Stories we hear about economy influence way we behave, which in turn influences economy. As Nobel laureate Robert Shiller puts it, sometimes these stories "inspire us to go out also spend, start businesses, build new factories also office buildings." Other times they put fear in our hearts also impel us to sit tight, save our resources, curtail spending also reduce risk.
So it may be with today's competing narratives on innovation: one portrays a civilization that has run out of big ideas; other suggests we are on brink of a new industrial revolution.
We wanted flying cars, instead we got 140 characters. That summary of first narrative is subtitle of VC firm Founders Fund's manifesto. It asks: "Have we reached end of line, a sort of technological end of history?" Also it suggests that we have run out of big ideas: "future that people in 1960s hoped to see is still future we are waiting for today.
North-western University economist Robert Gordon concludes that world is returning to a regime in which growth is not intensive-driven by technological progress but extensive-driven at best by adding more or better labour, capital also resources. Most innovations of past decade, he argues, "did not fundamentally change labour productivity or standard of living in way that electric light, motor cars or indoor plumbing changed it." They merely represent gradual improvements to existing capabilities: "iPod replaced CD Walkman; Smartphone replaced garden-variety ‘dumb' cell phone also iPads provided further competition with traditional personal computers."
Several arguments support such "stagnation hypotheses." One refers to "burden of knowledge": as ideas accumulate, thinkers are slower to catch up with frontier of their scientific or technical speciality. Pierre Azoulay also Benjamin Jones fined that U.S. R&D worker contributed almost seven times more to total factor productivity in 1950 than in 2000.
Another argument refers to capital allocation. Harvard Business School professor Clayton Christensen differentiates deployment of capital into empowering innovations that lead to new products also efficiency innovations which make existing ones cheaper. Societies progress if capital liberated by efficiency innovation flows into empowering innovation. Today, "capital liberated by efficiency innovation gets reinvested into still more efficiency innovation," Christensen says. He suggests that this is driven by "Doctrine of New Finance," which leads corporations to rationalize capital even in times when capital is abundant. In other words, corporate leaders fall victim to a cognitive bias.
A more radical twist of this argument points to vested interests. Economist Tyler Cowen at George Mason University notes that many of big innovations of recent decades either have primarily private benefits or produce benefits of questionable value. Nobelist Joseph Stiglitz at Columbia points out that, just before collapse of Lehman Brothers, financial sector prided itself on its innovativeness. Yet, upon closer inspection, it became clear that "most of this innovation involved devising better ways of exploiting market power."
Is this enough to proclaim end of innovation?
To put things into perspective, "we have run out of big ideas" story is not new. In 1992, Robert Solow famously argued, "You can see computer era everywhere but in productivity statistics." Shortly thereafter, productivity growth picked up fuelled by technologies that radically lowered cost also increased speed of transportation also communication. In hindsight, Solow's assessment might have been driven more by his views of past than his vision of future.
Who will benefit from these technology trends? Productivity in manufacturing rises also more routine brainwork is computerized, middle-income jobs could diminish. Cheap also rapid communication is a double-edged sword, too. It allows millions to enter labour markets, for instance, through platforms like Flitto, which crowd sources translation by doling it out in bits also pieces to millions of users, at same time that it yields "digital sweatshop" wages to all those workers, some contend. Also, when it comes to more demanding tasks, digital communication may have an opposite employment effect: in education, for instance, students might prefer to listen virtually to lectures from best minds in field, rather than lectures at their local institution.
Not necessarily. Individual workers may historically have suffered from technological progress but new productive uses were found for workforce as such. According to a study by the McKinsey Global Institute, all but one 10-year rolling period since 1929 has recorded increases in both U.S. productivity also employment. Also, while technology is associated with rising inequality within nations, as a structural driver of globalization it has reduced inequality across them.
Since 2009, world has been waiting for some story to bring back hope also confidence - also to restart economic growth. At peak of crisis, first tale of innovation ruled headlines. Today, as world slowly pulls itself out of worst economic crisis in decades; second tale is back, reinvigorating confidence in our innovative also entrepreneurial capacity.
This is good news. Yet with concerns over inequality also employment looming large, it cannot stop here. Question we must ask is: How can innovation generate more also better value for all - for organizations we lead, people we serve also societies to which we belong?