PATHWAYS TO SUSTAINABLE
INDUSTRIAL TRANSFORMATIONS:
Co-optimizing Competitiveness,
Employment, and Environment
Nicholas A. Ashford
Massachusetts Institute of Technology
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Extraction
industries
Manufacturing
Agriculture
Transportation
Energy
Services
Housing
ICT
Consumer
Consumption
Commercial
Consumption
PROBLEMS
Government
Consumption
Inadequate Goods & Services
Toxic Pollution
Climate Disruption
Resource Depletion
Biodiversity/Ecosystem Integrity
Environmental Injustice
Employment/Purchasing Power
Economic Inequity
SOLUTIONS
Industry Initiatives
Government Intervention/Regulation
Stakeholder Involvement
Financing Sustainable Development
MAJOR SYSTEMIC PROBLEMS


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Fragmentation of the knowledge base
Inequality of access to economic & political power
Tendency towards ‘Gerondocracy’
» Technological and political ‘lock-in’
» usually, but not always, accompanied by concentration of
economic and political power


Market imperfections that externalize environmental
and human costs
Limitations of perfectly-working markets
» Disparate time horizons
» Delay in recognizing problems (Limits to Growth)
Drivers of Economic Growth

Technological Innovation (Schumpeter’s
‘waves of creative destruction’)

Trade (Ricardo’s theory of comparative
advantage)
Drivers of Economic Growth

Technological Innovation (Schumpeter’s
‘waves of creative destruction’)
» exploiting innovative potential

Trade (Ricardo’s theory of comparative
advantage)
» exploiting excess capacity
GLOBALIZATION
INDUSTRIALIZATION
 Internationalization - expansion of product/service
market abroad with the locus of production in the
parent country
 Multi-nationalization - production/service facilities in
several places
 Creation of Strategic Alliances -merging and sharing of
technical and managerial know-how
KNOWLEDGE AND INFORMATION MOBILITY
CAPITAL MOBILITY
Sustainable Development

Development that meets the needs of both the present
and the future generations (Brundtland)

Development that addresses needs and adverse
effects within nations

Development that improves relationships among
nations

Development, rather than Growth [Herman Daly]
Sustainable Development

Development, rather than Growth
» Growth led by inadequately regulated markets

Development that meets the needs of both the present
and the future generations
» markets fail here

Development that addresses needs and adverse effects
within nations
» political systems fail here

Development that improves relationships among nations
» world political instability
A BROADER DEFINITION OF
SUSTAINABLE DEVELOPMENT
Development that addresses:
 needs/adverse effects of industrialization on
subsequent generations, within, & among nations
 available goods & services (distribution)
 the environment (environmental justice)
 (fair) working conditions/health & safety
 (fair and meaningful) employment
 (adequate and fair) purchasing power
 Potential for self reliance, innovation and
participation in trade
The Economy, Employment, and
the Environment

Are affected by both technological
innovation and globalized trade

Are in a fragile balance

Are inter-related and need to be addressed
together in a coherent and mutually
reinforcing way
Ecosystem integrity, Toxic pollution, Resource
depletion,
Climate change
Environment
Effects of environmental policies
on employment and health &
safety
Trade and environment
Uncoordinated environmental and
health & safety policies
Development and environment
Investment and environment
Rapid technological
change &
globalization
Economy
Employment
Job skills,
Number of jobs,
Job security,
Job satisfaction,
Health & safety,
Wages,
Purchasing power
Change in international division of
labor,
Contingent work,
Change in demand for skills
Competitiveness, Productiveness,
Use of physical, natural, and human
capital,
Financing development and growth
Beyond Environment:
Sustainable Development
● Co-optimization of Environment,
Employment, and Competitiveness
- drives sustainable development (SD) along
different pathways and goes to different places
than environmentally-driven concerns alone,
which may require tradeoffs
● Environmental Policy vs. Sustainable
Development
- Two Contrasting Agendas
- The latter (SD) focuses on ‘system changes’
AGENDA
Competitiveness
Environment
Employment
Current
Improve performance
Control pollution
Cut costs
Make simple
substitutions/changes
Reduce worker
hazards
Dialogue with workers
Conserve energy and
resources
Sustainable
Change nature of
meeting market needs
through radical or
disrupting innovation
(a systems change)
Ensure supply
of adequately
trained people
Prevent pollution
through system
changes
Radical improvement
in human-technology
interface (a systems
change)
Decrease resource &
energy dependence
Job creation
Government is Essential

