Saturday, April 17, 2010

The Aging of Innovation in America

[Image of Edison's lightbulb from patent application of 1880]

As individuals, it is pretty easy to know when we have passed our prime.  If we are lucky, the first sign isn't that we read our obituary in the paper.  It shows up in little things: pants that seem to have shrunk, skin that seems to hang a little looser, difficulty in remembering what I had for dinner last night, stairs that seem to have gotten steeper.  We fight it or we deny it, but biology has the last word.  And everyone passes beyond their prime at some point.

How about an economy, or more specifically, the American economy?  Nations grow and decline like all things based on living systems.  Where's the United States on the curve?  What is the equivalent of a "sagging chin line" for an economy?  Three things come immediately to mind.  One is the rate of growth of the economy, with the operative word being "rate".  This is the good-old Gross Domestic Product, or GDP, statistic. A second is innovation, which is one of the key drivers of growth. This is a little trickier to measure objectively.  Patents might be a measure but most studies say they are not a good surrogate for innovation. The third is a steadily increasing personal income.  If people aren't finding themselves any better off over time, people catch on to that fact quickly.

I have seen a number of articles recently that make me seriously worry about where we are as far as the country's economic maturity is concerned.  We seem to be, more and more, rushing into a period of serious aging as though we had blown the diet and stopped going to they gym for a little toning. The most recent article I saw was Business Week's annual list of the 50 Most Innovative Companies.  In an accompanying article, the Business Week reporters, Michael Arndt and Bruce Einhorn,  wrote:

The shift [in U.S. innovativeness] is more apparent when this year's class is compared with the first ranking in 2005. Back then, only six of the Top 20 were headquartered outside the U.S., vs. 13 of 25 this year. In addition a third of 2005's American champs—such names as 3M, Starbucks, and eBay—no longer make the Top 50.

The article also reports that most management in Asian companies treat innovation as a high priority with over 90 percent stating that they plan to invest in increased innovation efforts.  U.S. managers, by comparison, are planning similar investments in only 48 percent of the companies interviewed.

It's nice to see that Apple, Google, Microsoft, and IBM are the top four on the 2010 list.  But this isn't nearly enough to offset the relative losses which show up not only in innovation rankings but in 2.4 million off-shored manufacturing jobs in the last decade.

Looking at my other two leading indicators, GDP in the U.S. has been decreasing for the past six years - well before the current recession began.  Personal income adjusted for inflation has been flat for a decade or more.

All in all, our Economic Report Card is definitely looking more like a C- than something that might get us into the National Honor Society.  But it is not enough to simply rant about needing more innovation (although venting can be useful at times).  I might have thought that the near total collapse of the auto, banking, and housing industries would raise some serious concerns about the viability of the economy and our competitiveness.  I wonder what it will really take to get us to pay attention?

In the past, the American economy grew not because there were calls from Washington or from editorials to be more innovative.  The economy grew and innovators had an impact because there were opportunities to exploit.  Innovators and entrepreneurs saw unmet needs and worked their tails off to fill the need.  It's still happening.  Apple, Google, Microsoft, and IBM all employ lots of very smart people.  The problem is that the rest of the economy, the manufacturing and service economy that pulled up the middle class has been farmed out to low-wage countries.  That's the gap that has to be filled.  How do we bring innovation to create jobs that pay decent wages for the people in the middle-class of a post-industrial society?  I don't know the answer but I think it is the right question.  That's at least a start.

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