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Reinvention And Reformation—An Innovation Balancing Act

Barrack Obama“Private innovators with the right intentions will reduce reforms and enable reinventions.”

I recently listened to President Obama speak in New York City about his plan to reform the financial services industry.

Among other important issues, Mr. Obama is passionate about shielding the consumer from being “duped” by the complexity of financial instruments, the false sense of “too big to fail,” and the risk of taxpayer bailout of firms that are behaving out of greed versus need.

The recent SEC suit against Goldman Sachs doesn’t help the situation. When financial instruments like synthetic CDOs, credit default swaps, derivatives and other “innovations” are called weapons of mass destruction, it’s easy to see, in hindsight, how seeking profit before identifying an unmet consumer need leads to big risk. It’s akin to betting on the future. And the future will always call your bluff.

The President says it’s not about stifling innovation with reform, rather the opposite. His new proposition encourages companies to build products and services that are not betting on human behavior but more on the real needs. If all goes well, the incentives for good behavior will be attractive to entrepreneurs and industries worldwide.

I can’t argue with it. And it makes an extraordinary case for innovation. The kind that starts with a significant unmet need or insight, develops an idea to fill that unmet need, and communicates it to consumers brilliantly. And the need/insight has to be correctly prioritized. It’s about consumer needs first, with profit to follow. Not vice versa.

I recently attended an innovation conference in Berkeley put on by The Economist. It featured a panel that argued for and against the idea that the government serves as an innovator. While the audience was split in its vote, I can see both sides.

When businesses and citizens innovate, it’s often called reinvention. When the government innovates, it’s often called reform.

What’s the difference? Reform happens when reinvention gets its priorities backward.

How do you feel about this polarizing issue? Will financial reform stimulate our movement to a better economy?



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