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

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As a supporter of basic education and skills
acquisition
As a provider of physical/legal infrastructure
To invest in path-breaking science and technology
development – for both environmental
improvement and job design
As an facilitator or arbitrator of competing
interests to ensure a fair process
As a trustee of worker and citizen interests to
ensure a fair outcome
As a trustee of new technologies
As a force to integrate, not just coordinate policies
THREE-LAYER POLICY APPROACH

Singular innovations

Creating a supporting innovation climate

System innovations
Strategies to Enhance
Productiveness & Competitiveness

Innovation-based performance
» enhanced by technological innovation and changing
product markets
» fluid, competitive production (lean production?)
» upskilling of labor
» important in both domestic and international commerce

Cost reduction strategies
» enhanced by increased scale of production and/or
automation (and excess capacity)
» rigid, monopolistic production
» shedding and deskilling of labor
» shedding and deskilling of labor
» where domestic markets are saturated/have excess
capacity, trade becomes the major focus
Labor Productivity

Sources
» increased worker skills
» better hardware, software, and manufacturing
systems
» better matching of labor with natural/physical
capital, and with information & communication
systems
Theoretical implications of increased
worker productivity for employment



Lower costs of goods and services
Lower prices
Increased demand and sale of goods and
services
» in the original industry/market
» in new markets


More workers hired than displaced
Assumes a continual throughput economy with
increasing consumption
Questions
Is labor valued, and paid, more or less after
productivity improvements?
 What are the effects on work content and
job security?
 Are more workers hired than displaced?
 It depends on the source of increases in
labor productivity and the basis of a nation’s
competitiveness.

Implications for Labor of Strategies to
Enhance Productiveness/Competitiveness

Innovation-based performance
» opportunity for skill-based competition
» building optimal human-technology interfaces

Cost-reduction strategies
» lean production and flexible labor markets
» knowledge embodied in hardware and
software, rather than in human capital
THE DYNAMICS OF
TECHNOLOGICAL CHANGE

Invention (the first working prototype)

Innovation (the first commercially successful introduction)
» Within the current/dominant technological trajectory ~ sustaining innovation
– incremental innovation (adaptation)
– acceleration of radical innovation already in progress
– radical innovation
» Outside mainstream development ~ disrupting innovation

Diffusion (wider adoption within an industry)

Technology Transfer
–
–
diffusion between industries or countries
lab to industry
Outside knowledge and technology
Knowledge
transfer
Research rate
Knowledge and
technology transfer
Basic and applied
research
Developm ent
rate
Developm ent+
Production+
Comm ercialization
Technology
transfer
Diffusion and
adoption
Diffusion and
adoption rate
Technological
change
Regional system borders
The basic model of the [regional] innovation system
An additional paradigm shift is needed


to explain why firms that listen closely to their
customers both succeed impressively and fail
miserably (Clay Christensen, The Innovator’s
Dilemma: Why New Technologies Cause Great
Firms to Fail)
sustaining versus disrupting innovation
» Intrinsic innovation (e.g., the transistor)
» Architectural innovation (e.g., the hybrid car)

either can be incremental or radical
Requisites for Technological Change

Willingness

Opportunity/Motivation

Capacity
Requisites for Technological Change

Willingness
– Towards changes in production (flexibility)
– Influenced by knowledge of options (diffusion)

Opportunity/Motivation
–
–
–
–

Gaps in technological capability (in existing markets)
Economic cost savings (in existing markets)
Regulatory requirements (making new markets)
Consumer/worker/societal demand (making new markets)
Capacity
– Influenced by knowledge of options (diffusion)
– Resident/available skills and capabilities (innovation)
Economics and Law as Competing Change Agents
ECONOMICS:
 Getting the prices right
(pollution taxes, etc.)
 Ensuring competitive
markets
 Increasing Demand for a
Clean Environment,
Product Safety, & Good
Working Conditions
through information &
education
LAW:
 Establishing minimum
environmental and
product safety standards
 Labor protection
legislation
 Environmental reporting &
labeling
 Encouraging technology
development, transfer &
infrastructure
Alternative Roles of Government in
Promoting Sustainable Development

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Correct market failures by regulating pollution, and by
addressing inadequate prices, monopoly power,
uncompetitive labor markets, and lack of information
Act as a mediator or facilitator of environmental and labor
disputes/conflicts among the stakeholders
Facilitate an industrial transformation by encouraging
organizational learning, pollution prevention, and dialogue
with stakeholders leading to win-win outcomes (Ecological
Modernization/Reflexive Law) ~ evolutionary theory
Move beyond markets and act as trustee for minority
interests, subsequent generations, and new technologies
by forcing and encouraging innovation, through integrated
regulatory, industrial, employment, and trade policy
A Implications of Alternative Roles of Government in
Promoting Sustainable Development

