Has innovation really peaked?

US economist Robert Gordon gets a lot of publicity these days for his dismal view that ‘technological innovation is declining in pace and impact compared to those of the 20th century’ – all set out in his book ‘The Rise and Fall of American Growth’

His whole thesis is based on economic growth statistics, GDP and TFP in particular, which purport to show that American economic growth peaked in the middle of the last century and has since fallen to its current lacklustre levels – a phenomenon which seems to have affected all other developed nations too

He cites the great technical innovations – aka GPTs (General Purpose Technologies) – as being electricity, automobiles, radio, telephones, modern housing, urban infrastructures, medicines which made huge differences to human lives

Such innovations kept on meeting new, often ‘higher’ human needs and, at the same time, opening up whole new sectors and creating many more, often better paid, jobs – overall, they continually fuelled surges in economic growth

At first, important innovations tended to focus on minimising the negatives in our lives – the dull, dirty or dangerous aspects – but, more recently, they have moved towards increasing the positive aspects instead – the things we get satisfaction from and enjoy such as via modern information and communication technologies

Gordon’s logic seems to hinge on the fact that, as each new sector appeared, quantum leaps in productivity improvement were soon found, then more became increasingly difficult and costly to find and, eventually, only incremental improvements could be made – so, if most human needs and wants are now being met, the scope and incentive for new innovations and thus new sectors is limited – so economic growth and improvements in standards of living are also limited

We doubt this, even considering just our material world – there are a host of major issues out there crying out for innovative solutions – for example, global poverty, health, energy supply, famine and droughts

Professor Paul Krugman also has doubts: “We cannot extrapolate from the present to predict the future”

And other techno- optimists say we are on the brink of a massive transformation as the era of big data, sensors, analytics and artificial intelligence unfolds to improve search engine results, drive cars, cut energy usage and boost productivity in all sectors

The US Technology CEO Council agrees, believing latest technologies are a game-changer – they estimate the effects of the information revolution have transformed just 30% of the US private sector, and applying them to the rest will add £2.7 trn to the US economy alone

So maybe Gordon should look at the bigger picture, take Steve Jobs’ advice and ‘think differently’

In future, the world will comprise both a material and a mental economy – at present, his thinking seems stuck in the material world alone

At the start of this new millennium, the global economy is at a watershed – a whole new mental world is opening up where we not only live much longer but have more enjoyable work and play

It would be a very foolish person indeed who said we had little new and major to discover there

 

 

 

 

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