Yesterday, I attended a discussion held at the Hudson Institute on the topic of innovation. I go to these sorts of things because every once in a while one hears a stimulating idea. Most of the time, one doesn’t, but for me the occasional gain makes up for the frequent loss.
This was for me one of the winners. I will assume a Chatham House Rule, and not associate ideas with names. Some ideas that came up.
1. The presumption is that more innovation undertaken in the U.S. would be better for us. The main fear is that innovation is being held back by cultural and regulatory factors. Assuming that you want the innovation to occur in this country, then encouraging highly-skilled, entrepreneurial immigrants would seem to be the most reliable, least politically fraught way to make that happen.
2. In the area of science, government funding is a two-edged sword. Perhaps we have gotten to the point where the academic community in this country now selects for grant-writers rather than for people who can think outside the box. The most extreme claim was that the last 30 years have produced a “massacre” of genuine innovative scientists at our universities.
I did not bring this up, but I would be happy to offer macroeconomics as an example to illustrate that the use of the term “massacre” may not be too strong.
It had not occurred to me that part of my inability to fit in with academia might be that I might be too willing to challenge the status quo. But it sure would be an affirming notion to believe. Indeed, given my memoirs, I am prepared to consider that perhaps my willingness to challenge the status quo was better received at Freddie Mac in 1988-1994 than it was in academia. Not that Freddie was exactly all gung-ho for innovation (nor should it have been), but compared with the DSGE cartel…and then, just when I was getting worn out from trying to be an “intrapreneur” at Freddie Mac, along came the Web, with the opportunities it opened up for challenging the status quo. hmmm….
3. Maybe where we need innovation is in the area of sovereignty and governance. No, I was not the one who brought this up–someone else did. From that person, I got a tip about some literature that was new to me. I’ll let you know if it proves interesting.
4. Is innovation the product of just a small proportion of the population, or does the entire cultural milieu matter? What if these days, in order to be a significant innovator, you need to be in the 99.5th percentile in terms of cognitive ability?
5. One participant claimed that the existing telecom regulatory structure (the FCC, primarily) has slowed digital communications progress by ten years. Although I often think that markets find a way around regulation, I am afraid that I found this estimate plausible. The FCC is one of the more evil agencies around, and I am afraid that libertarians are less aware of the FCC’s evil than they are of that of the FDA, for example.
6. Since 2008, the number of startups has slowed from 600,000 per year to just over 400,000 per year. This leads me to wonder–has the success rate of startups gone up? If so, then the decline it startups may suggest an unfortunate increase in risk aversion. If not, then it could be a rational responses to an adverse environment.
7. Is there a causal relationship between cultural attitudes toward innovation and entrepreneurs, and which way does it run? It was suggested that support for innovation would go up if somebody discovered, say, a cure for cancer or Alzheimers’.
8. Is innovation dominated by a few really important creations, or by the cumulative effects of lots of incremental improvements? Your answer to that probably is correlated with our answer to (4).
9. One scenario for the future is that perhaps 30 percent of the population is intelligent and adaptive enough to contribute in the work place. The rest enjoy the “narcotics” of digital entertainment, recreational drugs, and so forth, while being supported by, well, I wasn’t the one who made this point, but if I had I would have used the term Vickys.
10. How much has IT contributed to productivity growth? There were optimists as well as pessimists. You know where I stand, given my article on Diane Coyle’s book on GDP.
11. Is there too much separation between value creation and value capture? It was suggested that finance captures too much value, and one effect of that is to draw people with STEM aptitude and skills away from science and engineering. I admit to being sympathetic to that view, although I think you want to try to fight the bias that sees finance as entirely parasitical. It really is important that capital flow to its most efficient uses, and if that means that we need smart people involved in financial markets, then so be it.
I think where finance goes wrong is in allowing people to capture value from inflated prices. So my Internet company gets sold in 1999 for more than what it was really worth (good for me, great for our main backers, not good for whoever ended up owning shares in the company that bought us). Or WhatsApp gets $19 billion today. But if the problem with Wall Street is a lack of wisdom, do you want to subtract talent from Wall Street? If so, which talent?
Another suggestion is that the “winners-take-most” nature of certain markets means that excess value gets captured. Think of Bill Gates in the heyday of Windows, or Google today. Maybe, although I would argue (and did) that, throwing consumers’s surplus into the mix, it’s not clear that the value captured by corporate winners is so excessive.