Age of Innovation

For John, BLUF:  We need innovation and people who support innovation, from the tinkerers to the loan officers.  Nothing to see here; just move along.

---

There is no doubt that we have benefitted from, the world has benefitted from, the innovation that has been generated in the last millennium.  Here is an article from The New York Times.  It has some thoughts that may be surprising.  The title is "Welcome to the Failure Age!"♠

Our relationship with innovation finally began to change, however, during the Industrial Revolution.  While individual inventors like James Watt and Eli Whitney tend to receive most of the credit, perhaps the most significant changes were not technological but rather legal and financial.  The rise of stocks and bonds, patents and agricultural futures allowed a large number of people to broadly share the risks of possible failure and the rewards of potential success.  If it weren’t for these tools, a tinkerer like Perkin would never have been messing around with an attempt at artificial quinine in the first place.  And he wouldn’t have had any way to capitalize on his idea.  Anyway, he probably would have been too consumed by tilling land and raising children.

I suspect the Plague also helped, making capital available to a now smaller group of people.

Here is a look toward the future:

To succeed in the innovation era, says Daron Acemoglu, a prominent M.I.T. economist, we will need, above all, to build a new set of institutions, something like the societal equivalent of those office parks in Sunnyvale, that help us stay flexible in the midst of turbulent lives.  We’ll need modern insurance and financial products that encourage us to pursue entrepreneurial ideas or the education needed for a career change.  And we’ll need incentives that encourage us to take these risks; we won’t take them if we fear paying the full cost of failure.  Acemoglu says we will need a far stronger safety net, because a society that encourages risk will intrinsically be wealthier over all.

I think this is an important thought.  We need to create opportunities for those evil old bankers to find new ways to finance innovation, and for society to absorb failure.  Failure is important in the area of innovation.  In the area of software, a third of projects fail or are abandoned.  If there is no failure that is an indication that folks are not innovating—and that would be bad.

Regards  —  Cliff

♠  The author is Mr Adam Davidson, a frequent contributor and a founder of NPR’s “Planet Money.”  He is working on a book about the future of the American economy for Knopf.