Institutional Investor: "Controversy In the Land of Disruptive Innovation"

Or is it innovative disruption?
Long time readers have seen most of this stuff, either here, by way of Izabella Kaminska at FT Alphaville* or Izabella's personal blog, Dizzynomics. It's good to see Institutional Investor taking the themes seriously.
And Irving.
Irving makes an appearance.
From Institutional Investor's The Futurist:

Who could be against innovation? Enterprises embrace it as an indispensable ingredient of adaptation and growth, a key to overcoming uncertainty and competition and to ensuring survivability. Advocates often take their cues from The Innovator’s Dilemma, by Harvard Business School professor Clayton Christensen.

In the June 23, 2014, issue of the New Yorker, Jill Lepore, an American history professor at Harvard, lambasted the 1997 book and set off a summer of discontent in innovation-land. Her article, “The Disruption Machine: What the Gospel of Innovation Gets Wrong,” picked apart the widely accepted theory of disruptive innovation — that successful, established companies can be blindsided by seemingly inferior products from inventive entrepreneurs — and the implication, as she presented it, that if an incumbent “doesn’t disrupt, it will fail, and if it fails it must be because it didn’t disrupt.”

Lepore contended that Christensen made “circular arguments,” disregarded case examples that didn’t fit his theory and failed to prove that it is predictive. “Disruptive innovation is a theory of why businesses fail. It is not more than that,” she concluded.

Christensen did not lack for defenders. His work is a rare example of rigorous research that “finds its way into mainstream business, guiding managers to make day-to-day decisions,” said Howard Yu, professor of strategic management at IMD in Lausanne, Switzerland.

Irving Wladawsky-Berger, retired vice president of strategy and innovation at IBM, agreed with Lepore that “the concept of disruption has been overused and misused in business” but was “taken aback” by her attack on “a useful organizing framework for discussing the creative-destruction aspects of innovation.”

Christensen criticized Lepore for “breaking rules of scholarship” by ignoring sequels to The Innovator’s Dilemma and subsequent research that addressed her complaints — and for being mean. The contretemps offered more drama and played out more publicly than the typical academic debate. But it wasn’t much more than that. The corporate innovation beat goes on, and Christensen’s is hardly the only textbook.

Innovation is so entrenched in business strategies because there is more to it than the cycles of disruptive entrepreneurism that Christensen documented in the 1990s. The popular conception of freewheeling visionaries launching start-ups in garages distorts the reality of how disciplined, systematic and scientific the practice and pursuit of innovation have become.

Of course, good intentions do not guarantee best execution. Innovation requires patience and tolerance of failure — qualities that can go against the grain of profit-driven cultures. Art and serendipity at times will trump hard science and deep pockets.

Firms face such realities in organizing for innovation, and it is anything but haphazard. In a July webinar sponsored by the Massachusetts Institute of Technology’s System Design and Management program, Mona Vernon, vice president of Thomson Reuters’s Data Innovation Lab, said suggestion boxes and other loosely coordinated attempts to rally creativity result in “too much noise, too little value.” She advocated applying structured and replicable system architecture principles to innovation management and recommended the open innovation methodology championed by University of California adjunct professor Henry Chesbrough and a book he co-edited, Open Innovation: Researching a New Paradigm....MORE

*This Is Just Plain Smart: Creative Destruction May Be Neither Creative nor Mere Destruction
** Innovation versus freedom | Dizzynomics
"Has ‘Disruptive Innovation’ Run Its Course? Not Yet…"
A Master Course on the "Thinking About Innovation Biz"

Irving sounds annoyed.

Debate over “disruptive innovation” goes well beyond Harvard 

And many more, especially @Alphaville.

A Master Course on the "Thinking About Innovation Biz"

Irving sounds annoyed.

And you have to agree that in many cases the folks decrying the current path in innovation (including me) make facile and sometimes superficial observations without, you know, actually doing anything about the problem, innovatively speaking.

On the other hand he doesn't really address one of the real problems, that a lot of what is being passed off as innovation is just marketing, or marketing related, rent-seeking.

On the third hand W-B has been present at the creation more times than Secretary of State Dean Acheson.
(who called his memoir: Present at the Creation).
So...
Blame, in part, the finance guys:

"Fundamentally VCs are risk adverse – they want no risk in the deal,
if we could handle risk we'd be entrepreneurs."
 – Victor Westerlind, General Partner at Cleantech VC firm Rockport Capital

And in part the inventors/entrepreneurs and in part thepolicymakers and...

From Irving Wladawsky-Berger:
Disruptive Innovation Revisited

The recent New Yorker article, - The Disruption Machine: What the gospel of innovation gets wrong, - by Harvard history professor Jill Lepore, has led to a flurry of opinions on disruptive innovation.  The New Yorker described the article as “Rethinking the innovation craze.”  Others called it an “absolutely devastating takedown of disruptive innovation,” a concept that Lepore said is a “competitive strategy for an age seized by terror.”  It’s also a takedown of her fellow Harvard professor Clayton Christensen, - considered the father of disruptive innovation based on his 1997 bestseller The Innovator's Dilemma, and a number of subsequent books and article, - whom she accused of poor scholarship, misreading history, and myopia. 
As I wrote last week, disruptive innovation has been often misused, as happens with popular concepts which become trendy buzzword.  Many are truly tired of all the talk of disruption, even if they could not do without their smartphones and the Web.  Lepore’s article may well be part of a growing backlash against the relentless advances in technology.  It’s important to examine the impact of technologies on society, especially by those who can best write about the societal changes in their wake through the lens of history and human nature.  I was hoping that Lepore had written such an article, but in the end, her aggressive attacks on Christensen turned me off. 

John Hagel, - co-chair of Deloitte’s Center for the Edge, - had a similar reaction in his blog post The Disruption Debate - What’s Missing?   “I admit that I’m mystified by Jill Lepore’s article in the New Yorker attacking Clayton Christensen and his theory of disruptive innovation,” he wrote.  “Not only does it have a meanness that isn’t warranted, but it leaves the reader with an unanswered question: if Clay's theories are not helpful (and I still believe they are), how do we explain the cascading disruptions that are playing out in markets and industries around the world?” 

Hagel then proceeds to examine the growing forces of disruption, which he views “simply as the sudden demise of leaders or incumbents in particular markets or arenas. . . Disruptions turn the assets of incumbents into potentially life-threatening liabilities. . . “[D]isruption is occurring with increasing frequency in the business world.  Whether it is good or bad, it is happening and becoming increasingly widespread.”  

We’ve generally studied disruption by looking at case studies of individual companies, including companies like DEC, Wang, Polaroid and Borders that are no longer around.  But, a company doesn’t have to disappear to have been severely disrupted.  Some go through a painful near-death experience but are able to survive and reinvent themselves, like IBM and Xerox.  Others survive, but are now shadows of their former selves, like Kodak, Blackberry and US Steel. 
 
