Saturday, June 14, 2014

The Decline of Business Innovation

Nobel laureate Edmund Phelps, the director of the Center on Capitalism and Society at Columbia University, who in the past has shown some slight appreciation of Austrian school thinking, recently discussed the decline of innovation in the world with FT's Martin Wolf:
Phelps believes this decline in innovation is a tragedy “compared to the great times that most people had in the 19th century"... 
“I suggest there was a new feeling of self-respect, mastery, engagement and creativity in the 19th century. Emma Griffin, author of Liberty’s Dawn [a 2013 history of the English industrial revolution that uses the first-hand testimony of hundreds of workers], finds evidence of people beginning to take control of their lives. She started with the 18th and early 19th centuries. Now she’s getting to the mid-19th century and has sent me an email about a teenager who went to work in the mines. Did he feel imprisoned? Far from it. He writes that he felt liberated and suddenly he had problems to solve and much to learn about how to operate in the mine, how to do it safely, and so forth. It changed his whole life.” 
I note that this is hardly what Karl Marx saw. “He didn’t want to see it,” is Phelps’s response. I agree that the 19th century was economically creative. But how far did that lead to “mass flourishing”? Is this view not unduly romantic? As the waiter brings the second courses, Phelps says I’m the first person to suggest he is a “romantic”.

He continues to talk about 19th-century flourishing, in, for example, “owner-operated firms, blacksmith shops, which are constantly tinkering because it’s fun, but also because they hope they can get a better profit if they find a better way of producing. The rise of factories and cities was also a tremendous boon to job satisfaction and intellectual development. Moreover, real wages took off more or less pari passu with productivity.”...

“I accept that what I’ll call ‘big innovation’ is now more technical. It’s less ‘grass-rootsy’. But there’s a huge amount of innovation that has nothing to do with science or engineering.

“What about the creative industries? In the arts, movies, publishing, fiction, we’ve had huge innovations in what we buy and what we consume that has no salient connection with science. Suppose science had never advanced at all since 1820. Would that mean that we couldn’t create anything new? We couldn’t create a new genre of movies, or a new genre of books, or a new kind of clothes?”...

“I’m saying that the innovative life which opened up in the 19th century made possible a satisfaction that had never existed before. With no advance in fundamental science, innovation would have yielded less growth than otherwise but there would not necessarily have been a reduction in innovative activity. Moreover, the rewards of the innovative life to the individual would have been undiminished.
“My argument is that now there is a decreased desire and capacity to innovate and this permeates the creative industries, as well. Who would disagree that the golden age of film was in the Berlin studios and later in Hollywood in the 1920s and 1930s?
“I think this whole science thing is just a red herring and it gets us away from the point that, however crucial science is to some industries, you’ve got to have a willingness and room to innovate.”...

[H]e adds, “in the US every piece of legislation is now a thousand pages long, with all sorts of carve-outs and special tax breaks and special treatments . . . and the possibility of obtaining these special breaks, of course, excites lobbying, which then encourages more of it.
“This distracts chief executives from innovation, because there’s an easier way to improve the bottom line. Not only that, but vested interests have made it harder for newcomers to break in. And so established corporations don’t have to innovate any more.”
Read the full interview here.

1 comment:

  1. I love that somebody has noticed the decline in innovation. What's amazing about Phelps is his ability to rationalize his belief in coercing people for their own good in the face of overwhelming historical evidence to the contrary! He actually agreed that government should subsidize innovation a few paragraphs after he criticized the bureaucracy this requires. A bureaucracy that has implemented asset redistribution crushing innovation! The author of the article then called Phelps a true American. The level of schizophrenia reveals again that mental handicapped humans are widespread.