
Why Isn't America Innovating Like It Used To? - olalonde
http://www.technologyreview.com/blog/mimssbits/27063/?p1=blogs
======
rmrm
It seems to me like we have an issue around creating jobs that bring wealth
into a community. I don't know economics so I don't know the correct phrases
and probably am butchering the ideas. But..

If you draw a circle around an area, money flows into that area from outside
in one form or another. My current living area has 4 main sources of money
from outside.

1.) Agriculture. Specialized monoculture that is high value (wine) that is
suited for this area. Gets exported all over the world.

2.) Technology. Networking equipment, gets exported all around the world. High
margin, high paying specialized jobs. We have a comparative advantage that
stems from things that happened decades ago, whereby we have a large
concentration of people with experience in this domain. A talented labor pool.

3.) Bedroom community. We are located 45 minutes from a major international
hub (SF). We experience a natural amount of runoff from this wealth, in that
people that work there live here and bring their money back here to spend.

4.) Tourism. Being located where we are and having natural beauty we
experience a high amount of traffic and dollars get spent from outside.

Pretty much all other jobs in this community exist as service to these primary
drivers for the community. The money comes from the above, and it gets cycled
through the community because those primary jobs have money to spend on
restaurants, oil changes, cars, coffee, clothes, real estate, etc etc.
Everyone that works in those other jobs (the majority of people) are reliant
on the 4 basic primary economic movers above.

It seems to me that all communities must work this same way. Primary drivers
bring money in from outside. Of the list above, at least 2 of them, maybe 3,
have little or nothing to do with anything particularly industrious or
inventive, they are happenstance. Some peculiarity that isn't necessarily
shared widely that happens to be profitable and high margin for the community.

When most people think about starting a small business, the think about
starting something relating to a service business. These are in essence the
easiest to grok and that easiest to understand. People around you have lawns,
start a lawn care business. People need to eat, start a restaurant.

Driving through a depressed area, an area that does not seem to have any
particular advantages -- and thinking about the business owners struggling
there to run these service type businesses, particularly after a factory or
mill has closed, which was the prime economic driver for the economy (someone
who exported goods and imported money), I am struck by the difficulty in
creating new prime drivers.

If I am born and raised in Kansas somewhere, how do I get plugged into the
very complicated, fast moving, heavily optimized world economy in order to
bootstrap a primary industry. How do I understand and know what is needed, and
how to compete successfully? The barriers to understanding how to begin are
large.

I think the issue of low hanging fruit is valid, whereas I could 100 years ago
create a prime mover perhaps by understanding that which exists around me, for
most places nowadays it seems that understanding that which exists around you
is not near enough to create any sort of primary driver, something that brings
in wealth to the community. Because what exists around you is not very
relevant. The barriers to entry are lower in some sense, but the complexity
and specialization required are both increased, as are the number and ability
of competitors. That acts as a very real barrier to entry.

~~~
macrael
What was that economic theory that most of the colonial empires were run on,
where the prime directive was that more gold needed to be flowing into the
country than flowing out? It was later abandoned, but I don't recall exactly
why. That might be an interesting parallel to your observations.

~~~
dctoedt
> _What was that economic theory that most of the colonial empires were run
> on, where the prime directive was that more gold needed to be flowing into
> the country than flowing out?_

You may be thinking of mercantilism: _"Mercantilism is the economic doctrine
that says government control of foreign trade is of paramount importance for
ensuring the prosperity and security of a state._ In particular, it demands a
positive balance of trade. _...It also was a motive for colonial expansion."_
[1]

[1] <http://en.wikipedia.org/wiki/Mercantilism> (emphasis added).

------
pessimist
According to Tyler Cowen -
[http://marginalrevolution.com/marginalrevolution/2011/01/the...](http://marginalrevolution.com/marginalrevolution/2011/01/the-
great-stagnation.html) \- the earlier massive productivity increases were
chiefly due to plucking of low hanging fruit:

1\. Big scientific discoveries on 19th century took a few decades to lead to
huge technology improvements. Now the easy improvements are gone.

2\. There were lots of smart, healthy but poorly educated kids. Now everyone
completes high-school. No easy gains left.

3\. Land was very cheap, not so any longer.

But the question begs - why hasnt computer/IT revolutionized productivity as
much? Perhaps the real big changes - machine learning/robotics are still
around the corner.

~~~
Astrohacker
FWIW, I totally disagree. There is still low-hanging fruit, and there always
will be, because the new technology brings fruit that was high down so it's
low. The problem is actually the law, because it is so difficult to start a
company without doing something illegal. This is the #1 factor stopping
innovation.

~~~
astrec
Or, to continue the Cubanist line of reckoning, because it is so difficult to
start a company without reading on someone's patent.

------
kens
The question of why US productivity seems to have stagnated since the 1970s,
the same period in which information technology has exploded and was supposed
to revolutionize everything is known as the "Productivity Paradox". The key
article in this area is <http://ccs.mit.edu/papers/CCSWP130/ccswp130.html> .
You can also look at the Wikipedia article, but be warned that it's kind of a
mishmash: <http://en.wikipedia.org/wiki/Productivity_paradox>

The Productivity Paradox is a highly controversial subject with no solid
answers. Four main explanations are:

1) Mismeasurement of outputs and inputs. That is, productivity measurements
are not showing the "real" state of productivity. In particular, quality
improvements don't show up in the statistics.