Lepore actually cites US Steel as one of the cases that she believes Christensen mishandled.  “U.S. Steel’s struggles have been and remain grave, but its failure is by no means a matter of historical record.  Today, the largest U.S. producer of steel is - U.S. Steel.”  Yet, a few days after her article appeared, we saw this headline:  US Steel Gets Booted from S&P 500.  “The struggling Pittsburgh-based steelmaker . . . was the world’s first billion-dollar company and was once so huge it was known simply as The Corporation.  It was one of the most valuable companies in the index for much of the early half of the 20th century.” 

According to Hagel, you can discern a more fundamental and systemic trend beyond the individual case studies.  Something profound is happening.  He cites the evidence collected in the Shift Index project, an initiative he co-leads at the Center for the Edge to measure and quantify the long term impact of the digital revolution through 25 different metrics.  One of these metrics is the topple rate, a measure of how rapidly companies lose their leadership position.  The topple rate has increased by almost 40% since 1965....MUCH MORE

See also his "A Growing Backlash Against the Relentless Advances in Technology?".
We've looked at innovation a few times:

"Is the Link Now Broken Between Innovation, Jobs and a Higher Standard of Living?" (Irving checks in on a half dozen topics)
Innovation Futility
Fail Often, Fail Fast: "Are We Behind On Innovation That Matters?"
The Diffusion of Innovation
How 3M Got Its (Innovation) Groove Back (MMM)
Wanted: A First National Bank of Innovation
Innovation, Schminnovation – Welcome to the Boring Age

Innovation Insights: How Apps Overthrew Web Development and Changed the Internet
What It Takes: Building a Materials Science Company for the 21st Century  
A Major Piece: "Why the tech revolution isn’t a template for an energy revolution"
Technopessimism Is Bunk
"What Happened to Nanotech?" TINY; PXN
Andre Geim First in History to Win Both the Nobel and the IgNobel Prizes
The Word for the Year is Innovation--And President Eisenhower Stops By

And a couple hundred more, use the search blog box if interested.

Once Upon A Time At Harvard: "What The Gospel Of Innovation Gets Wrong:

The author, Jill Lepore, addresses some of the ideas that led to this year's Nobel Prizes in Economics. A decade ahead of the awards.

This is the version of the article hosted at MIT. 

From The New Yorker, June 23, 2014 issue:

The Disruption Machine

By Jill Lepore 

In the last years of the nineteen-eighties, I worked not at startups but at what might be called finish-downs. Tech companies that were dying would hire temps—college students and new graduates—to do what little was left of the work of the employees they’d laid off. This was in Cambridge, near M.I.T. I’d type users’ manuals, save them onto 5.25-inch floppy disks, and send them to a line printer that yammered like a set of prank-shop chatter teeth, but, by the time the last perforated page coiled out of it, the equipment whose functions those manuals explained had been discontinued. We’d work a month here, a week there. There wasn’t much to do. Mainly, we sat at our desks and wrote wishy-washy poems on keyboards manufactured by Digital Equipment Corporation, left one another sly messages on pink While You Were Out sticky notes, swapped paperback novels—Kurt Vonnegut, Margaret Atwood, Gabriel García Márquez, that kind of thing—and, during lunch hour, had assignations in empty, unlocked offices. At Polaroid, I once found a Bantam Books edition of “Steppenwolf” in a clogged sink in an employees’ bathroom, floating like a raft. “In his heart he was not a man, but a wolf of the steppes,” it said on the bloated cover. The rest was unreadable.

Not long after that, I got a better assignment: answering the phone for Michael Porter, a professor at the Harvard Business School. I was an assistant to his assistant. In 1985, Porter had published a book called “Competitive Advantage,” in which he elaborated on the three strategies—cost leadership, differentiation, and focus—that he’d described in his 1980 book, “Competitive Strategy.” I almost never saw Porter, and, when I did, he was dashing, affably, out the door, suitcase in hand. My job was to field inquiries from companies that wanted to book him for speaking engagements. “The Competitive Advantage of Nations” appeared in 1990. Porter’s ideas about business strategy reached executives all over the world.

Porter was interested in how companies succeed. The scholar who in some respects became his successor, Clayton M. Christensen, entered a doctoral program at the Harvard Business School in 1989 and joined the faculty in 1992. Christensen was interested in why companies fail. In his 1997 book, “The Innovator’s Dilemma,” he argued that, very often, it isn’t because their executives made bad decisions but because they made good decisions, the same kind of good decisions that had made those companies successful for decades. (The “innovator’s dilemma” is that “doing the right thing is the wrong thing.”) As Christensen saw it, the problem was the velocity of history, and it wasn’t so much a problem as a missed opportunity, like a plane that takes off without you, except that you didn’t even know there was a plane, and had wandered onto the airfield, which you thought was a meadow, and the plane ran you over during takeoff. Manufacturers of mainframe computers made good decisions about making and selling mainframe computers and devising important refinements to them in their R. & D. departments—“sustaining innovations,” Christensen called them—but, busy pleasing their mainframe customers, one tinker at a time, they missed what an entirely untapped customer wanted, personal computers, the market for which was created by what Christensen called “disruptive innovation”: the selling of a cheaper, poorer-quality product that initially reaches less profitable customers but eventually takes over and devours an entire industry.

Ever since “The Innovator’s Dilemma,” everyone is either disrupting or being disrupted. There are disruption consultants, disruption conferences, and disruption seminars. This fall, the University of Southern California is opening a new program: “The degree is in disruption,” the university announced. “Disrupt or be disrupted,” the venture capitalist Josh Linkner warns in a new book, “The Road to Reinvention,” in which he argues that “fickle consumer trends, friction-free markets, and political unrest,” along with “dizzying speed, exponential complexity, and mind-numbing technology advances,” mean that the time has come to panic as you’ve never panicked before. Larry Downes and Paul Nunes, who blog for Forbes, insist that we have entered a new and even scarier stage: “big bang disruption.” “This isn’t disruptive innovation,” they warn. “It’s devastating innovation.”

 

Things you own or use that are now considered to be the product of disruptive innovation include your smartphone and many of its apps, which have disrupted businesses from travel agencies and record stores to mapmaking and taxi dispatch. Much more disruption, we are told, lies ahead. Christensen has co-written books urging disruptive innovation in higher education (“The Innovative University”), public schools (“Disrupting Class”), and health care (“The Innovator’s Prescription”). His acolytes and imitators, including no small number of hucksters, have called for the disruption of more or less everything else. If the company you work for has a chief innovation officer, it’s because of the long arm of “The Innovator’s Dilemma.” If your city’s public-school district has adopted an Innovation Agenda, which has disrupted the education of every kid in the city, you live in the shadow of “The Innovator’s Dilemma.” If you saw the episode of the HBO sitcom “Silicon Valley” in which the characters attend a conference called TechCrunch Disrupt 2014 (which is a real thing), and a guy from the stage, a Paul Rudd look-alike, shouts, “Let me hear it, DISSS-RUPPTTT!,” you have heard the voice of Clay Christensen, echoing across the valley.

