Something Is Missing

In Secular Decline I discussed how we can get out of our current financial troubles. I talked about Kondratieff Waves and what drives economic cycles. Innovation.

Electronic Component News makes a similar point.

Name an industry that can produce 1 million new, high-paying jobs over the next three years. You can't, because there isn't one. And that's the problem.

America needs good jobs, soon. We need 6.7 million just to replace losses from the current recession, then another 10 million to spark demand over the next decade. That's 15 million to 17 million new jobs. In the 1990s, the U.S. economy created a net 22 million jobs (a rate of 2.2 million per year), so we know it can be done. Between 2000 and the end of 2007 (the beginning of the current recession), however, the economy created new jobs at a rate of 900,000 a year, so we know it isn't doing it now. The pipeline is dry because the U.S. business model is broken. Our growth engine has run out of a key source of fuel—critical mass, basic scientific research.

Pretty depressing news.

What we have been doing is eating our seed corn. New ideas have a profitable lifetime. And with information diffusion as fast as it is these days the lifetime is short. Which means we need more discoveries per year just to stay in one place.

...since the 1990s, labs dedicated to pure research—to the pursuit of scientific discovery—have seen funding slowly decline and their mission shift from open-ended problem solving to short-term commercial targets, from pure discovery to applied research. Bell Labs had 30,000 employees as recently as 2001; today (owned by Alcatel-Lucent ALU) it has 1,000. That's symbolic and symptomatic of the broken link in the U.S. business model. With upstream invention and discovery drying up, downstream, industry-creating innovation is being reduced to a trickle.

It's easy to ascribe current job losses in the U.S. to the deep recession or outsourcing. Both are to blame, but neither is at the root of the larger problem, which is lack of new, high-quality job creation. We are in the throes of the fourth recession since 1981. We have been outsourcing jobs for decades, but we have always bounced back with a new industry—a blockbuster industry. Discovery drives innovation, innovation drives productivity, productivity drives economic growth. But this time it's different, and whenever the current recession mercifully ends, the U.S. economy will not respond with the same job-creating vigor we have come to expect.

So what is our esteemed President doing to counter this difficulty? Is he spending the majority of stimulus money on stimulating research. Of course not. It is going into stimulating his cronies. It is the kind of thinking you get when you have lawyers running the government. Zero sum thinking. I win you lose. And of course we got that in spades from our President with the "We won" statement.

Maybe Mr. Obama needs to read The Myths of Innovation. He might learn that innovation is a matter of putting a lot of pieces together and that the more pieces you have to work with the greater are the options for profit. Take one idea from biotechnology, two from computer science and mathematics, and three from management theory and you get a profitable business. Which says that research on a narrow front is not going to do it.

Cross Posted at Classical Values