In recent weeks there have been a number of articles mainly in the US media which chart the decline of Silicon Valley and the broader decline in US innovation. See for example, Tyler Cowan’s very useful piece in the New York Times published on Friday 29 January titled ‘Innovation Is Doing Little for Incomes‘ or Tony D’Altorio’s ‘Has Silicon Valley Lost Its Edge?

The themes of these articles will be familiar to any regular readers of this Blog. Tyler Cowan really backs the Big Potatoes Manifesto’s point that we are not living in an era of unprecedented innovation but a relative decline. He argues that this is best seen and understood in the slowdown in economic growth and its impact on incomes:

  • From 1947 to 1973 — a period of just 26 years — inflation-adjusted median income in the United States more than doubled. But in the 31 years from 1973 to 2004, it rose only 22 percent;
  • Over the last decade, it actually declined.

Cowan argues further that most well-off countries have experienced income growth slowdowns since the early 1970s which suggests these societies have reached a ‘technological plateau’:

The numbers suggest that for almost 40 years, we’ve had near-universal dissemination of the major innovations stemming from the Industrial Revolution, many of which combined efficient machines with potent fossil fuels. Today, no huge improvement for the automobile or airplane is in sight, and the major struggle is to limit their pollution, not to vastly improve their capabilities.

Instead of incomes broadly being raised across the board, what little innovation there has been in the past 50 years or so, have benefitted relatively few people. The technological innovations at the turn of the Century, which raised living standards throughout the Century, belong to a bygone age: the broad-based advances of earlier decades, when the modern world was put into place are now elusive. As Cowan he puts it:

  • If pre-1973 growth rates had continued, for example, median family income in the United States would now be more than $90,000, as opposed to its current range of around $50,000.

Short-termism and limits

Tony D’Altorio’s ‘Has Silicon Valley Lost Its Edge?‘ picks up on this theme too. He argues, as have others that Facebook’s $50 billion valuation in private financing in January, while suggesting that it ‘looked like business as usual for the Silicon Valley’ actually masked a decline in US technological competitiveness and ‘a deeper malaise that threatens America’s system of innovation’. He quotes John Seely Brown, who used to head up the Xerox Palo Alto Research Center – one of the Valley’s most renowned corporate research and development laboratories – who argues that U.S. technology investors no longer care about the serious work needed to keep a lead in many advanced industries. He says, “we’ve lost the will for patient investment,” thanks to quick profits from high-flying internet and social networking firms.

In other words, as we have argued in Big Potatoes, short-term speculation has increasingly replaced longer term investment in basic research where outcomes cannot be specified in advance but which have led in the past to the creation of new industries.

The point, however, is not simply a problem of short-termism. Looking to invest in quick-wins like Facebook (which are unlikely to be remembered for their contribution to human progress) is a symptom of a much deeper malaise: the loss of confidence in technology itself and our ability to do the hard work of finding new solutions to the problems we confront. Short-termism expresses a loss of faith in the future and in the human capacity to change the world around us. As  Tyler Cowan put it above

Today, no huge improvement for the automobile or airplane is in sight, and the major struggle is to limit their pollution, not to vastly improve their capabilities

The problem is the limits we now place upon the scope for innovation. The problem is not where the money might or might not be going – to China or  Silicon Valley – but the assumptions that underpin its movement. While incremental innovation can certainly happen within a culture of limits, limiting the ambition behind the innovation impulse reduces the scope for breakthroughs. Indeed, it factors them out of the equation at the outset. It boxes innovation into smaller and smaller fields of endeavour which ultimately will reduce incomes for the mass of humanity even further.

It’s not capital that’s in short supply but ambition.

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