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By Paolo von Schirach

February 6, 2013

WASHINGTON – Economist Tyler Cowen calls it “The Great Stagnation”. 2010 Nobel Prize winner for physics Andre Geim calls it the “tech crisis’ in a recent FT op-ed piece. (Be afraid, be very afraid of the world’s tech crisis, February 6, 2013). Others may call it more simply “lack of real innovation”.

Lack of innovation

Indeed, even if leave aside the devastating impact of the world’s 2008 financial crisis, it is clear that advanced economies do not grow any more. And this is in large part because the great engine of fantastic, disruptive innovation is not working as it used to.

There is only IT

Sure, we have IT and all the changes it brought about. In the early 1990s the Internet was in its infancy. And look at its global impact today. Incredible. And yet, even in IT we are not seeing disruptive technologies displacing yesterday’s marvels. The very fact that the hot players in today’s environment are social media companies tells me that we are not doing great things. Facebook may be able to transform the way many people interact, possibly fueling unknown human synergies that will prove to be extremely valuable. May be. But for the moment Facebook is mostly about sharing photos and unremarkable exchanges among “friends” who know one another only superficially.

Old technologies linger

The rest of the tech world is pretty much the same. Even if you take into account decades of technological refinements, the automobile is basically the same contraption we knew 50 years ago. The jet aircraft is the same. Try as we may, we cannot even succeed in making viable electric cars, and we are a long way away from affordable supersonic air travel. These would be real game changers.

No more Government funding

Why is it that nobody is coming up with major innovation? Who knows. A partial answer, as Andre Geim notes in his FT essay, is in the lack of public funding for basic research.

Companies invest in R&D. But they put money only in what they believe will be commercially viable products. In the past we had different players helping out. In the past Governments funded a lot of basic research that could not possibly lead to immediate commercial products.

Pentagon demand drove silicon growth

Take semiconductors, the basic building blocs of the entire IT industry and now ubiquitous components in most gadgets, big and small. Way back in the late 1950s Fairchild Semiconductor and Texas Instruments developed the early, primitive models of the silicon chip. But they could not sell this chip to private customers. It was imperfect, difficult to make, and very expensive.

But the Pentagon and NASA were not deterred. They wanted the best technology available, irrespective of price. They had a policy goal, (win the Cold War), not a commercial objective. They were willing to pay high prices in order to stay ahead of the Soviet Union. And so, to a large extent, US Government (policy driven) demand for state of the art technologies supported the early stages of silicon based product development.

Old model not working any more

Well, the same approach may be followed by Government at some levels even today. But certainly not on the same scale as before. Paying people to study and tinker with stuff without a clear connection between their efforts and product development may appear a frivolous waste of money in an era of high deficits and tight budgets.

And yet this type of Blue Sky, open ended research may very well be the key to new discoveries that will unleash a new phase of innovation capable of vastly improving economic conditions.


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