 

Last month, days after the Times’ publisher, Arthur Sulzberger, Jr., fired Jill Abramson, the paper’s executive editor, the Times’ 2014 Innovation Report was leaked. It includes graphs inspired by Christensen’s “Innovator’s Dilemma,” along with a lengthy, glowing summary of the book’s key arguments. The report explains, “Disruption is a predictable pattern across many industries in which fledgling companies use new technology to offer cheaper and inferior alternatives to products sold by established players (think Toyota taking on Detroit decades ago). Today, a pack of news startups are hoping to ‘disrupt’ our industry by attacking the strongest incumbent—The New York Times.”

 

A pack of attacking startups sounds something like a pack of ravenous hyenas, but, generally, the rhetoric of disruption—a language of panic, fear, asymmetry, and disorder—calls on the rhetoric of another kind of conflict, in which an upstart refuses to play by the established rules of engagement, and blows things up. Don’t think of Toyota taking on Detroit. Startups are ruthless and leaderless and unrestrained, and they seem so tiny and powerless, until you realize, but only after it’s too late, that they’re devastatingly dangerous: Bang! Ka-boom! Think of it this way: the Times is a nation-state; BuzzFeed is stateless. Disruptive innovation is competitive strategy for an age seized by terror.

 

Every age has a theory of rising and falling, of growth and decay, of bloom and wilt: a theory of nature. Every age also has a theory about the past and the present, of what was and what is, a notion of time: a theory of history. Theories of history used to be supernatural: the divine ruled time; the hand of God, a special providence, lay behind the fall of each sparrow. If the present differed from the past, it was usually worse: supernatural theories of history tend to involve decline, a fall from grace, the loss of God’s favor, corruption. Beginning in the eighteenth century, as the intellectual historian Dorothy Ross once pointed out, theories of history became secular; then they started something new—historicism, the idea “that all events in historical time can be explained by prior events in historical time.” Things began looking up. 

 

First, there was that, then there was this, and this is better than that. The eighteenth century embraced the idea of progress; the nineteenth century had evolution; the twentieth century had growth and then innovation. Our era has disruption, which, despite its futurism, is atavistic. It’s a theory of history founded on a profound anxiety about financial collapse, an apocalyptic fear of global devastation, and shaky evidence.

Most big ideas have loud critics. Not disruption. Disruptive innovation as the explanation for how change happens has been subject to little serious criticism, partly because it’s headlong, while critical inquiry is unhurried; partly because disrupters ridicule doubters by charging them with fogyism, as if to criticize a theory of change were identical to decrying change; and partly because, in its modern usage, innovation is the idea of progress jammed into a criticism-proof jack-in-the-box.

The idea of progress—the notion that human history is the history of human betterment—dominated the world view of the West between the Enlightenment and the First World War. It had critics from the start, and, in the last century, even people who cherish the idea of progress, and point to improvements like the eradication of contagious diseases and the education of girls, have been hard-pressed to hold on to it while reckoning with two World Wars, the Holocaust and Hiroshima, genocide and global warming. Replacing “progress” with “innovation” skirts the question of whether a novelty is an improvement: the world may not be getting better and better but our devices are getting newer and newer.

The word “innovate”—to make new—used to have chiefly negative connotations: it signified excessive novelty, without purpose or end. Edmund Burke called the French Revolution a “revolt of innovation”; Federalists declared themselves to be “enemies to innovation.” George Washington, on his deathbed, was said to have uttered these words: “Beware of innovation in politics.” Noah Webster warned in his dictionary, in 1828, “It is often dangerous to innovate on the customs of a nation.”

The redemption of innovation began in 1939, when the economist Joseph Schumpeter, in his landmark study of business cycles, used the word to mean bringing new products to market, a usage that spread slowly, and only in the specialized literatures of economics and business. (In 1942, Schumpeter theorized about “creative destruction”; Christensen, retrofitting, believes that Schumpeter was really describing disruptive innovation.) “Innovation” began to seep beyond specialized literatures in the nineteen-nineties, and gained ubiquity only after 9/11. One measure: between 2011 and 2014, Time, the Times Magazine, The New Yorker, Forbes, and even Better Homes and Gardens published special “innovation” issues—the modern equivalents of what, a century ago, were known as “sketches of men of progress.”

The idea of innovation is the idea of progress stripped of the aspirations of the Enlightenment, scrubbed clean of the horrors of the twentieth century, and relieved of its critics. Disruptive innovation goes further, holding out the hope of salvation against the very damnation it describes: disrupt, and you will be saved.

Disruptive innovation as a theory of change is meant to serve both as a chronicle of the past (this has happened) and as a model for the future (it will keep happening). The strength of a prediction made from a model depends on the quality of the historical evidence and on the reliability of the methods used to gather and interpret it. Historical analysis proceeds from certain conditions regarding proof. None of these conditions have been met....

....MUCH MORE 

"REVIEW ESSAY—Invention and Innovation: A Brief History of Hype and Failure by Vaclav Smil"

From American Affairs Journal, Winter 2023:

Technological Stagnation Is a Choice
Do we live in a world of “ever-increasing change” characterized by “disruptive innovation”? Is “technology moving faster than ever before”? Are these, in fact, “unprecedented times”?

Contra the bromides of TED-talkers and Davos men, a growing chorus of contrarian scientists, scholars, and investors hold that the pace of innovation has slowed, not increased. They argue that the explosive growth and spread of digital technology has misled the public (and many policymakers) about the state of affairs in every other area of scientific progress. If we look up from the extraordinary virtual worlds depicted on our screens, we see that the future is receding before us.

But among the contrarians, there is a critical division. One camp, championed by Peter Thiel, holds that there are no physical or scientific reasons why we could not increase the pace of innovation, that technological stagnation is ultimately a social problem. The bureaucratization of science, the explosion of the regulatory apparatus, the demise of meritocracy, and any number of other social factors have slowed the pace of innovation, replacing actual technological magic with a digital simulation thereof. As Thiel famously summarized: “We wanted flying cars, instead we got 140 characters.” Call this the social theory of stagnation.

The other camp is best exemplified by the work of Vaclav Smil. Smil, a Czech-Canadian professor of environmental studies, has won acclaim for his prolific output of books on energy and society, characterized by telling sweeping stories while maintaining extraordinary attention to detail. Smil and others hold that, while the rate of innovation is slowing, this is a return to historical norms and not the result of some kind of social decadence. It was the extraordinary transformation of the nine­teenth and twentieth centuries that was the aberration, as the scientific method unlocked the secrets of physics, chemistry, and biology in a one­time boost. Smil and others believe in the Singularity (an exponential transformation of the human species); they just believe we are already on the other side of it.

As outlined in his 2017 Energy and Civilization and in the final chapter of the book under review here, Smil draws our attention to the problem of scale in particular. As its name implies, the digital revolution was a revolution in the representation of numbers. Moore’s law relies on the ever-smaller physical means of representing numbers (since 1975, the number of transistors in an integrated circuit has doubled about every two years). In principle, a bit of information can be encoded into a single photon (in fact, in a subatomic particle). If computation is simply moving bits around, the physical limits of miniaturized computation have no analogy in other fields of human endeavor.

