Has the ideas machine broken down? is the lead article in the January 12 issue of The Economist. The article takes a look at what it calls innovation pessimism, - the notion that we are in a long-term period of slow innovation and growth despite our rapidly advancing technologies and hyperconnected economies.
“With the pace of technological change making heads spin, we tend to think of our age as the most innovative ever,” says The Economist in the article’s overview. “We have smartphones and supercomputers, big data and nanotechnologies, gene therapy and stem-cell transplants. Governments, universities and firms together spend around $1.4 trillion a year on R&D, more than ever before.”
“Yet nobody recently has come up with an invention half as useful as that depicted on our cover. With its clean lines and intuitive user interface, the humble loo transformed the lives of billions of people. And it wasn’t just modern sanitation that sprang from late-19th and early-20th-century brains: they produced cars, planes, the telephone, radio and antibiotics.”
Northwestern University economist Robert Gordon is one of the leaders of the innovation pessimism camp. In a recent paper, - which he describes as deliberately provocative, - he questions the generally accepted assumption that economic growth is a continuous process that will persist forever. Perhaps the slow growth we are experiencing in the US and other advanced economies is not cyclical, but rather evidence that long-term economic growth may be grinding to a halt. The rapid growth and rising per-capita incomes we experienced during the Industrial Revolution of the past two and a half centuries might have been a unique episode in human history.
PayPal cofounder Peter Thiel is also in the pessimist camp. While the information age has made him rich, Thiel is disappointed that it has not created enough jobs or produced revolutionary improvements in overall productivity. The Internet is “a net plus - but not a big one,” he told the New Yorker in an interview published in November of 2011. “We wanted flying cars - instead we got 140 characters,” is how he succinctly describes his belief that we are no longer solving big problems.
The Economist takes a close look at the evidence that the world might have entered an innovation plateau, including recent productivity statistics. Productivity is generally driven by innovative ways of leveraging workers and resources through technological, organizational and policy advances. According to economist Richard Steckel, from 1820 to 1998 the overall GDP per capita of the world increased by a factor of 8.6, with different regions experiencing widely different increases. GDP per capita went up by only a factor of 3.3 in Africa and India, and 5.5 in China. But in the more industrialized countries, whose economies strongly benefited from the technological advances of the Industrial Revolution, GDP per capita grew at a much faster rate. Western European countries realized more than a ten-fold increase, the US a factor of 21.7, and Japan 30.5.
Emerging economies are still growing, primarily because they are catching up with the productivity innovations that the more advanced economies have long benefitted from. But, as Robert Gordon points out, after growing rapidly through the first part of the 20th century, US productivity has dipped sharply since the 1970s, except for an Internet-driven productivity boost between 1996 and 2004.
“Mr Gordon sees it as possible that there were only a few truly fundamental innovations - the ability to use power on a large scale, to keep houses comfortable regardless of outside temperature, to get from any A to any B, to talk to anyone you need to - and that they have mostly been made. There will be more innovation - but it will not change the way the world works in the way electricity, internal-combustion engines, plumbing, petrochemicals and the telephone have.”
Further evidence that innovation is tailing off could be found by comparing the massive changes that took place in the early and mid 20th century to the changes that have taken place since then.
“Take kitchens. In 1900 kitchens in even the poshest of households were primitive things. Perishables were kept cool in ice boxes, fed by blocks of ice delivered on horse-drawn wagons. Most households lacked electric lighting and running water. Fast forward to 1970 and middle-class kitchens in America and Europe feature gas and electric hobs and ovens, fridges, food processors, microwaves and dishwashers. Move forward another 40 years, though, and things scarcely change. The gizmos are more numerous and digital displays ubiquitous, but cooking is done much as it was by grandma.”
“Or take speed. In the 19th century horses and sailboats were replaced by railways and steamships. Internal-combustion engines and jet turbines made it possible to move more and more things faster and faster. But since the 1970s humanity has been coasting. Highway travel is little faster than it was 50 years ago; indeed, endemic congestion has many cities now investing in trams and bicycle lanes. Supersonic passenger travel has been abandoned. So, for the past 40 years, has the moon.”
“Medicine offers another example. Life expectancy at birth in America soared from 49 years at the turn of the 20th century to 74 years in 1980. Enormous technical advances have occurred since that time. Yet as of 2011 life expectancy rested at just 78.7 years. Despite hundreds of billions of dollars spent on research, people continue to fall to cancer, heart disease, stroke and organ failure. Molecular medicine has come nowhere close to matching the effects of improved sanitation.”
It’s very difficult to anticipate the consequences of advanced technologies and disruptive innovations. When first developed in the late 19th century, electricity was most used to replace kerosene lamps and candles with light bulbs. It took several decades for electric appliances, the assembly line and mass production to emerge and help create whole new industries and many new jobs. Similarly, the impact of the automobile has been felt way beyond its original transportation role, becoming a key driver of major parts of the economy including the rise of the suburbs.
Most everyone will agree that our economy, and just about all institutions of society are going through major structural changes, mostly driven by the digital technology revolution that’s all around us. And in particular, since the explosive growth of the Internet and World Wide Web in the mid 90’s, we have been transitioning from the industrial economy of the past couple of centuries to a new kind of information-based economy.
If it has proved difficult to predict the long term impact of major industrial-based innovations, it’s even more difficult to do so with IT-based innovations because they are so relatively recent. While it might feel that the Web has been around for a very long time, it has only been widely used since the mid 1990s. And smartphones, tablets and other mobile technologies we can barely do without have only been with us between five and ten years. It’s way too early to be pessimistic about about the long-term impact of digital technologies on innovation and economic growth.
Moreover, as recent studies have pointed out, our current GDP-based measures of economic performance may be inadequate for a 21st-century post-industrial society. GDP is a fine measure of industrial production, but it does not adequately capture the growing share of information-based services and highly complex, knowledge-intensive offerings in advanced economies.
In addition, GDP fails to include measures of well-being or quality-of-life that people care strongly about, including health, education, safety, social connections and environmental conditions. And, it does not adequately factor in major sustainability efforts to help reflect the evolution of societies into the future. If GDP is the primary measure by which we judge economic progress, we may be missing major innovations and important but different areas of economic growth.
In the end, The Economist concludes that fears that innovation is slowing, while important to examine in depth, are likely to be exaggerated. So do I. We don’t really know if our current period of slow growth will turn into a long term great stagnation, or if at some point in the not too distant future it will instead turn into a golden age of innovation with new industries and jobs we can barely begin to anticipate today. Let’s all hope for, and do everything possible to help bring about this more hopeful version of the future