Has the Innovation Engine run out of Steam?

The Economist recently ran a feature entitled, ‘Has the Ideas Machine broken down?’   The front cover showed a Rodinesque figure sitting on a toilet and pondering the question, ‘Will we ever invent anything as useful again?’

There are many pundits who think that the innovation engine which has powered the growth of the world economy is running out of steam.  Peter Thiel, one of the founders of PayPal says that innovation in the USA is ‘somewhere between dire straits and dead.’

Consider as a marker the speed of travel.  It improved dramatically through the late 19th and early 20th centuries with major innovations such as trains, automobiles, airplanes, jet engines and rockets.  But the big advances came to an end in the 1970s.  Movement by car now is no faster than it was then – indeed it is often slower.  We can fly from London to New York no faster now than in 1970 – indeed with the abandonment of supersonic passenger flights it takes significantly longer.  Only 12 people have walked on the moon and the last of those was over 40 years ago.

At a more prosaic level consider the kitchen.  Technology made massive improvements in the domestic kitchen in the first 70 years of the last century with refrigerators, gas hobs, microwave ovens and dishwashers all making life much better for the housewife (or househusband) but what has changed since then?  What major innovations can you name that have significantly impacted the kitchen in the last forty years?

Productivity in terms of output per person increased in the major economies between 1950 and 2000 but since then it has stalled.  Robert Gordon, an economist at Northwestern University believes that the past two centuries of economic growth may represent a one-off spurt rather than a sign of uninterrupted progress.  He contends that there were only a few truly fundamental innovations and they have already been made.  They include the use of electricity, the ability to travel anywhere, vaccination, mass production methods, and the ability to communicate with anyone at will.  Surely there will be many more innovations but they will not have the impact of electricity grids or the telephone.

More evidence comes from the world of research and development.   Studies by Pierre Azoulay of MIT and Benjamin Jones of Northwestern University indicate that an average R&D worker in the USA in 1950 was seven times as productive as one today measured in terms of contribution to innovation and growth.  Many of the easy wins have been made.  Also it takes much longer for any researcher to catch up with the frontier of their science or technology because there is so much more knowledge out there.

Countering this pessimism about innovation, the optimists would point out that although progress in speed of travel has slowed it has continued in safety and fuel economy.  And if mature industries such as air travel have slowed, innovations in computing and mobile technology have powered ahead.  Computers today continue to offer huge increases in computing power and storage capacity and these are being put to use by more people in more ways than ever before.  And then of course there is the Internet – possibly the greatest technological innovation of all time.

The pessimists remain unconvinced.  They point out that all the capabilities of the World Wide Web, mobile technology and computing power have had little impact in improving productivity or driving economic growth.  Indeed office productivity has stalled.  It is likely that Google and Facebook are slowing down office work rather than improving it.

There are other reasons to worry about the pace of innovation.   Governments speak much about the need for innovation but their actions often inhibit rather than promote it.  Regulation is much heavier now than it was a generation ago, raising costs and making approvals of new products much more difficult.  Furthermore governments are now unable or reluctant to fund the major new long-term infrastructure or exploratory programs such as the Apollo space project.  Some of the largest sectors of western economies – such as education, health care and government have long proved difficult areas for innovation, productivity improvement or cost cutting.  It is hard to argue for, let alone implement, radical solutions in these sectors because of vested interests and public attachment to familiar methods.

Perhaps the doubters overstate their case but the worry persists that we have become complacent in assuming that innovation is thriving and can continue to drive growth and productivity in the West.  Our levels of regulation and institutional rigidity are making innovation much more difficult.  The emerging economies in Asia, Latin America and elsewhere are seizing the opportunity to change, innovate and grow rapidly.  This is the challenge that we must contend with if our innovation engine is really running down.

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