2) Lags due to learning and adjustment. That is, just like it took industry a
long time to make full use of electricity, productivity improvements from
computer technology will take time.

3) Redistribution and dissipation of profits. E.g. Amazon makes a lot more
money, local bookstores lose money, and the economy as a whole breaks even.

4) Mismanagement of information and technology. That is, the investment in
computers is just a waste of money.

The first two explanations are the "optimistic" ones in the sense that
technology does in fact benefit the economy, while the last two are the
"pessimistic" explanations, that technology isn't helping.

------
jerf
"Clearly, something powerful was going on in the post-war years that began to
peter out by the 1970's."

It's called "picking the low hanging fruit". To my mind, the interesting
question is less "Why aren't we advancing at the same pace we could when we
were picking the low-hanging fruit?" but "How on Earth have we managed to
maintain such a pace for so long?"

I doubt that yanking out computer technology from the past 30 years would have
some sort of massive positive impact. Maybe a computer in an office
environment is less useful than commonly supposed, but I don't think anything
like modern logistic efficiency could be obtained by the literal movement of
pen on paper.

------
atacrawl
My short answer to this riddle is a combination of factors -- incompetent
bureaucracies in the public and private sector that discourage unique (or
sometimes brilliantly common sense) solutions to problems, an educational
system that's increasingly based around useless metrics at the expense of true
cognitive growth, and an overall crisis of integrity brought on by decades of
crass commercialism and the erosion of basic respect for oneself and other
people.

~~~
Astrohacker
I agree with your "incompetent bureaucracy" analysis, except I would point out
that the government is the biggest and most burdensome of all. It would be
interesting to chart the number of regulations companies have to follow or
risk being dismantled as a function of time. My bet would be since 1900, the
number of regulations has increased constantly and dramatically. Every new
regulation is a new barrier companies have to cross before being able to
exist, and thus they greatly limit innovation.

Note that the government is largely responsible for our education catastrophe.
The government should be removed from education, like all other areas of human
life. Allow people to have choices in a free market, and the revolutionary
innovations would eventually rise to the surface. But for right now, the
revolutionary innovations are muffled before they even have a chance.

I'm not so sure I agree with your moral/ethical analysis. People, if anything,
are more moral today than 100 years ago. However I'm not really sure how to
measure this and I'm open to the possibility that morals actually have
declined.

~~~
muhfuhkuh
"Note that the government is largely responsible for our education
catastrophe. The government should be removed from education, like all other
areas of human life. Allow people to have choices in a free market, and the
revolutionary innovations would eventually rise to the surface."

Yet, the "superior" education systems outside the US are also public run and
managed (top 5 OECD being S. Korea, Finland, Canada, N. Zealand, and Japan).
So, it isn't as if the free market has spoken on behalf of the world against
the US public school system. It's a breakdown of priorities and politics in
the US, not the system itself.

When there are powers that vilify the teacher simply because s/he belongs to a
union, that is not a fundamental breakdown of the public school system.

When there are systems that act simply as babysitters and prisons to the
children of unwed urban teenage mothers, that is not a breakdown of the public
system.

When there are politicians who decry those with PhDs and ivy educations as
"elitists", media figures who scoff at scientific research by poking their
head out a window and declaring "it's cold outside, there's no global
warming", and a public who determines presidents based on beer-drinking
compatibility rather than intellectual capacity or academic achievement, that
is not a fundamental flaw of public education.

------
jkic47
I suspect part of the problem is Americans gravitate towards "cool", when the
innovation needed is often mundane. Case in point: the massively expensive,
relatively unreliable (manned) space shuttle vs the low cost, highly reliable
Soyuz rocket.

------
antpicnic
The economy has become much more dependent on service jobs. We're not very
good at increasing the productivity of services jobs yet. How do you increase
the productivity of a psychologist, artist, or even a server at a fancy
restaurant?

