Innovation

A special report from the Economist on innovation.

Economist: JOHN KAO is an innovation guru described as “Mr Creativity” by this newspaper a decade ago. Now he is concerned about America losing its global lead and becoming “the fat, complacent Detroit of nations”. In his new book, “Innovation Nation”, he points to warning signs, such as America's underinvestment in physical infrastructure, its slow start on broadband, its pitiful public schools and its frostiness toward immigrants since September 11th 2001—even though immigrants provided much of America's creativity. The rise of Asia's innovators is a “silent Sputnik”, he argues, invoking a cold war analogy. What America needs, he reckons, is a big push by federal government to promote innovation, akin to the Apollo space project that put a man on the moon.

Curtis Carlson puts it in starker terms: “India and China are a tsunami about to overwhelm us.” As head of California's Stanford Research Institute, Mr Carlson knows the strengths of Silicon Valley from first-hand experience. And yet here he is insisting that America's information technology, services and medical-devices industries are about to be lost. “I predict that millions of jobs will be destroyed in our country, like in the 1980s when American firms refused to adopt total-quality management techniques while the Japanese surged ahead.” The only way out, he insists, is “to learn the tools of innovation” and forge entirely new, knowledge-based industries in energy technology, biotechnology and other science-based sectors.

It is natural to be sceptical of such dour arguments and calls for government action. After all, the United States still leads in innovation. Whether it is by traditional measures, like spending on research and the number of patents registered, or less tangible but more important ones, like the number of entrepreneurial start-ups, levels of venture-capital funding or the payback from new inventions, America is invariably at the top of the league. Indeed, the Council on Competitiveness recently concluded in a report that, by and large, the outlook is bright for America.

...Sergey Brin, who co-founded Google with Mr Page, insists that “Silicon Valley doesn't have better ideas and isn't smarter than the rest of the world” but it has the edge in filtering ideas and executing them. That magic still happens and attracts people from around the world who are “bold, ambitious, determined to scale up and able to raise money here actually to do it.” Mr Brin points to Elon Musk as an example.

Mr Musk moved from South Africa to eventually settle in California to make his fortune. His equation for success is: “talent times drive times opportunity”. Unlike many countries, America is never satisfied with the status quo. “There is a culture here that celebrates the achievements of individuals—and it is too often forgotten in history that it is individuals, not governments or economic systems, that are responsible for extraordinary breakthroughs,” he says.

...But surely innovation and entrepreneurship are not the same thing? Following the most useful definition—that innovation brings fresh thinking to the marketplace that creates value for a company, its customers and for society at large—someone who opens yet another corner café may be a successful entrepreneur but not much of an innovator.

The ones worth paying attention to are a special type of entrepreneur who embraces new ideas. These are the people who are able to carry out the “creative destruction” that Schumpeter marvelled at. In Europe they are thin on the ground: too many Europeans opt for comfortable jobs working for Siemens or Electricité de France than the risk and bother of starting speculative new companies.

This is worrying for Europe. National champions and incumbents are not disruptive innovators: upstarts are. From 1980 to 2001, all of the net growth in American employment came from firms younger than five years old. Established firms lost many jobs over that period and dozens fell off the Fortune 500 list.

Big corporations have been dying off and disappearing from stockmarket indices. Most of the dynamism of the world economy comes from innovative entrepreneurs and a handful of multinationals (like GE, IBM, 3M, P&G and Boeing, all of whom have stayed on the Fortune 500 list for over 50 years or so) and which constantly reinvent themselves.

Carl Schramm, president of the Kaufman Foundation, which studies entrepreneurship and innovation, says that “for the United States to survive and continue its economic and political leadership in the world, we must see entrepreneurship as our central comparative advantage. Nothing else can give us the necessary leverage to remain an economic superpower.”