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
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Correct market failures by regulating pollution, and by addressing
inadequate prices, monopoly power, uncompetitive labor markets, and
lack of information
» Achieve static efficiency through better working markets
Act as a mediator or facilitator of environmental and labor
disputes/conflicts among the stakeholders
» Achieve static efficiency through reducing transaction costs
Facilitate an industrial transformation by encouraging organizational
learning, pollution prevention, and dialogue with stakeholders leading
to win-win outcomes (Ecological Modernization or Reflexive Law)
» Faith in rational choice and evolution
Move beyond markets and act as trustee for minority interests,
subsequent generations, and new technologies by forcing and
encouraging innovation, through integrated regulatory, industrial,
employment, and trade policy
» Transcend Markets, Displace Dinosaurs, Move toward
Dynamic Efficiency, Change the balance of knowledge … and
thus power
● THE DIMENSIONS OF INNOVATION: technological,
organizational, institutional, and social changes
● THE SCOPE OF INNOVATION AND THE IMPORTANCE OF
’DESIGN SPACE’
- the needed major product, process, and system transformations
may be beyond those that the dominant industries and firms are
capable of developing easily, at least by themselves
- distinction between ‘sustaining innovation’ and ‘disrupting
(radical) innovation’
- ‘design space’ refers to the dimensions along which the
designers of technical/social systems concern themselves
- expanding the available socio-technical design space includes
consideration of the determinants of competitiveness,
environment, and employment
The Role for Government
Government needs to include, but go beyond simply creating a favorable
climate for investment e.g.,
● direct support of R&D and incentives for innovation through appropriate tax
treatment of investment
● the creation and dissemination of knowledge through experimentation and
demonstration projects
● the creation of markets through government purchasing
● the removal of perverse incentives of regulations in some instances and the
deliberate design and use of regulation to stimulate change in others
● the training of owners, workers, and entrepreneurs, and educating consumers
Government needs to create winning forces and scenarios, and provide an
enabling and facilitating role by creating visions for sustainable
transformations
POLICY DESIGN AND
IMPLEMENTATION
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Co-optimization ~ multi-purpose design of
policies, mutually-reinforcing and integrated, not
merely coordinated (‘opening up the problem
space of the engineer/designer’)
Avoiding agenda and pathway capture/’lock-in’
Government as trustee for new technology and
needs
Picking winning scenarios ~ visionary leadership
New generation of ‘backcasting’ to encompass
technical, organizational, & social transformations
=> requires more than one ministry/industrial
department/sector
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E
n
v
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Extraction
industries
Manufacturing
Agriculture
Transportation
Energy
Services
Housing
ICT
Consumer
Consumption
Commercial
Consumption
PROBLEMS
Government
Consumption
Inadequate Goods & Services
Toxic Pollution
Climate Disruption
Resource Depletion
Biodiversity/Ecosystem Integrity
Environmental Injustice
Employment/Purchasing Power
Economic Inequity
SOLUTIONS
Industry Initiatives
Government Intervention/Regulation
Stakeholder Involvement
Financing Sustainable Development
“The surest sign that intelligent life
exists elsewhere in the universe is that
it has never tried to contact us”
Anonymous
WHY CAN’T SOLUTIONS
EASILY BE FOUND?
There are many more ways to do it ‘wrong’
than to do it ‘right’.
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Market failure – wrong prices, monopolies (as
distinguished from the inherent failure of a
perfectly working market)
State failure (is government inherently prone to
bureaucratic failure?) – capture/lock-in
Regulation usually conflicts with markets –
ideology influences choices.
Promoting diffusion versus innovation
Single purpose design for complex problems
Dominance of future agenda by incumbent firms
and institutions
WHY CAN’T SOLUTIONS
EASILY BE FOUND?
(continued)
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National/sectoral policies favoring expanding
existing markets through trade rather than
investment in innovative performance. Evolution
or revolution? i.e., management of evolution or
displacement? Encourage regime changes or
change regimes?
Focus on static efficiency or dynamic efficiency?
Need for technological, organizational,
institutional, and social innovation
Growth & environment can’t always be decoupled
Production versus consumption side policies
Perverse incentives