Contrast computation’s sustained geometrical increase in scale with advances in crop yields, energy density, transportation speeds, energy efficiency, infrastructure costs, and more. Where computational density has increased approximately 35 percent per year for the past fifty years, these other factors have improved around 1–2 percent per year. Thus, over the whole time span, they have improved by 1.65 to 2.7 times, while microprocessor performance has improved 10,000,000,000 times.

Moreover, as Smil is acutely aware, the world of macroscopic change (in contrast to microscopic digital improvements) besets us with trade-offs. Increase transportation speed and drag comes for you. Move away from energy-dense fossil fuels, and much of the carbon emissions savings are reversed as a result of building the many more solar panels, wind turbines, and hydroelectric plants required in order to power all of these electric vehicles, including manufacturing significant amounts of steel, aluminum, and other metals for which there are no reduced-carbon smelting methods. Almost everything about modern civilization is downstream from unlocking the energy density of fossil fuels. Moving toward decarbonization will demand incredible ingenuity and innovation just to tread water. Short of a radical new energy source, like fusion, growth will remain incremental at best. Call this the physical theory of stagnation.

In Invention and Innovation: A Brief History of Hype and Failure, Smil sets out to deflate our expectations of a futuristic utopia just around the corner, by focusing on the immense difficulty of innovation and the possibility of failure. Real innovation, understood as the social transformation wrought by mastering new inventions with the ideas, processes, materials, and organizations needed to make them useful, is extremely difficult. Smil wants to persuade us that it can go awry or can stubbornly fail to arrive altogether. His biggest bugbears are hucksters like Yuval Noah Harari and Ray Kurzweil, who seem to promise an audacious future that will inevitably land in our laps.

And yet, Smil’s book admits of radically different interpretations. Smil begins from the notion that we live in a world beset by innovation hype and that a healthy dose of realism is just what the doctor ordered. But is innovation hype really the dominant tendency today? What is the meaning of the stories Smil recounts if you presume instead that a lack of concern for innovation and growth characterizes our society? Smil’s book was highly persuasive for me, though not in the way he might expect; I began sympathizing with his position and finished the book vehemently rejecting it.

Smil’s distinctive approach is a phenomenology of innovation: put aside the blustery concepts and paradigms, and rush, like philosopher Edmund Husserl, “to the things themselves.” Smil wants us to understand that a technology as foundational as the diesel engine or nuclear fission reactor does not enter into the world all at once: it is the product of thousands of incremental improvements, path dependencies, and false starts. While one never wants to go toe-to-toe with Smil on the facts—the intellectual equivalent of facing George Foreman’s right hook—one can reexamine Smil’s careful narratives and find that they tell the story, not of failed innovation and of hype, but of human ingenuity and failure of imagination....

....MUCH MORE

"Is the Link Now Broken Between Innovation, Jobs and a Higher Standard of Living?" (Irving checks in on a half dozen topics)

From Irving Wladawsky-Berger:

Last week I wrote about innovation in the digital economy and some of the puzzling questions we are now wrestling with.  Is innovation accelerating or slowing down?  Have we stopped solving big problems or are we solving bigger problems than ever before?  Is innovation in the digital economy fundamentally different from the industrial age innovation of the past two hundred years? 

But, there is no more puzzling and important question than whether the link is now broken between innovation, productivity, jobs and the overall standard of living in the US and other advanced economies.
  
Given the torrid pace of technology advances and new ideas, how come the US is continuing to experience slow economic growth, stagnant wages and high long-term unemployment?  Are we now in an economy in which technology and innovation do not necessarily lead to a higher standard of living and quality of life?

The many innovations in the Industrial Revolution led to higher productivity, whole new industries and a significant increase in GDP per capita, a generally used measure of standard of living.  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, ranging from a factor of 3.3 in Africa and India and 5.5 in China, to around 10 in Western Europe, 21.7 in the US and 30.5 in Japan.
 
“Previous technological innovation has always delivered more long-run employment, not less.  But things can change,” is the tag line of an article on the future of jobs in the January 18 issue of The Economist.  

“Nowadays, the majority of economists confidently wave such worries away.  By raising productivity, they argue, any automation which economises on the use of labour will increase incomes.  That will generate demand for new products and services, which will in turn create new jobs for displaced workers.” 

“Yet some now fear that a new era of automation enabled by ever more powerful and capable computers could work out differently,” the article adds . “They start from the observation that, across the rich world, all is far from well in the world of work.  The essence of what they see as a work crisis is that in rich countries the wages of the typical worker, adjusted for cost of living, are stagnant.  In America the real wage has hardly budged over the past four decades.  Even in places like Britain and Germany, where employment is touching new highs, wages have been flat for a decade.”

Martin Wolf, associate editor and chief economics commentator at the Financial Times focused on these issues in a February 4 FT article.  The article was inspired by the recent publication of The Second Machine Age by MIT’s Erik Brynjolfsson and Andy McAfee.  The machines of the industrial economy made up for our physical limitations, - steam engines enhanced our physical power, railroads and cars helped us go faster, and airplanes gave us the ability to fly.  The machines of the emerging digital economy, are now making up for our cognitive limitations, augmenting our intelligence and our ability to process vast amounts of information.  

They are now being increasingly applied to activities requiring intelligence and cognitive capabilities that not long ago were viewed as the exclusive domain of humans....MORE 

Mr. W-B's previous piece begins: 

Some Puzzling Questions about Innovation in the Digital Economy

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?...MORE

There was a time when the hot new buzzword in academia was 'multidisciplinary'.
And then there's Irving who's pretty much the embodiment of the concept.
For some reason I think he and the FT's Izabella Kaminska would get on famously.

"Is our economy still dynamic? A long-read Q&A with economist Fredrik Erixon"

From Pethokoukis at AEI, August 4:

Looking at the Silicon Valley today, you might think the US is poised for a technological explosion. That expectation is certainly animating many of the fears of mass joblessness once artificial intelligence arrives in the workplace, and why many people are beginning to advocate a universal basic income. But my podcast guest believes these techno-optimists have far too rosy of an outlook.

Fredrik Erixon is an economist and the director of the European Centre for International Political Economy, a Brussels-based think tank. He’s also the coauthor of the recent book, “The Innovation Illusion: How So Little is Created by So Many Working So Hard.” He joined me to discuss why we’re no longer as innovative as we used to be, why we’re not close to recapturing that dynamism, and what policymakers can do about it. Listen to our full conversation at Ricochet, or read an abbreviated transcript here.

PETHOKOUKIS: I’ll give you a chance to lay out your thesis, which I will try to sum up briefly. As the title suggests: innovation is not what we think it is. In fact, it’s been getting worse and worse, decade after decade since the 1970s. I wonder if you could explain that. Now, keep in mind that I would rather live — and I think this may argue against your thesis — in 2017 than in 1967, 1977, or 1987. And frankly, I’d probably rather live in 2017 than last year. So that to me suggests that maybe things are getting better. How can you say innovation, change, and progress have been slowing down for decades?

