and other areas of the economy are similarly dependent on more people having better jobs.

Arguably the electronics industry is still caught in a kind of paralysis, with lots of bemoaning about trade policies and other government action or inaction. Corporate malfeasance, banking failures, and so forth are all blamed as reasons to stay on the side lines with your head down hoping no one will think to fire you. In spite of a tentative recovery, there is still a general sense of doom and foreboding.

Is manufacturing dead in developed countries? Is that a good or a bad thing? Can service industry jobs replace manufacturing jobs? Will countries that do not manufacture electronics maintain competitiveness? What shall we do to prevent the collapse of civilization as we know it???

I think the time to ponder about our past transgressions is officially over. The key to a sustainable recovery is jobs. Let's not agonize too much about which kind of jobs are best. We just need a lot of them. All organizations must focus on that one thing: what can we do to preserve existing jobs and create new ones? This does not have to be a mindless 'Buy Local' approach with its unintended global consequences.

I think about the history of 'Google' -- the founders combined far-sighted, patient venture capital support, and a good idea for an until-then unimagined revenue source, with an idealism and focus on its employees that netted over 400 millionaires on the day of the company's IPO.

What Ms Ostrum's work demonstrates is if a community understands a problem, they can solve it rationally using local resources to the benefit of all. They don't need massive government or private intervention. The talented individuals and communities in the electronics industry need to apply their formidable innovation and business skills to this problem of job creation and help create sustainable global economic well-being. Without lapsing into hopeless Pollyanna-ism, we would do well to adopt some of Alfred Nobel's principles in our strategic thinking.
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Author: Jennifer Read, Charlie Barnhart & Associates

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