Innovation Alone Won't Lead to Prosperity

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There’s a great Chris Rock standup bit from the 90s in which he talks about failing a Black History course because he doesn’t really know anything about Black History. For every question asked (“What’s the capital of Zaire?”) his answer is always “Martin Luther King.”

That bit came straight to my mind when I read Rod Hunter’s recent article on innovation in the Wall Street Journal. Succinctly put, Hunter accuses political and economic leaders around the world of answering any question having to do with prosperity with “innovation.” What’s the key to the next step for India? “Innovation.” How are we going to climb out of this recession? “Innovation.” How do we quash poverty? “Innovation.”

Hunter argues that innovation has become a meaningless buzzword. It’s an abstraction. Its use today as a blanket answer when asked about economic strategy is not unlike how the word “terrorism” was used in response to foreign policy queries after 9/11. It sounds authoritative but there’s no engine under the hood. Innovation alone won’t solve a nation’s problems. It’s what you do with innovation that matters:

“Yet there is ample evidence that the greatest benefits from innovation can’t be captured by state policies. Rather, they come from the application and adoption of technical breakthroughs, regardless of where those breakthroughs were achieved… The broad understanding that innovation drives higher productivity and greater economic growth often leads to an incorrect conclusion: That in order to achieve productivity gains, a government should create national technology champions. While there are gains for countries that generate new technologies, the biggest benefits from innovation come from companies that use these innovations effectively.”

Hunter employs the example of the World Wide Web, invented in 1989 in a Swiss lab. Yet just because innovation took place on Swiss soil doesn’t mean that Switzerland was the nation that got the most out of it. The infrastructure, skilled workforce, and big ideas necessary to make something out of the innovation just wasn’t there:

“Rather the companies throughout the world that learned to harness its power for many different uses. Government policies affecting the use of innovations can be as important as any investments in new technologies.”

So Hunter’s point here is that funding innovative research isn’t enough on its own. Countries that want to benefit from innovation need to provide a host of other elements including “a flexible labor market and skilled workforce, unobtrusive business regulation, strong property rights, efficient capital markets and a large domestic market with many early adopter consumers.”

Here’s a hypothetical: the fictional government of Whateveristan decides that the solution to its myriad problems is not to boost education or promote the local economy but rather to fund a tech startup called Blah. The folks they bring in to run Blah are super smart and, thanks to Whateveristani tax dollars, glorious capital-I Innovation occurs. Terrific! But what happens next? If the Whateveristani workforce and economy aren’t suited to build off this success, Blah is guaranteed to move its operations elsewhere. “Thanks for the startup capital but now we need good business conditions.”

Funding innovation before preparing an environment in which innovation can thrive is like having a kid yet making no plans to clothe, shelter, or educate it.

What’s your take on Hunter’s opinion? Is “innovation” on its own a useless abstraction? Are the benefits of innovation that dependent on outside economic and social conditions? Let us know in the comments below.