ERIXON: Like you, I would pick 2017 over any other year that you could come up with. The argument of the book isn’t that I’d prefer to live in the 1970s or 1940s or even 2006 or 2007 before the big economic crisis in the West. The point is basically that the innovation acceleration, or the pace of change in Western economies, has slowed down and that this slowdown is connected to our increasing inability to actually change our economies. And to change our economies in a way where we increasingly incorporate much more technology, much more human capital, and get people to stop doing things that they did yesterday in order to do something better tomorrow. That’s the whole point of the book. The point is to say we need more innovation, we need faster innovation. The illusion that the book is trying to counter is this perception, which has been spreading like wildfire over the past year, that we’re living in the most innovative age ever.

What we’re trying to say in the book is no, that’s an illusion. If you actually look at the pace of innovative change throughout history, you’re going to find lots of periods when change happened faster, when people were prepared to change in a way most people today aren’t. And the other part of the illusion is this perception itself provokes a lot of political reactions. It provokes human reactions and fears about technologies that are about to demote us to permanent low economic expectations. That we’re going to get unemployed because intelligent machines, robots, are going to eat our lunch, and perhaps our dinner as well.

And if you listen to Elon Musk, they might eat us as well. Or at least kill us. Before we go forward or even look at where we are today, just take one step back. So when was the golden age of innovation? And, whenever that was, why was it? Why can’t we just do what they did and follow that same recipe today?

The concept of innovation has basically two elements. The first one is technology creation; that we have scientists and inventors that generate new and bold inventions that are going to help to solve problems in better ways. That’s the first component. And I would argue at least that I’m not capable of making a judgment whether the technology creation we’re seeing today is better, worse, or similar to what we’ve seen in previous parts of history. But the other component of innovation, following the concept of innovation from economists Joseph Schumpeter and many others, is about the economy, and it’s about the capacity of the economy to basically take the technologies that are being created and run with them and make them basically ripple through the economy in a way which forces everyone — labor, capital, investors, governments — to perform better. And it’s in that second part where I think we’ve seen, in many parts of our modern economic history, we’ve been much better and where our economy has been much better equipped in order to run with these technologies and actually make something out of them.

So the problem here isn’t that we need to reinvent our economy, or start to come up with different economic systems. My argument is basically that we’ve had a system called capitalism which has been extraordinarily good at generating this type of economic change that I’d like to see more of. The problem that we’ve seen gradually growing over the past 50 years is that core concepts of capitalism have been eroded. And we have less of them in our economy today than we’ve had in the past. And that is the main reason why the economy isn’t generating that much innovative change or productivity growth as it did in the past.

You’re dividing things up. Maybe you have invention, the ability to come up with new ideas, new technologies, new ways of doing things. And then there’s the diffusion of those ideas throughout the economy, so they’re broadly helpful and broadly productive for people. So are you saying there’s a time when we did that better? These technologies or inventions or innovations, as you said, we were able to run with them better? When was that time? And if there wasn’t a time then maybe that’s just the way things are. When did we do it better? The 50s, 60s, 20s?

I think we can point to specific periods in economic history going back to the early 1800s, and point to decades or perhaps longer periods where we’ve seen faster change in our economy and our society. I think the period — it depends whether you look to America or Europe — before the early 1900s was a period of immense change in the European economy. We had the period just after the Second World War, a period when America as well as Europe saw enormous innovative change in the economy. Partly because the economy got better at exactly the thing you pointed to — diffusing all the new technologies that already existed and making organizations use them. I can think about my pretty short life, I’m just 43 years old, but I can point to periods when I think I’ve been living in far more exciting times than I do today. I’d say 1990s and 1980s was such a period, where the propensity of people to actually change and do something different than what they were doing was much greater than it is today....

...MUCH MORE 

Citi (and Izabella Kaminska) On Disruptive Innovation

I think you can safely say Izzy does not drink the 'tech' marketeers Kool-Aid.
On the other hand, show her something genuinely useful and she might write about that.
From FT Alphaville:

Citi’s back with the upcoming third edition of its Disruptive Innovations report, with ten new big opportunities to stop and think about.
These include:

• Autonomous driving
• Drones
• Machine learning/artificial intelligence
• Biosimilars
• Floating LNG
• Public API
• Sharing economy
• Virtual reality
• Marketplace banking
• Robo-advisors

But first, the report strives to reconcile the conflicting things we’re hearing about the rate of innovation. On the one hand the work of Robert Gordon (supported by productivity data) implies the low hanging fruits of innovation have all been picked. On the other hand, we all intuitively feel that the pace of technological change has been speeding up, with charts like this reflecting the quickening pace of new technological adoption:

Albeit “new technology” increasingly seems to consist of software upgrades and new ways of organising data and information, or alternatively anything that encourages hyper-connectivity and herding/predictable behaviour.

Regarding this growing connectivity amoeba effect, Citi says:

Increasing connectivity opens up new markets, aids collaboration and unlocks brainpower to help solve the world’s problems — all driving the pace of innovation. The next stage for connectivity is a move from connecting people to connecting things through machine-to-machine communication, i.e. the ‘Internet of Things’. In 2013, Cisco estimated that 99.4% of physical objects were unconnected, equating to 10 billion connected devices. They forecast the number of connected devices will increase to 50 billion by 2020 and 500 billion by 2030 meaning machine-to-machine communication will surpass human communication.

Then there’s the fact that the costs of innovation are falling. No note, however, on whether we’re moving to an innovation cycle where just having an original “creative thought” which is distinct from the wider amoeba qualifies for a mass capital market award.
Here’s Citi:

The rise of the Internet has allowed new open source models to develop, offering universal access via the free license of a product’s design and its subsequent enhancements. These models allow thousands of developers to take part in opensource projects driving better, cheaper, easier and faster products when compared to proprietary alternatives. Without open source many cloud computing, big data and mobile applications would not exist. Google’s Android platform, Tesla (electric vehicles and energy storage), Toyota (hydrogen cars), Khan Academy (already the world’s largest education organization) and some 3D printing blueprints are all examples of open source ecosystems that help foster further innovation. So too does the App Economy, where the cost of innovation appears low (a recent survey by OMS’s Carl Frey estimated the average cost to develop an app was just $6,453) and the gains for some can be substantial (both Apple and Google share 70% of the gross bookings with app developers).

So why the disconnect between our perception of innovation and actual productivity figures? Citi points to the ‘in vogue’ argument among Silicon Valley billionaires which is that the productivity gains are being incorrectly measured....

...MUCH MORE

The Rise of the Platform Economy

From Irving Wladawsky-Berger:

What do we mean by a platform?  I particularly like this definition by MIT Professor Michael Cusumano: “A platform or complement strategy differs from a product strategy in that it requires an external ecosystem to generate complementary product or service innovations and build positive feedback between the complements and the platform.  The effect is much greater potential for innovation and growth than a single product-oriented firm can generate alone.”

The importance of platforms is closely linked to the concept of network effects - the more products or services it offers, the more users it will attract.  Scale increases the platform’s value, helping it attract more complementary offerings which in turn brings in more users, which then makes the platform even more valuable… and on and on and on.

Platforms have long played a key role in the IT industry.  IBM’s System 360 family of mainframes, announced in 1964, featured a common hardware architecture and operating system, enabling customers to upgrade their systems with no need to rewrite their applications.  The ecosystem of add-on hardware, software and services that developed around System 360 helped it become the premier platform for commercial computing over the next 25 years.

