How Innovation Drives Growth
And why it’s been on the decline
“Our future depends on maintaining and increasing our rates of innovation.” ~ Ramez Naam, The Infinite Resource
Humanity’s progress has always been driven by scientific and technological innovation. We humans have the unique capability when confronted with a challenge to be absolutely driven to solve it. We innovate to create new solutions, and when those innovations come online they require us to change our behaviour — we may change how we act, we may change how we interact, and in some cases our moral and ethical frameworks may have to shift. And this new reality presents us with a new set of challenges and problems - which are also opportunities.
The Decline
The growth that innovation drives has remained true for centuries, and is one of the most consistent findings in macroeconomics. According to the US Chamber Foundation, economists in the U.S. have calculated that approximately 50% of annual GDP growth can be attributed to increases in innovation. There is also a clear statistical link between innovation and gains in the standard of living.
Traditionally, investments in innovation have come from government or corporate interests. Centralized research programs have led to revolutionary technology, but the investment pace has slowed dramatically over the past four decades.
Support from government for R&D spending is critical to innovation, as governments can sponsor basic research projects that can affect entire industries. The U.S. federal government played a critical role, for example, in financing the research underlying earlier innovations such as the internet, GPS, and magnetic resonance imaging (MRI). Much of this occurred through direct research at government agencies such as NASA and through funding provided to universities. By contrast, private sector firms prefer to focus their R&D on “applied” projects, where they can capture the entire payoff - they do not undertake broad R&D for the general benefit of humanity.
Yet, government investment in R&D as a percent of GDP has declined from a high of 2.2 percent in 1964 to 1 percent today.
The private sector has further shied away from funding basic research, which is critical to true breakthroughs — less than 5% of the R&D performed by companies is in basic research. The declines have been notable in industries such as healthcare, which are less able to protect their intellectual property rights in global markets.
Innovation Makes Technology Accessible
With the Law of Accelerating Returns comes exponentially improving cost-performance. Today we have the ability to access almost all of the world’s knowledge in our pocket, and the cost of computing power to consumers continues to plummet.
In 1982, if an individual wanted to purchase something with the computing power of an iPad2, they would have had to spend more than 360 years’ worth of wages.
“You live in a world where an entire operating system can fit on a wafer thin piece of plastic smaller than your finger tip. And you can run this on a $5 (or $10) computer that is small enough to give away on the cover of a magazine. You should be amazed, excited, and happy about this.” ~ Carter Nelson
Innovation outside Technology
Innovation is not limited to technological discoveries — innovations to process and organization increase efficiency and productivity. Over the past few decades, retailers have innovated to streamline their supply chain and require less work to achieve higher output. The benefits, to some capacity, flow to consumers through lower prices which disproportionately benefit low-income households who spend more of their income on basic necessities.
The Innovation Bottleneck
Despite all of this, traditional corporate structures have demonstrated a complete disregard towards discovery and innovation. One study, aptly named ‘Killing the Golden Goose’, found that the number of publicly traded companies publishing research in scientific journals has dropped nearly two-thirds from 1980, down to only 6%. The study states:
“Large firms appear to value the golden eggs of science (as reflected in patents) but not the golden goose itself (the scientific capabilities).”
While scientific advances and acknowledgement may earn a company prestige, it does not always result in profit, and the difficulty in exploiting technology dissuades traditional investors from opening their pockets.
Another study on the negative relationship between the rate of growth of the financial sector and the rate of growth in total factor productivity found that the finance sector attracts high-skilled workers from other industries. The finance sector then lends money to businesses, but favours those that have collateral they can pledge against the loan - usually property developers. Businessmen are attracted towards such projects rather than into riskier ones that require high R&D spending and have less collateral to pledge.
“…people who might have become scientists, who in another age dreamt of curing cancer or flying to Mars, today dream of becoming hedge fund managers.”
The result of all of the above is an innovation bottleneck, where technologies that can have incredible impact on humanity have been impeded or entirely ignored due to traditional motivations. There is no sufficient mechanism today to drive knowledge, expertise, and capital into innovative research and development projects.
This is the problem we are working to solve at rLoop. A decentralized innovation platform to allow anyone, anywhere, at any time, to support and have meaningful participation in projects that can have potentially global impact. We have a growing community with unique insights on rapid concept development, cross-disciplinary expertise, and a unique infrastructure that serves to maximize efficiency, mitigate risk, and accelerate innovation.
Email us if you would like to learn more: contact@rloop.org