------
johnpapps
I suggest that it's because of patent law. Martin Fowler wrote about it in his
blog recently, and I certainly couldn't put it better myself. Although he is
discussing software patents, I believe the same arguments apply across
technology these days. <http://martinfowler.com/bliki/SoftwarePatent.html>

~~~
gwern
I don't really buy the patent argument. A 30 or 40 year old trend over the
entire economy is supposed to be explained by patents? There's a seriously
strong argument which requires equally strong supporting evidence. Patents
don't even apply to much of the economy like education, and even within
particular sectors like health care/medicine, the patents tend to be heavily
concentrated in things like pharmaceuticals.

So shouldn't we be seeing outsized differences between sectors and sub-
sectors, where the patent-free area is growing like gangbusters and the
patent-encumbered one is static or negative?

As far as I know, this has not been shown, and sectors which ought to be
suffering the most (like software) are still doing pretty well...

------
msutherl
For a very astute explication of this idea, I highly recommend "Architect or
Bee" by Mike Cooley. It explains well why the replacement of 'analog'
engineering methods with computer-aided processes is detrimental to workers
and often results in worse output.

Amazon link: [http://www.amazon.com/Architect-Bee-Human-Technology-
Relatio...](http://www.amazon.com/Architect-Bee-Human-Technology-
Relationship/dp/0896081311/ref=sr_1_1?ie=UTF8&qid=1312742411&sr=8-1)

------
mechanical_fish
Since everyone, including the author of the article, is just tossing out
hypotheses with no data, I'll join the party:

This is a chart of productivity that arises from factors other than changes in
"number of machines or labor". So if manufacturing raises productivity by
making stuff smarter, it shows up here, but if we just hire more workers then
that doesn't show up on this graph.

What happened around 1973? Well, the employment-to-population ratio started
going up:

<http://data.bls.gov/pdq/SurveyOutputServlet>

~~~
watmough
(You have an invalid link there, according to the BLS.)

There was also another big event around 1973! Peak oil in the US, where oil
went from being an increasingly available, cheap indigenous resource for the
US, to a less abundant, less cheap natural and imported resource.

Here's the chart: [http://www.energybulletin.net/image/uploads/27804/us-
product...](http://www.energybulletin.net/image/uploads/27804/us-
production.jpeg)

Of course, in reacting to this, a critical mistake was that the US started to
become embroiled in global resource wars (versus fighting communism),
culminating in occupying much of the resource-rich territories of the World.
This, instead of expanding other resource avenues, such as solar and other
renewable resources.

US Military World Footprint <http://www.ppu.org.uk/pm/usbases.html>

If you look strictly at the effects of the current Libyan civil war / UN
action, rather than the rhetoric, it's easy to see that beside the effect on
the Libyan people, the primary benefit to the US has been to shut-down Chinese
oil-exploration and production in Libya, and when complete, a US-friendly
regime will be established that will allow US companies into Libya's oil
fields.

<a
href="[http://webcache.googleusercontent.com/search?q=cache:bNqdC4V...](http://webcache.googleusercontent.com/search?q=cache:bNqdC4VFgGMJ:www.offshoreenergytoday.com/chinese-
energy-majors-evacuate-staff-from-libya-amid-
unrest/+libya+chinese+oil+exploration&cd=8&hl=en&ct=clnk&gl=us&client=firefox-a&source=www.google.com>Chinese)
Energy Majors Evacuate Staff from Libya Amid Unrest</a>

~~~
yardie
It is a good hypothesis but the Iraqi government puts a hole in it. A lot of
Americans assumed that the Iraqis would be greatful and offer US oil companies
a sweetheart deal. They turned around and gave the oil contracts to China and
Russia.
[http://www.nytimes.com/2008/08/29/world/middleeast/29iraq.ht...](http://www.nytimes.com/2008/08/29/world/middleeast/29iraq.html)

And our allies, the Kurds, have been busy as well. Selling oil to the
Iranians.

~~~
watmough
It's more than a hypothesis. Paul O'Neill, Teasury Sec under President George
W. Bush describes the plans to parcel out the Iraqi oil-fields, already
created in 2000/2001.

[http://www.usatoday.com/news/washington/2004-01-11-oneill-
ir...](http://www.usatoday.com/news/washington/2004-01-11-oneill-iraq_x.htm)
>Suskind, also interviewed on 60 Minutes, said the Bush administration had
already begun planning for an invasion of Iraq in January 2001 — eight months
before the Sept. 11 terrorist attacks on New York City and Washington. The
planning, Suskind said, involved discussions of war crimes tribunals,
peacekeeping troops and questions about how to divide Iraq's oil wealth.

Don't let Rumsfeld's mishandling of the invasion and aftermath detract from
the essential issue.

------
sliceof314
examine this by economic sectors: primary - extracting products from the earth
this sector has seen consolidation (farming) and has been chasing lower and
lower returns with higher input costs (see gas fracking for example) secondary
- manufacturing offshored tertiary - services offshored / massive incumbents
from decades of M&A who stifle competition. Quaternary - intellectual massive
cuts to basic science research, libraries, etc..

please read the above with all the caveats which should apply to hysterical
internet posts.. :)

------
ez77
Without any intention to offend Americans, I must admit I am very suprised
Google, Facebook, Twitter, and a good bunch of recent, lesser-known leaders
are US based. It feels like in a snap a lot of similar companies (maybe hiring
American and British staff for PR and marketing) could very well come from
India, Israel, Brazil, China, etc. (Skype used to be a notable exception.)

~~~
fraserharris
And this is why people constantly talk about "Silicon Valley of X", but still
no-one comes close to Silicon Valley. Its a myth that these internet-scale
firms are easy to build. Sure you could build a site that replicates the
functionality for a few thousand people, but to make it scale takes a lot more
resources that aren't readily available anywhere else on earth.

------
ronnier
What about the shifting demographics of the US? Does this not play a role?

------
known
I think corporations have outsourced innovation to low cost countries.