In the 1980s, the explosive growth of personal computers was largely driven by the emergence of the Wintel platform based on Microsoft’s operating systems and Intel’s microprocessors, which attracted a large ecosystem of hardware and software developers. 

The 1990s saw the commercial success of the Internet and World Wide Web, driving platforms to a whole new level.  Internet-based platforms connected large numbers of PC users to a wide variety of web sites and online applications.  The power of platforms has grown even more dramatically over the past decade, with billions of users now connecting via smart mobile devices to all kinds of cloud-based applications and services.

What’s the current state and growth potential of platform companies?  How many large platforms are currently operating around the world?  What’s their impact on established enterprises?  These are among the questions addressed in in a recent report, The Rise of the Platform Enterprise: A Global Survey led by Peter Evans and Annabelle Gawer and sponsored by the Center for Global Enterprise.  The report is based on a comprehensive survey of the 176 platform companies around the world with an individual valuation exceeding $1 billion.  Their aggregate market value was over $4.3 trillion.

The study identified 4 major types of platforms.
 

Innovation platforms serve as the foundation on top of which developers offer complementary products and services.  Innovation platforms enable the platform leaders to attract a very large pool of external innovators, in what is called an innovation ecosystem.  S/360 and Wintel platforms developed such innovation ecosystems around mainframes and PCs respectively.  More recently, Apple’s iOS and Google’s Android have established very large innovation ecosystems of app developers for their various mobile devices.

Transaction platforms help individuals and institutions find each other, facilitating their various interactions and commercial transactions.  In the 1990s, the Internet led to the creation of e-commerce platforms, - e.g., Amazon, eBay, Ticketmaster, LL Bean, Lands End.  The last few years have seen the emergence of so-called on-demand platforms, - e.g., Uber, Lyft, Airbnb, Zipcar, Etsy, - which enable the exchange of goods and services between individuals.  These platforms are giving rise to a new class of on-demand companies, which are exerting considerable pressure on more traditional companies.

A few large companies offer the capabilities of both transaction and innovation platforms in their integration platforms.  Apple and Google, for example, have established innovation platforms for their developer ecosystems, whose apps are then made available in their respective transactional platforms, - the App Store and Google Play.   Similarly, Amazon and Alibaba serve as transactional platforms for their individual users, and as innovation platforms for the many vendors who also sell their wares on their e-commerce platforms.

Finally, some of the companies included in the survey are essentially investment platforms, who have invested in, and/or are managing a portfolio of platform companies.  The Priceline Group, for example, is focused on online travel and related services, including Priceline, Kayak and Open Table.....MORE

Fail Often, Fail Fast: "Are We Behind On Innovation That Matters?"

The first part of the headline was advice from a mentor. The second half is a question that reflective V.C.'s ask when they get honest with themselves.
From Infectious Greed:

In his latest essay, Michael Cembalest at J.P. Morgan closes with the following sobering stuff:

Lastly, I know I’m opening a can of worms here, but there’s a lot of uncertainty about what the world has in store 10-20 years from now. Many people have great hopes for renewable energy, carbon sequestration to render 100 years of U.S., Russian, Chinese and Indian coal reserves more usable, advancements in lithium ion battery technology, etc. Technological achievements of the last 50 years suggest they can be done given the right public-private sector partnerships. But on a timeline of progress, the world is behind on each one right now.

In the future, the world could be a more unstable place, given energy concerns, Iran-Iraq, the possible end of the dollar’s reign as the world’s sole reserve currency, and the seismic increase in public debt at a time of severe U.S. partisanship and polarization, the worst since post-Civil War Reconstruction.

Are we behind the curve on innovations that matter most? It feels like that in many ways, I think, to most of us, but is it true? Certainly there is lots going on in information technology – from mobile, to social networks, etc. – but how about in energy, where some of the deepest-rooted and toughest problems lie. It’s an interesting question.

Here's a piece that Jeff Nolan first put out on his blog, Venture Chronicles a couple years ago.
Although it has a narrower focus, software, than the subject that Cembalest and Kedrosky are addressing, the question is just as much a J'accuse as Kedrosky's headline.
From SandHill.com:

Incrementalism and "The New New Thing"
With all the venture capital moving around in the Silicon Valley, where is the real innovation?

...Today's venture capitalists are funneling a lot of money into businesses which are only incremental improvements over what the current market offers. The situation may leave the technology industry in another downward spiral if none of the "incremental" ventures hit it big and no other genuine innovation appears soon....

...What's frightening is the inability to answer the basic question "What's next?" The Valley thrives on "The New New Thing" (possibly one of the most poignantly titled books ever) and with every turn of a generation, there is an awkward moment where we're just figuring out where we've been but have yet to see where we are going… Right now is that moment....MORE

Last June BusinessWeek had a cover story with a couple articles on the subject:

The Failed Promise of Innovation in the U.S.
During the past decade, innovation has stumbled. And that may help explain America's economic woes

"We live in an era of rapid innovation." I'm sure you've heard that phrase, or some variant, over and over again. The evidence appears to be all around us: Google (GOOG), Facebook, Twitter, smartphones, flat-screen televisions, the Internet itself.

But what if the conventional wisdom is wrong? What if outside of a few high-profile areas, the past decade has seen far too few commercial innovations that can transform lives and move the economy forward? What if, rather than being an era of rapid innovation, this has been an era of innovation interrupted? And if that's true, is there any reason to expect the next decade to be any better?

These are not comfortable questions in the U.S. Pride in America's innovative spirit is one of the few things that both Democrats and Republicans—from Bill Clinton to George W. Bush to Barack Obama—share.

But there's growing evidence that the innovation shortfall of the past decade is not only real but may also have contributed to today's financial crisis. Think back to 1998, the early days of the dot-com bubble. At the time, the news was filled with reports of startling breakthroughs in science and medicine, from new cancer treatments and gene therapies that promised to cure intractable diseases to high-speed satellite Internet, cars powered by fuel cells, micromachines on chips, and even cloning. These technologies seemed to be commercializing at "Internet speed," creating companies and drawing in enormous investments from profit-seeking venture capitalists—and ordinarily cautious corporate giants. Federal Reserve Chairman Alan Greenspan summed it up in a 2000 speech: "We appear to be in the midst of a period of rapid innovation that is bringing with it substantial and lasting benefits to our economy."

Where are the new products?

With the hindsight of a decade, one thing is abundantly clear: The commercial impact of most of those breakthroughs fell far short of expectations—not just in the U.S. but around the world. No gene therapy has yet been approved for sale in the U.S. Rural dwellers can get satellite Internet, but it's far slower, with longer lag times, than the ambitious satellite services that were being developed a decade ago. The economics of alternative energy haven't changed much. And while the biotech industry has continued to grow and produce important drugs—such as Avastin and Gleevec, which are used to fight cancer—the gains in health as a whole have been disappointing, given the enormous sums invested in research. As Gary P. Pisano, a Harvard Business School expert on the biotech business, observes: "It was a much harder road commercially than anyone believed.">>>MUCH MORE

Google: "Examining the impact of clean energy innovation" (GOOG)

Google is one of the largest energy users* in the world, so large that they are embarrassed to say how much electricity they consume.

