Innovation and the GDP Mirage

The American press has, understandably, been almost myopic in recent  months.  The focus – the US Economy.

Michael Mandel (Business Week Nov 9th) explains how GDP growth, which many see as a barometer of economic well-being, does not tell all.   This measure of economic activity does not record changes in R&D spending or product design.  While Bloomberg is forecasting an increase of almost 4% in US GDP for the third quarter, Mandel points to R&D cuts:  Lexmark, 16%, Adobe 19%, Caterpillar 25% and Alcoa a whopping 36%.  And it is investments in R&D today that will power the economy in years to come.  You can read his analysis at:
http://www.businessweek.com/magazine/content/09_45/b4154034724383.htm?chan=magazine+channel_top+stories

But the innovation model has changed. In WWII and the post-war years, government funded basic research, and the private sector did the applied research required to create products and processes.  The Bayh-Dole Act (1953) expanded the playing field:  universities were allowed to license technologies developed with government research dollars to the private sector, and this set off an innovation boom.

This period marked the ascendance of Xerox PARC and Bell Labs.  Bell  Labs inventions include fax, TV broadcast, the transistor, UNIX, cellphones. But now that private sector investment and government funding for basic research have both been declining, what research is being done today that is going to drive the economy in 5,10 or 15 years?

In “A Radical Rethink of R&D” (Business Week 9/7/09) Adrian Slywotzky, a management consultant, analyzes new innovation models which have been developed by IBM, Microsoft and others. New kinds of research partnerships have been forged, many of them in emerging economies like Brazil.  They are about exerting maximum leverage on available resources; about risk management; and about  incentives. You can read the story in full at: http://www.businessweek.com/magazine/content/09_36/b4145035674883.htm

At CAS-IP we are interested in innovation models because there may be lessons to be learned in the North which can benefit the South.  Our work with cacao producers in Ecuador and with WASA on food security is informed by what we have learned about marketing and about supply and distribution chains in North America and Europe.  And innovation is a critical element in implementing these kinds of projects.

Post written by Peter Bloch, consultant to CAS-IP

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