What the App Economy Can Teach the Whole Economy

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The lessons from an infant industry, including the power of cooperation and importance of regulating with a light touch

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Android, apps, iPhones, Angry Birds, iPads, FarmVille, data contracts: It's a bit jarring to realize that these terms, so familiar today, only date back five years. The introduction of the iPhone in 2007, and the initial distribution of Android the same year, marked the birth of the App Economy.

But the App Economy didn't just mean more fun games and more ways to do work on the go -- it meant more jobs as well. Based on research I did for Technet, the association of high-tech innovative companies, the App Economy has generated nearly 500,000 jobs since 2007. This is an impressive total, especially during the worst labor market downturn since the Great Depression. It's also an indication of the growing macroeconomic impact of the App Economy.

We can draw three lessons from the success of the App economy to help us understand how we can drive prosperity forward.

Innovation creates jobs.  Nobody conceived of the idea of 'apps' before the iPhone was introduce in 2007, followed by the opening of the Apple App store in July 2008. But suddenly it turned out that there was a pent-up demand for light-weight applications to run on mobile devices and platforms, and a pent-up supply of programmers to create these light-weight applications.

The resulting explosion of creation and entrepreneurship has produced a wide variety of new products, revenues, businesses and--amazingly enough--jobs. Even as overall national employment has shrunk, the need to create, market, and maintain apps has become an entirely new source of jobs.

Historically, industries that are job leaders during recessions tend to drive the expansion that follows. Once again, we confirm that innovation creates jobs in ways that cannot be anticipated beforehand. This is the future of industrialized countries.

Cooperation matters. Apple created the original iPhone and app store, of course, under the leadership of the late Steve Jobs. But in a larger sense, Apple could not have accomplished its breakthrough without the essential contributions of a wide variety of other players.

Key members of the "team" included the telecom providers. In the past year alone, AT&T and Verizon have invested $36 billion to beef up and maintain their networks, in large part to handle the data demands imposed by the burgeoning use of apps.

Similarly, apps are more useful because of access to information and services produced by other companies. For example, apps that run on the iPhone and iPad can access data from Google Maps, deriving benefit from Google's investment in cartographic data. This is despite the fact that Google is the main player behind the Android mobile operating system, the principal competitor to Apple's iOS.

The success of the App Economy shows that innovation and job growth requires the cooperative contributions of a team, even if all the players don't have the identical interests.

Light-touch regulation is important. The key elements in the App Economy "team"--Apple's development of the iPhone, Google's development of Android, the buildout of wireless networks by AT&T, Verizon and other providers--were not the object of heavy government regulation. Government did have a role in unlocking and distributing spectrum and otherwise clearing the underbrush. But no government agency was in charge of supervising the burgeoning App Economy.

Is more regulation needed? Given that App Economy companies are creating jobs and investing in the United States economy during a period of economic weakness, there's an argument for not messing with success. Government agencies should restrict themselves to 'light-touch' regulation of the App Economy unless there's real problems in the market.

Nobody could have predicted the rise of the App Economy before it happened. It's the rarest of birds these days -- unexpected good economic news -- and we should draw the right lessons from its success.

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Michael Mandel is chief economic strategist at the Progressive Policy Institute.

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