Tag Archives: R&D

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

A Business Week Special Report, “The Failed Promise of Innovation in the U.S.”, asks where the new products are:

http://www.businessweek.com/magazine/content/09_24/b4135000953288.htm?chan=magazine+channel_top+stories

Michael Mandel, Business Week’s chief economist looks at several parameters.  He identifies nine technologies, from tissue engineering to fuel cells that showed high promise in the late 1990s but have failed to deliver.  Between 1998 and 2007 US InfoTech stocks have declined by almost 30% and he discusses the relationship between these factors and the current economic downturn.

Although it poses more questions than it answers, the report is well worth reading.    We already know that investment in R&D has been declining, and that the USA is now ranked #6 (with China #1) on a range of innovation-based competitiveness metrics:
http://www.itif.org/index.php?id=226

And what about education?  Mandel does not address this variable, but many observers believe that the decline in math and science literacy is a critical factor in this equation.  California’s budget crisis has now resulted in the effective suspension of the CalGrant college aid program

Mandel signs off by observing that:

The professor, trader, and author Nassim Nicholas Taleb calls technological breakthroughs “positive Black Swans”—unexpected events with huge positive consequences that in retrospect look inevitable. Some, such as Google, come out of nowhere to dominate within a short time. Others take years to mature and are surprising only because people forgot they were there. We’ve learned over the past 10 years just how unpredictable technology can be. But right about now, the U.S. could use a few positive Black Swans.

Post written by Peter Bloch, consultant to CAS-IP