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The lead story in the January 12 issue of The Economist takes a look at what it calls innovation pessimism–the notion that we are in a long-term period of slow innovation and growth despite our rapidly advancing technologies and hyperconnected economies.

The article concludes that fears that innovation is slowing are likely to be exaggerated, but are important to examine in depth, and merit the consideration of government. It is also a very important topic for companies to consider in their long term plans. Their strategies would clearly be quite different in a world of slow economic growth than in a world where the innovation engine will once more energize growth in the not too distant future.

“With the pace of technological change making heads spin, we tend to think of our age as the most innovative ever,” says The Economist in the article’s overview. “We have smartphones and supercomputers, big data and nanotechnologies, gene therapy and stem-cell transplants. Governments, universities and firms together spend around $1.4 trillion a year on R&D, more than ever before.”


Northwestern University economist Robert Gordon is one of the leaders of the innovation pessimism camp. In a recent paper–which he describes as deliberately provocative–he questions the generally accepted assumption that economic growth is a continuous process that will persist forever. Perhaps the slow growth we are experiencing in the U.S. and other advanced economies is not cyclical, but rather evidence that long-term economic growth may be grinding to a halt. The rapid growth and rising per-capita incomes we experienced during the Industrial Revolution of the past two and a half centuries might have been a unique episode in human history.

There was no growth before 1750, and there might conceivably be little growth in the future. “Before 1800, it took centuries to double income per capita; between 1929 and 1957, U.S. incomes doubled in only 28 years; between 1957 and 1988, doubling took 31 years; the pessimistic view adopted here suggests that it may take almost a century for income per capita to double between 2007 and 2100.”

PayPal cofounder Peter Thiel is also in the pessimist camp. While the information age has made him rich, Thiel is disappointed that it has not created enough jobs or produced revolutionary improvements in overall productivity. The Internet is “a net plus–but not a big one,” he told the New Yorker in an interview published in November 2011. “We wanted flying cars–instead we got 140 characters,” is how he succinctly describes his belief that we are no longer solving big problems.

The Economist takes a close look at the evidence that the world might have entered an innovation plateau, including recent productivity statistics. Productivity is generally driven by innovative ways of leveraging workers and resources through technological, organizational and policy advances. According to economist Richard Steckel, from 1820 to 1998 the overall GDP per capita of the world increased by a factor of 8.6, with different regions experiencing widely different increases. GDP per capita went up by only a factor of 3.3 in Africa and India, and 5.5 in China. But in the more industrialized countries, whose economies strongly benefited from the technological advances of the Industrial Revolution, GDP per capita grew at a much faster rate. Western European countries realized more than a ten-fold increase, the U.S. a factor of 21.7, and Japan 30.5.

Emerging economies are still growing, primarily because they are catching up with the productivity innovations that the more advanced economies have long benefitted from. But, as Robert Gordon points out, after growing rapidly through the first part of the 20th century, U.S. productivity has dipped sharply since the 1970s, except for an Internet-driven productivity boost between 1996 and 2004.

“Mr Gordon sees it as possible that there were only a few truly fundamental innovations–the ability to use power on a large scale, to keep houses comfortable regardless of outside temperature, to get from any A to any B, to talk to anyone you need to–and that they have mostly been made. There will be more innovation–but it will not change the way the world works in the way electricity, internal-combustion engines, plumbing, petrochemicals and the telephone have.”

Further evidence that innovation is tailing off could be found by comparing the massive changes that took place in the early and mid-20th century to the changes that have taken place since then.




It’s very difficult to anticipate the consequences of advanced technologies and disruptive innovations. When first developed in the late 19th century, electricity was most used to replace kerosene lamps and candles with light bulbs. It took several decades for electric appliances, the assembly line and mass production to emerge and help create whole new industries and many new jobs. Similarly, the impact of the automobile has been felt way beyond its original transportation role, becoming a key driver of major parts of the economy including the rise of the suburbs.

Most everyone will agree that our economy, and just about all institutions of society are going through major structural changes, mostly driven by the digital technology revolution that’s all around us. And in particular, since the explosive growth of the Internet and World Wide Web in the mid-90s, we have been transitioning from the industrial economy of the past couple of centuries to a new kind of information-based economy.

If it has proved difficult to predict the long term impact of major industrial-based innovations, it’s even more difficult to do so with IT-based innovations because they are so relatively recent. While it might feel that the Web has been around for a very long time, it has only been widely used since the mid-1990s. And smartphones, tablets and other mobile technologies we can barely do without have only been with us between five and 10 years. It’s way too early to be pessimistic about the long-term impact of digital technologies on innovation and economic growth.

Moreover, as recent studies have pointed out, our current GDP-based measures of economic performance may be inadequate for a 21st-century post-industrial society. GDP is a fine measure of industrial production, but it does not adequately capture the growing share of information-based services and highly complex, knowledge-intensive offerings in advanced economies.

In addition, GDP fails to include measures of well-being or quality-of-life that people care strongly about, including health, education, safety, social connections and environmental conditions. And, it does not adequately factor in major sustainability efforts to help reflect the evolution of societies into the future. If GDP is the primary measure by which we judge economic progress, we may be missing major innovations.

I agree with The Economist’s overall conclusions that fears that innovation and new technologies have stopped driving growth are not well founded.  We don’t really know if our current period of slow growth will turn into a long term great stagnation, or if at some point in the not too distant future it will instead turn into a golden age of innovation with new industries and jobs we can barely begin to anticipate today. Let’s all hope for, and do everything possible to help bring about this more hopeful version of the future.