The Goog will not build a data center in California because of the cost of electricity.
The company has made something on the order of $3/4 billion in clean/green/alt energy investments, some of it in decidedly staid technology. Here they appear to be forecasting breakthroughs.

Google is also one of the largest lobbyists on Capitol Hill.**
From Google's blog:

At Google, we’re committed to using technology to solve one of the greatest challenges we face as a country: building a clean energy future. That’s why we’ve worked hard to be carbon neutral as a company, launched our renewable energy cheaper than coal initiative and have invested in several clean energy companies and projects around the world.

But what if we knew the value of innovation in clean energy technologies? How much could new technologies contribute to our economic growth, enhance our energy security or reduce greenhouse gas (GHG) emissions? Robust data can help us understand these important questions, and the role innovation in clean energy could play in addressing our future economic, security and climate challenges.

Through Google.org, our energy team set out to answer some of these questions. Using McKinsey’s Low Carbon Economics Tool (LCET), we assessed the long-term economic impacts for the U.S. assuming breakthroughs were made in several different clean energy technologies, like wind, geothermal and electric vehicles. McKinsey’s LCET is a neutral, analytic set of interlinked models that estimates the potential economic and technology implications of various policy and technology assumptions.

The analysis is based on a model and includes assumptions and conclusions that Google.org developed, so it isn’t a prediction of the future. We’ve decided to make the analysis and associated data available everywhere because we believe it could provide a new perspective on the economic value of public and private investment in energy innovation. Here are just some of the most compelling findings:

• Energy innovation pays off big: We compared “business as usual” (BAU) to scenarios with breakthroughs in clean energy technologies. On top of those, we layered a series of possible clean energy policies (more details in the report). We found that by 2030, when compared to BAU, breakthroughs could help the U.S.:
• Grow GDP by over $155 billion/year ($244 billion in our Clean Policy scenario)
• Create over 1.1 million new full-time jobs/year (1.9 million with Clean Policy)
• Reduce household energy costs by over $942/year ($995 with Clean Policy)
• Reduce U.S. oil consumption by over 1.1 billion barrels/year
• Reduce U.S. total carbon emissions by 13% in 2030 (21% with Clean Policy)
• Speed matters and delay is costly: Our model found a mere five year delay (2010-2015) in accelerating technology innovation led to $2.3-3.2 trillion in unrealized GDP, an aggregate 1.2-1.4 million net unrealized jobs and 8-28 more gigatons of potential GHG emissions by 2050.
• Policy and innovation can enhance each other: Combining clean energy policies with technological breakthroughs increased the economic, security and pollution benefits for either innovation or policy alone. Take GHG emissions: the model showed that combining policy and innovation led to 59% GHG reductions by 2050 (vs. 2005 levels), while maintaining economic growth.

This analysis assumed that breakthroughs in clean energy happened and that policies were put in place, and then tried to understand the impact. The data here allows us to imagine a world in which the U.S. captures the potential benefits of some clean energy technologies: economic growth, job generation and a reduction in harmful emissions. We haven’t developed the roadmap, and getting there will take the right mix of policies, sustained investment in technological innovation by public and private institutions and mobilization of the private sector’s entrepreneurial energies. We hope this analysis encourages further discussion and debate on these important issues.

Here's the soundbite version.
Here's the report (28 page PDF)

Previously:
Google Taking a Step Into Power Metering (GOOG)
INDUSTRY: "Why Google and Cisco Will Soon Manage All Your Energy Use" (CSCO; GOOG)
Google Energy Guru Pushes Congress to Insulate America
"Exclusive: Google develops prototype mirror for solar energy" (GOOG) 
Financial aspect to Google's environmental goals grows (GOOG)
Google to Move Into Clean Energy Project Investing (GOOG)
More on "Google's Power Play" (GOOG)
"10 Questions for Google on Its Wind Projects" (GOOG)

A follow-up to yesterday's "Wind: "Google Makes First Direct Investment Into Clean Power Project" (GOOG)" upon which my first thought was

"Interesting, no? Nothing fancy. Old-fashioned technology+subsidies."

"Google Buys Wind Power, First Deal for “Google Energy”" (GOOG; ENE)
BrightSource Energy Finalizes $1.6 billion in loans guaranteed by the US Department of Energy; Google Buys $168 Millinon Equity Stake (GOOG) 
Transmission: Google Announces Plan for $5 Billion Backbone for Offshore Wind Farms (GOOG)
"Google Plans to Announce Smart LED Deal With Lighting Science Group" (GOOG)
Time to Go Long Gallium: Google Ventures Leads $20M Round In Transphorm (GOOG)
Interview: "Google’s Renewable Energy Push" (GOOG)
"...Google’s Trading Desk" (GOOG)
"Google Goes $280M Long On Solar Rooftops With SolarCity" (GOOG)

Google Ventures' next big bet: Weather insurance (GOOG)

*The Cold, Green Facts
See no Evil, Hear no Evil and Evil
Adios California: Adobe, EA Games and Ebay will do Their Expanding in Utah (ADBE; EBAY; ERTS)

**See also:
Google Spent $5.2 Million On Lobbying In 2010; Up 29 Percent From 2009
and from Greenwire, Mar. 9, 2011
Google Recruits Lobbying Muscle to Promote Green-Power Ventures

Google Inc. has launched a lobbying campaign seeking government help spurring a green-technology transformation.


"The way we use energy -- whether it's powering our cars or our homes and businesses -- hasn't changed in decades," Michael Terrell, Google's energy policy counsel, wrote yesterday on the company's blog. "Our economy needs a cleaner, more efficient way of delivering energy while giving people better tools and information to manage their energy use."

The Mountain View, Calif.-based company recruited Crowell Strategies LLC. The consulting firm's lobbyist, Colin Crowell, previously worked as a senior counsel at the Federal Communications Commission and before that as an aide to Rep. Ed Markey (D-Mass.).

It is the latest venture by Google in the political energy arena. The company already has hired lobbying firms to work on energy efficiency and renewable issues and research & development of smart-grid transmission.
"Electricity is a core issue for them," said Adele Morris, policy director for climate and energy economics at the Brookings Institution. In addition to using large amounts of power, she said, Google is "taking a growing position in electricity markets."

Google last year created the subsidiary Google Energy, which received Federal Energy Regulatory Commission approval to sell electricity on wholesale markets (E&ENews PM, Feb. 18, 2010)....MORE

"Superstars or Black Holes: Are Tech Clusters Causing Stagnation?"

