This semester I am teaching the innovation half of a course on Entrepreneurship and Innovation at NYU’s new Center for Urban Science and Progress (CUSP). Teaching forces you to take a fresh look at the subjects you are covering, so I find myself revisiting questions I’ve long been thinking about: What is the essence of innovation in the digital economy and how does it differ from the industrial age innovation of the past two hundred years?
The bulk of the innovations in the industrial economy involved physical objects, physical systems and the physical world around us. Our biggest scientific advances were in the natural sciences, e.g., astronomy, physics, chemistry, geosciences and biology. In engineering, we made huge progress in applying science and technology to develop increasingly complex physical objects and infrastructures, such as railroads, cars, airplanes, chemical plants, refineries, power stations, bridges, skyscrapers, computers, microprocessors, and so on. Ever since the steam engine gave rise to the Industrial Revolution in the late 18th century, we’ve had major waves of innovation every 50-60 years, including railroads, steel, electricity and heavy engineering in the 19th century; and automobiles, airplanes and telecommunications in the 20th century.
The Industrial Revolution had a huge impact on all aspects of the economy and society. It totally transformed the composition of labor. In 1840, the vast majority of US jobs where in agriculture, with services accounting for roughly 20% of jobs. Those figures have been drastically reversing since then. According to 2009 statistics from the CIA World Factbook, only 0.7% of the US labor force is now involved in agriculture oriented jobs and roughly 20% work in the industrial sector. The bulk of jobs, almost 80%, are in services, with 3/4 of those service jobs based on processing information in one way or another, - e.g., managerial, professional, technical, sales and office. Similar changes in labor composition have been taking place in just about every country.
The emerging 21st century digital economy seems quite different from the industrial economy of the past two centuries. Dramatic advances in information and communication technologies are now enabling us to apply science, technology and innovation to improve the productivity of information-based service jobs, as well as that of sociotechnical systems, that is, systems in which people play a central role, such as business organizations, healthcare institutions and cities. Such systems are particularly hard to understand and control because of the complexities inherent in human and organizational behaviors.
The machines of the industrial age were primarily making up for our physical limitations - the steam engines that enhanced our physical power, the railroads and cars that helped us go faster, and the airplanes that gave us the ability to fly. But now, digital technologies are making up for our cognitive limitations, augmenting our ability to solve tough problem and make complex decisions. Our machines are now being increasingly applied to activities requiring intelligence and cognitive capabilities that not long ago were viewed as the exclusive domain of humans. These technology advances are truly pushing the boundaries between human and machines.
Perhaps, I’ve been thinking, our digital technology revolution will not turn out to be another 50-60 year innovation wave like those of the past two centuries. Perhaps we are going through an even more fundamental transformation, akin to the transition from agrarian to industrial societies, when the huge advances in science and technology led to radical changes around the world, like the transition from feudalism to more representative forms of government.
Perhaps these fundamental differences between the industrial and digital economies can help shed light on a few of the confounding questions about innovation that we are wrestling with. Is innovation accelerating or slowing down? Have we stopped solving big problems, or are we solving bigger problems than ever before?
The article points out that innovation is “the most important force that makes our society wealthier.” Innovation is critical to improving productivity, that is, to raise the output per worker, which in turn leads to a wealthier society and a higher standard of living for its people. “Everyone agrees that it would be troubling news if America’s rate of innovation were to decrease,” they write in the article’s opening paragraph. “But we can’t seem to agree at all about whether this is actually happening.”
About a year ago, The Economist highlighted this issue in an article - Has the ideas machine broken down? The article took a look at what it called 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,” it points out. But, “The idea that innovation and new technology have stopped driving growth is getting increasing attention. . . 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.”
The Economist cites the work of Northwestern University economist Robert Gordon, one of the leaders of the innovation pessimism camp, who in a September, 2012 paper questioned 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. “Before 1800, it took centuries to double income per capita; between 1929 and 1957, US incomes doubled in only 28 years; between 1957 and 1988, doubling took 31 years; the pessimistic view adopted here suggests that it may take almost a century for income per capita to double between 2007 and 2100.”
In 2011, George Mason University economist Tyler Cowen published The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better. According to Cowen, over the past two centuries the US economy has enjoyed lots of low-hanging fruit, including a vast, resource rich land, waves of immigrant labor, access to education and the technological advances of the Industrial Revolution. But, Cowen believes that we are at a technological plateau, and wonders whether long term growth is still possible because the supply of low-hanging economic fruit is nearly exhausted.
Then there is the question of whether we’ve stopped solving big problems, the subject of Why We Can’t Solve Big Problems, an article in the November, 2012 issue of the MIT Technology Review, written by its editor in chief Jason Pontin. The article focused on a feeling among some in Silicon Valley that since the Apollo program that put a man in the moon on July 21, 1969, something may have happened to humanity’s capacity to solve big problems.
“We wanted flying cars - instead we got 140 characters,” is how PayPal cofounder Peter Thiel succinctly described his belief that we are no longer solving big problems. The Internet is “a net plus - but not a big one,” Thiel told the New Yorker in November, 2011.
How can we compare the Apollo program, - one of the culminations of industrial-age big-problem-solving, - with the Internet, - the engine now pulling us into the digital economy? How do the complex sociotechnical problems we are starting to tackle with our digital technologies, - in cities, healthcare, education, the economy, energy, the environment, and so on - compare with the development of railroads, cars and airplanes?
In their Innovation Dilemma article, Brynjolfsson and McAfee contrast Cowen’s innovation-as-fruit imagery, - where “coming up with an innovation is like growing fruit, and exploiting an innovation is like eating the fruit over time,” - with what they call innovation-as-building-block or recombinant innovation. In this view, “the true work of innovation is not coming up with something big and new, but instead recombining things that already exist. And the more closely we look at how major steps forward in our knowledge and ability to accomplish things have actually occurred, the more this recombinant view makes sense.”
As examples of recombinant innovation, e-mail and the Web were enabled by the Internet. Then came Web 2.0 which led to social networks and major social media applications like Facebook and Twitter. Cloud computing, the mobile Internet, and the Internet of Things have followed, leading to major new initiatives including smart cities and digital money. Data Science is now emerging to take advantage of all the Big Data being generated by all these digital devices, systems and applications, promising to usher an information-based scientific revolution in a number of disciplines and human endeavors.
“This progression drives home the point that digital innovation is recombinant innovation in its purest form,” write Brynjolfsson and McAfee. “Each development becomes a building block for future innovations. Progress doesn’t run out; it accumulates. And the digital world doesn’t respect any boundaries. It extends into the physical one, leading to cars and planes that drive themselves, printers that make parts, and so on.”
“Moore’s Law makes computing devices and sensors exponentially cheaper over time, enabling them to be built economically into more and more gear, from doorknobs to greeting cards. Digitization makes available massive bodies of data relevant to almost any situation, and this information can be infinitely reproduced and reused because it is non-rival. As a result of these two forces, the number of potentially valuable building blocks is exploding around the world, and the possibilities are multiplying as never before. . . From this perspective, unlike in the innovation-as-fruit view, building blocks don’t ever get eaten or otherwise used up. In fact, they increase the opportunities for future recombinations.”
“Gordon asks the provocative question, ‘Is growth over?’ We’ll respond: ‘Not a chance. It’s just being held back by our inability to process all the new ideas fast enough.’”