Innovation not always associated with growth of economies, bettering lives
POLICY makers throughout the world now espouse the need for “innovation”. It is a manifestation of “techno-nationalism”, a term coined by technology historian David Edgerton in his book The Shock Of The Old.
Innovation is seen as a way of boosting flagging growth, delivering improved living standards and allowing high levels of debt to be dealt with painlessly. Innovation is also viewed as a way to deal with environmental change without serious impact on economic activity and wealth.
Innovation is not necessarily associated with strong economic growth and innovative economies are not always the most successful.
First, the idea of innovation as expressed by policy makers is vague. It ranges from fuzzy ideas of progress to more narrow industry policy. The objective is to increase growth and create employment, especially well-paid work. However, the connection between new inventions or innovation and the identified objectives is tenuous, at best.
Second, there are few specific policy proposals, other than advertising campaigns, subsidised financing or investment programmes, tax incentives and provision of infrastructure.
Ironically, some measures reverse earlier funding cuts. They seek to re-establish research facilities that were scaled back previously.
Third, the prospects of success are uncertain. Genius and innovation cannot be engineered on demand. The rate of technological change of the 19th century, when the method of invention was invented, may be difficult to rediscover.
Fourth, even if successful, smaller countries may be unable to capture the benefits. Business will naturally migrate to locations which are attractive in terms of finance availability, cost, ability to attract a suitable workforce, proximity to major customers and also tax structures. Public investment and support may create success which does not provide returns to the sponsoring nation.
Fifth, technology affects inequality. New technologies may by-pass traditional structures and institutions, empowering the disadvantaged. However, they also divide the digital haves from the have-nots. Lower income families frequently lack access to technology, essential to participation in the knowledge economy.
The new technological revolution encourages subtle exploitation. The attraction of unicorn riches has attracted a new generation, who serve as cheap labour accepting shares in lieu of salary in the hope of a large pay-day when the firm goes public. Stories abound of coders living eight to a single bedroom or in a shipping container to work in their dream job. In effect, it does not create the well-paid jobs that would sustain expanded economic activity.
The process of “near shoring” or “radical inshoring” affects both economies. In advanced economies, it may reduce employment opportunities and wages. In developing economies, it restricts a familiar development trajectory in a process termed “premature deindustrialisation” by Harvard Professor Dani Rodrik. In the US, manufacturing employment peaked at around 25 percent of the work force and 40percent in Germany. In developing countries, the peak appears to be much lower around 15 to 20 percent.
Sixth, many technologies require scale and the ability to operate globally. But fear of a new digital colonialism is leading to barriers to entry into many markets.
The tension was highlighted by comments by entrepreneur Marc Andreessen defending Facebook’s Free Basics, a program providing free mobile internet in poorer nations banned by Indian regulators. Andreessen used Twitter to criticise India’s ideological reasons for denying online access. He argued the move was an economically suicidal decision based on India’s imperial history of fighting foreign economic intervention to the detriment of its own development and interests of its people. Facebook founder Mark Zuckerberg quickly disassociated himself from the remarks. Andreessen belatedly deleted the tweet and issued contrite retractions.
The exchange highlighted deeper and legitimate concerns, focused around global domination of the internet and technology by a few firms, unfair competition damaging indigenous competitors and control of crucial intellectual property and information.
Seventh, while some new innovations may prove significant, their overall impact will be limited. While a few creators capture large benefits, innovation now has a limited effect on economic growth.
In the US, technology remains small (less than 10 percent) in terms on its share of gross value added of total output of US private enterprises and share of total private employment. IBM and Dell employ over 400 000 and 100 000 people respectively compared to around 10 000 for Facebook and around 50 000 for Google. Only around 0.5percent of US labour force is employed in industries that did not exist in 2000. Even in Silicon Valley, only 1.8 percent of workers are employed in new industries.
Das is a former banker. His latest book is A Banquet of Consequences (published in North America as The Age of Stagnation to avoid confusion with a cookbook)