Coincidentally this tweet was sent to me yesterday:

The share of all US tech-industry jobs that are located in California has now fallen to some of the lowest levels in a decade, dropping a full percentage point over the last year alone pic.twitter.com/zlMwj8MdBQ

— Joey Politano 🏳️‍🌈 (@JosephPolitano) April 7, 2024

From American Affairs Journal, Spring 2024 / Volume VIII, Number 1:

In 2011, the economist Tyler Cowen published The Great Stagnation, a short treatise with a provocative hypothesis. Cowen challenged his audience to look beyond the gleam of the internet and personal compu­ting, arguing that these innovations masked a more troubling reality. Cowen contended that, since the 1970s, there has been a marked stagna­tion in critical economic indicators: median family income, total factor productivity growth, and average annual GDP growth have all plateaued. Cowen articulated the disconnect between technological innova­tion and real economic advancement with compelling clarity:

Today [in 2011] . . . apart from the seemingly magical internet, life in broad material terms isn’t so different from what it was in 1953. We still drive cars, use refrigerators, and turn on the light switch, even if dimmers are more common these days. The wonders por­trayed in The Jetsons . . . have not come to pass. You don’t have a jet pack. You won’t live forever or visit a Mars colony. Life is better and we have more stuff, but the pace of change has slowed down compared to what people saw two or three generations ago.

Cowen went on to point out that while people have gotten used to incremental improvements in most technologies, technological leaps used to be far more significant:

You can argue the numbers, but again, just look around. I’m forty‑five years old, and the basic material accoutrements of my life (again, the internet aside) haven’t changed much since I was a kid. My grandmother, who was born at the beginning of the twentieth century, could not say the same.

In the years since the publication of the Great Stagnation hypothesis, others have stepped forward to offer support for this theory.¹ Robert Gordon’s 2017 The Rise and Fall of American Growth chronicles in engrossing detail the beginnings of the Second Industrial Revolution in the United States, starting around 1870, the acceleration of growth spanning the 1920–70 period, and then a general slowdown and stagnation since about 1970.² Gordon’s key finding is that, while the growth rate of average total factor productivity from 1920 to 1970 was 1.9 percent, it was just 0.6 percent from 1970 to 2014, where 1970 represents a secular trend break for reasons still not entirely understood. Cowen’s and Gordon’s insights have since been further corroborated by numerous research papers. Research productivity across a variety of measures (researchers per paper, R&D spending needed to maintain existing growth rates, etc.) has been on the decline across the developed world.³ Languishing productivity growth extends beyond research-intensive industries. In sectors such as construction, the value added per worker was 40 percent lower in 2020 than it was in 1970.⁴ The trend is mirrored in firm productivity growth, where a small number of superstar firms see exceptionally strong growth and the rest of the distribution increasingly lags behind.⁵

A 2020 article by Nicholas Bloom and three coauthors in the American Economic Review cut right to the chase by asking, “Are Ideas Getting Harder to Find?,” and answered its own question in the affirm­ative.⁶ Depending on the data source, the authors find that while the number of researchers has grown sharply, output per researcher has declined sharply, leading aggregate research productivity to decline by 5 percent per year.

This stagnation should elicit greater surprise and concern because it persists despite advanced economies adhering to the established eco­nomics prescription intended to boost growth and inno­vation rates: (1) promote mass higher education, (2) identify particularly bright young people via standardized testing and direct them to re­search‑intensive universities, and (3) pipe basic research grants through the university system to foster locally-driven research and development networks that supercharge productivity.⁷ Figures 1 and 2 illustrate, respectively, the massive post–World War II expansion of regional uni­versities aimed at democratizing higher education, and the growth in National Science Foundation (NSF) domestic extramural research grants from 1962 to 2019 in 2022 dollars. Concurrently, many elite institutions became more meritocratic, chiefly by incorporating standardized test scores into their admissions decisions. These pro-growth reforms were intended to help the Cold War–era United States develop scientific talent, but they were also essential preconditions for the formation of America’s vaunted tech clusters—Silicon Valley, Boston/Cambridge, Seattle, New York, Los Angeles, and increasingly Austin—which are all world-leading centers for science, entrepreneurship, and innovation. These clusters excel at attracting college-educated talent and securing billions in basic research grants from public and private foundations. These tech clusters are also disproportionately responsible for America’s technological innovation,⁸ which has been perhaps the most important contributor to growth since the start of the Industrial Revolution.⁹ And yet, in spite of all of those pro-innovation changes, the United States finds itself facing persistently slow growth.

Why hasn’t the extensive expansion of higher education, the invest­ment of billions in basic research, the dominance of American research universities, and the ultimate emergence of highly productive clusters done more to counter any headwinds to growth? Tyler Cowen himself argues that the growth slowdown was inevitable, a consequence of all of the “low-hanging” technological fruit being plucked during the late nineteenth and early twentieth centuries. What remains demands greater effort to discover, exploit, and commercialize. As Robert Gordon points out, revolutionary technologies like electrification, antibiotics, and the mechanized motor can only be invented and mass distributed once. Other explanations include the post-1970s rise in legal barriers to housing growth that impede the ability of people to move and spatially sort based on their abilities,¹⁰ or the effects of a slowly aging workforce, such as the decline in start-ups (which mostly occur among younger people) and GDP growth.¹¹

While the aforementioned explanations may have merit, it remains an open question why the standard economics growth prescription did not yield stronger productivity and income growth. One possibility is that, in the counterfactual, growth prospects in the United States and other advanced economies would have been even worse had it not been for these state investments in research and education. Perhaps the modest growth of the post-1970 period was the best possible outcome in a landscape where the easier technological innovations had already been exhausted. Another possibility is that these strategies, while potentially the most effective growth-enhancing policies to pursue, inadvertently triggered downstream consequences that contributed to the growth slowdown.¹²

Under this second possibility, the tech cluster phenomenon stands out because there is a fundamental discrepancy between how the clusters function in practice versus their theoretical contributions to greater growth rates. The emergence of tech clusters has been celebrated by many leading economists because of a range of findings that innovative people become more productive (by various metrics) when they work in the same location as other talented people in the same field.¹³ In this telling, the essence of innovation can be boiled down to three things: co-location, co-location, co-location. No other urban form seems to facili­tate innovation like a cluster of interconnected researchers and firms.

This line of reasoning yields a straightforward syllogism: technology clusters enhance individual innovation and productivity. The local na­ture of innovation notwithstanding, technologies developed within these clusters can be adopted and enjoyed globally.¹⁴ Thus, while not everyone can live in a tech cluster, individuals worldwide benefit from new advances and innovations generated there, and some of the outsized economic gains the clusters produce can then be redistributed to people outside of the clusters to smooth over any lingering inequalities. There­fore, any policy that weakens these tech clusters leads to a diminished rate of innovation and leaves humanity as a whole poorer.¹⁵

Yet the fact that the emergence of the tech clusters has also coincided with Cowen’s Great Stagnation raises certain questions. Are there shortcomings in the empirical evidence on the effects of the tech clusters? Does technology really diffuse across the rest of the economy as many economists assume? Do the tech clusters inherently prioritize welfare-enhancing technologies? Is there some role for federal or state action to improve the situation? Clusters are not unique to the postwar period: Detroit famously achieved a large agglomeration economy based on automobiles in the early twentieth century, and several authors have drawn parallels between the ascents of Detroit and Silicon Valley.¹⁶ What makes today’s tech clusters distinct from past ones? The fact that the tech clusters have not yielded the same society-enhancing benefits that they once promised should invite further scrutiny.....

....MUCH MORE